Mar 302018
 
 March 30, 2018  Posted by at 9:46 am Finance Tagged with: , , , , , , , , , , ,  


James McNeill Whistler Nocturne in Blue and Silver, The Lagoon, Venice 1880

 

The Donald’s Blind Squirrel Nails An Acorn (David Stockman)
Russia To Expel 150 Diplomats And Close US Consulate In St Petersburg (Ind.)
Yulia Skripal No Longer In Critical Condition (G.)
UK Household Spending Hit Six-Year Low In 2017 Amid Brexit Inflation (PA)
Bitcoin Drops Below $7,000, Down 50% in 2018 (BBG)
Tesla Recalls 123,000 Early Model S Cars (BBG)
Volkswagen Stores 300,000 Diesels Across US (R.)
Trump Says US Withdrawing From Syria ‘Very Soon’ (AFP)
Sessions Rejects Calls for Second Special Counsel, Appoints Investigator (BBG)

 

 

“Amazon is a monstrous predator enabled by the state..” Are we seeing the Big Tech Backlash of 2018?

The Donald’s Blind Squirrel Nails An Acorn (David Stockman)

It is said that even a blind squirrel occasionally finds an acorn, and so it goes with the Donald. Banging on his Twitter keyboard in the morning darkness, he drilled Jeff Bezos a new one – or at least that’s what most people would call having their net worth lightened by about $2 billion: “I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!” You can’t get more accurate than that. Amazon is a monstrous predator enabled by the state, but Amazon’s outrageous postal subsidy – a $1.46 gift card from the USPS stabled on each box – isn’t the half of it.

The real crime here is that Amazon has been exempted from making a profit, and the culprit is the Federal Reserve’s malignant regime of Bubble Finance. The latter has destroyed financial discipline entirely and turned the stock market into the greatest den of speculation in human history. That’s why Bezos can kill established businesses with impunity. The casino allows him to run a pernicious business model based on “price to destroy”, rather than price for profit and a return on capital. Needless to say, under a regime of sound money and honest capital markets Amazon would be a far more benign economic creature. That’s because no real investors would value AMZN’s money-loosing e-Commerce business at $540 billion – nor even a small fraction of that after 25-years of profitless growth.

[..] At the end of the mini-correction in February 2016 Amazon’s market cap was $230 billion, but just 25 months later it was worth $775 billion at its March 12 peak. That staggering $545 billion gain in market cap had absolutely nothing to do with financial performance, of course. Operating free cash flow was a meager $6.4 billion during 2017 and had been $6.6 billion two years earlier. That is to say, AMZN was valued at a frisky 35X free cash flow in early 2016 and a completely insane 121X a few weeks ago. The fact that Bezos’ net worth exploded by $100 billion during that same 25 month interval perhaps explains why even the Donald found his acorn.

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By all means, let’s stop talking.

Russia To Expel 150 Diplomats And Close US Consulate In St Petersburg (Ind.)

Russia has said it will expel around 150 diplomats and close the US consulate in St Petersburg in retaliation to the coordinated international response over the poisoning of a former Russian spy in Britain. More than two dozen countries, including the US and many EU nations – as well as Nato – have ordered more than 150 Russian diplomats out this week in a show of solidarity with Britain over the poisoning of Sergei Skripal and his daughter Yulia in Salisbury earlier this month. The UK has accused Russia of responsibility for the attack, during which it claims the Skripals were exposed to a class of nerve agent called novichok. Russia has denied being involved and its foreign minister Sergei Lavrov made clear that all expulsions will be responded to in kind.

Mr Lavrov said that US Ambassador Jon Huntsman was summoned to the Foreign Ministry where he was given notice that Russia is replicating the US decision to order 60 Russian diplomats out. Mr Lavrov added that Moscow will also retaliate to the decision by Washington to shut the Russian consulate in Seattle by closing the US consulate in St Petersburg. The tit-for-tat expulsions come as no surprise. But the shuttering of the American consulate in Russia’s second city is an escalation. The Seattle consulate is Russia’s smallest diplomatic outpost in the US. Fifty-eight of the US officials are based in Moscow, with another two general consulate officials in the eastern city of Yekateringburg. They have been declared persona non grata and have been told to leave Russia by 5 April.

The US Consulate in St Petersburg has two days to suspend operations, according to Russian media. During the briefing Mr Lavrov accused Britain of “forcing everyone to follow an anti-Russian course” and that they were “making mockery of international law”. Russia has called for a meeting with the executive council of the Organisation for the Prohibition of Chemical Weapons (OPCW) to ask questions to “establish the truth”, he said. “The measures would be reciprocal … They include expulsion of the equivalent number of diplomats and they include our decision to withdraw our agreement to allow the United States’ general consulate to operate in St Petersburg,” Mr Lavrov said.

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How does one recover from being infected with one of the most lethal nerve agents ever?

The photo, dated 3 days after the ‘attack’, shows a policeman standing by the front door to the Skripal home, the very door through which father and daughter were allegedly poisoned. He wears no protection.

Yulia Skripal No Longer In Critical Condition (G.)

The condition of Yulia Skripal, who was poisoned with a nerve agent in Salisbury along with her father, is improving rapidly, doctors have said. Salisbury NHS foundation trust said on Thursday the 33-year-old was no longer in a critical condition, describing her medical state as stable. Christine Blanshard, the medical director for Salisbury district hospital, said: “I’m pleased to be able to report an improvement in the condition of Yulia Skripal. She has responded well to treatment but continues to receive expert clinical care 24 hours a day. “I want to take this opportunity to once again thank the staff of Salisbury district hospital for delivering such high-quality care to these patients over the last few weeks. I am very proud both of our frontline staff and all those who support them.”

Her father’s condition was described by the hospital as still critical but stable. Sergei Skripal, 66, a former Russian double agent, is believed to have been the main target of the attack. The update came as Russia said it was taking tit-for-tat measures against all the nations that have expelled Russian diplomats over attack. In a separate development, Scotland Yard said police had placed a cordon around a children’s play area near Sergei Skripal’s home as a precautionary measure. “Officers investigating the attempted murders of Sergei Skripal and his daughter Yulia Skripal are continuing to focus their enquiries around the Skripals’ home address,” a police statement revealed.

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Both spending and saving are hit.

UK Household Spending Hit Six-Year Low In 2017 Amid Brexit Inflation (PA)

Household spending slowed to its lowest annual growth for six years in 2017 amid Brexit-fuelled inflation, with borrowing surging and family savings slumping to a record low. Figures from the Office for National Statistics (ONS) confirmed economic growth slowed to 0.4% in the final three months of last year, down from 0.5% in the third quarter as weaker household spending took its toll. The ONS revised upgrowth for the year as a whole to 1.8% from the previous estimate of 1.7%, but this was still the lowest since 2012. It leaves the UK with the lowest growth among the G7 economies at the end of 2017 as it enters the final year of its membership of the European Union.

The quarterly national accounts data showed Britons turned to debt to support spending in the face of last year’s surging inflation, which outstripped paltry wage growth. The proportion of total income saved by households dropped to 4.9% in 2017, its lowest level since records began in 1963, the ONS said. Overall household spending fell last year to 1.7%, which was the lowest annual growth since 2011, according to the ONS. But there was some cheer in Thursday’s latest official data dump as figures revealed the UK’s current account deficit with the rest of the world narrowed to £82.9bn or 4.1% of GDP in 2017 – the smallest gap since 2011. This came as a growing world economy boosted the earnings on foreign investments.

In the fourth quarter, the current account deficit shrank by more than expected to £18.4bn, or 3.6% of GDP, down from £19.2bn in the previous three months. Net trade – exports less imports – made its largest contribution to full-year growth since 2011, the ONS reported.

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Shaky?!

Bitcoin Drops Below $7,000, Down 50% in 2018 (BBG)

Bitcoin’s miserable quarter isn’t over yet. The world’s biggest cryptocurrency by market value dropped below the $7,000 mark Friday morning in Asia, the first time it’s breached that level since early February, according to data compiled by Bloomberg. It fell as low as $6,912 before rebounding, trading at $7,094 as of 7:50 a.m in Hong Kong. The moves took the token’s losses in 2018 to a whopping 50%, and other digital assets, including rivals Ripple and Litecoin, slumped more. In addition, regulatory pressure is mounting in the cryptocurrency space, while major social media platforms are distancing themselves from the industry. Reddit, a community hub popular in the crypto community, no longer accepts payments made in Bitcoin, while Twitter confirmed Monday that it’s banning advertisements for initial coin offerings, joining Facebook and Google.

Looming over the market are sales of Bitcoin held by the trustee of Mt Gox, the now-defunct Japanese exchange. The trustee sold about $400 million in Bitcoin and Bitcoin Cash in the last few months to reimburse the exchange’s creditors, according to his recent report. The trustee had said that he will sell more of the cryptocurrency he holds. As of early March, he was sitting on more than $1 billion. “Bitcoin is under selling pressure again and chances of its recovery are looking slim,” Naeem Aslam at TF Global Markets said in a note. It has “slid significantly, since the tech giants’ ban on ICOs,” he noted. The slump this year is its biggest quarterly decline since 2011. Keep in mind that Bitcoin rallied 1,400% last year.

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“Classic two hours after the close before a three-day weekend news release. Unbelievable (almost)!”

Tesla Recalls 123,000 Early Model S Cars (BBG)

Tesla is recalling all Model S cars built before April 2016 to retrofit a power-steering component as the company caps its worst one-month performance in the stock market since December 2010. The issue, which the carmaker said has not led to any accidents or injuries, impacts only the flagship Model S sedan, not the Model X sport utility vehicle or more affordable Model 3. The recall affects roughly 123,000 vehicles globally. The carmaker said it’s performing the voluntary recall after observing “excessive corrosion in the power steering bolts, though only in very cold climates, particularly those that frequently use calcium or magnesium road salts,” according to an email sent to impacted customers Thursday.

“Nonetheless, Tesla plans to replace all early Model S power steering bolts in all climates worldwide to account for the possibility that the vehicle may later be used in a highly corrosive environment,” the electric-car maker said in the customer email. Tesla has been routed this month as analysts and investors have questioned the company’s ability to mass-manufacture its new Model 3 sedan. Bottlenecks at Tesla’s battery factory and assembly plant have undermined that effort, limiting the return on that investment and arousing concern that the company may need to raise more cash. Moody’s Investors Service also downgraded Tesla’s credit rating further into junk on Tuesday.

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Maybe they can figure something out with Musk?

Volkswagen Stores 300,000 Diesels Across US (R.)

Volkswagen has taken parking lots to a whole new level in the US – and will not be emptying them soon. Volkswagen AG has paid more than $7.4bn to buy back about 350,000 US diesel vehicles, a recent court filing shows. The German automaker has been storing hundreds of thousands of vehicles around the US for months. Volkswagen has 37 secure storage facilities around the US housing nearly 300,000 vehicles, the filing from the program’s independent administrator said. The lots include a shuttered suburban Detroit football stadium, a former Minnesota paper mill and a desert site near Victorville, California.

VW spokeswoman Jeannine Ginivan said in a statement the storage facility in Victorville, California, is one of many “to ensure the responsible storage of vehicles that are bought back” under the terms of the Volkswagen diesel settlements. “These vehicles are being stored on an interim basis and routinely maintained in a manner to ensure their long-term operability and quality, so that they may be returned to commerce or exported once US regulators approve appropriate emissions modifications,” she said. In total VW has agreed to spend more than $25bn in the US for claims from owners, environmental regulators, states and dealers and offered to buy back about 500,000 polluting vehicles.

The buybacks will continue through the end of 2019. The court filing said through 31 December Volkswagen bought back 335,000 diesel vehicles, resold 13,000 and destroyed about 28,000. As of the end of last year VW was storing 294,000 vehicles around the country. VW must buy back or fix 85% of the vehicles involved by June 2019 or face higher payments for emissions.

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A populist address? What does that mean?

Trump Says US Withdrawing From Syria ‘Very Soon’ (AFP)

US President Donald Trump insisted Thursday that US forces would pull out of Syria “very soon” and lamented what he said was Washington’s waste of $7 trillion in Middle East wars. In a populist address to industrial workers in Ohio, Trump said US forces were close to securing all of the territory that the Islamic State jihadist group once claimed. “We’ll be coming out of Syria, like, very soon. Let the other people take care of it now,” he promised, to applause. Trump did not say who the others were who might take care of Syria, but Russia and Iran have sizable forces in the country to support President Bashar al-Assad’s regime. “Very soon – very soon we’re coming out. We’re going to have 100% of the caliphate, as they call it – sometimes referred to as ‘land’ – taking it all back quickly, quickly,” he said.

“But we’re going to be coming out of there real soon. Going to get back to our country, where we belong, where we want to be.” State Department spokeswoman Heather Nauert was later asked at a briefing if she was aware of any decision for the US to pull out of Syria. She responded, “I am not, no. No.” The United States has more than 2,000 military personnel in eastern Syria, working with local militia groups to defeat the Islamic State group while trying to keep out of Syria’s broader civil war. Trump’s eagerness to quit the conflict flies in the face of a new US Syria strategy announced in January by then secretary of state Rex Tillerson – who has since been sacked. Tillerson argued that US forces must remain engaged in Syria to prevent IS and Al-Qaeda from returning and to deny Iran a chance “to further strengthen its position in Syria.”

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This is not over.

Sessions Rejects Calls for Second Special Counsel, Appoints Investigator (BBG)

Attorney General Jeff Sessions rejected calls from Republican lawmakers for a second special counsel to look into potential misconduct by the Justice Department and the FBI in past investigations of Hillary Clinton, saying that the issues were already under scrutiny. In a letter to three Republican committee chairmen, Sessions disclosed Thursday that he has assigned John Huber, a U.S. attorney based in Utah, to conduct an internal probe into complaints of FBI bias and wrongdoing. “I am confident that Mr. Huber’s review will include a full, complete and objective evaluation of these matters in a manner that is consistent with the law and facts,” Sessions wrote to Senate Judiciary Chairman Chuck Grassley, House Judiciary Chairman Bob Goodlatte, and House Oversight Chairman Trey Gowdy.

Sessions said he would consider the recommendations Huber might make, including “whether any matters merit the appointment of a special counsel” later. Huber has been the U.S. attorney in Utah since June 2015 and was twice confirmed unanimously by the Senate. He served for almost two years as an appointee of Democratic President Barack Obama, and was appointed by Sessions to continue his work in March 2017.| Gowdy and Goodlatte, in a joint statement released Thursday night, said that “while we continue to believe the appointment of a second special counsel is necessary, this is a step in the right direction.”

[..] Sessions reminded the chairmen in his letter that the department’s inspector general also is looking into some of the same matters. The attorney general’s letter came a day after that internal watchdog, Michael Horowitz, confirmed that he’s now examining the FBI’s actions early in its investigation into Russian campaign interference, including how it obtained a warrant to monitor Carter Page, a foreign policy adviser to the Trump campaign.

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Dec 272017
 
 December 27, 2017  Posted by at 10:18 am Finance Tagged with: , , , , , , , , , ,  


Vincent van Gogh Landscape with snow 1888

 

World’s Wealthiest Became $1 Trillion Richer in 2017 (BBG)
The Rich Are Getting So Much Richer So Fast Their Spending Can’t Keep Up (CNN)
Germany – A Most Dangerous And Ridiculous Nation (Bilbo)
Britons Borrow An Average £452 Each On Credit Cards At Christmas (G.)
Bitcoin’s Rally Has Taken A Pause (BBG)
Case-Shiller 20-Home Price Index Just Shy Of 2006 Bubble Peak (Mish)
China Bets on More State Control for 2018 (Balding)
Eight Lawsuits Over Apple Defrauding iPhone Users By Slowing Devices (R.)
From Snowden To Russia-gate – The CIA And The Media (Moon of A.)
Italy Rescues More Than 250 Migrants In Mediterranean (R.)

 

 

They won’t be able to keep doing this without facing pitchforks.

World’s Wealthiest Became $1 Trillion Richer in 2017 (BBG)

The richest people on earth became $1 trillion richer in 2017, more than four times last year’s gain, as stock markets shrugged off economic, social and political divisions to reach record highs. The 23% increase on the Bloomberg Billionaires Index, a daily ranking of the world’s 500 richest people, compares with an almost 20% increase for both the MSCI World Index and Standard & Poor’s 500 Index. Amazon.com founder Jeff Bezos added the most in 2017, a $34,2 billion gain that knocked Microsoft co-founder Bill Gates out of his spot as the world’s richest person in October. Gates, 62, had held the spot since May 2013, and has been donating much of his fortune to charity, including a $4.6 billion pledge he made to the Bill & Melinda Gates Foundation in August.

Bezos, whose net worth topped $100 billion at the end of November, currently has a net worth of $99.6 billion compared with $91.3 billion for Gates. George Soros also gave away a substantial part of his fortune, revealing in October that his family office had given $18 billion to his Open Society Foundations over the past several years, dropping the billionaire investor to No. 195 on the Bloomberg ranking, with a net worth of $8 billion. By the end of trading Tuesday, Dec. 26, the 500 billionaires controlled $5.3 trillion, up from $4.4 trillion on Dec. 27, 2016. “It’s part of the second-most robust and second-longest bull market in history,” said Mike Ryan, chief investment officer for the Americas at UBS Wealth Management, on Dec. 18. “Of all the guidance we gave people over the course of this year, the most important advice was staying invested.”

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It’s curious to see that so many people are so blind to the notion of economies and societies needing a minimum level of balance. When that balance is destroyed, a reaction must automatically and inevitably follow. The rich could have gone on enjoying their privileges for a long time, but greed got in the way.

The Rich Are Getting So Much Richer So Fast Their Spending Can’t Keep Up (CNN)

It’s never a bad year to be rich, exactly. But 2017 turned out to be a particularly good one. Rich people are doing so well these days that their spending on luxury goods isn’t even keeping up. Luxury spending rose 5% globally in 2017, the management consulting firm Bain & Company found. But that is a fraction of the 40% rise in net worth that people in America’s top-tenth of income earners saw between 2013 and 2016, according to the Federal Reserve. “We used to see that the growth of luxury was closely correlated with the stock market,” said Milton Pedraza, chief executive officer of the Luxury Institute, a consulting firm for high-end brands. “The stock market and real estate have gone up so much that nobody wants to spend all that money. It’s impossible.”

The big increase in wealth has exacerbated a long-evolving financial split between those at the very top and those at the bottom, even as the robust economy has lifted many working people with jobs and higher wages. Here are some examples. The S&P 500 Index has risen 20% since the beginning of the year and the Dow Jones Industrial Average is up 25%, fattening portfolios and boosting dividends. To a certain extent, the benefits are shared through ownership of 401(k) accounts. But only about half of Americans participate in an employer-sponsored retirement fund, according to the Pew Research Center, and a much smaller 18.7% of Americans own stock directly. In both cases, market participation is skewed toward those with higher incomes, which means that the wealthy disproportionately benefit from Wall Street’s boom.

Home prices reached all-time highs, according to the Case-Shiller home price index. That’s especially the case in hot markets like Seattle and San Francisco, where many working people are already unable to afford ownership. Although homeownership is a source of middle class wealth, homeowners generally tend to be higher-income. According to the Census Bureau, 78.4% of families making more than the median income own homes, compared to 49.5% of those making less.

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Just another chapter in the ‘Rich Getting Richer’ files. This too will evoke a response.

Germany – A Most Dangerous And Ridiculous Nation (Bilbo)

Germany’s domination of the EMU is clear both in political and economic terms. The current political impasse within Germany will not change that. Once resolved the on-going government will continue in the same vein – running excessive fiscal surpluses and huge external surpluses. It can sustain those positions because it dominates European policy and can force the adjustment to these overall ‘unsustainable’ positions onto both its own citizens (lowering their material living standards), and, more obviously, onto citizens of other EMU nations, most noticeably Spain and Greece. If it couldn’t bully nations like Greece, Italy, Spain and even France, Germany’s dangerous domestic strategy would be less effective. If all EMU nations followed Germany’s lead – then there would be mass Depression throughout Europe. This dangerous and ridiculous nation is a blight.

Only by exiting the Eurozone and floating their currencies against the currency that Germany uses can these beleaguered EMU nations gain some respite. When the Europhile Left come to terms with that obvious conclusion things might change within Europe. The following graph (using IMF WEO data) shows the sectoral balances for Germany from 1991 to 2017 (the last year is estimated). It is an extraordinary graph really in the context of Germany’s integral role in the Economic and Monetary Union (EMU). Germany is part of a currency union and its outcomes are much more closely tied to the fortunes of its EMU partners than say a nation, such as Australia, which has its own currency and floats it on international markets. What you see are two distinct EMU periods, when Germany was in gross violation in one way or another of the Treaty rules (laws).

It is not overstating the case to say that the increased poverty and hardship for citizens within Europe is directly related to the German government’s obsession with fiscal and external surpluses and its intransigence when confronted about this. Germany has become a dangerous yet ridiculous nation. While the Financial Times article (Dec 22, 2017) – The fiscal surplus that Germany should spend – referred to “Germany’s fiscal surplus” as an: ..a chronic embarrassment of riches.. I would prefer to refer to it as an embarrassing example of policy vandalism and an illegal assault on the rules that Germany has signed up to follow. Why illegal? Because it is directly related to Germany’s violation of the Macroeconomic Imbalance Procedure, which specifies under its so-called Scoreboard Indicators that the “major source of macroeconomic imblances” includes a: “3-year backward moving average of the current account balance as% of GDP, with thresholds of +6% and -4%”.. So the upper warning threshold (for an external surplus) is 6% of GDP.

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Nicely put: “January should be a time for looking ahead but up and down the country millions of Brits will be looking over their shoulder at the cost of their festive spending..”

Britons Borrow An Average £452 Each On Credit Cards At Christmas (G.)

The Christmas spending hangover means that Britons who splurged on plastic will start 2018 owing an average of more than £450 on their credit cards – with many fearful the debt will still be haunting them by next Christmas. Nearly £8.5bn has been loaded on to cards to cover the cost of gifts and entertaining, according to research by the price comparison service uSwitch, which found nearly a fifth of consumers had exceeded their Christmas budget as they grappled with rising living costs. “January should be a time for looking ahead but up and down the country millions of Brits will be looking over their shoulder at the cost of their festive spending,” said Tashema Jackson, money expert at uSwitch.com which polled 4,000 consumers.

The survey found Britons had borrowed an average of £452 to cover the cost of the festivities. One annual survey found that the UK’s cheapest supermarket Christmas dinner cost 18% more than last year, as the impact of inflation and Brexit-related commodity costs made its way to the festive family table. Half of the respondents told uSwitch they were worried they would still be trying to clear the debt in December 2018. Nearly one in 10 were still paying off debts dating back to last Christmas.

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If you bought at $19,000 and used leverage, does this still feel like a pause?

Bitcoin’s Rally Has Taken A Pause (BBG)

Bitcoin’s rally took a pause Wednesday, suggesting it isn’t about to make another run at its record reached last week. The fervor that propelled the digital currency past $19,000, prompted in part by regulated U.S. derivatives exchanges starting to trade contracts based on the unit this month, has yet to return. Bitcoin traded around $15,947 as of 10:31 a.m. Tokyo time Wednesday, according to composite prices on Bloomberg, up 0.1% from late Tuesday though below that day’s high. “Nobody knows the ultimate value of this underlying asset,” Edward Stringham, president of the American Institute for Economic Research, said on Bloomberg Television. “We cannot predict whether it’s going to be zero or one million dollars or anything in between.”

For skeptics doubting whether individuals and businesses will truly start using bitcoin as a medium of exchange – as opposed to some officially backed digital currency – the short-lived rebound from the past week’s selloff portends further declines. “It’s much more likely once you’ve made a big downward movement like the one we made last week that you have a bigger and more complex correction,” Ric Spooner, a Sydney-based analyst at CMC Markets, told Bloomberg Television. “Once a market like this one locks into those patterns it becomes pretty good” to follow via chart-based analysis, he said. Spooner said it’s possible bitcoin could drop to $5,700 or $8,700 in coming months.

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“Congratulations. The Fed re-blew the housing bubble. In the misguided way in which the Fed calculates inflation, none of this is considered inflationary. Few new buyers can afford to buy.”

Case-Shiller 20-Home Price Index Just Shy Of 2006 Bubble Peak (Mish)

The Case-Shiller national home price index surged past the pre-recession high last year. The city composites lag. Steady gains continue in the Case-Shiller Home Price Indexes.

Case-Shiller Year-Over-Year Summary
• The National Home Price NSA Index reported a 6.2% annual gain in October, up from 6.1% in the previous month.
• The 10-City Composite annual increase came in at 6.0%, up from 5.7% the previous month.
• The 20-City Composite posted a 6.4% year-over-year gain, up from 6.2% the previous month.
• Seattle, Las Vegas, and San Diego reported the highest year-over-year gains among the 20 cities. In October, Seattle led the way with a 12.7% year-over-year price increase, followed by Las Vegas with a 10.2% increase, and San Diego with an 8.1% increase.

Nine cities reported greater price increases in the year ending October 2017 versus the year ending September 2017.

Case-Shiller Month-Over-Month Summary
• Before seasonal adjustment, the National Index, 10-City and 20-City Composites all posted a month-over-month gain of 0.2% in October.
• After seasonal adjustment, the National Index, 10-City and 20-City Composites all recorded a 0.7% month-over-month increase in October.
• Eleven of 20 cities reported increases in October before seasonal adjustment, while all 20 cities reported increases after seasonal adjustment.

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Xi cannot afford to even allow teh suggestion that he loses control; at the same time he needs to generate growth. He may well find the two contradict each other.

China Bets on More State Control for 2018 (Balding)

First, watch the data, not the New Year’s resolutions. While China touts deleveraging efforts, the data is mixed. The debt-to-GDP ratio in China is only up slightly from 2016 to 260%, though it is expected to top out at 327% in 2022. The moderation was due not to slowing debt growth, but a jump in commodity prices that pushed up nominal GDP. Watch debt growth in 2018: Prices are expected to fall again, raising debt-to-GDP. China still has not given up its debt habit. Second, the Federal Reserve rate hikes last year were likely to play a big role in Chinese policy. In retrospect, they did and did not. Interest rates in China are up sharply, with even interbank rates over one month up 1.5% since January 2017. Money market rates are up to 6.39% for 14-day repurchases.

Rate increases are putting pressure on Chinese corporate bonds given the overwhelmingly short-term nature of borrowing, which constantly resets rates. Oddly, even as U.S. interest rates increased, the dollar fell, with indexes down 9%. Though it is unclear why the dollar fell, if the Fed hikes four times as predicted by Goldman Sachs, this could cause the currency to reverse course. A strong dollar and rising U.S. rates will pressure China. Third, heading into the National Congress, I said watch out for Chinese politics. Though Premier Li Keqiang remains in office, Beijing clearly swept away any vestiges of market adherence. The installation of Party committees over the board of directors in foreign firms and major state-owned enterprises laid bare Beijing’s ambition. Communist Party strength would take priority over everything.

