Jan 162015
 
 January 16, 2015  Posted by at 10:23 pm Finance Tagged with: , , , , , , ,  7 Responses »


Unknown Gurley-Lord service station, San Francisco 1929

The Swiss have unleashed a pretty wild storm in financial markets. All sorts of companies and people today are licking their wounds, and quite a few will simply have to fold. It’s no exception to be so leveraged in foreign exchange wagers that a move of a few percent can wipe you out, let alone one of 30%. Leverage makes sure that right off the bat a whole bunch of foreign exchange brokers, including FXCM, the biggest, are literally dead in the water – FXCM stock fell 90% -.

We’ll hear about the real losses in the days and weeks to come, but rest assured they’ll be very substantial. Banks like Goldman, Deutsche and Barclays were heavily short the franc, and therefor of course, so were their clients. Many private investors have lost everything and then some. As if the losses from oil’s jump off the cliff weren’t damaging enough yet to the realm of finance. But, you know, the CHF franc was pegged to the slumping euro, so what did everybody really expect? The timing may have been a surprise, but come on ..

There’s number of lessons in this, but I don’t feel confident that they will be learned. If only because we’ve gotten so used to living in an upside down world that it has become a solid new normal, especially for those who’ve made a killing off of it. But everything, says physics, tends back to equilibrium. And we were many miles removed from that.

The world of finance decries the fact that the Swiss central bank didn’t ‘telegraph’ beforehand that they were going to get rid of the euro peg. And that’s completely upside down, right there. Even apart from the fact that the SNB move wouldn’t have worked if it had indicated it beforehand, what’s the idea behind central banks having to tell you anything at all? Just look at this from Bloomberg:

SNB Officials Eating Words Risk Lasting Investor Aches

Switzerland’s central bank officials have just eaten their words, risking lingering indigestion in financial markets. Just three days after Swiss National Bank (SNBN) Vice President Jean-Pierre Danthine called the franc cap a “pillar” of monetary policy, the SNB yesterday dropped the minimum exchange rate of 1.20 per euro. The shock abandonment of the SNB’s primary policy of the past three years may now leave investors warier of taking officials’ words at face value, according to economists including Karsten Junius, chief economist at Bank J. Safra Sarasin. By scrapping one tool, the franc cap, SNB President Thomas Jordan risks blunting the effects of another. “The SNB’s credibility has suffered a bit,” said Junius, a former economist at the International Monetary Fund.

“Statements will get read in the future with a bit more caution. Verbal interventions will hardly work any more.” The central bank’s regular pledge to defend the franc cap with “utmost determination” had become part of the institution’s brand, not least because of the success of that policy in protecting the country’s domestic economy. “They’ve lost part of their credibility, I think, ”Han De Jong, chief economist at ABN Amro told Angie Lau on Bloomberg TV. “Whatever they will say, markets will not trust them very much.” George Buckley at Deutsche also argues the SNB’s words are hard to reconcile with the SNB’s new policy stance. “Their commentary now means nothing,” he said. “This is not utmost determination, is it?”

Bank of England Governor Mark Carney has suffered similar criticism. He was labeled an “unreliable boyfriend” by one U.K. lawmaker last year for giving conflicting messages on the possible timing of interest-rate increases in the U.K. SNB President Jordan yesterday defended his surprise move, saying that a tool like the cap would always need to be abandoned unexpectedly. Anatoli Annenkov at SocGen agrees. “It’s something we aren’t used to anymore because most central banks are talking about warning markets, improving communication, not surprising anymore,” Annenkov said by phone from London. “But in such circumstances, there’s basically no other way to do this. Markets would have speculated, positioned themselves beforehand.”

There’s this sense of entitlement seeping through from this that makes you want to, I don’t know, shout, puke? Traders and journalists that chide a central bank for not giving them what they want, when they want it? On what logical basis? That Greenspan and Bernanke did it for years, and so screwed up the entire US financial system? That information from central banks is now some god-given right for traders and bankers? Are you nuts? Are we all? We now know the Swiss are not, or let’s say that for whatever reason they did what they did, they’re not completely off their rockers.

So how about other central bankers? Everyone seems to be sure now that Draghi at the ECB has more reason than ever, after the SNB move, to launch full tilt QE. And I’m thinking, I don’t know kiddos, perhaps he has less reason now, because the markets’ faith in central banks has taken a jolt, because the effectiveness of that QE, which has been in the works forever, has already been priced in by those markets, and because the Germans are sure to contest it all throughout their court system(s). What use would a Draghi QE be at this point? Close to zero. He might still do it, but that would just expose him as a tool. And he can resign and become Italy’s new president right after. And it’s not just Draghi:

The Swiss Just Made Japan’s Job Harder

Haruhiko Kuroda’s monetary “bazooka” just got outgunned by the Swiss. Since April 2013, Japan’s central banker has been pumping trillions of dollars into the economy in an attempt to generate 2% inflation. But in a mature, aging economy like Japan’s, the effort is 95% about confidence. In order to “drastically convert the deflationary mindset,” as Kuroda puts it, the Bank of Japan must transform sentiment among households and businesses. Kuroda’s massive bond purchases mean little if the Japanese don’t trust that better days lay ahead. The Swiss National Bank’s move to abandon the franc’s cap against the euro may have blown a hole in Kuroda’s strategy.

