Sep 052017
 
 September 5, 2017  Posted by at 7:43 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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Irma

 

The Supernova Nature Of Asset Bubbles (CHS)
Bitcoin Tumbles as PBOC Declares Initial Coin Offerings Illegal (BBG)
China ICO Crackdown May Just Be The Start (R.)
Caribbean, Florida Brace For Hurricane Irma (BBC)
Landlords Demand Rent On Flooded Houston Homes (G.)
Germany Must Pay Poland Up To $1 Trillion In Reparations – Minister (Ind.)
Populist Hopeful Shunned by Italian Elite on Shores of Lake Como (BBG)
China May Be The Real Target Of North Korea’s Pressure (AFP)
Nuclear-Armed Nations Brought The North Korea Crisis On Themselves (G.)
New Kind Of Black Hole Found At The Centre Of The Milky Way (RT)
Established Story That Humans Came From Africa May Be Wrong (Ind.)

 

 

It takes ever more effort to keep a bubble inflated.

The Supernova Nature Of Asset Bubbles (CHS)

The trouble with inflating asset bubbles is that you have to keep inflating them or they pop. Unfortunately for the bubble-blowing central banks, asset bubbles are a double-bind: you cannot inflate assets forever. At some unpredictable point, the risk and moral hazard that are part and parcel of all asset bubbles trigger an avalanche of selling that pops the bubble. This is another facet of The Fed’s Double-Bind: if you stop pumping asset bubbles, they pop as participants realize the music has stopped, and if you keep pumping them, they expand to super-nova criticality and implode.

There are several dynamics at play in this double-bind.

1. The process of inflating a bubble (for example, the current bubbles in stocks and real estate) requires pushing investors and speculators alike into risky asset classes. This puts the market at increasing risk as everyone is pushed to one side of the boat.

2. Those on the other side of the boat (i.e. shorts) are slowly but surely eradicated as the pumping keeps inflating the bubble. When the bubble finally bursts, there are no shorts left to cover, i.e. buy stocks at lower prices to reap their profits.

3. As the bubble continues to expand, the money available to enter the market and keep prices rising declines. The very success of the pumping process strips the markets of new sources of new money, leading to a point where normal selling exceeds new-money buying and the bubble collapses.

4. Money pumping by central banks and governments follows a curve of diminishing return. One analogy is insulin insensitivity: as the systemic distortions build, markets become increasingly insensitive to money pumping. Authorities respond to this intrinsic process of increasing insensitivity by pumping even more money into the system. But as with insulin insensitivity, at some point the system loses all sensitivity to money pumping: no matter how much money central authorities inject, the markets refuse to go higher. At this point, the stick-slip nature of bubbles manifests and modest selling triggers a collapse as participants all rush for the exits. Buyers have vanished and there is no longer a bid at any price.

5. Having pumped the assets higher with ever-greater injections of speculative risk and pumping, central banks and states have exhausted their ability to re-inflate assets as they collapse.

Systems cannot be controlled once risk and moral hazard have been raised to levels where instability is an intrinsic feature of the system. Those who actually believe the Fed can keep asset bubbles inflated at a permanently high plateau will discover their error in dramatic fashion, as the bigger the bubble, the more violent the implosion. This is the super-nova nature of asset bubbles: if you try to deflate the bubble slowly, it implodes, but if you keep inflating the bubble it eventually implodes from its internal extremes.

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China needs its foreign reserves. The last thing it needs is a way for money to leave the country that it has no control over. Other countries have no choice but to follow suit.

Bitcoin Tumbles as PBOC Declares Initial Coin Offerings Illegal (BBG)

Bitcoin tumbled the most since July after China’s central bank said initial coin offerings are illegal and asked all related fundraising activity to be halted immediately, issuing the strongest regulatory challenge so far to the burgeoning market for digital token sales. The People’s Bank of China said on its website Monday that it had completed investigations into ICOs, and will strictly punish offerings in the future while penalizing legal violations in ones already completed. The regulator said that those who have already raised money must provide refunds, though it didn’t specify how the money would be paid back to investors. It also said digital token financing and trading platforms are prohibited from doing conversions of coins with fiat currencies. Digital tokens can’t be used as currency on the market and banks are forbidden from offering services to initial coin offerings.

“This is somewhat in step with, maybe not to the same extent, what we’re starting to see in other jurisdictions – the short story is we all know regulations are coming,” said Jehan Chu at Kenetic Capital in Hong Kong, which invests in and advises on token sales. “China, due to its size and as one of the most speculative IPO markets, needed to take a firmer action.” Bitcoin tumbled as much as 11.4%, the most since July, to $4,326.75. The ethereum cryptocurrency was down more than 16% Monday, according to data from Coindesk. ICOs are digital token sales that have seen unchecked growth over the past year, raising $1.6 billion. They have been deemed a threat to China’s financial market stability as authorities struggle to tame financing channels that sprawl beyond the traditional banking system. Widely seen as a way to sidestep venture capital funds and investment banks, they have also increasingly captured the attention of central banks that see in the fledgling trend a threat to their reign.

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The Chinese know how corrupt their countrymen are.

China ICO Crackdown May Just Be The Start (R.)

