May 112019
 


Pierre-Auguste Renoir Riding in the Bois de Boulogne (Madame Henriette Darras or The Ride) 1873

 

Labour Without Energy Is A Corpse; Capital Without Energy Is A Sculpture (Keen)
Traditional Economics Has Absolutely Screwed Us (Tyee)
House Dems To Bundle Numerous Contempt Citations For Trump Advisers (R.)
House Democrat Subpoenas Six Years Of Trump Tax Returns (AP)
FISA Applications Were Illegally Obtained – DiGenova (PJ)
William Barr vs. Eric Holder: A Tale of Two Attorneys General (McConnell)
Fugees Founder, Banker Charged In 1MDB, Obama Campaign Scandal (RT)
Crisis? What Crisis? (Jim Kunstler)
Manning Could Delay US Superseding Indictment Against Assange (Sp.)
Dutch Court Blocks Extradition Of Man To ‘Inhumane’ UK Prisons (G.)
Varoufakis On Eurozone: ‘We Created A Monster’ (Exp.)
70 Migrants Dead After Boat Capsizes Trying To Reach Europe From Libya (G.)
Nearly All Countries Agree To Stem Flow Of Plastic Waste Into Poor Nations (G.)

 

 

First saw this a few days ago, and it slipped from my radar. Now, Steve Keen announced that he got a grant for his work with Tim Garrett and Matheus Grasselli on “developing models of production in which energy plays [a role] in production (and, necessarily, in climate degradation)”. Yes, you read that right: in 2019, economists need to begin the study the role of energy in an economic system, because it’s always been ignored. What a crazy field that is.

Labour Without Energy Is A Corpse; Capital Without Energy Is A Sculpture (Keen)

With the simple insight that “labour without energy is a corpse, and capital without energy is a sculpture”, I realised why economists have failed to properly incorporate the role of energy in production for so long. All previous attempts had treated energy as a third “factor of production”, on an equal footing with Labour and Capital. But that treatment is simply unrealistic. Adding energy on its own to a production process is like letting off a bomb in a factory: it will produce mayhem, not output. Equally, both Labour and Capital are “sterile”, to use the old Physiocratic term: without energy, they can’t produce anything.


Figure 1: The incorrect way to show energy as a factor of production

The correct way to incorporate energy into economic models of production, therefore, is to see energy as an input to both Labour and Capital (in vastly different forms, of course), which enable them to perform useful work. By the Second Law of Thermodynamics, this useful work necessarily results in disorder (waste energy, mainly in the form of waste matter, including CO2). Also by the Second Law, entropy increases globally, even though it can be reduced locally by the application of energy; so the increase in disorder in the waste from production necessarily exceeds the reduction in disorder manifest in output itself (raw materials turned into finished products).


Figure 2: The correct way: Energy as an input to labour and capital, output as necessarily generating waste

This useful work is what we call GDP, though we currently erroneously measure this as the inflation-adjusted sum of all monetary output—which means we add the cost of traffic accidents to GDP. Instead, the true measure of GDP is the sum of all the useful things we produce and consume: in transportation, that is moving a mass from one location to another in a given time, and traffic accidents (and congestion) subtract from it.

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Palm oil or orangutans? For economists, an easy choice.

Traditional Economics Has Absolutely Screwed Us (Tyee)

Capitalism is killing the planet. That is the gist of an exhaustive United Nations report on the bleak state of the world’s biodiversity. One million species face extinction in what has been aptly called a global murder-suicide, driven by a race to commodify ecosystems and externalize the costs of their destruction. If you were looking for a perky read to start your week, this report was not it. However, the collective efforts of 350 leading experts from 51 countries have resulted in the definitive wake-up call for those still doubting the dire consequences of business-as-usual on our one and only planet. A Noah’s ark of iconic species seems bound for oblivion due to our growing collective consumption and population.

Will your children be able to enjoy a world with wild elephants, orcas, or blue whales? Sixty per cent of primate species are threatened with extinction. The taste of a tuna sandwich may soon be consigned to lore. All of this has been happening in plain view but only recently has this become economically relevant by cutting into the bottom line. Up to $577 billion in global crop production is at risk due to collapsing populations of pollinating insects. One-third of commercial fish stocks are in steep decline with another 60 per cent being fully exploited, leaving only seven per cent of the world’s fisheries under safe management. This is exacerbated by regulatory failure where landings may be 50 per cent higher than reported, and illegal fishing accounts for up to one-third of the global catch.

Expanding agriculture is one of the main drivers of exploding extinction rates. Between 1980 and 2000, about 100 million hectares of tropical forests — roughly the area of France and Germany combined — were converted for grazing, monoculture plantations like palm oil, or short-term subsistence farming. Desperate humans and multinational companies both encroach on remaining rainforests, seeing only as far as the next growing season or financial quarter. Why does economics prioritize palm oil over orangutans? Because palm plantations are profitable, producing almost five times the oil yield per hectare of sunflowers, coconut or soybeans. Consumers too unintentionally contribute to this destruction, driving a market for a ubiquitous ingredient found in everything from lipstick to ice cream.

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McGahn, Barr, Mueller, Mnuchin, are these all the same?

House Dems To Bundle Numerous Contempt Citations For Trump Advisers (R.)

U.S. House Judiciary Committee Chairman Jerrold Nadler said lawmakers may bundle numerous contempt citations from different committees into a single resolution that the full House of Representatives could then vote on. “There obviously are going to have to be, perhaps from our committee and certainly from other committees, other contempt citations to enforce subpoenas,” Nadler told reporters. Asked about bundling citations together, the New York Democrat replied: “It’s a great idea. In fact, I suggested it … It just makes sense, to spend as little floor time as possible, to group them together.”


A consolidated contempt vote is among options Democrats are considering in response to Trump’s stonewalling of congressional investigations into his presidency and business investments. Another option is reviving Congress’s “inherent” contempt authority. Some Democrats say that would allow lawmakers to fine uncooperative officials up to $25,000 per day. Some Democrats are also calling for impeachment proceedings against recalcitrant Trump Cabinet members. Nadler said Congress faces “the unprecedented situation in which the administration is essentially stonewalling all subpoenas – we’ve never had this before in American history, so far as I know.”

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They lost two years on the Russia collusion story. Doesn’t look so smart now, does it?