By reneging on a promise made time and time again that he wouldn’t ditch the policy, SNB President Thomas Jordan “has undermined the credibility of central banks,” says Simon Grose-Hodge of LGT. Now, at central banks around the globe, he adds, “the unthinkable is entirely possible. You can’t rule anything out.” Even if the BOJ issues another blast of quantitative-easing after its two-day policy meeting next week, the question is how effective the move would be. Kuroda’s Oct. 31 shock-and-awe stimulus announcement worked for a time by bolstering perceptions that steady inflation was within reach. But this time, with even Economy Minister Akira Amari admitting “it will probably be difficult” for the BOJ to succeed, markets are likely to be more skeptical of the bank’s staying power.

It’s not really the Swiss, central bank credibility was already shot through the past decade, if not more. You have no credibility as a central banker if you serve the interests of one particular niche. Like traders. You need to serve the interests of the entire nation you ‘serve’, or your time will come. No matter how much Draghi, Kuroda or Bernanke were tempted by the omnipotence narrative, deep down they must have known it wouldn’t last.

And now they have to face a new world, one they’re not used to at all. One in which their credibility is shot. I’m guessing that means they understand their ‘normal’ course of action, QE up the wazoo, no longer works. So what then?

Look, Draghi may well come up with that QE of his, but it’ll be stillborn. It’ll only be yet another transfer of money from the public to the private sector. Let’s buy a trillion worth of bonds! Yeah, that worked great for everyone else… But can Draghi still do that? Yes, it’ll bring down the euro for a bit, but the euro is going down no matter what he does. This is turning into a game of whodunnit. And then, of course, there’s the Fed:

Yellen Signals She Won’t Babysit Markets in Turmoil

Janet Yellen is leaving the Greenspan “put” behind as she charts the first interest-rate increase since 2006 amid growing financial-market volatility. The Federal Reserve chair has signaled she wants to place the economic outlook at the center of policy making, while looking past short-term market fluctuations.

To succeed, she must wean investors from the notion, which gained currency under predecessor Alan Greenspan, that the Fed will bail them out if their bets go bad – just as a put option protects against a drop in stock prices. “The succession of Fed puts over the years has led to a wide range of distortions in financial markets,” said Lawrence Goodman at the Center for Financial Stability. “There have been swollen asset values followed by sharp declines. This is a very good time for the Fed to move away.”

We’re getting back to normal, and though normal’s going to hurt – and far more than you realize yet-, it’s hugely preferable to upside down; you hang uprise down long enough, it makes your brain explode. The price of oil was the first thing to go, central banks are the next. And then the whole edifice follows suit. The Fed has been setting up its yes-no narrative for months now, and that’s not without a reason.

But everyone’s still convinced there won’t be a rate hike until well into this new year. And the Swiss central bank said, a few days before it did, that it wouldn’t. And then it did anyway. The financial sectors’ trust in central banks is gone forever. And none too soon. Now they’ll have to cover their own bets. If anything spells deflation, it’s got to be that. But not even one man in a thousand understands what deflation is.

We have a ways to go before we solve this puzzle. But we are, at least and at last, on our way.

Nov 302014
 
 November 30, 2014  Posted by at 11:56 am Finance Tagged with: , , , , , , , , ,  1 Response »


DPC Harlem River Speedway and Washington Bridge, New York 1905

Fresh Signs Of Global Slump Pose Challenge To US (WSJ)
Swiss Go to Polls on SNB’s Gold, Immigration in Economic U-Turn (Bloomberg)
Swiss To Vote On Massive Gold-Buying Plan (AP)
Can QE Prop Up Asset Prices Forever? (Acting Man)
Shale And Cheap Oil Make America The New Lucky Country (Telegraph)
Black Friday Online Sales Jump 22% as Jobs Spur Shopping (Bloomberg)
Capping Brazil’s Corruption Gusher (Bloomberg)
ECB Likely To Hold Off On Sovereign Bond Purchases (WSJ)
ECB Board Member Dampens Quantitative Easing Hopes (Reuters)
France Might As Well Be Communist, Blasts US Tyre Tycoon (Telegraph)
When Will the US National Debt Exceed $18 Trillion? (MyGovCost.org)
That Hot US-EU Trade Deal Destroys 600,000 EU Jobs (Don Quijones)
Economics’ Failure To Tackle Real-World Issues Drives Women Away (Observer)
Australia: Haven for Bank Control Frauds? (Macrobusiness)
Do We Own Our Stuff, or Does Our Stuff Own Us? (CH Smith)
Global Importance Of Urban Agriculture ‘Underestimated’ (BBC)
Geo-Engineering: Climate Fixes ‘Could Harm Billions’ (BBC)
Does Anybody Ever ‘Think The Unthinkable’? (John Gray)

“The low-growth outlook is raising questions over whether weak demand could wash onto U.S. shores in the coming months .. ”

Fresh Signs Of Global Slump Pose Challenge To US (WSJ)

Economic prospects are flagging across Europe, Japan and big emerging markets such as India, a turn that presents fresh challenges to the relatively robust U.S. economy at a time when the world needs a dependable growth engine. Multiple strands Friday pointed to slackening economic vitality across the globe. In Europe, consumer prices rose in November at their slowest annual pace in five years, deepening fears the continent may be tipping toward deflation. In Japan, the core consumer-price index in October rose at its slowest pace this year. In both places the fall in energy prices has clouded a concerted push by central banks to boost the inflation rate and stoke consumer and business confidence. The picture in emerging markets isn’t much brighter.