China is poised to further tighten rules on virtual currencies after regulators on Monday banned virtual coin fundraising schemes, Chinese financial news outlet Yicai reported, citing sources. China banned and deemed illegal the practice of raising funds through launches of token-based digital currencies, targeting so-called initial coin offerings (ICO) in a market that has exploded since the start of the year. Yicai’s report late Monday cited a source close to decision-makers as saying the announcement on the ban was just the start of further follow-up regulations of virtual currencies. In total, $2.32 billion has been raised through ICOs globally, with $2.16 billion of that being raised since the start of 2017, according to cryptocurrency analysis website Cryptocompare.

Bitcoin rival ethereum, which token-issuers usually ask to be paid in and which has seen dramatic growth this year, fell sharply on the news. It was down almost 20% on Monday at $283, according to trade publication Coindesk. Bitcoin was also down 8%, while the total value of all cryptocurrencies was down around 10% after China’s ban was announced, according to industry website Coinmarketcap.com.

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Wonder what reporting will look like if islands are destroyed but US mainland is not.

Caribbean, Florida Brace For Hurricane Irma (BBC)

Hurricane Irma has been upgraded to a powerful category four storm as warnings have been issued for several Caribbean islands. The hurricane had sustained winds of up to 220km/h (140mph) and was likely to strengthen in the next 48 hours, the US National Hurricane Center (NHC) said. Irma was projected to hit the Leeward Islands, causing storm surges, life-threatening winds and torrential rain. The US state of Florida has declared a state of emergency. It comes as residents in Texas and Louisiana are reeling from the effects of Hurricane Harvey, which struck as a category four storm, causing heavy rain and destroying thousands of homes. However the NHC warned that it was too early to forecast Irma’s exact path or effects on the continental US. Irma was set to reach the Leeward Islands, east of Puerto Rico, by late Tuesday or early Wednesday (local time), the centre added.

The storm was moving at a speed of 20km/h (13mph). It may cause rainfall of up to 25cm (10in) in some northern areas and raise water levels by up to 3m (9ft) above normal levels, the NHC said. Puerto Rico also declared a state of emergency and activated the National Guard. Governor Ricardo Rossello announced the opening of emergency shelters able to house up to 62,000 people, and schools would be closed on Tuesday. Long queues of people formed in shops, with residents stocking water, food, batteries, generators and other supplies. Hurricane warnings have been issued for the islands of Antigua and Barbuda, Anguilla, Montserrat, St Kitts and Nevis, St Martin, Sint Maarten, St Barthelemy, Saba, St Eustatius, Puerto Rico, British Virgin Islands and US Virgin Islands. It means that hurricane conditions are expected in the next 36 hours.

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Absurdity.

Landlords Demand Rent On Flooded Houston Homes (G.)

An acute housing crisis is starting to grip thousands of other families in south-east Texas as the floodwaters ebb away, with a death toll put at 60 on Monday. More than 180,000 houses in the Houston area have been badly damaged, with only a fraction of occupants owning any flood insurance. And under Texas law, rent must still be paid on damaged dwellings, unless they are deemed completely uninhabitable. A spokeswoman for the city of Houston’s housing department said city officials “are aware these problems exist” but said that state law deals with the situation. She said the city was still assessing the total number of people in need of housing assistance. Under the Texas property code, if a rental premises is “totally unusable” due to an external disaster then either the landlord or tenant can terminate the lease through written notice.

But if the property is “partially unusable” because of a disaster, a tenant may only get a reduction in rent determined by a county or district court. “There are a lot of property owners who aren’t conscious of what has gone on; they are being rude and kicking people out,” said Isela Bezada, an unemployed woman who lived with 10 family members in a Houston house until her landlord took her to court to evict her after the hurricane hit. Bezada, like Fuentes, has had almost every area of her life touched by the flood. Her relatives, who work in home renovations, have little opportunity to bring in money until the full gutting of sodden houses – piles of torn up carpet, broken chairs and children’s toys have become a common adornment to the front of Houston homes – and she worries about other family members stranded in Port Arthur by a flooded highway.

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Greece first.

Germany Must Pay Poland Up To $1 Trillion In Reparations – Minister (Ind.)

Germany should consider paying Poland as much as $1 trillion in World War II reparations, according to the Polish foreign minister. Poland’s foreign minister Witold Waszczykowski told local radio station RMF that “serious talks” were needed with Germany to “find a way to deal with the fact that German-Polish relations are overshadowed by the German aggression of 1939 and unresolved post-war issues.” He said Poland’s material losses were about $1 trillion, or higher. Polish defense minister Antoni Macierewicz also accused European critics of trying to “erase” the fate of the Poles at German hands during the war “from the historical memory of Europe”.

The country’s right-wing government has dismissed a 1953 resolution by Poland’s former communist government which dropped any claim to reparations from Germany, and are instead claiming that Germany is “shirking” its moral responsibility. Critics of the government say they are talking about reparations to divert attention from their nationalistic agenda. Around six million Polish citizens, including about three million Jews, were killed during the war and much of Warsaw was destroyed. Mr Waszczykowski did not say when Poland would make public its formal position on repatriations.

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Just keep saying populist often enough. He’s right about the euro: “a currency tailor-made for the German economy.”

