Feb 132017
 
 February 13, 2017  Posted by at 10:49 am Finance Tagged with: , , , , , , , , ,  10 Responses »
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New York City Under 26 Inches Of Snow, 1947

 

Why Does Economic Growth Keep Slowing Down? (StLouisFed)
The Market Will Be Repricing Dramatically Downward – Stockman (CNBC)
Jim Rogers: “A Lot Of People Will Disappear” (ZH)
US Trade Deficit Last Year Was Widest Since 2012 (WSJ)
Trump Reviews Top White House Staff After Tumultuous Start (Pol.)
Mike Flynn’s Position as National Security Adviser Grows Tenuous (WSJ)
Refugee-Embracing Trudeau Set to Bite His Tongue on Trump Visit (BBG)
Romania Protests Enter Day 13, Call For Government Of ‘Thieves’ To Resign (G.)
Germany Repatriates Gold Faster Than Planned As Faith In Euro Plunges (RT)
Brussels’ Hypocrisy Over The Closing Of Borders (Nikos Devletoglou)
Greece: The Low-Noise Collapse Of An Entire Country (FE)

 

 

Even though the St. Louis Fed people can’t seem to read their own numbers properly, or at least interpret them, here it is. As the Automatic Earth has said for many years: the peak of our wealth was sometime in the 1970’s or even late 1960’s.

Everything after that was borrowed or printed. Here’s the proof. Sent this to Nicole earlier saying ‘We’ve been vindicated by the Fed itself.’ “Real GDP growth fell and leveled off in the mid-1970s, then started falling again in the mid-2000s”

Why Does Economic Growth Keep Slowing Down? (StLouisFed)

The U.S. economy expanded by 1.6% in 2016, as measured by real GDP. Real GDP has averaged 2.1% growth per year since the end of the last recession, which is significantly smaller than the average over the postwar period (about 3% per year). These lower growth rates could in part be explained by a slowdown in productivity growth and a decline in factor utilization. However, demographic factors and attitudes toward the labor market may also have played significant roles. The figure below shows a measure of long-run trends in economic activity. It displays the average annual growth rate over the preceding 40 quarters (10 years) for the period 1955 through 2016. (Hence, the first observation in the graph is the first quarter of 1965, and the last is the fourth quarter of 2016.)

Long-run growth rates were high until the mid-1970s. Then, they quickly declined and leveled off at around 3% per year for the following three decades. In the second half of the 2000s, around the last recession, growth contracted again sharply and has been declining ever since. The 10-year average growth rate as of the fourth quarter of 2016 was only 1.3% per year. Total output grows because the economy is more productive and capital is accumulated, but also because the population increases over time. The next figure compares long-run growth rates of real GDP and real GDP per capita. Both series display similar behavior. Although population growth has been slowing, the effect is not big enough to change the qualitative results described above. The third figure adds long-run growth rates of real GDP divided by the labor force. Dividing by the labor force instead of the total population accounts for the effects of changing demographics and labor market attachment.

From the 1970s until the 2000s, long-run growth rates of real GDP divided by the labor force remained well below those of real GDP per capita. There are two main factors that explain this: 1) Lower fertility and longer lifespans steadily increased the potential labor force relative to the total population. 2) Labor force participation increased significantly from the 1960s until 2000, largely driven by increased female labor force participation. When accounting for both of these factors, economic activity from 1975 to 1985 looks more depressed than in the two decades that followed. This seems consistent with the negative effects that the 1970s oil shocks and efforts to reduce inflation in the early 1980s had on the economy.

The trend in labor force participation reversed in 2000, as participation rates have been steadily decreasing since then. This explains why real GDP divided by labor force growth rates are now higher than real GDP per capita growth rates. Having accounted for the long-term effects of changes in demographics and labor market attitudes, we can now look at the effects of productivity growth and factor utilization. The final figure compares long-run growth rates in real GDP divided by the labor force with long-run growth rates in total factor productivity and long-run averages of capacity utilization (i.e., the actual use of installed capital relative to potential use). Note that data for capacity utilization are only available since 1967.