As we look into 2018, some of these themes carry forward, but with a twist. Beijing is solidifying its control over all aspects of the economy. The Party released new rules on overseas investments by firms and has enforced rules mandating that banks balance their foreign exchange transactions. After the Fed recently raised rates by 0.25%, the People’s Bank of China followed with a hike of only 0.05%, confident it can tame any potential outflows. If the Fed hikes another three times and the dollar does not drop another 10%, this would push interest rates in China for debt over six months close to an intolerable 8% and reduce foreign exchange reserves beneath the $3 trillion level.

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What a curious mistake.

Eight Lawsuits Over Apple Defrauding iPhone Users By Slowing Devices (R.)

Apple defrauded iPhone users by slowing devices without warning to compensate for poor battery performance, according to eight lawsuits filed in various federal courts in the week since the company opened up about the year-old software change. The tweak may have led iPhone owners to misguided attempts to resolve issues over the last year, the lawsuits contend. All the lawsuits – filed in U.S. District Courts in California, New York and Illinois – seek class-action to represent potentially millions of iPhone owners nationwide. A similar case was lodged in an Israeli court on Monday, the newspaper Haaretz reported. The company acknowledged last week for the first time in detail that operating system updates released since “last year” for the iPhone 6, iPhone 6s, iPhone SE and iPhone 7 included a feature “to smooth out” power supply from batteries that are cold, old or low on charge.

Phones without the adjustment would shut down abruptly because of a precaution designed to prevent components from getting fried, Apple said. The disclosure followed a Dec. 18 analysis by Primate Labs, which develops an iPhone performance measuring app, that identified blips in processing speed and concluded that a software change had to be behind them. One of the lawsuits, filed Thursday in San Francisco, said that “the batteries’ inability to handle the demand created by processor speeds” without the software patch was a defect. “Rather than curing the battery defect by providing a free battery replacement for all affected iPhones, Apple sought to mask the battery defect,” according to the complaint.

[..] The problem now seen is that users over the last year could have blamed an aging computer processor for app crashes and sluggish performance – and chose to buy a new phone – when the true cause may have been a weak battery that could have been replaced for a fraction of the cost, some of the lawsuits state.

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“Bezos and Omidyar obviously helped the NSA to keep more than 95% of the Snowden archive away from the public…”

From Snowden To Russia-gate – The CIA And The Media (Moon of A.)

The promotion of the alleged Russian election hacking in certain media may have grown from the successful attempts of U.S. intelligence services to limit the publication of the NSA files obtained by Edward Snowden. In May 2013 Edward Snowden fled to Hongkong and handed internal documents from the National Security Agency (NSA) to four journalists, Glenn Greenwald, Laura Poitras, and Ewen MacAskill of the Guardian and separately to Barton Gellman who worked for the Washington Post. Some of those documents were published by Glenn Greenwald in the Guardian, others by Barton Gellman in the Washington Post. Several other international news site published additional material though the mass of NSA papers that Snowden allegedly acquired never saw public daylight.

In July 2013 the Guardian was forced by the British government to destroy its copy of the Snowden archive. In August 2013 Jeff Bezos bought the Washington Post for some $250 million. In 2012 Bezos, the founder, largest share holder and CEO of Amazon, had already a cooperation with the CIA. Together they invested in a Canadian quantum computing company. In March 2013 Amazon signed a $600 million deal to provide computing services for the CIA. In October 2013 Pierre Omidyar, the owner of Ebay, founded First Look Media and hired Glenn Greenwald and Laura Poitras. The total planned investment was said to be $250 million. It took up to February 2014 until the new organization launched its first site, the Intercept. Only a few NSA stories appeared on it. The Intercept is a rather mediocre site.

Its management is said to be chaotic. It publishes few stories of interests and one might ask if it ever was meant to be a serious outlet. Omidyar has worked, together with the U.S. government, to force regime change onto Ukraine. He had strong ties with the Obama administration. Snowden had copies of some 20,000 to 58,000 NSA files. Only 1,182 have been published. Bezos and Omidyar obviously helped the NSA to keep more than 95% of the Snowden archive away from the public. The Snowden papers were practically privatized into trusted hands of Silicon Valley billionaires with ties to the various secret services and the Obama administration.

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The EU is actively assisting Libya’s slave trade. That is quite something to close off the year with.

Italy Rescues More Than 250 Migrants In Mediterranean (R.)

More than 250 migrants were rescued in the central Mediterranean during the night between Monday and Tuesday, Italy’s Coast Guard said. A statement said the migrants, in one large rubber dinghy and two small boats, were rescued in three missions by two ships, one from a non-governmental organization. Migrant arrivals to Italy have fallen by two-thirds year on year since July after officials working for the U.N.-backed government in Tripoli put pressure on people smugglers in the Libyan city of Sabratha to stop boats leaving. Italy is also bolstering the Libyan coast guard’s ability to turn back boats. Last week, the United Nations began bringing African refugees to Italy from Libya, evacuating them from detention centers whose conditions have been condemned by rights groups as inhumane.

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Aug 272017
 
 August 27, 2017  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , ,  


Elliott Erwitt Downtown Hat Shop Window, Pittsburgh 1950

 

Phillips Curve Doesn’t Help Forecast Inflation, Fed Study Finds (BBG)
Where Do Consumers Spend The Most Money? (Mish)
Should California Spend $3 Billion To Help People Buy Electric Cars? (LAT)
Tesla: A Canary in the Wall Street Coal Mine (Barron’s)
UK Labour Party Makes Dramatic Shift On Brexit And Single Market (G.)
Controlled Demolition (Jim Kunstler)
The War That Time Forgot (CP)
It’s Time To Accept Carbon Capture Has Failed (Conv.)
Industrial Farming Is Driving The Sixth Mass Extinction Of Life On Earth (Ind.)

 

 

The incompetence is deafening. Trillions have been washed away on the theory.

Phillips Curve Doesn’t Help Forecast Inflation, Fed Study Finds (BBG)

A fundamental relationship of mainstream economic theory at the heart of the Federal Reserve’s strategy for setting interest rates has been a poor guide for policy makers for at least three decades, according to a study by the Philadelphia Fed’s top-ranking economist. The paper, co-authored by Philadelphia Fed Director of Research Michael Dotsey, shows that forecasting models based on the so-called Phillips curve, which asserts a link between unemployment and inflation, don’t actually help predict inflation. “Our results indicate that monetary policymakers should at best be very cautious in their reliance on the Phillips curve when gauging inflationary pressures,” Dotsey and Philadelphia Fed economists Shigeru Fujita and Tom Stark wrote.

Their study is timely. Fed officials have been surprised by a deceleration in U.S. inflation over the past several months despite a continued decline in unemployment, the opposite of what the Phillips curve relationship would predict. Minutes of the last meeting of the central bank’s rate-setting Federal Open Market Committee in July revealed that “a few participants cited evidence suggesting that this framework was not particularly useful in forecasting inflation,” while “most participants thought that the framework remained valid.” If the majority view on the FOMC is that the Phillips curve framework is still valid, it implies that central bankers should continue raising interest rates with unemployment at a 16-year low, because they expect inflation will rise in the medium term even though prices pressures have been disappointingly soft.

Kansas City Fed President Esther George, who has been more forceful than many of her colleagues in recent years about the need to raise rates, lent support to that view on the sidelines of this week’s annual gathering of central bankers from around the world in Jackson Hole, Wyoming. “There may in fact be something wrong with the models, I don’t know, I think that continues to be a question that many economists are asking,” George said during a TV interview with Bloomberg’s Michael McKee that aired Thursday. Even so, she favors another rate increase this year.

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Cars + gasoline account for almost 30% of all spending. Crazy.

Where Do Consumers Spend The Most Money? (Mish)

In Dealers “Wildly Overweight” SUVs as Sales Slow, I commented “Vehicles account for 20% of retail spending. A crash or even a significant slowdown will impact retail sales and thus GDP.” A reader asked me how I calculated that. Let’s take a look. My number came from the latest Census Department Advance Retail Sales Report. Here are some charts I created from 7-month totals (January-July) 2017.

Key Points
• Motor vehicles and parts account for 21.18% of retail sales. Gasoline stations account for 7.94%. Together that adds up to 29.12%.
• Food and beverage stores (grocery and liquor stores) account for 12.62 percent of retail sales. Food services and drinking places (restaurants and bars) account for 12.14. The food and drink total is 24.76%.
• Nonstore retailers (think Amazon) account 10.39% of retail sales.

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Yeah, let’s subsidize the car culture.

Should California Spend $3 Billion To Help People Buy Electric Cars? (LAT)

Over seven years, the state of California has spent $449 million on consumer rebates to boost sales of zero-emission vehicles. So far, the subsidies haven’t moved the needle much. In 2016, of the just over 2 million cars sold in the state, only 75,000 were pure-electric and plug-in hybrid cars. To date, out of 26 million cars and light trucks registered in California, just 315,000 are electric or plug-in hybrids. The California Legislature is pushing forward a bill that would double down on the rebate program. Sextuple down, in fact. If $449 million can’t do it, the thinking goes, maybe $3 billion will. That’s the essence of the plan that could lift state rebates from $2,500 to $10,000 or more for a compact electric car, making, for example, a Chevrolet Bolt EV electric car cost the same as a gasoline-driven Honda Civic.

Already approved by several Senate and Assembly committees, the bill will go to Gov. Jerry Brown for his approval or veto if the full Legislature approves it by the end of its current session on Sept. 15. California aims to reduce greenhouse gas emissions by 2030 to a level 40% below what they were in 1990. “If we want to hit our goals, we’re going to have to do something about transportation,” said Assemblyman Phil Ting (D-San Francisco), sponsor of Assembly Bill 1184. Without a dramatic boost in subsidies, Ting said, the state risks falling short of Gov. Brown’s goal of 1.5 million zero-emission vehicles on California highways by 2025, and the California Air Resources Board’s goal of 4 million such cars by 2030. The bill is opposed by Republicans averse to taxpayer subsidies and even the Legislature’s own analysts have called it “duplicative,” “unclear” and “problematic.”

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“Once again, history and reality are replaced by dreams with little substance.”

Tesla: A Canary in the Wall Street Coal Mine (Barron’s)

Those who think today’s stock market is unlike that of 2000, when baseless enthusiasm pushed stocks up to wild valuations, only to collapse in subsequent years, should take another look. Do they remember counting eyeballs as a basis for value? Once again, history and reality are replaced by dreams with little substance. Tesla, in which I have a short position, is becoming the loudest canary in Wall Street’s coal mine. Tesla requires repetitive capital raises to fund persistent operating losses. This requires bullish analysts and holders to keep the stock aloft with projections of imagined earnings from future products, while they overlook existing businesses, which continue to lose vast sums of money. Morgan Stanley, one of Tesla’s major underwriters, has an analyst covering Tesla named Adam Jonas. Astonishingly, he raised his price target for the stock, despite recognizing the need to slash his earnings forecast.

In May, Jonas had estimated per-share losses (excluding stock-option expense) of $3.53 in 2017 and $1.14 in 2018, and a profit of $2.43 in 2019. His latest estimates: losses of $7.60 and $3.66, and a 2019 profit of $2.01. Raising the target price while more than doubling the company’s projected loss indicates the craziness of the times. Price targets are fantasies, discounting distant earnings estimates by analysts who show little accuracy in estimating only a year ahead. For most companies, profit is the major objective. Tesla is different because its founder is different. Elon Musk is driven by a mission to replace fossil fuels with renewable energy. Unlike companies seeking profit maximization by using patents to establish exclusive rights to products, Musk encourages competitors and has made virtually all of his patents available. Almost all auto companies have imminent plans to compete.

Tesla has been first-to-market in electric cars, but this in no way guarantees success, as competition and technological change are major challenges. Remember Atari, Blackberry, AOL, Napster, Netscape, and Palm? Musk is smart and imaginative, but none of his major companies are profitable. Tesla has been around for 14 years and has cumulatively lost more than $3.7 billion, despite the massive subsidies that it and its customers have received. SolarCity, also a beneficiary of alternative-energy subsidies, lost hundreds of millions of dollars before being bailed out by Tesla. As subsidies diminish, and competition emerges, profits will be even more elusive. Tesla tries to convey the illusion of inexhaustible demand for its cars, yet sales of the Model S and Model X have been flat for four quarters. Tesla’s rising inventory and shrinking deposits suggest declining demand.

Tesla claims to have more than 400,000 deposits for the Model 3, but these aren’t orders. They reflect a decision by potential buyers to get in line for a $7,500 tax credit at virtually no cost. Shifting $1,000 from a savings account into a refundable Tesla deposit costs only about $1 per year in lost interest. Fewer than 100,000 of these depositors will actually get full tax credits before Tesla consumes its allowable allotment of them. Its competitors will be able to offer such credits to prospective buyers, just as Tesla’s expire.

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Jockeying for votes?

UK Labour Party Makes Dramatic Shift On Brexit And Single Market (G.)

Labour is to announce a dramatic policy shift by backing continued membership of the EU single market beyond March 2019, when Britain leaves the EU, establishing a clear dividing line with the Tories on Brexit for the first time. In a move that positions it decisively as the party of “soft Brexit”, Labour will support full participation in the single market and customs union during a lengthy “transitional period” that it believes could last between two and four years after the day of departure, it is to announce on Sunday. This will mean that under a Labour government the UK would continue to abide by the EU’s free movement rules, accept the jurisdiction of the European court of justice on trade and economic issues, and pay into the EU budget for a period of years after Brexit, in the hope of lessening the shock of leaving to the UK economy.

In a further move that will delight many pro-EU Labour backers, Jeremy Corbyn’s party will also leave open the option of the UK remaining a member of the customs union and single market for good, beyond the end of the transitional period. Permanent long-term membership would only be considered if a Labour government could by then have persuaded the rest of the EU to agree to a special deal on immigration and changes to freedom of movement rules. The announcement, revealed in the Observer by the shadow Brexit secretary, Keir Starmer, means voters will have a clear choice between the two main parties on the UK’s future relations with the EU after a year in which Labour’s approach has been criticised for lacking definition and appeared at times hard to distinguish from that of the Tories.

The decision to stay inside the single market and abide by all EU rules during the transitional period, and possibly beyond, was agreed after a week of intense discussion at the top of the party. It was signed off by the leadership and key members of the shadow cabinet on Thursday, according to Starmer’s office.

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“..to reassure the masses that effective spells for favor of the Gods have been cast — except that in our civilization money is God.”

Controlled Demolition (Jim Kunstler)

This is the week-of-weeks when the official grand viziers of finance gather at Jackson Hole, Wyoming, to confab and interpret the lay of animal neck-bones and other auguries scattered in the sand, with the hope of steering the awesome powers of the universe this was or that as they affect the operations of money. The exercise is hardly different in function from the sort of rude ceremonials that took place on top of Sumerian ziggurats and Aztec temples — to reassure the masses that effective spells for favor of the Gods have been cast — except that in our civilization money is God. Or “money,” we should say, because the old definitions don’t fit so well anymore. It used to have a straightforward relationship with the work required to produce actual things of value, but those days are gone.

“Money” nowadays is a byproduct of wishful analytics and computer legerdemain seasoned with generous measures of fraud and larceny. This is a big problem when everything is measured in money and it becomes quite impossible to state with assurance what the value of money actually is. Obviously, you end up not knowing the value of anything. That’s the perilous situation the world faces. And since the USA is the straw the stirs the world’s drink — at least for now — the utterances emanating from Jackson Hole may determine which way that situation turns. We should suppose that the officers of the Federal Reserve are upright, well-intentioned, patriotic people. No doubt they think they are. But the perilous situation is largely one of their own making, and seems to be veering out of their control, and reputations are at stake.

Their task at this year’s Jackson Hole confab is to maintain the appearance of confidence in their own rituals. But with a kicker. That kicker is named T-r-u-m-p. This modern Balaam, riding the ass of the Deep State into wickedness, must be stopped, perhaps at all costs. On his way to the oval office last fall, Trump prophesied that the stock markets represented “one big, fat, ugly bubble.” That was an offense to the grand viziers, for whom the elevated stock market valuations stood as the main testament to their power and wisdom. In fact, it was the only testament, and a rather flimsy one. More recently, though, the wicked Trump changed his tune and declared that the tower of stock market exaltation was his own doing, setting himself up for the revenge of the grand viziers.

Since nothing else has worked so far to dislodge Trump from the White House, a tumbling tower of stocks might seal his fate. The tower has to fall anyway, lest the moiling masses of flyover America think about besetting Wall Street with pitchforks and torches. A controlled demolition might be just the thing to appease these suffering holders of three part-time jobs (if they are so lucky) who have stood by in wonder and nausea while a tiny fraction of the elite gather unto themselves all the dwindling riches of the realm — at least in paper securities denominated in US dollars — while the wicked Trump will be left to the jackals of the Deep State, to be torn apart with the 25th Amenedment.

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Elizabeth War(ren).

The War That Time Forgot (CP)

If it’s Independence Day, then you can count on John McCain to be bunkered down in a remote outpost of the Empire growling for the Pentagon to unleash airstrikes on some unruly nation, tribe or gang. This July the Fourth found McCain making a return engagement to Kabul, an arrival that must have prompted many Afghans to scramble for the nearest air raid shelter. From the press room at NATO command, McCain announced that “none of us could say we are on a course to success here in Afghanistan.” The senator should have paused for a reflective moment and then called for an end to the war. Instead, McCain demanded that Trump send more US troops, more bombers and more drones to terrorize a population that has been riven by near constant war since the late 1970s.

McCain’s martial drool is now as familiar as the opening notes to the “Law & Order” theme song. What may surprise some, however, is the composition of the delegation that signed up to travel on his frequent flier program, notably the presence of two Democratic Senators with soaring profiles: Sheldon Whitehouse and Elizabeth Warren. Whitehouse, the former prosecutor (aren’t they all?) from Rhode Island, has lately taken a star turn in the role of chief inquisitor of suspected Russian witches in the Senate intelligence committee hearings. Perhaps he finally located one selling AK-47s to the Taliban to replace the guns they’d gotten from the CIA. (We now know that it’s the Saudis–not the Russians–who have been covertly funneling money to the Taliban, though don’t expect the Trump to impose any sanctions on the Kingdom of the Head-choppers.)

For her part, Warren largely echoed McCain’s bellicose banter that Trump needs to double down militarily to finish off the Taliban, the impossible dream. No real surprise here. To the extent that she’s advanced any foreign policy positions during her stint in the senate, Warren has been a dutiful supplicant to the demands of AIPAC and the Council on Foreign Relations, rarely diverging from the neocon playbook for the global war on Islam. Warren’s Afghan junket is a sure sign of her swelling presidential ambitions. These days “national security” experience is measured almost exclusively by how much blood you are willing to spill in countries you know almost nothing about. It didn’t take long for Warren to matriculate to the company position.

[..] Nothing better illustrates the eclipse of US global power than the fact that Afghanistan refuses to be subjugated or even managed, despite 16 years of hard-core carnage. Since the first US airstrikes hit Kandahar in October 2001, more than 150,000 Afghan civilians have been killed. Still Afghanistan resists imperial dictates. Even after Obama’s shameful troop surge in 2010, an escalation that went almost unopposed by the US antiwar movement, the Taliban now retains almost as much control of the country as it did in 2001. And for that Afghanistan must be punished. Eternally, it seems.

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There’s always a new theory. Don’t let’s stop using as much of the stuff as we can.

It’s Time To Accept Carbon Capture Has Failed (Conv.)

For years, optimists have talked up carbon capture and storage (CCS) as an essential part of taking emissions out of electricity generation. Yes, build wind and solar farms, they have said, but they can t be relied on to produce enough power all the time. So we ll still need our fleet of fossil-fuel-burning power stations; we just need to stop them pumping carbon dioxide (CO2) into the atmosphere. Most of their emphasis has been on post-combustion capture. This involves removing CO2 from power station flue gases by absorbing them into an aqueous solution containing chemicals known as amines. You then extract the CO2 , compress it into a liquid and pump it into a storage facility the vision in the UK being to use depleted offshore oil and gas fields. One of the big attractions with such a system is it could be retrofitted to existing power stations.

But ten years after the UK government first announced a £1 billion competition to design CCS, we re not much further forward. The reason is summed up by the geologist Lord Oxburgh in his contribution to the government-commissioned report on CCS published last year: “There is no serious commercial incentive and it will stay that way unless the state demonstrates there is a business there.” The problem is that the process is costly and energy intensive. For a gas-fired power station, you typically have to burn 16% more gas to provide the capture power. Not only this, you end up with a 16% increase in emissions of other serious air pollutants like sulphur dioxide, nitrogen oxides and particulate matter. Concerns have also been expressed about the potential health effects of the amine solvent used in the carbon capture.

You then have to contend with the extra emissions from processing and transporting 16% more gas. And all this before you factor in the pipeline costs of the CO2 storage and the uncertainties around whether it might escape once you ve got it in the ground. Around the world, the only places CCS looks viable are where there are heavy state subsidies or substantial additional revenue streams, such as from enhanced oil recovery from oilfields where the COC is being pumped in. Well, say the carbon capture advocates, maybe another technology is the answer. They point to oxy-combustion, a system which is close to reaching fruition at a plant in Texas.

First proposed many years ago by British engineer Rodney Allam, this involves separating oxygen from air, burning the oxygen with the fossil fuel, and using the combustion products -water and CO2- to drive a high-pressure turbine and produce electricity. The hot CO2 is pressurised and recycled back into the burners, which improves thermal efficiency. It has the additional advantage that CO12 is also available at pressures suitable for pipeline transportation.

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Small is beautiful.

Industrial Farming Is Driving The Sixth Mass Extinction Of Life On Earth (Ind.)

Industrial agriculture is bringing about the mass extinction of life on Earth, according to a leading academic. Professor Raj Patel said mass deforestation to clear the ground for single crops like palm oil and soy, the creation of vast dead zones in the sea by fertiliser and other chemicals, and the pillaging of fishing grounds to make feed for livestock show giant corporations can not be trusted to produce food for the world. The author of bestselling book The Value of Nothing: How to Reshape Market Society and Redefine Democracy will be one of the keynote speakers at the Extinction and Livestock Conference in London in October. Organised by campaign groups Compassion in World Farming and WWF, it is being held amid rising concern that the rapid rate of species loss could ultimately result in the sixth mass extinction of life.

This is just one reason why geologists are considering declaring a new epoch of the Earth, called the Anthropocene, as the fossils of soon-to-be extinct animals will form a line in the rocks of the future. The last mass extinction, which finished off the dinosaurs and more than three-quarters of all life about 65 million years ago, was caused by an asteroid strike that sent clouds of smoke all around the world, blocking out the sun for about 18 months. Prof Patel, of the University of Texas at Austin, said: “The footprint of global agriculture is vast. Industrial agriculture is absolutely responsible for driving deforestation, absolutely responsible for pushing industrial monoculture, and that means it is responsible for species loss. “We’re losing species we have never heard of, those we’ve yet to put a name to and industrial agriculture is very much at the spear-tip of that.”

Speaking to The Independent, he pointed to a “dead zone” – an area of water where there is too little oxygen for most marine life – in the Gulf of Mexico that has grown to the same size as Wales because of vast amounts of fertiliser that has washed from farms in mainland US, into the Mississippi River and then into the ocean. “That dead zone isn’t an accident. It’s a requirement of industrial agriculture to get rid of the sh*t and the run-off elsewhere because you cannot make industrial agriculture workable unless you kick the costs somewhere else,” he said. “The story of industrial agriculture is all about externalising costs and exploiting nature.” “Extinction is about the elimination of diversity. What happens in Brazil and other places is you get green deserts — monocultures of soy and nothing else. “Various kinds of chemistry is deployed to make sure it is only soy that’s grown on these mega-farms. “That’s what extinction looks like. If you ever go to a soy plantation, animal life is incredibly rare. It’s only soy, there’s nothing there for anything to feed on.”

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May 272017
 
 May 27, 2017  Posted by at 8:33 am Finance Tagged with: , , , , , , , , , ,  


Paul Klee Limits of the Mind 1927

 

Global Pension Underfunding To Grow To $400 Trillion Over Next 30 Years (ZH)
UK Retirement Age Could Hit 80 As Pensions Deficit Sets Off Time Bomb (Ind.)
President Trump’s Disastrous Budget Plan (John T. Harvey)
Trump Prepares “War Room”, “Big White House Changes”, Loss Of Twitter (ZH)
Trump’s Allies, Convicted of High Crimes Without a Trial (BBG)
Millennials Want to Buy Homes but Aren’t Saving for Down Payments (WSJ)
Australia Economy Hit By Spending Strike, Cyclone (AFR)
Theresa May Launches Strongest Attack Yet On Jeremy Corbyn (Tel.)
No Exit (Jim Kunstler)
Libyan Coastguard Opened Fire At Refugee Boats: NGOs (AlJ)
Hopes For Refugee Crisis Plan Fall Into Chasm Between G7 And Trump (G.)

 

 

Long time coming, we’ve been warning about this for as long as the Automatic Earth exists. It’s slow motion, but it’s certain.

Global Pension Underfunding To Grow To $400 Trillion Over Next 30 Years (ZH)

Of course, as we’ve argued before, the current pension underfunding levels are sure to only get worse over the coming decades as the world will have to contend with a wave of retiring Baby Boomers and a period of lackluster, volatile returns. So how bad could the global funding gap get? Unfortunately, the World Economic Forum (WEF) recently set out to solve that impossible math equation and it turns out the answer is about $400 trillion…give or take a couple trillion. Not surprisingly, the WEF attributed their terrifying conclusion to an ageing population, lack of savings, low expected growth rates and financially illiterate citizens.

• Long-term, low-growth environment: Over the past 10 years, long-term investment returns have been significantly lower than historic averages. Equities have performed 3%-5% below historic averages and bond returns have typically been 1%-3% lower. Low rates have grown future liabilities, and at the same time investment returns have been lower than expected and unable to make up the growing pension shortfall.

• Inadequate savings rates: To support a reasonable level of income in retirement, 10%-15% of an average annual salary needs to be saved. Today, individual savings rates in most countries are far lower. This is already presenting challenges where traditionally defined benefit structures would have provided a guaranteed pension benefit. Now, as workers look at their defined contribution retirement balances, with no guaranteed benefits, they are realizing that the retirement income their savings will provide will be much lower than expected.

• Low levels of financial literacy: Levels of financial literacy are very low worldwide. This represents a threat to pension systems which are more selfdirected and which rely more on private savings in addition to employer- or government-provided savings. Of course, ignoring that minor ~20 year increase in life expectancy over the past 60 years without raising retirement ages can take a toll on those present value calculations of future liabilities.

Oh, and turns out that politicians creating massive ponzi schemes to promise citizens that their government would take care of their financial needs in perpetuity, while never really bothering to explain the true costs of such programs, was probably a bad idea. But luckily these politicians are exempt from being prosecuted for their financial crimes…so taxpayers will just have to deal with picking up the $400 trillion tab.

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And once you’re 80 everyhting’s gone, spent.

