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Vladimir Putin spoke with students about science in an open lesson on September 1, the start of the school year in Russia. He told them that “the future belongs to artificial intelligence,” and whoever masters it first will rule the world. “Artificial intelligence is the future, not only for Russia, but for all humankind. It comes with colossal opportunities, but also threats that are difficult to predict. Whoever becomes the leader in this sphere will become the ruler of the world,” Russian President Vladimir Putin said. However, the president said he would not like to see anyone “monopolize” the field.

“If we become leaders in this area, we will share this know-how with entire world, the same way we share our nuclear technologies today,” he told students from across Russia via satellite link-up, speaking from the Yaroslavl region. During the 45-minute open lesson (the standard academic hour in Russia), Putin also discussed space, medicine, and the capabilities of the human brain, pointing out the importance of cognitive science. “The movement of the eyes can be used to operate various systems, and also there are possibilities to analyze human behavior in extreme situations, including in space,” Putin said, adding that he believes these studies provide unlimited opportunities. The open lesson was attended by students and teachers from 16,000 schools, Rossiyskaya Gazeta reports. The total audience exceeded one million.

“..never since the mid-1960s, when records began, has core CPI (less food, energy and shelter) declined over a six-month period..”

• Deflation Is Already Here – Albert Edwards (ZH)

At the start of the year, we were surprised when SocGen’s Albert “Ice Age” Edwards, the biggest perma-deflationist on Wall Street, flipped his outlook on the US economy, and said he now expected a fast spike in inflation driven by wage growth, which in turn would prompt an even more accelerated tightening cycle by the Fed. We did not see it, and said so, pointing out that the bulk of US job growth in recent years has been among industries that have little to no wage power. More than half a year later, and several months after a puzzled Edwards asked “Where Is The Wage Inflation?”, the SocGen strategist has finally thrown in the towel, and in a note released this morning, admits he was wrong, or as he puts it “I was too optimistic”, to wit:

“At this point in the US economic cycle a tight labour market would normally be producing a notable upturn in wage and CPI inflation. This would usually prompt the Fed into a tightening cycle that would typically end in a surprise recession. This is exactly what I expected to occur at the start of this year and I thought it would be that recession that would tip the US into outright deflation ? but I was wrong. I was too optimistic!” And while there has been a modest improvement in average hourly earnings according to the BLS, if not according to the BEA’s wage data, which according to the just released Personal Income data showed another drop in both private and government worker wages…

… broader inflation trends continue to disappoint. Furthermore, when digging through the recent CPI data, Edwards noticed something unexpected: as he writes, although wages have accelerated due to the tight labor market, the last six months has seen consistent downside surprises. And then this: “this has come hand-in-hand with an unprecedented slump in underlying US CPI inflation into outright deflation – in stark contrast to the eurozone where core CPI inflation has decisively risen.” Putting the finding in context, the “wrong, too optimistic” Edwards writes that never since the mid-1960s, when records began, has core CPI (less food, energy and shelter) declined over a six-month period, as demonstrated by the red line in the chart below. Or, as he summarizes, “Deflation did not need another US recession to emerge. It is already here.”

the SocGen strategist has some advice to the Fed: “If I were a Fed Governor I would be pretty shocked/concerned/bemused at inflation developments this year. However confident the Fed is of a self-sustaining-recovery, there is growing evidence of a slide into outright deflation even ahead of the next recession which will likely unambiguously take us deep into deflationary territory.” Imminent deflationary prints notwithstanding, Edwards still thinks rates should be normalised. Why? “Well, because the longer the current credit excesses are allowed to continue, the deeper the next recession and deflationary bust will ultimately be.”

“What a complete, utter, disastrous failure of public policy, not just for Greece but for the world.”

• Fiscal Austerity After The Great Recession Was A Catastrophic Mistake (Coppola)

In a new paper presented at Jackson Hole last week, the economists Alan Auerbach and Yuriy Gorodnichenko showed that, contrary to popular belief, fiscal expansion after a major financial shock such as that in 2008 did not cause debt/GDP ratios to rise. In fact, the researchers found that debt could become more sustainable, not less, after fiscal stimulus: For a sample of developed countries, we find that government spending shocks do not lead to persistent increases in debt-to-GDP ratios or costs of borrowing, especially during periods of economic weakness. Indeed, fiscal stimulus in a weak economy can improve fiscal sustainability along the metrics we study. Fiscal stimulus works. What a pity we did not allow ourselves to do it, much. But what about Greece? Surely fiscal austerity was necessary there?

Well, maybe. “The experience of Greece and other countries in Southern Europe is a grave warning about the political risks and limits of fiscal policy,” say the researchers. “Bridges to nowhere, “pet” projects and other wasteful spending can outweigh any benefits of countercyclical fiscal policy.” But they nevertheless find that fiscal expansion works even when debt/GDP levels are high. “The penalty for a high debt-to-GDP ratio does not appear to be high at the debt levels experienced historically for developed countries,” they say. So when Greece’s debt was a mere 100% of GDP, fiscal expansion could have been a good strategy. Now, of course, Greece’s debt/GDP ratio is off the chart, because of the aforementioned catastrophic failure of public policy. The researchers warn that their results are uncertain at very high debt/GDP levels. So fiscal expansion might now be too late for Greece. What a tragedy.

“We have been giving catastrophically bad advice to countries with high debt to GDP ratios”, said Jason Furman, the former chair of Barack Obama’s Council of Economic Advisers who is now at Harvard. Too right. And Greece has paid the price. But it is not just Greece that has paid. If Auerbach and Gorodnichenko are right, then the policy path since 2010 has been wrong for many more countries. They have truncated their recoveries and hurt their populations by embarking on premature fiscal consolidation, while cudgeling central banks into somehow conjuring up a recovery that monetary policy is incapable of producing at the lower bound. As a result, there has been a prolonged and wholly unnecessary global slowdown, which will leave lasting scars, particularly on the young. What a complete, utter, disastrous failure of public policy, not just for Greece but for the world.

Pre-Harvey ugly.

• Ugly Jobs Report: August Payrolls Miss (ZH)

[..] moments ago the BLS reported that in August just 156K jobs were created, a big miss to the 180K expected, and following a sharp downward revision to June and July, which were revised to 210K and 189K, respectively, a 41K drop combined. But don’t worry, the worse, the better as the more disappointing the economic data, the less likely the Fed will hike in September, December, or ever for that matter. And keep in mind, today’s data did not include the Harvey devastation, which will assure no rate hikes from the Fed for months, if not decades to come. Not helping matters – for the economy, if not the stock market which now once again loves bad data – was the Household Survey, according to which the number of employed Americans declined by 74,000 to 153,439K. On an annual basis, the increase in the employment level dropped to 1.2%, the lowest since March.

The unemployment rate also disappointed, rising from 4.3% to 4.4%, while the avg hourly earnings missed, increasing by 2.5% Y/Y in August, below the 2.6% estimate and the same as July. The sequential increase in earnings was just 0.1%, also below the 0.2% expected, and far below the 0.3% in July. Furthermore, since average weekly hours declined also, from 34.5 to 34.4, average weekly earnings declined outright from $909.42 to $907.82 in August. Furthermore, average weekly earnings rose just 2.2% Y/Y, the lowest rate of increase since January.

While the labor force participation rate remained unchanged at 62.9%, the number of Americans not in the labor force increased once again, growing by 128K in August to 94.785 million.

Mitch wants investigations. And not the ones going on right now.

• Deciphering The Swamp’s Unemployment Deception (Feierstein)

I strongly see the need for a full and open inquiry into Hillary’s illegal server, Clinton’s leaking of top secret documents, the pay-to-play Clinton Foundation, the entire ‘Fake news’ Russian collusion affair and James Comey’s ‘Fake FBI investigation’ with a predetermined outcome. I am not taking a partisan position here. However, I am guessing many people will reason: ‘The Republicans are bashing the Democrats over these inquiries; this guy Feierstein wants an inquiry, so he must be a Republican.’ I don’t blame people for making these assumptions. Our whole country has become infected with this kind of twisted logic. Our entire political debate has caught the virus. Yet, it makes no sense. No sense at all. Here are two facts and one conclusion:

Fact One : Hillary had an illegal server in the basement of her home that contained ‘Top-Secret Emails.’ Fact Two : Senators Grassley and Graham’s statement regarding FBI’s James Comey’s exoneration of Clinton read: “Conclusion first, fact-gathering second—that’s no way to run an investigation. The FBI should be held to a higher standard than that, especially in a matter of such great public interest and controversy.” Conclusion : These allegations are serious enough to deserve an open investigation, period. Partisan bickering and political spin is simply a diversion from the action that American people deserve — and the truth that the American people require.

I say all this because I’m about to call attention to another government department: the Bureau of Labor Statistics. Now, I know that Democrats are currently bashing President Trump over everything he does. I know that Trump is bashing back. But, people, the issue at stake is the creation of jobs in America and the way those things are being recorded and reported. The issues I’m about to address were present under George W. Bush and Barack Obama. They haven’t changed under Donald Trump. The depression which struck this country in the wake of financial crisis 1.0 might have peaked under a Democrat, but it was born in a Republican era. If you yourself are so partisan that you want to make fine distinctions about these things, you should go ahead and make them. Me: I see two peas in a pod.

Good. Preamble over. Here’s the issue: “The number of jobs created in America declined by 74,000 to 153,439 in August. A horrible number, far below expectations. The jobless rate rose to 4.4 and hourly earnings missed increasing only 2.5% year-over-year. Average hours worked also declined, seeing as weekly wages followed suit.” Yet, central bank manipulated stocks are surging, on the terrible economic news, in anticipation of more global central bank easing. News and economic data are irrelevant in our “rigged” system as market participants eagerly line up like heroin addicts awaiting another federal reserve fix.

As if anyone still believes in that dream.

• The Working Class Can’t Afford the American Dream (HowMuch)

The national conversation in the U.S. is focused squarely on improving the lives of people in the working class. The debate revolves around exactly how to do that. Politicians and pundits have all sorts of ideas, from efforts to save jobs, create tax cuts, subsidize housing, and provide universal healthcare. Thing is, people don’t even agree on how to define the working class, much less how their living conditions stack up across the country. We created a data visualization to illustrate this complex situation. Each bubble represents a city. The color corresponds to the amount of money a typical working-class family would have left over at the end of the year after paying for their living costs, like housing, food and transportation.

The darker the shade of red, the worse off you are. The darker the shade of green, the better off you are. The size of the bubble also fits on a sliding scale—large and dark red means the city is totally unaffordable. Bigger dark green bubbles likewise indicate a city where the working class can get by. The data come from our new True Cost of Living Tool. It’s kind of a big deal because it lets you drill down to a specific city and search through layers of relevant information to understand exactly how much money it takes to live in any given area. We stitched together a variety of different reputable sources, like the Bureau of Labor Statistics for income levels, the National Bureau of Economic Research for tax data, and the U.S. Department of Agriculture for the cost of food. Basically, you can check our work.

Banks say central banks must be ready to give money to … banks.

• Central Banks Must Be Ready With Cash To Calm Brexit Nerves – Bank Lobby (R.)

Central banks should be ready to inject cash into the financial markets to keep them stable after Britain leaves the European Union in 2019, a draft report from a bank industry lobby said. The Association for Financial Markets in Europe (AFME), in a draft report seen by Reuters, said that regulators, central banks and national governments should continue to support financial market stability between Britain’s departure from the EU and start of new trading terms. “This may require particular attention during the uncertain period around Brexit, and in particular during the transition, and may involve more regular market communications and targeted support in case of market need, for example, access to liquidity schemes,” the report said. This and other steps would be needed to minimise disruption, it said. AFME’s report also provides a blueprint for a transition phase after Britain’s EU exit in March 2019.

This would include a “bridging phase” to avoid “short-term disruption” until new trading terms are ratified and an “adaptation phase” for moving to the new terms. The report did not specify a time frame for the transition but said it should be limited. “It is crucial that clarity is provided as soon as possible on a transitional period, and ideally before the end of this year,” AFME said. AFME wants existing market arrangements maintained throughout the transitional period, reflecting worries among bankers that they might have to comply first with a transition period and then the new trading terms. “This means that existing legislation, regulation, permissions and authorisations should continue to be effective during the transitional period,” it said. Company bosses also want Britain to negotiate a staggered departure from the EU by the end of this year or they will have to push ahead with plans that assume they will lose all access to the single market after March 2019.

Rickards sticks to his guns.

• How to Crack the Code on Gold – Rickards (DR)

“Don’t underestimate the extent to which gold is being impacted by hedge funds, leverage players, and others that are in the mix for the current high in gold. They don’t really care if it is gold, soybeans, etc. but it is simply another commodity. They receive a nice profit with tight profits, tight stops.” “The bigger picture to look as here is that gold hit an interim low last December and has been grinding higher ever since. Now gold is up over $200 an ounce and is one of the best performing assets in 2017. There’s a pattern of higher highs and shows a very positive occurrence.” [..] “This all relates to currency wars. I think of gold by weight.”

“When most people look at the cost of gold they relate it to the dollar. That gives the dollar a privilege to say that it is the way to count everything. It is also possible to count gold in euro, yen or even bitcoin. I think of gold as money. These are all just cross rates. When I see a higher dollar price for gold, I think of the dollar as being weaker. Likewise, if I see a lower price for gold it just shows that gold is constant and the dollar got stronger.” “There are three things going on right now in gold. There’s a fear trade, there’s technicals with supply shortages and ultimately a weaker dollar. If you want to know where the dollar price for gold is going, ask yourself where the dollar is headed. As the dollar gets weaker due to Federal Reserve Chair Yellen’s plan to tighten rates into weakness. We’re getting disinflation, not inflation and the desire from the Fed is a weaker dollar.”

[..] “I expect to see gold hit $5,000 and eventually to $10,000 an ounce. Maybe not tomorrow or a couple of years but that is the fundamental price of gold as money.” [..] “Bitcoin is a very small market cap compared to gold. I don’t think it has much impact on gold and looks like a bubble right now.” “As someone who has been around Wall Street a long time I’ve seen a lot of different tricks of the trade and frauds that come and go. I am seeing all of the various schemes in bitcoin right now. There’s good forensic evidence that there are people doing wash sales right now and the suckers don’t know they are getting sucked in. Gold is still the ultimate safe haven.”

That’s just emergency funding. Washington will need to find ways to help the uninsured.

• Trump Seeks $7.85 Billion For Harvey Relief, Warns On Debt Ceiling (R.)

U.S. President Donald Trump has asked Congress for an initial $7.85 billion for Hurricane Harvey recovery efforts, the White House budget director said on Friday, adding that failure to raise the budget ceiling may hinder disaster relief spending. In a letter to U.S. House of Representatives Speaker Paul Ryan, White House budget director Mick Mulvaney said the request included $7.4 billion for the Federal Emergency Management Agency’s Disaster Relief Fund and $450 million for the Small Business Administration’s disaster loan program. “This request is a down-payment on the president’s commitment to help affected states recover from the storm, and future requests will address longer-term rebuilding needs,” Mulvaney said. Trump had been expected to request $5.95 billion for the recovery effort after Harvey flooded areas of Houston and other parts of Texas.

The White House has said that it would make multiple requests for aid from Congress to fund the Harvey recovery effort. White House homeland security adviser Tom Bossert told reporters on Thursday aid funding requests would come in stages as more became known about the impact of the storm. Texas Governor Greg Abbott has said that his state may need more than $125 billion. Bossert said the Trump administration wanted Congress to pass the disaster relief measure on its own and not add it to other measures, such as the effort to raise the debt ceiling. The U.S. government has a statutory limit on how much money it can borrow to cover the budget deficit that results from Washington spending more than it collects in taxes. Only Congress can raise that limit. Mulvaney urged Congress to act “expeditiously to ensure that the debt ceiling does not affect these critical response and recovery efforts.”

Ethylene, polypropylene. It’s silly, but we ‘need’ them.

• Harvey: “Unprecedented” Disruptions To Supplies Of “Essential” Chemicals (ZH)

The unprecedented destruction wrought by Hurricane Harvey will impact the US economy in ways may not be immediately apparent. Until recently, coverage of the storm’s impact has focused on property damage and the impact on the energy industry. But in a story published Friday, Bloomberg explains the devastating impact the storm has had on Texas’s chemicals industry, which is already causing supply-chain headaches for American manufacturers who’re struggling to source the chemicals required to produce plastics and other components used in everything from milk jugs to car parts. Indeed, if Texas’s chemicals plants are closed for an extended period, production at a potentially huge number of American manufacturers to grind to a halt.

More than 60% of the US’s production capacity for ethylene – one of the most important chemical building blocks for American manufacturers – has been taken offline by the storm, a development that could ripple across the US manufacturing industry. “Texas alone produces nearly three quarters of the country’s supply of one of the most basic chemical building blocks. Ethylene is the foundation for making plastics essential to U.S. consumer and industrial goods, feeding into car parts used by Detroit and diapers sold by Wal-Mart. With Harvey’s floods shutting down almost all the state’s plants, 61% of U.S. ethylene capacity has been closed, according to PetroChemWire.” Ethylene, the gas given off by fruit as it ripens, occurs naturally, but it’s also a crucial product of the $3.5 trillion global chemical industry, with factories pumping out 146 million tons last year.

Processing plants turn the chemical into polyethylene, the world’s most common plastic, which is used in garbage bags and food packaging. When transformed into ethylene glycol, it’s the antifreeze that keeps engines and airplane wings from freezing in winter. It’s used to make polyester for both textiles and water bottles. Ethylene is an ingredient in vinyl products such as PVC pipes, life-saving medical devices and sneaker soles. It helps combat global warming with polystyrene foam insulation and lighter, fuel-saving plastic auto parts. It’s used to make the synthetic rubber found in tires. It’s even an ingredient in house paints and chewing gum. Ethylene and its derivatives account for about 40% of global chemical sales, according to Hassan Ahmed, an analyst at Alembic Global Advisors. And the Gulf Coast is a crucial player in the global market: US production accounts for one of every five tons on the market. International ethylene plants were running nearly full out to meet rising demand before Harvey.

‘T is the season. The lesser Antilles could get hit bigtime.

• Irma Intensifies Over The Atlantic (R.)

As Harvey diminishes a new storm has emerged. Irma, the fourth hurricane of the 2017 Atlantic hurricane season, has strengthened over the eastern Atlantic to become a Category 3 storm, the U.S. National Hurricane Center said in its latest advisory Thursday. Irma is forecast to intensify Thursday night and is projected to be a very dangerous hurricane for the next few days, the Miami-based center said. Irma is located about 1,845 miles east of the Leeward Islands and has maximum sustained winds of 115 mph, the NHC said. NHC forecast models were showing it heading for the U.S. territory of Puerto Rico, the Dominican Republic, and neighboring Haiti with possible landfall by the middle of next week.

While currently a Category 3 storm, Irma’s winds could strengthen to become a Category 4 storm in five days’ time, the Miami Herald reported. Irma will not reach the eastern Caribbean Lesser Antilles islands until the middle of next week, and it is too soon to determine whether or not the storm will pose a threat to the U.S., according to The Weather Channel. Still, the potential for a U.S. landfall should prompt all who may be affected in those areas to closely monitor the storm in the coming days, The Weather Channel said. “Irma is forecast to become a major hurricane by tonight and is expected to be an extremely dangerous hurricane for the next several days,” the NHC said Thursday, while adding there is no current risk to land from the storm.