Populist Hopeful Shunned by Italian Elite on Shores of Lake Como (BBG)

Populist would-be premier Luigi Di Maio had an awkward introduction to the Italian elite. The Five Star Movement’s most likely candidate for next year’s election was ignored by Italy’s business and financial establishment when he arrived at an exclusive networking event by Lake Como on Sunday. Di Maio, 31, was reduced to posing for photographers, while a passing banking executive muttered that he hoped the populist might learn something from his visit. His group, which wants a referendum on Italy’s euro membership, is virtually tied in opinion polls with the Democratic party of ex-premier Matteo Renzi, and with a possible center-right alliance including the Forza Italia party of Silvio Berlusconi. Di Maio sought to reassure.

Those opinion polls – as well as the possibility of a hung parliament – are prompting fears of political instability and financial turbulence with elections due by late May, even as the third-biggest economy in the euro area recovers from its worst recession since World War II. “We don’t want a populist, extremist or anti-European Italy,” he told the Ambrosetti Forum in Cernobbio, in a bid to win round his skeptical audience. The euro referendum plan is simply “a last resort,” he added, to force reforms of the European Union and “a currency tailor-made for the German economy.”

The proposals of Five Star, co-founded by ex-comic Beppe Grillo, also include a monthly €780 “citizen’s income” for the poor and the jobless, purging private lenders from control of the Bank of Italy, and tougher penalties for managers of bankrupt banks. “We want to stay in the EU and discuss some of the rules which are suffocating and damaging our economy,” Di Maio said. “And the money we’re giving the EU budget every year must be one of the themes to put forward to the other countries.” Many of those ideas were anathema to those debating world affairs at the luxury Villa D’Este hotel – a five-star institution with which the assembled ruling class was altogether more comfortable.

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Xi has to polish his image before the Congress in October. He can’t let this continue.

China May Be The Real Target Of North Korea’s Pressure (AFP)

North Korea’s escalating nuclear provocations are putting putative ally China in an increasing bind, and may be part of a strategy to twist Beijing’s arm into orchestrating direct talks between Pyongyang and Washington, analysts said. The North’s Kim dynasty has repeatedly used nuclear brinkmanship over the years in a push to be taken seriously by the United States but traditionally avoided causing major embarrassment to China, its sole major ally and economic lifeline. But leader Kim Jong-Un’s detonation Sunday of what he called a hydrogen bomb marked the second time this year that the 33-year-old family scion upstaged Chinese President Xi Jinping just as he was hosting a carefully choreographed international gathering.

Communist propaganda deifies Xi as an infallible father figure, but Kim’s actions are puncturing the facade and exposing the Chinese leader’s impotence toward the nuclear crisis on his doorstep. “North Korea’s repeated nuclear and missile tests have put China in a more and more difficult position,” said Shi Yinhong, Director of the Center for American Studies at Renmin University in Beijing. Shi said Kim – who has never met Xi – had become “more and more hostile towards China” after Beijing signed on to tougher new international sanctions against Pyongyang. That has apparently made Kim more willing to bring pressure on Xi, said Jean-Pierre Cabestan, a political science professor at Hong Kong Baptist University. Kim may be using Xi “like a cue ball in billiards,” Cabestan said, “in order to get negotiations with the United States.” “But he has to be careful not to infuriate Xi as China is his only lifeline.”

Pyongyang’s sixth nuclear test, by far its most powerful to date, came just as leaders of the five BRICS emerging economies – Brazil, Russia, India, China, and South Africa – gathered for a summit. The meeting in the southeastern city of Xiamen was intended to be the typical China-hosted event — micromanaged to the smallest detail to portray Xi at home as a wise and benevolent world leader. But Kim stole the spotlight, just as he did in May when the North conducted a missile test that embarrassed Xi as he hosted a large international summit on trade.

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Valid points.

Nuclear-Armed Nations Brought The North Korea Crisis On Themselves (G.)

North Korea’s defiant pursuit of nuclear weapons capabilities, dramatised by last weekend’s powerful underground test and a recent long-range ballistic missile launch over Japan, has been almost universally condemned as posing a grave, unilateral threat to international peace and security. The growing North Korean menace also reflects the chronic failure of multilateral counter-proliferation efforts and, in particular, the longstanding refusal of acknowledged nuclear-armed states such as the US and Britain to honour a legal commitment to reduce and eventually eliminate their arsenals. In other words, the past and present leaders of the US, Russia, China, France and the UK, whose governments signed but have not fulfilled the terms of the 1970 nuclear non-proliferation treaty (NPT), have to some degree brought the North Korea crisis on themselves.

Kim Jong-un’s recklessness and bad faith is a product of their own. The NPT, signed by 191 countries, is probably the most successful arms control treaty ever. When conceived in 1968, at the height of the cold war, the mass proliferation of nuclear weapons was considered a real possibility. Since its inception and prior to North Korea, only India, Pakistan and Israel are known to have joined the nuclear “club” in almost half a century. To work fully, the NPT relies on keeping a crucial bargain: non-nuclear-armed states agree never to acquire the weapons, while nuclear-armed states agree to share the benefits of peaceful nuclear technology and pursue nuclear disarmament with the ultimate aim of eliminating them. This, in effect, was the guarantee offered to vulnerable, insecure outlier states such as North Korea. The guarantee was a dud, however, and the bargain has never been truly honoured.