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“The market is apparently pricing in a huge Trump stimulus. But if you just look at the real world out there, the only thing that’s going to happen is a fiscal bloodbath and a White House train wreck like never before in U.S. history.”

The Market Will Be Repricing Dramatically Downward – Stockman (CNBC)

Stocks are booming under President Donald Trump, but long-time critic David Stockman warns traders are living in a “fantasy land” that can’t last —and Trump’s policies will derail the market for years to come. The former Reagan administration OMB director appeared on CNBC’s “Futures Now”last week to emphasize that Trump has become seemingly distracted by issues other than his proposed economic agenda. That should be a particular point of worry for investors, who Stockman argued have been far more optimistic about Trump’s presidency than might be warranted by the facts. In other words, while all three major market indexes continued to hit record highs last week, the former Reagan aide sees the current market rally as moot and not reflective of the current political climate.

“What’s going on today is complete insanity,” said Stockman. “The market is apparently pricing in a huge Trump stimulus. But if you just look at the real world out there, the only thing that’s going to happen is a fiscal bloodbath and a White House train wreck like never before in U.S. history.” Since the election, the S&P 500 Index has rallied more than 8%, the Nasdaq about 6% and the Dow Jones Industrial Average a whopping 10%. Last week, all three benchmarks rallied to new record highs. Yet if anything, according to Stockman’s predictions, those gains may be lost. Most of Trump’s actions “[have] nothing to do with the economic agenda” he’s proposed, Stockman told CNBC. That, along with a debt ceiling debate that will take place on March 15 in Congress, and a market rally that has gone on for a while, leads Stockman to think that a big downturn is on the way.

“There’s going to be no tax action this year,” said Stockman, echoing the concerns of Goldman Sachs and a few other Wall Street economists who say Trump’s plans for the economy are facing mounting political risks. Last week, the president vowed that tax reform could happen this year, and promised an announcement within the next few weeks. “If there’s any next year it will be deficit neutral, which means it’s not going to add the $15 to earnings like these people expect,” Stockman said, speaking of the rosy expectations of some analysts who think tax reform could boost corporate earnings in the medium-term. “My argument is there is not going to be any economic rebound, there is not going to be any profit surge,” Stockman added. “Therefore the market will be repricing dramatically downward once it’s clear that that’s the case.”

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Rogers adds a new dimension of doom: “..a lot of institutions, people, companies even countries, certainly governments and maybe even countries are going to disappear.”

Jim Rogers: “A Lot Of People Will Disappear” (ZH)

On the Greater Depression… …get prepared because we’re going to have the worst economic problems we’ve had in your lifetime or my lifetime and when that happens a lot of people are going to disappear. In 2008 Bear Stearns disappeared, Bear Stearns had been around over 90 years. Lehman Brothers disappeared. Lehman Brothers had been around over 150 years. A long, long time, a long glorious history they’ve been through wars, depression, civil war they’ve been through everything and yet they disappear. So the next time around it’s going to be worse than anything we’ve seen and a lot of institutions, people, companies even countries, certainly governments and maybe even countries are going to disappear.

I hope you get very worried. When you start having bear markets as you I’m sure well know one bad thing happens and another bad thing happens and these things snowball just like in bull markets good news comes out then more good news comes out the next thing you know you’re five or six or seven years into a bull market. Well bear markets do the same thing and so we have a lot of bad news on the horizon. I haven’t even gotten to war. I haven’t even gotten to trade war or anything like that but you know things do go wrong.

On Trump and the possibility of trade wars…and real wars Mr. Trump has also said he’s going to have trade war with China, Mexico, Japan, Korea a few other people that he has named. He swore that on his first day in office he would impose 45% tariffs against China. He’s been there three weeks, two or three weeks and he hasn’t done it yet but he still got it in his head I’m sure or maybe he’s just another politician like all the rest of them. He says one thing and he doesn’t mean it at all but he does have at least three people in high levels in his group who are very, very keen to have trade wars with China and other people.