Debt Rattle August 6 2017

Aug 062017

August 6, 2017 Posted by Raúl Ilargi Meijer at 8:26 am Finance Tagged with: beach, capital controls, Gulfstream, iPhone, Korea, Merkel, shadow, swamp, Tillerson, Trump 7 Responses »

Giorgio de Chirico Piazza d’Italia 1913

• The Bursting of the China Credit Bubble (Crescat)

• The Swamp Is So Undrainable It Will End Up Making Mincemeat Of Trump (Stockman)

• How The Trump Administration Broke The State Department (FP)

• Have Smartphones Destroyed a Generation? (Atl.)

• Amazon Isn’t The No. 1 Villain In Retail Sector’s Demise (Katsenelson)

• On The Beach (John Pilger)

• Merkel Is Kowtowing To The German Car Industry (Spiegel)

• North Korea Sanctions Bring Nuclear Issue To ‘Critical Phase’, Says China (G.)

• What If Every Government Paid Off Its National Debt? (Connelly)

• Are Greek Capital Controls Easing? (K.)

• More People Live Inside This Circle Than Outside It (WEF)

• Is Global Ocean Circulation Collapsing? (Forbes)

A tour de force PDF by private firm Crescat on China and its potential influence on the world of finance. It echoes a longtime theme of mine: China’s shadow banking sector could bring it all down.

• The Bursting of the China Credit Bubble (Crescat)

History has proven that credit bubbles always burst. China by far is the biggest credit bubble in the world today. We layout the proof herein. There are many indicators signaling that the bursting of the China credit bubble is imminent, which we also enumerate. The bursting of the China credit bubble poses tremendous risk of global contagion because it coincides with record valuations for equities, real estate, and risky credit around the world. The Bank for International Settlements (BIS) has identified an important warning signal to identify credit bubbles that are poised to trigger a banking crisis across different countries: Unsustainable credit growth relative to GDP in the household and (non-financial) corporate sector. Three large (G-20) countries are flashing warning signals today for impending banking crises based on such imbalances: China, Canada, and Australia.

The three credit bubbles shown in the chart above are connected. Canada and Australia export raw materials to China and have been part of China’s excessive housing and infrastructure expansion over the last two decades. In turn, these countries have been significant recipients of capital inflows from Chinese real estate speculators that have contributed to Canadian and Australian housing bubbles. In all three countries, domestic credit-to-GDP expansion financed by banks has created asset bubbles in self-reinforcing but unsustainable fashion. Post the 2008 global financial crisis, the world’s central bankers have kept interest rates low and delivered just the right amount of quantitative easing in aggregate to levitate global debt, equity, and real estate valuations to the highest they have ever been relative to income.

Across all sectors of the world economy: household, corporate, government, and financial, the world’s aggregate debt relative to its collective GDP (gross world product) is the highest it has ever been. Central banks have pumped up the valuation of equities too. The S&P 500 has a cyclically adjusted P/E of almost 30 versus a median of 16, exceeded only in 1929 and the 2000 tech bubble. The US markets are also in a valuation bubble because US-owned financial assets have never been more richly valued relative to income as we show below. The picture is equally frothy if we include real estate, also at record valuations to income. China’s capital outflow spillover from its credit bubble has driven up real estate valuations around the world.

“And then the Donald will be gone, and well before August 2018, too…”

• The Swamp Is So Undrainable It Will End Up Making Mincemeat Of Trump (Stockman)

What will be the trigger that finally sends the establishment after Trump? Ultimately, the hammer of fiscal crisis and a crashing stock market will break any remaining loyalty of the GOP elders as they smell the 2018 elections turning into a replay of the rout of 1974. And then the Donald will be gone, and well before August 2018, too. I told an audience in Vancouver last Friday that it could happen by February. The bottom line is that the Swamp is so undrainable that it will end up making mincemeat of Donald Trump. Needless to say, the ultimate causes of his demise are anchored deep in the failing status quo. America is so addicted to war, debt and central bank driven false prosperity that even the most resourceful and focused challenger would be taken down by its sheer inertia.

But the Donald is so undisciplined, naïve, out-of-touch, thin-skinned, unfocused and megalomaniacal that he is making it far easier for the Swamp critters than they deserve. To a very considerable extent, in fact, he is filling out his own bill of indictment. Moreover, he is totally clueless about how to manage his presidency or cope with the circling long knives of the Deep State which are hell bent on removing him from office. Accordingly, the single most important thing to know about the present risk environment is that it is extreme and unprecedented. In essence, the Donald is the ultimate bull in an exceedingly fragile China shop — and an already badly wounded one at that. So it is no understatement to suggest that the S&P 500 at 2470 and the Dow at 22,000 is about as fragile as the “market” has ever been.

Is Trump trying the drain the swamp anyway? Or Tillerson? Foreign Policy can’t quite decide on the latter. But these lines, intended as positives, sort of say it all:

“..the legacy of decades of American diplomacy is at risk..”, or this one: “I used to wake up every morning with a vision about how to do the work to make the world a better place..”

• How The Trump Administration Broke The State Department (FP)

Employees at the State Department couldn’t help but notice the stacks of cubicles lined up in the corridor of the seventh floor. For diplomats at the department, it was the latest sign of the “empire” being built by Secretary of State Rex Tillerson’s top aides. The cubicles are needed to accommodate dozens of outsiders being hired to work in a dramatically expanded front office that is supposed to advise Tillerson on policy. Foreign service officers see this expansion as a “parallel department” that could effectively shut off the secretary and his advisors from the career employees in the rest of the building. The new hires, several State officials told Foreign Policy, will be working for the policy planning staff, a small office set up in 1947 to provide strategic advice to the secretary that typically has about 20-25 people on its payroll.

One senior State Department official and one recently retired diplomat told FP that Tillerson has plans to double or perhaps triple its size, even as he proposes a sweeping reorganization and drastic cuts to the State Department workforce. Veterans of the U.S. diplomatic corps say the expanding front office is part of an unprecedented assault on the State Department: A hostile White House is slashing its budget, the rank and file are cut off from a detached leader, and morale has plunged to historic lows. They say President Donald Trump and his administration dismiss, undermine, or don’t bother to understand the work they perform and that the legacy of decades of American diplomacy is at risk.

By failing to fill numerous senior positions across the State Department, promulgating often incoherent policies, and systematically shutting out career foreign service officers from decision-making, the Trump administration is undercutting U.S. diplomacy and jeopardizing America’s leadership role in the world, according to more than three dozen current and former diplomats interviewed by FP. “I used to wake up every morning with a vision about how to do the work to make the world a better place,” said one State Department official, who spoke on condition of anonymity for fear of retaliation. “It’s pretty demoralizing if you are committed to making progress. I now spend most of my days thinking about the morass. There is no vision.”

Interesting, but it can’t be just one generation.

• Have Smartphones Destroyed a Generation? (Atl.)

The more I pored over yearly surveys of teen attitudes and behaviors, and the more I talked with young people like Athena, the clearer it became that theirs is a generation shaped by the smartphone and by the concomitant rise of social media. I call them iGen. Born between 1995 and 2012, members of this generation are growing up with smartphones, have an Instagram account before they start high school, and do not remember a time before the internet. The Millennials grew up with the web as well, but it wasn’t ever-present in their lives, at hand at all times, day and night. iGen’s oldest members were early adolescents when the iPhone was introduced, in 2007, and high-school students when the iPad entered the scene, in 2010. A 2017 survey of more than 5,000 American teens found that three out of four owned an iPhone.

The advent of the smartphone and its cousin the tablet was followed quickly by hand-wringing about the deleterious effects of “screen time.” But the impact of these devices has not been fully appreciated, and goes far beyond the usual concerns about curtailed attention spans. The arrival of the smartphone has radically changed every aspect of teenagers’ lives, from the nature of their social interactions to their mental health. These changes have affected young people in every corner of the nation and in every type of household. The trends appear among teens poor and rich; of every ethnic background; in cities, suburbs, and small towns. Where there are cell towers, there are teens living their lives on their smartphone. To those of us who fondly recall a more analog adolescence, this may seem foreign and troubling.

The aim of generational study, however, is not to succumb to nostalgia for the way things used to be; it’s to understand how they are now. Some generational changes are positive, some are negative, and many are both. More comfortable in their bedrooms than in a car or at a party, today’s teens are physically safer than teens have ever been. They’re markedly less likely to get into a car accident and, having less of a taste for alcohol than their predecessors, are less susceptible to drinking’s attendant ills. Psychologically, however, they are more vulnerable than Millennials were: Rates of teen depression and suicide have skyrocketed since 2011. It’s not an exaggeration to describe iGen as being on the brink of the worst mental-health crisis in decades. Much of this deterioration can be traced to their phones.

Even when a seismic event—a war, a technological leap, a free concert in the mud—plays an outsize role in shaping a group of young people, no single factor ever defines a generation. Parenting styles continue to change, as do school curricula and culture, and these things matter. But the twin rise of the smartphone and social media has caused an earthquake of a magnitude we’ve not seen in a very long time, if ever. There is compelling evidence that the devices we’ve placed in young people’s hands are having profound effects on their lives—and making them seriously unhappy.

“A lobotomy is performed on each generation. Facts are removed. History is excised and replaced by what Time magazine calls “an eternal present”.”

• On The Beach (John Pilger)

“This is the way the world ends; Not with a bang but a whimper”. These lines from T.S. Eliot’s poem The Hollow Men appear at the beginning of Nevil Shute’s novel On the Beach, which left me close to tears. The endorsements on the cover said the same. Published in 1957 at the height of the Cold War when too many writers were silent or cowed, it is a masterpiece. At first the language suggests a genteel relic; yet nothing I have read on nuclear war is as unyielding in its warning. No book is more urgent. Some readers will remember the black and white Hollywood film starring Gregory Peck as the US Navy commander who takes his submarine to Australia to await the silent, formless spectre descending on the last of the living world.

I read On the Beach for the first time the other day, finishing it as the US Congress passed a law to wage economic war on Russia, the world’s second most lethal nuclear power. There was no justification for this insane vote, except the promise of plunder. The “sanctions” are aimed at Europe, too, mainly Germany, which depends on Russian natural gas and on European companies that do legitimate business with Russia. In what passed for debate on Capitol Hill, the more garrulous senators left no doubt that the embargo was designed to force Europe to import expensive American gas. Their main aim seems to be war – real war. No provocation as extreme can suggest anything else. They seem to crave it, even though Americans have little idea what war is. The Civil War of 1861-5 was the last on their mainland. War is what the United States does to others.

The only nation to have used nuclear weapons against human beings, they have since destroyed scores of governments, many of them democracies, and laid to waste whole societies – the million deaths in Iraq were a fraction of the carnage in Indo-China, which President Reagan called “a noble cause” and President Obama revised as the tragedy of an “exceptional people”. He was not referring to the Vietnamese. Filming last year at the Lincoln Memorial in Washington, I overheard a National Parks Service guide lecturing a school party of young teenagers. “Listen up,” he said. “We lost 58,000 young soldiers in Vietnam, and they died defending your freedom.” At a stroke, the truth was inverted. No freedom was defended. Freedom was destroyed. A peasant country was invaded and millions of its people were killed, maimed, dispossessed, poisoned; 60,000 of the invaders took their own lives. Listen up, indeed.

A lobotomy is performed on each generation. Facts are removed. History is excised and replaced by what Time magazine calls “an eternal present”. Harold Pinter described this as “manipulation of power worldwide, while masquerading as a force for universal good, a brilliant, even witty, highly successful act of hypnosis [which meant] that it never happened. Nothing ever happened. Even while it was happening it wasn’t happening. It didn’t matter. It was of no interest.”

Original tile: “‘Made in Germany’ Label Badly Damaged By Car Scandal”. But the power politics behind it are far more revealing.

• Merkel Is Kowtowing To The German Car Industry (Spiegel)

Since the days of former Chancellor Gerhard Schröder, who served from 1998 to 2005, Germany’s leaders have been nicknamed the “Auto Chancellor” for their close ties to the industry. Schröder felt he was a patron of the industry. And Merkel, his successor, was quick to see the connection between maintaining close ties to the key industry and staying in power. On Sept. 23, 2008, she spoke to workers at a Volkswagen factory. “The German government stands behind VW. VW is a great piece of Germany.” The sheer mass of 18,000 workers seemed to awe her. She had likely never spoken in front of that many people at one time. She said she would travel home with the feeling that many workers at Volkswagen wanted “Germany to be doing well.” Observers of the chancellor say that visit to Wolfsburg had a deep impact on Merkel.

A short time later, as the world faced a major economic crisis, she gave employees and executives at Germany’s car companies a gift worth billions of euros in the form of government subsidies that saved jobs and kept the floor from falling out on the industry. The unsavory symbiosis between the government, the industry and the lobbying groups – and the revolving door of personnel moving between them – seems to be the root of the evil. This ensures that the industry has influence and access, and assures employees money and access to the career ladder. It can also cause a bit of head-scratching. A public servant who is supposed to one day passionately fight for the good of the people, is suddenly ready to contribute to their systematic poisoning only a moment later.

Former German Transportation Minister Matthias Wissmann, who served as a member of Merkel’s cabinet and is also a friend, sticks out. Today he’s the president of the German Association of the Automotive Industry (VDA). All he has to do to get the chancellor’s attention is send her a text message on his mobile phone. Merkel’s former chief of staff at the national headquarters of her conservative Christian Democratic Union (CDU) party, Michael Jansen, now works at Volkswagen as the head of the VW’s Berlin office, which conducts the company’s lobbying. A few months ago, carmaker Opel’s chief lobbyist, Joachim Koschnicke, left his job to join the CDU’s election campaign team. All have showered the federal government with emails and letters in recent years to ensure that their companies’ interests are fulfilled.

In May 2013, VDA head Wissmann wrote to “Dear Angela” that she should try to hinder the European Commission’s “excessive” proposals on CO2 targets. VW lobbyist Jansen also wrote to the Chancellery in July 2015 that, on the issue of “air quality/diesel,” the industry’s proposals should be given the “greatest possible consideration.” When he was still an Opel lobbyist, Joachim Koschnicke warned the head of the KBA when approval was delayed for a new Opel model that without it, there would be “potential effects on our business operations.” He said it jeopardized production at five plants and that the “negative effects would be dramatic in every aspect.” And then there’s Eckart von Klaeden, who served as minister of state in the Chancellery from 2009 to 2013 and has since served as head of global external affairs at Daimler.

How far will China go?

• North Korea Sanctions Bring Nuclear Issue To ‘Critical Phase’, Says China (G.)

The situation on the Korean peninsula is entering “a very critical phase”, China has warned after new United Nations sanctions targeting Pyongyang were announced following its recent intercontinental ballistic missile test. Speaking in Manila before a regional security summit, China’s foreign minister, Wang Yi, said the sanctions had been designed “to efficiently, or more efficiently, block North Korea’s nuclear missile development”. “Sanctions are needed but not the ultimate goal,” Wang added. “The purpose is to pull the peninsula nuclear issue back to the negotiating table, and to seek a final solution to realise the peninsula denuclearisation and long-term stability through negotiations.” “After the resolution is passed, the situation on the peninsula will enter a very critical phase,” Wang warned, according to China’s state broadcaster CGTN.

“We urge all parties to judge and act with responsibility in order to prevent tensions from escalating.” Wang met his North Korean counterpart, Ri Yong Ho, on Sunday who reportedly smiled continuously as he shook the Chinese official’s hand. According to Reuters, journalists were not given access to a meeting between the two men. On Saturday Nikki Haley, the US ambassador to the United Nations, said “further action is required” against North Korea. Earlier, National Security Adviser HR McMaster said Donald Trump had been “deeply briefed” on recent missile tests carried out by Pyongyang, and said the US would do “everything we can to to pressure this regime” while seeking to avoid “a very costly war”. Haley spoke to the UN security council after the 15-member body imposed the new sanctions against North Korea, in response to its two long-range missiles tests in July.

“We should not fool ourselves into thinking we have solved the problem,” Haley said. “Not even close. The North Korean threat has not left us, it is rapidly growing more dangerous. Further action is required. The United States is taking and will continue to take prudent defensive measures to protect ourselves and our allies.” Washington would continue annual military exercises with South Korea, Haley said. The UN-approved sanctions include a ban on exports worth more than $1bn, a huge bite out of North Korea’s total exports, valued at $3bn last year. Countries are also banned from giving any additional permits to North Korean laborers – another source of money for the regime of Kim Jong-un – and all new joint ventures with North Korean companies and foreign investment in existing ones are banned.

“The national debt is actually the government’s savings account..”

• What If Every Government Paid Off Its National Debt? (Connelly)

There were six times in US history in which budget surpluses were achieved for long enough to retire a significant amount of debt. Five of those were followed by depressions, the last of which culminated in the Great Depression of the 1930s. The last time America ran a significant budget surplus (about 2.5 years) was under President Clinton. The 2002 recession is a direct result of Clinton’s 1999 surplus which forced the domestic private sector into deficit. Consumer spending fell, unemployment rose and a recession occurred. The economy crashed first in 2000 and then onwards into the Great Recession that began in 2007. “But reducing or retiring the debt isn’t what caused the economic downturns,” says economist, Ellis Winningham. “It was the surpluses that caused it. Simply put, you cannot operate an economy with no money in it.”

So why have we convinced ourselves that government debt is the mother of all evil? That somehow, if the government is in surplus, our bank accounts will automatically improve? In fact, as we shall see, the precise opposite is what would probably happen. Anyone who has ever been chased by a debt collector has come to associate the word ‘debt’ as necessarily scary, bad and to be avoided. If you are a household, this is likely to be true. But debt has an entirely different meaning for governments. To whom is the national debt owed? That would be us: the people. But this truth has been avoided in favour of eliciting a pavlovian response based entirely on the principle that a government budget is the same as that of a household.

“People think that public debt is like a household debt, hence, they buy into the neoliberal nonsense about the government going ‘bankrupt’ and then it’s financial armageddon and we will all die,” says Winningham. “It’s total nonsense. The public debt is just a bunch of savings accounts that pay interest. “People think it will improve their lives because they believe that the government’s debt is their debt. In reality, the government’s debt is the private sector’s asset.” In truth, there is no such thing as the national debt beyond a rhetorical device used to scare the public into submission. In the US, the National Debt is the sum-total of all US dollars ever issued by the Federal Government, from the nation’s founding up until this very moment, that have never been taxed away by the Federal Government.

“From around the 1790’s until today, 2017, the US government has issued, after taxes, $18 trillion dollars for everyone in the non-government sector to use,” says Winningham. “In fact, the national debt has been around for over 170 years now, so at some point, you’re going to have to start understanding that it is not an actual problem. “Further, you need to start understanding that when you accuse Obama, or Bush, or Trump of adding to the national debt, you’re actually accusing them of adding US dollars to the US economy. Or, more precisely, you’re accusing them of adding US dollars to our national savings.” Put simply, The National Debt is the country’s total exports minus the country’s total imports, and isn’t an actual debt at all, but a “balance of trade”.

A giant sleight of hand: ..new measures that are billed as easing the capital controls but which will in fact reduce the annual amount of cash bank clients can withdraw

• Are Greek Capital Controls Easing? (K.)

The government is gearing up to launch new measures that are billed as easing the capital controls but which will in fact reduce the annual amount of cash bank clients can withdraw. As of September 1, when the new measures come into force, citizens will be able to withdraw a total of 1,800 euros per month. When the controls were first introduced in July 2015, Greeks could only withdraw €60 a day, 365 days a year, but since then they have been allowed to carry that amount forward up to a period of two weeks, giving them a €840 limit every 14 days (fixed, from midnight Friday to midnight two weeks later). That will remain the case until the end of August.