Economic growth in India decelerated in the third quarter, according to government data released on Friday. Figures in Brazil showed Latin America’s biggest economy had edged out of recession in the third quarter, helped by government spending, but economists warned of potentially prolonged stagnation. The low-growth outlook is raising questions over whether weak demand could wash onto U.S. shores in the coming months, even as American businesses and consumers benefit from falling gasoline prices heading into the holiday shopping season. America’s economy has grown steadily this year after a first-quarter contraction, and employers have added more than 200,000 jobs a month for nine straight months through October. But consumer spending and business investment in the U.S. was muted in October, suggesting the U.S. might provide insufficient demand to help buoy other economies.

Cheaper energy stands to boost both the U.S. economy and those of other oil importers, including China, by offering what amounts to a tax cut to businesses and consumers. But in Europe, “problems go well beyond oil,” said Joel Naroff, president of Naroff Economic Advisors, an economic forecasting firm in Holland, Pa. “But the better off the U.S. is, the better off Europe is going to be. So would we rather see oil at $70 a barrel instead of $100? The answer is absolutely yes, and so would Europe.” Economists at Oxford Economics estimated in a report Friday that oil prices at around $60 a barrel over the next two years would offer “a significant strengthening” of economic growth “for most of the major advanced and emerging economies.”

Read more …

A Yes vote would put the Swiss central bank in an unenviable position. It has spent tens of billions buying euros to keep the Swiss franc down. If it has to sell those to buy gold instead, it will be at a great loss, and it would push the euro down, which is what Switzerland tried to prevent in the first place.

Swiss Go to Polls on SNB’s Gold, Immigration in Economic U-Turn (Bloomberg)

Switzerland holds three referendums today that have the potential to have an effect on everything from the economy to the central bank and even the country’s international relations. Up for a vote is a requirement for the Swiss National Bank to hold at least 20% of its assets in gold, a clampdown on immigration and the abolishment of tax privileges for foreign millionaires. While polls by gfs.bern indicate all three proposals could get rejected, there remains a sizable cohort of undecided voters. Plebiscites are a key feature of Switzerland’s system of direct democracy, and are held nationally and at a municipal level several times a year. Campaigns in the run-up to the latest votes have seen factions throwing out accusations of xenophobia, while there have been warnings that the economy’s potential could be weakened and the SNB’s power neutered. “Independent of the fact of a ‘yes’ or a ‘no’ on the votes, the message that is being sent abroad is that the Swiss model is not as predictable as we thought it would be,” said Stephane Garelli at the IMD business school.

While most votes are cast by mail before today, polling stations will close by 12:00 p.m. Zurich time and the first projections are due after 12:30 p.m. A final tally will be announced later in the day and the government will hold a press conference. There has been a sharp increase in the number of initiatives in recent years, including a ban on construction of minarets, curbs on executive compensation and a minimum wage. Some in Switzerland argue direct democratic privileges are being abused. “The constitution is becoming the toy of political exhibitionism,” Richard Saegesser, member of government in the town of Uster, near Zurich, said in a Nov. 23 speech. The “Save Our Swiss Gold” initiative would require the SNB to build up its bullion holdings, currently about 8% of assets, over the next five years and forbid it from ever selling any. That would make it harder to defend its cap on the franc of 1.20 per euro and fulfill its price stability mandate. The central bank would have to buy about 70 billion francs ($73 billion) of gold, policy makers estimate.

Read more …

Swiss bankers and politicians must feverishly hope this is voted down.

Swiss To Vote On Massive Gold-Buying Plan (AP)

In Switzerland, a campaign is on to protect the country’s wealth by investing in gold – a lot of gold. In a test of their sense of financial security, the Swiss are being asked to vote on a proposal to make the central bank hold a fifth of its reserves in gold within five years. That would mean buying about 1,500 metric tons, or 1,650 short tons, of gold worth more than US$60 billion. If the initiative wins the backing of a majority of voters today, the Swiss National Bank would also be prohibited from spending any of the treasure, which would have to be locked away in vaults entirely on Swiss soil. The prospect risks causing a spike in gold prices globally. The nationalist Swiss People’s Party, the country’s largest, has brought the “Save our Swiss Gold” initiative, arguing it will restore trust in the central bank and its paper money. The proposal is opposed by the Government and financial leaders but aims to capitalise on a growing sense of caution among the Swiss about the perceived dangers and increasing volatility of financial markets.

Though the country is among the world’s most prosperous, the initiative argues that owning physical gold in vaults would protect the country’s wealth from trouble in markets beyond the control of this small Alpine nation. The experience of the 2008 global financial crisis, triggered in part by complex investments that brought down multiple banks and bankrupted states, is fresh in people’s memories. Jacques Mayor, a Geneva accountant, said he was wary of the idea of Switzerland buying or selling gold in large amounts in international markets. “The last time they sold gold, we had an enormous loss,” Mayor said, referring to the central bank going US$10 billion in the red in 2013, when the value of its gold holdings slumped. Despite the perception that gold’s value is protected by the fact it is a physical good, its market price can in fact be quite volatile. The metal is used often by speculators as a safe haven.

Read more …

” .. genuine economic growth comes from two things: the number of workers in the labor force and the productivity of those workers. That’s a problem for the US.”

Can QE Prop Up Asset Prices Forever? (Acting Man)

It’s not just voters who buy into popular myths. Many investors do too. Few have wider appeal than the myth that central banks can create economic growth via the printing press. What central bankers and their supporters seem to forget is that growth comes from living, breathing human beings. It often sounds a lot more complicated than it really is. But genuine economic growth comes from two things: the number of workers in the labor force and the productivity of those workers. That’s a problem for the US. Because according to a recent report in The Economist, its potential labor force is set to grow at less than one-third the 0.9% rate we saw between 2003 and 2013.