Rather than reducing their nuclear arsenals, the US, Russia and China have modernised and expanded them. Britain has eliminated some of its capability, but it is nevertheless renewing and updating Trident. France clings fiercely to its “force de frappe”. Altogether, the main nuclear-weapon states have an estimated 22,000 nuclear bombs. A report by the non-governmental British-American Security Information Council in May said nuclear security was getting worse. “The need for nuclear disarmament through multilateral diplomacy is greater now than it has been at any stage since the end of the cold war. Trust and confidence in the existing nuclear non-proliferation regime is fraying, tensions are high, goals are misaligned and dialogue is irregular,” the report said.

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It’s only 100,000 suns. The biggest one is 4,000 times larger.

New Kind Of Black Hole Found At The Centre Of The Milky Way (RT)

A new kind of black hole has been found at the centre of the Milky Way – a find that may help explain the evolution of the phenomena. In research conducted by Japanese astronomers using the ALMA Observatory in northern Chile, a black hole 100,000 times the size of our sun was found within a molecular gas cloud. Its relatively small size means that it is the first to be identified as an intermediate-mass black hole (IMBH). Professor Tomoharu Oka of Japan’s Keio University believes that black holes with masses greater than a million solar masses are at the centre of all galaxies and are essential to their growth. The origins of supermassive black hole, however, remain a mystery. “One possible scenario is IMBHs – which are formed by the runaway coalescence of stars in young compact star clusters – merge at the centre of a galaxy to form a supermassive black hole,” said Prof Oka.

Using the ALMA telescope, the team observed the cloud more than 195 light years from the centre of the Milky Way. In findings published in the journal Nature Astronomy, Prof Oka then used computer simulations to show the high speed motion of the gas cloud, which the team concluded was a sign that it is surrounding a black hole. “Based on the careful analysis of gas kinematics, we concluded a compact object with a mass of about 100,000 solar masses is lurking in this cloud,” Prof Oka added. The IMBH is the second-largest black hole discovered in the Milky Way next to Sagittarius A*, which is 400 million times the size of our sun. According to theories, the Milky Way should be home to about 100 million smaller black holes, but only 60 have been found.

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“.. the absence of evidence for later humans could suggest that the journey “may not have ended well..”

Established Story That Humans Came From Africa May Be Wrong (Ind.)

The belief that humans came out of Africa millions of years ago is widely believed. But it might be about to be entirely re-written, according to the authors of a new study. They claim to have found a footprint in Crete that could change the narrative of early human evolution, suggesting that our ancestors were in modern Europe far earlier than we ever thought. The accepted story of the human lineage has been largely set since researchers found fossils of our early ancestors in South and East Africa, in the middle of the 20th century. Later discoveries appeared to suggest that those that followed remained isolated in Africa for millions of years before finally moving out and into Europe and Asia. But the new discovery of a footprint that appears to have belonged to a human that trod down in Crete 5.7 million years ago challenges that story.

Humans may have left and been exploring other continents including Europe far earlier than we knew. “This discovery challenges the established narrative of early human evolution head-on and is likely to generate a lot of debate,” said Professor Per Ahlberg, who was an author on the study. “Whether the human origins research community will accept fossil footprints as conclusive evidence of the presence of hominins in the Miocene of Crete remains to be seen.” The study looked at the characteristics of the footprint, in particular examining its toes. It found that the footprint didn’t have claws, walked on two feet and had inner toes that went out further than its outer ones. All of that led them to conclude that the foot appeared to belong to our early human ancestors, who could have been walking around Europe at an early time than we ever knew.

They also make clear that the owner of the footprint and their species could have developed the same traits separately from those in Africa. At the time the footprint was made, the Sahara Desert didn’t exist and lush, savannah-like environments went all the way from North Africa to the eastern Mediterranean, and Crete hadn’t yet detached from the Greek mainland. All of that makes it easier to see how those early hominins made their way to the island. But the journey might not run into problems. Mark Maslin from University College London told The Times that while the discovery supports the idea that our ancestors used their new found bipedalism to walk into modern Europe, the absence of evidence for later humans could suggest that the journey “may not have ended well”.

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Jun 102016
 
 June 10, 2016  Posted by at 8:24 am Finance Tagged with: , , , , , , , ,  8 Responses »
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Lewis Wickes Hine Workers in Maryland packing company 1909

Marc Faber: Brexit Would Be Best Thing To Happen in Britain’s History (CNBC)
Brexit Might Trigger Run On Britain’s Record Financial Debts, S&P Warns (AEP)
Heavy Cost Of UK’s Access To The Single Market In Europe (Connolly)
Germans Get Richer While Southern Europe Lags (R.)
Bill Gross Says Negative Rates Are Like ‘Supernova’ That Will Explode (BBG)
It Took The US $10 In New Debt To Create $1 Of Growth In Q1 (ZH)
Global Investors Are Fleeing US Stocks at a Record Pace (BBG)
US Tax Receipts Signaling Recession? (Mish)
Ready, Set, Crash – Could New Zealand Be Next To Fall? (NZ Herland)
Pity Poor China: There’s No Easy Fix to the S-Curve (CH Smith)
China’s Propaganda Department Not Good Enough At Propaganda (AFP)
How Mishandling Classified Info Affects People Not Named Clinton (USA T.)
They Died of Progress (Greer)
The Money Cult (Dmitry Orlov)
In Greek Refugee Camps, Wait For Asylum Fuels Unrest (R.)
3,000 Migrants Rescued Off Italian Coast; Two Bodies Found (R.)