The extension of the cumulative withdrawal period may facilitate transactions, but on an annual basis the total amount a bank customer can withdraw will fall from €21,840 (€840 x 26 two-week periods) to €21,600 (€1,800 x 12 months). Greeks could in fact withdraw more money per year on the original limit of €60 per day, totaling €21,900 a year, as that avoided the fixed-two-week-period problem. In other words the “easing” of restrictions has resulted in curtailing people’s withdrawal limit by €300 per annum, for the right to transfer a withdrawal to another day or week. Bank sources tell Kathimerini it is a positive move that will strengthen confidence, make transactions easier and boost the economy.

The new measures will also affect withdrawals in foreign currency in Greece and the use of Greek debit cards for withdrawals abroad. As of September 1 any recipients of money forwarded from abroad will be able to withdraw 50% of the amount without any restrictions. Companies will also be able to open an account at a credit institution by creating a new customer ID regardless of whether they already have another account there. Farmers, who have not been allowed to open bank accounts since the controls started, will finally be allowed to (provided they do not have one already). Employees will be further able to open a new salary account at a different bank to the one at which they are already a client or if their new employer pays their salary at another lender.

Perspective.

• More People Live Inside This Circle Than Outside It (WEF)

Circle centred on 106.6° East, 26.6° North, projected using GMT, created by BCMM – Brilliant Maps

While the map looks surprising at first glance, it shouldn’t really once you consider it contains all or most of the world’s most populous countries: China, India, Indonesia (fourth), Pakistan (sixth), Bangladesh (seventh) and Japan (tenth). And according to the World Population Prospects 2017, a recently updated UN report, the world population will hit a staggering 9.8 billion by 2050. China (with currently 1.4 billion inhabitants) and India (with currently 1.3 billion inhabitants) will remain the two most populous countries, and Nigeria will overtake the United States to become the third-most populous country in the world.

Not a new theme at all, the Gulfstream, so why present it as somehow new without any new evidence? Nice map though.

• Is Global Ocean Circulation Collapsing? (Forbes)

Scientists have long known about the anomalous “warming hole” in the North Atlantic Ocean, an area immune to warming of Earth’s oceans. This cool zone in the North Atlantic Ocean appears to be associated with a slowdown in the Atlantic Meridional Overturning Circulation (AMOC), one of the key drivers in global ocean circulation. A recent study published in Nature outlines research by a team of Yale University and University of Southhampton scientists. The team found evidence that Arctic ice loss is potentially negatively impacting the planet’s largest ocean circulation system. While scientists do have some analogs as to how this may impact the world, we will be largely in uncharted territory. AMOC is one of the largest current systems in the Atlantic Ocean and the world. Generally speaking, it transports warm and salty water northward from the tropics to South and East of Greenland.

This warm water cools to ambient water temperature then sinks as it is saltier and thus denser than the relatively more fresh surrounding water. The dense mass of water sinks to the base of the North Atlantic Ocean and is pushed south along the abyss of the Atlantic Ocean. This process whereby water is transported into the Northern Atlantic Ocean acts to distribute ocean water globally. What’s more important, and the basis for concern of many scientists is this mechanism is one of the most efficient ways Earth transports heat from the tropics to the northern latitudes. The warm water transported from the tropics to the North Atlantic releases heat to the atmosphere, playing a key role in warming of western Europe. You likely have heard of one of the more popular components of the AMOC, the Gulf Stream which brings warm tropical water to the western coasts of Europe.

Evidence is growing that the comparatively cold zone within the Northern Atlantic could be due to a slowdown of this global ocean water circulation. Hence, a slowdown in the planet’s ability to transfer heat from the tropics to the northern latitudes. The cold zone could be due to melting of ice in the Arctic and Greenland. This would cause a cold fresh water cap over the North Atlantic, inhibiting sinking of salty tropical waters. This would in effect slow down the global circulation and hinder the transport of warm tropical waters north. Melting of the Arctic sea ice has rapidly increased in the recent decades. Satellite image records indicate that September Arctic sea ice is 30% less today than it was in 1979. This trend of increased sea ice melting during summer months does not appear to be slowing. Hence, indications are that we will see a continued weakening of the global ocean circulation system.

Debt Rattle March 28 2017

Mar 282017

March 28, 2017 Posted by Raúl Ilargi Meijer at 8:38 am Finance Tagged with: cannibalism, CO2, demand, ECB, Greece, justice, landowners, oil, Soros, swamp, Turkey Comments Off

Dorothea Lange Abandoned cafe in Carey, Texas 1937

• A Nation of Landowners – But For How Long? (M.)

• Middle-Class, Even Wealthy Americans Sliding Inexorably Into The Red (MW)

• Italy’s Monte Paschi Bailout Has Some ECB Supervisors Grumbling

• NY Fed: “Oil Prices Fell Due To Weakening Demand” (ZH)

• Why Did Preet Bharara Refuse to Drain the Wall Street Swamp? (Bill Black)

• A Detailed “Roadmap” For Meeting The Paris Climate Goals (Vox)

• In UK Access To Justice Is No Longer A Right, But A Luxury (G.)

• The Curse of the Thinking Class (Jim Kunstler)

• Tensions Flare As Greece Tells Turkey It Is Ready To Answer Any Provocation (G.)

• Erdogan Races Against the Dollar in Campaign for Unrivaled Power (BBG)

• Tillerson Will Not Meet Turkey Opposition In Ankara Visit This Week (R.)

• Troika Pushes Greece To Sell Up To 40% Of State-Controlled Power Utility (R.)

• Fraport Greece Signs Funding Deal With 5 Lenders (K.)

• Contraction Of Credit Continues Unabated In Greece (K.)

• Mikis Theodorakis: ‘In Tough Times, Greeks Become Heroes or Slaves’ (GR)

• Nearly 1,200 Migrants Picked Up Off Libya, Heading To Italy (R.)

• Italy Calls For Investigation Of NGO Supported Migrant Fleet (Dm.)

“To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced.”

• A Nation of Landowners – But For How Long? (M.)

Land occupies a unique position in the economy because it is essential for any activity and, given its fixed supply, an increase in demand for it can only increase its price. Meanwhile finance, which facilitates that demand, has been available in ever-greater abundance since the deregulation of mortgage lending in the 1970s and 1980s. The interaction between the inelastic supply of land and the highly elastic supply of mortgage lending lies at the heart of the house price boom over the past few decades. But while the finance part of the story is relatively new (before the 1970s mortgages were harder to get and lending restricted by the conservative practices of the building societies), the land question has been around for centuries.

Ever since Henry VIII seized the monastery lands in the early 16th century a market has been evolving in land as a privately-owned tradable commodity. What is crucial to the contemporary housing debate, and what this book illustrates brilliantly, is how the control of land is, or has at least been allowed to become, fundamental to economic and political power relations. Because land is permanent and immovable, those who own the exclusive rights to its use are able to siphon off the value of any economic output that is dependent on it. The value of a piece of land therefore reflects the level of activity conducted on or around it, as well as any speculation arising from expectations about its potential future use. This price does not reflect the efforts or ingenuity of its owner, and so it does not reward productive activity but rather penalises it in the form of rent.

This ability of landowners to extract economic rent from productive activity, or the unearned increment, was once at the centre of political discourse. It was an issue that troubled classical economists ranging from Adam Smith to Karl Marx. As the industrial revolution advanced in the 18th and 19th centuries, productivity levels improved, and so the owners of land began to enjoy the fruits of the community’s labour. A land reform movement gathered momentum towards the late 19th century and the writings of the American economist Henry George advocating a land value tax attracted a following. In 1909, a young Winston Churchill (then 35, and a Liberal) decried the land monopolist’s free ride in what remains one of the best descriptions of the dilemma:

“Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced.”

Churchill was careful to stress that it was the system he was attacking not the landowner himself (‘We do not want to punish the landlord. We want to alter the law’). But the law was as it was because landowners controlled parliament and indeed the Liberals’ plan for a land value tax in the People’s Budget, in support of which Churchill had been speaking, was thrown out by the House of Lords.

How to kill a city part 832.

• Middle-Class, Even Wealthy Americans Sliding Inexorably Into The Red (MW)

Not even a high six-figure salary is enough to keep New York City families out of the red. But spare a thought for the average American family, whose costs easily outpace the average income. A recent analysis from Sam Dogen at his personal finance website Financial Samurai showed how difficult it is for high earners to escape the rat race in New York City, one of the priciest places to live in the world. He analyzed a mock budget for an imaginary family of four in which the two 35-year-old breadwinners each make $250,000 a year. After factoring in taxes, 401(k)contributions, home and child care costs, the family was left with just $7,300 for the year — as if they were living “paycheck to paycheck.”

Perhaps nobody is crying for lawyers making $500,000 a year or even $250,000, but the analysis shows just how easy it is for spending habits to take a high salary and turn it into table scraps. Dogen said pressure from peers to spend more is a big contributing factor, adding “everywhere I go, and I’ve been all over the world, high income earners are secretly feeling the same squeeze.” “They are unhappy, getting divorces, and always comparing themselves to wealthier and wealthier people,” he said. “Heck, even a friend who is worth over $200 million after founding and taking public a company feels like he needs to continue working because he has to ‘keep up with the Zuckerbergs.’”

So how would the average American family fare by the same lifestyle? MarketWatch crunched the numbers and found they would be racking up approximately $27,000 in debt a year if they spent the average of what Americans spend on the same activities. This vast difference in economic stability comes even after adjusting for cheaper housing costs and lowering the number of vacations to one a year — the average in the U.S.

Beware of any central bank announcements made the day after Christmas.

• Italy’s Monte Paschi Bailout Has Some ECB Supervisors Grumbling

When the European Central Bank declared Banca Monte dei Paschi di Siena solvent last December, the first step toward a state-funded rescue, some members of the 19-nation Supervisory Board weren’t fully on board. Confronted with what they saw as a political agreement to bail out the world’s oldest lender, dissenters went along with the consensus despite their concerns about the bank’s health…[..] To make sense of the Monte Paschi debate, you have to start with a 2014 law known as the Bank Recovery and Resolution Directive, which sets out the EU’s bank-failure rules. The law assumes that if a firm needs “extraordinary public financial support,” this indicates that it’s failing and should be wound down. In that process, investors including senior bondholders can be forced to take losses.

An exception, known as a precautionary recapitalization, is allowed for solvent banks if a long list of conditions is met. As the name suggests, this tool isn’t intended to clear up a bank’s existing problems, such as Monte Paschi’s mountain of soured loans. This temporary aid is allowed to address a capital shortfall identified in a stress test. Daniele Nouy, head of the ECB Supervisory Board, reiterated in an interview on Monday that Monte Paschi and other Italian banks in line for a bailout are “not insolvent, otherwise we would not be talking about precautionary recapitalization.” Not everyone is convinced the bank, whose woes date back many years, qualifies for this special treatment.

“It is unclear if Monte Paschi meets the BRRD’s exemption criteria, and their use has the appearance of promoting national political concerns over a stricter reading of the newly established European rules,” said Simon Ainsworth at Moody’s. “The plan could risk damaging the credibility of the resolution framework, especially given that it would mark its first major test case.” The ECB’s decision on Monte Paschi’s solvency and capital gap was announced by the lender the day after Christmas. The ECB published an explanation of the precautionary recapitalization process a day later, but said little else publicly. On Dec. 29, the Bank of Italy issued a statement that broke down the €8.8 billion rescue into its parts. Solvency in the case of a precautionary recapitalization is determined based on two criteria, the ECB said: the bank meets its legal minimum capital requirements, and it has no shortfall in the baseline scenario of the relevant stress test.

I’ve been talking about falling oil demand for so long that when other bring it up now it seems all new again.

• NY Fed: “Oil Prices Fell Due To Weakening Demand” (ZH)

[..] one aspect of price formation that is rarely mentioned is demand, which is generally assumed to be unwavering and trending higher with barely a hiccup. The reason for this somewhat myopic take is that while OPEC has control over supply, demand is a function of global economic growth and trade (or lack thereof) over which oil producers have little, if any control. And yet, according to the latest oil price dynamics report issued by the Fed, it was declining global demand that pushed prices lower in the most recent, volatile period. As the New York Fed report in its March 27 report, “Oil prices fell owing to weakening demand” and explains as follows: “A decline in demand expectations together with a decreasing residual drove oil prices down over the past week.”

While there was some good news, namely that “in 2016:Q4, oil prices increased on net as a consequence of steadily contracting supply and strengthening, albeit volatile, global demand” offsetting the “modest decline in oil prices during 2016:Q3 caused by weakening global demand expectations and loosening supply conditions,” the Fed’s troubling finding is that the big move lower since 2014 has been a function of rising supply as well as declining demand: Overall, since the end of 2014:Q2, both lower global demand expectations and looser supply have held oil prices down. And while this trend appeared to have reversed in 2016:Q2 and 2016:Q4, recent indications suggest that demand may once again be slowing, which in turn has pressured oil prices back to levels last seen shortly after OPEC’s Vienna deal.

It is curious that according to the NY Fed, at a time when OPEC vows it is cutting production, the Fed has instead found “loose” supply to be among the biggest contributors to the latest decline in oil prices. But what may be concering to oil bulls is that as the decomposition chart below shows, while oil demand was solidly in the green ever since Trump’s election victory, in recent weeks it appears to have also tapered off along with the supply contribution to declining oil prices. This seems to suggest that along with most other “animal spirits” that were ignited following the Trump victory, only to gradually fade, oil demand, and thus price, may be the next to take another leg lower unless of course Trump manages to reignite the Trumpflation trade which, however, over the past month appears to have completely faded.

“Indeed, Bharara never mustered the courtesy to respond to Bowen’s offers to aid his office.”

• Why Did Preet Bharara Refuse to Drain the Wall Street Swamp? (Bill Black)

The New York Times’ editorial board published an editorial on March 12, 2017, praising Preet Bharara as the “Prosecutor Who Knew How to Drain a Swamp.” I agree with the title. At all times when he was the U.S. Attorney for the Southern District of New York (which includes Wall Street) Bharara knew how to drain the swamp. Further, he had the authority, the jurisdiction, the resources, and the testimony from whistleblowers like Richard Bowen (a co-founder of Bank Whistleblowers United (BWU)) to drain the Wall Street swamp. Bowen personally contacted Bharara beginning in 2005.

“You were quoted in The Nation magazine as saying that if a whistleblower comes forward with evidence of wrongdoing, then you would be the first to prosecute [elite bankers]. I am writing this email to inform you that there is a body of evidence concerning wrongdoing, which the Department of Justice has refused to act on in order to determine whether criminal charges should be pursued.” Bowen explained that he was a whistleblower about Citigroup’s senior managers and that he was (again) coming forward to aid Bharara to prosecute. Bowen tried repeatedly to interest Bharara in draining the Citigroup swamp. Bharara refused to respond to Bowen’s blowing of the whistle on the massive frauds led by Citigroup’s senior officers.

Bharara knew how to drain the Wall Street swamp and was positioned to do so because he had federal prosecutorial jurisdiction over Wall Street crimes. Whistleblowers like Bowen, who lacked any meaningful power, sacrificed their careers and repeatedly demonstrated courage to ensure that Bharara would have the testimony and documents essential to prosecute successfully some of Wall Street’s most elite felons. Bharara never mustered the courage to prosecute those elites. Indeed, Bharara never mustered the courtesy to respond to Bowen’s offers to aid his office. [..] Bharara knew how to drain the Wall Street swamp. He had the facts, the staff, and the jurisdiction to drain the Wall Street swamp. Bharara refused to do so.

We all realize that this is never ever going to happen, right?!

• A Detailed “Roadmap” For Meeting The Paris Climate Goals (Vox)

To hit the Paris climate goals without geoengineering, the world has to do three broad (and incredibly ambitious) things: 1) Global CO2 emissions from energy and industry have to fall in half each decade. That is, in the 2020s, the world cuts emissions in half. Then we do it again in the 2030s. Then we do it again in the 2040s. They dub this a “carbon law.” Lead author Johan Rockström told me they were thinking of an analogy to Moore’s law for transistors; we’ll see why. 2) Net emissions from land use — i.e., from agriculture and deforestation – have to fall steadily to zero by 2050. This would need to happen even as the world population grows and we’re feeding ever more people. 3) Technologies to suck carbon dioxide out of the atmosphere have to start scaling up massively, until we’re artificially pulling 5 gigatons of CO2 per year out of the atmosphere by 2050 — nearly double what all the world’s trees and soils already do.

“It’s way more than adding solar or wind,” says Rockström. “It’s rapid decarbonization, plus a revolution in food production, plus a sustainability revolution, plus a massive engineering scale-up [for carbon removal].” So, uh, how do we cut CO2 emissions in half, then half again, then half again? Here, the authors lay out a sample “roadmap” of what specific actions the world would have to take each decade, based on current research. This isn’t the only path for making big CO2 cuts, but it gives a sense of the sheer scale and speed required:

2017-2020: All countries would prepare for the herculean task ahead by laying vital policy groundwork. Like: scrapping the $500 billion per year in global fossil fuel subsidies. Zeroing out investments in any new coal plants, even in countries like India and Indonesia. All major nations commit to going carbon-neutral by 2050 and put in place policies — like carbon pricing or clean electricity standards — that point down that path. “By 2020,” the paper adds, “all cities and major corporations in the industrialized world should have decarbonization strategies in place.”

2020-2030: Now the hard stuff begins! In this decade, carbon pricing would expand to cover most aspects of the global economy, averaging around $50 per ton (far higher than seen almost anywhere today) and rising. Aggressive energy efficiency programs ramp up. Coal power is phased out in rich countries by the end of the decade and is declining sharply elsewhere. Leading cities like Copenhagen are going totally fossil fuel free. Wealthy countries no longer sell new combustion engine cars by 2030, and transportation gets widely electrified, with many short-haul flights replaced by rail.

Brexit hardly seems Britain’s biggest problem. It’s the gutting of an entire society that is.

• In UK Access To Justice Is No Longer A Right, But A Luxury (G.)

Laws that cost too much to enforce are phoney laws. A civil right that people can’t afford to use is no right at all. And a society that turns justice into a luxury good is one no longer ruled by law, but by money and power. This week the highest court in the land will decide whether Britain will become such a society. There are plenty of signs that we have already gone too far. Listen to the country’s top judge, Lord Thomas of Cwmgiedd, who admits that “our justice system has become unaffordable to most”. Look at our legal-aid system, slashed so heavily by David Cameron and Theresa May that the poor must act as their own trial lawyers, ready to be skittled by barristers in the pay of their moneyed opponents. The latest case will be heard by seven supreme court judges and will pit the government against the trade union Unison. It will be the climax of a four-year legal battle over one of the most fundamental rights of all: the right of workers to stand up against their bosses.

In 2013, Cameron stripped workers of the right to access the employment tribunal system. Whether a pregnant woman forced out of her job, a Bangladeshi-origin guy battling racism at work, or a young graduate with disabilities getting aggro from a boss, all would now have to pay £1,200 for a chance of redress. The number of cases taken to tribunal promptly fell off a cliff – down by 70% within a year. Citizens Advice, employment lawyers and academics practically queued up to warn that workers – especially poor workers – were getting priced out of justice. But for Conservative ministers, all was fine. Loyal flacks such as Matthew Hancock (then employment minister) claimed those deterred by the fees were merely “unscrupulous” try-ons, intent on “bullying bosses”. Follow Hancock’s logic, and with all those time-wasters weeded out, you’d expect the number of successful tribunal claims to jump. They’ve actually dropped.

“Do they covet our Chick-fil-A chains and Waffle Houses? Our tattoo artists? Would they like to induce the Kardashians to live in Moscow? Is it Nascar they’re really after?”