Making things worse, many of America’s boomers – the first of whom qualified for Social Security in 2008 – are opting out of the labor force. Instead of looking for jobs, they are choosing to live on benefits. This helps explain why the%age of working-age adults looking for jobs in the US has fallen to below 63% from about 66% when the global financial crisis struck. And it’s not just Americans who are getting older on average. From The Economist:

“[T]he ratio of workers to retirees is now plunging in most developed countries and soon will in many emerging markets. Japan is already liquidating the foreign assets its people acquired during their high-saving years; China and South Korea are starting to do so and Germany will soon.”

Fewer workers in the labor force. More retirees to support for those with jobs. Foreign retirees cashing out of their US stocks and bonds. Janet Yellen et al. better hope investors are gullible enough to believe the magic of QE can continue to levitate financial assets forever. Otherwise, stock and bond investors will start to reconsider the prices they’re willing to pay to own their pieces of paper.

Read more …

The positive at all costs message here at the Telegraph makes so little sense it hurts.

Shale And Cheap Oil Make America The New Lucky Country (Telegraph)

We normally think of Australia as the “lucky country” but that label is surely better applied to the US today. You could hardly envisage a more benign backdrop for its economy and stock market than the current environment of tumbling energy prices, low inflation, narrowing deficits, competitive industry, a popular currency and consequently lower-for-longer interest rates. The frantic shuttle diplomacy in the run up to last week’s Opec summit in Vienna illustrated the pain being felt by the world’s less favoured nations – those like Venezuela and Russia which simply can’t balance the books at a $75 oil price. The meeting showed how difficult it can be to persuade individual countries, even members of a supposedly co-operative cartel like Opec, to work together if doing so runs counter to their own self-interest.

It may be beneficial to Opec as a whole to curb production in the face of surging US shale oil output and flagging global energy demand, but individual countries may quite rationally decide it is better to keep the oil flowing to protect their market share. If you have built up enough foreign currency reserves in the good years (as Saudi Arabia has) and you want to make life tough for your new rivals in the marginal oilfields of North Dakota, you might feel a couple of years of cheap crude is a price worth paying. The excess supply created by America’s shale revolution has been disguised in recent years by capacity reductions in war-torn countries such as Libya.

But the producers’ luck has run out this year as supply has picked up around the world even as China’s slowdown and stagnation in Europe and Japan has reduced demand. The jockeying for position by Saudi Arabia and others might sound like a game, but it really matters. With world oil exports amounting to around 40m barrels a day, the $40 drop in the oil price since June represents a transfer from oil exporters to oil consumers of more than $400bn a year. US consumers have an extra $70bn in their pockets, money they used to spend on fuel and can direct towards eating out, buying electronic gizmos or going on holiday. Even with the usual lag before consumers see the benefit of falling petrol prices, we are starting to feel the impact. Last week’s revision to third quarter US GDP, from 3.5pc to 3.9pc, was in part a reflection of more confident consumers with higher disposable incomes.

Read more …

And Bloomberg does the Telegraph one better.

Black Friday Online Sales Jump 22% as Jobs Spur Shopping (Bloomberg)

Sales online the day after Thanksgiving surged 22% from a year earlier as U.S. consumers, buoyed by higher employment and lower gasoline prices, flocked to computers and smartphones to hunt bargains. The gain outpaced online shopping on Thanksgiving as heavy Black Friday promotions attracted consumers, researcher ChannelAdvisor Corp. said today in an online statement. Sales at EBay rose 27% on Black Friday over last year, and Amazon saw a 24% increase. The online gains give a strong start to a holiday shopping season that the National Retail Federation predicts will be the best in three years.

Consumer spending in the last quarter grew at a 2.2% annualized rate, exceeding estimates for a 1.8% improvement. Black Friday online shopping was done less on mobile devices this year than on Thanksgiving, slipping to 46% from 49%, the company said. The rates of actual purchases also declined from Thursday, perhaps because consumers were more selective or finding hot items out of stock, ChannelAdvisor said. IBM Benchmark said Black Friday online sales rose 9.5%, and mobile sales jumped 25%. For Thanksgiving, mobile sales on smartphones and tablets accounted for 52% of online traffic.

Read more …

Note: all this does not yet include the 40% oil price plunge. Petrobras can indeed drag the whole country down.

Capping Brazil’s Corruption Gusher (Bloomberg)

Petrobras, Brazil’s state-run oil giant, is now engulfed in a scandal befitting its size – a multibillion-dollar miasma of bribery, larceny and political chicanery. How newly re-elected President Dilma Rousseff responds may decide not only her fate but also, to exaggerate only slightly, that of Brazil itself. It’s hard to overestimate the role of Petrobras in Brazilian society. Once a symbol of national pride, just four years ago it had the largest stock offering. Now police say it is at the heart of the case in which some of Brazil’s biggest builders formed a cartel to win $23 billion in public contracts. One Petrobras refinery was budgeted at $2.5 billion but will end up costing at least $18.5 billion. Kickbacks from overpriced contracts were allegedly used to bribe politicians to support the ruling Workers’ Party.