Not a fan of the Union.

Marc Faber: Brexit Would Be Best Thing To Happen in Britain’s History (CNBC)

As investors wring their hands over the impact of Britain’s potential withdrawal from the European Union, otherwise known as “Brexit,” one of the market’s biggest bears delivered a surprising message. “I happen to think that a Brexit would be bullish for global economic growth,” Marc Faber told CNBC’s “Trading Nation” on Wednesday. “It would give other countries incentive to leave the badly organized EU.” The editor and publisher of The Gloom, Boom & Doom Report emphasized that a vote on June 23 by Britain to leave the EU would be an ideal course of action for the country. Additionally, Faber expressed the belief that small countries like Croatia, Estonia and Malta would also prosper as independent nations versus being a part of a larger system.

Currently, the EU has 28 members that operate within a single market with the goal of encouraging the free movement of goods and services. British Prime Minister David Cameron has expressed disdain for leaving the bloc, explaining in a piece for The Telegraph that doing so would “be the gamble of the century.” However, that’s a risk that Faber says Britain should be willing to take and noted that the EU is an “empire that is hugely bureaucratic.” Faber further reasoned that a Brexit would not be a disaster. “On the contrary, it would be the best thing for Britain that would ever happen!” Faber defended his case by citing Switzerland, which is not a member of the EU nor the European Economic Area, but instead operates in the “single” market. That enables the Swiss to have rights in the U.K., but theoretically allows them to operate independently of both groups.

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“The level of debt coming due over the next 12 months is 755pc of the country’s external receipts..”

Brexit Might Trigger Run On Britain’s Record Financial Debts, S&P Warns (AEP)

Britain is the world’s most vulnerable state on a key measure of short-term debt and credit markets might suddenly seize up if voters opt for Brexit, Standard & Poor’s has warned. The US credit rating agency is crystal clear that Britain will be stripped of its coveted AAA status immediately and may face a double-barrelled downgrade if the country takes a leap in dark, jeopardizing its trading and financial ties to its biggest market. “We are categorical about this,” said Moritz Kraemer, the agency’s head of sovereign ratings. “There is no clear ‘Plan B’ in the UK and we are not going to wait until we find out what the British position actually is. We could potentially see a two-notch downgrade,” he told The Daily Telegraph.

Mr Kraemer said the British financial system is extremely dependent on external financing. This is the Achilles Heel for an economy that relies so heavily on the City of London, and has a current account deficit above 5pc of GDP – the highest in Britain’s peace-time history. The level of debt coming due over the next 12 months is 755pc of the country’s external receipts, the highest for all 131 sovereign states rated by S&P. This compares to 318pc for the US and 316pc for France, the next two states most exposed. Much of this short-term debt is owed by banks operating in the City, some of them American, Japanese, European, or Mid-East institutions.

In theory, the liabilities are matched by assets and therefore simply ‘net out’ if stress forces banks to shrink their operations, but crises have a nasty habit of revealing skeletons in the cupboard. “If there is no currency and maturity mismatch, then there is no big issue. But we don’t know that for sure,” Mr Kraemer said. “These sums are very large and have to be rolled over constantly. Nobody has ever hesitated in the past because it was always assumed that Britain is a safe haven and there is no risk,” he said.

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Bernard Connolly was never a fan of the EU. He sees Germany take over if Britain remains in the Union.

Heavy Cost Of UK’s Access To The Single Market In Europe (Connolly)

We are told that Britain’s net contribution to the EU budget, about 0.5pc of our GDP after the rebate (our gross contribution is much bigger; what we “get back” is EU payments to universities and interest groups as part of the EU’s subversion strategy) is the entry fee we must pay for “access” to the EU single market. Why do numerous other countries, with equal access to the single market, receive substantial net payments from the EU – that is, from us and a few other countries? Jean-Claude Juncker has said that France gets away with breaking the budgetary rules “because it’s France”. Britain is gleefully given the rough end of the stick by our partners “because it’s Britain”.

What access brings to Britain is the enormous cost of single market regulations imposed on all firms, not just the very small minority of exporters to the EU. It also brings higher prices in the shops because we are forced to apply the EU’s common external tariff to imports from third countries. Importantly, it brings a massive deficit with the EU on trade in goods and services – reducing the amount we can spend without borrowing from abroad by close to a massive 4pc of our GDP. But we do borrow. The trade deficit with the EU is the biggest single contributor to Britain’s unsustainable current-account position.

We do not yet have much net debt to the rest of the world. But if the current account deficit continues at anything like its present rate it will not be long before we build up foreign debt that leaves us with four choices: default; an economic depression like that in Greece; substantial sterling depreciation; and total political submission to Germany in the hope of getting permanent transfers from that country. The last option is far-fetched beyond science fiction. The first and second are obviously unthinkable for a country such as Britain, at least if we restore control over our own affairs by leaving the EU. That leaves just sterling depreciation, and the sooner it happens the less disruptive it will be. The more Leave thrives in the opinion polls, the better it is for the prospect of avoiding default and depression.

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Why the eurozone should fall. Everything moves towards the center. Design flaw, intentional or not, can’t be fixed.

Germans Get Richer While Southern Europe Lags (R.)