If he does that Eric, it’s all over. I mean history is very clear that trade wars always lead to problems, often to disaster, sometimes even to real war, a shooting war. So I don’t know, I’m not sure Mr. Trump knows. He said so many things and many of the things are contradictory. Now if he’s not going to have trade wars with various people then chances are for a while happy days are here… [The dollar is] going to go too high, may turn into a bubble, at which point I hope I’m smart enough to sell it because at some point the market forces are going to cause the dollar to come back down because people are going to realize, oh my gosh, this is causing a lot of turmoil, economic problems in the world and it’s damaging the American economy. At that point the smart guys will get out. I hope I’m one of them.

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Sputtering engines all around.

US Trade Deficit Last Year Was Widest Since 2012 (WSJ)

The U.S. logged a $502.25 billion trade deficit in 2016, the largest in four years and a gap President Donald Trump is setting out to narrow to bolster the U.S. economy. The new president faces obstacles in the coming months and years, including the potential for a stronger dollar, larger federal budget deficits and low national saving rates compared with much of the rest of the world, all of which could force trade deficits to widen. As in past years, the 2016 gap reported Tuesday by the Commerce Department reflected a large deficit for U.S. trade in goods with other countries, offset in part by a trade surplus for services. The gap in terms of goods only was $347 billion with China last year, $69 billion with Japan, $65 billion with Germany and $63 billion with Mexico.

For December, the total trade gap decreased 3.2% from November to a seasonally adjusted $44.26 billion. Exports rose 2.7%, including increased sales of civilian airplanes and aircraft engines. Imports were up 1.5% in December, including a rise in car imports. [..] The interplay between trade, growth and employment is complex and difficult to manage. The U.S. has run trade deficits for decades, during periods of expansion and low unemployment as well as during recessions and high unemployment. The gap widened starting in the late 1990s with China’s emergence as a world trading power and recent research shows a surge of imports from China put downward pressure on U.S. wages and manufacturing employment.

Economists generally say trade has overall if uneven benefits, including lower prices for consumers.In 2016, the total deficit rose modestly from the prior year to its highest dollar level since 2012. But it shrank slightly to 2.7% as a share of U.S. economic output after hovering at 2.8% of GDP in 2013 through 2015. The gap fundamentally reflects the fact that Americans consume more than they produce relative to the rest of the world. To shrink the gap, they would either have to produce more or consume less. If Americans consumed less, the deficit could contract along with the broader economy, as happened during the 2001 and 2007-2009 recessions, leaving workers no better off. To produce more, U.S. firms could export more or take market share from imports. Tariffs could help that happen, but other countries might retaliate.

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This was always going to happen. It’s been clear from the start that not all these people would last very long. It’s Trump-style: throw out some stuff and see what sticks. And this is where the anti-Trump stance of the media bites: WaPo or CNN or NYT or in this case Politico have lost any and all signs of objectiveness. Which colors their reporting on this too, or so one must assume. We could have done with some credible sources.

Trump Reviews Top White House Staff After Tumultuous Start (Pol.)

President Donald Trump, frustrated over his administration’s rocky start, is complaining to friends and allies about some of his most senior aides — leading to questions about whether he is mulling an early staff shakeup. Trump has told several people that he is particularly displeased with national security adviser Michael Flynn over reports that he had top-secret discussions with Russian officials about and lied about it. The president, who spent part of the weekend dealing with the Flynn controversy, has been alarmed by reports from top aides that they don’t trust Flynn. “He thinks he’s a problem,” said one person familiar with the president’s thinking. “I would be worried if I was General Flynn.”