Rousseff, who was Petrobras chairwoman from 2003 to 2010, has said the case “will forever change the relationship between Brazilian society, the Brazilian government and private companies.” It’s already threatening the financial health of Brazilian builders and the prospects for a revival in economic growth. Corruption in Brazil eats up as much as 2.3% of gross domestic product a year. To Rousseff’s credit, she has done more than just talk about the need to fight corruption. During her first term, several ground-breaking laws were passed, including a “clean companies act” that could fine companies as much as 20% of their revenue and bar them from state financing or state contracts, and a freedom of information law guaranteeing access to public documents. Yet Brazil is notorious for “laws that don’t take.” Many states and cities have yet to implement the 2011 freedom of information law, for instance; in one audit of those that have, two of every five requests for information received no response at all.

In the 14 years since Brazil joined the Anti-Bribery Convention of the OECD, only one case has been prosecuted, and no sanctions have ever been levied. That’s a pretty thin docket for the world’s seventh-biggest economy. The “clean companies” law that Brazil passed last year could change that. Unfortunately, Rousseff has yet to issue the regulations for implementing the law. She should. Rousseff also needs to follow through on her pledge to reform Brazil’s campaign finance laws. Under their current terms, companies can donate up to 2% of their gross annual revenue. In fact, they supply more than 95% of the money for Brazilian elections, which have become wildly expensive. And campaigns need only disclose the identity and contribution amounts of donors in a final consolidated report issued after the election is over.

Read more …

The Germans have been consistent all along in their message.

ECB Likely To Hold Off On Sovereign Bond Purchases (WSJ)

Economists expect the European Central Bank to hold off on sovereign bond purchases next week, despite further dangers of deflation haunting the eurozone. The bank’s governing council meeting Thursday – the final one of 2014 – is likely to convey a more dovish message and lower inflation expectations, analysts say, but no new measures are expected until next year. The central bank has set in motion schemes to purchase covered bonds and asset-backed securities, but weaker prices put pressure on its President Mario Draghi to start buying sovereign bonds as well, a policy known as quantitative easing.

In a speech this week, ECB Vice-President Vitor Constancio opened the door to such purchases in 2015. “We must wait to see if ECB President Mario Draghi will repeat his readiness to start buying government bonds if the inflation outlook deteriorates further,” said Zach Witton, economist at Moody’s Analytics, in a research note Friday. Purchasing managers’ index figures for the manufacturing and services sectors are expected to show economic activity in the core eurozone countries – Germany, France and Italy – remained broadly flat in November.

Read more …

But one wonders what will happen to the euro after Thursday meeting.

ECB Board Member Dampens Quantitative Easing Hopes (Reuters)

ECB Executive Board member Sabine Lautenschlaeger said on Saturday she saw little room for further easing of monetary policy despite a further fall in euro zone inflation. “According to the current situation, the threshold as I see it for taking further action is very high, particularly for large-scale purchasing programmes,” she said in Berlin, speaking five days ahead of the ECB’s next Monetary Policy Committee meeting. Innovation in monetary policy was not a taboo, but must also not be an “end in itself”, she added. The ECB has cut interest rates to practically zero and is readying more buying programmes that could include government bonds – known as quantitative easing – to ward off the threat of deflation in the euro zone. Vice President Vitor Constancio said this week the ECB could make a decision on government bond-buying in the first quarter if the economy did not improve. The purchase of government bonds would be viewed extremely critically in Germany.

Read more …

France suffers from a dangerous dose of entitlement.

France Might As Well Be Communist, Blasts US Tyre Tycoon (Telegraph)

A US tyre tycoon has ridiculed French laws and trade unions that he said had prevented him from rescuing a stricken factory, saying France should become “communist”. Maurice Taylor, chief executive of Titan International, had initially expressed interest in taking over the loss-making Goodyear tyre plant in Amiens. But he pulled out of the deal and explained why to France Info radio. “You can’t buy Goodyear. Under your law, we have to take a minimum of 662 or 672 employees. You can’t do that. The most you could take is 333 … there’s no business for that plant now,” said Mr Taylor. “I tried to tell them all that before but you guys have got to wake up over there and tell the unions, ‘Hey if they’re so smart, they should buy the factory’. “It’s stupid. It’s the dumbest thing in the world. France should just become communist and then when it goes all bad like Russia did, then maybe you’d have a chance,” added Mr Taylor.

Goodyear announced in January last year that it was closing the factory, which employs 1,173 people, after years of negotiations with unions failed to come up with a solution to save jobs. Unions launched a series of legal proceedings against the company, but to no avail. Mr Taylor, known as “The Grizz” for his tough talk, has made waves before for his comments on France. In 2013, he wrote a letter to the French industrial renewal minister calling the country’s workers lazy and overpaid after years of negotiations by Titan to take over the plant had failed. “They get one hour for breaks and lunch, talk for three and work for three. I told this to the French union workers to their faces. They told me that’s the French way,” wrote Mr Taylor. The minister at the time, Arnaud Montebourg, hit back, telling Mr Taylor: “Your extremist insults display a perfect ignorance of what our country is about. Be assured that you can count on me to inspect your tyre imports with a redoubled zeal.”

Read more …

“… can you point to what you personally got in return for that $42,291 worth of additional debt per household that the federal government accumulated during the last six years?”