UK Retirement Age Could Hit 80 As Pensions Deficit Sets Off Time Bomb (Ind.)

The UK has been told to prepare for a workforce of 80-year-olds as the world’s leading economies struggle to deal with a £54 trillion pensions time bomb. The amount could balloon to an astonishing £334 trillion by 2050 unless policymakers take urgent action, the World Economic Forum has warned. An ageing population, falling birth rates and poor access to pension products were the main sources of the widening gap between what people are saving and the amount they would have to put away to adequately fund their retirement, the WEF said. The projection is based on the OECD’s recommendation that people should have retirement income of around 70% of their salary.

On this measure, the UK’s shortfall is higher than £6.2 trillion and set to increase by around 4% per year, reaching more than £25 trillion by 2050. To avoid the looming crisis, governments need to to improve financial literacy and increase access to pensions in order to boost the amount people save, the WEF said. “Policymakers do need to be thinking now about how to integrate 75- and even 80-year-olds in the workplace,” Michael Drexler, head of financial and infrastructure systems for the WEF told The Financial Times. The WEF said life expectancy has risen rapidly since the 1950s, increasing by two years every decade on average. Babies born now can expect to live longer than 100 years, according to the WEF report.

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Nobody, Rep. or Dem., is interested in actually understanding the economy, they just want their favorite people to do well.

President Trump’s Disastrous Budget Plan (John T. Harvey)

Several months ago, I graded President Trump’s economics. The standard I used was the extent to which various policies drained or refilled the swamp, with the assumption that the former represented acts that helped the middle class (or aspirants thereto). I marked him with two swamp drainers (+2) and five swamp refillers (-5) for a net of -3. His newly-announced budget plan, however — where I had given him the benefit of the doubt and a +1–just switched to a -1. It is absolutely disastrous. As much as I complained about Obama’s, this may be worse. You can do a quick Google search and find plenty of line-by-line analyses to see where the cuts will come. I won’t bother with that. Instead, I want you to take a step back and just look at the simple logic involved. What is the macro impact of Trump’s newfound conviction that we need to reduce the public deficit?

1. It lowers our savings. Ignoring for the moment the foreign sector, there are only two main actors in our economy: the public sector and the private sector. The inescapable accounting logic is that if the public sector spends more than it earns, then the private sector must earn more than it spends. Or put another way, the government’s deficit is your surplus. Period. No alternate interpretation is possible. Now add in the fact that we already spend more for foreign products than they spend for ours and you see that not only does the private sector need the government’s deficit if it is going to have any net savings, but that deficit needs to be even larger than our net outflow to China, et al!

2. It reduces profits. Actually, this is really part of the above, but it gets a little more concrete. When the government cuts spending, this isn’t just a number of a ledger somewhere. It’s someone’s income: a fireman, a librarian, a Marine, a park ranger, a university physics professor working with grant money, etc., etc. As it stands today, those people are buying bread, milk, gas, movie tickets, apartment rentals, cars, and so on. Who is going to buy those items if we lay off those government workers? No one. In fact, it would then logically lead to even more layoffs as those businesses lost profits. So much for helping the entrepreneur.

3. It burdens current generations (and does nothing to help future ones). Probably the most fundamental fact about the debt is also the least understood one: it is impossible — IMPOSSIBLE — for the U.S. to be forced to default on debt in dollars. I have written on this point extensively and will not go on about it here. The bottom line is that default is off the table, it can’t happen. Hence, the only impact of cutting the deficit is the reduction in savings and profits (and employment) mentioned above.

And so, without even considering the micro impacts of the various cuts he has in mind, it’s bad news all around and Trump’s grade has dropped from -3 (+2 – 5) to a -5 (+1 – 6). Of course, for the rest of us the impact is somewhat more significant than getting a bad report card.

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Big changes were always going to happen. Losing Twitter, Spicer, Goldman alumni, Bannon, now maybe Kushner, no surprises there.

Trump Prepares “War Room”, “Big White House Changes”, Loss Of Twitter (ZH)

In lieu of the Friday night “Trump bombshell” deliverable from the NYT-WaPo complex, today it was Reuters’ and the Wall Street Journal’s turn to lay out the suspenseful weekend reads, previewing major potential upcoming changes to the Trump administration. First, according to Reuters, Trump’s top advisors are preparing to establish a “war room” to combat negative reports and mounting questions about communication between Russia. Steve Bannon and Trump’s son-in-law Jared Kushner, both senior advisors to the president, will be involved in the new messaging effort, which also aims to push Trump’s policy agenda and schedule more rallies with supporters. This “most aggressive effort yet” to push back against allegations involving Russia and his presidential campaign, will launch once Trump returns from his overseas trip.
\
[..] Second, in a separate but similar report from the WSJ, the paper writes that Trump is “actively discussing major changes” in the White House, including a shakeup of his senior team, after spending much of his free time during his overseas trip weighing the Russia investigation and the political crisis it poses for him. A flurry of meetings devoted to White House operations are scheduled for next week, officials said, and sparks are expected to fly. While this isn’t the first time a major shake up around Trump was announced as imminent, recalls Axios reporting two weeks ago that an “angry” Trump was planning a huge reboot, and that Priebus, Bannon and Spicer could be fired …

[..] The biggest change may be that Trump is about to lose his twitter privileges for good: One major change under consideration would vet the president’s social media posts through a team of lawyers, who would decide if any needed to be adjusted or curtailed. The idea, said one of Mr. Trump’s advisers, is to create a system so that tweets “don’t go from the president’s mind out to the universe.” Some of Mr. Trump’s tweets—from hinting that he may have taped conversations with Mr. Comey to suggesting without any evidence that former President Barack Obama wire-tapped Trump Tower—have opened him to criticism and at times confounded his communications team. Trump aides have long attempted to rein in his tweeting, and some saw any type of legal vetting as difficult to implement. “I would be shocked if he would agree to that,” said Barry Bennett, a former Trump campaign aide.

[..] most interesting is the alleged emerging tension between Trump and his Goldman advisors: “Some Trump advisers have also questioned the judgment of communications officials, citing as an example the rollout of a tax-plan outline in April that featured Goldman Sachs alumnae Steven Mnuchin, the Treasury secretary, and Gary Cohn, the National Economic Council director. “The left is automatically going to say the tax plan is tailored to the rich and to Wall Street. And we just gave them an image of the rich and of Wall Street,” one Trump former campaign official said. In an amusing tangent, the WSJ also points out that Trump’s return to Washington will mark the end of a period which, White House staffers said, “brought some relief from the hectic pace of the news surrounding the administration and the Russia investigation. Some noted that it gave them a rare time to eat dinner at home.”

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Peeking out of the echo chamber.

Trump’s Allies, Convicted of High Crimes Without a Trial (BBG)

Heard any good Mike Flynn jokes lately? How about this one from “Morning Joe,” this week? “When it comes to legal issues, he’s like Charmin. You just keep squeezing.” Maybe you’ve seen Stephen Colbert’s segment from February about Trump’s former national security adviser: “It’s funny ’cause it’s treason.” Don’t miss the exchange in the New Yorker last month with former acting attorney general Sally Yates. Reporter Ryan Lizza asked Yates about how she informed the White House counsel that Flynn had lied to his colleagues about his monitored conversations with the Russian ambassador. “You didn’t just text, ‘Heads-up, your N.S.A. might be a spy’?” Lizza asked. Yates quipped: “Is there an emoji for that?” Well it’s nice to see our elites are in such good humor about something so grave. If there truly was treason, it’s no joking matter.

If there was not, then this man’s name is being tarnished unfairly. Ha. Ha. After all, Flynn has yet to be charged with a crime. If there is evidence that he betrayed his country, it has yet to be presented. None of the many news stories about Flynn’s contacts with Russians and Turks has accused him of being disloyal to his country. And yet a decorated general has already been tried and convicted in the press. None of this would be happening without some very dirty business from the national security state. It’s a two-pronged campaign. First there are the whispers. Anonymous officials describe in detail elements of an ongoing investigation: intercepts of conversations between Russian officials about how they could influence Flynn during the transition; monitored phone calls about how Flynn had lied about his conversations with the Russian ambassador to his colleagues; how Flynn failed to disclose his payment from the Russian propaganda network on his official forms.

This prong of the campaign is at least factual, but the facts don’t speak for themselves. The second and more insidious element here is the innuendo. Yates never says Flynn was a spy for Russia. But her public remarks to Congress and the media appear designed to leave that impression. As she told Lizza, Flynn was “compromised by the Russians.” This sounds far more sinister than Flynn’s explanation when he left his post in February. Back then he said he had forgotten elements of his discussion with the Russian ambassador that covered a wide range of issues.

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They aren’t because they can’t. This is what feeding bubbles leads to. This is the Fed for you.

Millennials Want to Buy Homes but Aren’t Saving for Down Payments (WSJ)

Most millennials have saved virtually nothing for a down payment on a home, according to a new study, suggesting many will face steep obstacles to homeownership in the years ahead. Nearly 70% of young people ages 18 to 34 years old said they have saved less than $1,000 for a down payment, according to a survey by Apartment List, a rental listing company, expected to be released Friday. About 40% said they aren’t saving anything on a monthly basis. Even senior members of the group are falling short. Nearly 40% of older millennials, those age 25 to 34, who by historical measures should already own or be a few years away from homeownership, said they are saving nothing for a down payment each month.

The study helps illuminate a tension at the heart of the housing market. The vast majority—some 80%—of millennials said they eventually plan to buy a home. But 72% said the primary obstacle is that they can’t afford it. “It’s encouraging that millennials do want to buy homes. It suggests that they are delaying forming households but they’re not giving it up,” said Andrew Woo, director of data science and growth at Apartment List. “The biggest reason [they aren’t buying] is because of affordability.” Catie Peterson, a 22-year-old graphic designer in Fort Lauderdale, Fla., said she doesn’t expect to start saving for a down payment for another five years or so. “I barely have enough savings to cover my car if it were to break down,” she said.

Ms. Peterson said she pays $975 a month in rent for a small one-bedroom apartment, which is about one third of her paycheck, leaving little room to save. “Once I get settled in my career and settled in my family, I think buying a house would be reasonable,” she said. The reasons young people are falling behind include student loan debt, rising rents and the slow starts many got to their careers during the recession. Living in vibrant urban centers with ready access to restaurants, bars and entertainment might also make saving seem less urgent. Many are children of the affluent baby boomer generation and some expect their parents to give them a boost when the time comes. In all, about one-quarter of millennials ages 25 to 34 expect to receive help from friends or family, according to the survey. Still, three-quarters said they expect to receive less than $10,000, which might not be enough to close the gap.

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All the money that’s left is tied up in property.

Australia Economy Hit By Spending Strike, Cyclone (AFR)

Australia’s economy looks to have experienced its weakest start to a year since 2011 – narrowly skirting a contraction – as a growing consumer spending strike and a cyclone-driven slowdown in exports weighs on activity just as the government bets its budget strategy on a rebound. While the country is not at risk just yet of a technical recession – or two quarters of consecutive declines in gross domestic product – the economy looks set to continue in 2017 its whip-saw pattern of the past year. Combined with weak spending and a fall in shipments of iron ore and coal, as well as lower commodity prices, the first quarter is likely to have been weighed down by a sudden collapse in construction work – a sign that a regulatory squeeze on apartment lending may be starting to bite.

Weak retail spending, which this week saw the seventh retailer go under in recent months, sharply rising car loan delinquencies and falling new car sales all point toward a population clamping down on discretionary spending. ANZ Bank economists said next month’s national accounts may show the economy grew just 0.1% from the December quarter – raising the spectre of the second negative quarter in nine months after GDP shrank by 0.5% in the September quarter before rebounding by 1.1% in late 2016. Annual growth may have shuddered to just 1.5% in the opening months of the year from 2.4% last year. While they are in the minority, some analysts are starting to warn that the economy may have gone backwards, not just in the March quarter, but may be doing so in the current period.

[..] Commonwealth Bank of Australia senior economist Michael Workman cautioned that it was “too early to tell” if GDP would go negative. “There’s always a lot of worriers out there, and they’re very good for the market,” he said. But he isn’t one of them. “It could be as low as 0.1, but it’s too early to tell with any certainty.” ANZ senior economist Felicity Emmett said there was a growing realisation among households that low wage growth was here to stay. “That’s quite difficult for the household sector when they have very high levels of debt. In terms of the atmospherics, the business surveys do suggest quite positive, but the decline in consumer spending quite worrying.”

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Don’t be surprised if she loses.

Theresa May Launches Strongest Attack Yet On Jeremy Corbyn (Tel.)

Theresa May has accused Jeremy Corbyn of providing an “excuse for terrorism” in her strongest attack on the Labour leader to date. The Prime Minister said Mr Corbyn had suggested the Manchester suicide bombing and other terrorist attacks “are our own fault” by linking terrorism to British foreign policy. She also rounded on Mr Corbyn for the timing of his remarks – made in a campaign speech on Friday – just days after 22 children and adults were killed. In an interview with the BBC’s Andrew Neil, Mr Corbyn repeated his claim that terrorism was partly caused by “the consequences of our interventions in Afghanistan, in Iraq, in Libya”. The Labour leader also would not withdraw his previous description of NATO as a “Frankenstein” organisation, and refused six times to guarantee a replacement of Trident.

It came as senior Tories expressed concern that Mrs May’s message of “strong and stable” leadership is not cutting through with voters after one poll found her lead over Labour had been reduced to just five points. Mrs May on Friday night claimed a victory in the war on terror as she convinced leaders of the G7 countries to sign up to plans she has drawn up for a crackdown on Facebook and other social media sites being used as recruiting tools by Isil. She also struck a deal to make countries pick up British jihadis before they get home, after it emerged that Manchester bomber Salman Abedi stopped in Germany on his way back from Libya just days before the attack. [..] Mr Corbyn was criticised by figures from across the political spectrum for linking the Manchester attack to British foreign policy in Libya and elsewhere.

Boris Johnson, the Foreign Secretary, said his comments were “absolutely obscene”, while Andy Burnham, the new Labour Mayor of Manchester, said Mr Corbyn was wrong when he pointed to “the connections between wars our government has supported or fought in other countries and terrorism here at home”. Mrs May looked angry as she addressed Mr Corbyn’s speech during a press conference at the G7 summit in Sicily. She said: “I’m going to be very clear about what has been said today. “What has happened is I have been here at the G7 working with other international leaders to fight terrorism. “At the same time, Jeremy Corbyn has said that terror attacks in Britain are our own fault – and he has chosen to do that just a few days after one of the worst terrorist atrocities we have experienced in the United Kingdom.

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“Do you suppose that, in the hothouse of Washington, incoming foreign policy officers of Obama’s government had no conversations with foreign diplomats between the election of 2008 and Obama’s inauguration? The idea is laughable. ..”

No Exit (Jim Kunstler)

A most curious feature in the current low state of American politics is the delusional thinking at both ends of the political spectrum. Both factions have gone off the rails mentally, and the parties they represent race toward oblivion like Thelma and Louise in their beater car. More ominously, there are no new factions with a grip on reality even beginning to form anywhere in the background — as in the 1850s when the Whigs foundered and the party of Lincoln segued into power. To see the Democrats go on about “Russian collusion” you would think we were watching a rerun of the John Birch Society in its heyday. Americans who have done business in Russia as private citizens are being persecuted as though they were trading with the enemy in wartime. Newsflash: we are not at war with Russia, which, by the way, is no longer the Soviet Union.

It is one of many European countries that Americans are entitled to do business in — even in the case of General Mike Flynn accepting a $20,000 speaking fee from the RT news company. Has anyone noticed that Ben Bernanke routinely takes $200,000-plus speaking fees in many foreign countries whose interests are not identical to ours and no one is persecuting him. Likewise, the insane idea that it is malfeasant for high public officials to speak to Russian officials, or for the president to share sensitive strategic information with them, especially about genuine mutual enemies such as the various Islamic jihad armies. Since when is that beyond the pale? Well, since January of this year when the Democrat Party ordained that members of the Trump transition team were forbidden to speak to Russian diplomats at the highest level.

Do you suppose that, in the hothouse of Washington, incoming foreign policy officers of Obama’s government had no conversations with foreign diplomats between the election of 2008 and Obama’s inauguration? The idea is laughable. [..] The party of the right, the Republicans, have made themselves hostages to the marginal personality of Donald Trump, who prevailed over a cast of Republican empty suits in the pathetic and appalling primary contests of last spring. The Republican party has not demonstrated that it has the dimmest idea what is going on “out there” in the very flyover districts its minions and flunkies pretend to represent, or that they believe in anything not cynically calculated to bamboozle the economically immiserated classes left behind by their deliberate asset-stripping approach to the public interest.

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Libyan Coastguard gets EU funding.

Libyan Coastguard Opened Fire At Refugee Boats: NGOs (AlJ)

Libyan coastguard officers opened fire on two boats loaded with refugees while rescue attempts were under way in the Mediterranean Sea on Tuesday, according to nongovernmental organisations involved in the operations. The Libyan coastguard has rejected the accusations and demanded evidence. But those at the scene told Al Jazeera that at around noon, as rescue workers from four groups – French NGOs SOS Mediterranee and Doctors Without Borders (MSF), Italian NGO Save the Children and German NGO Jugend Rettet – were trying to save refugees, a speedboat equipped with four machine guns and bearing the emblem of the Libyan coastguard arrived at the scene.

The speedboat approached the rescue operation at high speed, creating large waves that made it difficult for the refugees to board rubber dinghies, the witnesses said. Shortly after, a series of gunshots could be heard coming from near the dinghies, Laura Garel, a communications officer on the SOS Mediterranee’s rescue vessel Aquarius, told Al Jazeera. Jugend Rettet. “For us the situation was critical,” said Jonas. “We are here to help, but were forced to stand idly by as to avoid getting hit by a bullet ourselves.” [..[ The Libyan coastguard denied Tuesday’s incident took place, calling the accusations “illogical”. Ayob Amr Ghasem, a Libyan navy spokesman, challenged the rescue groups to produce evidence of their claims. “Why would we have shot at boats if we are the ones that always save them?” Ghasem was quoted by the Italian ANSA news agency as saying.

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The EU tries to blame its refugee failings on Trump. Same for its CON21 climate disaster.

Hopes For Refugee Crisis Plan Fall Into Chasm Between G7 And Trump (G.)

Divisions between Donald Trump and other members of the G7 at the summit in Sicily have become so broad and deep that they may be forced to issue a brief leaders’ statement rather than a full communique, dashing Italian hopes of engineering a big step forward on migration and famine. With the US president apparently reluctant to compromise with European leaders over climate change, trade and migration, the European council president, Donald Tusk, was forced to admit on Friday that this would be the most challenging G7 summit in years and there was a risk of events spiralling out of control. A draft statement shown to the Guardian reveals Trump wants world leaders to make only a short reference to migration and to throw out a plan by the Italian hosts for a comprehensive five-page statement that acknowledges migrants’ rights, the factors driving refugees and their positive contribution.

The Italian plans – one on human movement and another on food security – were set to be the centrepiece of its summit diplomacy. Italy had chosen Taormina in Sicily as the venue to symbolise the world’s concern over the plight of refugees coming from the Middle East and Africa. It had hoped the summit would end on Saturday with a bold statement that the world, and not just individual nations, had a responsibility for the refugee crisis. Italy is expected to take in 200,000 refugees in 2017; more than 1,300 have drowned so far this year while trying to make the perilous crossing from north Africa. Trump’s negotiators brought a new brief text of the final communique to a pre-meeting of the G7 on 26 April and said they were vetoing the Italian “human mobility” plan, which had been the subject of careful negotiation for months.

The new text, offered by the US on a take-it-or-leave-it basis, acknowledges the human rights of migrants, but affirms “the sovereign rights of states to control their own borders and set clear limits on net migration levels as key elements of their national security”. It also asserts the need for refugees to be supported as close to their home countries as possible. Diplomatic sources said intense talks were under way to rescue some of the Italian agenda on migration. Italian officials, faced with little option, insisted the brief wording on migration in the draft represented a good compromise and said there was no problem with the Americans. The communique did reference the idea of “upstream” action on the issue – but also supporting legal pathways to return individuals to their country of origin. In a sign of the immediacy of the refugee crisis, the Libyan coastguard said as many as 20 boats had been spotted off the Libyan coast on Friday carrying thousands of migrants.

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Apr 292017
 
 April 29, 2017  Posted by at 10:03 am Finance Tagged with: , , , , , , , , , ,  


Pablo Picasso Self portrait 1972

 

US Q1 Growth Weakest In Three Years As Consumer Spending Falters (R.)
Don’t Show President Trump This Chart (ZH)
Just Five Companies Account For 28% Of The S&P’s 2017 Returns (ZH)
Germany Knew Austerity Would Destroy Greece, Says Varoufakis (Tel.)
EU Deletes UK from Official Map – Two Years Before Brexit (BT)
These Americans Will Never Get Social Security Benefits (MW)
Julian Assange Speaks Out: The War On The Truth (Ron Paul)
US Spy Agency Abandons Controversial Surveillance Technique (R.)
Russian Economy Has Grown Immune to Western Sanctions – UN (Sp.)
California Enacts $52 Billion Fuel Tax Hike For Road, Bridge Repairs (R.)
Melenchon Attacks Macron as Le Pen Fights to Win His Supporters (BBG)
US Troops Deploy Along Syria-Turkish Border (AP)
Tensions Escalate Between Kurdish Forces, Turkish Troops in North Syria (ARA)
‘Europe’s Dirty Secret’: Officials On Chios Scramble To Cope With Rising Tensions (G.)

 

 

Consumption growth lowest since 2009.

US Q1 Growth Weakest In Three Years As Consumer Spending Falters (R.)

The U.S. economy grew at its weakest pace in three years in the first quarter as consumer spending almost stalled, but a surge in business investment and wage growth suggested activity would regain momentum as the year progresses. The soft patch at the start of the year is bad news for the Trump administration’s ambitions to significantly boost growth. “It marks a rough start to the administration’s high hopes of achieving 3% or better growth; this is not the kind of news it was looking for to cap its first 100 days in office,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. GDP increased at a 0.7% annual rate also as the government further cut defense spending and businesses spent less on inventories, the Commerce Department said on Friday in its advance estimate.

That was the weakest performance since the first quarter of 2014. The pedestrian first-quarter growth pace is, however, not a true picture of the economy’s health. Wage growth in the first quarter was the fastest in 10 years as the labor market nears full employment and business investment on equipment was the strongest since the third quarter of 2015. Also underscoring the economy’s underlying strength, consumer and business confidence are near multi-year highs. First-quarter GDP tends to underperform because of difficulties with the calculation of data that the government has acknowledged and is working to rectify.

[..] Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, braked to a 0.3% rate, the slowest pace since the fourth quarter of 2009. That followed the fourth quarter’s robust 3.5% growth rate. A mild winter undercut demand for heating and utilities production. Higher inflation, with the personal consumption expenditures price index averaging 2.4% – the highest since the second quarter of 2011 – was also a drag.

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Anti-Trump rally?!

Don’t Show President Trump This Chart (ZH)

It's been (almost) 100 days and stocks are higher, hype is at its peak, hope remains higher-ish… there's just one problem, real economic data is collapsing…

 

As today's Q1 GDP proved, relying on 'hope' and 'soft' data to lift a 'real' economy is simply a false narrative…

 

How will that translate into Making America Great Again?

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Bubble. But their power is real. And scary.

Just Five Companies Account For 28% Of The S&P’s 2017 Returns (ZH)

On the last day of the busiest earnings week in a decade, here is a striking statistic from Goldman Sachs, showing just how dominant a handful of large cap companies have become in terms of both overall profitability and market impact: “Year to date the top 10 contributors have combined to account for 37% of the S&P 500 index return (more than double their market cap representation of 17%). The concentration among the top five is even greater, with those firms – AAPL, FB, AMZN, GOOGL, and MSFT – accounting for 28% of the return and 12% of market cap.” Some further perspective, courtesy of the WSJ, which notes that the combined market capitalization of AMZN, MSFT, INTC and GOOG makes up about 8% of the Index’s total.

Throwing in Apple and Facebook puts about 13% of the S&P 500’s combined market cap into the hands of just six companies. This wasn’t always the case. “Ten years ago, Apple, Amazon, Google, Microsoft and Intel made up just 5% of the S&P 500’s market cap, while Facebook was four years away from becoming a public company. The newfound prominence of big tech companies now can be chalked up to a few factors. One is that most big tech companies are profit machines—unlike many of their smaller peers that are still losing money. Alphabet, Microsoft, Intel and Amazon reported a combined $16.8 billion in operating income for the March quarter on Thursday. That is about 7% of the total projected for the S&P 500. ”

“Amazon looks like an outlier with a rather thin operating margin of 2.8% for the quarter, but even that is a notable gain from its average of just 1.5% over the last five years. But the other, even bigger factor is that demand for technology products and services keeps increasing, even as some market segments like PCs have declined. That has allowed several big tech companies to pivot into new segments with the help of strong cash flows generated by their original businesses. Amazon, Microsoft and Google have built large cloud services used by businesses shifting from more traditional computing setups.”

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New book, series in the Telegraph.

Germany Knew Austerity Would Destroy Greece, Says Varoufakis (Tel.)

Greece was forced to sign up to crippling austerity policies even though the German finance minister privately admitted he would not have endorsed the deal. The extraordinary admission by Wolfgang Schauble was made to Yanis Varoufakis, the former Greek finance minister, whose new memoir is serialised in The Telegraph all this weekend. In a frank private exchange, Mr Varoufakis asked Mr Schauble if he personally would sign up to the EU-ordered austerity plan which saw billions cut from Greek budgets and many Greeks lose their jobs. “As a patriot, no. It’s bad for your people,” the German minister replied. The Germans are also accused in the book of blocking a Chinese rescue deal for Greece and of repeatedly going back on promises and pledges made by other senior European figures as the EU battled to hold the eurozone together.

In a 500-page insider’s account of nearly six months of encounters with the leading political figures of Europe, Mr Varoufakis exposes the lengths to which Germany will go to maintain the EU and single currency. The minister secretly recorded many of his conversations with senior global figures and today exposes the gulf between private conversations and public pronouncements. In an interview today, Mr ≠Varoufakis says his experience contains dark warnings for Britain’s coming Brexit negotiations with a German-dominated EU. Angela Merkel warned this week that Britain should have no illusions about the coming talks and the EU yesterday put the ( issue of Irish reunification on the Brexit negotiating table. He warns that Theresa May must prepare an alternative deal as the EU will use dubious negotiating tactics to block reasonable discussion and potential solutions.

My advice to Theresa May is to avoid negotiation at all costs. If she doesn’t do that she will fall into the trap of [Greek prime minister] Alexis Tsipras, and it will end in capitulation, he told The Daily Telegraph. The parallel with Brexit is the tactic of stalling negotiations. They will get you on the sequencing. First there is the price of divorce to sort out before they will talk about free trade in the future, he added. In his book, Mr Varoufakis recounts how Germany used its political and financial muscle to impose austerity on Greece, despite widespread acknowledgement in other EU capitals that the policy was self-defeating and unsustainable. He reveals private encounters -many recorded secretly- with leading figures including Barack Obama, George Osborne and ( Emmanuel Macron, who polls say is almost certain to become the next president of France. In one conversation at the White House Mr Obama readily agrees that ‘austerity sucks’ but can do nothing to deflect the German agenda.