House Democrat Subpoenas Six Years Of Trump Tax Returns (AP)

A top House Democrat on Friday issued subpoenas for six years of Donald Trump’s tax returns, giving the treasury secretary, Steven Mnuchin, and the IRS commissioner, Charles Rettig, a deadline of next Friday to deliver them. Richard Neal, the chairman of the House ways and means committee, issued the subpoenas days after Mnuchin refused to comply with demands to turn over Trump’s returns. Mnuchin told the panel he wouldn’t provide Trump’s tax records because the panel’s request “lacks a legitimate legislative purpose”, as supreme court precedent requires.

Neal reminded the two Trump appointees in a Friday letter that federal law states that the IRS “shall furnish” the tax returns of any individual upon the request of the chairmen of Congress’s tax-writing committees, and that ways and means “has never been denied” a request. The White House and the Democratic-controlled House are waging a multi-front battle over investigations into Trump, with the administration refusing to comply with subpoenas for the unredacted Mueller report and documents related to testimony by the former White House counsel Donald McGahn. If Mnuchin and Rettig refuse to comply with the subpoenas, Neal is likely to file a lawsuit in federal court.

He indicated earlier this week that he was leaning toward filing a court case immediately but changed course after meeting with lawyers for the House. Neal originally demanded access to Trump’s tax returns in early April. He maintains that the committee is looking into the effectiveness of mandatory IRS audits of tax returns of all sitting presidents, a way to justify his claim that the panel has a potential legislative purpose. Democrats are confident in their legal justification and say Trump is stalling in an attempt to punt the issue past the 2020 election. In rejecting Neal’s request earlier this week, Mnuchin said he relied on the advice of the justice department. He concluded that the treasury department was “not authorized to disclose the requested returns and return information”. Mnuchin has also said that Neal’s request would potentially weaponize private tax returns for political purposes.

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I don’t think John Solomon is done yet.

As for the Papadopoulos $10,000 story, how is that an “explosive revelation”? Have known that for a long time.

FISA Applications Were Illegally Obtained – DiGenova (PJ)

Washington attorney Joe diGenova claimed in an interview last night that the Department of Justice inspector general has determined that “the final three FISA extensions were illegally obtained,” and the first one is still being investigated. For the past year, DOJ IG Michael Horowitz has been investigating the FBI’s 2016 surveillance activities and his report is expected later this month or in early June. Washington power couple Joe diGenova and Victoria Toensing appeared on Lou Dobbs’ Fox Business Network show Thursday night to talk about the latest turns in the “SpyGate” saga. “The only question now is whether or not the first FISA was illegally obtained,” diGenova said.

He told Dobbs that the latest revelations in investigative reporter John Solomon’s piece at The Hill, have prompted further investigation from Horowitz’s team. On Thursday, Solomon reported that newly unearthed memos show that a high-ranking government official from the Obama State Department met with former British spy Christopher Steele in October of 2016, and figured out pretty quickly that his dossier was a political hit job intended to slime Donald Trump on behalf of Hillary Clinton’s campaign. [..] DiGenova said the inspector general was unaware of the memos, which were obtained last week through open-records litigation by the conservative group Citizens United. “The Bureau hid those memos from Horowitz. As a result of that, they are doing some additional work on the first FISA,” diGenova explained, adding: “It may be that all four FISAs will have been obtained illegally.”

[..] DiGenova and Toensing shared another explosive revelation on Sebastian Gorka’s Salem Radio talk show “America First” on Thursday. According to Toensing, the FBI tried to frame former Trump campaign adviser George Papadopoulos by having an informant give him $10,000 in cash during a trip to Israel in the summer of 2017. An individual allegedly talked the then-29-year-old into traveling to Israel to make a deal, and invited him to his hotel room. “And there on the bed is $10,000 in cash in a suitcase,” she continued. Papadopoulos took the money and gave it to his lawyer, who has it still. Toensing said when Papadopoulos returned to the United States, he was greeted by FBI agents at Dulles Airport and they started searching through everything that he had “the second he landed.”

She added, “in fact, they already had his baggage from the plane. He couldn’t believe they had his baggage.” “It was a set up!” exclaimed Gorka. “It was a complete set up,” agreed Toensing. DiGenova explained that the Feds already knew that he hadn’t declared that he had $10,000 and were expecting to find the undeclared cash so they could arrest him and “put the thumbscrews on and make him squeal,” as Gorka put it. Worst of all, according to Toensing, “one of the FBI agents said to him, ‘this is what happens when you work for Donald Trump.’”

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Good read. To a large extent, the Democrats made their own bed. Very far from a black and white story.

William Barr vs. Eric Holder: A Tale of Two Attorneys General (McConnell)

Speaker of the House Nancy Pelosi has declared it a “constitutional crisis” that Attorney General William Barr refuses to divulge the small parts of the Mueller report that contain grand-jury material. By a straight party-line vote, the House Judiciary Committee voted to hold Barr in contempt of Congress. What did Pelosi think when Barr’s predecessor, Eric Holder, refused to divulge documents to a congressional committee and was held in contempt? “Ridiculous!” she said. What did Holder and Obama say? That the House subpoena was a violation of “separation of powers.” To partisans, the difference between the cases is obvious. Barr is defending Trump; Holder was Obama’s self-proclaimed “wing man.”

That is enough for many journalists and most politicians. The rest of us might want to know: What is the legal or constitutional difference between Holder’s refusal to provide documents and Barr’s? Here is the background of the Holder contempt. The Bureau of Alcohol, Tobacco, Firearms and Explosives (BATFE), a unit of Holder’s Department of Justice (DOJ), conducted an operation called “Fast & Furious,” intended to track illegal gun sales. In fact it put hundreds of weapons in the hands of Mexican criminal gangs, leading to the death of an American officer. On February 2, 2011, after news of the operation emerged, Holder’s assistant attorney general sent a letter to Congress declaring that the Obama administration had no knowledge of the operation. This letter was false, as Holder later admitted.

A congressional committee wanted to know why it had been misled. BATFE employees leaked to Congress that the department was still suppressing the truth about the operation and retaliating against whistleblowers. The committee wanted to dig into that. It demanded DOJ documents “relating to actions the Department took to silence or retaliate against Fast and Furious whistleblowers,” so that it could determine “what the Department knew about Fast and Furious, including when and how it discovered its February 4 letter was false, and the Department’s efforts to conceal that information from Congress and the public.”