• The Curse of the Thinking Class (Jim Kunstler)

Let’s suppose there really is such a thing as The Thinking Class in this country, if it’s not too politically incorrect to say so — since it implies that there is another class, perhaps larger, that operates only on some limbic lizard-brain level of impulse and emotion. Personally, I believe there is such a Thinking Class, or at least I have dim memories of something like it. The farfetched phenomenon of Trumpism has sent that bunch on a journey to a strange land of the intellect, a place like the lost island of Kong, where one monster after another rises out of the swampy murk to threaten the frail human adventurers. No one back home would believe the things they’re tangling with: giant spiders, reptiles the size of front-end loaders, malevolent aborigines! Will any of the delicate humans survive or make it back home?

This is the feeling I get listening to arguments in the public arena these days, but especially from the quarters formerly identified as left-of-center, especially the faction organized around the Democratic Party, which I aligned with long ago (alas, no more). The main question seems to be: who is responsible for all the unrest in this land. Their answer since halfway back in 2016: the Russians. I’m not comfortable with this hypothesis. Russia has a GDP smaller than Texas. If they are able to project so much influence over what happens in the USA, they must have some supernatural mojo-of-the-mind — and perhaps they do — but it raises the question of motive. What might Russia realistically get from the USA if Vladimir Putin was the master hypnotist that Democrats make him out to be?

Do we suppose Putin wants more living space for Russia’s people? Hmmmm. Russia’s population these days, around 145 million, is less than half the USA’s and it’s rattling around in the geographically largest nation in the world. Do they want our oil? Maybe, but Russia being the world’s top oil producer suggests they’ve already got their hands full with their own operations? Do they want Hollywood? The video game industry? The US porn empire? Do they covet our Chick-fil-A chains and Waffle Houses? Our tattoo artists? Would they like to induce the Kardashians to live in Moscow? Is it Nascar they’re really after?

My hypothesis is that Russia would most of all like to be left alone. Watching NATO move tanks and German troops into Lithuania in January probably makes the Russians nervous, and no doubt that is the very objective of the NATO move — but let’s not forget that most of all NATO is an arm of American foreign policy. If there are any remnants of the American Thinking Class left at the State Department, they might recall that Russia lost 20 million people in the dust-up known as the Second World War against whom…? Oh, Germany.

“The Turkish nationalist opposition leader, Devlet Bahçeli, has gone even further, claiming that several Greek islands are under occupation and reacting furiously when Kammenos visited the far-flung isle of Oinousses. “Someone must explain to this spoiled brat not to try our patience,” he railed. “If they [the Greeks] want to fall into the sea again, if they want to be hunted down, they are welcome, the Turkish army is ready. Someone must explain to the Greek government what happened in 1922. If there is no one to explain it to them, we can come like a bullet across the Aegean and teach them history all over again.”

• Tensions Flare As Greece Tells Turkey It Is Ready To Answer Any Provocation (G.)

Fears of tensions mounting in the Aegean and eastern Mediterranean Seas reignited after the Turkish president raised the prospect of a referendum on accession talks with the EU and the Greek defence minister said the country was ready for any provocation. Relations between Ankara and European capitals have worsened before the highly charged vote on 16 April on expanding the powers of the Turkish president, Recep Tayyip Erdogan. Western allies have argued that a vote endorsing the proposed constitutional change would invest him with unparalleled authority and limit checks and balances at a time when they fear the Turkish leader is exhibiting worrying signs of authoritarianism. Erdogan has been enraged by recent bans on visiting Turkish officials rallying “yes” supporters in Germany and the Netherlands.

Highlighting growing friction between Ankara and the bloc, he raised the spectre of a public vote on EU membership at the weekend. “We have a referendum on 16 April. After that we may hold a Brexit-like referendum on the [EU] negotiations,” he told a Turkish-UK forum attended by the British foreign secretary, Boris Johnson. “No matter what our nation decides we will obey it. It should be known that our patience, tested in the face of attitudes displayed by some European countries, has limits.” The animus – reinforced last week when the leader said he would continue labelling European politicians “Nazis” if they continued calling him a dictator – has also animated tensions between Greece and Turkey, and Erdogan’s comments came hours after the Greek defence minister said armed forces were ready to respond in the event of the country’s sovereignty and territorial integrity being threatened.

“The Greek armed forces are ready to answer any provocation,” Panos Kammenos declared at a military parade marking the 196th anniversary of Greece’s war of liberation against Ottoman Turkish rule. “We are ready because that is how we defend peace.” Although Nato allies, the two neighbours clashed over Cyprus in 1974 and almost came to war over an uninhabited Aegean isle in 1996. Hostility has been rising in both areas, with the Greek Cypriot leader Nicos Anastasiades recently voicing fears of Turkey sparking a “hot incident” in the run-up to the referendum. “I fear the period from now until the referendum in Turkey, as well as the effort to create a climate of fanaticism within Turkish society,” he told CNN Greece. Turkey’s EU negotiations have long been hindered by Cyprus, and talks aimed at reuniting its estranged Greek and Turkish communities are at a critical juncture but have stalled and are unlikely to move until after the referendum.

But it is in the Aegean where tensions, matched by an increasingly ugly war of words, have been at their worst. After a tense standoff over eight military officers who escaped to Greece after the abortive coup against Erdogan last July – an impasse exacerbated when the Greek supreme court rejected a request for their extradition – hostility has been measured in almost daily dogfights between armed jets and naval incursions of Greek waters by Turkish research vessels. Both have prompted diplomats and defence experts to express fears of an accident at a time when experienced staff officers and pilots have been sidelined in the purges that have taken place since the attempted coup. The shaky migration deal signed between the EU and Turkey to thwart the flow of refugees into the continent has only added to the pressure.

The falling dollar is setting up Turkey for dictatorship. The world will come to regret this.

• Erdogan Races Against the Dollar in Campaign for Unrivaled Power (BBG)

Turkish President Recep Tayyip Erdogan has lambasted friend and foe alike in a campaign for vast new powers, but his political fate may hang on the one thing he’s stopped carping about: the price of money. With the April 16 vote on strengthening the presidency too close for pollsters to call, Erdogan is no longer berating the central bank and commercial lenders over borrowing costs they’ve pushed to a five-year high. He’s betting any measures taken to arrest the lira’s plunge will pay off at the ballot box. The lira’s value versus the dollar is more than just a pocketbook issue in Turkey, where millions of voters still remember the abrupt devaluations that ravaged their livelihoods in past decades and view the exchange rate as the most important indicator of the nation’s economic health.

Turkey’s trade deficit is the biggest of all top 50 economies relative to output and most of its imports and foreign debt are priced in dollars, so sharp declines in the lira can be ruinous for legions of entrepreneurs like Ramazan Saglam, who owns a print shop in a working-class neighborhood of Ankara. “I bitterly recall when the dollar jumped in 1994 and 2001 – my business collapsed both times,” Saglam said. “I’m supporting the new presidential system wholeheartedly because I don’t want to go bankrupt again.” Saglam nodded at the big red banner billowing from his second-story window to illustrate his point. The Chinese cloth and South Korean ink he used to make it were all bought with dollars, as was the American printer that produced Erdogan’s image and the slogan, “Yes. For my country and my future.”

Given the choice between paying more for credit to buy supplies and keeping the lira in check, he said he’d choose sound money every time. Supporters of the proposed constitutional changes say handing Erdogan sweeping new authority is the only way to achieve the stability that society craves and businesses need to thrive. But opponents say approving the referendum is an invitation to dictatorship, particularly since Erdogan, already the most dominant leader in eight decades, jailed or fired more than 100,000 perceived enemies after rogue army officers attempted a coup in July. “Everybody on the street tracks the exchange rate on a daily basis and Erdogan wins support as long as Turkey can keep the lira stable,” said Wolfango Piccoli, the London-based co-president of Teneo Intelligence, a political risk advisory firm. “But the challenge here is the external backdrop. They can’t really predict what’s coming.”

The US must cease labeling the PKK a terrorist organization. Or stop backing the Kurds in Syria. Can’t have both.

• Tillerson Will Not Meet Turkey Opposition In Ankara Visit This Week (R.)

U.S. Secretary of State Rex Tillerson will not meet members of Turkish opposition groups during a one-day visit to Ankara this week where talks with President Tayyip Erdogan will focus on the war in Syria, senior U.S. officials said on Monday. Thursday’s visit comes at a politically sensitive time in Turkey as the country prepares for a referendum on April 16 that proposes to change the constitution to give Erdogan new powers. A senior State Department official said Tillerson will meet with Erdogan and government ministers involved in the fight against Islamic State in Syria. “It is certainly something we are very acutely aware of and the secretary will be mindful of while he is there,” one State Department official told a conference call with reporters, referring to political sensitivities ahead of the referendum.

American officials expect Erdogan and others to raise the case of U.S.-based cleric Fethullah Gulen, whom the government accuses of orchestrating a failed coup last July. The focus of the Ankara talks is the U.S.-led offensive to retake Raqqa from Islamic State and to stabilize areas in which militants have been forced out, allowing refugees to return home, officials said. A major sticking point between the United States and Turkey is U.S. backing for the Syrian Kurdish YPG militia, which Turkey considers part of the Kurdistan Workers’ Party that has been fighting an insurgency for three decades in Turkey. But the United States has long viewed Kurdish fighters as key to retaking Raqqa alongside Arab fighters in the U.S.-backed Syrian Democratic Forces (SDF). “We are very mindful of Turkey’s concerns and it is something that will continue to be a topic of conversation,” a second U.S. official said.

Fire sale. The minister actually called these practices ‘cannibalistic’, and rightly so. And that’s not even the best of it. A Greek paper details how a Greek bank, Alpha Bank, lends the money to German investors to buy up Greece’s Public Power Corp. That is about as close to cannibalism as you can get. Economic warfare 101.

• Troika Pushes Greece To Sell Up To 40% Of State-Controlled Power Utility (R.)

A Greek minister on Monday accused international lenders of reneging on a 2015 bailout deal by trying to force a fire-sale of its main electricity utility PPC to serve “domestic and foreign business interests.” Under terms of a 2015 bailout deal for Greece worth up to €86 billion, Public Power Corp. (PPC) is obliged to cut its dominance in the Greek market to below 50% by 2020. Although it is not clearly specified in the deal, lenders want Greece to sell some of PPC’s assets. PPC, which is 51% owned by the state, now controls about 90% of the country’s retail electricity market and 60% of its wholesale market. Greece last year launched power auctions to private operators as a temporary mechanism and has proposed that PPC team up with private companies to help achieve this target. But lenders doubt the effectiveness of the measure.

“What they want is that power production infrastructure of up to 40% – PPC’s coal-fired production- is sold. This is what they want right know, which is beyond the (2015) deal,” Interior Minister Panos Skourletis, a former energy minister, told Greek state television. Skourletis on Monday accused the lenders pressing the country to sell-off PPC units at a very low price to serve European and domestic competitors. “It is an assault which has set its sights on PPC’s assets to pass it on to specific European and domestic business interests at a humiliating price,” Skourletis said in an Op-Ed penned for the Efimerida Ton Syntakton daily.

More warfare, more cannibalism. Airports also ‘privatized’, ‘reformed’. Alpha Bank is also the largest lender in this case. Nice partners too: “..the International Finance Corporation (€154.1 million), a member of the World Bank Group [..] is also the sole provider of euro interest rate hedging swaps..”

• Fraport Greece Signs Funding Deal With 5 Lenders (K.)

Five leading financial institutions have signed a long-term financing agreement with German-Greek consortium Fraport Greece, which will soon be managing, operating, upgrading and maintaining 14 regional Greek airports under a 40-year concession contract. The agreement is for total financing of 968.4 million euros. The lenders are Alpha Bank (participating with €284.7 million), the Black Sea Trade & Development Bank (€62.5 million), the European Bank for Reconstruction & Development (€186.7 million), the European Investment Bank (€280.4 million), and the International Finance Corporation (€154.1 million), a member of the World Bank Group.

IFC is also the sole provider of euro interest rate hedging swaps to help Fraport Greece hedge potential fluctuations in interest rates through the term of the loan. Over two-thirds of the total amount (€688 million) will be used to cover the upfront payment (of €1.234 billion) due to state sell-off fund TAIPED upon the airports’ delivery, while €280.4 million will be used to finance upgrading work at the 14 airports. Meanwhile, Fraport Greece recently announced a capital increase raising the company’s total capital to €650 million, most of which will go toward the upfront payment.

But domestic credit is still collapsing. And so is the economy, of course.

• Contraction Of Credit Continues Unabated In Greece (K.)

Bank of Greece figures revealed on Monday a further contraction in the financing of the Greek economy last month, a result of the general uncertainty hanging over the economy and the drop deposits at the country’s banks. The total funding of the economy was down 2% YOY in February, from -1.5% in January, while the monthly net flow of total financing was negative by €801 million, against a negative flow of €1.261 billion in January. The main factor in that decline was the drop in funding to the state, as the annual rate concerning the general government sector posted a 3.7% contraction in February against a 0.1% increase in January. In the private sector it was negative by 1.6% as funding shrank by a net €101 million. The image was somewhat different for enterprises as there was an €82 million monthly increase in the net flow of funding last month, compared with a €643 million decline in January. However, the flow of credit to private clients and nonprofit organizations dipped by €153 million or 2.7% in February.

Wise old genius. “As soon as three Greeks get together, they start talking of who’s going to be the leader..”

• Mikis Theodorakis: ‘In Tough Times, Greeks Become Heroes or Slaves’ (GR)

“During tough times, a Greek can become a hero or a slave,” said legendary Greek composer Mikis Theodorakis in an interview published in Proto Thema Sunday newspaper. The 92-year-old musician, who is also an emblematic figure of the Greek Left, spoke about Greece’s current state, the leftist government, the main opposition party and the bailout agreements. Theodorakis said that he is not shocked about the current condition Greece is in because, historically, the country has been through turmoil several times. He said the Greek spirit, like a light, shines through at the end because Greeks have an inner harmony that prevails. However, Theodorakis said, this is a hard period for Greece and this time he is afraid for the future of the country: “When the Greek is with his back against the wall, he becomes a hero or a slave.”

When asked to compare the current state of the nation with the times of the German Occupation, Theodorakis said that what Greece is going through now is worse: “I don’t remember people going through the trash to find food. I don’t remember elderly people waiting in line to get a cabbage.” Theodorakis spoke in length about the time (2012) opposition leader Alexis Tsipras and leftist legend Manolis Glezos approached him and asked him to join SYRIZA and win the upcoming elections. He said he refused to join because the young candidate did not have a plan on how to get Greece going without supervision and financial aid from the EU and the IMF. He described Greece as a train rolling on tracks laid by the EU and the IMF.

“I told him ‘if you’re planning to come to power without having a plan to change the tracks and provide Greek people with what they need, then you are opportunists and you will only succeed in destroying the country and humiliating the Greek Left’,” the composer said about Tsipras. “With great sadness, I believe that the current plight of the country confirms exactly what I said to Alexis Tsipras, here in my house, in the meeting that I mentioned earlier,” Theodorakis said. The composer said that Greeks have a lust for power: “As soon as three Greeks get together, they start talking of who’s going to be the leader,” he said characteristically.

A new issue has come to light: where are the NGOs picking up the refugees?

• Nearly 1,200 Migrants Picked Up Off Libya, Heading To Italy (R.)

Humanitarian ships rescued almost 1,200 migrants who were crossing the Mediterranean Sea at the weekend on an array of small, tightly packed boats, Doctors Without Borders said on Sunday. A young woman was found unconscious on one of the vessels and later died, the group said. Some 412 people were crammed onto a single wooden boat, while the others were picked up from huge inflatable dinghies, which had set sail from the coast of Libya. The weekend rescues mean that about 22,000 mainly African migrants have been picked up heading to Italy so far this year, while around 520 have died trying to make the crossing.

An Italian prosecutor said last week that humanitarian ships operating off Libya were undermining the fight against people smugglers and opening a corridor that is ultimately leading to more migrant deaths. The chief prosecutor of the Sicilian port city of Catania, Carmelo Zuccaro, said he also suspected that there may be direct communication between Libya-based smugglers and members of charity-operated rescue vessels. NGOs deny any wrongdoing, saying they are simply looking to save lives, but they are facing criticism in Italy, which has taken in about half a million migrants since the start of 2014.

Italy thinks George Soros is sponsoring this.

• Italy Calls For Investigation Of NGO Supported Migrant Fleet (Dm.)

Italian authorities are calling for monitoring of the funding of an NGO fleet bussing migrants into the EU from the North African coast after a report released the European Border and Coast Guard Agency has determined that the members of the fleet are acting as accomplices to people smugglers and directly contributing to the risk of death migrants face when attempting to enter the EU. The report from regulatory agency Frontex suggests that NGOs sponsoring ships in the fleet are now acting as veritable accomplices to people smugglers due to their service which, in effect, provides a reliable shuttle service for migrants from North Africa to Italy. The fleet lowers smugglers’ costs, as it all but eliminates the need to procure seaworthy vessels capable making a full voyage across the Mediterranean to the European coastline.

Traffickers are also able to operate with much less risk of arrest by European law enforcement officers. Frontex specifically noted that traffickers have intentionally sought to alter their strategy, sending their vessels to ships run by the NGO fleet rather than the Italian and EU military. On March 25th, 2017, Italian news source Il Giornale carried remarks from Carmelo Zuccaro, the chief prosecutor of Catania (Sicily) calling for monitoring of the funding behind the NGO groups engaged in operating the migrant fleet. He stated that “the facilitation of illegal immigration is a punishable offense regardless of the intention.” While it is not a crime to enter the waters of a foreign country and pick them migrants, NGOs are supposed to land them at the nearest port of call, which would have been somewhere along the North African coast instead of in Italy.

The chief prosecutor also noted that Italy is investigating Islamic radicalization occurring in prisons and camps where immigrants are hired off the books. Italy has for some months been reeling under the pressure of massive numbers of migrants who have been moving from North Africa into the southern states of the European Union. In December 2016, The Express cited comments made by Virginia Raggi, the mayor of Vatican City, stating that Rome was on the verge of a “war” between migrants and poor Italians. The wave of migrants has also caused issues in southern Italy, where the Sicilian Cosa Nostra has declared a “war on migrants” last year amid reports that the Italian mafia had begun fighting with North African crime gangs who entered the EU among migrant populations.

Debt Rattle February 17 2017

Feb 172017

February 17, 2017 Posted by Raúl Ilargi Meijer at 11:00 am Finance Tagged with: bank run, Brexit, China, debt, delinquent, Growth, Putin, SEC, swamp, Trump 2 Responses »

John Collier Workmen at emergency office construction job, Washington, DC Dec 1941

• Global Growth is All About China…Nothing but China (Econimica)

• US Household Debt Is Dangerously Close To 2008 Levels (CNN)

• “Seriously Delinquent” US Auto Loans Surge (WS)

• 3 Reasons The US Could Be Headed For A Fresh Debt Crisis (MW)

• Fed President Says US Banks Have “Half The Equity They Need” (Black)

• Harward Turns Down National Security Adviser Job Over Staffing Dispute (CBS)

• The Swamp Strikes Back (Escobar)

• Who’s Sucking Up All the World’s Safest Bonds? (WSJ)

• Mary Jo White Seriously Misled the US Senate to Become SEC Chair (Martens)

• European Financial Centres After Brexit (E.)

• Putin Orders Russian Media To “Cut Back” On Positive Trump Coverage (ZH)

• ‘Bank Run’ under Capital Controls: Greeks withdraw €2.5bn in 45 days (KTG)

Let this sink in. Then realize how reliable Chinese numbers are. And that’s where all the ‘growth’ is in the world.