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Almost funny.

EU Deletes UK from Official Map – Two Years Before Brexit (BT)

This could be the first official map produced by the European Union to exclude the UK. But it is also an inaccurate one: the UK is still a member state of the EU. Brexit means Brexit: on 29 March, British Prime Minister Theresa May officially notified EU Council President Donald Tusk of Britain’s intention to leave the European Union. But Britain hasn’t left yet. By invoking Article 50 of the Treaty of Lisbon, May triggered a process that gives both sides two years to reach an agreement. Meaning that Britain is scheduled to leave the EU on 29 March 2019. Until that time, the United Kingdom remains a full member of the European Union.

It is no secret that hardline brexiteers would rather leave today than tomorrow, and ‘crash out’ of the EU, even if that means falling back on the most rudimentary of agreements for trade and cooperation with ‘EU27’ – shorthand for the EU minus the UK. Now it seems that sentiment is reciprocated in the highest circles of the EU bureaucracy in Brussels. The map shows the unemployment rates of the member states – and the stark differences for those rates between member states in the north and south of the Union. But the eye is immediately drawn to the land mass of the United Kingdom: coloured not in the blues or oranges that indicate unemployment rates in the EU, but the grey of the non-member states that dot the map.

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Giving the news to you bite size.

These Americans Will Never Get Social Security Benefits (MW)

Today’s young people fear that they will never see Social Security benefits. The reality is, 3% of elderly Americans already don’t. The three main groups of people who never receive Social Security benefits include infrequent workers (44.3%) who do not have sufficient earnings to qualify for the benefits, immigrants who arrived in the US at 50 or older (37.3%) and therefore haven’t worked long enough to qualify for the benefits, and non-covered workers (11.4%), such as state and local government employees. A little less than 7% of “never beneficiaries” were individuals who were expected to get Social Security benefits, but died before receiving them, according to a 2015 Social Security Administration report.

What’s worse, most Americans may not realize how much they will – or will not – receive in Social Security benefits, said Bill Meyer, chief executive of Social Security Solutions, a software provider that strategizes how to claim Social Security. Social Security benefits are based on earnings history from the past 35 years – “The onus is on the individual retiree that the Social Security Administration has the right information,” Meyer said. Social Security benefits are hotly contested, specifically how — or even whether — those benefits will be distributed in the future. Young Americans say they’re not confident they’ll ever collect Social Security benefits (81% of millennials didn’t think so, at least, according to a recent Investopedia survey) but current near retirees may also be at risk.

In December, the House Ways and Means Social Security Subcommittee introduced a bill that would “save” Social Security by cutting benefits for above-average earners, eliminating the cost-of-living adjustment for individuals who make more than $85,000 (and $170,000 for couples), and increasing the full retirement age to 69 from 66.

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Vault7 the largest ever publication?

Julian Assange Speaks Out: The War On The Truth (Ron Paul)

Wikileaks Founder and Editor-in-Chief Julian Assange joins the Liberty Report to discuss the latest push by the Trump Administration to bring charges against him and his organization for publishing US Government documents. How will they get around the First Amendment and the Espionage Act? The US government and the mainstream media – some of which gladly publish Wikileaks documents – are pushing to demonize Assange in the court of public opinion.

Tyler Durden: Having blasted the Trump administration for their hyprocritical flip-flop from “loving WikiLeaks” to “arrest Assange,” Ron Paul made his feelings very clear on what this signals: “If we allow this president to declare war on those who tell the truth, we have only ourselves to blame.” Today he sits down with WikiLeaks founder Julian Assange for a live interview…

“The CIA has been deeply humiliated as a result of our ongoing publications so this is a preemptive move by the CIA to try and discredit our publications and create a new category for Wikileaks and other national security reporters to strip them of First Amendment protections,” Assange said in a preview clip from the interview below…:

 

Full interview below… 

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US intelligence has gone bonkers, and it may well be too late to rein it in.

US Spy Agency Abandons Controversial Surveillance Technique (R.)

The U.S. National Security Agency said on Friday it had stopped a form of surveillance that allowed it to collect without a warrant the digital communications of Americans who mentioned a foreign intelligence target in their messages, marking an unexpected triumph for privacy advocates long critical of the practice. The decision to stop the once-secret activity, which involved messages sent to or received from people believed to be living overseas, came despite the insistence of U.S. officials in recent years that it was both lawful and vital to national security. The halt is among the most substantial changes to U.S. surveillance policy in years and comes as digital privacy remains a contentious issue across the globe following the 2013 disclosures of broad NSA spying activity by former intelligence contractor Edward Snowden.

“NSA will no longer collect certain internet communications that merely mention a foreign intelligence target,” the agency said in a statement. “Instead, NSA will limit such collection to internet communications that are sent directly to or from a foreign target.” NSA also said it would delete the “vast majority” of internet data collected under the surveillance program “to further protect the privacy of U.S. person communications.” The decision is an effort to remedy privacy compliance issues raised in 2011 by the Foreign Intelligence Surveillance Court, a secret tribunal that rules on the legality of intelligence operations. [..] The NSA is not permitted to conduct surveillance within the United States. The so-called “about” collection went after messages that mentioned a surveillance target, even if the message was neither to nor from that person. That type of collection sometimes resulted in surveillance of emails, texts and other communications that were wholly domestic.

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Unintended consequences.

Russian Economy Has Grown Immune to Western Sanctions – UN (Sp.)

Maintaining the sanctions imposed by Western states will not negatively affect Russia’s economy, which has adapted to these restrictive measures, UN Special Rapporteur on the negative impact of the unilateral coercive measures Idriss Jazairy said Thursday. Jazairy stressed that the economy is adaptive to sanctions and the policies of its main trade partners, and thus the introduction of sanctions mostly harms the effectiveness of international trade, but not the country itself for which the sanctions were aimed against. Jazairy expressed his view on the anti-Russian sanctions during a meeting with the Russian upper house Council of the Federation Committee on Constitutional Legislation and State-Building chairman Andrei Klishas in Moscow.

Since 2014, relations between Russia and the European Union and the United States, deteriorated amid the crisis in Ukraine. Brussels, Washington and their allies introduced several rounds of sanctions against Russia on the pretext of its alleged involvement in the Ukrainian conflict, which Moscow has repeatedly denied. In response to the restrictive measures, Russia has imposed a food embargo on some products originating in countries that have targeted it with sanctions. On April 18, the IMF said in its World Economic Outlook report that Russian economic growth is expected to pick up in 2017 – 2018 and will reach 1.4% for both years.

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There are too many cars. That’s the only real problem. But no-one dares touch it.

California Enacts $52 Billion Fuel Tax Hike For Road, Bridge Repairs (R.)

California Governor Jerry Brown signed into law on Friday a bill to raise gasoline taxes and other transportation-related fees for the first time in decades in an ambitious $52 billion plan to repair the state’s long-neglected roads and bridges. The measure, increasing excise taxes on gasoline by 12 cents per gallon, from the current rate of $0.28 a gallon, and on diesel fuel by 20 cents per gallon over the next 10 years, goes into effect in November. It cleared the state legislature three weeks ago, on the strength of a two-thirds super-majority the Democrats wield in both houses that allows them to pass new taxes with little or no Republican support. Republicans condemned the increases, saying the state’s transportation taxes and fees are already among the highest in the nation. They call the newly enacted measure the largest gasoline tax in California’s history.

The average motorist in California, a state renowned for its car culture, will see transportation costs rise by about $10 a month under the measure, according to Brown, a Democrat who has governed largely as a fiscal moderate. He has refused to back any transportation overall plans that involved borrowing money. Supporters say the measure is needed to address a mounting backlog of crumbling infrastructure projects, including more than 500 bridges statewide requiring major repair, most of them considered structurally deficient. The fuel tax increases, together with higher vehicle licensing fees and a new $100 annual fee on owners of electric-only vehicles, would raise $5.2 billion a year, all earmarked for road, highway and bridge repairs and anti-congestion projects.

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Too many people are too sure Le Pen has no chance.

Melenchon Attacks Macron as Le Pen Fights to Win His Supporters (BBG)

The left-wing populist Jean-Luc Melenchon, who was eliminated from France’s presidential election this week, declined to endorse centrist front-runner Emmanuel Macron as he looked to keep hold of his 7.1 million voters ahead of a parliamentary ballot in June. Melenchon, who came fourth in Sunday’s first-round vote, said he won’t vote for the anti-euro nationalist Marine Le Pen in the runoff on the May 7 in a 32-minute video posted on his official YouTube channel late Friday. But he also aimed criticism at the centrist Macron who has won endorsements from most of his mainstream rivals, as well as German Chancellor Angela Merkel. “We can’t really call this a choice,” Melenchon said. “The nature of the two candidates makes it impossible to come out of this with stability.”

“One because he’s the extreme of finance, the other because she’s the extreme right,” he added, saying his party, France Unbowed, will reach the second round in 450 of the 577 constituencies up for grabs in the lower chamber of parliament in June and Macron sees him as a “threat.” Politicians and observers across the European Union have been transfixed by the French election with Le Pen promising to pull out of the euro and erect barriers to trade with the rest of the bloc while Macron has vowed to revive the Franco-German partnership to begin a new era of continental cooperation. Le Pen is fighting to win over Melenchon’s supporters as she seeks to close a gap of some 20 %age points on her rival.

Despite the personal antipathy between Melenchon and Le Pen, their protectionist, anti-European platforms had lots in common. In a speech in Arras on Wednesday, Macron praised Melenchon’s “panache” and the wave of support he created in the campaign. Le Pen said on France 2 television on Monday that they had “very similar” economic ideas and her team acclaimed his “noble” act to hold back an endorsement. Surveys show that Melenchon voters are increasingly likely to abstain rather than back Macron on May 7. An OpinionWay polled Friday showed that 45% of Melenchon supporters plan to abstain in the second round, up from 23% at the start of the week. Macron’s support among that group fell to 40% from 55%, while Le Pen’s dropped to 15% from 22%.

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Looks like a positive development.

US Troops Deploy Along Syria-Turkish Border (AP)

US armoured vehicles are deploying in areas in northern Syria along the tense border with Turkey, a few days after a Turkish airstrike that killed 20 US-backed Kurdish fighters, a Syrian war monitor and Kurdish activists said Friday. Footage posted by Syrian activists online showed a convoy of US armoured vehicles driving on a rural road in the village of Darbasiyah, a few hundred meters from the Turkish border. Clashes in the area were reported between Turkish and Kurdish forces Wednesday a day after the Turkish airstrike which also destroyed a Kurdish command headquarters. The Turkish airstrikes, which also wounded 18 members of the US-backed People’s Protection Units, or YPG, in Syria were criticized by both the US and Russia.

The YPG is a close US ally in the fight against Daesh, also known as ISIS and ISIL, but is seen by Ankara as a terrorist group because of its ties to Turkey’s Kurdish rebels. Further clashes between Turkish and Kurdish forces in Syria could potentially undermine the US-led war on Daesh. A senior Kurdish official, Ilham Ahmad told AP that American forces began carrying out patrols along the border Thursday along with reconnaissance flights in the area. She said the deployment was in principle temporary, but may become more permanent. A Kurdish activist in the area, Mustafa Bali, said the deployment began Friday afternoon and is ongoing. He said deployment stretches from the Iraqi border to areas past Darbasiyah in the largely Kurdish part of eastern Syria.

“The US role has now become more like a buffer force between us and the Turks on all front lines,” he said. He said US forces will also deploy as a separation force in areas where the Turkish-backed Syrian fighting forces and the Kurdish forces meet. It is a message of reassurance for the Kurds and almost a “warning message” to the Turks, he said. Navy Capt. Jeff Davis, a Pentagon spokesman, did not dispute that U.S. troops are operating with elements of the Syrian Democratic Forces (SDF) along the Turkish border, but he would not get into specifics. The SDF is a Kurdish-dominated alliance fighting Daesh that includes Arab fighters. “We have U.S. forces that are there throughout the entirety of northern Syria that operate with our Syrian Democratic Force partners,” Davis said. “The border is among the areas where they operate.”

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Here’s why there are US tropps in the region.

Tensions Escalate Between Kurdish Forces, Turkish Troops in North Syria (ARA)

Clashes continued for the third consecutive day between Kurdish fighters of the People’s Protection Units (YPG) and Turkey’s military in several areas in northern Syria, military sources reported on Friday. The Turkish Army bombed several villages in the Kurdish Afrin district, including Panerak, Shankila, Midan Akbas and Rajo. “The Turkish artillery bombarded YPG security checkpoints and residential buildings in Afrin countryside, killing and wounding dozens, most of them civilians,” a spokesperson for the YPG told ARA News. The bombardment led to clashes between the Kurdish units and Turkish military forces in the sub-districts of Rajo and Shiya. “Our units responded to the Turkish offensive by hitting the positions of the Turkish troops near Susk hill in Afrin. At least three military vehicles were destroyed by YPG fire,” the Kurdish official said.

The YPG also released a video showing the destruction of a Turkish base in northwestern Aleppo. “At least 17 Turkish soldiers were killed and three others were wounded under heavy bombardment by the YPG,” a member of the YPG media office in Afrin told ARA News. The source added that the clashes between the YPG and Turkey’s military are still ongoing in the Shiya and Rajo sub-districts. Clashes broke out on Wednesday between the Syrian Kurdish forces and Turkish troops after the latter targeted the Kurdish town of Derbassiye in Syria’s northeastern Hasakah province with heavy artillery, shutting down the road between Derbassiye and Serikaniye. This coincided with similar clashes between the YPG and Turkish troops in Afrin. This comes after the Turkish jets killed over 25 Kurdish fighters in Iraq and Syria on Tuesday.

The US-led coalition expressed concerns over the Turkish attacks against the Kurdish fighters who are in war with ISIS in northern Syria. “We call on all forces to remain focused on the fight to defeat ISIS, which is the greatest threat to regional and worldwide peace, security,” said Air Force Col John L. Dorrian, Spokesman for the US-led coalition against ISIS. “Turkish strikes were conducted without proper coordination with the Coalition or the Government of Iraq,” he said. “Our partner forces have been killed by Turkey strike, they have made many sacrifices to defeat ISIS,” the American Colonel said. “We are troubled by Turkey airstrikes on SDF and Kurdish forces,” he added.

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This will not go quiet for much longer.

‘Europe’s Dirty Secret’: Officials On Chios Scramble To Cope With Rising Tensions (G.)

On a clear day the channel dividing Chios from the Turkish coast does not look like a channel at all. The nooks and crevices of Turkey’s western shores, its wind turbines and summer homes could, to the naked eye, be a promontory of the Greek island itself. For the men, women and children who almost daily make the crossing in dinghies and other smuggler craft, it is a God-given proximity, the gateway to Europe that continues to lure. Samuel Aneke crossed the sea almost a year ago on 1 June. Like those before him, and doubtless those who will follow, he saw the five-mile stretch as the last hurdle to freedom. “You could say geography brought me here,” said the Nigerian, a broad smile momentarily dousing his otherwise dour demeanour. “But it was not supposed to keep me prisoner.”

Refugee flows via Greece were meant to stop when the EU and Turkey announced what was seen as a pioneering agreement to stem the influx in March 2016. In Chios, like other Aegean isles, residents initially welcomed the accord. It was short-lived. The influx – one that saw more than 850,000 refugees arrive into the country in 2015 – was soon replaced by a steady flow, with asylum seekers arriving in groups that were sometimes small, sometimes large, but always propelled by the same ambition: to reach Europe by way of its southern shores. On Chios, more than 825 asylum seekers, the vast majority Syrians, arrived from Turkey in March. This month almost 600 have come. With at least 3,000, according to authorities, housed in two overcrowded camps – one makeshift, the other a razor-wire topped detention centre in a former factory known as Vial – it is anger that hangs in the air.

Greece’s Aegean isles have become de facto detention facilities – a dumpling ground for nearly 14,000 stranded souls, unable to move until permits are processed and fearful of what lies ahead. “Anything could happen because everything is hanging by a thread,” says Makis Mylonas, a policy adviser at the town hall. “Chios, Samos, Lesvos, Kos, Leros were sacrificed in the name of Europe’s fixation to keep immigrants out,” he claims, listing the isles that continue to bear the brunt of the flows.

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Mar 152017
 
 March 15, 2017  Posted by at 2:29 pm Finance Tagged with: , , , , , , , , , , ,  


Otto Dix The Triumph of Death 1934

 

Yes, austerity really kills real people, and it kills the societies they live in. Let’s try and explain this in simple terms. It’s a simple topic after all. Austerity is a mere left-over from faith-based policies derived from shoddy economics, and economics is a shoddy field to begin with. The austerity imposed on and in several countries and their economies after 2008, and the consequences it has had in these economies, cannot fail to make you wonder what level of intelligence the politicians have who did the imposing, as well as the economists who advised them in the process.

We should certainly not forget that the people who make these decisions are never the ones affected by them. Austerity hurts the poor. For those who are living comfortably -which includes politicians and economists that “matter”-, austerity at worst means eating and living somewhat less luxuriously. For the poor, taken far enough, it will mean not eating at all, not being able to afford clothing, medical care, even housing. Doing without 10% of very little hits much harder than missing out on 10% of an abundance.

And even then there are differences, for instance between countries. The damage done to British housing, education and health care by successive headless chicken governments is very real, and it will require a huge effort to restore these systems, if that is possible at all. Still, if the British have any complaints about the austerity unleashed upon them, they should really take a look at Greece. As this graph of households having a hard time making ends meet makes painfully clear:

 

 

Britain ‘only’ suffers from economically illiterate politicians and economists. Greece, on top of that, has to cope with a currency it has no control over, and with the foreign -dare we say ‘occupying’?- powers that do. A currency that is geared exclusively to the benefit of the richer Eurozone nations. The biggest mistake in building the EU, and the Eurozone in particular, is that the possibility has been left open for the larger and richer nations to reign over the smaller and poorer almost limitlessly. These things only become clear when things get worse, but then they really do.

This ‘biggest mistake’ predicted the end of the ‘union’ from the very moment it was established; all it will take is time, and comprehension. Eurozone rules say a country’s public debt cannot exceed 60% and its deficit must remain less than 3%. Rules that have been broken left right and center, including by the rich, Germany, France, who were never punished for doing so. The poor are.

These limits are completely arbitrary. They come from the text books of the same clueless cabal of economists that the entire Euro façade is based on. The same cabal also who now demand a 3.5% Greek budget surplus into infinity, the worst thing that can happen to an already impoverished economy, because it means even more money must flow out of an entity that already has none.

But let’s narrow our focus to austerity itself, and what makes it such a disaster. And then after that, we’ll take it a step further. We can blame economists for this mess, and hapless politicians, but that’s not the whole story; in the end they’re just messenger boys and girls. First though, here’s what austerity does. Let’s start with Ed Harrison talking about some revealing data that Matt Klein posted on FT Alphaville about comparing post-2008 Greece to emerging economies:

Europe’s Delusional Economic Policies

Here’s how Matt put it: “Greece had a very different post-crisis experience: it never recovered. By contrast, all the other countries were well past their pre-crisis peak after this much time had elapsed. On average, Argentina, Brazil, Indonesia, Thailand, and Turkey have outperformed Greece by more than 40 percentage points after nine years.”

.. unlike those countries, Greece lacked the ability to use the exchange rate as a shock absorber. So while Brazil and Greece faced the same type of downturn in dollar terms – about 45% in GDP per person – Brazilian living standards only deteriorated about 2%, compared to 26% in Greece. The net effect is that Greece had a relatively typical crisis in dollars but an unprecedently painful one in the terms that matter most”.

[..] Greece doesn’t have its own currency so the currency can’t depreciate. Greece must use the internal devaluation route, which makes its labor, goods and services cheaper through a deflationary path – and that is very destructive to demand, to growth, and to credit.

[..] it’s not about reforms, people. It’s about growth. And the euro – and the policies tied to membership – is anti-growth, particularly for a country like Greece that is forced to hit an unrealistic 3.5% primary surplus indefinitely.

 

Another good report came from the WaPo at about the same time Ed wrote his piece, some 4 weeks ago. After Matt Klein showing how hard austerity hit Greece compared to emerging economies, Matt O’Brien shows us how austerity hit multiple Eurozone countries, compared to what would have happened if they had not cut spending (or introduced the euro). It is damning.

Austerity Was A Bigger Disaster Than We Thought

Cutting spending, you see, shouldn’t be a problem as long as you can cut interest rates too. That’s because lower borrowing costs can stimulate the economy just as much as lower government spending slows it down. What happens, though, if interest rates are already zero, or, even worse, you’re part of a currency union that means you can’t devalue your way out of trouble? Well, nothing good.

House, Tesar and Proebsting calculated how much each European economy grew — or, more to the point, shrank — between the time they started cutting their budgets in 2010 and the end of 2014, and then compared it with what actually realistic models say would have happened if they hadn’t done austerity or adopted the euro.

According to this, the hardest-hit countries of Greece, Ireland, Italy, Portugal and Spain would have contracted by only 1% instead of the 18% they did if they hadn’t slashed spending; by only 7% if they’d kept their drachmas, pounds, liras, escudos, pesetas and the ability to devalue that went along with them if they hadn’t become a part of the common currency and outsourced those decisions to Frankfurt; and only would have seen their debt-to-GDP ratios rise by eight percentage points instead of the 16 they did if they hadn’t tried to get their budgets closer to being balanced.

In short, austerity hurt what it was supposed to help, and helped hurt the economy even more than a once-in-three-generations crisis already had.

[..] the euro really has been a doomsday device for turning recessions into depressions. It’s not just that it caused the crisis by keeping money too loose for Greece and the rest of them during the boom and too tight for them during the bust. It’s also that it forced a lot of this austerity on them. Think about it like this. Countries that can print their own money never have to default on their debts – they can always inflate them away instead – but ones that can’t, because, say, they share a common currency, might have to.

Just the possibility of that, though, can be enough to make it a reality. If markets are worried that you might not be able to pay back your debts, they’ll make you pay a higher interest rate on them – which might make it so that you really can’t.

In other words, the euro can cause a self-fulfilling prophecy where countries can’t afford to spend any more even though spending any less will only make everything worse.

That’s actually a pretty good description of what happened until the ECB belatedly announced that it would do “whatever it takes” to put an end to this in 2012. Which was enough to get investors to stop pushing austerity, but, alas, not politicians. It’s a good reminder that you should never doubt that a small group of committed ideologues can destroy the economy. Indeed, it’s the only thing that ever has.

 

 

So those are the outcomes, But what’s the theory, where does the “small group of committed ideologues” go so wrong? Let’s go really basic and simple. Last week, Britsh economist Ann Pettifor, promoting her new book “The Production of Money: How to Break the Power of Bankers”, said this to Vogue:

Politicians who advocate for austerity measures—cutting spending—like to say that the government ought to run its budget the way women manage our households, but unlike us, the government issues currency and sets interest rates and so on, and the government collects taxes. And if the government is managing the economy well, it ought to be expanding the numbers of people who are employed and therefore paying income tax and tax on purchases—purchases that turn a profit for businesses which then hire more employees, and on and on it goes. That’s called the multiplier effect, and for 100 years or so, it’s been well understood. And it’s why governments should invest not in tax breaks for wealthy people, but in initiatives like building infrastructure.

Around the same time, Ann wrote in the Guardian:

[..] the public are told that cuts in spending and in some benefits, combined with rises in income from taxes will – just as with a household – balance the budget. Even though a single household’s budget is a) minuscule compared to that of a government; b) does not, like the government’s, impact on the wider economy; c) does not benefit from tax revenues (now, or in the foreseeable future); and d) is not backed by a powerful central bank. Despite all these obvious differences, government budgets are deemed analogous (by economists and politicians) to a household budget.

[..] If the economy slumps (as in 2008-9) and the private sector weakens, then like a see-saw the public sector deficit, and then the debt, rises. When private economic activity revives (thanks to increased investment, employment, sales etc) tax revenues rise, unemployment benefits fall, and the government deficit and debt follow the same downward trajectory. So, to balance the government’s budget, efforts must be made to revive Britain’s economy, including the indebted private sector.

In other words, when faced with economic hard times, a government should not cut spending, it should increase it -and it can-. Because cutting spending is sure to make things worse. At the same time of course, this is not an option available to Greece, because it has ceded control of its currency, and therefore its economy, to a largely unaccountable and faceless cabal that couldn’t care less what happens in the country.

All they care about is that the debts the banks in the rich part of the eurozone incurred can be moved onto someone else’s shoulders. Which is where -most of- Greece’s crisis came from to begin with. And so, yes, Germany and Holland and France are sitting sort of pretty, because they prevented a banking crisis from happening at home; they transferred it to Greece’s pensioners and unemployed youth. The ‘model’ of the Eurozone allows them to do this. Coincidence? Bug or feature?

 

 

Oh, and it’s not only Greece, though it’s by far the hardest hit. Read Roberto Centeno in the Express below. Reminds me of Greeks friends saying: “In 2010, we were told we had €160 billion or so in debt, and we needed a bailout. Now we have over €600 billion in debt, they say. How is that possible? What happened? What was that bailout for?”

‘Spain Is Ruined For 50 Years’

A leading Spanish economist has hit out at the ECB saying “crazy” loans will ruin the lives of the population for the next 50 years. And it is only a matter of time before the Government is forced to default as a debt bubble and low wages effectively forge the worst declines in “living memory”. Leading economist Roberto Centeno, who was an advisor to US president Donald Trump’s election team on hispanic issues, says the country has borrowed €603 billion that it cannot conceivably pay back. And he says Spanish politicians including Minister of Economy Luis de Guindos are “insulting their intelligence” after doing back door deals with the ECB. In a blog post Mr Centeno says there needs to be audits so the country can understand the magnitude of its debt mountain.

He said Spain was “moving steadily towards the suspension of payments which is the result of out of control public waste, financed with the largest debt bubble in our history, supported by the ECB with its crazy policy of zero interest rate expansion and without any supervision.” The expert added the doomed situation will “lead to the ruin of several generations of Spaniards over the next 50 years”. [..] He said the country is currently suffering from a “third world production model”. He added: “We have a third world production model of speculators and waiters, with a labour market where the majority of jobs created are temporary and with remunerations of €600, the largest wage decline in living memory. “And all this was completed with a broken pension system and an insolvent financial system.”

Forecasting an unprecedented shock to the European financial model, Mr Centento is calling for an immediate audit despite a recent revelation that the ECB is failing in its supervisory role over Europe’s banks. He also claimed the Spanish government and European Union leaders have been manipulating figures since 2008. Mr Centento said: “We will require the European Commission and Eurostat to audit and audit the Spanish accounting system for serious accounting discrepancies that may jeopardise stability. “The gigantic debt bubble accumulated by irresponsible governments, and that never ceases to grow, will be the ruin of several generations of Spaniards. “The Bank of Spain’s debt to the Eurosystem is the largest in Europe. “The day that the ECB minimally closes the tap of this type of financing or markets increase their risk aversion, the situation will be unsustainable.”