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“..funnelled [over $21 million] personally and through straw donors to President Obama’s 2012 re-election campaign, then lied about it to the Federal Elections Commission in 2015.”

Fugees Founder, Banker Charged In 1MDB, Obama Campaign Scandal (RT)

A founding member of the Fugees is accused of conspiracy to funnel illegal campaign contributions to Barack Obama’s 2012 presidential campaign and lying about it, in a spinoff of the 1MDB corruption scandal. The indictment against Prakazrel “Pras” Michel, 46, was unsealed on Friday, the government says he received over $21 million from Malaysian businessman Low Taek Jho (also known as “Jho Low”) and funnelled it personally and through straw donors to President Obama’s 2012 re-election campaign, then lied about it to the Federal Elections Commission in 2015. Michel was charged with conspiracy to defraud US government, falsifying records, and making a false statement. He appeared before a federal judge in Washington, DC on Friday and pleaded not guilty.


Mr. Michel is extremely disappointed that so many years after the fact the government would bring charges related to 2012 campaign contributions,” said his attorney Barry Pollack. “Mr. Michel is innocent of these charges and looks forward to having the case heard by a jury.” Michel is best known as one of the founding members of the Fugees, an award-winning group that set music charts on fire with ‘Killing me softly’ in 1996 and launched the solo careers of Wyclef Jean and Lauryn Hill. Low, 37, was also charged in the case, adding to the existing indictments against the Malaysian businessman already wanted for conspiring to launder billions of dollars and violating the Foreign Corrupt Practices Act.

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“..he rode on the back of that fraud for two years, as if touring a political landfill on a donkey, leaving the public to stew in anxious hallucinations.”

Crisis? What Crisis? (Jim Kunstler)

Information emerged over the weeks since the Mueller Report’s release that Mr. Mueller and his team knew unequivocally that the Special Counsel’s mission and the FBI operations that preceded it were based on concocted political bullshit supplied by Mrs. Clinton and her network of flunkies and fixers, ranging throughout the permanent DC bureacuracy (a.k.a. the Swamp), to outposts in foreign intel services and the political kitty-litter box known as Ukraine. Mr. Mueller must have suspected this from the outset, but knew for sure by the summer of 2017, and omitted to advise the American public that he had uncovered a fraud. Rather, he rode on the back of that fraud for two years, as if touring a political landfill on a donkey, leaving the public to stew in anxious hallucinations.


What else did Mr. Mueller do, or omit to do? He never engaged US government forensic computer analysts to examine the DNC servers at the heart of RussiaGate story. Rather, he allowed the conclusions to stand of a company called CrowdStrike, hired by the DNC itself to supposedly investigate the theft of emails, especially those of Clinton campaign chairman John Podesta. Mr. Mueller never bothered to interview the one person who might have known exactly who supplied the purloined emails to Wikileaks, namely Julian Assange. Mr. Mueller also did not bother to interview several dozen retired Intel Community computer experts, led by William Binney, former Technical Director of the NSA, who determined that the hack was accomplished by direct download by an insider onto a flash drive.

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This is about what the US wants to add to the Assange charge once he’s been extradited.

Manning Could Delay US Superseding Indictment Against Assange (Sp.)

According to Manning’s legal team, her release was triggered by the expiration of the term of the grand jury that had demanded her testimony. She will be back in court on May 16, trying to convince a new grand jury of what she failed to prove to the last one: that she cannot be forced to cooperate, as she fundamentally disagrees with the concept of a grand jury, which she says use activists’ testimonies against them. “This will go on until they get what they want or she continues to stay in jail,” Joe Lauria, editor-in-chief of Consortium News, told Radio Sputnik’s Loud and Clear Friday. “She’s in a position where she could delay or slow down what the Justice Department wants to do in terms of a superseding indictment against Assange.

Nobody believes that they are going to want to just put him in jail for five years… this initial indictment is a placeholder, and they have a deadline of June 12 to give to British court the charges; the decision has to be made in the UK,” Lauria said. However, there is a way around that, Lauria told hosts Brian Becker and John Kiriakou, called the Doctrine of Specialty, which, according to reference website USLegal.com, is “a principle of international law that is included in most extradition treaties, whereby a person who is extradited to a country to stand trial for certain criminal offenses may be tried only for those offenses and not for any other pre-extradition offenses.” “Once the asylum state extradites an individual to the requesting state under the terms of an extradition treaty, that person can be prosecuted only for crimes specified in the extradition request,” the website notes.

“This doctrine allows a nation to require the requesting nation to limit prosecution to declared offenses.” “In other words, Assange could come to the US based on this very silly charge that he tried to help Chelsea Manning hack into a computer — when she had top secret clearance and total access anyway — clearly he was trying to just help her hide her identity. But, he could come to the US and they could start adding charges there. I suspect that might happen if she doesn’t testify — which she will not do, obviously; she’s made that abundantly clear.” “They clearly need something from her, or they wouldn’t be throwing her back in jail, effectively, because she refuses to testify,” Lauria said. “But she’s not going to say a damn thing; she’s not going to cooperate, at incredible personal expense to herself, and that just goes to show what a person of principle she is.”

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Curious but still..

Dutch Court Blocks Extradition Of Man To ‘Inhumane’ UK Prisons (G.)

Judges in the Netherlands have refused to send a suspected drug smuggler back to the UK because of concerns that conditions in British jails are inhumane. An initial application to extradite the unnamed man, who had been on the run for two years, was refused this week due to the reported state of HMP Liverpool where he would probably be sent.The court of Amsterdam heard how inspectors had found “some of the most disturbing prison conditions we have ever seen” and “conditions which have no place in an advanced nation in the 21st century”, in reference to report on the state of prisons in the UK published last July.


A surprise inspection of HMP Liverpool in September 2017 found it was infested with rats and that inmates lived in squalid conditions, afraid of being attacked because of increasing violence. Similar conditions were found in HMP Birmingham and HMP Bedford. The Dutch judges said on Wednesday they were concerned the man, who was wanted in relation to cocaine and heroin smuggling on Merseyside, was at “real risk of inhuman or degrading treatment” if returned. The man had been made the subject of a European arrest warrant at Liverpool magistrates court in July 2017. His lawyer argued that the extradition should be refused based on the prison inspectors’ reports.