• Global Growth is All About China…Nothing but China (Econimica)

Since 2000, China has been the nearly singular force for growth in global energy consumption and economic activity. However, this article will make it plain and simple why China is exiting the spotlight and unfortunately, for global economic growth, there is no one else to take center stage. To put things into perspective I’ll show this using four very inter-related variables…(1) total energy consumption, (2) core population (25-54yr/olds) size and growth, (3) GDP (flawed as it is), and (4) debt. First off, the chart below shows total global energy consumption (all fossil fuels, nuclear, hydro, renewable, etc…data from US EIA) from 1980 through 2014, and the change per period. The growth in global energy consumption from ’00-’08 was astounding and an absolute aberration, nearly 50% greater than any previous period.

Of that growth in energy consumption, the chart below breaks down the sources of that growth among China (red), India/Africa (gold) and the rest of the world (blue). It’s plain to see the growth of Chinese energy consumption, the decelerating growth among the rest of the world, and the stagnant growth among India / Africa.

But here is the money chart, pointing out that the growth in energy consumption (by period) has shifted away from “the world” squarely to China. From 2008 through 2014 (most recent data available), 2/3rds or 66% of global energy consumption growth was China. Also very noteworthy is that India nor Africa have taken any more relevance, from a growth perspective, over time. The fate of global economic growth rests solely upon China’s shoulders.

The chart below shows China’s core population (annual change) again against total debt, GDP, and energy consumption. The reliance on debt creation as the core population growth decelerated is really hard not to see. This shrinking base of consumption will destroy the meme that a surging Chinese middle class will drive domestic and global consumption…but I expect this misconception will continue to be peddled for some time.

Fewer delinquencies, says the Fed. But then look at the next article: “Seriously Delinquent” US Auto Loans Surge

• US Household Debt Is Dangerously Close To 2008 Levels (CNN)

Total household debt climbed to $12.58 trillion at the end of 2016, an increase of $266 billion from the third quarter, according to a report from the Federal Reserve Bank of New York. For the year, household debt ballooned by $460 billion — the largest increase in almost a decade. That means the debt loads of Americans are flirting with 2008 levels, when total consumer debt reached a record high of $12.68 trillion. Rising debt hints that banks are extending more credit. Mortgage originations increased to the highest level since the Great Recession. Mortgage balances make up the bulk of household debt and ended the year at $8.48 trillion. However, growth in non-housing debt – which includes credit card debt and student and auto loans – are key factors fueling the rebound in debt.

Student loan debt balances rose by $31 billion in the fourth quarter to a total of $1.31 trillion, according to the report. Auto loans jumped by $22 billion as new auto loan originations for the year climbed to a record high. Credit card debts rose by $32 billion to hit $779 billion. At these rates, the New York Fed expects household debt to reach its previous 2008 peak sometime this year. But while that may sound alarming, there is one big difference between now and 2008, according to the Fed: Fewer delinquencies. At the end of 2016, 4.8% of debts were delinquent, compared to 8.5% of total household debt in the third quarter of 2008. There were also less bankruptcy filings – a little more than 200,000 consumers had a bankruptcy added to their credit report in the final quarter of last year, a 4% drop from the same quarter in 2015.

“There’s nothing like loading up consumers with debt to make central bankers outright giddy.”

• “Seriously Delinquent” US Auto Loans Surge (WS)

Bank regulators have been warning, now it’s happening. The New York Fed, in its Household Debt and Credit Report for the fourth quarter 2016, put it this way today: “Household debt increases substantially, approaching previous peak.” It jumped by $226 billion in the quarter, or 1.8%, to the glorious level of $12.58 trillion, “only $99 billion shy of its 2008 third quarter peak.” Yes! Almost there! Keep at it! There’s nothing like loading up consumers with debt to make central bankers outright giddy. Auto loan balances in 2016 surged at the fastest pace in the 18-year history of the data series, the report said, driven by the highest originations of loans ever. Alas, what the auto industry has been dreading is now happening: Delinquencies have begun to surge.

This chart – based on data from the Federal Reserve Board of Governors, which varies slightly from the New York Fed’s data – shows how rapidly auto loan balances have ballooned since the Great Recession. At $1.112 trillion (or $1.16 trillion according to the New York Fed), they’re now 35% higher than they’d been during the crazy peak of the prior bubble. Note that during the $93 billion increase in auto loan balances in 2016, new vehicle sales were essentially flat. No way that this is an auto loan bubble. Not this time. It’s sustainable. Or at least containable when it’s not sustainable, or whatever. These ballooning loans have made the auto sales boom possible.

Not a new topic, but some useful numbers.

• 3 Reasons The US Could Be Headed For A Fresh Debt Crisis (MW)

Subprime car loansThe amount of total open car loans just topped $1 trillion, according to credit ratings firm Experian. But is that a sign of consumer confidence … or a cause for alarm? According to the latest data, from the third quarter of 2016, about 1 in 5 car loans are made to subprime borrowers, at an average interest rate of almost 11%. And broadly speaking, the average car loan in the U.S. is for a balance of almost $30,000 and a monthly payment of about $500. With stats like that, it’s no wonder the default rate on car loans is rising. A study by lending analysis firm Lending Times recently found that auto loan delinquencies are up over 21% compared with 2012 levels. A senior vice president at TransUnion, one of the three major credit rating bureaus, recently said he expects “a modest increase in delinquency” for auto loans going forward, too.

Just image what would happen if rates tick a bit higher. After all, if homeowners who were “underwater” on their homes in 2007 could shrug off the impact of a foreclosure on their credit report and simply walk away from a big mortgage, then why in the world would they stick with a double-digit interest rate on a car loan — especially as that car ages or breaks down? The real weight of these loans continues to hit the balance sheets of lenders, with net subprime losses continuing to march upward in December to 8.52%. Standard & Poor’s U.S. Auto Loan Tracker noted that while some of the acceleration was seasonal, “the year-over-year increases indicate that 2017’s losses could surpass last year’s levels.” No wonder the New York Fed called subprime auto debt a “significant concern” at the end of last year.

Student loans Hedge-fund guru Bill Ackman has said “I think that the government’s going to lose hundreds of millions of dollars” on student loans. And while that may sound like hysterics, when you consider that there is roughly $1.4 trillion in outstanding student debt, according to the Federal Reserve, that number doesn’t seem so far-fetched. Most of that is owned by the federal government via subsidized loans, too, with a recent Bloomberg report estimating the government owned some $850 billion in student loan debt as of 2014. Even a modest default rate would quite literally eat up hundreds of millions of dollars in a hurry. The losses for the government are disturbing, but at least can be made up with higher taxes or cuts elsewhere in the budget. There’s no relief for the millions of young Americans who are stuck paying for their college degree instead of spending on consumer goods.

Government-insured mortgagesAfter the collapse of subprime mortgages during the financial crisis, banks learned a hard lesson about these risky home loans. But if you think that means they avoided all loans to less-than-stellar borrowers, think again. The New York Fed recently juxtaposed the rise of government-insured mortgages vis-à-vis the decline in subprime lending to find that “government insurance programs rapidly expanded and more than filled the void.” That mirrors a report from ProPublica back in 2012 that estimated 9 in 10 mortgages issued at the time were being guaranteed by taxpayers via government-sponsored enterprises such as Fannie Mae and Freddie Mac. And while standards are moderately higher for loans with this government backstop than precrisis loans to subprime borrowers, “they are not low-risk loans,” write the New York Fed economists. “The combination of high leverage and low credit scores documented above translates into extremely high default rates.”

It’s all about political power.

• Fed President Says US Banks Have “Half The Equity They Need” (Black)

In a scathing editorial published in the Wall Street Journal today, the president of the Federal Reserve Bank of Minneapolis, Neel Kashkari, blasted US banks, saying that they still lacked sufficient capital to withstand a major crisis. Kashkari makes a great analogy. When you’re applying for a mortgage or business loan, sensible banks are supposed to demand a 20% down payment from their borrowers. If you want to buy a $500,000 home, a conservative bank will loan creditworthy borrowers $400,000. The borrower must be able to scratch together a $100,000 down payment. But when banks make investments and buy assets, they aren’t required to do the same thing. Remember that when you deposit money at a bank, you’re essentially loaning them your savings.

As a bank depositor, you’re the lender. The bank is the borrower. Banks pool together their deposits and make various loans and investments. They buy government bonds, financial commercial trade, and fund real estate purchases. Some of their investment decisions make sense. Others are completely idiotic, as we saw in the 2008 financial meltdown. But the larger point is that banks don’t use their own money to make these investments. They use other people’s money. Your money. A bank’s investment portfolio is almost entirely funded with its customers’ savings. Very little of the bank’s own money is at risk. You can see the stark contrast here. If you as an individual want to borrow money to invest in something, you’re obliged to put down 20%, perhaps even much more depending on the asset.

Your down payment provides a substantial cushion for the bank; if you stop paying the loan, the value of the property could decline 20% before the bank loses any money. But if a bank wants to make an investment, they typically don’t have to put down a single penny. The bank’s lenders, i.e. its depositors, put up all the money for the investment. If the investment does well, the bank keeps all the profits. But if the investment does poorly, the bank hasn’t risked any of its own money. The bank’s lenders (i.e. the depositors) are taking on all the risk. This seems pretty one-sided, especially considering that in exchange for assuming all the risk of a bank’s investment decisions, you are rewarded with a miniscule interest rate that fails to keep up with inflation. (After which the government taxes you on the interest that you receive.) It hardly seems worth it.

Murky.

• Harward Turns Down National Security Adviser Job Over Staffing Dispute (CBS)

Vice Admiral Robert Harward has rejected President Trump’s offer to be the new national security adviser, CBS News’ Major Garrett reports. Sources close to the situation told Garrett Harward and the administration had a dispute over staffing the security council. Two sources close to the situation confirm Harward demanded his own team, and the White House resisted. Specifically, Mr. Trump told Deputy National Security Adviser K. T. McFarland that she could retain her post, even after the ouster of National Security Adviser Michael Flynn. Harward refused to keep McFarland as his deputy, and after a day of negotiations over this and other staffing matters, Harward declined to serve as Flynn’s replacement.

Harward, a 60-year-old former Navy SEAL, served as deputy commander of U.S. Central Command under now-Defense Secretary James Mattis. He previously served as deputy commanding general for operations of Joint Special Operations Command at Fort Bragg in North Carolina. Harward has also commanded troops in both Iraq and Afghanistan for six years after the 9/11 attacks. Under President George W. Bush, he served on the National Security Council as director of strategy and policy for the office of combating terrorism.

As I said: the New Cold War is being fought INSIDE the US.

• The Swamp Strikes Back (Escobar)

The tawdry Michael Flynn soap opera boils down to the CIA hemorrhaging leaks to the company town newspaper, leading to the desired endgame: a resounding victory for hardcore neocon/neoliberalcon US Deep State factions in one particular battle. But the war is not over; in fact it’s just beginning. Even before Flynn’s fall, Russian analysts had been avidly discussing whether President Trump is the new Victor Yanukovich – who failed to stop a color revolution at his doorstep. The Made in USA color revolution by the axis of Deep State neocons, Democratic neoliberalcons and corporate media will be pursued, relentlessly, 24/7. But more than Yanukovich, Trump might actually be remixing Little Helmsman Deng Xiaoping: “crossing the river while feeling the stones”. Rather, crossing the swamp while feeling the crocs.

Flynn out may be interpreted as a Trump tactical retreat. After all Flynn may be back – in the shade, much as Roger Stone. If current deputy national security advisor K T McFarland gets the top job – which is what powerful Trump backers are aiming at – the shadowplay Kissinger balance of power, in its 21st century remix, is even strengthened; after all McFarland is a Kissinger asset. Flynn worked with Special Forces; was head of the Defense Intelligence Agency (DIA); handled highly classified top secret information 24/7. He obviously knew all his conversations on an open, unsecure line were monitored. So he had to have morphed into a compound incarnation of the Three Stooges had he positioned himself to be blackmailed by Moscow.

What Flynn and Russian ambassador Sergey Kislyak certainly discussed was cooperation in the fight against ISIS/ISIL/Daesh, and what Moscow might expect in return: the lifting of sanctions. US corporate media didn’t even flinch when US intel admitted they have a transcript of the multiple phone calls between Flynn and Kislyak. So why not release them? Imagine the inter-galactic scandal if these calls were about Russian intel monitoring the US ambassador in Moscow. No one paid attention to the two key passages conveniently buried in the middle of this US corporate media story. 1) “The intelligence official said there had been no finding inside the government that Flynn did anything illegal.” 2) “…the situation became unsustainable – not because of any issue of being compromised by Russia – but because he [Flynn] has lied to the president and the vice president.” Recap: nothing illegal; and Flynn not compromised by Russia. The “crime” – according to Deep State factions: talking to a Russian diplomat.

Vice-President Mike Pence is a key piece in the puzzle; after all his major role is as insider guarantor – at the heart of the Trump administration – of neocon Deep State interests. The CIA did leak. The CIA most certainly has been spying on all Trump operatives. Flynn though fell on his own sword. Classic hubris; his fatal mistake was to strategize by himself – even before he became national security advisor. “Mad Dog” Mattis, T. Rex Tillerson – both, by the way, very close to Kissinger – and most of all Pence did not like it one bit once they were informed.

A big way in which central banks distort markets.

• Who’s Sucking Up All the World’s Safest Bonds? (WSJ)

The world is running out of safe financial assets. One reason may be regulators’ push to make trading safer. A scarcity of safe collateral can create bouts of volatility in the markets where investors fund their purchases. Economists also worry that a lack of quality public-sector assets leads the private sector to create less reliable and riskier substitutes. Global rules increasingly require that investors deposit cash as security, called margin, when they trade with each other. This money is often left at clearinghouses, which are intermediaries that stand between buyers and sellers and step in if one of the parties won’t make good on a transaction. Regulators are trying to give these clearinghouses more heft to make the financial system safer.

The clearinghouses, in turn, have to do something with the cash, and they frequently take it to repurchase, or “repo,” markets, where they lend it out in exchange for high-quality assets such as German bunds or U.S. Treasurys. That has the effect of vacuuming up safe assets. Paradoxically, cash—at least its electronic form—isn’t ultrasafe: It needs to be left in bank deposits, and even the strongest banks have some risk. Treasurys and bunds don’t. Europe’s dearth of safe assets is especially acute. According to a semiannual survey released Tuesday by the International Capital Market Association, demand for collateral in the eurozone increased significantly in the second half of 2016. The ECB and other central banks across the developed world have been blamed for this safe-asset scarcity because they have bought trillions of dollars worth of government bonds in a bid to boost economic growth.

However, during a speech last month, ECB official Yves Mersch pointed to clearinghouses as a key culprit, and warned that “the requirements for trades to be centrally cleared are still being introduced, so the demand from market infrastructure to exchange cash for collateral will rise.” Data are scarce, but the latest figures from the Bank for International Settlements show that more than half of the notional amount outstanding of derivatives transactions was centrally cleared by the end of 2014, after new regulation was enacted—twice as much as in 2009.

“Americans will continue to be relegated to the status of dumb tourist in their own country.”

• Mary Jo White Seriously Misled the US Senate to Become SEC Chair (Martens)

Less than two weeks after Mary Jo White was nominated to become Chair of the Securities and Exchange Commission by President Barack Obama on January 24, 2013, White filed an ethics disclosure letter advising that she would “retire” from her position representing Wall Street banks at the law firm Debevoise & Plimpton. White wrote on this subject in great detail, stating:

“Upon confirmation, I will retire from the partnership of Debevoise & Plimpton, LLP. Following my retirement, the law firm will not owe me an outstanding partnership share for either 2012 or any part of 2013. As a retired partner, I will be entitled to the use of secretarial services, office space and a blackberry at the firm’s expense. For the duration of my appointment, I will forgo these three benefits, though I may pay for some secretarial services at my own expense. Pursuant to the Debevoise & Plimpton, LLP Partners Retirement Program, I will receive monthly lifetime retirement payments from the firm commencing the month after my retirement. However, within 60 days of my appointment, the firm will make a lump sum payment, in lieu of making monthly retirement payments for the next four years. Within 60 days of my appointment, I also will receive payouts of my interest in the Debevoise & Plimpton LLP Cash Balance Retirement plan and my capital account.”

Yesterday it was widely reported in the business press that Mary Jo White is returning to her former law firm as a partner representing clients who face government investigations. She will also fill the newly created position of Senior Chair of the law firm. This news is highly significant because it would appear that the U.S. Senate was seriously misled by White’s ethics letter in its deliberations to confirm her as the top cop of Wall Street. The news is also highly significant because it will mark the fourth time in four decades that Mary Jo White has spun through the revolving doors of Debevoise & Plimpton (where she represented serial law violators) to government service (prosecuting serial law violators).

[..] Until there is meaningful legislative reform of political campaign financing and revolving door appointments, Americans will continue to be relegated to the status of dumb tourist in their own country.

Bankers have too much money and too much power.

• European Financial Centres After Brexit (E.)

“WHEN the vote took place,” says Valérie Pécresse, “it was an opportunity for us to promote Île de France”, the region around Paris of which she is the elected head. Two advertising campaigns were prepared, depending on the result of Britain’s referendum last June on leaving the European Union. The unused copy ran: “You made one good decision. Make another. Choose Paris region.” Brexit has made Paris bolder. Once Britain leaves Europe’s single market, the many international banks and other firms that have made London their EU home will lose the “passports” that allow them to serve clients in the other 27 states. Possibly, mutual recognition by Britain and the EU of each other’s regulatory regimes will persist. But no one can rely on the transition to Brexit being smooth, rather than a feared “cliff edge”. Best to assume the worst.

Britain is expected to start the two-year process of withdrawal next month. Given the time needed to get approval from regulators, find offices and move (or hire) staff, financial firms have long been weighing their options. London will remain Europe’s leading centre, but other cities are keen to take what they can. The Parisians are pushing hardest, pitching their city as London’s partner and peer. “I don’t see the relationship with London as a rivalry,” says Ms Pécresse. “The rivalry is not with London but with Dublin, Amsterdam, Luxembourg and Frankfurt.” Especially, it seems, Frankfurt. Paris has more big local banks, more big companies and more international schools than its German rival. London apart, say the French team, it is Europe’s only “global city”. When, they smirk, did you last take your partner to Frankfurt for the weekend?

This month the Parisians were in London, briefing 80 executives from banks, asset managers, private-equity firms and fintech companies. They are keen to dispel France’s image as an interventionist, high-tax, work-shy place. The headline corporate-tax rate is 33.3% but due to fall to 28% by 2020. A scheme giving income-tax breaks to high earners who have lived outside France for at least five years will now apply for eight years after arrival or return, not five. The Socialists, who run the city itself, and Ms Pécresse’s Republicans are joined in a business-friendly “sacred union”, says Gérard Mestrallet, president of Paris Europlace, which promotes the financial centre. Ms Pécresse and others play down the risk that Marine Le Pen, of the far-right, Eurosceptic National Front will win the presidential election this spring.

“Crimea was TAKEN by Russia during the Obama Administration. Was Obama too soft on Russia?” the U.S. president tweeted.

• Putin Orders Russian Media To “Cut Back” On Positive Trump Coverage (ZH)

Trump’s honeymoon with capital markets is on the rocks, kept alive only by the occasional soundbite about “massive” or “phenomenal” tax cuts; it now appears that the US president’s – until recently – amicable relationship with Russia is also quickly souring. According to Bloomberg, the Kremlin has ordered Russian state media to cut “way back” on their fawning coverage of President Donald Trump, in what three sources told BBG is a “reflection of growing concern among senior Russian officials that the new U.S. administration will be less friendly than first thought.” The Russian president has defended his decision saying it is the result of declining interest among the Russian viewers in Trump’s rise to power, but Bloomberg adds that some of the most popular TV segments on Trump touched on ideas the Kremlin would rather not promote, such as his pledge to “drain the swamp.”