 

 

But then it’s time to move on, courtesy of Michael Hudson, prominent economist, who should be a guest of honor, at the very least, at every Eurogroup meeting. You know, to give Dijsselbloem and Schäuble a reality check. Michael shines a whole different additional light on European austerity policies. This is from an interview with Sharmini Peries:

Finance as Warfare: IMF Lent to Greece Knowing It Could Never Pay Back Debt

MICHAEL HUDSON: You said the lenders expect Greece to grow. That is not so. There is no way in which the lenders expected Greece to grow. In fact, the IMF was the main lender. It said that Greece cannot grow, under the circumstances that it has now. What do you do in a case where you make a loan to a country, and the entire staff says that there is no way this country can repay the loan? That is what the IMF staff said in 2015.

It made the loan anyway – not to Greece, but to pay French banks, German banks and a few other bondholders – not a penny actually went to Greece. The junk economics they used claimed to have a program to make sure the IMF would help manage the Greek economy to enable it to repay. Unfortunately, their secret ingredient was austerity.

[..] for the last 50 years, every austerity program that the IMF has made has shrunk the victim economy. No austerity program has ever helped an economy grow. No budget surplus has ever helped an economy grow, because a budget surplus sucks money out of the economy.

As for the conditionalities, the so-called reforms, they are an Orwellian term for anti-reform, for cutting back pensions and rolling back the progress that the labor movement has made in the last half century. So, the lenders knew very well that Greece would not grow, and that it would shrink.

 

So, the question is, why does this junk economics continue, decade after decade? The reason is that the loans are made to Greece precisely because Greece couldn’t pay. When a country can’t pay, the rules at the IMF and EU and the German bankers behind it say, don’t worry, we will simply insist that you sell off your public domain. Sell off your land, your transportation, your ports, your electric utilities.

[..] If Greece continues to repay the loan, if it does not withdraw from the euro, then it is going to be in a permanent depression, as far as the eye can see. Greece is suffering the result of these bad loans. It is already in a longer depression today, a deeper depression, than it was in the 1930s.

[..] when Greece fails, that’s a success for the foreign investors that want to buy the Greek railroads. They want to take over the ports. They want to take over the land. They want the tourist sites. But most of all, they want to set an example of Greece, to show that France, the Netherlands or other countries that may think of withdrawing from the euro – withdraw and decide they would rather grow than be impoverished – that the IMF and EU will do to them just what they’re doing to Greece.

So they’re making an example of Greece. They’re going to show that finance rules, and in fact that is why both Trump and Ted Malloch have come up in support of the separatist movement in France. They’re supporting Marine Le Pen, just as Putin is supporting Marine Le Pen. There’s a perception throughout the world that finance really is a mode of warfare.

Sharmini Peries: Greece has now said, no more austerity measures. We’re not going to agree to them. So, this is going to amount to an impasse that is not going to be resolvable. Should Greece exit the euro?

MICHAEL HUDSON: Yes, it should, but the question is how should it do it, and on what terms? The problem is not only leaving the euro. The problem really is the foreign debt that was bad debt that it was loaded onto by the Eurozone. If you leave the euro and still pay the foreign debt, then you’re still in a permanent depression from which you can never exit. There’s a broad moral principle here: If you lend money to a country that your statistics show cannot pay the debt, is there really a moral obligation to pay the debt? Greece did have a commission two years ago saying that this debt is odious. But it’s not enough just to say there’s an odious debt. You have to have something more positive.

[..] what is needed is a Declaration of Rights. Just as the Westphalia rules in 1648, a Universal Declaration that countries should not be attacked in war, that countries should not be overthrown by other countries. I think, the Declaration of International Law has to realize that no country should be obliged to impose poverty on its population, and sell off the public domain in order to pay its foreign creditors.

[..] the looming problem is that you have to pay debts that are so far beyond your ability to pay that you’ll end up like Haiti did after it rebelled after the French Revolution.

[..] A few years after that, in 1824, Greece had a revolution and found the same problem. It borrowed from the Ricardo brothers, the brothers of David Ricardo, the economist and lobbyist for the bankers in London. Just like the IMF, he said that any country can afford to repay its debts, because of automatic stabilization. Ricardo came out with a junk economics theory that is still held by the IMF and the European Union today, saying that indebted countries can automatically pay.

Well, Greece ended up taking on an enormous debt, paying interest but still defaulting again and again. Each time it had to give up more sovereignty. The result was basically a constant depression. Slow growth is what retarded Greece and much of the rest of southern Europe. So unless they tackle the debt problem, membership in the Eurozone or the European Union is really secondary.

There is no such question as “why did austerity fail ‘in a particular case'”?. Austerity always fails. You could perhaps come up with a theoretical example in which a society greatly overspends and toning down spending might balance some things, but other than that, and nothing in what we see today resembles such an example, austerity can only work out badly. And that’s before, as Michael Hudson suggests, austerity is used as a means to conquer people and countries in a financial warfare setting.

This is because our economies (as measured in GDP) are 60-70% dependent on consumer spending. Ergo, when you force consumer spending down through austerity measures, GDP must and will of necessity come down with it. And if you cut spending, stores will close, and then their suppliers will, and they will fire their workers, which will further cut consumer spending etc. It doesn’t get simpler than that.

There is a lot of talk about boosting exports etc., but exports make up only a relatively small part of most economies, even in the US, compared to domestic consumption. As still is the case in virtually every economy, more exports will never make up for what you lose by severely cutting wages and pensions while at the same time raising taxes across the board (Greek reality). The only possible result from this is misery and lower government revenues, in a vicious circle, dragging an economy ever further down.

Since this is so obvious a 5-year old can figure it out in 5 minutes, the reason for imposing the kind of austerity measures that the Eurogroup has unleashed upon Greece must inevitably be questioned in the way professor Hudson does. If someone owes you a substantial amount of money, the last thing you want to do is make sure they cannot pay it back. You want such a person to have a -good- job, a source of income, that pays enough so that they can pay you back. Unless you have your eyes on their home, their car, their daughters, their assets.

What the EU and IMF do with Greece is the exact opposite of that. They’re making sure that Greece gets poorer every day, and the Greeks get poorer, ensuring that the debt, whether it’s odious or not -and that is a very valid question-, will never be paid back. And then they can move in and snap up all of the country’s -rich- resources on the cheap. But in the process, they create a very unstable country, something that may seem to be to their benefit but will blow up in their faces.

It’s not the first time that I say the EU and the US would be well advised to ensure Greece is a stable society, but they all continue to forcibly lead the cradle of democracy in the exact opposite direction.

The best metaphor I can think of is: Austerity is like bloodletting in the Middle Ages, only with a lower success rate.

 

 

Nov 212016
 
 November 21, 2016  Posted by at 4:45 pm Finance Tagged with: , , , , , , , , , ,  


Theodor Horydczak “Dome of US Capitol through trees at night” 1943

 

For the second time in a few weeks (see ‘End of Growth’ Sparks Wide Discontent), former British diplomat Alastair Crooke quotes me extensively, and I gladly return the favor. Crooke here attempts to list -some of- the difficulties Donald Trump will face in executing the -economic- measures he promised to take in his campaign. Crooke argues that, as I’ve indicated repeatedly, for instance in America is The Poisoned Chalice, the financial crisis that never ended may be one of his biggest problems.

Here, again, is Alastair Crooke:

 

 

We are plainly at a pivotal moment. President-Elect Trump wants to make dramatic changes in his nation’s course. His battle cry of wanting to make “America Great Again” evokes – and almost certainly is intended to evoke – the epic American economic expansions of the Nineteenth and Twentieth centuries.

Trump wants to reverse the off-shoring of American jobs; he wants to revive America’s manufacturing base; he wants to recast the terms of international trade; he wants growth; and he wants jobs in the U.S. – and he wants to turn America’s foreign policy around 180 degrees.

The run-down PIX Theatre sign reads "Vote Trump" on Main Street in Sleepy Eye, Minnesota. July 15, 2016. (Photo by Tony Webster Flickr)

The run-down PIX Theatre sign reads “Vote Trump” on Main Street in Sleepy Eye, Minnesota. July 15, 2016. (Photo by Tony Webster Flickr)

It is an agenda that is, as it were, quite laudable. Many Americans want just this, and the transition in which we are presently in – dictated by the global elusiveness and search for growth (whatever is meant now by this term “growth”), clearly requires a different economic approach from that followed in recent decades.

As Raúl Ilargi Meijer has perceptively posited, greater self-reliance “is the future of the world, ‘post-growth’, and post-globalization. Every country, and every society, needs to focus on self-reliance, not as some idealistic luxury choice, but as a necessity. And that is not as bad or terrible as people would have you believe, and it’s not the end of the world … It is not an idealistic transition towards self-sufficiency, it’s simply and inevitably what’s left, once unfettered growth hits the skids. …

“Our entire world views and ‘philosophies’ are based on ever more and ever bigger and then some, and our entire economies are built upon it. That has already made us ignore the decline of our real markets for many years now. We focus on data about stock markets and the like, and ignore the demise of our respective heartlands, and flyover countries …

“Donald Trump looks very much like the ideal fit for this transition … What matters [here] is that he promises to bring back jobs to America, and that’s what the country needs … Not so they can then export their products, but to consume them at home, and sell them in the domestic market …There’s nothing wrong or negative with an American buying products made in America instead of in China.

“There’s nothing economically – let alone morally – wrong with people producing what they and their families and close neighbours themselves want, and need, without hauling it halfway around the world for a meagre profit. At least not for the man in the street. It’s not a threat to our ‘open societies’, as many claim. That openness does not depend on having things shipped to your stores over 1000s of miles, that you could have made yourselves, at a potentially huge benefit to your local economy. An ‘open society’ is a state of mind, be it collective or personal. It’s not something that’s for sale.”

A Great Wish

That’s Trump’s ostensible great wish, (it seems). It is not an unworthy one, but things have changed: America is no longer what it was in the Nineteenth or Twentieth centuries, neither in terms of untapped natural resources, nor societally. And nor is the rest of the world the same either.

Mr. Trump rather unfortunately may find that his chief task will not be the management of this Great Re-orientation, but more prosaically, fending off the headwinds which he will face as he hauls on the tiller of the economy.

In short, there is a real prospect that his ambitious economic “remake” may well be prematurely punctured by financial crisis.

These headwinds will not be of his making, and for the main part, they lie beyond human agency per se. They are structural, and they are multiple. They represent the accumulation of an earlier monetary doctrine which will fetter the President-elect into a small corner from which any chosen exit will carry adverse implications.

Ditto for anyone else trying to steer any ship of state in this contemporary global economy. Paradoxically – in an era moving toward greater self-sufficiency – what success Trump may have, however, will likely depend not on self-reliance so much as he would like.

For his foreign policy about turn, he will depend on finding common interest with Russian President Vladimir Putin (that should not be too hard) – and for the economic “about turn” – on Trump’s ability not to confront China, but to come to some modus vivendi with President Xi (less easy).

“Things are not what they were.” Complexity “theory” tells us that trying to repeat what worked earlier – in very different conditions – will likely not work if repeated later. In the Clinton era, for example, 85 percent of the U.S. population growth derived from the working-age population. The headwind that Trump will face is that, over the next eight years, 80 percent of the population growth will comprise 65+ year olds. And 65+ year olds are not a good engine of economic growth. This is not an uniquely American problem; it is a global trend too.

“The peak growth” (according to Econimica blog), “in the annual combined working age population (15-64 year/olds) among all the 35 wealthy OECD nations, China, Brazil, and Russia has collapsed since its 1981 peak. The annual growth in the working age population among these nations has fallen from +29 million a year to just +1 million in 2016 … but from here on, the working age population will be declining every year … These nations make up almost three quarters of all global demand for oil and exports in general. But their combined working age populations will shrink every year, from here on (surely for decades and perhaps far longer). Global demand for nearly everything is set to suffer.

(FFR stands for Federal Funds Rate: i.e. the US key interest rate) Source: https://econimica.blogspot.it/2016/11/trump-lies-no-different-than-obama-or.html

(FFR stands for Federal Funds Rate: i.e. the US key interest rate) Source: https://econimica.blogspot.it/2016/11/trump-lies-no-different-than-obama-or.html

And then there is China: It too is passing through a difficult “transition” from the old economy to an “innovative” one. It too, has an aging population and a debt problem (with a debt-to-gross domestic ratio reaching 247 percent). Trump argues that China deliberately holds down the value of its currency to gain unfair trade advantage, and he further suggests that he intends to confront the Chinese government on this key issue.

Again, Trump does have a point (many nations are managing their exchange rates precisely in order to try to “steal” a little bit extra growth from the diminished global pot). But as noted at Zerohedge, citing the analysis of One River Asset Management executive Eric Peters:

“What’s good for the US in this case [the rising dollar and interest rates in anticipation of ‘Trumponomics’], is not good for emerging markets (EMs). Emerging markets benefit from a weaker dollar, and you’re not going to get that. Emerging markets benefit from global capital flows moving in their direction and that’s not happening either. Back in February, emerging markets were in sharp decline, driven by (1) a strong dollar, (2) rising US interest rates, and (3) slowing Chinese growth. Then China spurred a massive credit stimulus, the Fed became wildly dovish, and the dollar declined sharply.

“Interest rates collapsed throughout the year. As the growing pool of dollar, euro and yen liquidity searched for a decent return, it headed to emerging markets. Trump has reignited the dollar rally, and his fiscal stimulus will force interest rates higher. This reversed everything. [the dollars are heading home]

“And to be sure, the Beijing boys don’t want to see material weakness ahead of next autumn’s Party Congress. But we’re currently near peak impulse from China’s Q1 stimulus.”

In short, Peters is saying that, with the appreciating dollar and rising interest rate environment, growth from emerging markets as a whole will falter, since emerging markets have effectively leveraged their economies to Chinese growth. It used to be the case that they were closely tied to U.S. growth, but it is now China which dominates the EMs’ trade flows [i.e. without China growth, the EMs languish]. The question is, can America reboot its growth whilst China and the EMs languish? It is another structural shift, whereas heretofore, it was vice versa: without U.S. growth, the EMs and China languished. Now it is the converse.

Hollowed-Out Economies

There are other structural changes of course which will make it harder for the industrially hollowed-out economies of the West to recuperate jobs off-shored earlier. Firstly, there has been a systemic shift of innovation and technology eastwards (often to a more skilled and better-educated workforce). This represents not only an economic event, but a redistribution of power too. In any case, technology in this new era is being more job destructive than creative.

In one sense, Trump’s economic plan to “get America working again” through massive debt-financed, infrastructure projects, harks back to the Reagan era, which was also a period in which the dollar was strong. But yet again, “things today are not what they were then.” Inflation then was at 13 percent, Interest rates were around 20 percent, and crucially, the U.S. debt to GDP ratio was a mere 35 percent (compared to today’s estimate of 71.8 percent or 104.5 percent with external debt included).

Then, as Jim Rickards has suggested, the strong dollar was deflationary (deliberately so), and interest rates had nowhere to go, but down. It was the beginning of the three decades’ bond boom, which finally seems to have come to an end, coincident with Trump’s election. Today, inflation has nowhere to go but up – as have interest rates – and the bond market, nowhere to go, but (perilously) down.

Growth and Jobs?

Can Trump then achieve growth and jobs through infrastructure expenditure? Well, “growth” is an ambiguous, shape-shifting term. The first chart shows both sides of the equation … the annual GDP growth and the annual federal debt incurred, spent, and (thus counted as part of the growth) to achieve the purported growth.

Source: https://econimica.blogspot.it/2016/11/trump-lies-no-different-than-obama-or.html

Source: https://econimica.blogspot.it/2016/11/trump-lies-no-different-than-obama-or.html

The second chart shows the annual GDP minus the annual growth in federal debt to achieve that “GDP growth.” In other words, unlike in the earlier Reagan times, more recently, the debt is producing no growth – but … well … just more debt, mostly.

In fact, what the second chart is reflecting is the dilution – through money “printing” – of purchasing power: away from one entity (the American consumer), through the intermediation of the financial sector, to other entities (mostly financial entities, and to corporations buying back their own shares). This is debt deflation: the American consumer ends having less and less purchasing power (in the sense of residual discretionary income).

The point here is that “growth” is becoming rarer everywhere. Russia and China, like everyone else, are in search for new sources for growth.

As Rickards has said, debt is the “devil” that can undo Trump’s whole schema: a “$1 trillion infrastructure refurbishment plan, along with his proposal to rebuild the military, will — at least in the short-term — significantly increase annual deficits. In fact, deficits are already soaring; the fiscal 2016 budget hole jumped to $587 billion, up from $438 in the prior year, for a huge 34% increase…in addition to this, Trump’s protectionist trade policies would implement either a 35% tariff on certain imports or would require these goods to be produced inside the United States, at much higher prices. For example, the increase in labor costs from goods made in China would be 190% when compared to the federally mandated minimum wage earner in the United States. Hence, inflation is on the way.”

In sum, self-sufficiency implies higher domestic costs and price rises for consumers.

Debt will rise. And there is seemingly already a buyers’ strike against U.S. government debt underway: well over a third of a $1 trillion worth of Treasuries were disposed of, and sold in the year to Aug. 31 by foreign Central Banks. And who is buying it? (Below, the chart shows what this purchasing looks like, as a percentage of total debt issued by the Treasury). Well, foreign central banks have disappeared. (The Chinese have not bought a U.S. Treasury bond since 2011.)

(Above: who purchased the marketable debt as a percentage, by period) Source: https://econimica.blogspot.it/2016/11/trump-lies-no-different-than-obama-or.html

(Above: who purchased the marketable debt as a percentage, by period)
Source.

 

It is the American public who are buying. Will they be willing to take on Trump’s $1 trillion infrastructure spree? Or, will it be “printed” in yet another dilution of the American consumer’s purchasing power? The question of whether the infrastructure splurge does give growth hangs very much in the balance to such answers. (Equity shares in construction firms will do okay, of course).

The bottom line: (Michael Pento, Pento Report): “If interest rates continue to rise it won’t just be bond prices that will collapse. It will be every asset that has been priced off that so called ‘risk free rate of return’ offered by sovereign debt. The painful lesson will then be learned that having a virtual zero interest rate policy for the past 90 months wasn’t at all risk free. All of the asset prices negative interest rates have so massively distorted including; corporate debt, municipal bonds, REITs, CLOs, equities, commodities, luxury cars, art, all fixed income assets and their proxies, and everything in between, will fall concurrently along with the global economy.

“For the record, a normalization of bond yields would be very healthy for the economy in the long-run, as it is necessary to reconcile the massive economic imbalances now in existence. However, President Trump will want no part of the depression that would run concurrently with collapsing real estate, equity and bond prices.”

A Pending Financial Crisis

Trump, to be fair, has said consistently throughout the election campaign that whoever won the Presidential campaign to take office in January would face a financial crisis. Perhaps he will not face the “violent unwind” of the QE and bond bubble as some experts have predicted, but many more – according to Bank of America’s survey of 177 fund managers over the last six days, and controlling just under half a trillion of assets – expect a “stagflationary bond crash.”

This has major political implications. Trump is setting out to do no less than transform the economy and foreign policy of the U.S. He is doing this against a backdrop of many of the followers of the liberal élite, so angered at the election outcome, that they reject completely his electoral legitimacy (and, with the élites themselves staying mum at this rejection of the U.S. democratic process). Movements are being organized to wreck his Presidency (see here for example). If Trump does indeed experience a severe financial “unwind” at a time of such domestic anger and agitation, matters could turn quite ugly.

 

 

Alastair Crooke is a former British diplomat who was a senior figure in British intelligence and in European Union diplomacy. He is the founder and director of the Conflicts Forum, which advocates for engagement between political Islam and the West.

Jul 022016
 
 July 2, 2016  Posted by at 4:38 pm Finance Tagged with: , , , , , , , , ,  


Jack Delano “Lower Manhattan seen from the S.S. Coamo leaving New York.” 1941

Brexit is nowhere near the biggest challenge to western economies. And not just because it has devolved into a two-bit theater piece. Though we should not forget the value of that development: it lays bare the real Albion and the power hunger of its supposed leaders. From xenophobia and racism on the streets, to back-stabbing in dimly lit smoky backrooms, there’s not a states(wo)man in sight, and none will be forthcoming. Only sell-outs need apply.

The only person with an ounce of integrity left is Jeremy Corbyn, but his Labour party is dead, which is why he must fight off an entire horde of zombies. Unless Corbyn leaves labour and starts Podemos UK, he’s gone too. The current infighting on both the left and right means there is a unique window for something new, but Brits love what they think are their traditions, plus Corbyn has been Labour all his life, and he just won’t see it.

The main threat inside the EU isn’t Brexit either. It’s Italy. Whose banks sit on over 30% of all eurozone non-performing loans, while its GDP is about 10% of EU GDP. How they would defend it I don’t know, they’re probably counting on not having to, but Juncker and Tusk’s European Commission has apparently approved a scheme worth €150 billion that will allow these banks to issue quasi-sovereign bonds when they come under attack. An attack that is now even more guaranteed to occcur than before.

 

Still, none of Europe’s internal affairs have anything on what’s coming in from the east. Reading between the lines of Japan’s Tankan survey numbers there is only one possible conclusion: the ongoing and ever more costly utter failure of Abenomics continues unabated.

It’s developing in pretty much the exact way I said it would when Shinzo Abe first announced the policies in late 2012. Not that it was such a brilliant insight, all you had to know is that Abe and his central bank head Kuroda don’t understand what their mastodont problem, deflation, actually is, and that means they are powerless to solve it.

That Abe said somewhere along the way that all that was needed was his people’s confidence to make Abenomics work, says more than enough. The multiple flip-flops over a sales-tax increase say the rest. People don’t become more confident just because someone tells them to; that has the opposite effect. Deflation results from reduced spending, which in turn comes from not only decreasing confidence as well as a decrease in money people have available to spend.

That modern economics sees everything not spent as ‘savings’ adds significantly to the failure -on the part of Abe, Kuroda and just about everyone else- to understand what happened in Japan over the past 2-3 decades. To repeat once again, inflation/deflation is the velocity of money multiplied by money- and credit supply. The latter factor has in general gone through the roof, but that means zilch if the former -velocity- tanks.

That this velocity is -still- tanking, in Japan as well as in the western world, is due to, more than anything else, an unparalleled surge in debt. At some point, that will catch up with any economy and society. Even if they are growing, which our economies are not. Growth has been replaced with credit, and credit is debt. It’s safe to say that money velocity cannot possibly ‘recover’ until large swaths of debt have been cancelled, one way or another.

For Japan we saw this week that “..household spending fell for the third straight month in May and core consumer prices suffered their biggest annual drop since 2013..” (Reuters) while “..The Topix index dropped about 9% in June, plunging on June 24 with the Brexit vote, the most since the aftermath of the 2011 earthquake. The yen strengthened about 8% against the dollar in June.. (Bloomberg).

Japan has an upper-house election in a little over a week, and it seems like Abe can still feel comfortable about his position. A remarkable thing. The country needs to stop digging, it’s in a more than 400% debt-to-GDP hole, but Abe won’t listen. The rising yen is suffocating what is left of the economy, as are the negative interest rates, but all the talk is about ‘further easing’.

 

Still, Japan is outta here, and this has been obvious for a long time to the more observant observer. In the case of China, it is a more recent phenomenon, and it will even be disputed for a while to come. It’s also one that will have a much more devastating effect on the west. We’ve seen problems in various markets in Singapore, Macau and Hong Kong, but the real issues on the mainland are still to be sprung on us.

Mainland stock exchanges are as good a place as any to begin with. The combined tally for Shanghai and Shenzhen looks like this -data till June 23-; yes, that’s a loss of over 40% in the past year.

Beijing has been trying very hard to paper over these numbers, even quit supporting it all for a while through 2014, only to do a 180º when they didn’t like what they saw (foreign reserves drawdown), and now PBoC injections have gone bonkers: $316 billion in one month would mean $4 trillion on a yearly basis in what is really nothing but monopoly money.

Meanwhile, corporate bonds are, perhaps partly because of volatility, becoming an endangered species. Maybe the PBoC can do something there as well, the way Draghi does in Europe (must be high on the agenda), but there’s already so much bad debt we hardly dare watch.

China must and will try to keep boosting exports by devaluing the yuan. It’s just waiting for an opportunity to do it without being accused of currency manipulation. Perhaps it can create that opportunity?! Create a crisis and then use it?! Regardless, this Reuters headline yesterday sounded very tongue in cheek:

China To ‘Tolerate’ Weaker Yuan

China’s central bank would tolerate a fall in the yuan to as low as 6.8 per dollar in 2016 to support the economy, which would mean the currency matching last year’s record decline of 4.5%, policy sources said. The yuan is already trading at its lowest level in more than five years, so the central bank would ensure any decline is gradual for fear of triggering capital outflows and criticism from trading partners such as the United States, said government economists and advisers involved in regular policy discussions. Presumptive U.S. Republican Presidential nominee Donald Trump already has China in his sights, saying on Wednesday he would label China a currency manipulator if elected in November.

Note: remember Japan above? The yen rose 8% against the USD just in June, as the yuan fell by just 4.5% in all of 2015 (6.8% over the past 2 years). Now you go figure what’s happening to Japan-China trade. And the yuan is still hugely overvalued. But the desire to be part of the IMF basket of currencies comes with obligations. Trump doesn’t help either.

I said in the beginning of this year that a 30% devaluation was something of a minimum, and that certainly continues to stand. So yeah, creating a crisis may be the only way out. An accident in the South China Sea perhaps. Combined with a ‘tolerance’ for a 50% weaker yuan….

All of the above leads us to the title of this essay: deflation is coming in from the east. China’s economy’s already in deflation, even though it will take some time yet to be acknowledged. A very ‘nice’ report from Crescat Capital provides a bunch of clues.

China QE Dwarfs Japan and EU

In July of 2014, we wrote about the huge imbalance with respect to China’s M2 money supply and nominal GDP relative to the US. At the time, China’s M2 money supply was 71% higher than the US but its economy was 56% smaller, which we said was an indication of the overvaluation of the Chinese currency. Since that time, the yuan has fallen by only 6.8% relative to the dollar. We haven’t seen anything yet.

Today, the circumstances have significantly worsened. Money supply has continued to grow faster than GDP. With over $30 trillion of assets in its banking system and an underappreciated non-performing loan problem, we are convinced that China is headed for a twin banking and currency crisis. Money velocity has reached historically low levels which reflects China’s extreme credit imbalance and its crimping impact on its ability to generate future real GDP growth.

Just as worrying as the immense amount of credit built up, China has been reporting major downward revisions in its balance of payments (BoP) accounts. For more than a decade, China had been reporting an impossible twin surplus in its BoP accounts. When we wrote about this issue in 2014, we emphasized the likelihood of massive illicit capital outflows that not been accounted for. At that time, according to the State Administration of Foreign Exchange of China (SAFE), China had accumulated a BoP imbalance that was close to $9.4 trillion surplus since 2000 which we believed represented capital outflows that should have been recorded in the capital account.