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“.. If you start with a monetary union, you make sure there will not be a democratic political union.”

Varoufakis On Eurozone: ‘We Created A Monster’ (Exp.)

Former Greek financial minister Yanis Varoufakis branded the eurozone “a monster” for allegedly taking away financial oversight from European Union member states. Mr Varoufakis, an outspoken opponent of the European monetary union, claimed the creation of the common currency led to an “undemocratic political union”. Recounting his first meeting with other eurozone Finance Ministers in 2015, Mr Varoufakis said: “When I was in the Eurogroup, Wolfgang Schauble was very clear. The first time he spoke, in my presence, he said –spectacularly and very honestly – ’democracy cannot be allowed to change economic policies.’


Mr Varoufakis continued: “We’ve created a monster. We’ve created a monetary union that has a central bank without a state behind it because the European Central Bank (ECB) doesn’t have a corresponding state. Before the euro, you had the Treasury, the ministry of finance and you had the central banks – correspondence. “The ECB is a gigantic central bank with no state behind it and you’ve got 19 states without a central bank. This is not the way to create a monetary union which is consistent with the political union.” He added: “The fallacy in 1992 with Helmut Kohl and Francois Mitterrand, is that they believed you start with a monetary union and then you move towards a democratic political union. “No. If you start with a monetary union, you make sure there will not be a democratic political union.”

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Not sure the biggest EU monster is a finance one.

70 Migrants Dead After Boat Capsizes Trying To Reach Europe From Libya (G.)

As many as 70 people trying to reach Europe from Libya have drowned after their vessel capsized in the deadliest such incident in the Mediterranean since January. According to survivors, at least 16 of whom were rescued, the boat left Zuwara in Libya, where renewed warfare between rival factions has gripped the capital, Tripoli, in the past five weeks. The vessel capsized 40 miles off the coast of Sfax, south of Tunis, as it headed towards Italy. The survivors reported that a Tunisian fishing boat came to their rescue and transferred them to a Tunisian coastguard vessel.


The incident came as overall number of people reaching Europe has decreased, whilethe journey has become increasingly dangerous. So far this year, 17,000 migrants and refugees have entered Europe via the sea, about 30% fewer than in the same period last year, according to the International Organization for Migration. The IOM said 443 people have reportedly died on Mediterranean crossings since 1 January, compared with 620 in the same period in 2018. The Institute for International Political Studies (ISPI) thinktank said that one person died for every eight people who left Libya from January to April, based on analysis of figures from the Italian interior ministry.

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There’ll always be a dictator somewhere who invites a few million dollars. There’s only one solution: stop producing the stuff. 2 trillion drinks containers were sold in 2018. Cut it out.

Nearly All Countries Agree To Stem Flow Of Plastic Waste Into Poor Nations (G.)

Almost all the world’s countries have agreed on a deal aimed at restricting shipments of hard-to-recycle plastic waste to poorer countries, the United Nations announced on Friday. Exporting countries – including the US – now will have to obtain consent from countries receiving contaminated, mixed or unrecyclable plastic waste. Currently, the US and other countries can send lower-quality plastic waste to private entities in developing countries without getting approval from their governments. Since China stopped accepting recycling from the US, activists say they have observed plastic waste piling up in developing countries. The Global Alliance for Incinerator Alternatives (Gaia), a backer of the deal, says it found villages in Indonesia, Thailand and Malaysia that had “turned into dumpsites over the course of a year”.


“We were finding that there was waste from the US that was just piled up in villages throughout these countries that had once been primarily agricultural communities,” said Claire Arkin, a spokeswoman for Gaia. The legally binding framework emerged at the end of a two-week meeting of UN-backed conventions on plastic waste and toxic, hazardous chemicals that threaten the planet’s seas and creatures. The pact comes in an amendment to the Basel convention. The US is not a party to that convention so it did not have a vote, but attendees at the meeting said the country argued against the change, saying officials didn’t understand the repercussions it would have on the plastic waste trade.

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May 022017
 
 May 2, 2017  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , ,  3 Responses »


Grand Central Station NY WWII

 

Trump Weighs Breaking Up Wall Street Banks, Raising Gas Tax (BBG)
Life After Oil Makes Real Estate Canada’s New Economic Crutch (BBG)
How Did Home Capital Get Into Trouble? (BBG)
China Leverage Rising At ‘Alarming Pace’: Central Bank Official (R.)
UBS, BNP, RBS Get Subpoenas in US Treasuries Probe (BBG)
The US Health Care Industry Is Bound To Collapse Soon (NYP)
Exhaustion Gaps and the Fear of Missing Out (John Hussman)
Barack Obama Cashes In, But Harry Truman And Jimmy Carter Refused (IC)
The Sound of One Wing Flapping (Jim Kunstler)
Emmanuel Macron Has Taken French Voters For Granted. Now He Risks Defeat (G.)
How Juncker’s Downing Street Dinner Turned Sour (G.)
Greece Reaches Deal With Creditors To Pave Way For Bailout Talks (G.)
Greece: Any Better Times Or More Pitfalls Ahead? (LSE)

 

 

Don’t hold your breath for breaking up banks. Gas tax is more interesting: keep oil prices low and off you go. Could be a huge source of revenue, and Trump needs a few of those.

Trump Weighs Breaking Up Wall Street Banks, Raising Gas Tax (BBG)

President Donald Trump said he’s actively considering a breakup of giant Wall Street banks, giving a push to efforts to revive a Depression-era law separating consumer and investment banking. “I’m looking at that right now,” Trump said of breaking up banks in a 30-minute Oval Office interview with Bloomberg News. “There’s some people that want to go back to the old system, right? So we’re going to look at that.” Trump also said he’s open to increasing the U.S. gas tax to fund infrastructure development, in a further sign that policies unpopular with the Republican establishment are under consideration in the White House. He described higher gas taxes as acceptable to truckers – “I have one friend who’s a big trucker,” he said – as long as the proceeds are dedicated to improving U.S. highways.