The suggestion is that since Trump is looking to end governmental corruption, the “authoritarian” Putin should be worried; and yet instead of “draining the swamp” Trump has filled it by surrounded himself with precisely those bankers he used as populist examples of all that is wrong with the government. As such, Putin should greet Trump’s failed “swamp draining” although that part did not make it into the Bloomberg report. Putin’s decree comes at a time of rising anti-Russian sentiment in Washington, where U.S. spy and law-enforcement agencies are conducting multiple investigations to determine the full extent of contacts Trump’s advisers had with Russia during and after the 2016 election campaign.

According to Bloomberg, the order marks a stark turnaround from just a few weeks ago when Russia hailed Trump’s presidential victory as the beginning of a new era of cooperation between the former Cold War foes. “Trump’s campaign was watched with rapture as news anchors gushed over the novelty of hearing an American presidential candidate praise Putin. But the wall-to-wall coverage went too far for the Kremlin’s liking.” In January, Trump reportedly received more mentions in the media than Putin, relegating the Russian leader to the No. 2 spot for the first time since he returned to the Kremlin in 2012 after four years as premier, according to Interfax data.”

That said, there has certainly been a chilling in relations between Trump and Putin. In recent weeks, numerous White House officials, including Trump, have criticized Russia for its annexation of Crimea and the subsequent violence in Ukraine. Trump on Wednesday accused Putin of seizing Crimea from Ukraine in a series of Twitter posts that were delivered amid a flurry of allegations that his team has ties to Russia. “Crimea was TAKEN by Russia during the Obama Administration. Was Obama too soft on Russia?” the U.S. president tweeted. As Bloomberg concludes, Russian officials, who had readily commented to local media on earlier news from Washington, suddenly became less talkative after the Crimea comment. And so, with Trump-Putin relations suddenly in purgatory, and Trump’s domestic “Russia-facing” exposure in chaos, it is now unclear how Trump will pivot away to restore what many had hoped would lead to a restoration in normal relations between the two countries.

And there we go again.

• ‘Bank Run’ under Capital Controls: Greeks withdraw €2.5bn in 45 days (KTG)

Delays in the talks between Greece and its lenders have brought back the ghost of Grexit. The grave disagreement between the IMF and the European lenders, Grexit bombshell flying around and Greece’s reluctance to accept additional austerity measures have increase uncertainty among citizens – for one more time. And what do citizens do when they feel political and economical insecurity? The run to banks and withdraw deposits. 2.5 billion euros left Greek banks in the last 45 days. And this despite the capital controls that allow Greeks to withdraw a maximum of just €1,800 per month. However, in better situation are those who brought back cash to the banks. Cash that was largely withdrawn before the capital controls were imposed in July 2015 as a result of a major bank run from November 2014 until end of June 2015.

Those who pulled the cash from under the mattress and brought it to bank are allowed to withdraw money above the €1800 cap. According to newspaper Eidiseis, the cash withdrawal in the last 45 days has set bankers in alert. In addition to cash withdrawals, business loans and mortgage, amounting a total of €500 million, turned red. A sign that the delay in the conclusion of the second review has increased uncertainty among the Greeks, as the daily notes. Speaking to the daily, sources from the Union of Greek Banks said that “time is not working in our favor.” They stressed that the government and the lenders should reach a compromise. Beginning of February, Greek websites for economic news had reported that more than one billion euros was withdrawn in January 2017.

According to a report of November 2015, more than €120 billion left the Greek banks during the years of the crisis. €45 billion left the banks during November 2014 – 2015. 80% of this amount, that is some €36 billion are been kept in homes, company safes or in bank lockers.

Debt Rattle November 26 2016

Nov 262016

November 26, 2016 Posted by Raúl Ilargi Meijer at 9:54 am Finance Tagged with: Black Friday, Brexit, Castro, Clinton, debt relief, fake news, glut, media merger, payday, recount, swamp 5 Responses »

Fidel Castro and Che Guevara ca. 1957

• Cuban Revolutionary Fidel Castro Dies At 90 (AFP)

• Wisconsin Agrees To Statewide Recount In Presidential Race (R.)

• Bid To Challenge Brexit Gathers Pace Among Pro-Remain Politicians (G.)

• Houses Have Never Been More Expensive To Buyers Who Need A Mortgage (Hanson)

• Black Friday: The Death of Department Stores (WS)

• US Payday Lenders Seek Emergency Court Help Against Regulators (R.)

• When Money Dies (Bhandari)

• Here’s What Happened When Ancient Romans Tried To ‘Drain The Swamp’ (Black)

• Innovation Is Overvalued. Maintenance Matters More (Aeon)

• Australia Eases Limits On Foreign Buyers As Apartment Glut Looms (AFR)

• Australia Ceases Multimillion-Dollar Donations To Clinton Foundation (News)

• Australia Joins Norway, Cuts Clinton Foundation Donations To $0 (ZH)

• New Zealand Media Merger Risks Growth Of ‘Glib, Click-Bait’ Coverage (G.)

• Greek Debt Relief Plan Said to Entail $35 Billion Bank Bond Swap (BBG)

How many people remember it was the US that drove Castro into Russian arms? He visited the US shortly after becoming president. Eisenhower refused to talk. Everything after that is propaganda and fake news.

• Cuban Revolutionary Fidel Castro Dies At 90 (AFP)

Guerrilla revolutionary and communist idol, Fidel Castro was a holdout against history who turned tiny Cuba into a thorn in the paw of the mighty capitalist United States. The former Cuban president, who died aged 90 on Friday, said he would never retire from politics. But emergency intestinal surgery in July 2006 drove him to hand power to Raul Castro, who ended his brother’s antagonistic approach to Washington, shocking the world in December 2014 in announcing a rapprochement with US President Barack Obama. Famed for his rumpled olive fatigues, straggly beard and the cigars he reluctantly gave up for health reasons, Fidel Castro kept a tight clamp on dissent at home while defining himself abroad with his defiance of Washington.

In the end, he essentially won the political staring game, even if the Cuban people do continue to live in poverty and the once-touted revolution he led has lost its shine. As he renewed diplomatic ties, Obama acknowledged that decades of US sanctions had failed to bring down the regime – a drive designed to introduce democracy and foster western-style economic reforms – and it was time to try another way to help the Cuban people. A great survivor and a firebrand, if windy orator, Castro dodged all his enemies could throw at him in nearly half a century in power, including assassination plots, a US-backed invasion bid, and tough US economic sanctions.

Born August 13, 1926 to a prosperous Spanish immigrant landowner and a Cuban mother who was the family housekeeper, young Castro was a quick study and a baseball fanatic who dreamed of a golden future playing in the US big leagues. But his young man’s dreams evolved not in sports but politics. He went on to form the guerrilla opposition to the US-backed government of Fulgencio Batista, who seized power in a 1952 coup. That involvement netted the young Fidel Castro two years in jail, and he subsequently went into exile to sow the seeds of a revolt, launched in earnest on December 2, 1956 when he and his band of followers landed in southeastern Cuba on the ship Granma. Twenty-five months later, against great odds, they ousted Batista and Castro was named prime minister.

Once in undisputed power, Castro, a Jesuit-schooled lawyer, aligned himself with the Soviet Union. And the Cold War Eastern Bloc bankrolled his tropi-communism until the Soviet bloc’s own collapse in 1989. Fidel Castro held onto power as 11 US presidents took office and each after the other sought to pressure his regime over the decades following his 1959 revolution, which closed a long era of Washington’s dominance over Cuba dating to the 1898 Spanish-American War.

How much of the $5 million so far was furnished by Soros?

• Wisconsin Agrees To Statewide Recount In Presidential Race (R.)

Wisconsin’s election board agreed on Friday to conduct a statewide recount of votes cast in the presidential race, as requested by a Green Party candidate seeking similar reviews in two other states where Donald Trump scored narrow wins. The recount process, including an examination by hand of the nearly 3 million ballots tabulated in Wisconsin, is expected to begin late next week after Green Party candidate Jill Stein’s campaign has paid the required fee, the Elections Commission said. The state faces a Dec. 13 federal deadline to complete the recount, which may require canvassers in Wisconsin’s 72 counties to work evenings and weekends to finish the job in time, according to the commission. The recount fee has yet to be determined, the agency said in a statement on its website.

Stein said in a Facebook message on Friday that the sum was expected to run to about $1.1 million. She said she has raised at least $5 million from donors since launching her drive on Wednesday for recounts in Wisconsin, Michigan and Pennsylvania – three battleground states where Republican Trump edged out Democratic nominee Hillary Clinton by relatively thin margins. Stein has said her goal is to raise $7 million to cover all fees and legal costs. Her effort may have given a ray of hope to dispirited Clinton supporters, but the chance of overturning the overall result of the Nov. 8 election is considered very slim, even if all three states go along with the recount. The Green Party candidate, who garnered little more than 1 percent of the nationwide popular vote herself, said on Friday that she was seeking to verify the integrity of the U.S. voting system, not to undo Trump’s victory.

In the same way that life imitates art, UK and US imitate each other.

• Bid To Challenge Brexit Gathers Pace Among Pro-Remain Politicians (G.)

A series of informal but concerted efforts by pro-remain politicians to reshape or even derail the Brexit process is under way and gaining momentum, according to people involved. MPs from across the parties had discussed how to push the government into revealing its Brexit plans and to ensure continued single market access, sources said, as a series of senior political figures made public interventions suggesting the result of the EU referendum could be reversed. Tony Blair and John Major both suggested this week that the public should be allowed to vote on or even veto any deal for leaving the EU. However, those connected to efforts by serving pro-remain MPs say the former prime ministers’ views had little support in the Commons.

More significant, they argued, were strategy discussions involving MPs from all parties “caught between their own views and those expressed at the ballot box” in the referendum. “It’s a long process of gradually bringing people round to our way of thinking, on all sides,” said someone who works closely with pro-remain figures. “A lot of people are a bit unsure what to do – they’re caught between their own views and those expressed at the ballot box, often by their own constituents. “There’s a growing realisation that this is a long game. There’s actually very little information out there, and very little substance to get into. It’s hard to coalesce people around particular policy positions when the government has no policy to speak of. That’s quite a challenge.”

Major told a private dinner that there was a “perfectly credible case” for holding a second referendum on the terms of a Brexit deal. He said the views of the 48% of people who voted to remain should be taken into account and warned against the “tyranny of the majority”. Blair, in particular, is known to be sounding out opinion on Brexit as part of his re-emergence into political life. The former Labour prime minister’s office said he had discussed the issue with the former chancellor George Osborne, among “many people”.

Be careful out there.

• Houses Have Never Been More Expensive To Buyers Who Need A Mortgage (Hanson)

Houses have NEVER BEEN MORE EXPENSIVE to end-user, mortgage-needing shelter buyers. The recent rate surge crushed what little affordability remained in US housing. It now it requires 45% more income to buy the average-priced house than just four years ago, as incomes have not kept pace it goes without saying. The spike in rates has taken “UNAFFORDABILITY” to such extremes that prices, rates, and/or credit are now radically out of scope. At these interest rate levels house prices are simply not sustainable even in the lower-end price bands, which were far more stable than the middle-to-higher end bands (have been under significant pressure since spring). [..] The Data (note, for simplicity my models assume best-case 20% down and A-grade credit, which is the “minority” of lower-to-middle end buyers).

1) The average $361k builder house requires nearly $65k in income assuming a 4.5% rate, 20% down, and A-grade credit. Problem is, 20% + A-credit are hard to come by. For buyers with less down or worse credit, far more than $65k is needed. For the past 30-YEARS income required to buy the average priced house has remained relatively consistent, as mortgage rate credit manipulation made houses cheaper. Bottom line: Reversion to the mean will occur through house price declines, credit easing, a mortgage rate plunge to the high 2%’s, or a combination of all three. However, because rates are still historically low and mortgage guidelines historically easy, the path of least resistance is lower house prices.

2) The average $274k builder house requires nearly $53k in income assuming a 4.5% rate, 20% down, and A-grade credit. Problem is, 20% + A-credit are hard to come by. For buyers with less down or worse credit, far more than $53k is needed. For the past 30-YEARS income required to buy the average priced house has remained relatively consistent, as mortgage rate credit manipulation made houses cheaper. Bottom line: Reversion to the mean will occur through house price declines, credit easing, a mortgage rate plunge to the high 2%s, or a combination of all three. However, because rates are still historically low and mortgage guidelines historically easy, the path of least resistance is lower house prices.

3) Bonus Chart … Case-Shiller Coast-to-Coast Bubbles Bottom line: IT’S NEVER DIFFERENT THIS TIME. Easy/cheap/deep credit & liquidity has found its way to real estate yet again. Bubbles are bubbles are bubbles. And as these core housing markets hit a wall they will take the rest of the nation with them; bubbles and busts don’t happen in “isolation.”

What does this mean for the future of human interaction?

• Black Friday: The Death of Department Stores (WS)

There are still four weeks left to pull out the year. And hopes persists that this year will be decent. But online sales are hot, according to Adobe Digital Index, cited by Reuters. Online shoppers blew $1.15 billion on Thanksgiving Day, between midnight and 5 pm ET, according to Adobe Digital Index, up nearly 14% from a year ago. Sales by ecommerce retailers have been sizzling for years, growing consistently between 14% and 16% year-over-year and eating with voracious appetite the stale lunch of brick-and-mortar stores, particularly department stores. The lunch-eating process began in 2001. The chart below shows monthly department store sales, seasonally adjusted, since 1992. Note the surge in sales in the 1990s, driven by population growth, an improving economy, and inflation (retail sales are mercifully not adjusted for inflation). But sales began to flatten out in 1999. The spike in January 2001 (on a seasonally adjusted basis!) marked the end of the great American department store boom.

Even as the US fell into a recession in March 2001, ecommerce took off. But department store sales began their long decline, from nearly $20 billion in January 2001 to just $12.7 billion in October 2016, despite 14% population growth and 36% inflation! The decline of department stores is finding no respite during the holiday season. Not-seasonally-adjusted data spikes in October, November, and December. But these spikes have been shrinking, from their peak in December 2000 of $34.3 billion to $23.4 billion in December 2015, a 32% plunge, despite, once again, 14% population growth and 36% inflation!

In other words: the brick-and-mortar operations of department stores are becoming irrelevant. Ecommerce sales include all kinds of merchandise, not just the merchandise available in department stores. So it’s a broader measure. They have skyrocketed from $4.5 billion in Q4 1999 ($1.5 billion a month on average) to $101 billion in Q3 2016 ($33.7 billion a month on average).

From the “It’s Just Not Fair!” department.

• US Payday Lenders Seek Emergency Court Help Against Regulators (R.)

Payday lenders asked a federal judge in Washington, D.C., for emergency relief to stop what they called a coordinated effort by U.S. regulators to stop banks from doing business with them, threatening their survival. In Wednesday night filings, the Community Financial Services Association of America (CFSA) and payday lender Advance America, Cash Advance Centers Inc said a preliminary injunction was needed to end the “back-room campaign” of coercion by the Federal Reserve, the Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency. Advance America said its own situation became dire after five banks decided in the last month to cut ties, including a 14-year relationship with U.S. Bancorp, putting it “on the verge” of being unable even to hold a bank account.

Payday lenders make small short-term loans that can help tide over cash-strapped borrowers. But critics say fees can drive effective interest rates well into three digits, and trap borrowers into an endless debt cycle in which they use new payday loans to repay older loans. The CFSA said other payday lenders are also losing banking relationships as a result of “Operation Choke Point,” a 2013 Department of Justice initiative meant to block access to payment systems by companies deemed at greater risk of fraud. “Protecting consumers from credit fraud is, of course, a commendable goal,” Charles Cooper, a lawyer for the CFSA, wrote. “But the manner in which the defendant agencies have chosen to pursue that ostensible goal betrays that their true intent has always been to eradicate a disfavored industry.”

I don’t know to what extent Modi is the psychopath he’s made out to be here, but I do like the decentralization described (fits in with my end of centralization themes). “What a crazy idea it is to have a State monopoly on money..” [..] “In a tribalistic and irrational society, decentralization makes life much safer and makes the market more free, as complex decisions will be taken on the local level, where they belong”

• When Money Dies (Bhandari)

Most people — particularly the salaried middle class – still seem to have a favorable opinion of Mr. Modi. They have been indoctrinated – in India’s extremely irrational and superstitious society – to believe that this demonetization will somehow alleviate corruption and that anything but support of Modi’s actions is anti-national and unpatriotic. This gives me pause to reflect. What a crazy idea it is to have a State monopoly on money, particularly a money that carries no inherent value and depends on regulatory edicts. On a deeper level, it makes me reflect on why for the culture of India – which is tribalistic, nativistic, superstitious and irrational – “India” is actually an unnatural entity. Such a society should consist of hundreds of tribes and countries, which is what “India” was before the British consolidated it.

In a tribalistic and irrational society, decentralization makes life much safer and makes the market more free, as complex decisions will be taken on the local level, where they belong . India’s institutions – not just organizations, but larger socio-political beliefs – have begun to decay and crumble after the British left, losing their underlying essence, the reason for which they had been institutionalized in the first place. This degradation is now picking up pace. They must eventually fall apart – including the nation-state of India – to adjust to the underlying culture. Let us consider some of these institutions. Western education implanted in India has mutated. It is making individuals cogs in a big machine, all for the service of one great leader. Public education and the mass-media have become instruments of propaganda.

Complexity and the diversity of options that technology brings make an irrational thinker extremely confused, forcing him to seek sanity in ritualistic religion —hence the increase in religiosity in India and elsewhere in the region. This has happened despite the explosion in information technology. The concept of the nation-state, when it took hold in Europe, was about the values the emergent rational and enlightened societies of Europe shared and had collectively come to believe in, at least among their elites. In India, the idea of the nation-state has morphed into a valueless thread, which binds people together through nothing but a flag and an anthem, symbols completely devoid of any values. It has collectivized tribalistic and irrational people (an irrationality that is amply epitomized by the negative force Islam has become in the last two decades).

In India and many similarly constituted countries, institutions that are not natural to their culture – the nation state, education, monetary system, etc. must eventually face entropy, slowly at first, and then rapidly. India has now entered the rapid phase. The death of money – amid a lack of respect for property rights (which again are a purely European concept that emerged from the intellectual revolutions of the last 800 years) – has been sudden and will very likely be catastrophic. It is a man-made disaster of gargantuan proportions. It will fundamentally change India in a very negative way, particularly if the demonetization effort succeeds, as it will have created the foundations enabling the rapid emergence of a police state.

Yeah, expecting peaceful transitions is perhaps a bit much.

• Here’s What Happened When Ancient Romans Tried To ‘Drain The Swamp’ (Black)

In late January of the year 98 AD, after decades of turmoil, instability, inflation, and war, Romans welcomed a prominent solider named Trajan as their new Emperor. Prior to Trajan, Romans had suffered immeasurably, from the madness of Nero to the ruthless autocracy of Domitian, to the chaos of 68-69 AD when, in the span of twelve months, Rome saw four separate emperors. Trajan was welcome relief and was generally considered by his contemporaries to be among the finest emperors in Roman history. Trajan’s successors included Hadrian and Marcus Aurelius, both of whom were also were also reputed as highly effective rulers.

But that was pretty much the end of Rome’s good luck. The Roman Empire’s enlightened rulers may have been able to make some positive changes and delay the inevitable, but they could not prevent it. Rome still had far too many systemic problems. The cost of administering such a vast empire was simply too great. There were so many different layers of governments—imperial, provincial, local—and the upkeep was debilitating. Rome had also installed costly infrastructure and created expensive social welfare programs like the alimenta, which provided free grain to the poor. Not to mention, endless wars had taken their toll on public finances. Romans were no longer fighting conventional enemies like Carthage, and its famed General Hannibal bringing elephants across the Alps.