The same accumulated BoP number today, revised by SAFE several times since, is now a deficit of about $2.8 trillion. Essentially, with its revisions, the SAFE has acknowledged even more capital outflows over the last 16 years than we had initially identified. On the capital account side, there was a downward revision of $10.1 trillion – from a $4.2 trillion surplus to a $5.9 trillion deficit. On the current account side, the revisions show that Chinese exports have not been as strong as initially reported over the last decade and a half. China’s current account surplus has been reduced by $2.1 trillion– going from $5.1 trillion to $2.9 trillion over the last 16 years. What we initially considered to be a $9.4 trillion imbalance has been more than proven by a $12.2 trillion revision.

Those are some pretty damning numbers, if you sit on them for a bit. There was another graph that came with that report that takes us head first into deflationary territory. China’s velocity of money:

That is utterly devastating. It’s what we see in the US, EU and Japan too, but ‘we’ have thus far been able to export our deflation -to an extent- to … China. No more. China has started exporting its own deflation to the west. Beijing MUST devalue its currency anywhere in the range of 30-50% or its export sector will collapse. It is not difficult.

That it will have to achieve this despite the objections of Donald Trump and the IMF is just a minor pain; Xi Jinping has more pressing matters on his mind. Like pitchforks.

The ‘normal’ response in economics would be: in order to fight deflation, increase consumer spending (aka raise money velocity)! But as we’ve seen with Japan, that’s much easier said than done. Because there are reasons people are not spending. And the only way to overcome that is to guarantee them a good income for a solid time into the future, in an economy that induces confidence.

That is not happening in Japan, or the US or EU, and it’s now gone in China too. Beijing has another additional issue that (formerly) rich countries don’t have. This is from a recent Marketwatch article on Andy Xie:

China Is Headed For A 1929-Style Depression

[..] Xie said China’s trajectory instead resembles the one that led to the Great Depression, when the expansion of credit, loose monetary policy and a widespread belief that asset prices would never fall contributed to rampant speculation that ended with a crippling market crash. China in 2016 looks much the same, according to Xie, with half of the country’s debt propping up real-estate prices and heavy leverage in the stock market – indicating that conditions are ripe for a correction. “The government is allowing speculation by providing cheap financing .. China “is riding a tiger and is terrified of a crash. So it keeps pumping cash into the economy. It is difficult to see how China can avoid a crisis.”

And then check this out:

China’s GDP grew 6.9% in 2015, its slowest pace in a quarter-century. For 2016, Beijing has set a GDP target of 6.5% to 7%; The latest spate of global uncertainties prompted Bank of America Merrill Lynch and Deutsche Bank to trim their forecasts to 6.4% and 6.6%, respectively. The export sector, long a driver of Chinese growth, is sputtering due to global saturation and household consumption is barely 30% of China’s GDP, Xie said. In the U.S., household consumption accounted for more than 68% of GDP in 2014, according to the World Bank.

Yeah, China is supposed to be going from an export driven- to a consumer driven economy. Problem with that seems to be that those consumers would need money to spend, and to earn that money they would need to work in export industries (since there is not nearly enough domestic demand). Bit of a Catch 22. And definitely not one you would want to find yourself in when the global economy is tanking.

The more monopoly money Beijing prints, the more pressure there will be on the yuan. And if they themselves don’t devalue the yuan, the markets will do it for them.

Kyle Bass says China’s $3 trillion corporate bond market is “freezing up” (see the third graph above), which threatens to undermine the $3.5 trillion market for the wealth management products Chinese mom and pops invest in. He expects a whopping $3 trillion in bank losses, an amount equal to the entire corporate bond market (!) “to trigger a bailout, with the central bank slashing reserve requirements, cutting the deposit rate to zero and expanding its balance sheet – all of which will weigh on the yuan.”

With the yuan down by as much as it would seem to be on course for, wages and prices in the west will plummet. This wave of deflation is set to hit western economies already in deflation and already drowning in private debt, and therefore equipped with severely weakened defenses.

Leonard Cohen once wrote a song called “Democracy Is Coming To The USA”. Maybe someone can do a version that says deflation is coming too. Not sure that’s good for democracy, though.

Have a great Holiday Weekend.

Mar 312016
 
 March 31, 2016  Posted by at 8:40 am Finance Tagged with: , , , , , , , , ,  


DPC Station at foot of incline, American Falls, Niagara Falls 1890

Americans Are Spending Again – But With Less Income (WSJ)
Britain Sacrifices Steel Industry To Curry Favour With China (AEP)
China Produced More Steel In 2 Years Than The UK Did Since 1870 (Conway)
China Ends This Quarter With The World’s Worst-Performing Stock Market (BBG)
China Investment Bank Defaults On ‘Dim Sum’ Bond (FT)
China’s Little Emperors Prop Up Aussie Housing Market (BBG)
China’s Largest Banks Post Lowest Annual Profit In A Decade (WSJ)
Saudi Aramco Expanding Oil and Gas Projects Even With Low Prices (BBG)
The World’s Largest Public Oil And Gas Companies (Rapier)
Bitcoin Technology’s Next Big Test: Trillion-Dollar Repo Market (WSJ)
Growth Of Fintech Forecast To Spur Almost 2 Million Banking Job Cuts (FT)
The Bribe Factory – How The West Corrupts The Middle East (SMH)
Pathocracy: The Rise Of The Political Psychopath (Whitehead)
Russia Vows ‘Totally Asymmetrical’ Response To US Troop Build-Up In Europe (RT)
Sea Levels Set To ‘Rise Far More Rapidly Than Expected’
Europe Is Too Important To Be Left To Its Clueless Rulers – Varoufakis (Tel.)
Refugees Run For Rio Olympic Dream Team (AFP)
Austria To Tighten Asylum Rules (P.)
Refugee Arrivals To Greece Rise Sharply Despite EU-Turkey Deal (Reuters)

There’s one way left only in which spending today can increase: debt must increase too: “..in 2004, a typical household in the lower third had $1,500 left over after expenses. By 2014, such households were $2,300 in the red.”

Americans Are Spending Again – But With Less Income (WSJ)

U.S. household spending has fully recovered since the latest recession, but income hasn’t, squeezing budgets and pushing many lower-income families into the red, according to a Pew Charitable Trusts report out Wednesday. “The lack of financial flexibility threatens low-income households’ financial security in the short term and their economic mobility in the long term,” the report said. Pew tracked inflation-adjusted expenditures and incomes of working-age Americans, ages 20 to 60, from 1996 to 2014. The results show the downturn and recovery for spending in the aftermath of the 2007-09 recession but also highlight stagnating incomes (including wages, government benefits and transfers, pensions, child support and other sources).

The study helps illustrate broader economic themes, including a slow recovery underpinned by steady job creation and rising consumer spending, alongside paltry wage growth and growing income inequality. Pew found that as of 2014, median income before taxes had fallen by 13% from a decade earlier, while expenditures had increased by nearly 14%. That left families across the income spectrum with fewer funds for savings and investment in things like education. Housing, transportation and food drove much of the rise in spending, leaving families with less financial wiggle room. Low-income families may not see much of an alternative to spending more on shelter, commuting costs and putting food on the table. Indeed, rent is now eating up nearly half of the income of low-income families, Pew found.

“That increase in the cost for shelter is a really important piece about why families at the bottom don’t feel financially stable,” said Erin Currier, director of the financial security and mobility project at Pew. “So many families are walking a financial tightrope—their core needs are getting more expensive and incomes aren’t rising to meet those costs.” That’s left many running a personal budget deficit despite spending less on restaurants, entertainment and other discretionary goods and services. Pew’s analysis found that in 2004, a typical household in the lower third had $1,500 left over after expenses. By 2014, such households were $2,300 in the red.

Read more …

Cameron has to save face now because of the publicity on the topic.

Britain Sacrifices Steel Industry To Curry Favour With China (AEP)

Britain’s special relationship with China is becoming more expensive by the day. It now threatens to destroy the British steel industry, a foundation pillar of our manufacturing economy. Britain is not alone. Most of Europe’s steel foundries are heading for annihilation under the current EU trade regime, with unthinkable consequences through the network of European and British supply chains. It is hard to pin down the exact moment when George Osborne’s love affair with China turned into a Faustian Pact. What we know is that the British government has for the last three years been blocking efforts by the EU to equip itself with the sort of anti-dumping weaponry used by Washington to confront China. The EU trade directorate has been rendered toothless by a British veto. So much for the canard that the UK has no influence in Brussels.

“The British are sacrificing an entire European industry to say thank you to China for signing up to the nuclear power project at Hinkley Point, and pretending it is about free trade,” said one official in Brussels bitterly. What they are blocking is a change to an EU regulation intended to beef up Europe’s ‘trade defence instruments’ (TDI), enabling it to respond much more quickly to Chinese dumping and too impose much tougher penalties. The British have cobbled together a blocking minority in the council, much to the annoyance of the French, Italians, Spanish, and Germans. The UK view is that the Commission mixed up good changes with bad changes, and that punitive tariffs merely hurt your own consumers, so you shoot yourself in the foot.

Yet the outcome is that it still takes Brussels 16 months to crank up full sanctions, twice as long as it takes the US. It is why the EU limits itself to a ‘Lesser Duty’ regime that often fails to reflects the full injury. While Washington has slapped penalties of 267pc on Chinese cold-rolled steel, the EU peashooter has so far managed just 13pc. Redcar has already paid the price for this ultra-free trade ideology, and Port Talbot is about to follow. There will eventually be little left if the current drift in trade policy is allowed to continue. China’s share of global steel output has risen from 10pc to 50pc over the last decade. It has installed capacity of 1.2bn tonnes a year that it can never hope to absorb as the construction boom deflates.

On OECD estimates it has built up 400m tonnes of excess capacity, twice the EU’s entire steel production. China’s unwanted steel is finding its way systematically into Europe, greased by export subsidies, tax breaks, cheap state credit, and the panoply of measures used by a mercantilist power to rig global trade. China has captured 45pc of the UK market for high fatigue rebar steel, from near zero four years ago. The price of hot rolled steel in Europe has fallen to $369 a tonne from an average of $650 from 2009 to 2013.

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Are people ready to acknowledge the extent of China’s bubble? I doubt it.

China Produced More Steel In 2 Years Than The UK Did Since 1870 (Conway)

Here’s a nugget that goes at least some of the way towards explaining the current woes of the British steel industry: in the past two years alone China has produced more steel than the total cumulative output of the UK since the industrial revolution. Or consider this: at today’s rate of production, it would take 68 years for Britain to generate the steel China churns out of its mills in a single year. Take a moment to digest these facts, because you simply cannot understand the pressures faced by the British, or for that matter every country’s steel industry without considering China. Steel is, of course the critical ingredient in modern manufacturing and construction. If you are making something – anything – chances are you will need steel to make it with, whether that’s a car, a rail line, a can of food or a skyscraper.

And to start with, China was a positive story for Britain’s steel industry. As it expanded over recent decades it initially didn’t produce enough steel of its own to satisfy its seemingly limitless domestic appetite for steel – from Chinese construction to Chinese cities desperate to expand, to Chinese manufacturers pumping out goods around the world. It became an important destination for UK exports. However, gradually the country has built its own steel industry – and what an industry. Since 1980 China has gone from producing 5% of the world’s steel to making more than half of it – just over 800m tonnes.

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But of course, this being Bloomberg and all, here comes the silver lining.

China Ends This Quarter With The World’s Worst-Performing Stock Market (BBG)

China’s Shanghai Composite Index is closing out the first quarter as the world’s worst-performing global measure, down 15%, with a rebound in March failing to compensate for a terrible start to the year. Here are some key metrics that may show this month’s 12% recovery may extend into April, including growth in margin lending, a jump in the number of new investors and easing volatility. Leverage is increasing, suggesting individual investors are slowly regaining confidence after getting burned last year. The value of outstanding margin loans, the fuel for the 2015 boom, is up about 6% to about 874 billion yuan ($135 billion) since touching a 15-month low on March 16. A state-backed agency restarted offering some loans to brokerages to fund clients’ borrowed bets, signaling a loosening of policies put in place to stem the market rout.

Volatility is receding. Thirty-day price swings in the Shanghai gauge have plunged since soaring to a four-month high in February. Volatility began to rise at the start of January, when regulators introduced a circuit-breaker system meant to reduce wild market movements. The circuit breakers had the opposite effect – trading was suspended twice in the first week due to steep declines before the mechanism was shelved altogether. The ChiNext index re-entered a bull market this month, rebounding 20% from a February low. The small-cap gauge, dominated by technology and consumer companies, has become a leading indicator for the Shanghai index. It entered a bull market in October, a month before the large-cap gauge did, and lapsed into a bear market a week before the Shanghai gauge followed suit.

The number of new stock investors rose to a nine-month high of 535,000 in the week ended March 25, as a rebound in margin trading and a market recovery led more people to open trading accounts. Retail investors account for 80% of stock trading. While the valuation of the Shanghai Composite is almost down 40% from a June high, it’s still 15% pricier than the MSCI Emerging Market index, according to data compiled by Bloomberg. Almost 60% of the 240 Shanghai-listed companies with full-year earnings estimates compiled by Bloomberg have missed projections so far.

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So far it was oil, steel, gas firms; now the banks start?!

China Investment Bank Defaults On ‘Dim Sum’ Bond (FT)

A unit of Guosen Securities, China’s eighth-largest investment bank, has defaulted on a Kong Kong-traded renminbi bond, according to a document seen by the Financial Times, marking the first debt breach by a state-owned enterprise in China’s offshore bond market in nearly two decades. The technical default by Guosen’s Hong Kong affiliate puts at risk a Rmb38m ($5.9m) coupon payment due April 24 on Rmb1.2bn in “dim sum” bonds sold in 2014. Missing that payment would set a precedent for the offshore units of Chinese SOEs, whose creditors widely assume the onshore parent will always stand behind its affiliates, according to analysts. The default was unexpected because Guosen’s onshore unit is by all appearances in rude health. With the city government of Shenzhen as its largest shareholder, Guosen Securities was fourth on the league table for stock and bond underwriting in 2015, according to AsiaMoney.

The Shenzhen-listed brokerage earned net profit of Rmb14.2bn in 2015, up 188% from a year earlier, according to a filing in January. It ranked eighth among mainland brokerages by assets at the end of 2014, according to industry association figures. Like other Chinese securities companies, Guosen benefited from a surge in stock trading commissions during China’s equity market roller coaster last year. But its offshore unit, Guosen Securities (HK) Financial Holdings, has struggled to gain a foothold in Hong Kong’s capital markets, where foreign and mainland banks compete on a more level playing field. A special purpose vehicle owned by Guosen (HK) issued the bonds in April 2014 at an interest rate of 6.4%.

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It may already be too late to sell.

China’s Little Emperors Prop Up Aussie Housing Market (BBG)

Han Fantong, an accountant, beat almost 60 other bidders to buy a three-bedroom home in Melbourne in November for A$930,000 ($709,000). He had an advantage – full funding from his parents back in China. Han, 32, an Australian permanent resident, bought the house on 688 square meters (7,400 square feet) of land in Ringwood East, about 30 kilometers (19 miles) east of Melbourne’s business district, after a five-month search. His parents sold a 23-year-old two-bedroom apartment in Beijing for 8.1 million yuan ($1.2 million) to help pay for the property, he said by phone. “It comes as a tradition in China to buy a home for a son to establish a family,” said Han who lives in the house with his 29-year-old wife Chen Junyang. “Without my parents, it would still be difficult for us to bear the large mortgage loans.”

Han is among scores of buyers who with the backing of relatives in China are underpinning a housing market in Australia that’s coming off the boil. More than half the buyers of Chinese origin are supported financially by relatives residing in the world’s second-largest economy, according to McGrath, Australia’s only listed real estate agency. The firm’s China desk has assisted in sales worth A$140 million since it was established in September 2013. Such demand, whether from permanent residents or overseas buyers, has triggered community concern that locals are being priced out of Australia’s property market. The government has responded to the unease with tighter scrutiny of foreign investment that critics say may deter much-needed offshore capital.

“Chinese buying in Sydney and Melbourne has stepped up from say where it was five years ago, but publicity around that has created a perception which has run ahead of reality,” said Shane Oliver at AMP Capital Investors in Sydney. “The Chinese demand – both from mainland China and Chinese Australians – is propping up the market and boosting construction.” [..] Purchases by foreigners, many with a connection to China, helped drive an almost 55% jump in home prices across Australia’s capital cities in the past seven years as mortgage rates dropped to five-decade lows. The median Sydney home price reached a record A$800,000 in October, according to research firm CoreLogic data. It has since fallen after a regulatory clampdown led to a slowdown in mortgages to landlords and the first increase in borrowing costs in five years.

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And that’s just official numbers. As is 1.67% in bad loans, which “..could be as high as 8.1% this year; other analysts have projected even higher estimates.” That’s perspective.

China’s Largest Banks Post Lowest Annual Profit In A Decade (WSJ)

China’s biggest banks posted their lowest annual profit growth in a decade, as bad loans mount in an ailing economy that is pushing lenders toward riskier avenues of expansion. Three major banks that reported 2015 results on Wednesday said they wrote off 142 billion yuan ($21.85 billion) in irrecoverable debt last year, 1.4 times the volume in 2014, an indication that their customers—many of them state-owned industrial companies—are struggling to repay loans. Profits for the three banks were nearly flat, compared with industry growth rates of close to 40% just three years ago. Banks are building ever-larger capital buffers to cover bad loans as Chinese companies flounder under a severe overhang of real-estate inventory and excess industrial capacity.

The prevalence of bad loans means booming business for asset-restructuring companies—state-owned “bad banks” set up to soak up and sell off soured debt—prompting conventional banks to explore ways to keep such deals for themselves. Net profit overall among commercial lenders rose 2.4% last year, compared with 9.6% a year earlier, according to figures put out recently by the China Banking Regulatory Commission. On Wednesday, China’s largest bank by assets, Industrial & Commercial Bank of China, posted 0.5% profit growth to 277.1 billion yuan ($42.65 billion) for 2015. “The operating results were achieved on top of a high base in light of mounting growth-related difficulties,” ICBC said in its annual report. “The larger the total profit, the harder the growth will be.”

[..] Industrywide, nonperforming loans rose to 1.67% of total loans last year from 1.25% in 2014, the China Banking Regulatory Commission said. Investment bank China International Capital estimated the true ratio could be as high as 8.1% this year; other analysts have projected even higher estimates. Credit is souring so fast that commercial lenders are having a hard time expanding capital provisions to keep pace. Two years ago, China Construction Bank was setting aside a buffer that was more than twice the size of its bad loans. Last year, that ratio had fallen to 1.5 times, it said Wednesday. Slowing profit growth has forced many Chinese banks, especially midsize lenders, to invest aggressively in shadow-banking assets such as trust and wealth-management products. Such holdings, termed “investment receivables,” are opaque cocktails of high-yield assets that could jeopardize liquidity should banks need to offload them if markets turn turbulent, analysts say.

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They have no choice. No major or even minor oil producer does.

Saudi Aramco Expanding Oil and Gas Projects Even With Low Prices (BBG)

Saudi Arabian Oil Co. is pressing ahead with an expansion of the Khurais oil field despite lower crude prices and plans to double its production of natural gas over the next 10 years, the company’s chief executive officer said. The world’s biggest oil exporter, known as Saudi Aramco, won’t cancel any oil, gas or refining projects, Amin Nasser told reporters during a conference in Al-Ahsa in eastern Saudi Arabia. Aramco is also studying a possible expansion of the country’s largest oil refinery, Ras Tanura, which has a capacity of 550,000 barrels a day, he said. “Until now all of our downstream and upstream projects are continuous,” Nasser said. “No project in our programs got canceled.”

[..][ Khurais oil field’s expansion is due to be complete in 2018, Nasser said. Aramco was seeking to add 300,000 barrels a day to the field’s production to reach a capacity of 1.5 million barrels a day, the company’s former CEO Khalid Al-Falih said in October 2013. Ghawar oil field, the world’s biggest, has been producing for 70 years and will keep pumping oil for “many years to come,” Nasser said at the conference. Sixty% of Saudi Arabia’s crude oil output comes from Ghawar, Abdul Latif Al-Othman, governor of the Saudi Arabian General Investment Authority, said at the same event. Aramco has made a “promising” shale gas discovery at the Jafurah field in the Al-Ahsa region and is assessing and appraising the area for future production, Nasser said. The company plans to double its gas production to 23 billion cubic feet a day over 10 years, he said. Aramco will also keep exploring for oil and gas in the Red Sea area, he said.

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Anything our former Oil Drum colleague Robert Rapier writes is still worth a read.

The World’s Largest Public Oil And Gas Companies (Rapier)

The past two years have been a wild ride for investors in the world’s biggest publicly traded oil companies. Compared with their high-water marks in mid-2014, Big Oil shares are down about 25% and earnings have collapsed. The big irony: even as oil prices have halved, Big Oil is still getting bigger. In July 2014 U.S. oil production was 8.75 million barrels per day, according to the Energy Information Administration. Nearly a year (and a 50% price dip) later, U.S. oil output had grown to 9.69 million bpd, its highest level in 45 years. U.S. production has since declined by more than half a million bpd to 9.07 million bpd, but global production continues to rise. From 92.4 million bpd in 2014, global oil production is up to 94.8 million bpd. A unique aspect of the recent surge is that most of the gains have not come from OPEC’s national oil companies.

While Saudi Arabia’s national oil company, Saudi Aramco, remains the world’s undisputed production leader, Western and Russian companies have added far more production over the past few years. The biggest contributor to new global oil production has been the U.S., where the shale oil boom added more than 4 million bpd of new production since 2010. In total, about two dozen countries expanded their oil production over the past five years, including Saudi Arabia, Canada, United Arab Emirates, Iraq, Kuwait and Russia. On a corporate basis, many of the companies responsible for the production increase are on our list of the World’s 25 Largest Public Oil and Gas Companies. Russian companies dominate the top of the list, which is based on the most recently published production data, accounting for more production than any other region.

Russia has been a major producer of oil and gas for decades, and when privatization took place in the 1990s a handful of extremely large companies were created that rival many of the world’s national oil companies. The U.S. has seven companies in the top 25, more than any other country, led by ExxonMobil, which is the world’s third largest public oil and gas producer. Many may not realize that China is among the world’s Top 5 oil producing countries. But PetroChina, which went public in 2007, produces almost as much oil as does ExxonMobil, and is but one of the three Chinese companies in the Top 25. European countries are well-represented on the list, as four of the world’s six integrated “supermajors” are headquartered in Europe. The largest of this group is BP , still ranked as the 5th largest oil and gas producer in the Top 25, despite its many divestments since the Deepwater Horizon disaster.

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Where wicked witch of the west Blythe Masters enters the blockchain.

Bitcoin Technology’s Next Big Test: Trillion-Dollar Repo Market (WSJ)

Depository Trust & Clearing Corp., a firm at the center of Wall Street’s trading infrastructure, is about to give the technology behind bitcoin a big test: seeing whether it can be used to bolster the $2.6 trillion repo market. DTCC said in a statement Tuesday that it will begin testing an application of blockchain, the digital ledger originally used to track ownership and payments of the cryptocurrency bitcoin, to help smooth over problems in the crucial but increasingly illiquid corner of short-term lending markets known as repurchase agreements, or “repos.” Repos play a critical role in the financial system by keeping cash and securities circulating among hedge funds, investment banks and other financial firms.

DTCC, an industry-owned utility that helps settle trades in the repo market and elsewhere, wants to apply blockchain technology to the market, so that lenders and borrowers can keep track of securities and cash flowing between firms in real time. To test blockchain’s ability to improve repo trading, DTCC has tapped Digital Asset Holdings, a startup run by former J.P. Morgan executive Blythe Masters. Earlier this year, DTCC invested in the firm focused on blockchain applications, along with a range of banks including J.P. Morgan, Goldman Sachs Group Inc., and others. Typically in repos, money-market funds lend cash to brokers in exchange for bonds and an agreement to buy back the securities later at an agreed-upon rate.

During the financial crisis however, problems in the repo markets were singled out for their role in the demise of Bear Stearns and Lehman Brothers. Now, big banks have been shying away from facilitating some repo trades due to new regulations that curtail the firms’ ability to take risks. Murray Pozmanter, managing director and head of clearing services at DTCC, said in an interview the new arrangement with Digital Asset should help because the ledger would provide a way for all firms to agree on trade terms more quickly. Currently, he said, traders have to process two legs of each trade separately: one for the borrower to deliver securities in exchange for cash, and the other in which DTCC unwinds the trade. While the trade is in motion but not yet completed, the banks involved can take on risk.

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Banks will be robots. Is that a good thing?

Growth Of Fintech Forecast To Spur Almost 2 Million Banking Job Cuts (FT)

European and US banks will cut another 1.7m jobs in the next decade as financial technology companies stalk profitable growth areas such as lending and payments, a new report by Citigroup has predicted. The 108-page Citi note takes a forensic look at where “fintech” companies are deploying their resources, how much business they have already won and the consequences for the traditional banking industry. The job cuts — equal to more than 30% of the staff the banks currently employ — come on top of the 730,000 jobs that Citi says US and European banks have already shed from their peak staffing levels. “Obviously the biggest take out will happen in countries that have been through a crisis or are tech savvy,” said Ronit Ghose, one of the authors of the report.

In the US, investment banks clearly have selectively cut a lot of people but US consumer banks haven’t cut as much … in Europe there s been little progress on branch headcount as well. The catalyst for the job cuts is twofold. One factor is the new technologies that enable banks to do more online and less in branches. The other is the financial imperative for banks to be leaner as they deal with an onslaught of new competition in their most profitable niches. High quality global journalism requires investment. Citi’s research found that lending stood out as a key battleground, accounting for 46% of the $19bn in private funding that flowed into fintech during the past six years. The next biggest was payments, accounting for 23% of the investment in fintech.

Lending and payments are both lucrative activities for banks, and losing out on market share is particularly painful when low interest rates are crippling banks’ profitability and low loan demand has made it almost impossible for them to increase revenue. “So far most of the market value in fintech has been created by companies that are embedded in the still relatively new ecosystem of ecommerce,” the report noted. “For banks in many countries, this is an opportunity lost rather than a loss of existing earnings.”

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Very interesting investigation.

The Bribe Factory – How The West Corrupts The Middle East (SMH)

A massive leak of confidential documents has for the first time exposed the true extent of corruption within the oil industry, implicating dozens of leading companies, bureaucrats and politicians in a sophisticated global web of bribery and graft. After a six-month investigation across two continents, Fairfax Media and The Huffington Post can reveal that billions of dollars of government contracts were awarded as the direct result of bribes paid on behalf of firms including British icon Rolls-Royce, US giant Halliburton, Australia’s Leighton Holdings and Korean heavyweights Samsung and Hyundai. The investigation centres on a Monaco company called Unaoil, run by the jet-setting Ahsani clan. Following a coded ad in a French newspaper, a series of clandestine meetings and midnight phone calls led to our reporters obtaining hundreds of thousands of the Ahsanis’ leaked emails and documents.