During the presidential campaign, Trump called for a “21st century” version of the 1933 Glass-Steagall law that required the separation of consumer and investment banking. The 2016 Republican Party platform also backed restoring the legal barrier, which was repealed in 1999 under a financial deregulation signed by then-President Bill Clinton. A handful of lawmakers blame the repeal for contributing to the 2008 financial crisis, an argument that Wall Street flatly rejects. Trump couldn’t unilaterally restore the law; Congress would have to pass a new version. Trump officials, including Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn, have offered support for bringing back some version of Glass-Steagall, though they’ve offered scant details on an updated approach. Both Mnuchin and Cohn are former bankers who worked for Goldman Sachs.

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A deeply unstable economy.

Life After Oil Makes Real Estate Canada’s New Economic Crutch (BBG)

Two things happened last week that were a reminder of just how vital real estate has become to Canada’s economy. On Friday, Statistics Canada released GDP data that showed February was a banner month for sectors linked to housing. The real estate industry, residential construction, financial and legal services generated a combined 0.5% increase in output, the biggest one-month gain since 2014. Without those, the overall economy would have contracted slightly in February. A day earlier, the Ontario government released a budget that projects land transfer taxes will surpass C$3 billion ($2 billion) in the current fiscal year, from C$1.8 billion three years ago. For the province, it’s the difference between a balanced budget and a deficit.

Measures of housing’s contribution to the economy are imprecise, but estimates largely put the direct contribution in excess of 20%. It’s much more than that once you add all the indirect effects, with benefits spread widely from lawyer fees to government revenue and increased retail purchases through so-called wealth effects as rising home equity values prompt households to ramp up consumption. The big worry is that Canada has moved from a reliance on oil to a reliance on real estate. The influence of housing on the economy is so pervasive that it won’t take much of a slowdown to act as a major drag on the economy, said Mark Chandler, head of fixed-income research at RBC Capital Markets in Toronto.

“You don’t need a collapse in house prices, you don’t need housing starts to be cut in half for weaker real estate sector to have a significant effect on GDP and incomes,” Chandler said. RBC’s ballpark estimate is that a 10% decline in national home prices would knock a full percentage point off growth. A Toronto Dominion Bank report from 2015 found the housing wealth effect has been responsible for about one-fifth of all growth in consumption since 2001. “A lot of the strength we have seen in consumption is housing related,” said Brian DePratto, the economist who wrote the 2015 report. If you strip out the direct and indirect impact from housing on the economy, “you are talking about a much lower trend pace of growth.”

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Subprime.

How Did Home Capital Get Into Trouble? (BBG)

The world is suddenly paying attention to Home Capital, the tiny Canadian mortgage lender that’s on the ropes. The stock is plunging, it faces a run on deposits and regulators are probing management’s disclosure of fraudulent mortgages. Its troubles are raising questions: Is this an isolated case of a struggling mortgage company, or early signs of cracks forming in Canada’s red-hot housing market?

1. How did Home Capital get into trouble? It started in 2014 when the company, formed 31 years ago by Gerald Soloway, failed to screen a pile of questionable mortgages brought in by outside brokers. Some 45 brokers falsified income information on borrowers, prompting Home Capital to cut ties with them, leading to a drop in new business. This eventually led to an investigation by the Ontario Securities Commission, which said on April 19 that Home Capital had misled investors by not disclosing the fraud until five months after they became aware of the problem.

2. Will Home Capital fail? There are plenty of signs of stress. The stock has plunged almost 75% this year, cutting its market value to about C$515 million, from C$3.5 billion in 2014. Most pressing is the run on deposits. Customers pulled C$1.5 billion from high-interest savings accounts in four weeks, cutting the balances to C$500 million. The company has another C$13 billion in GICS. As these 30- and 60-day deposits come due, more withdrawals may follow. Without a deposit base, Home Capital can’t fund new mortgages. Home Capital hired investment bankers for a possible sale, though there is likely as much interest in the loan book as the company itself. Commercial banks may be interested, precluding any need for a government bailout. Financial regulators say they are watching closely.

3. Will this fallout spread to other lenders? Possibly. Home Capital competes with other companies in the so-called alternative mortgage space. They cater to small-business owners, new immigrants and other people who can’t get mortgages from the big commercial banks. It’s a niche segment but growing, accounting for almost 13% of the market. Unlike in the U.S. housing crash when loan defaults soared, there is little evidence of faulty loans so far. Home Capital’s delinquency rate, for example, was just 0.20% as of February. Still, shares of rivals First National and Equitable have been dragged lower by the Home Capital woes as investors fear contagion.

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Beijing sends a lot of signals, but it cannot make good on them without risking the economy, and everybody knows it. It’s all based on the idea that a centralized economy can be forced into a smooth descent, but that’s just a fallacy.

China Leverage Rising At ‘Alarming Pace’: Central Bank Official (R.)

China’s level of leverage is rising at an “alarming pace”, particularly in the finance sector, a senior central bank official said in a commentary, amid growing concern by the country’s senior leaders over financial security. The official Xinhua news agency on Monday cited Xu Zhong, head of the People’s Bank of China’s research bureau, as saying the country needed to deleverage at a “proper pace” to reduce financial sector debt and avoid systemic financial risk. “China’s overall leverage level is reasonable but is rising at an alarming pace, especially in the financial sector,” Xu said. The original commentary was published in business journal Caijing Magazine. Xu said high levels of stimulus spending from government paired with poor corporate management and financial supervision were key factors causing rising levels of leverage, Xinhua said.

He added the government should stick to “prudent and neutral” monetary policy, reduce emphasis on economic growth targets, and improve corporate governance so authorities did not have to step in so frequently to help companies out. “Financial security is achieved via reforms, not bail-outs,” Xinhua reported Xu as saying. Last week President Xi Jinping called for increased efforts to ward off systemic risks and help maintain financial security. Analysts say financial risk and asset bubbles pose a threat to the world’s second-largest economy if not handed well. Former Chinese finance minister Lou Jiwei also said last month that high leverage was the biggest risk facing China’s economy because debt has piled up despite government efforts to deleverage. The Bank for International Settlements warned last year that excessive credit growth in China is signaling an increasing risk of a banking crisis in the next three years.

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Well, maybe they’ll get serious because it’s about Treasuries this time, and foreign banks. Then again, these are primary dealers in Treasuries.