The wealth disparity in the euro zone is increasing, with rising property prices helping Germans get richer while southern European countries lag behind, a study has found. While the gap between northern countries, such as the Netherlands, and southern states like Portugal has long been a feature of the euro bloc, the study by an arm of German fund manager Flossbach von Storch shows it is getting ever wider. Taking a basket of items including property, stocks, art and expensive wine, the research concluded that wealth in Germany and Austria jumped more than 7% at the end of 2015 compared to a year earlier.

That was roughly twice the growth rate of Italy and Spain, while Greeks saw their wealth drop by more than 4%. Property prices, which, for example, jumped by more than 6% in Germany, are the biggest driver of wealth. This difference leads to political tension in the 19-member euro zone, while weak property prices in southern countries hit their banks, which hold homes and commercial property as security for loans. “Until 2006 when the bubble burst, countries in the south were really taking off. Now they are in a Japan-like situation,” said Thomas Mayer, founder of the research institute that carried out the study.

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Inevitable.

Bill Gross Says Negative Rates Are Like ‘Supernova’ That Will Explode (BBG)

Bill Gross, the manager of the $1.4 billion Janus Global Unconstrained Bond Fund, warned central bank policies that pushed trillions of dollars into bonds with negative interest rates will eventually backfire violently. “Global yields lowest in 500 years of recorded history,” Gross, 72, wrote Thursday on the Janus Twitter site. “$10 trillion of neg. rate bonds. This is a supernova that will explode one day.” A supernova is a star at the end of its life that suddenly increases greatly in brightness because of a catastrophic explosion that ejects most of its mass. Gross has argued for some time that the economy is at the end of a decades-long cycle of expanding credit that has culminated in negative interest rates, a situation he said is unsustainable.

Rather than spurring economic growth, low rates are promoting asset bubbles as investors reach for higher yields while punishing individual savers and industries that rely on interest rates, such as bank and insurance companies, according to Gross. He said in a June 2 note that the era of 7.5% annualized investment gains is history and that investors should eventually take positions to protect principal or profit from market declines. Returns will be low, risk will be high and at some point the ‘Intelligent Investor’ must decide that we are in a new era with conditions that demand a different approach,” he wrote. “Negative durations? Voiding or shorting corporate credit? Buying instead of selling volatility? Staying liquid with large amounts of cash? These are all potential ‘negative’ carry positions that at some point may capture capital gains or at a minimum preserve principal.”

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You can neither purchase nor borrow growth. When China reaches this phase, watch out.

It Took The US $10 In New Debt To Create $1 Of Growth In Q1 (ZH)

today we had a chance to update the total US credit following the release of the Fed’s Flow of Funds (Z.1) statement, which is usually parsed for its tracking of changes to household wealth. And while it showed that in  the first quarter the net worth of US residents, mostly the wealthy ones as the bulk of financial assets is held by a small fraction of the total population, rose by $837 billion to $88 trillion mostly as a result of a change in real estate holdings, we were more interest in the aggregate picture. It wasn’t pretty.

As a reminder, according to the latest BEA revision, nominal Q1 GDP was $18.23 trillion, an increase of just $65 billion from the previous quarter or an annualized 0.7% rate, the question is how much credit had to be created to generate this growth. Well, according to the Z.1, total credit rose to a new record high $64.1 trillion. This was an increase of $645 billion from the previos quarter. It means that in the first quarter, it “cost” $10 in new debt to generate just $1 in new economic growth!

 

And here are the two other key charts: the first, showing total credit (debt and loans) vs GDP growth since 1950. The trend is hardly anyone’s friend, except for those who create the debt out of thin air to pocket the ever lower cash flows associated with it (and await the next inevitable bailout):

 

More importantly, on a leverage ratio basis, the US economy is now at a level of 352% total credit/GDP, the highest since Q1 2013, and a level which has been relatively flat since it peaked at 380% just before the crash. One way to read this chart perhaps is that the “carrying debt capacity” of the US economy is roughly 380% at which point something “unexpected” happens. At the current rate of surging credit relative to slowing GDP, the US economy should be there in the not too distant future.

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This supposes people merely switch their money somewhere else, but some may simply need it fr other purposes.

Global Investors Are Fleeing US Stocks at a Record Pace (BBG)

The most determined seller of U.S. stocks may not be in the U.S. at all. Investors outside the country dumped $128 billion in American shares over the past year, data from the U.S. Treasury International Capital System show. Despite the higher quality of companies in the U.S., long-term investors may be drawn to the faster pace of growth in other economies, said Stewart Warther, an equity strategist at BNP Paribas.

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There’s those nasty pesky withholding taxes again.

US Tax Receipts Signaling Recession? (Mish)

US federal personal tax receipts receipts are falling fast. So is the Evercore ISI State Tax Survey. The last two times the survey plunged this much, the US was already in recession. Is it different this time?

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Boy oh boy.

Ready, Set, Crash – Could New Zealand Be Next To Fall? (NZ Herland)

“We’ve almost got the perfect storm,” says veteran fund manager Brian Gaynor as he reels off the many reasons New Zealand house prices and debt levels are soaring to precipitous heights. There are many ingredients. But right now, New Zealand seems to have them all: not enough building, restrictions on development, surging migration, baby boomer savings, low interest rates and banks that are all too happy to lend for property investment. “When you get the perfect storm like we did in the 1980s with the sharemarket, you see things just go up and up. People start to believe they will never fall,” he says.