Yet Trump’s concern goes beyond his embattled national security adviser, according to conversations with more than a dozen people who have spoken to Trump or his top aides. He has mused aloud about press secretary Sean Spicer, asking specific questions to confidants about how they think he’s doing behind the podium. During conversations with Spicer, the president has occasionally expressed unhappiness with how his press secretary is talking about some matters — sometimes pointing out even small things he’s doing that he doesn’t like. Others who’ve talked with the president have begun to wonder about the future of Chief of Staff Reince Priebus. Several Trump campaign aides have begun to draft lists of possible Priebus replacements, with senior White House aides Kellyanne Conway and Rick Dearborn and lobbyist David Urban among those mentioned.

Gary Cohn, a Trump economic adviser who is close with senior adviser Jared Kushner, has has also been the subject of chatter. For now, Priebus remains in control as chief of staff. He was heavily involved in adviser Stephen Miller’s preparation for appearances on Sunday morning talk shows, which drew praise from the president. If there is a single issue where the president feels his aides have let him down, it was the controversial executive order on immigration. The president has complained to at least one person about “how his people didn’t give him good advice” on rolling out the travel ban and that he should have waited to sign it instead of “rushing it like they wanted me to.” Trump has also wondered why he didn’t have a legal team in place to defend it from challenges.

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A very strange position to be in for a career intelligence man.

Mike Flynn’s Position as National Security Adviser Grows Tenuous (WSJ)

The White House is reviewing whether to retain National Security Adviser Mike Flynn amid a furor over his contacts with Russian officials before President Donald Trump took office, an administration official said Sunday. Mr. Flynn has apologized to White House colleagues over the episode, which has created a rift with Vice President Mike Pence and diverted attention from the administration’s message to his own dealings, the official said. “He’s apologized to everyone,” the official said of Mr. Flynn. Mr. Trump’s views toward the matter aren’t clear. In recent days, he has privately told people the controversy surrounding Mr. Flynn is unwelcome, after he told reporters on Friday he would “look into” the disclosures.

But Mr. Trump also has said he has confidence in Mr. Flynn and wants to “keep moving forward,” a person familiar with his thinking said. Close Trump adviser Steve Bannon had dinner with Mr. Flynn over the weekend, according to another senior administration official, and Mr. Bannon’s view is to keep him in the position but “be ready” to let him go, the first administration official said. Mr. Trump’s son-in-law and senior adviser, Jared Kushner, as of Sunday evening hadn’t yet weighed in, the official said. Mr. Flynn initially said that in a conversation Dec. 29 with the Russian ambassador, Sergey Kislyak, he didn’t discuss sanctions imposed that day by the outgoing Obama administration, which were levied in retaliation for alleged Russian interference in the 2016 presidential election.

Mr. Flynn now concedes that he did, administration officials said, after transcripts of his phone calls show as much. He also admits he spoke with the ambassador more than once on Dec. 29, despite weeks of the Trump team’s insisting it was just one phone call, officials said. Mr. Pence, in television interviews, vouched for Mr. Flynn, based on a private conversation, and he was angered he repeated information publicly that turned out to be untrue, administration officials said. Messrs. Pence and Flynn spoke twice on Friday, one official said. If Mr. Flynn had promised any easing of sanctions once Mr. Trump took office, he may have violated a law that prohibits private citizens from engaging in foreign policy, legal experts have said.

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Who does the headlines at Bloomberg?

Refugee-Embracing Trudeau Set to Bite His Tongue on Trump Visit (BBG)

More than two decades ago, with Donald Trump already atop a real-estate empire, a young Justin Trudeau set out to explore the world. He toured Europe and Africa with friends, hiding their beer from customs agents before boarding the Trans-Siberian railway to China. On the train, he sketched, read “War and Peace” and gazed at the remnants of the Soviet Union. It was a defining trip, he’d later write, that left him praising both diversity and compromise. Both values will be tested Monday. The now-45-year-old Canadian prime minister – hailed by Joe Biden as one of the last champions of liberalism – heads to Washington for his first meeting with the new U.S. president, 70, whose bellicose statements and immigration restrictions reveal a deep gulf between the two leaders. But U.S. liberals hoping for Trudeau to emerge as Trump’s foil shouldn’t hold their breath.