UBS, BNP, RBS Get Subpoenas in US Treasuries Probe (BBG)

Federal prosecutors have subpoenaed several banks as part of a criminal investigation into possible manipulation of the U.S. Treasuries market, according to people familiar with the matter. The Justice Department issued subpoenas last month to banks including UBS, BNP Paribas and the Royal Bank of Scotland seeking information on the $14 trillion market, said two people, who asked not to be named because the investigation is confidential. U.S. authorities have been examining the U.S. Treasuries market for roughly two years. In November 2015, Goldman Sachs disclosed that U.S. authorities had sought information related to its trading of when-issued securities, which are among the least transparent instruments in the world’s largest debt market. When-issued securities act as placeholders for bills, notes or bonds before they’re auctioned. The instruments change hands over the counter, with lifespans of just days. There’s scant public information on trading volumes or the market’s biggest players.

[..] The Justice Department in late 2015 asked about when-issued securities as part of broader requests for documents it sent to most or all of the roughly two dozen primary dealers in U.S. Treasuries, a person familiar with the matter told Bloomberg News at the time. UBS, BNP Paribas and RBS are primary dealers in U.S. Treasuries. Authorities haven’t accused any of the banks of wrongdoing. Trading of these instruments is also the subject of several lawsuits against primary dealers filed since July 2015. In them investors allege that traders at global banks colluded to artificially inflate the price of the when-issued securities, which allow the banks to sell U.S. debt before they own it. Then they bought the debt at auctions for an artificially suppressed price, unfairly profiting at investors’ expense, the lawsuits contend. The banks are scheduled to file motions to dismiss those lawsuits once the lead counsel for the plaintiffs is chosen.

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Increased health care spending presumably adds to GDP, so why worry?

The US Health Care Industry Is Bound To Collapse Soon (NYP)

As industry spending and debt servicing rage out of control, health care is ranked as the No. 1 US “systemic recession risk” in a new report. The sums at stake are staggering: Spending in the sector accounted for $3.3 trillion in 2015, and is 18% of the US economy today. The industry generates 16% of private sector jobs nationwide, up from 10% in 1990. US health care spending is forecast to grow by an average 5.6% annually in the coming decade, according to a report by the Center for Medicare and Medicaid Services (CMS), a projection based on no changes out of Washington and in the Affordable Care Care through 2025. Meanwhile, national spending on health care is forecast to outpace US GDP growth by 1.2%. CMS has estimated that spending will comprise 19.9% of GDP by 2025, up from 17.8% in 2015.

“There’s no question that rising health care costs are hurting our overall economy,” said New York-based financial adviser Michael Mondiello. “With consumer spending accounting for some 70% of economic activity, the more we spend on health care, the less we have to purchase other things like a vacation or to save for retirement.” [..] The first murmurs of early trouble may have been detected. “Companies in the health care sector are starting to lay people off,” said John Burns, CEO of John Burns Real Estate Consulting.. [..] “Health care companies borrowed too much money, and have grown their debt faster than their revenue, so you have to have a pullback.”

[..] In a report published by Burns, health care is identified as the largest systemic risk to the economy, of the three sectors Burns examined, which also included technology and automotive. The conventional wisdom points to US demographic trends, and an aging population, as supportive of the long-term strength, but the report shows industry growth has surpassed what is sustainable:
• Health care company debt is up 308% since 2009.
• The number of hospitals in health systems has expanded by 26% since 1999.
• The yearly medical costs for a family of four have jumped 189% since 2002, from $9,000 to $26,000.
“It could be like a Lehman Brothers scenario, where a couple of big health care companies take the economy down,” Burns told The Post.

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As usual, a long essay from John. A few bites:

Exhaustion Gaps and the Fear of Missing Out (John Hussman)

To offer a sense of the market return/risk profile that has typically been associated with exhaustion gaps at overvalued, overbought, overbullish extremes, the chart below shows the maximum gain and maximum loss in the market as measured from each instance to the subsequent bear market low. Multiple exhaustion gaps in the same market cycle are depicted separately. I recognize that my regular comments about the likelihood of the S&P 500 losing half or more of its value over the completion of this cycle may seem preposterous. A review of market history may help to understand these expectations, which are consistent with both the valuation evidence later in this comment, and with the outcomes that have typically completed prior speculative market cycles.

Two caveats are important here. First, given the simplicity of the conditions that define an exhaustion gap above, and their reliance on daily market behavior, it’s not clear that investors should wait for such gaps in future market cycles if other danger signs are already present. The best way to view these exhaustion gaps, I think, is that they represent points, late in a bull market cycle, where investors become overwhelmed by fear of missing out (FOMO), leaving a lopsided equilibrium where the remaining pool of potential buyers evaporates and the pool of potential sellers becomes saturated. Conversely, it seems likely that simple daily signals like the exhaustion gaps above could be misleading in the future, if more robust measures still indicate persistent risk-seeking among investors.

As a reminder of where market valuations stand, based on what actually works across market cycles, the chart below presents several of the most historically reliable equity valuation measures we track. We can form expectations about the likely range of market losses over the completion of this cycle by asking what amount of retreat would be required to bring these measures to either: a) the highest level of valuation reached at any previous bear market low, or b) the historical norm of each measure. Emphatically, these estimates do not assume that valuations will move below their historical norms at the next bear market low (as they did, in fact, as recently as the 2009 low). The smallest expected loss estimate comes in at -45.6%, while the largest loss estimate (taking each measure to its respective historical norm) is -62.1%. The average range of estimated market losses is -47.7% to -60.1%, while the median range is -45.6% to -62.0%.

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I think I already know which way Trump will lean.

Barack Obama Cashes In, But Harry Truman And Jimmy Carter Refused (IC)

It used to be the norm for presidents to retire to ordinary life after their stint in the White House — just ask Harry Truman. When the Democratic president was getting ready to leave the White House in 1953, he was approached by many employers. The Los Angeles Times noted that if he was “unemployed after he leaves the White House it won’t be for lack of job offers … but [he] has accepted none of them.” One of those job offers was from a Florida real estate developer, asking him to become a “chairman, officer, or stockholder, at a figure of not less than $100,000” — the sort of position that is commonplace today for ex-politicians. Presumably, had Truman taken the position, it would have been a good deal for both parties: the president’s prestige and connections would also enrich the company.