Instead, Rome’s greatest threat had become the Germanic barbarian tribes, peoples viewed as violent and uncivilized who would stop at nothing to destroy Roman way of life. Corruption and destructive bureaucracy were increasingly rampant. And the worse imperial finances became, the more the government tried to “fix” everything by passing debilitating regulation and debasing the currency. In his seminal work The History of the Decline and Fall of the Roman Empire, Edward Gibbon wrote: “The story of its ruin is simple and obvious; and instead of inquiring why the Roman empire was destroyed, we should rather be surprised that it had subsisted so long.”

Progress as a blind faith. “Critics wondered if Nixon was wise to point to modern appliances such as blenders and dishwashers as the emblems of American superiority.”

• Innovation Is Overvalued. Maintenance Matters More (Aeon)

Innovation is a dominant ideology of our era, embraced in America by Silicon Valley, Wall Street, and the Washington DC political elite. As the pursuit of innovation has inspired technologists and capitalists, it has also provoked critics who suspect that the peddlers of innovation radically overvalue innovation. What happens after innovation, they argue, is more important. Maintenance and repair, the building of infrastructures, the mundane labour that goes into sustaining functioning and efficient infrastructures, simply has more impact on people’s daily lives than the vast majority of technological innovations. The fates of nations on opposing sides of the Iron Curtain illustrate good reasons that led to the rise of innovation as a buzzword and organising concept.

Over the course of the 20th century, open societies that celebrated diversity, novelty, and progress performed better than closed societies that defended uniformity and order. In the late 1960s in the face of the Vietnam War, environmental degradation, the Kennedy and King assassinations, and other social and technological disappointments, it grew more difficult for many to have faith in moral and social progress. To take the place of progress, ‘innovation’, a smaller, and morally neutral, concept arose. Innovation provided a way to celebrate the accomplishments of a high-tech age without expecting too much from them in the way of moral and social improvement.

Before the dreams of the New Left had been dashed by massacres at My Lai and Altamont, economists had already turned to technology to explain the economic growth and high standards of living in capitalist democracies. Beginning in the late 1950s, the prominent economists Robert Solow and Kenneth Arrow found that traditional explanations – changes in education and capital, for example – could not account for significant portions of growth. They hypothesised that technological change was the hidden X factor. Their finding fit hand-in-glove with all of the technical marvels that had come out of the Second World War, the Cold War, the post-Sputnik craze for science and technology, and the post-war vision of a material abundance.

Robert Gordon’s important new book, The Rise and Fall of American Growth, offers the most comprehensive history of this golden age in the US economy. As Gordon explains, between 1870 and 1940, the United States experienced an unprecedented – and probably unrepeatable – period of economic growth. That century saw a host of new technologies and new industries produced, including the electrical, chemical, telephone, automobile, radio, television, petroleum, gas and electronics. Demand for a wealth of new home equipment and kitchen appliances, that typically made life easier and more bearable, drove the growth. After the Second World War, Americans treated new consumer technologies as proxies for societal progress – most famously, in the ‘Kitchen Debate’ of 1959 between the US vice-president Richard Nixon and the Soviet premier Nikita Kruschev. Critics wondered if Nixon was wise to point to modern appliances such as blenders and dishwashers as the emblems of American superiority.

Just wow. No lessons learned from Vancouver, keep digging while in that hole.

• Australia Eases Limits On Foreign Buyers As Apartment Glut Looms (AFR)

The federal government has announced it will make it easier for foreigners to buy new apartments amid concerns of a looming glut that will drive down prices. Treasurer Scott Morrison said the government will make changes to the foreign investment framework to allow foreign buyers to buy an off-the-plan dwelling that another foreign buyer has failed to settle as a new dwelling. Previously, on-sale of a purchased off the plan apartment was regarded as a second hand sale, which is not open to foreign buyers. Foreign buyers can only buy new dwellings. The move effectively opens up the pool of buyers who can soak a potential flood of apartments hitting the residential markets due to failed settlements.

“This change addresses industry concerns, and means property developers won’t be left in the lurch when a foreign buyer pulls out of an off-the-plan purchase,” Mr Morrison said in an announcement. “It is common sense that an apartment or house that has just been built, or is still under construction and for which the title has never changed hands, is not considered an established dwelling.” The policy change comes after Mirvac said it experienced a rise in the default rate for the settlement of off-the-plan residential sales, above its historic average of 1%. The changes will apply immediately and regulation change will be made soon to enable developers to acquire “New Dwelling Exemption Certificates” for foreign buyers of these recycled off-the-plan homes.

On top of defaults, the Australian apartment markets – which boomed in the last four years – are facing other fresh risks. On Friday, HSBC said an oversupply of apartments in Melbourne and Brisbane could send unit prices down by as much as 6% in 2017. The apartment building boom, an ongoing concern for the Reserve Bank of Australia, especially in inner city Melbourne is likely to “start showing through” in price drops of between 2% and 6% in that city next year, HSBC chief economist Paul Bloxham said in a note. It’s a similar story in Brisbane where apartment prices are forecast to fall by as much as 4%. “A national apartment building boom, which has been part of the rebalancing act, is likely to deliver some oversupply in the Melbourne and Brisbane apartment markets, which is expected to see apartment price falls in these markets,” Mr Bloxham said.

No play no pay.

• Australia Ceases Multimillion-Dollar Donations To Clinton Foundation (News)

The Clinton Foundation has a rocky past. It was described as “a slush fund”, is still at the centre of an FBI investigation and was revealed to have spent more than $50 million on travel. Despite that, the official website for the charity shows contributions from both AUSAID and the Commonwealth of Australia, each worth between $10 million and $25 million. News.com.au approached the Department of Foreign Affairs and Trade for comment about how much was donated and why the Clinton Foundation was chosen as a recipient. A DFAT spokeswoman said all funding is used “solely for agreed development projects” and Clinton charities have “a proven track record” in helping developing countries. Australia jumping ship is part of a post-US election trend away from the former Secretary of State and presidential candidate’s fundraising ventures.

Norway, one of the Clinton Foundation’s most prolific donors, is reducing its contribution from $20 million annually to almost a quarter of that, Observer reported. One reason for the drop-off could be increased scrutiny on international donors. The International Business Times reported in 2015 on curious links between donors and State Department approval. IBT wrote that the State Department approved massive commercial arms sales for countries which had donated to the Clinton charity. More than $165 billion worth of arms sales were approved by the State Department to 20 nations whose governments gave money to the Clinton Foundation, data shows. The countries buying weapons from the US were the same countries previously condemned for human rights abuses. They included Algeria, Saudi Arabia and Kuwait.

But what does Australia gain from topping up the Clinton coffers? The Australian reported in February that Australia was “the single biggest foreign government source of funds for the Clinton Foundation” but questions remain unanswered about the agreement between the two parties. “It’s not clear why Canberra had to go through an American foundation to deliver aid to Asian countries (including Indonesia, Papua New Guinea and Vietnam). There is now every chance the payments will become embroiled in presidential politics.” The Daily Telegraph wrote in October that “Lo and behold, (Julia Gillard) became chairman (of the Clinton-affiliated Global Partnership for Education) in 2014”, one year after being defeated in a leadership ballot by Kevin Rudd.

“After contributing $88mm to the Clinton Foundation over the past 10 years, making them one of the Foundation’s largest contributors, Australia has decided to pull all future donations.

But why would they stop funding now that Hillary has so much more free time to focus on her charity work?”

• Australia Joins Norway, Cuts Clinton Foundation Donations To $0 (ZH)

For months we’ve been told that the Clinton Foundation, and it’s various subsidiaries, were simple, innocent “charitable” organizations, despite the mountain of WikiLeaks evidence suggesting rampant pay-to-play scandals surrounding a uranium deal with Russia and earthquake recovery efforts in Haiti, among others. Well, if that is, in fact, true perhaps the Clintons could explain why wealthy foreign governments, like Australia and Norway, are suddenly slashing their contributions just as Hillary’s schedule has been freed up to focus exclusively on her charity work. Surely, these foreign governments weren’t just contributing to the Clinton Foundation in hopes of currying favor with the future President of the United States, were they? Can’t be, only an useless, “alt-right,” Putin-progranda-pushing, fake news source could possibly draw such a conclusion.

Alas, no matter the cause, according to news.com.au, the fact is that after contributing $88mm to the Clinton Foundation, and its various affiliates, over the past 10 years the country of Australia has decided to cease future donations to the foundation just weeks after Hillary’s stunning loss on November 4th. And just like that, 2 out of the 3 largest foreign contributors to the Clinton Foundation are gone with Saudia Arabia being the last remaining $10-$25mm donor that hasn’t explicitly cut ties or massively scaled by contributions. [..]
News.com.au confirmed Australia’s decision to cut future donations to the Clinton Foundation earlier today. When asked why donations were being cut off now, a Department of Foreign Affairs and Trade official simply said that the Clinton Foundation has “a proven track record” in helping developing countries. While that sounds nice, doesn’t it seem counterintuitive that these countries would pull their funding just as Hillary has been freed up to spend 100% of her time helping people in developing countries?

“Australia has finally ceased pouring millions of dollars into accounts linked to Hillary Clinton’s charities. Which begs the question: Why were we donating to them in the first place? The federal government confirmed to news.com.au it has not renewed any of its partnerships with the scandal-plagued Clinton Foundation, effectively ending 10 years of taxpayer-funded contributions worth more than $88 million. News.com.au approached the Department of Foreign Affairs and Trade for comment about how much was donated and why the Clinton Foundation was chosen as a recipient. A DFAT spokeswoman said all funding is used “solely for agreed development projects” and Clinton charities have “a proven track record” in helping developing countries.”

Fake News Inc.

• New Zealand Media Merger Risks Growth Of ‘Glib, Click-Bait’ Coverage (G.)

A group of distinguished former newspaper editors has launched a scathing attack on plans for New Zealand’s largest print media companies to merge, calling it a threat to democracy which could see a concentration of power exceeded “only in China”. The merger of NZME and Fairfax Media, which was proposed in May, would not be healthy in a country that “already suffers from a dearth of serious content and analysis”, the editors say in a submission to the commerce commission. The group, which includes Suzanne Chetwin, former Dominion chief Richard Long and ex-New Zealand Herald editor Gavin Ellis, also criticise the trend towards “click-bait stories” at a time when television has “all but abandoned current affairs and our public discourse is increasingly glib”.

“The merger would see one organisation controlling nearly 90% of the country’s print media market (and associated websites), the greatest level of concentration in the OECD and one that is exceeded only by China. “That cannot be healthy, particularly in a society like New Zealand’s that has so few checks and balances in its constitutional arrangements.” The submission went on to state the greatest threat to New Zealand media came from off-shore publishers who had “no feel for New Zealand’s social fabric”, and urged the commerce commission to decline the merger. The merger was sold as an attempt by both companies to stem revenue losses and drastic staff and budget cuts, particularly to rural and regional newsrooms.

Dunedin’s The Otago Daily Times would be the only newspaper in the country to remain independent, although it too could be affected as they have content sharing agreements with NZME’s The New Zealand Herald. Radio stations and magazines owned by both companies would also be affected.

That’s not debt relief, it’s Schauble-friendly creative accounting.

• Greek Debt Relief Plan Said to Entail $35 Billion Bank Bond Swap (BBG)

Greece’s battered banks are being asked to swap about 33 billion ($35 billion) euros in floating-rate bonds for 30-year, fixed-rate securities under a euro-area plan to shield Athens from future interest rate increases, three people with knowledge of the matter said. The swap is part of a package of debt-relief proposals for Greece to be presented at a Dec. 5 meeting of euro-area finance ministers, according to the people, who asked not to be named because they weren’t authorized to speak publicly about the matter. The notes were issued by the European Financial Stability Facility, the region’s crisis-fighting fund, to re-capitalize Greek lenders in 2013.

While the current EFSF holdings of Greek banks fall due between 2034 and 2046, the fixed-rate notes will expire in 2047, the people said. That will reduce Greece’s interest rate risk, but it may come at a cost for its four systemically important lenders, which could be left with securities that are more difficult to trade. The technical aspects of the operation are still being hashed out. “There are discussions going on as to proposals which will improve the sustainability of the Greek debt,” Piraeus Bank Chairman George Handjinicolaou said in an interview Thursday. “Part of this proposal is a change in the EFSF bonds for something else, some form of fixed-rate debt, which would improve the predictability of the sustainability of the Greek debt profile.”

Debt Rattle October 24 2016

Oct 242016

October 24, 2016 Posted by Raúl Ilargi Meijer at 9:09 am Finance Tagged with: Assange, deglobalization, exports, Japan, lobbying, swamp, tax perks, Trump, Wikileaks Comments Off

Dorothea Lange Arkansas flood refugee family near Memphis, Texas 1937

• Japan Exports Fall 6.9% YoY, Imports Plunge 16.3% (BBG)

• China: Soon The Most Visible Victim of Deglobalization (AJ)

• China Continues To Buy Up The World (BBG)

• German Momentum Grows for Curbs on Chinese Overseas Investment (BBG)

• Chinese Money Flowing to Hong Kong Stocks Has Suddenly Dried Up (BBG)

• Europe’s Incredibly Safe Banks (BBG)

• Unaffordable Australian Housing ‘in Government Sights’ (BBG)

• What Is “Impossible” And What Is Inevitable (CH Smith)

• Watergate’s Bob Woodward: “Clinton Foundation Is Corrupt, It’s A Scandal” (ZH)

• It’s Time To Drain The Swamp: Five-Point Plan For Ethics Reform (Trump)

• Trump is America: The Poetic Justice Of The World (Dabashi)

• Saudi, Allies ‘Deliberately Targeting Yemen’s Food Industry’, Bomb Cows (Fisk)

• NATO Continues To Prepare For War With Russia (Korzun)

• Juncker To Face No Confidence Vote In EU Parliament (Exp.)

• Wikileaks Status Update on Julian Assange and the US Election (ZH)

WHAT? “Today’s report confirmed that exports are on the rebound,” said Masaki Kuwahara, senior economist at Nomura.”

• Japan Exports Fall 6.9% YoY, Imports Plunge 16.3% (BBG)

Japanese exports fell for a 12th consecutive month in September, rounding out a rough year for manufacturers struggling with a stronger yen and soft global demand. Yet the numbers were better than expected, and export volumes rose last month by the most in nearly two years, prompting some upbeat assessments by economists. “Today’s report confirmed that exports are on the rebound,” said Masaki Kuwahara, senior economist at Nomura. “Manufacturing activities are picking up globally, especially in Asian nations. That bodes well for Japanese exports.” Overseas shipments dropped 6.9% in September from a year earlier, the Ministry of Finance said on Monday. Imports fell 16.3% during the same period, resulting in a trade surplus of 498.3 billion yen ($4.8 billion).

Prime Minister Shinzo Abe has gotten little help from exports recently as he tries to revive Japan’s economy. Net shipments abroad shaved 0.3 percentage point off GDP growth in the second quarter. The yen has gained 16% since the start of the year, and soft global demand has made matters worse. This environment has made companies more reluctant to invest in domestic production, compounding the difficulty of creating economic growth. [..] Exports to the U.S. fell 8.7% from a year earlier. Those to the EU rose 0.7%. Exports to China, Japan’s largest trading partner, dropped 10.6%.

“..trade and investment peaked in 2007-2008. Since then international trade has declined by roughly half a%. Foreign direct investment, or FDI, has fallen by half. That is not half a percent. That is half.”

• China: Soon The Most Visible Victim of Deglobalization (AJ)

Global exports as a percentage of global GDP hit an all-time high of 30.8% in 2008. They fell precipitously during the global financial crisis of 2008-2009 and have since stabilised at just under 30%. These figures cap off a remarkable quarter-century of global export growth that began back in 1973. In that period global GDP roughly doubled, but global export volumes grew by a factor of 5.6 (based on inflation-adjusted data from the World Bank). China played a leading role in that story, but it was the rise in international trade that pulled the Chinese economy along, not the other way around. China rode the coat-tails of a quarter-century of globalisation.

Most people think of globalisation as a process that began in the 1990s with the collapse of the Soviet Union in 1991 and the foundation of the World Trade Organization in 1995. But the roots of today’s global economy really go back to 1973, when the United States went off the gold standard and most countries moved from fixed to floating exchange rates. Floating exchange rates meant that the era of managed trade was over. The global economy moved into a new phase driven by market forces. The oil exporting countries of the Gulf were the first to benefit as the market price for oil quadrupled between 1973 and 1974. China came to the party just a few years later.

Since then the global economy has become more and more open. After the currency liberalisation of 1973 came a huge increase in international trade and then, in the 1990s, in foreign investment. Both trade and investment peaked in 2007-2008. Since then international trade has declined by roughly half a%. Foreign direct investment, or FDI, has fallen by half. That is not half a percent. That is half. Annual global FDI is down roughly 50% from its 2007 peak of just over $3 trillion. It’s still much larger than it was in the 1990s or earlier decades, but global FDI has stabilised at roughly the levels of the early 2000s. Unlike global FDI, foreign investment into China hasn’t fallen in absolute terms. But it too has stabilised and is no longer rising.

The flipside of deglobalization. Monopoly money.

• China Continues To Buy Up The World (BBG)

When a Chinese home-appliance company announced a plan in May to become the largest shareholder in one of Germany’s most advanced robot manufacturers, the backlash was immediate. German politicians and European officials denounced Midea’s offer for Frankfurt-listed Kuka, whose robotic arms assemble Airbus jets and Audi sedans. In a rare public appeal for alternative acquirers, Germany’s economy minister argued that Kuka’s automation technology needed to stay out of Chinese hands. And yet in two months, Midea pulled it off. Thanks to a combination of political courtship, guarantees on jobs and security, and support from influential customers like Daimler CEO Dieter Zetsche, Midea overcame knee-jerk opposition to the deal. By July the appliance maker had secured an 86% stake, valuing Kuka at €4.6 billion.

The experience showed how some Chinese firms are learning to soothe misgivings about the country’s record $207 billion overseas buying spree. While Sinophobia isn’t yet a thing of the past and practices among Chinese buyers vary widely, merger-and-acquisition professionals say a new generation of savvy dealmakers is starting to emerge from the world’s second-largest economy. “Many Chinese companies have become much more adept at navigating international deals in the last few years, and at soothing the concerns stakeholders might have,” said Nicola Mayo, a partner at London law firm Linklaters LLP who specializes in China-Europe transactions. “In many of the larger Chinese companies, you’re dealing with managers who were educated abroad or have worked in international firms. They understand the concerns about China and know they need to move carefully.”

What China’s been buying

And here’s the backlash..

• German Momentum Grows for Curbs on Chinese Overseas Investment (BBG)

Germany is seeking tighter control over foreign investment in European companies, in a sign of a growing protectionist reaction to China’s appetite for overseas acquisitions. Spurred by the purchase of German robot maker Kuka by China’s Midea, Chancellor Angela Merkel’s deputy, Sigmar Gabriel, is calling for EU measures to give national governments expanded powers to block or impose conditions on shareholdings of non-EU companies. He’s found an ally in EU Digital Economy Commissioner Guenther Oettinger, a German who’s a member of Merkel’s party. “It’s absolutely right to initiate this debate at the European level,” Oettinger said in an interview last week. “Everybody has to play by the same rules. Clearly, there are many countries, including big ones such as China, that make market access or corporate takeovers difficult or effectively impossible.”