The trove reveals how they rub shoulders with royalty, party in style, mock anti-corruption agencies and operate a secret network of fixers and middlemen throughout the world’s oil producing nations. Corruption in oil production – one of the world’s richest industries and one that touches us all through our reliance on petrol – fuels inequality, robs people of their basic needs and causes social unrest in some of the world’s poorest countries. It was among the factors that prompted the Arab Spring. Fairfax Media and The Huffington Post today reveal how Unaoil carved up portions of the Middle East oil industry for the benefit of western companies between 2002 and 2012. In part two we will turn to the impoverished former Russian states to reveal the extent of misbehaviour by multinational companies including Halliburton. We will conclude the three-part investigation by showing how corrupt practices have extended deep into Asia and Africa.

The leaked files expose as corrupt two Iraqi oil ministers, a fixer linked to Syrian dictator Bashar al-Assad, senior officials from Libya’s Gaddafi regime, Iranian oil figures, powerful officials in the United Arab Emirates and a Kuwaiti operator known as “the big cheese”. Western firms involved in Unaoil’s Middle East operation include some of the world’s wealthiest and most respected companies: Rolls-Royce and Petrofac from Britain; US companies FMC Technologies, Cameron and Weatherford; Italian giants Eni and Saipem; German companies MAN Turbo (now know as MAN Diesal & Turbo) and Siemens; Dutch firm SBM Offshore; and Indian giant Larsen & Toubro. They also show the offshore arm of Australian company Leighton Holdings was involved in serious, calculated corruption.

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A point I’ve written a lot about. All our major institutions select for sociopaths (a term I’m more comfortable with in the context than psychopath).

Pathocracy: The Rise Of The Political Psychopath (Whitehead)

Twenty years ago, a newspaper headline asked the question: “What’s the difference between a politician and a psychopath?” The answer, then and now, remains the same: None. There is no difference between psychopaths and politicians. Nor is there much of a difference between the havoc wreaked on innocent lives by uncaring, unfeeling, selfish, irresponsible, parasitic criminals and elected officials who lie to their constituents, trade political favors for campaign contributions, turn a blind eye to the wishes of the electorate, cheat taxpayers out of hard-earned dollars, favor the corporate elite, entrench the military industrial complex, and spare little thought for the impact their thoughtless actions and hastily passed legislation might have on defenseless citizens.

Psychopaths and politicians both have a tendency to be selfish, callous, remorseless users of others, irresponsible, pathological liars, glib, con artists, lacking in remorse and shallow. Charismatic politicians, like criminal psychopaths, exhibit a failure to accept responsibility for their actions, have a high sense of self-worth, are chronically unstable, have socially deviant lifestyle, need constant stimulation, have parasitic lifestyles and possess unrealistic goals. It doesn’t matter whether you’re talking about Democrats or Republicans. Political psychopaths are all largely cut from the same pathological cloth, brimming with seemingly easy charm and boasting calculating minds. Such leaders eventually create pathocracies—totalitarian societies bent on power, control, and destruction of both freedom in general and those who exercise their freedoms.

Once psychopaths gain power, the result is usually some form of totalitarian government or a pathocracy. “At that point, the government operates against the interests of its own people except for favoring certain groups,” author James G. Long notes. “We are currently witnessing deliberate polarizations of American citizens, illegal actions, and massive and needless acquisition of debt. This is typical of psychopathic systems, and very similar things happened in the Soviet Union as it overextended and collapsed.” In other words, electing a psychopath to public office is tantamount to national hara-kiri, the ritualized act of self-annihilation, self-destruction and suicide. It signals the demise of democratic government and lays the groundwork for a totalitarian regime that is legalistic, militaristic, inflexible, intolerant and inhuman.

So why do we keep doing it over and over again? There’s no shortage of dire warnings about the devastation that could be wrought if any one of the current crop of candidates running for the White House gets elected. Yet where the doomsayers go wrong is by ignoring the damage that has already been inflicted on our nation and its citizens by a psychopathic government.

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We should be thankful Russia has such patience.

Russia Vows ‘Totally Asymmetrical’ Response To US Troop Build-Up In Europe (RT)

Russia’s envoy to NATO has vowed a “totally asymmetrical” response if the alliance stands by a plan to deploy new armored units to eastern Europe. Citing Russian “aggression” as a pretext, the US has announced “continuous troop rotations” starting 2017. “We are not passive observers, we consistently take all the military measures we consider necessary in order to counterbalance this reinforced presence that is not justified by anything,” Moscow’s permanent representative at the alliance Aleksandr Grushko said in an interview with TV channel Rossiya-24 on Wednesday. “Certainly, we’ll respond totally asymmetrically.” Grushko has not elaborated further on his statement, but said that Russia’s actions would correspond to its “understanding of the extent of the military threat, would not be extremely expensive, but also highly effective.”

“As of today, assessing as a whole what that the US and NATO are doing, the point at issue is a substantial change for the worse in the security situation,” he said. The comments from Russia’s NATO envoy fell shortly after the Pentagon announced a plan to increase its troop presence in “the European theater” of up to three fully-manned Army brigades by the end of 2017, one armored, one airborne and one Stryker brigade. “This Army implementation plan continues to demonstrate our strong and balanced approach to reassuring our NATO allies and partners in the wake of an aggressive Russia in Eastern Europe and elsewhere,” Air Force Gen. Philip M. Breedlove of the US European Command said. “This means our allies and partners will see more capability – they will see a more frequent presence of an armored brigade with more modernized equipment in their countries.”

The first such rotational armored brigade combat team would arrive in Europe in February next year. Each of the brigades will be on nine-month rotations and bring their own equipment to use for exercises across Europe. NATO also wants to enhance Europe’s current equipment and replace it with “the most modern the Army has to offer.” At the same time, the older gear would become a core of the earlier unveiled “Army pre-positioned stocks”, which NATO would keep in Belgium, the Netherlands and Germany. [..] “Reading these materials makes your hair stand on end, because of how some experts discuss with aplomb that if NATO had not taken measures, our [Russia’s] tanks would have already be in Tallinn and Riga,” Grushko said.

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Positive feedback. Accelerating returns.

Sea Levels Set To ‘Rise Far More Rapidly Than Expected’

Sea levels could rise far more rapidly than expected in coming decades, according to new research that reveals Antarctica’s vast ice cap is less stable than previously thought. The UN’s climate science body had predicted up to a metre of sea level rise this century – but it did not anticipate any significant contribution from Antarctica, where increasing snowfall was expected to keep the ice sheet in balance. According to a study, published in the journal Nature, collapsing Antarctic ice sheets are expected to double sea-level rise to two metres by 2100, if carbon emissions are not cut. Previously, only the passive melting of Antarctic ice by warmer air and seawater was considered but the new work added active processes, such as the disintegration of huge ice cliffs.

“This [doubling] could spell disaster for many low-lying cities,” said Prof Robert DeConto, at the University of Massachusetts Amherst, who led the work. He said that if global warming was not halted, the rate of sea-level rise would change from millimetres per year to centimetres a year. “At that point it becomes about retreat [from cities], not engineering of defences.” As well as rising seas, climate change is also causing storms to become fiercer, forming a highly destructive combination for low-lying cities like New York, Mumbai and Guangzhou. Many coastal cities are growing fast as populations rise and analysis by World Bank and OECD staff has shown that global flood damage could cost them $1tn a year by 2050 unless action is taken. The cities most at risk in richer nations include Miami, Boston and Nagoya, while cities in China, Vietnam, Bangladesh and Ivory Coast are among those most in danger in less wealthy countries.

The new research follows other recent studies warning of the possibility of ice sheet collapse in Antarctica and suggesting huge sea-level rises. But the new work suggests that major rises are possible within the lifetimes of today’s children, not over centuries. “The bad news is that in the business-as-usual, high-emissions scenario, we end up with very, very high estimates of the contribution of Antarctica to sea-level rise” by 2100, DeConto told the Guardian. But he said that if emissions were quickly slashed to zero, the rise in sea level from Antarctic ice could be reduced to almost nothing. “This is the good news,” he said. “It is not too late and that is wonderful. But we can’t say we are 100% out of the woods.” Even if emissions are slashed, DeConto said, there remains a 10% chance that sea level will rise significantly.

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A good Yanis article.

Europe Is Too Important To Be Left To Its Clueless Rulers – Varoufakis (Tel.)

It is eight months since Varoufakis resigned as Greece’s finance minister, in the wake of the historic referendum when the Greek people voted to reject the demands of the country’s creditors, the so-called ‘troika’. It was the result that Varoufakis and the Greek prime minster Alexis Tsipras had been campaigning for. But within 24 hours Tsipras had performed a volte-face, accepting the troika’s terms. Varoufakis resigned. A politician without office, Varoufakis now spends his time writing, giving speeches and campaigning to reform Europe from the grass roots up. In February he launched Diem25, a pan-European umbrella group, aiming to pull together left-wing parties, protest movements and ‘rebel regions’ from across the continent, with the object, as he puts it, to ‘shake Europe – gently, compassionately, but firmly’, and bring ‘democracy back to EU decision making.’

He has published a new book, And the Weak Suffer What They Must?, a detailed historical analysis of the origins of Europe’s financial crisis. Its basic thesis is that the eurozone is not the route to shared prosperity it was intended to be but “a pyramid scheme of debt with countries such as Greece, Ireland, Portugal and Spain at its bottom”. Its conclusion, put bluntly, is that Europe “is too important to be left to its clueless rulers”, and that the eurozone must be “fully recalibrated” if Europe is to avoid a “postmodern” repetition of the 1930s, with financial chaos, the rise of fascism, and the spectre of conflict.

He has recently returned from Abu Dhabi, talking to business leaders at the Global Financial Markets Forum. For every 15 lectures he gives for free, he gets paid for one, he says, ‘but that’s good enough’. And the self-described ‘erratic Marxist’ is a popular draw among bankers and financial institutions. ‘I say to them exactly what I say to a left-wing audience,’ he says. ‘For some reason bankers like my analysis of the euro and global crisis. They’ve had enough of people telling them what they think they want to hear, because that hasn’t worked very well for them in the last seven or eight years. The fact they want me to talk to them is a sign of how deep this crisis is.’

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At least at first glance, a great story. Let’s hope they win some golds too.

Refugees Run For Rio Olympic Dream Team (AFP)

High up in Kenya’s rugged Ngong Hills, refugees sprint around an athletics track in intensive training they hope will see them selected for a unique team for the Rio Olympics. Hand-picked from Kenya’s vast refugee camps – including Dadaab, the biggest in the world — to join the training camp just outside the capital Nairobi, the athletes here have their eyes set on racing in Rio de Janeiro in August. “It will be a very great moment for me and the rest of the refugees, who will be so proud for having produced one of their own who has gone to the Olympics,” said 22-year-old Nzanzumu Gaston Kiza, who fled Democratic Republic of Congo after his relatives were massacred in ethnic clashes. Here at Ngong, a high altitude running track some 2,400 meters (7,875 feet) above sea level, some 40 kilometres (25 miles) southwest of Nairobi, athletes from across eastern Africa are chasing the dream of the Olympics.

Amid a world record number of people forced from their homes and their countries, the International Olympic Committee (IOC) this month announced the creation and funding of Team Refugee Olympic Athletes (ROA) to compete in Rio under its flag. The team, expected to include between five to 10 athletes from across the world, is part of the IOC’s “pledge to aid potential elite athletes affected by the worldwide refugee crisis”. “Team ROA” will march just before the hosts Brazil enter the Olympic Stadium at the opening ceremony – carrying the Olympic flag and anthem – a position likely to be given enormous cries of support. While countries may field their own teams, the refugees are unable to return home safely to take part – and instead will run under the Olympic flag. “We want to send a message of hope for all refugees in our world,” IOC president Thomas Bach said when plans for the team were announced.

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International law no longer has any meaning. Welcome to Europe.

Austria To Tighten Asylum Rules (P.)

Austria is to introduce procedures at its borders to speed up asylum applications and limit the influx of refugees into the country, the government announced Wednesday. From May, authorities will determine “within hours” if an applicant can provide sufficient reason not to be sent back to a safe third country of origin, Austrian Interior Minister Johanna Mikl-Leitner and Defense Minister Hans Peter Doskozil said. “We will not accept any more asylum applications, unless we have to because of certain criteria like Article 8 of the human rights convention,” Mikl-Leitner said, referring to an article that grants asylum seekers, among other things, the right to stay in a country where they have a partner or children.

The announcement followed news that legal experts commissioned by the Austrian government found that a cap of 37,500 refugees allowed to apply for asylum per year, introduced by Vienna at the beginning of the year, was incompatible with international law. As of the end of March, 15,000 asylum applications had been submitted in Austria this year, according to the country’s interior ministry.

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This will not stop. It may move from one spot to another, but it will continue no matter what. Such is the despair.

Refugee Arrivals To Greece Rise Sharply Despite EU-Turkey Deal (Reuters)

Arrivals of refugees and migrants to Greece from Turkey rose sharply on Wednesday, just over a week since the European Union and Turkey struck a deal intended to cut off the flow. Greek authorities recorded 766 new arrivals between Tuesday morning and Wednesday morning, up from 192 the previous day. Most arrived on the northeastern Aegean island of Lesvos. Italy reported an even larger jump in arrivals on Tuesday, when officials there said 1,350 people – mostly from Africa – were rescued from small boats taking the longer migration route over the Mediterranean as the weather warmed up. The EU Commission said on Tuesday that the flows in the last week had reduced, with only 1,000 people arriving from Turkey on Greek islands, compared to an average of 2,000 a day in the last couple of months.

It was not clear why numbers had dropped, but the Aegean Sea had been hit with bad weather and gale force winds, making the journey from Turkey on small rubber boats even more dangerous. Under the deal in effect since March 20, migrants and refugees who arrive in Greece will be subject to being sent back once they have been registered and their individual asylum claim processed. The returns are to begin from April 4. More that 51,000 refugees and migrants, among those Syrians, Afghans, Iraqis and other fleeing conflict in the Middle East and Asia, are currently stranded in Greece following border closures across the Balkans. Nearly 6,000 people remain stuck at the country’s biggest port of Piraeus port near Athens, having arrived there on ferries from Greek islands close to Turkey before the deal.

Scores have found shelter in passenger waiting lounges while hundreds more sleep in the open, either in flimsy tents or on blankets spread on the dock. Queues for the few portable toilets are long, and scuffles have broken out in recent weeks over mobile phone chargers and food distribution. International rights group Human Rights Watch has described conditions at the port, including basic hygiene, as “abysmal” and says the situation is akin to a “humanitarian crisis.”

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Oct 282015
 
 October 28, 2015  Posted by at 9:35 am Finance Tagged with: , , , , , , , , , ,  


Lewis Wickes Hine Newsies Gus Hodges, 11, and brother Julius, 5, Norfolk VA 1911

Weak US Business Spending Plans Point To Slower Economic Growth (Reuters)
Chinese Consumer Sentiment Indicator Slumps In October (CNBC)
Japan’s Retail Sales Fall Piles Pressure On Bank of Japan (CNBC)
China Steel Head Says Demand Slumping at Unprecedented Speed (Bloomberg)
Why Don’t We Save Our Steelworkers The Way We Saved Bankers? (Chakrabortty)
In China’s Alleyways, Underground Banks Move Money (WSJ)
Where Are My (Business Cycle) Dragons? (FT)
Fossil Fuel Companies Risk Plague Of Climate Change Lawsuits (AEP)
US Plans to Sell Down Strategic Oil Reserve to Raise Cash (Bloomberg)
VW Posts $3.85 Billion Quarterly Loss, First In 15 Years (Bloomberg)
Canada Can Show That Ending Austerity Makes Sense (Paul Krugman)
EU Net Neutrality Laws Fatally Undermined By Loopholes (Guardian)
Territorial Disputes: The South China Sea (Bloomberg)
US to Begin ‘Direct Action on the Ground’ in Iraq, Syria (NBC)
IMF Paints Gloomy Outlook For Sub-Saharan Africa (Reuters)
Children Hardest Hit By Europe’s Economic Crisis (Reuters)
The End Of Visa-Free Travel In Europe May Be Looming (Bloomberg)
Migrant Crisis Could Prompt EU to Loosen Budget Deficit Rules (WSJ)
Slovenia Considers Calling For EU Military Aid (FT)
The Children’s Feet Are Rotting, In 1 Month All These People Will Be Dead (HP)
So Long And Thanks For All The Poo (WaPo)

Deflation in the US…

Weak US Business Spending Plans Point To Slower Economic Growth (Reuters)

A gauge of U.S. business investment plans fell for a second straight month in September, pointing to a sharp slowdown in economic growth and casting more doubts on whether the Federal Reserve will raise interest rates this year. Other data on Tuesday showed consumer confidence slipped this month amid worries over a recent moderation in job growth and its potential impact on income. Housing, however, remains the bright spot, with home prices accelerating in August. That should boost household wealth, supporting consumer spending and the broader economy, which has been buffeted by a strong dollar, weak global demand, spending cuts in the energy sector and efforts by businesses to reduce an inventory glut.

The continued weakness in business spending, together with the slowdown in hiring, could make it difficult for the Fed to lift its short-term interest rate from near zero in December, as most economists expect. The U.S. central bank’s policy-setting committee started a two-day meeting on Tuesday. “The drift of data suggests that the first time the Fed will raise rates will be in the spring,” said Steve Blitz, chief economist at ITG Investment Research in New York. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, slipped 0.3% last month after a downwardly revised 1.6% decline in August, the Commerce Department said. These so-called core capital goods were previously reported to have dropped 0.8% in August.

The data was the latest dour news for manufacturing, which has borne the brunt of dollar strength, energy sector investment cuts and the inventory correction. Manufacturing accounts for 12% of the economy. In a separate report, the Conference Board said its consumer sentiment index fell to 97.6 this month from a reading of 102.6 in September. Consumers were less optimistic about the labor market, with the share of those anticipating more jobs in the months ahead slipping. There was a drop in the proportion of consumers expecting their incomes to increase and more expected a drop in their income. The downbeat assessment of the labor market follows a step down in job growth in August and September.

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…and in China…

Chinese Consumer Sentiment Indicator Slumps In October (CNBC)

Consumer sentiment in China plunged in October, as the outlook for business conditions plummeted and household finances weakened, a survey showed Wednesday. The Westpac MNI China Consumer Sentiment Indicator fell to 109.7 in October from 118.2 in September, marking the lowest reading since the survey began in 2007. Business outlook over the coming year was the hardest hit, with Business Conditions in One Year registering a 10.3% decline, while the Business Conditions in Five Years component fell 8.2%. Current and expected measures for household finances were also weaker, down 5.3% and 7.3% respectively. The survey is taken from consumers across 30 Chinese cities ranging from tier 1 to tier 3.

Respondents said that they were planning on reducing their shopping and entertainment activities in the near term. “This result openly questions the resilience of the Chinese consumer to the discouraging state of the real economy,” said Huw McKay, senior international economist at Westpac. The survey follows China’s gross domestic product release last week, which showed the world’s second largest economy grew by 6.9% in the three months through September, the slowest pace since 2009. Concerns over the health of the Chinese economy have spilled from Chile to Korea, sparking a sharp sell-off in the price of commodities that Chinese factories traditionally consume in hefty amounts, as well as the currencies of the countries that benefit from selling raw materials to China.

[..] The drop in confidence was most acute among in the 35-to-54-year-old group, with sentiment plunging 11.2% between September and October. In contrast, confidence among the youngest and oldest age cohorts (18-34 and 55-64) declined more moderately by 3.3% and 3.2% respectively, Wesptac said in a statement.

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…and in Japan too..

Japan’s Retail Sales Fall Piles Pressure On Bank of Japan (CNBC)

Japan’s retail sales unexpectedly fell on-year in September, official data showed on Wednesday, suggesting that consumer spending does not the momentum to make up for weak exports and factory output. The retail sales news could add to pressure on the Bank of Japan under to expand monetary stimulus, possibly as soon as its rate review meeting on Friday, when it is also expected to slash its rosy economic and price projections, analysts say. Retail sales fell 0.2% in September from a year earlier, compared with economists’ median estimate for a 0.4% rise, the Ministry of Economy, Trade and Industry said on Wednesday.

The decline, which followed five straight months of gains, was largely due to sluggish demand for cars and fuel, according to the data. On a seasonally adjusted basis, retail sales rose 0.7% in September from the previous month. Japan’s economy shrank in April-June and may suffer another contraction in July-September on weak exports and consumption. Analysts say any rebound in the current quarter will be modest as companies feel the pinch from soft demand in China and other emerging Asian markets.

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…and it’s not just consumers, it’s spending across the board.

China Steel Head Says Demand Slumping at Unprecedented Speed (Bloomberg)

If anyone doubted the magnitude of the crisis facing the world’s largest steel industry, listening to Zhu Jimin would put them right, fast. Demand is collapsing along with prices, banks are tightening lending and losses are stacking up, the deputy head of the China Iron & Steel Association said on Wednesday. “Production cuts are slower than the contraction in demand, therefore oversupply is worsening,” said Zhu at a quarterly briefing in Beijing by the main producers’ group. “Although China has cut interest rates many times recently, steel mills said their funding costs have actually gone up.” China’s mills – which produce about half of worldwide output – are battling against oversupply and sinking prices as local consumption shrinks for the first time in a generation amid a property-led slowdown.

The fallout from the steelmakers’ struggles is hurting iron ore prices and boosting trade tensions as mills seek to sell their surplus overseas. Shanghai Baosteel Group forecast last week that China’s steel production may eventually shrink 20%, matching the experience seen in the U.S. and elsewhere. “China’s steel demand evaporated at unprecedented speed as the nation’s economic growth slowed,” Zhu said. “As demand quickly contracted, steel mills are lowering prices in competition to get contracts.” Medium- and large-sized mills incurred losses of 28.1 billion yuan ($4.4 billion) in the first nine months of this year, according to a statement from CISA. Steel demand in China shrank 8.7% in September on-year, it said.

Signs of corporate difficulties are mounting. Producer Angang Steel warned this month it expects to swing to a loss in the third quarter on lower product prices and foreign-exchange losses. The company’s Hong Kong stock has lost more than half its value this year. Last week, Sinosteel, a state-owned steel trader, failed to pay interest due on bonds maturing in 2017. Crude steel output in the country fell 2.1% to 608.9 million tons in the first nine months of this year, while exports jumped 27% to 83.1 million tons, official data show. Steel rebar futures in Shanghai sank to a record on Wednesday as local iron ore prices fell to a three-month low.

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Because there’s a huge global steel oversupply?

Why Don’t We Save Our Steelworkers The Way We Saved Bankers? (Chakrabortty)

Every so often a society decides which of its citizens really matter. Which ones get the star treatment and the big cash handouts – and which get shoved to the bottom of the pile and penalised. These are the big, rough choices post-crash Britain is making right now. A new hierarchy is being set in place by David Cameron in budget after austerity budget. Wealthy pensioners: winners. Young would-be homeowners: losers. Millionaires see their taxes cut to 45%, while the working poor pay a marginal tax rate of 80%. Big business gets to write its own tax code; benefit claimants face harsh sanctions. When the contours of this new social order are easy to spot, they can cause public uproar – as with the cuts to tax credits. Elsewhere, they’re harder to pick out, though still central. It is into this category that the crisis in the British steel industry falls.

It would be easy to tune out the past few weeks’ headlines about plant closures and job losses as just another story of business disaster. But what’s happening to our steelworkers, and what we do to protect them, goes to the heart of the debate about which people – and which places – count in Britain’s political economy. If Westminster lets the UK’s steel industry die, it’s in effect declaring that certain regions and the people who live and work in them are surplus to requirements. That it really doesn’t matter if Britain makes things. That the phrase “skilled working-class jobs” is now little more than an oxymoron. That’s the criteria against which to judge MPs, as they continue to take evidence today on the crisis and then debate options.

What does this crisis look like? Imagine coming to work on a September morning – only to find that you and one in six other employees in your entire industry face redundancy before Christmas. That’s the prospect facing British steelworkers. Motherwell, Middlesbrough, Scunthorpe: some of the most kicked-about places in de-industrialised Britain now face more punishment. Mothball the SSI plant in Redcar and it’s not just 2,200 workers that you send to the dole office and whose families you shove on the breadline. An entire local economy goes on life support: the suppliers of parts, the outside engineers who used to do the servicing, the port workers and hauliers, the cafes and shops. Within days of SSI’s closure, one of Teeside’s biggest employment agencies went into liquidation.

[..] Britain is entering the early stages of yet another industrial catastrophe. It could finally sink a sector, steel, that actually helps reduce the country’s gaping trade deficit. With that will go another pocket of well-paid blue-collar jobs. Chuck in employer contributions to pensions and national insurance, and the total remuneration per SSI staffer is £40,000 a year. Just try getting such pay in a call centre or distribution warehouse, even as a manager. Imagine what would happen if manufacturing were centred around the capital, and its executives had Downing Street on speed dial. Actually, you needn’t imagine – merely remember the meltdown of 2008. Then Gordon Brown was so desperate to save the City that the IMF estimates he propped it up with £1.2 trillion of public money. That’s the equivalent of nearly £20,000 from every man, woman and child in the country doled out to bankers in direct cash, loans and taxpayer guarantees.

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Try ten times that: “..central-bank officials who attempt to say that underground banks handle about 800 billion yuan ($125 billion) annually..”

In China’s Alleyways, Underground Banks Move Money (WSJ)

In a warren of tiny shops beneath grimy residential towers, a white-haired man selling Snickers bars and fizzy drinks from a kiosk no larger than a cashier’s booth is figuring out a way to move $100,000 out of China. That is twice what Chinese are allowed to send out of the country in a year. Licensed banks won’t do it. But middlemen like Mr. Chen, perched in his mini-mart at the front lines of a vast underground currency-exchange and offshore-remittance network, can and often will. “There’s never a certainty that these things can be done,” said Mr. Chen, who declined to give his full name. “But, usually, when things get stricter, the fee will just be a bit higher.” Facing a turbulent stock market and a weakening economy, many Chinese are trying to move money offshore.

That spells business for operations that can end-run capital controls. No official data track the underground transfers, but central-bank officials who attempt to say that underground banks handle about 800 billion yuan ($125 billion) annually, and more than usual this year. One sign of unusually high activity in underground banks is a drop in China’s foreign-exchange reserves, an indicator of demand for hard currency. Reserves fell by a record $93.9 billion in August and $43 billion more in September, though part of the reason was central-bank selling to support the yuan. Often hidden behind the façades of convenience stores and tea shops, they cater to a clientele ranging from corrupt officials hiding gains to middle-class Chinese trying to buy overseas property.