Truman declined. “I could never lend myself to any transaction, however respectable, that would commercialize on the prestige and dignity of the office of the presidency,” he wrote of his refusal to influence-peddle. Although he had access to a small pension from his military service, Truman had little financial support after leaving office. He moved back into his family home in Independence, Mo., and insisted on being treated like anyone else. He would tell people not to call him “Mr. President,” and settled on a fairly ordinary routine once he was back in Independence. He would take a morning walk through the town square. He kept an office nearby where he would answer mail from Americans. He chose to engage with just about anyone who walked into his office — not only people who wrote him big checks, or invited him onto their private yachts and private islands.

“Many people,” he once said, “feel that a president or an ex-president is partly theirs — they are right to some extent — and that they have a right to call upon him.” Indeed, his office number was even listed in a nearby telephone directory. He eventually agreed to write a memoir for Life magazine, but it was a lengthy project that provided far from luxurious stipends. Truman’s modest life post-presidency moved Congress in 1958 to establish a pension system that provides an annual cash payout as well as expenses for an office and staff. Gerald Ford nevertheless shattered precedent when he joined the boards of corporations such as 20th Century Fox, hit the paid speech circuit, and was made an honorary director by Citigroup.

But his successor, Jimmy Carter, who grew up in a modest home in Plains, Georgia, did not follow Ford’s example. He refused to become a professional paid speaker or join corporate boards. He moved back to Plains, and was welcomed home by a crowd of neighbors and supporters. He quickly made himself busy as a nonprofit founder and a volunteer diplomat. He did make money post-presidency — but by serving ordinary people, not elites. He wrote dozens of best-selling books bought by millions of people across the world — the post-presidency equivalent of small donors. Carter explained his thinking to the Guardian in 2011, telling them that his “favorite president, and the one I admired most, was Harry Truman. When Truman left office he took the same position. He didn’t serve on corporate boards. He didn’t make speeches around the world for a lot of money.”

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“Rest easy America… oh, and buy every dip.”

The Sound of One Wing Flapping (Jim Kunstler)

And suddenly the storms of early Trumptopia subside, or seem to. The surface of things turns eerily placid as the sweets of May sweep away the toils of an elongated mud season. Somebody stuffed Kim Jong Un back in his bunker with a carton of Kools and the Vin Diesel video library. France appears resigned to Hollandaise Lite in the refreshing form of boy wonder Macron. It’s been weeks since The New York Times complained about the Russians stealing Hillary’s turn as leader of the free world. We’re given to understand that Congress managed overnight to cook up a spending bill that will avert a Government shut-down until September. Rest easy America… oh, and buy every dip.

A calm surface is exactly what Black Swans like to land on, though by definition we will not know they’re out there until our reveries are broken by the sound of wings flapping. Some kind of dirty bird showed up on Canada’s thawing pond last week when that country’s biggest home loan lender suffered a 60 percent pukage of shareholder equity and had to be bailed out — not by the Canadian government directly, but by the Ontario Province’s Health Care Workers Pension Fund, a neat bit of hocus pocus that amounts to a one-year emergency loan at ten percent interest. If that’s a way for insolvent public employee pension plans to find enough “yield” to meet their obligations, then maybe that could be the magic bullet for the USA’s foundering pension funds.

The next time Citibank, Goldman Sachs, JP Morgan, and friends get a case of the Vapors, let them be bailed out by the Detroit School Bus Drivers’ Pension Fund at ten percent interest. That ought to work. And let Calpers take care of Wells Fargo. The situation across Western Civilization is as follows: virtually every major financial institution has become a check-kiting operation or a Ponzi scheme, and we’ve reached the point where they can only pretend to be rescued. Bailout or not, the Toronto-based Home Capital Group is still stuck with shit-loads of non-performing sub-prime mortgage loans — its specialty — and Canada’s spectacular real estate bubble has hardly begun to pop. The collateral is starting to turn, like dead meat in the May sunshine, and the odium will waft across the border.

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“It is truly astonishing that the man who inspired (as personal secretary) and implemented (as finance minister) the policies of President François Hollande could be branded as something radically new.”

Emmanuel Macron Has Taken French Voters For Granted. Now He Risks Defeat (G.)

The rise of Macron is characteristic of the age of spin doctors: it illustrates both their power and their limits. It is truly astonishing that the man who inspired (as personal secretary) and implemented (as finance minister) the policies of President François Hollande could be branded as something radically new. To achieve this feat, spin doctors resorted to celebrity-building in ways previously unknown in French political life. Macron was new because he was young and handsome, and because he had never been elected before. He appeared repeatedly on the front pages of Paris Match with his wife, whose name is chanted by his supporters at his rallies. In the final weeks of the campaign Macron was so careful not to expose the true nature of his programme (which amounts to little more than the unpopular liberalism-cum-austerity implemented by Hollande) that his speeches degenerated into vacuous exercises in cliche and tautology.

The strategy worked up to a point: he qualified for the second round. Yet its limits are also clear. Last spring, France saw nationwide protests against the labour laws that Macron had largely designed. The opposition was not only to their content, but also to the manner in which they were passed: the government bypassed a parliamentary vote. During these demonstrations police used high levels of violence, yet Macron never uttered a word to calm things down. He has already announced that he would resort to governing by decree if needed, and it is easy to anticipate increased social tensions by the autumn. To those who would oppose him, Macron would answer that he is implementing the programme on which he was elected. Theoretically, Macron should defeat Le Pen hands down. The problem is that the meaning of such a result would be unclear: how many would have voted for him, and how many against her?

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The EU can do what it wants with the UK, because whatever it is, the Brits will blame each other for anything that goes wrong. No need for divide and conquer, there’s a hopeless divide already; Brussels can focus on conquer.

How Juncker’s Downing Street Dinner Turned Sour (G.)

The meeting last Wednesday started with a kiss on the cheek, gratefully immortalised by the photographers on Downing Street’s pavement. It ended with a withering putdown: “I’m leaving Downing Street 10 times more sceptical than I was before,” Juncker told his host. It is said that the talks started pleasantly enough. During half of an hour of chit-chat in an anteroom, before taking their place at the dinner table, May told Juncker that she didn’t want just to talk Brexit during the evening but there were other matters of world affairs to discuss. “Like what?”, Juncker asked. In fact, little else seemed to be on the prime minister’s mind. Juncker did have a topic to raise though, and the issue at hand may just explain some of the current iciness between the two leaders.