When Will the US National Debt Exceed $18 Trillion? (MyGovCost.org)

Sometime in the next two to three weeks, the total public debt outstanding for the U.S. government will exceed 18 trillion dollars. If you were to ask us to pin down a precise date, we would say sometime around December 9, 2014, given the rate at which the national debt has been increasing during the federal government’s current fiscal year. Since the start of the U.S. federal government’s 2015 fiscal year on October 1, 2014, the national debt has grown at an average rate of $2.08 billion per day. If it helps put these very large numbers into a more human scale, when the U.S. national debt reaches $18 trillion, that will work out to be about $124,275 per U.S. household, which is up from $81,984 per U.S. household at the end of the 2008 fiscal year.

And the new figure would be on top of your mortgage, car loans, student loans, credit cards, et cetera that you might also have. But unlike those tangible things, where you can at least point to your house, your car, your education, or even the Christmas presents you might be buying this upcoming Black Friday, can you point to what you personally got in return for that $42,291 worth of additional debt per household that the federal government accumulated during the last six years? If you cannot, is it really worth it?

Read more …

The TTIP is more deadly than ebola.

That Hot US-EU Trade Deal Destroys 600,000 EU Jobs (Don Quijones)

In a 1994 interview with Charlie Rose, the British billionaire financier James Goldsmith delivered a stark, eerily prescient warning of the state the world would be in today if it succumbed to the freer borders and more centralized, corporate-owned governance envisaged by trade regimes such as NAFTA and GATT (the predecessor to the World Trade Organization). Goldsmith was spot on about just about everything, from the threats posed by derivatives – then in their infancy – to the risks of industrializing agriculture throughout the developing world. Yet his warnings went unheeded, as laments the U.S. economist and former Assistant Treasury Secretary Paul Craig Roberts:

Sir James called it correct, as did Roger Milliken. They predicted that the working and middle classes in the US and Europe would be ruined by the greed of Wall Street and corporations, who would boost corporate earnings by replacing their domestic work forces with foreign labor, which could be paid a fraction of labor’s productivity as a result of the foreign country’s low living standard and large excess supply of labor.

Now, 20 years on from the signing of NAFTA and GATT, our governments’ enthusiasm for bilateral and multilateral trade agreements is undimmed, despite the social upheaval and economic destruction they have left in their wake. Indeed, our governments now seek to take “free” trade to a whole new level, far beyond what was originally envisaged for NAFTA and GATT. If signed, the new generation of trade deals would sound the final death knell of what remains of nation-state sovereignty, while doing next to nothing to improve economic conditions on the ground. Of particular concern is the Transatlantic Trade and Investment Partnership (TTIP), which seeks to bind together the world’s two largest markets, the U.S. and the EU, under a homogenized regulatory and legal superstructure designed for the exclusive benefit of transatlantic corporations and banks. Unsurprisingly, most of the official (i.e. European Commission-commissioned) assessments of TTIP predict gains, albeit negligible ones, in trade and GDP for both the EU and US.

Some even predict gains for non-TTIP countries, suggesting that the agreement would be a win-win for just everyone. However, according to a new study by Tufts University Professor Jeronim Capaldo, these rose-tinted forecasts rely on methods virtually unchanged from the models used to promote the liberalization of markets in the 1980s and 1990s. As then, they assume that the “competitive” sectors of the economy would benefit from the enhanced trade conditions while the losses racked up in the other sectors would be offset by falling salaries and rising employment.This assumption is provably false. As recent experience in Southern Europe has shown, lower salaries do not necessarily translate into the creation of new jobs. In fact, according to Capaldo’s findings – based on the UN’s much more up-to-date Global Policy Model – not only would the TTIP not create new jobs in Europe, it would destroy in the space of ten years a net total of roughly 600,000 jobs.

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“In the UK, women make up just 27% of economics students, despite accounting for 57% of the undergraduate population .. ”

Economics’ Failure To Tackle Real-World Issues Drives Women Away (Observer)

On the first Thursday of every month, nine men and women meet within the marble halls of the Bank of England to decide whether the nation’s mortgages will get more expensive and to answer the £375bn question: is it time to reverse the Bank’s electronic printing presses, which pumped money into the economy during the financial crisis. More specifically, seven men and two women make those vital decisions. As recently as six months ago it was nine men. It was only the arrival of Nemat (Minouche) Shafik, a former World Bank official, and Kristin Forbes, a US academic, at the monetary policy committee that ended an all-male run that had lasted for four years. Around the same time Charlotte Hogg was poached from Santander to become the Bank’s chief operating officer, as part of governor Mark Carney’s attempt to get more women into the 320-year-old institution. And early next year in the US, Janet Yellen will mark the anniversary of her becoming the first woman to run the Federal Reserve.

But despite these appointments, researchers warn that progress in getting women into such influential jobs will remain slow because not enough women are studying economics. In the UK, women make up just 27% of economics students, despite accounting for 57% of the undergraduate population, according to a study from the University of Southampton last month. This gap has remained unchanged for almost 20 years, even though female undergraduates now outnumber men in law and medicine, while almost equal numbers study business. Fewer girls than boys take A-level maths, a common prerequisite for an economics degree, but according to the Southampton researchers, those girls who did were more likely to get top grades, but then less likely to go on to economics at university. Mirco Tonin, lead author of the study, thinks deeper cultural factors put women off the “dismal science”. “Maybe when people think about economics what comes to mind is a male role model,” he says.

Kate Barker, who served on the MPC for nine years, was at times the only woman and says it was an odd experience. “It is not because I felt crushed or got at… There is just something odd about being the only woman on a panel of nine. It was much better when [former members] Marion Bell and Rachel Lomax were on. When there were three women it felt much more normal.” She was invited to help recruit her successors when her fixed term came to an end, but says: “We weren’t always able to attract as many applications from women as we would like. On the first two occasions we appointed men and we felt uneasy about perpetuating an all-male panel…but equally you have to appoint people of the right calibre.”