“People didn’t believe the sharemarket would fall in the 80s. I’d come in from a trip to Australia and the guy at customs wouldn’t let me in unless I gave him sharemarket tips. It was just euphoria. Everyone was talking about the sharemarket. Now everyone is talking about the property market.” New Zealand’s gross debt is a whopping half trillion dollars; housing now accounts for $218 billion of that. As of April that housing debt was growing at an annualised rate of 8.3% – and that rate is accelerating. The median price of an Auckland house has almost doubled since the bottom of the last cycle in 2009, in the depths of the global financial crisis. The boom has now spilt over into the regions, with places like Hamilton and Tauranga surging 26 and 23% respectively in the past 12 months.

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We should think about how scary this is.

Pity Poor China: There’s No Easy Fix to the S-Curve (CH Smith)

The fundamental context of China’s economy is that it has traced out an S-Curve – as did previous fast-developing nations such as Japan and South Korea. The S-Curve can be likened to a rocket’s trajectory: first, there’s an ignition phase, as the fuel of financialization, cheap labor and untapped productive capacity is ignited. The boost phase lasts as long as credit-fueled production and consumption expand rapidly. In the boost phase, investors and financial authorities can do no wrong. The high growth rate of credit and production overwhelms all other factors, as the virtuous cycle of expanding profits and production increases wages which then support further expansion of credit and consumption which then supports more production, and so on.

A vast tide of foreign investment fuels an equally vast expansion of fixed capital assets such as factories and new homes. But then the fuel of financialization is consumed, and the previously fast-growing economy slows to stall speed. Depending on how much leverage, corruption and wealth has piled up in the boost phase, this phase may last a few years. This is the top of the S-Curve. As the economy weakens, everything that worked in the boost phase no longer works: expanding credit no longer boosts growth, inflating yet another real estate bubble no longer generates a widespread wealth effect, and every effort to shift from being an export-dependent economy to a self-supporting consumer economy fails to achieve liftoff.

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Study western media to see how it’s done?!

China’s Propaganda Department Not Good Enough At Propaganda (AFP)

hina’s propaganda department, tasked with controlling the media and arts, has been given a slap on the wrist for not being good enough at shaping public opinion, according to a report on a government website. The Central Commission for Discipline Inspection (CCDI) posted an article on its website Wednesday that described findings from its two-month-long probe of the ruling Communist party’s propaganda department, which began in February. Leaders in the department did not feel a sufficient sense of responsibility for undertaking ideological work, the piece cited CCDI member and investigation spokesman Wang Huaichen as saying. Art was not directed clearly enough towards socialist aims and political thought not emphasised enough in universities, he was quoted as saying.

News propaganda was not targeted or effective enough, especially in the field of new media, where the department had failed to fully implement the principle of “the party controlling the media”, the post cited him as saying. Wang called upon the department to make propaganda appear more valid by enhancing its attractiveness and appeal, it said. The Communist party tolerates no opposition to its rule and newspapers, websites, and broadcast media are strictly controlled. An army of censors patrols social media and many Western news websites are blocked. President Xi Jinping reminded top state media outlets to “strictly adhere to the orders of the Chinese Communist Party” during a series of high-profile visits to their headquarters in February.

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How Hillary stands out against the US Marine Corps. Click the link to read a young man’s sense of duty and honor. Perhaps a bit overcharged, but what Clinton tries to get away with drags down the entire nation. She’s not the only one to flaunt the rules, but if the commander-in-chief -supposing she’s elected- does this, what does that tell everyone else? I can’t see the military and the FBI accepting it. Maybe the higher-ups would, but you don’t want widespread unrest in the ranks.

How Mishandling Classified Info Affects People Not Named Clinton (USA T.)

Clinton is the antithesis of that young captain, someone with no honor, little courage and commitment only to her endless ambition. This has nothing to do with gender, party affiliation, ideology or policy. It is a question of character — not just hers, but ours. Electing Clinton would mean abandoning holding people accountable for grievous errors of integrity and responsibility. What we already know about her security infractions should disqualify her for any government position that deals in information critical to mission success, domestic or foreign. But beyond that, her responses to being found out — dismissing its importance, claiming ignorance, blaming others — indict her beyond anything the investigation can reveal. Those elements reveal her character. And the saddest thing is that so many in America seem not to care.

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The downfall of the tech religion?!

They Died of Progress (Greer)

[..] the unspeakable has become the inescapable in today’s world. It’s become a running joke on the internet that the word “upgrade” inevitably means poorer service, fewer benefits, and more annoyances for those who have to deal with the new and allegedly improved product. The same logic can be applied equally well across the entire landscape of modern technology.  What’s new, innovative, revolutionary, game-changing, and so on through the usual litany of overheated adjectives, isn’t necessarily an improvement. It can be, and very often is, a disaster. Examples could be drawn from an astonishingly broad range of contemporary sources, but I have a particular set of examples in mind. 

To make sense of those examples, it’s going to be necessary to talk about military affairs. As with most things in today’s America, the collective conversation of our time provides two and only two acceptable ways to discuss those, and neither of them have anything actually useful to say. The first of them, common among the current crop of American pseudoconservatives, consists of mindless cheerleading; the second, common among the current crop of pseudoliberals all over the industrial world, consists of moralizing platitudes. I don’t particularly want to address the moralizing platitudes just now, other than to say that yes, war is ghastly; no, it’s not going away; and it’s not particularly edifying to watch members of the privileged classes in the countries currently on top of the international order insist piously that war ought to be abandoned forever, just in time to keep their own nations from being displaced from positions they won and kept at gunpoint not that many decades ago. 