That very morning the EU should have been shuffling around its money to deal with issues such as the migration crisis, which could not have been expected a few years ago when the bloc’s budget had been set. But on Monday morning Juncker had been made aware of an email from the UK’s permanent representative in Brussels explaining that because a general election had been announced, the British government couldn’t give its support to any changes in how the EU was going to spend its cash. Juncker smelled mischief – maybe it was a way to show the EU what trouble Britain could cause if it didn’t get its way? “What on earth is all this supposed to mean?” he is said to have asked May. Perhaps you won’t be able to talk about Brexit then, he queried, when May explained the rules of purdah, under which governments in an election are to avoid binding the hands of the next administration.

[..] it was the substance of the talks that were to cause Juncker the most unease. And it was Juncker’s despair that got to his colleagues. This was the man who through the trickiest of negotiations had always seen a path through. But when presented with May’s insistence that EU citizens in the UK would be treated in the future like any other foreign national, that trade talks needed to start before the issue of Britain’s divorce bill was settled or her claim that technically the UK owed nothing at all to the union, his lack of optimism for the future became clear. “Theresa May started by stating that the UK wanted to discuss first future arrangements, then article 50 stuff,” one source with knowledge of the dinner said.

“It felt to the EU side like she does not live on planet Mars but rather in a galaxy very far away.” She was “deluded” and appeared to be “living in a parallel universe”, Juncker told the German chancellor, Angela Merkel, in a phone call said to have taken place just moments after the delegation left Downing Street.

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Absolute insanity: “..pensions are to be cut by 9% on average..”

Greece Reaches Deal With Creditors To Pave Way For Bailout Talks (G.)

Greece has reached a preliminary deal with its creditors that should pave the way for long-awaited debt relief talks, the Greek finance minister said on Tuesday. “The negotiations are concluded,” Euclid Tsakalotos told reporters, according to state agency ANA. After overnight talks, Tsakalotos said a “preliminary technical agreement” had been achieved ahead of a 22 May meeting of eurozone finance ministers, which is required to approve the deal. Tsakalotos added he was “certain” that the agreement would enable Greece to secure debt relief measures from its creditors, which he has said is vital to spearhead recovery in the country’s struggling economy. A compromise is required to unblock a tranche of loans Greece needs for debt repayments of €7bn ($7.6bn) in July.

Under pressure from its creditors – the EU, ECB and the IMF – the government agreed earlier this month to adopt another €3.6bn in cuts in 2019 and 2020. Athens conceded fresh pension and tax break cuts in return for permission to spend an equivalent sum on poverty relief measures. A government source on Tuesday said pensions are to be cut by 9% on average, ANA said. The measures are to be approved by parliament by mid-May. However, prime minister Alexis Tsipras has said he will not apply these cuts without a clear pledge later this month on debt-easing measures for Greece. Athens also hopes to be finally allowed access to the ECB’s QE asset purchase programme, to help its return to bond markets.

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So many numbers it’s easy to forget this is about people.

Greece: Any Better Times Or More Pitfalls Ahead? (LSE)

In 2015, Greece, an EU state member since 1981 with a population of 10,846,979 people, recorded the highest level of GGD (General Government Gross Debt to GDP ratio) in the EU-28, at 176.9%. Concerning the volume index of GDP per capita in PPS (Purchasing Parity Standards) we find Greece’s GDP per capita dropped from 4% lower than the EU-28 average in 2004 to 29% lower in 2015. However, GDP is a measure of a country’s economic activity, and therefore it should not be considered a measure of a country’s well-being. If we take the AIC (Actual Individual Consumption) per capita in PPS (Purchasing Power Standard) as a better indicator to describe the material welfare of households, Greece showed an AIC index per capitalower by some 19% than the EU-28 average in 2015. Labour productivity per hour worked expressed in US $ (which means GDP per hour worked expressed in US $) was estimated among the lowest in the EU-28, at $32 in 2015.

Curiously, Greece has the highest average hours worked per year in the EU-28, at 2,042 hours, its average hourly labour cost is among the lowest in the EU-28, at €14.5, its average annual wages at US $25,211 and unemployment rate of 24.90%. 43% of pensioners live on €660/month on average, and many Greek pensioners are also supporting unemployed children and grandchildren. [..] Unemployment is a tragedy for Greece. The highest jobless rate was recorded in 2014, at 27.8%. The current level of unemployment, the highest in the EU, is about 24%. Unemployed workers between 45 and 64 years of age (currently almost one in three unemployed, around 347,400 people, whereof 280,000 are long-term unemployed, in 2009 they were one in five, or 99,000 people)- , and young unemployed people aged 15-24 (close to 50% of the total) are the most adversely affected demographics.

According to ELSTAT (Hellenic Statistical Authority) – GSEE (General Confederation of Greek Workers), nine out of ten Greeks without job do not receive unemployment benefits and 71.8-73.8% (around 807,000 people) of all unemployed (1,124,000 people) have been out of work for more than twelve months, while only 1.5% of them receive the 700 euro/month applicable to the long-term registered unemployed. In the last quarter report for 2016, ELSTAT shows that the amount of Greeks facing long-term unemployment has risen some 146% (from 327,700 to 807,000 people) over the 6-year period. Additionally, there are 350,000 Greek families without a single member working, and unemployment has led some 300,000 highly skilled professionals and workers to leave the country.

[..] According to a study carry out by the Cologne Institute of Economic Research, poverty rate in Greece increased by 40% from 2008 to 2015, the largest increase among EU countries. A new multidimensional poverty index was used to calculate poverty, which is not based on income alone but on other factors such as the deprivation of material goods, quality of education, underemployment and, access to healthcare. In 2015, according to Eurostat, more than one in three residents of Greece experienced conditions of poverty and/or social exclusion. The percentage of those within this group had risen from 29.1% in 2008 to 35.7% in 2015, or 3.8 million people. 21.4% of the Greek population are living below the national poverty line (with an income less than 60 % of the national average), 22.2 % are severely materially deprived,

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