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Subprime down under.

Australia: Haven for Bank Control Frauds? (Macrobusiness)

Identifying whether a similar form of subprime fraud is widespread in Australia’s banking system and housing market deserves close scrutiny. Deregulation and privatisation of the financial sector since the 1980s has increased competitive pressures and the potential for fraud, as commercial lenders are provided with an incentive to maintain robust profitability via strong credit growth. Substantial evidence of subprime fraud has been provided by Denise Brailey, a criminologist and president of the Banking & Finance Consumers Support Association (BFCSA). It is a public-interest organisation dedicated to protecting investors and the pursuit of compensation for victims of predatory finance. Brailey is responsible for eleven inquiries investigating the predations of the FIRE sector and compliant regulators between 1997 and 2010.

Having worked in this field since the 1980s, Brailey has witnessed first-hand the financial and social destruction wrought by a multitude of scams and predatory lending, including the ‘finance brokers scandal’ in Western and South Australia, and the ‘mortgage solicitor scams’ stretching down the east coast from Queensland to Tasmania. Brailey alleges that since 1996, commercial lenders have engaged in widespread subprime fraud through over-lending to owner-occupiers and property investors, far beyond their ability to finance the debt. At the centre of the alleged fraud are loan application forms (LAFs), with borrower metrics altered by lenders without the knowledge, authority or consent of borrowers. The value of borrowers’ assets and incomes are radically inflated, justifying the approval of large loan sums, to the benefit of lenders and the broker channel.

As defaults typically show several years after loan origination, subprime borrowers struggle for an extended period before eventually succumbing, to the great benefit of the lenders in the form of higher interest payments, including penalties. Lenders then realise borrowers’ entire equity through foreclosure and sale. Similar to the US, Australian mortgage fraud is more closely linked with low-doc and no-doc mortgages than conventional (prime) mortgages. The process of alleged fraud begins with a potential borrower completing a three page LAF detailing their current assets and incomes. In the back office, the broker inputs the borrower’s details into a password-protected online ‘service calculator’, an application determining the amount of credit the lender, associated with the broker, is willing to provide.

The service calculator amounts to a black box, as brokers are not provided with any information as to how this application functions; it simply provides a ‘calculated’ futuristic income based upon the basic provided income details entered and then uses accounting add-ons and add-backs providing tax incentive ‘advantages’, to produce greater incomes. This in turn enables the banks to significantly increase the volume of lending.

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The answer is obvious. Just look around you.

Do We Own Our Stuff, or Does Our Stuff Own Us? (CH Smith)

The frenzied acquisition of more stuff is supposed to be an unalloyed good: good for “growth,” good for the consumer who presumably benefits from more stuff and good for governments collecting taxes on the purchase of all the stuff. But the frenzy to acquire more stuff raises a question: do we own our stuff, or does our stuff own us? I think the answer is clear: our stuff owns us, not the other way around. Everything we own demands its pound of flesh in one way or another: space must be found for it amid the clutter of stuff we already own, it must be programmed, recharged, maintained, dusted, moved, etc. The only way to lighten the burden of ownership is to get rid of stuff rather than buy more stuff. The only way to stop being owned is to is get rid of the stuff that owns us.

I propose a new holiday event, Gold Sunday: this is the day everyone hauls all the stuff they “own” that is a burden to a central location and dumps it in a free-for-all. Whatever is left after the freeters have picked through the pile is carted to the recycling yard and whatever’s left after that culling is taken to the dump. Frankly, I wouldn’t accept a new big-screen TV, vehicle, tablet computer, etc. etc. etc. at any price because I am tired of stuff owning me. I don’t want any more entertainment or computational devices, musical instruments, vehicles, clothing, kitchen appliances, or anything else for that matter, except what can be consumed with some modest enjoyment and no ill effects. We live in a small flat and I have no room for more stuff, and I have no time for more devices or entertainment. I have too much of everything but money and time. I don’t want to pay more auto insurance, maintenance costs, etc., nor do I want more devices to fiddle with. I am enslaved to the few I already own.

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“The most interesting factor when we look at India is that we could map the whole country as urban or peri-urban because there are so many towns and cities.”

Global Importance Of Urban Agriculture ‘Underestimated’ (BBC)

Urban agriculture is playing an increasingly important role in global food security, a study has suggested. Researchers, using satellite data, found that agricultural activities within 20km of urban areas occupy an area equivalent to the 28-nation EU. The international team of scientists says the results should challenge the focus on rural areas of agricultural research and development work. The findings appear in the journal Environmental Research Letters. “This is the first study to document the global scale of food production in and around urban settings,” explained co-author Pay Drechsel, a researcher for the International Water Management Institute (IWMI). “There were people talking about urban agriculture but we never knew details. How did it compare with other farming systems? This assessment showed us that it was much larger than we expected.”

The team acknowledged that the study could actually be conservative, as it focused on urban areas with populations of 50,000 or greater.Dr Drechsel said that when urban farming was compared with other (ie rural) farming systems, the results were surprising. For example, the total area of rice farming in South Asia was smaller than what was being cultivated in urban areas around the globe. Likewise, total maize production in sub-Saharan Africa was not as large as the area under cultivation in urban areas around the world. UN data shows that more than 50% of the world’s population now lives in urban areas, which could explain the changing landscape of global agriculture. “We could say that the table is moving closer to the farm,” observed Dr Drechsel. “The most interesting factor when we look at India is that we could map the whole country as urban or peri-urban because there are so many towns and cities.”