He’s already bit his tongue and focused almost exclusively on an economic relationship that accounts for three-quarters of Canada’s exports. The White House visit will test just how far Trudeau can go to woo the president and preserve trade without selling out his core values. “We both got elected on commitments to strengthen the middle class, and support those working hard to join it,” Trudeau said last week. “And that’s exactly what we’re going to be focused on.” He has little choice. Nearly two-thirds of all Canadian trade is with the U.S., the highest ratio of Group of 20 nations and quadruple all but Mexico. Almost all of Canada’s oil goes to the U.S. and most of the country’s manufacturing is geared toward meeting U.S. demand. Americans hold C$2.3 trillion ($1.8 trillion) in Canadian assets, almost exactly the same amount held by Canadians in the U.S. A Deutsche Bank report this month that looked at the potential impact of Trump policies on all the U.S.’s major partners found Canada would be among the hardest hit, forcing the country to cede about $70 billion in trade to the U.S. [..]

The threats to Canada from Trump’s agenda go beyond trade. Trump has shown an interest in overhauling the U.S. tax system in a way that would impose financial disincentives against imports. The border-adjusted tax plan would focus levies on domestic income and imports while exempting exports and offshore income. It has met opposition from retailers and oil refiners but is supported by major exporters. It’s unclear whether the president fully favors that approach. All this, however, is unlikely to be detailed Monday. Instead, Trudeau will seek to lay out a joint economic narrative with Trump. The prime minister’s conciliatory spirit traces back to that Trans-Siberian railway trip. On New Year’s Eve 1994, Trudeau drank vodka with the conductor, captivated by stories but abhorred by “his casual racism to our fellow passengers,” he wrote in his autobiography.

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Corruption interrupted.

Romania Protests Enter Day 13, Call For Government Of ‘Thieves’ To Resign (G.)

Tens of thousands of Romanians have braved the cold and returned to the streets in protest, calling on the government to resign as they accused it of attempting to water down anti-corruption laws. “Thieves! Resign!” chanted protesters gathered in front of the seat of government in Bucharest on Sunday night, as they used the lights from their mobile phones to project the blue, yellow and red colours of the Romanian flag. Up to 50,000 protesters took part in the Bucharest march, according to Romanian media reports. The authorities did not give any estimate of their own. Some 20,000 more took to the streets in other major cities, calling on the government to stand down. “We want to give the government a red card,” one of the protesters, 33-year-old businessman Adrian Tofan, said.

Sunday’s demonstrations, the 13th consecutive day of protests against the government, took place despite the administration backing down over a planned controversial decree which would have made abuse of power a crime punishable by jail only if the sums involved exceeded 200,000 lei ($47,500). The demonstrations, the largest since the ousting and summary execution of communist dictator Nicolae Ceausescu in 1989, have continued despite the resignation on Thursday of justice minister Florin Iordache. “The justice minister’s resignation isn’t enough after what they tried to do,” said Tofan. Another demonstrator also said he had completely lost faith in the government. “We want this government to stand down. We don’t trust it, they want us to go backwards,” said Bogdan Moldovan, a doctor.

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Highly speculative, but….“..some economists in Germany say the repatriated gold may be needed to back a new deutschmark should the eurozone collapse..”

Germany Repatriates Gold Faster Than Planned As Faith In Euro Plunges (RT)

Berlin is bringing home its gold reserves stored in New York, London and Paris faster than scheduled, Germany’s central bank said Thursday. The move is linked to surging euroskepticism, as new governments in France and Italy may ditch the single currency. The German Bundesbank has already moved 583 tons of gold out of New York and Paris, planning to have a half of its gold back in Germany by the end of 2017, which is ahead of the 2020 plan. The rest will be split between the Federal Reserve Bank of New York and the Bank of England. “We have a lot of discussions about Trump, regarding implications on monetary policy, macroeconomics, etc., but we trust the central bank of the US,” Bundesbank board member Carl-Ludwig Thiele told a news conference. “Trump has not triggered a discussion about the storage facility in New York,” he said.