The cheerleading is another matter, and requires a more detailed analysis. It’s common among the pseudoconservative right these days to insist that the United States is by definition the world’s most powerful nation, with so overwhelming a preponderance of military might that every other nation will inevitably have to bow to our will or get steamrollered. That sort of thinking backstops the mania for foreign intervention that guides neoconservatives such as Hillary Clinton on their merry way, overthrowing governments and destabilizing nations under the fond delusion that the blowback from these little adventures can never actually touch the United States. 

In America these days, a great deal of this sort of cheerleading focuses on high-tech weapons systems—inevitably, since so much of contemporary American pop culture has become gizmocentric to the point of self-parody. Visit a website that deals with public affairs from a right-of-center viewpoint, and odds are you’ll find a flurry of articles praising the glories of this or that military technology with the sort of moist-palmed rapture that teenage boys used to direct to girlie-mag centerfolds. The identical attitude can be found in a dizzying array of venues these days, very much including Pentagon press releases and the bombastic speeches of politicians who are safely insulated from the realities of war. There’s only one small difficulty here, which is that much of the hardware in question doesn’t work. 

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Lovely from Dmitry.

The Money Cult (Dmitry Orlov)

are there any unintended consequences of negative interest rates? Unintended consequences are hard to think about, and most people get a headache even trying. How can it be that clean, plentiful nuclear energy will eventually pollute the whole planet with long-lived radionuclides, resulting sky-high cancer rates? How can it be that wonderful genetically modified seeds will render us sickly and infertile in just a few generations? And how can it be that ingenious mobile computing technology has turned our children into zombies who are constantly twiddling their smartphones as they sleepwalk through life? It s hard to think about any of this without taking some happy pills; and how can it be that taking those happy pills has… you get the idea.

The unintended consequence of negative interest rates is that they destroy money. This is true in an entirely trivial sense: if you deposit x dollars at -p% annual, then a year later you will only have x(1-p) dollars because xp dollars has been destroyed. (In case you prefer to count on your fingers and toes, if you deposit $10 at -10% annual, then a year later you will only have $9 because $1 has been destroyed.) But what I mean is something slightly more profound: negative interest rates erode the very concept of money. To get at the reason for this, we have to ask a slightly more profound question: What is money? I think that money is the cult of the god Mammon.

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“Despite its intention to process all cases, Greece lacks the manpower to deal with the volume of applications. It says it needs more help from EU institutions. As many as 6,656 people applied for asylum in March and April this year, up from 1,899 in those months last year. Even if it could hire more people, they would need to be highly qualified legal experts, government officials say.”

In Greek Refugee Camps, Wait For Asylum Fuels Unrest (R.)

Tents were set on fire, punches were thrown, children cried through the night and families were forced to flee the burning detention camp and sleep in open fields. The tension is palpable on Greece’s islands, where about 8,000 asylum seekers feel stranded by a European Union deal with Turkey to stem the arrival of refugees and other migrants on European shores from Syria, Iraq, Afghanistan and beyond. The deal, hailed a success by its European architects, prevents migrants from going beyond Greece – or even its islands – in their search for a new home in Europe, until their asylum claims are processed and those rejected are sent back to Turkey, from where they arrived. But some European officials say the assessment has been slow, and the wait long for those confined to often overcrowded camps.

In June, the most violent month yet, dozens were injured in clashes on three islands, police said. Videos in Greek media showed clouds of smoke rising over the centers on three occasions. In clashes on Lesvos the night of June 1-2, families with young children had to flee and spend the night in nearby fields or Mytilene town, several kilometers away, Amnesty International said. Many returned to burned down tents and destroyed belongings. Women told Amnesty they “live in constant fear” in camps where fights break out in food queues. Journalists are barred from entering the camps on the islands. But humanitarian organizations and police officials on the ground speak of people on edge. “They’re reacting. They want to leave the islands,” said a police official for the northern Aegean region which includes the islands of Lesvos, Samos and Chios where rival migrant groups brawled. “We’re bracing for all eventualities.”

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We will never know how many people drown unnoticed. If a tree falls in a forest…

3,000 Migrants Rescued Off Italian Coast; Two Bodies Found (R.)

More than 3,000 boat migrants have been rescued in the Mediterranean over the past two days and two bodies have been recovered, Italy’s coastguard said on Thursday. The coastguard coordinated rescues of migrants from 15 different boats on Thursday, bringing 1,950 people to safety. Two bodies were recovered from a rubber boat. Some 1,100 migrants were rescued at sea on Wednesday. The coastguard had no details about the nationalities of the migrants, nor about the two deaths.

All the rescues took place between Italy and Libya, where people-smugglers operate with impunity amid the chaos of civil war. Britain’s HMS Enterprise and Germany’s FGS Frankfurt, patrolling the area as part of the European Union’s anti-people-smuggling operation, together rescued migrants from seven boats, a coastguard spokesman said. A Doctors without Borders vessel, the Dignity 1, rescued almost 500 from four boats, while the Phoenix, run by humanitarian group Migrant Offshore Aid Station, took 243 people from two boats.

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