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What’s that line again about human stupidity?

Geo-Engineering: Climate Fixes ‘Could Harm Billions’ (BBC)

Schemes to tackle climate change could prove disastrous for billions of people, but might be required for the good of the planet, scientists say. That is the conclusion of a new set of studies into what’s become known as geo-engineering. This is the so far unproven science of intervening in the climate to bring down temperatures. These projects work by, for example, shading the Earth from the Sun or soaking up carbon dioxide. Ideas include aircraft spraying out sulphur particles at high altitude to mimic the cooling effect of volcanoes or using artificial “trees” to absorb CO2. Long regarded as the most bizarre of all solutions for global warming, ideas for geo-engineering have come in for more scrutiny in recent years as international efforts to limit carbon emissions have failed. Now three combined research projects, led by teams from the universities of Leeds, Bristol and Oxford, have explored the implications in more detail.

The central conclusion, according to Dr Matt Watson of Bristol University, is that the issues surrounding geo-engineering – how it might work, the effects it might have and the potential downsides – are “really really complicated”. “We don’t like the idea but we’re more convinced than ever that we have to research it,” he said. “Personally I find this stuff terrifying but we have to compare it to doing nothing, to business-as-usual leading us to a world with a 4C rise.” The studies used computer models to simulate the possible implications of different technologies – with a major focus on ideas for making the deserts, seas and clouds more reflective so that incoming solar radiation does not reach the surface. One simulation imagined sea-going vessels spraying dense plumes of particles into the air to try to alter the clouds. But the model found that this would be far less effective than once thought.

Another explored the option of injecting sulphate aerosols into the air above the Arctic in an effort to reverse the decline of sea-ice. A key finding was that none of the simulations managed to keep the world’s temperature at the level experienced between 1986-2005 – suggesting that any effort would have to be maintained for years. More alarming for the researchers were the potential implications for rainfall patterns. Although all the simulations showed that blocking the Sun’s rays – or solar radiation management, as it is called – did reduce the global temperature, the models revealed profound changes to precipitation including disrupting the Indian Monsoon. Prof Piers Forster of Leeds University said: “We have found that between 1.2 and 4.1 billion people could be adversely affected by changes in rainfall patterns. “The most striking example of a downside would be the complete drying-out of the Sahel region of Africa – that would be very difficult to adapt to for those substantial populations – and that happens across all the scenarios.”

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“Capitalism has lurched into a crisis from which it still has not recovered. Yet the worn-out ideology of free markets sets the framework within which our current generation of leaders continues to think and act. Today nothing is safe from the juggernaut of market forces.”

Does Anybody Ever ‘Think The Unthinkable’? (John Gray)

I have a vivid memory of the moment when I realised it wouldn’t be long before Margaret Thatcher’s radical experiment hit the buffers. It must have been sometime in the late 1980s. The venue was one of the free market think tanks that were so prominent in those far-off years. The topic of discussion was how we should be ready to transgress the boundaries of what was considered politically possible. Nearly all of those present were at one on the need to challenge existing assumptions. What we needed to do, they insisted, was “think the unthinkable” and extend the reach of market forces into public services and throughout society. For me this earnest consensus was not without an element of comedy. Free market ideas had been in power in Britain since Thatcher became prime minister in 1979. They were the ruling ideas of the age, and from my point of view already becoming rather stale.

In the early 70s, when I first became interested in Hayek and other free market thinkers, challenging the post-war political consensus may have required a certain contrariness. By the late 70s, when Britain had come close to bankruptcy and been bailed out by the IMF, there were many signs that the country was heading for a shift of regime in which it would be transformed irreversibly. But an abrupt change of this kind seems unimaginable to most people until it actually happens, and in much of politics, the media and academia Thatcher’s policies came as a bolt from the blue. By the late 80s, what had been heresy had been enthroned as orthodoxy. In these circumstances, the suggestion that one could become a fearless free-thinker by repeating, in louder and more extreme tones, what those in power were constantly saying was entertainingly farcical. At the same time it illuminated how political ideas actually work in practice.

As a general rule, “thinking the unthinkable” means accentuating and exaggerating, preferably to the point of absurdity, beliefs that are currently fashionable. Over the past three decades, this has meant, to my mind, applying the ruling free market ideology with little regard for history, circumstances or common sense. One may agree or disagree with Thatcher’s policies, but throughout most of her time in power she was more pragmatic than is often imagined, and rarely did anything just because it was required by an idea or theory. It was only when the ideologues in the free market think tanks persuaded her of the virtues of the poll tax that she allowed doctrinaire thinking to guide her, and that was the beginning of her downfall. The irony is that the ideas that ended her career in government nearly a quarter of a century ago have shaped politics ever since.

Capitalism has lurched into a crisis from which it still has not recovered. Yet the worn-out ideology of free markets sets the framework within which our current generation of leaders continues to think and act. Today nothing is safe from the juggernaut of market forces. If British Telecom could be successfully privatised, why not the prison service, national forensic service and probation service? Why not hand over the provision of blood plasma, or the search and rescue operations that have long been provided by the RAF and the Royal Navy, to private companies? No sell-off has been so obviously ill-conceived that it couldn’t be implemented. All of these privatisations have in fact occurred, under a variety of governments, or are currently in the works.

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