As French presidential candidate Marine Le Pen and Italy’s 5-Star Movement are openly calling to pull out of the euro, some economists in Germany say the repatriated gold may be needed to back a new deutschmark should the eurozone collapse. During the Cold War, 98% of Germany’s bullion was stored abroad, and so far the biggest repatriation was in 2000 when the Bundesbank repatriated 931 tons from the Bank of England. When the relocation is complete, Germany will still have 1,236 tons in New York, 432 tons in London and the rest in Frankfurt. The current repatriation involves moving 300 tons from New York and 374 tons from Paris. The Bundesbank said it is not worried about keeping gold in England despite Brexit, as London remains a key gold trading market and a safe place. Germany has the second-largest gold reserves in the world after the US with 3,381 tons.

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Amen.

Brussels’ Hypocrisy Over The Closing Of Borders (Nikos Devletoglou)

Sir, It seems remarkable that today’s leaders of the EU, encouraged by the overreaction of the global mass media, reserve for themselves the appearance of virtue and goodness and generally resent the refreshing American principle summed up by president Donald Trump as America First. Americans have shed blood, along with vast material expense, defending human rights in Europe — regardless of ethnicity, geography, culture or religion, demonstrably having guaranteed the continent’s survival in freedom and subsequent prosperity, including that of Germany, after the second world war.

The EU’s hypocrisy offends. Indeed, it remains a mystery how Brussels feels justified in its heavy criticism of America’s increasing vigilance over its own borders when the EU itself continues to turn a blind eye to the formidable barbed-wire militarised fortifications erected all along the northern frontiers of Greece by its neighbours, pitilessly blocking the passage of hundreds of thousands refugees desperately fleeing the war in Syria. These refugees still dearly hope to reach Germany first and eventually other parts of Europe, but are instead inhumanely trapped in Greece practically under the authority of the EU — which, further, even condones the closing of borders in Austria and Hungary. These are provocative double standards. The scant remaining resources in Greece are already stretched to their limits.

Previously prosperous islands in the Aegean Sea – Chios, Samos and Lesbos were until recently celebrated high-profile tourist destinations worldwide – are currently overrun by multitudes of refugees, understandably aggressively inclined by now, at the expense of social cohesion elsewhere in Greece as well. Still worse, the country remains undeservedly caught in a deepening economic and financial crisis, a result of blind austerity policies inspired by Germany that the EU rigorously enforces to this day, manifestly ruling out growth and prosperity in Greece any time soon. Both the IMF and the European authorities still fail to appreciate that reducing Greek debt by one-third in the present circumstances would consistently reflect the social, economic and financial damage they themselves have caused by arbitrarily depressing the Greek economy since 2010.

Nicos E Devletoglou, Emeritus Professor of Economics, University of Athens, Greece

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Bitter, bitter tragedy. “The human and social cost of this austerity policy is not included in the Excel tables of the Eurogroup. But it is paid cash by the population.”

Greece: The Low-Noise Collapse Of An Entire Country (FE)

European officials may argue that their bailout is working, they welcome the recovery of Greece and the budget surpluses, but the situation is quite different: passively we are witnessing the low-noise collapse of a whole country. While forecasts foresee a rebound of the Greek economy in 2016, with growth of at least 2.6%, these risks once again prove to be false. If a slight start was recorded at the beginning of the year, it continued to slacken. In the last few months, the engine seems to have stalled. According to Markit figures published on February 1st, manufacturing activity recorded its largest decline in 15 months. “The decline is related to both the decline in production and new orders. While rising import prices have accelerated to their highest level in 70 months, companies nevertheless lower their selling prices,” explains the economic and financial institute, pointing to the fall in consumption and the lack of outlets.