All believe their money is safer abroad or can bring a higher return, a sentiment that has deepened since this summer’s stock-market plunge. New York real-estate agent Jiang Jinjin said she has handled nearly 2,000 residential-property purchases this year for Chinese families with children at Columbia University. “I didn’t sleep much this summer. Too many kids looking for apartments,” she said. Some customers rely on relatives and friends to carry cash over on repeated trips, she said, and some set up U.S. companies. Such firms can be used to overpay for imports, experts on underground banking say. Ms. Jiang said her company checks the provenance of money used to buy real estate.

The outflows have put underground bankers in China in the cross hairs of financial regulators. China’s capital controls were set up to keep funds onshore when the country was starved for investment. Officials consider them still necessary, to prevent sharp outflows of the kind that shocked developing economies in the 1997 Asian financial crisis. Also, too much cash going out could complicate efforts to stimulate growth through interest-rate cuts.

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Early understanding.

Where Are My (Business Cycle) Dragons? (FT)

The Qian Diagram implies a complete circulation with characteristics of contraction and expansion as well as phases of prosperity, recession, depression and recovery. The corresponding economic cycles are as follows: “Hidden Dragon. Do not act” refers to the economy that in a slump or depressed state in which it is hard to do anything; “Dragon appearing in the field” implies an economic recovery, in which successful people can take the opportunity to succeed; “The energetic gentlemen work hard all day” means keeping vigorous through the whole recovery phase, and no one can relax at any time. Being certain about the target and achieving it with effort and prudence, there will be no great harm even if in the face of risks; “Dragon wavering over the depths” refers to the phase from depression to recovery.

During this rising period, the average social profit rate is high and almost every business runs smoothly; “Flying dragon in the heavens” refers to the most economically prosperous period; “Arrogant dragon will have cause to repent” refers to recession in the economic cycle, which suggests things will develop in the opposite direction when they reach an extreme; “A flight of dragon without heads” indicates that in the prosperous period, monopoly will emerge, while after the economy enters recession, monopoly would disintegrate and be replaced instead by a pattern of free competition, which is a symbol of good performance for the economy.

[..] Guanzi is said to be the record of thoughts and remarks by Qi’s famous premier Guan Zhong and his School in the Spring and Autumn Period, which was between 475 B.C. and 221 B.C… Thought on demand management policy as well as fiscal and monetary policies is all covered in Guanzi. There are extensive discussions on the proper fiscal policy that should be undertaken during an economic depression in the Chapter Cheng Ma the sixty-ninth of Guanzi. “When people lose their fundamentals of living in years with frequent floods and droughts, the monarch can recruit those who live in extreme poverty and give them payment through the activities like constructing the palace. Therefore, the purpose of constructing pavilions is to appease national economic fluctuations rather than for enjoyment.” This is the earliest description of policy in Chinese history with characteristics of Keynesianism.

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Ambrose has a hobby horse.

Fossil Fuel Companies Risk Plague Of Climate Change Lawsuits (AEP)

Oil, gas and coal companies face the mounting risk of legal damages for alleged climate abuse as global leaders signal an end to business-as-usual and draw up sweeping plans to curb greenhouse gas emissions, Bank of America has warned. Investors in the City are increasingly concerned that fossil fuel groups and their insurers are on the wrong side of a powerful historical shift and could be swamped with exhorbitant class-action lawsuits along the lines of tobacco and asbestos litigation in the US. “It is setting off alarm bells that there could be these long tail risks,” said Abyd Karmali, Bank of America’s head of climate finance. Mr Karmali said the United Nations’ “COP21” climate summit in Paris in December is likely to be a landmark event that starts to shut the door on parts of the fossil industry.

“It is a non-exchangeable, one-way ticket to a low-carbon economy,” he said. Christiana Figueres, the UN’s top climate official, said 155 countries have already put forward detailed plans covering 88pc of global CO2 emissions, and others are expected to join before the deadline expires. “It is unstoppable. No amount of lobbying at this point is going to change the direction,” she told a Carbon Tracker forum in London. Mrs Figueres said the mood has changed entirely since the failed summit in Copenhagen in 2009. This time China is fully on board. “China is already spending more on renewables than any other country. It is going to introduce its own emissions trading scheme in 2017,” she said. Mrs Figueres said the pledges are not yet enough to cap the rise in average global temperatures to two degrees Centrigrade above pre-industrial levels by 2100 – the “two degree world” deemed the safe limit.

But the Paris accord does promise to “bend” the trajectory to 2.7 degrees and will almost certainly be followed by a series of deals that brings the ultimate target within sight. “We think most countries will be able to over-achieve,” she said. While the exact contours are still unclear, Paris is likely to sketch a way towards zero net emissions later this century. It implies that most fossil fuel reserves booked by major oil, gas and coal companies can never be burned. A deal would also send a moral signal with legal ramifications. Mark Carney, the Governor of the Bank England, warned last month that by those who had suffered losses from climate change may try to bring claims on third-party liability insurance. He specifically mentioned the parallel of asbestos claims in US courts, which have mounted over the years to $85bn and devastated some Lloyd’s syndicates.

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Like Gordon Brown selling England’s gold reserves. Timing is everything.

US Plans to Sell Down Strategic Oil Reserve to Raise Cash (Bloomberg)

The U.S. plans to sell millions of barrels of crude oil from its Strategic Petroleum Reserve from 2018 until 2025 under a budget deal reached on Monday night by the White House and top lawmakers from both parties. The proposed sale, included in a bill posted on the White House website, equates to more than 8% of the 695 million barrels of reserves, held in four sites along the Gulf of Mexico coast. Sales are due to start in 2018 at an annual rate of 5 million barrels, rising to 10 million by 2023 and totaling 58 million barrels by the end of the period. The proceeds will be “deposited into the general fund of the Treasury,” according to the bill. The sale is the second time the U.S. has raised cash from the reserve, created as a counter-balance to the power of Arab producers after the first oil crisis of 1973-74.

The U.S. may sell also additional barrels to cover a $2 billion program from 2017 to 2020 to modernize the strategic reserve, including building new pipelines. The White House on Tuesday urged lawmakers to support the budget deal, including the proposed partial sale of the SPR, saying it was “a responsible agreement that is paid for in a balanced way.” Supporters of the sale argue the U.S. doesn’t require such a big emergency reserve as rising domestic production on the back of the shale boom offsets the need for imports. Critics, including oil analysts and former U.S. energy officials, say using the underground reserve as a piggy bank makes it less effective in meeting its intended purpose: combating a “severe energy disruption.” What’s more, the government would be selling at a time when oil is unlikely to have recovered from its slump over the past 18 months.

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VW must cut investments. They might as well cut their entire diesel division.

VW Posts $3.85 Billion Quarterly Loss, First In 15 Years (Bloomberg)

Volkswagen AG, Europe’s largest automaker, posted a €3.48 billion operating loss for the third quarter, worse than analysts’ estimate of a €3.27 billion loss. The company made €3.23 billion profit in the third-quarter a year ago. The historic loss comes amid a widening global emissions scandal after it was revealed software was used to cheat official exhaust analysis checks. The company also announced it would cut its 2015 profit target, saying earnings before interest and tax would drop “significantly.”

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Afraid it’s too late now. Deflation comes first. Oil is down for the count. Next, watch real estate.

Canada Can Show That Ending Austerity Makes Sense (Paul Krugman)

Canadians were less caught up than the rest of us in the ideology of bank deregulation. As a result, Canada was spared the worst of the 2008 financial crisis. Which brings us to the issue of deficits and public investment. Here’s what the Liberal Party of Canada platform had to say on the subject: “Interest rates are at historic lows, our current infrastructure is aging rapidly, and our economy is stuck in neutral. Now is the time to invest.” Does that sound reasonable? It should because it is. We’re living in a world awash with savings that the private sector doesn’t want to invest and is eager to lend to governments at very low interest rates. It’s obviously a good idea to borrow at those low, low rates, putting those excess savings, not to mention the workers unemployed due to weak demand, to use building things that will improve our future. [..]

Since 2010 public investment has been falling as a share of GDP in both Europe and the US, and it’s now well below pre-crisis levels. Why? The answer is that in 2010 elite opinion somehow coalesced around the view that deficits, not high unemployment and weak growth, were the great problem facing policymakers. There was never any evidence for this view; after all, those low interest rates showed that markets weren’t at all worried about debt. But never mind – it was what all the important people were saying, and all that you read in much of the financial press. And few politicians were willing to challenge this orthodoxy. Those who should have stood up for public spending suffered a striking failure of nerve.

Britain’s Labour Party, in particular, essentially accepted Conservative claims that the nation was facing a fiscal crisis and was reduced to arguing at the margin about what form austerity should take. Even President Barack Obama temporarily began echoing Republican rhetoric about the need to tighten the government’s belt. And having bought into deficit panic, centre-left parties found themselves in an extremely weak position. Austerity rhetoric comes naturally to right-wing politicians, who are always arguing that we can’t afford to help the poor and unlucky (although somehow we’re able to afford tax cuts for the rich). Centre-left politicians who endorse austerity, however, find themselves reduced to arguing that they won’t inflict quite as much pain. It’s a losing proposition, politically as well as economically.

Now come Justin Trudeau’s Liberals, who are finally willing to say what sensible economists have been saying all along. And they weren’t punished politically – on the contrary they won a stunning victory. So will the Liberals put their platform into practice? They should. Interest rates remain incredibly low: Canada can borrow for 10 years at only 1.5%, and its 30-year inflation-protected bonds yield less than 1%. Furthermore, Canada is probably facing an extended period of weak private demand thanks to low oil prices and the likely deflation of a housing bubble. Let’s hope, then, that Trudeau stays with the programme. He has an opportunity to show the world what truly responsible fiscal policy looks like.

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“.. its cut-down nature has prompted the web’s inventor, Tim Berners-Lee, to advise people to “just say no” to it.”

EU Net Neutrality Laws Fatally Undermined By Loopholes (Guardian)

Supporters of net neutrality have accused the European Union of undermining its own net neutrality laws after MEPs voted down amendments aimed at closing loopholes. Net neutrality is the principle that internet service providers should treat all online content equally without blocking or slowing down specific websites on purpose or allowing companies to pay for preferential treatment. The European parliament voted through new rules intended to enshrine that principle in law, but critics say they are fatally undermined by a number of loopholes which “open the door to an end to net neutrality”. An attempt to close those loopholes through amendments failed to gain enough support from MEPs to pass.

Following the vote, the regulations are immediately in force in all EU member states, but national regulators, who are ultimately responsible for overseeing the implementation of the rules, will not be expected to start enforcement for six months. Among the exceptions opposed by net neutrality supporters is one which allows providers to offer priority to “specialised services”, providing they still treat the “open” internet equally. Many had seen the exception as allowing providers to offer an internet fast lane to paying sites, leading to the Italian government to propose removing the exception from the draft regulations. The final draft, however, limits what services can be given priority to uses like remote surgery, driverless cars and preventing terrorist attacks. The regulation also requires that those specialised services cannot be offered if they restrict bandwidth for normal internet users.

A different exception is aimed at situations where the limitation is not speed, but data usage. The EU’s regulations allow “zero rating”, a practice whereby certain sites or applications are not counted against data limits. That gives those sites a specific advantage when dealing with users with strict data caps such as those on mobile internet. The new regulations allow national regulators to decide whether or not to allow zero rating in their own country. The most significant example of the practice is Internet.org, Facebook’s platform for spreading net access to the developing world. The service allows access for free to sites including Facebook and Wikipedia, but its cut-down nature has prompted the web’s inventor, Tim Berners-Lee, to advise people to “just say no” to it.

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A tangled web.

Territorial Disputes: The South China Sea (Bloomberg)

Some things are worth fighting for. What about a few desert islands occupied mainly by birds, goats and moles? China and Japan seem to think so, the rest of the world is alarmed and a look at other territorial disputes around the globe shows that stranger things have happened. There are about 60 such conflicts simmering worldwide. Most will bubble along, unresolved but harmless, 400 years after the Peace of Westphalia established the notion of national sovereignty. Others are more dangerous. China claims more than 80% of the South China Sea and has constructed artificial islands there for potential development. The U.S. sailed a warship through nearby waters in October, showing it doesn’t recognize the features in the Spratly Islands as having the same rights as Chinese territory.

Five other nations claim parts of the same maritime area: Vietnam, the Philippines, Brunei, Malaysia and Taiwan. China’s claim to the oil- and gas-rich waters dates to 1947. In November 2014, China and Japan agreed to disagree about century-old claims to a separate set of islands 1,000 miles to the northeast in the East China Sea. That was progress; a year earlier China had proclaimed an “air defense identification zone” over the islands. Taiwan stakes a claim, too and South Korea flew military planes through the self-proclaimed Chinese zone. President Barack Obama went to Japan in 2014 and promised to defend the disputed islands, called Senkaku in Japanese and Diaoyu in Chinese and administered by Japan since 1972. China is locked in a separate disagreement with India over the two countries’ land border.

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Boots on the ground.

US to Begin ‘Direct Action on the Ground’ in Iraq, Syria (NBC)

Defense Secretary Ashton Carter said Tuesday that the U.S. will begin “direct action on the ground” against ISIS forces in Iraq and Syria, aiming to intensify pressure on the militants as progress against them remains elusive. “We won’t hold back from supporting capable partners in opportunistic attacks against ISIL, or conducting such missions directly whether by strikes from the air or direct action on the ground,” Carter said in testimony before the Senate Armed Services committee, using an alternative name for the militant group. Carter pointed to last week’s rescue operation with Kurdish forces in northern Iraq to free hostages held by ISIS. Carter and Pentagon officials initially refused to characterize the rescue operation as U.S. boots on the ground.

However, Carter said last week that the military expects “more raids of this kind” and that the rescue mission “represents a continuation of our advise and assist mission.” This may mean some American soldiers “will be in harm’s way, no question about it,” Carter said last week. After months of denying that U.S. troops would be in any combat role in Iraq, Carter late last week in a response to a question posed by NBC News, also acknowledged that the situation U.S. soldiers found themselves in during the raid in Hawija was combat. “This is combat and things are complicated,” Carter said.

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The poor were always going to be the first and worst victims.

IMF Paints Gloomy Outlook For Sub-Saharan Africa (Reuters)

This year’s slump in commodity prices and the end of a flood of cheap dollars has pegged back African growth to its weakest in six years and things could get worse if the global economy continues to flounder, the IMF said on Tuesday. In its latest African Economic Outlook, entitled “Dealing with the Gathering Clouds”, the Fund said the poorest continent was likely to grow 3.75% this year and 4.25% next, a big drop from the years before and after the 2008/2009 financial crisis. “The strong growth momentum evident in the region in recent years has dissipated,” the report said. “With the possibility that the external environment might turn even less favourable, risks to this outlook remain on the downside.”

Hardest-hit have been sub-Sahara’s eight oil exporters – led by top producers Nigeria and Angola – although others such as Ghana, Zambia and South Africa were also suffering from weak minerals prices, power shortages and difficult financing conditions. However, the Fund noted some bright spots, most notably Ivory Coast, which is scheduled to expand as much as 9% this year due to an investment boom that followed the end of a brief civil war in 2012. This weekend’s overwhelmingly peaceful election, which President Alassane Ouattara – a former IMF official – is widely expected to win, has reinforced hopes Francophone Africa’s biggest economy has put its worst years behind it. With commodities revenues forecast to remain depressed for several years, governments have to work quickly to diversify revene sources by improving domestic tax collection, said Antoinette Sayeh, head of the IMF’s Africa department.

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The poor, the young, the old and the sick.

Children Hardest Hit By Europe’s Economic Crisis (Reuters)

Some 26 million children and young people in Europe are threatened by poverty or social exclusion after years of economic crisis, according to a study by the Bertelsmann Foundation which gave Greece the worst marks in the entire EU. Bertelmann’s Social Justice Index, an annual survey of social conditions in the 28-member bloc, found a yawning gap between north and south, and between young and old. In Spain, Greece, Italy and Portugal, the number of children and young people that are under threat because of their economic condition has increased by 1.2 million to 7.6 million since 2007, the study said. In addition, the number of EU citizens between 20 and 24 years old who are neither employed nor in education or training has risen in 25 of the 28 member states since 2008, with Germany and Sweden the only countries where the outlook for this age group has improved.

In Italy, 32% of people in their early 20s fall into this category, while in Spain it is 24.8%. “We cannot afford to lose a generation in Europe, either socially or economically,” said Aart De Geus, chairman of the executive board at Bertelsmann. “The EU and its member states must make special efforts to sustainably improve opportunities for younger people.” By contrast, the study found that a declining number of people aged 65 or older are at risk of poverty, because retirement benefits have not declined as strongly as incomes for younger citizens. Bertelsmann said three Europe-wide trends were exacerbating this gulf between young and old, including growing public debt, stagnating investment in education and research, and rising pressure on the financial viability of social security systems. Sweden, Denmark, Finland, the Netherlands and Czech Republic stood at the top of the social justice rankings, while Greece, Romania, Bulgaria, Italy and Spain were at the bottom.

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And then there’s no reason to be left for the EU.

The End Of Visa-Free Travel In Europe May Be Looming (Bloomberg)

Warnings of an end to visa-free travel intensified in the EU as Slovenia said it may join Hungary in fencing off its borders if the bloc fails to help countries on its southeastern fringe. Slovene Foreign Minister Karl Erjavec said the Adriatic nation will “adopt all measures” to ensure the safety of its citizens and migrants if the situation worsens and the accord reached Sunday in Brussels isn’t implemented, STA news service reported Tuesday. EU President Donald Tusk said the bloc must protect its external frontiers. He echoed an alarm issued Monday by Italian Foreign Minister Paolo Gentiloni, who said free-movement of people, one of the EU’s founding principles, may be at risk. “This challenge has the potential to change the European Union we have built,” Tusk told EU lawmakers on Tuesday in Strasbourg, France.

“It has the potential to create tectonic changes in the European political landscape, and these are not changes for the better.” The leaders of 11 EU and Balkan countries agreed on a 17-point plan on Sunday that offered short-term fixes for the 1 million or more migrants expected in the bloc this year. The deal includes sending about 400 policemen to help Slovenia control its borders, emergency housing for as many as 100,000 refugees, a stepped-up registration system and bolstering policing on the EU’s southeastern edge. Still, with winter approaching, countries continue to squabble over longer-term solutions. Many Balkan countries say they’re being overwhelmed after German Chancellor Angela Merkel said last month there could be no limit on asylum for those who meet the conditions. That coincided with a shift in the route taken by migrants that once led mainly through Libya to Italy. Now most are winding from Turkey to Greece, through the Balkan states, and then further north.

Complaining about a lack of coordination in the EU, countries have embarked on divergent policies. Many eastern members oppose a German-led push to redistribute the refugees across the bloc with mandatory quotas, saying the migrants don’t want to stay on their territory. Amid the bickering, Hungary has drawn criticism for fencing off its borders, while Slovenia has complained Croatia is waving migrants through. The Republic of Macedonia says its southern neighbor Greece is doing the same, without following the rules that arrivals must be registered in the first EU state they enter. Such squabbling helped prompt European Commission President Jean-Claude Juncker to call Sunday’s meeting in Brussels and he said on Tuesday that national cooperation already had improved.
“We are putting an end to all beggar-thy-neighbor policies,” Juncker told the European Parliament. “Instead, countries shall help their neighbors by telling each other what they are doing.”

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The EU must compensate Greece for all costs, not ‘allow’ it to run a bigger deficit. That’s just crazy. And amoral.

Migrant Crisis Could Prompt EU to Loosen Budget Deficit Rules (WSJ)

European Union governments will be able to offset some of the costs related to the migrant crisis from the EU’s budget deficit rules, according to a top EU official in charge of policing national budgets. Under EU rules, governments have to stick to a budget deficit of 3% of GDP or face fines. “It will be a country-by-country assessment, but we will bear in mind the cost entailed by refugee policies more than up to now,” European Commission chief Jean-Claude Juncker told the European Parliament in Strasbourg on Tuesday. Mr. Juncker said that given the “exceptionally serious problem” of the refugee crisis, there will be some room for maneuver for the Commission, the EU executive, when assessing the countries’ budget deficits.

“If a country is making huge efforts, there should be a commensurate understanding of what they have done. If a country is unable to prove it’s affected by the cost of refugee policies, then we won’t necessarily apply the flexibility of the Stability and Growth Pact to them,” Mr. Juncker said. Germany, the main destination country for refugees arriving in Europe, is expected to triple its budget for accommodating asylum seekers to an estimated €15 billion. Germany’s current deficit is within the EU rules, but that may change by the end of the year. Austria and Italy, two countries affected by the migration crisis and whose budgets are likely to surpass the 3% threshold, have already been pressing the Commission to exempt their refugee spending from the EU’s budget assessment.

Fiscal hawks, however, including Germany’s own finance minister, Wolfgang Schäuble, have been wary of supporting that call, for fear that other countries will seize the opportunity and offset budget expenditures which aren’t necessarily refugee-related. Greece, Croatia and Slovenia—all countries on the main migrant route into Europe—are already in breach of the 3% deficit rule. They are likely to get their deadlines for reaching 3% extended if they can prove that the refugee crisis has taken a toll on their already-strapped coffers.

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The EU has no military. Nor would it solve anything. Separate countries do, but can they operate on reign territory?

Slovenia Considers Calling For EU Military Aid (FT)

Slovenia, the tiny Balkan state struggling to cope with the migration crisis, has raised the idea of invoking a never-before-used “solidarity clause” in the EU treaties to formally request European aid and military support. Ljubljana recently floated the option of triggering Article 222, which enables military aid to EU nations overwhelmed by disasters, according to two officials familiar with the talks. It indicates the drastic steps under consideration to deal with a tide of asylum seekers arriving in Europe. The Alpine state of just 2m people has received 84,000 migrants over the past 10 days, leading the government to call in its national army as well as private security personnel to help its small police force. It received a further 8,000 migrants between Monday evening and Tuesday morning — a figure that exceeds the size of Slovenia’s army.

Against that backdrop, one Slovenian government official said invoking Article 222 was a “viable option” as a last resort. Ljubljana has not officially commented on the idea. Alarmed by the potential for Slovenia pulling the bloc’s emergency cord, EU officials have sought to head off a request, in part by arranging for EU countries to provide 400 police to help Ljubljana manage the crisis. Slovenian officials have put a brave face on the meagre results of Sunday’s summit of European leaders on the so-called western Balkans route, but are keeping up threats to take more aggressive steps. Miro Cerar, Slovenia’s prime minister, had warned the EU would “fall apart” unless the “unbearable” pressure was not eased promptly. His foreign minister Karl Erjavec hinted at the potential for a fence, saying “impediments” could be considered to stem the cross-border flows.

The solidarity clause states that EU member states “shall mobilise all the instruments at its disposal, including the military resources” in the event the requesting country is subject to a terrorist attack or is the victim or a man-made or natural disaster. It has never been invoked. Although the clause is explicit in the potential for military aid and the “spirit of solidarity”, it does not say the support would be automatic. Some EU officials are keen for the principle not to be tested. Up to half a million migrants have attempted to pass through the so-called Balkan corridor between Greece and Germany since the start of the year, overwhelming governments and inflaming already tense relations in the region.

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Devastating.

The Children’s Feet Are Rotting, In 1 Month All These People Will Be Dead (HP)

“There are thousands of children here and their feet are literally rotting, they can’t keep dry, they have high fevers and they’re standing in the pouring rain for days on end. You have one month guys, and then all these people will be dead”. Those were the final words of Dr Linda on the phone, a doctor that our volunteer organisations (Help Refugees and CalAid) had asked to fly out to Lesbos in response to an emergency cry for help from an overwhelmed volunteer on the ground. The weight of those words and the responsibility that comes with them felt crippling. But why are we, a film maker, a radio presenter, and a music assistant being tasked with this responsibility? Shouldn’t, as we had presumed, the large charities and governments be taking the charge of care for the precious lives arriving on Europe shores?

Another call came in – this time from volunteers in Serbia – the refugees are burning plastic bags to keep warm, they have nothing else, they are freezing to death, and the fumes from the bags are slowly poisoning them, please send help. Then another – this time from volunteers on Lesbos trying to find out how to order body bags en masse… will they have to resort this? Time will tell, but certainly people there have already started to die. We wished we could pick up the phone and call someone… who? A charity? An emergency team? The government? The army? How could we sit by and watch whilst these people die, and the handfuls of volunteers struggle and suffer too. But who is there to call? The charities are acting slowly, they have protocols to follow, political considerations, red tape, hierarchy and procedures.

Our government’s policy is not to help in Europe, and only to send aid to places like Syria, Lebanon in Jordan. So… it’s left to everyday people, untrained, unprepared, and overwhelmed, to deal with this crisis. Everyday people like us… a small group of friends who nine weeks ago decided to raise a little bit of cash, get a car load of goods and drive it to Calais. We’d heard from friends who’d been there some of the terrible stories of war and persecution, we knew that numbers were growing, that more children were coming everyday, and that conditions were dire. Our plan was to do our bit, pat ourselves on the back, and then go back to our lives feeling that we’d done something good for our fellow mankind.

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Nature is a complex system.

So Long And Thanks For All The Poo (WaPo)

It only takes a glance at a history book and a look out the window to know that our planet has lost many of its biggest creatures: The world that was once home to mammoths and towering dinosaurs can now barely maintain stable populations of rhinos and whales. But according to a new study, we’ve got more to mourn than just the animals themselves. We’ve lost their feces, too — and that’s a bigger problem than you might think. Why should we miss steaming piles of dinosaur dung? According to research published Monday in the Proceedings of the National Academy of Sciences, megafauna play a greater role in the spread of nutrients across the planet than scientists ever realized. The research focused on modeling the distribution of phosphorus, a nutrient necessary for fertilizing plant growth.

Scientists know that animals help carry these nutrients around by, well, not pooping where they eat. Without this process, nutrients would end up following gravity onto the ocean floor, instead of spreading as high as the mountain tops. But these days most of the nutrient recycling that happens is due to bacteria — not wandering poopers. “I wanted to know whether the world of the past with all the endemic animals was more fertile than our current world,” lead study author Chris Doughty of Oxford University told The Post. “Large free-ranging animals are much less abundant than they once were. Today, if scientists were to study the role of animals they would find that it is important but small,” Doughty explained. “However, in the past, we hypothesize that it would have been at least an order of magnitude larger than today.

Essentially, we have replaced wild free-roaming animals with fenced domestic cattle that cannot move nutrients in the same way.” Some of these contributors — the massive land animals that once roamed our planet — are gone for good. But others are dwindling before our very eyes. In one example of the effect, the researchers found that whales — which have seen dramatic population loss in the last century, mainly due to hunting and habitat disruption — used to bring an estimated 750 million pounds of phosphorus up from the deep ocean to the surface each year. Since whales feed deep in the water and come up to breathe — and poop — at the surface, they’re great at helping to recycle these resources.

But today, the researchers estimate, whales only bring 165 million pounds of phosphorus up annually. That’s just 23% of their previous contribution. Phosphorus movement by birds and fish that come inland after eating in the sea (like salmon, for example) are just 4% what they once were.

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