While Merkel hasn’t publicly backed her vice chancellor’s push, Gabriel’s proposal reflects growing resistance within her government to unfettered Chinese investment in Europe’s biggest economy. In the latest potential Chinese bid, lighting maker Sanan Optoelectronics said it had held talks with Osram Licht on a possible acquisition of the almost century-old German company. The initiative by Gabriel, who also is Germany’s economy minister, calls for allowing EU member states to step in if a non-EU investor seeks to acquire more than 25% of the voting rights in a company [..] Chinese companies have announced or completed acquisitions of German companies worth a record $12.3 billion this year, almost eight times the level of 2015. That includes the purchase of Kuka by Midea, China’s biggest appliance maker, after Gabriel led a failed effort to find an alternative bid by a European suitor.

“Investors in Shanghai spent more than $8 billion on Hong Kong shares in September [..] Net buying this month through last week was just 7% of that amount..”

• Chinese Money Flowing to Hong Kong Stocks Has Suddenly Dried Up (BBG)

Hong Kong’s stock market is suffering from a post-holiday hangover. The flood of Chinese money into the city before the mainland’s National Day celebrations in early October has slowed to a trickle since traders returned from the week-long break. Investors in Shanghai spent more than $8 billion on Hong Kong shares in September, the biggest monthly inflow via the exchange link since it began in 2014. Net buying this month through last week was just 7% of that amount, data compiled by Bloomberg show. The narrowing valuation discount on the city’s dual-listed shares and concern about the Federal Reserve’s impending rate increase may have spurred mainland investors to turn off the taps, according to Hong Kong analysts, who also say they’re perplexed at the speed of the shift.

The change is a headwind for equities after the influx of Chinese money helped drive the Hang Seng Index up 12% last quarter for its best such gain in seven years. “It’s a bit of a mystery as to why this is happening,” said Mohammed Apabhai, head of Asia trading strategy at Citigroup. “Nobody has put forward a convincing explanation about exactly why the southbound flow has dried up and whether it’s a temporary phenomenon. That has removed one of the supports from the Hong Kong equity market.” China International Capital cut its rating on Hong Kong-listed mainland banks last week, citing the dwindling inflows. Trades from Shanghai made up as much as 17% of the total turnover in Hong Kong at one point last month, the highest on record. That ratio dropped to less than 7% on Oct. 20.

I have an ominous feeling about this.

• Europe’s Incredibly Safe Banks (BBG)

Given the parlous state of Europe’s economy, it’s hard to imagine that the investments of the region’s banks are among the safest in the world. Yet that is precisely what they would have regulators and investors believe. The banks’ safety has come into the spotlight as European officials – including German Finance Minister Wolfgang Schaeuble and European Commission financial-services chief Valdis Dombrovskis – battle with global regulators over requirements for capital, the layer of loss-absorbing financing that prevents bad investments from turning into system-wide disasters. The dispute involves risk-weighting, a process in which the largest and most sophisticated banks assess the riskiness of their assets to figure out how much capital they need.

A loan to a struggling company might require a lot, safe government bonds none at all. Less capital means more leverage, which in good times boosts measures of profitability such as return on equity. Hence, banks have an incentive to make their assets look as safe as possible. Europe’s banks have excelled in this minimizing endeavor. On average for eight of the euro area’s most systemically important institutions, risk-weighted assets amounted to just 31% of total unweighted assets at the end of June – as if about seven out of every 10 euros in investments were risk-free. For Germany’s Deutsche Bank, among the world’s most thinly capitalized, the ratio was just 22%. That compares with averages of 35% and 45% for the largest U.K. and U.S. banks, respectively. Here’s how that looks:

To be sure, lower risk weights could mean that Europe’s banks actually do have safer assets. There’s plenty of evidence, though, to suggest this isn’t the case. The IMF estimates that banks in the euro area are sitting on more than $1 trillion in bad loans. Also, markets place a much lower value on each euro of European banks’ book assets than they do on each dollar of U.S. banks’.

This from a government that relies on soaring housing prices to make its economy appear viable. Australia’s problem is not the extravagant tax perks, or ultra low rates, or Chinese monopoly money pouring in. No, all that’s fine, and all that needs to be done is build build build.

• Unaffordable Australian Housing ‘in Government Sights’ (BBG)

Australian states need to remove or simplify residential land planning regulations that have made homes “increasingly unaffordable” in the nation’s biggest cities, Treasurer Scott Morrison said. Insufficient land releases and complex development regulations must be addressed, Morrison said in the text of a speech being given in Sydney Monday. He’ll use a December meeting with his state counterparts to urge a freeing up of housing supply, an issue which will be a key focus of Prime Minister Malcolm Turnbull’s government, he said. “Of all the determinants of house prices in Australia, whether cyclical or structural, the most important factor behind rising prices has been the long running impediments to the supply side of the market,” Morrison said.

While a three-year surge in Australian home prices paused at the end of last year after banks raised mortgage rates, the market has taken off again as a growing population tries to squeeze into too few properties. Dwelling values in Sydney, which have almost doubled since the end of 2008, are up 14% this year through September, compared with a 9% gain across the nation’s other major cities, according to CoreLogic. The recent rise defies an assessment by real-estate listing firm Domain last year that the boom was over, and is posing a potential headache for new central bank Governor Philip Lowe, who said this month that that fewer properties were changing hands and “some markets have strengthened recently.” Housing in Australia’s three biggest cities – Sydney, Melbourne and Brisbane – “is expensive and increasingly unaffordable,” Morrison said.

Other factors contributing to supply-side constraints are the cost and availability of infrastructure, transaction taxes and negative public attitudes toward urban development, he said. Still, Morrison is again ruling out his government stripping back some of the tax perks for landlords and property investors, known as negative gearing, which the Labor opposition blames for inflating house prices. “The key to addressing housing affordability is not to crash the housing market,” Morrison said. “Rather the objective is to have policies that mitigate the artificial inflation of asset prices, ensure that supply is not restricted from responding to genuine demand and that enable home-buyers, through their own efforts, to make more rapid progress to being able to enter the market.’’

“..the S-curve of “growth” can continue expanding even as the foundation weakens. As the foundations of real growth weaken – productivity, collateral, social mobility, etc. – the system becomes increasingly fragile and brittle.”

• What Is “Impossible” And What Is Inevitable (CH Smith)

We are about to start a painful learning process about what is “impossible” and what is inevitable. Two charts illustrate Why Our Status Quo Failed and Is Beyond Reform: this chart of the S-Curve of financialization, leverage, debt, central planning, regulatory capture and globalization – that is, the engines of modern “growth” – depicts the inevitable stagnation and decline of these dynamics as overcapacity, debt saturation and diminishing returns take hold. This chart illustrates the status quo’s insistence on doing more of what has failed spectacularly: since all this worked in the boost phase, the central planning Cargo Cult’s “leadership” is convinced it will all work magically again, if only we do more of it. Alas, this is magical thinking. One might as well paint radio dials on rocks and expect the rock to magically turn into a functioning radio.

The chart of the Seneca Cliff illustrates how the S-curve of “growth” can continue expanding even as the foundation weakens. As the foundations of real growth weaken – productivity, collateral, social mobility, etc. – the system become increasingly fragile and brittle. But this fragility is masked by the appearance of stability until a crisis cracks it wide open. Normalcy crumbles into instability, and people and systems accustomed to stable supply chains and political stability struggle to maintain their grip on income streams and resources as abundance slips into scarcity and dependence on central planning becomes a liability of learned helplessness.

The S-curve:

The Seneca Cliff:

There are two sets of solutions as stability and financialized “growth” slide into instability and DeGrowth. 1. Acquire skills that will be increasingly scarce and a network of collaborators, customers and suppliers who value/make use of these skills. 2. Create a new mode of production that doesn’t rely on central banks, states and global finance to function: in effect, a decentralized, localized networked system that exists in parallel with the centralized hierarchies of the current mode of production which is centralized, industrialized, globalized, financialized, neofeudal, neoliberal, neocolonial, and dependent on ever-expanding leverage, debt, central planning, regulatory capture and fossil fuel consumption.

Here’s the theme I wrote about in yesterday’s “Ungovernability”: “I think the issue is, what’s going to be the aftermath of this campaign. Can somebody govern…?”

• Watergate’s Bob Woodward: “Clinton Foundation Is Corrupt, It’s A Scandal” (ZH)

CHRIS WALLACE, FOX NEWS SUNDAY: Then there are the allegations about the Clinton Foundation and pay to play, which I asked Secretary Clinton about in the debate, and she turned into an attack on the Trump Foundation. But, Bob, I want to go back to the conversation I was having with Robby Mook before. When – when you see what seems to be clear evidence that Clinton Foundation donors were being treated differently than non-donors in terms of access, when you see this new – new revelations about the $12 million deal between Hillary Clinton, the foundation, and the king of Morocco, are voters right to be troubled by this?

BOB WOODWARD, THE WASHINGTON POST: I – yes, it’s a – it’s corrupt. It’s – it’s a scandal. And she didn’t answer your question at all. And she turned to embrace the good work that the Clinton Foundation has done. And she has a case there. But the mixing of speech fees, the Clinton Foundation, and actions by the State Department, which she ran, are all intertwined and it’s corrupt. You know, I mean, you can’t just say it’s unsavory. But there’s no formal investigation going on now, and there are outs that they have. But the election isn’t going to be decided on that. I mean Karl was making the point about this, I’m not going to observe the result of the election. I mean that’s – that’s absurd. I mean it has no consequence. If Trump loses, they’re not going to let him in the White House. He’s not going to have a transition team. And – and to focus on that, I think, is wrong. I think the issue is, what’s going to be the aftermath of this campaign. Can somebody govern…?

Call him as crazy as you wish, but he does make a lot of sense here.

• It’s Time To Drain The Swamp: Five-Point Plan For Ethics Reform (Trump)

I’m proposing a package of ethics reforms to make our government honest once again.

First: I am going to re-institute a 5-year ban on all executive branch officials lobbying the government for 5 years after they leave government service. I am going to ask Congress to pass this ban into law so that it cannot be lifted by executive order.

Second: I am going to ask Congress to institute its own 5-year ban on lobbying by former members of Congress and their staffs.

Third: I am going to expand the definition of lobbyist so we close all the loopholes that former government officials use by labeling themselves consultants and advisors when we all know they are lobbyists.

Fourth: I am going to issue a lifetime ban against senior executive branch officials lobbying on behalf of a foreign government.

Fifth: I am going to ask Congress to pass a campaign finance reform that prevents registered foreign lobbyists from raising money in American elections.

Prof. Dabashi revels in comparing Trump to Hitler, a weird thing to do for any intellectual, and absolute nonsense. But he’s right in many other aspects.

• Trump is America: The Poetic Justice Of The World (Dabashi)

Hours before the scheduled third and final debate between Donald Trump and Hillary Clinton in Las Vegas, The New York Times published an article in which it argued that the Republican presidential nominee in effect has no foreign policy beyond using and abusing global issues to elicit gut fears and hostile fantasies of his domestic followers, that foreign policy has in effect become a matter of domestic fear-mongering. The piece could not have been more timely and poignant – but not in the sense that The New York Times intended it further to discredit the liberal bete noire of this election. In a sense far more serious and accurate. For the World at large, Trump is America and America is Trump. What has now become domestic politics to the US has been its foreign policy for a much longer history.

There are decent Americans who insist Trump is “the worst of America”. But for the world at large and at the receiving end of American military might, Trump is the very quintessence of America because Trump is what America does to the world, and now it has come dangerously close to do unto itself what it has habitually done unto others. Liberal America is now scared that Trump will do to America what America has done to the world. It was just “foreign policy” when America set up lunatic puppet dictators just like Trump to torture, maim, and murder their own people around the globe to protect its “national security interest”. It was just something “Daddy” did at work. When he came home he was all good, kind, and cuddly – just like Obama.

Now the Daddy is about to become a nasty, vicious, domestic abuser – like Trump. Trump is the poetic justice of the world. So long as America was only doing to the world at large what America now fears Trump may do to America, there was no outcry. There was consensus. The world deserved what America did to the world. Now liberal America is up in arms to disown, to exorcise, to dispel this demonic spirit from itself and put it back in a bottle and hand it over to Hillary Clinton so she can continue the habitual exercise of doing it to the world and be a nice, lovely-looking grandma at home, as Ronald Reagan was its grandpa before her.

Hamid Dabashi is the Hagop Kevorkian Professor of Iranian Studies and Comparative Literature at Columbia University.

“..the Saudis have included in their bombing targets cows..”

• Saudi, Allies ‘Deliberately Targeting Yemen’s Food Industry’, Bomb Cows (Fisk)

The Yemen war uniquely combines tragedy, hypocrisy and farce. First come the casualties: around 10,000, almost 4,000 of them civilians. Then come those anonymous British and American advisers who seem quite content to go on “helping” the Saudi onslaughts on funerals, markets and other obviously (to the Brits, I suppose) military targets. Then come the Saudi costs: more than $250m (£200m) a month, according to Standard Chartered Bank – and this for a country that cannot pay its debts to construction companies. But now comes the dark comedy bit: the Saudis have included in their bombing targets cows, farms and sorghum – which can be used for bread or animal fodder – as well as numerous agricultural facilities.

In fact, there is substantial evidence emerging that the Saudis and their “coalition” allies – and, I suppose, those horrid British “advisers” – are deliberately targeting Yemen’s tiny agricultural sector in a campaign which, if successful, would lead a post-war Yemeni nation not just into starvation but total reliance on food imports for survival. Much of this would no doubt come from the Gulf states which are currently bombing the poor country to bits. The fact that Yemen has long been part of Saudi Arabia’s proxy war against Shiites and especially Iran – which has been accused, without evidence, of furnishing weapons to the Shia Houthi in Yemen – is now meekly accepted as part of the Middle East’s current sectarian “narrative” (like the “good” rebels in eastern Aleppo and the “very bad” rebels in Mosul). So, alas, have the outrageous bombings of civilians. But agricultural targets are something altogether different.

A NATO Schengen zone means foreign soldiers can move into any country the command wishes. If that’s not a recipe for disaster, I don’t know what is. Imagine deplying Turkish troops in Greece, or Polish in Britain, French in Germany.

• NATO Continues To Prepare For War With Russia (Korzun)

NATO uses any pretext to accuse Russia of harboring aggressive intentions. It has raised ballyhoo over the recent deployment of Iskander short-range surface-to-surface ballistic missiles to the Kaliningrad region. Time and time again, the alliance reaffirms its bogus Russia narrative. “We see more assertive and stronger Russia that is willing to use force,” concluded NATO General Secretary Jens Stoltenberg speaking at the round table in Passau, Bavaria on October 10. At the same time, NATO is pushing ahead with its military “Schengen zone” in Europe. “We are working to ensure that each individual soldier will not require a decision at the political level to cross the border,” said Estonian Defense Minister Hannes Hanso.

The idea is to do away with travel restrictions on the movement of NATO forces troops and equipment across Europe. There will be no need to ask for permissions to move forces across national borders. It will undermine the sovereignty of member states but facilitate the cross-continent operations instead. The Baltic States and Poland are especially active in promoting the plan. The restrictions in place hinder rapid movement of the 5,000 strong “Very High Readiness Joint Task Force”. Besides being the first response tool, it could be used for preventing Article 4 situations, such as subterfuge, civil unrest or border infractions, from escalating into armed conflict. The troops can move freely in time of war, but introducing a NATO Schengen zone is needed for concentrating forces in forward areas in preparation for an attack across the Russian border.

The formation of the much larger 40 thousand strong NATO Response Force (NRF) is on the way. Meanwhile, the US and Norwegian militaries are discussing the possibility of deploying US troops in Norway – a country which has a 200 km long common border with Russia. The deployment of US servicemen would be part of a rotating arrangement in the country that would fulfil a “long-standing US wish.” Norwegian newspaper Adresseavisen reported on October 10 that 300 combat US Marines could soon be in place at the Værnes military base near Trondheim, about 1,000 kilometres from the Russian-Norwegian frontier. The air station also serves as part of Marine Corps Prepositioning Program-Norway, a program that allows the Corps to store thousands of vehicles and other major pieces of equipment in temperature-controlled caves ready for combat contingency.

Several defence sources told the newspaper that the plans to put US troops at the military base have been underway for some time. According to Military.com, the information that the plans are underway was also confirmed by American Maj. Gen. Niel E. Nelson, the commander of Marine Corps Forces Europe and Africa. 300 Marines can be easily reinforced. The only purpose for the deployment is preparation for an attack against Russia. After all, the Marines Corps is the first strike force. And it’s not Russian Marines being deployed near US national borders, but US Marines deployed in the proximity of Russian borders. The provocative move is taking place at the time the Russia-NATO relationship is at the lowest ebb.

Not sure how serious to take this, but it’s plenty entertaining. Just look at the woman who’s after Juncker. She’s would scare me too. Already does.

• Juncker To Face No Confidence Vote In EU Parliament (Exp.)

Lifelong anti-corruption campaigner Eva Joly has launched a bid to boot out the controversial EU president in yet another blow to his crumbling authority. The French magistrate and politician, who was born in Norway, blasted the eurocrat’s past as president of Luxembourg and vowed to lead an MEPs’ rebellion to “make him fall”. Ms Joly has accused Brussels’ top unelected official of favouring certain multinational corporations for “sweetheart” tax deals when he was head of the tiny European state. Mr Juncker has denied being corrupt, claiming that any decisions related to the tax arrangements of large companies during his time in office were “strictly a matter for the tax administration”. But the damaging row has seriously dented his already battered reputation and has added to the growing calls from across the continent for him to quit.

And Ms Joly, from the Green party, said the escalating scandal could finally finish off the “considerably weakened” Teflon bureaucrat. She said: “Everyone knows that this system was built while he was prime minister. It is a scandal that he leads the Commission. We, the Greens, we do not want it. “At the first opportunity, I will bring a motion [before the the European Parliament] to make him fall.” Such a vote would severely test MEPs’ loyalty towards the Brussels chief at a time when he has become the face and symbol of all Europe’s ills. Mr Juncker is seen as the centrepiece of a federalist European dream which has driven Britain to the exit door and angered many eastern European states, who are already calling for him to quit. He has also apparently lost the support of German leader Angela Merkel over Brussels’ farcical handling of the migrant crisis, making his position at the heart of the Brussels machine ever more tenuous.

“Concerned speculation about the Ecuadorian embassy exile had risen to such an degree, that overnight Wikileaks announced it would provide a state update on Assange’s current status.”

• Wikileaks Status Update on Julian Assange and the US Election (ZH)

On Tuesday, the government of Ecuador issued a statement saying that it had decided to not permit Mr. Assange to use the government of Ecuador’s internet connection during the US election citing its policy of “non interference.” Ecuador’s statement also clarified that it does not seek to interfere with WikiLeaks journalistic work and that it would continue to protect Mr. Assange’s asylum rights. Mr. Assange has asylum at the Ecuadorian embassy in London, where the United Nations has ruled he has been unlawfully deprived of liberty by the United Kingdom and the Kingdom of Sweden for the last six years. He has not been charged. It is the government of Ecuador’s prerogative to decide how to best guard against the misinterpretation of its policies by media groups or states whilst ensuring that it protects Mr. Assange’s human rights.

WikiLeaks is a global, high volume publisher that publishes on average one million documents and associated analyses a year. WikiLeaks publishes its journalistic work from large data centers based in France, Germany, the Netherlands and Norway, among others. Most WikiLeaks staff and lawyers reside in the EU or the US and have not been disrupted. WikiLeaks has never published from jurisdiction of Ecuador and has no plans to do so. Similarly Mr. Assange does not transmit US election related documents from the embassy. WikiLeaks is entirely funded by its readers, book and film sales. Its publications are the result of its significant investigative and technological capacities. WikiLeaks has a perfect, decade long record for publishing only true documents. It has many thousands of sources but does not engage in collaborations with states. Mr. Assange has not endorsed any candidate although he was happy to speak at the Green’s convention due to Dr. Jill Stein’s position [on] whistleblowers, peace and war.

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