In seven years Greece’s GDP decreased by a third. Unemployment affects 25% of the population and 40% of young people between 15 and 25 years. One third of companies have disappeared in five years. Successive cuts imposed everywhere in the name of austerity now bite in all regions. There are no more trains, no more buses in whole parts of the country. No more schools, sometimes. Many secondary schools had to close in the most remote corners because of lack of funding. Per capita spending on health has declined by a third since 2009, according to the OECD. More than 25,000 doctors were dismissed. Hospitals lack personnel, medicines, everything. The human and social cost of this austerity policy is not included in the Excel tables of the Eurogroup.

But it is paid cash by the population. One fifth of the population lives without heating or telephone. 15% of the population has now fallen into extreme poverty compared to 2% in 2009. The Bank of Greece, which cannot be suspected of complacency, has drawn up a report on the health of the Greek population, published in June 2016. The figures it gives are overwhelming: 13% of the population are excluded medical care; 11.5% cannot buy prescription drugs; People with chronic health problems are up to 24.2%. Suicides, depression, mental illness show exponential increases. Worse: while the birth rate has fallen by 22% since the beginning of the crisis, the infant mortality rate almost doubled in a few years to reach 3.75% in 2014.

After seven years of crisis, austerity and European plans, the country is exhausted, financially, economically and physically. “The situation is getting worse. What we need most now is food. This shows that the problems relate to the essential and not the quality of life. It’s about subsistence,” says Ekavi Valleras, head of the NGO Desmos. And it is to this country that Europe asks moreover to assume alone or almost the reception of the refugees coming to Europe.

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Feb 082017
 
 February 8, 2017  Posted by at 9:21 am Finance Tagged with: , , , , , , , , , ,  5 Responses »
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Dorothea Lange Rear window tenement dwelling, 133 Avenue D, NYC 1936

This Is How Out-Of-Whack US Trade Relationships Really Are (WS)
John Kelly, Homeland Security Chief, Says Travel Ban Rolled Out Too Quickly (WSJ)
Trump Travel Ban: Judges Skeptical About Arguments On Executive Order (G.)
‘Trump Makes Sense To A Grocery Store Owner’ – Taleb (Hindu)
Do Not Let Elliott Abrams Anywhere Near The State Department (Rand Paul)
EU Faces Crisis As IMF Warns Greek Debts Are On ‘Explosive’ Path (Tel.)
Greece’s Debt Costs Rise Sharply As Worries Grow Over IMF Role (G.)
Don’t Sell the Euro Short. It’s Here to Stay. (Eichengreen)
Money Is Pouring Out Of China, And The Government Can’t Stop It (R.)
China’s Reserves Approach Breaking Point As Another Devaluation Looms (BBG)
Russia Shows Why China Should Just Stop Burning Up Its Reserves (BBG)
Cracks Are Appearing In Australia’s Trillion-Dollar Property Debt Pile (BBG)
Putin Orders Russian Air Force To Prepare For ‘Time Of War’ (Ind.)
Controversial Dakota Pipeline To Go Ahead After Army Approval (R.)
Why Should A Libertarian Take Universal Basic Income Seriously? (Dolan)

 

 

“It never was a big deal because growing imports were portrayed as healthy demand in the US. The world loved it.”

This Is How Out-Of-Whack US Trade Relationships Really Are (WS)

2016 marked another banner year for US trade, a banner year largely for other countries that at the initiative of Corporate America, whose supply chains weave all over the world, managed to load the US up with their merchandise. According to the Commerce Department’s report today, the US trade deficit in goods and services rose to $502.3 billion in 2016, the highest in four years. Exports of goods and services fell $52 billion in 2016 year-over-year to $2.21 trillion, and imports fell $50 billion to $2.71 trillion. That both exports and imports fell is a sign of weakening world trade, lackluster demand globally, and lousy economic growth in the US, where GDP in 2016 inched up by a miserable 1.6%, matching the growth rate of 2011, both having been the lowest growth rates since 2009.

Exports add to the economy and to GDP; imports subtract from GDP. And it’s a big number: the trade deficit in 2016 amounted to 2.7% of GDP. In overly simplified, scribbled-on-a-napkin-after-the-third-beer math: had trade been balanced, with imports about equal to exports, GDP growth would have been 2.7 percentage points higher in 2016. So 4.3%! OK, we’re dreaming. But that’s how a massive trade deficit whacks the economy. The overall trade balance is composed of trade in goods and services. It used to be years ago when the trade deficit in goods began to balloon that it was no big deal because America was exporting innovative services, such as complex financial services, and they would make up for the deficit in old-fashioned goods.

They did lessen the pain for a little while, and then they didn’t. And soon, even the overall US trade deficit ballooned, but it was no big deal because soaring imports showed that the US economy was healthy and brimming with consumer demand. Year after year, we heard this from economists and politicians. Beyond that, apathy was palpable. No one cared. It’s just the way it is. Dreaming of balanced trade was like so 1980s or whatever. Meanwhile, Corporate America was fine-tuning its game of offshoring production and importing from cheaper countries. The entire business model of Wal-Mart depends on it. US supply chains wind all over the globe, in search of the lowest production costs, whether it’s consumer gadgets or automotive components. It never was a big deal because growing imports were portrayed as healthy demand in the US. The world loved it.

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Kelly’s a straight shooter. Wonder how long he can last.

John Kelly, Homeland Security Chief, Says Travel Ban Rolled Out Too Quickly (WSJ)

Homeland Security Secretary John Kelly told Congress the Trump administration should have taken more time to inform Congress before implementing its controversial executive order temporarily blocking entry of people from seven nations. “The thinking was to get it out quick so potentially people coming here to harm us would not take advantage” of a delay, Mr. Kelly told the House Homeland Security Committee on Tuesday. In his first congressional appearance as a cabinet member, Mr. Kelly offered a forceful defense of the order, saying it wasn’t a ban on Muslims as critics have charged, but a “temporary pause” on immigrants and visitors from countries about whose residents the U.S. can’t access solid information. He sought to take responsibility for the chaotic rollout, saying the confusion was “all on me.”

“Going forward, I would have certainly taken some time to inform the Congress and certainly that’s something I’ll do in the future,” he said. The Wall Street Journal and others have reported that Mr. Kelly had little input in the order or its rollout, which was directed by the White House. The order, issued on the afternoon of Friday, Jan. 27, resulted in initial confusion and confrontation at airports around the country, as some travelers were detained for hours or sent away and protesters gathered at terminals to denounce the new rules. A federal court in Seattle temporarily put the order on hold on Friday, citing potential legal concerns. That action prompted President Donald Trump to question the judge’s credentials and say he could be to blame in the event of a terrorist attack. Mr. Kelly waded into that debate on Tuesday, likening judges to academics removed from on-the-ground realities.

“I have nothing but respect for judges, but in their world it’s a very academic, very almost in-a-vacuum discussion, and of course, in their courtrooms, they are protected by people like me, so they can have those discussions,” he said. “They live in a different world than I do. I’m paid to worst-case it, he’s paid to, in a very academic environment, make a call.” [..] Committee chairman Rep. Michael McCaul (R., Texas) said he backed the executive order, which a court order has put on hold. But he said it was poorly implemented. He said some U.S. permanent residents who are citizens of the targeted countries were initially not allowed to return to the country, while foreigners who aided the U.S. military and students attending American schools were “trapped overseas.”

“I applaud you for quickly correcting what I consider errors,” Mr. McCaul said. The congressman said he had suggested the approach President Donald Trump took when Mr. Trump was a candidate. His goal, Mr. McCaul said, was to help reframe the proposal from what Mr. Trump initially described as a Muslim ban, an approach he thought would have been unconstitutional.

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It’s great to have the courts discuss this. That’s where it belongs. If Trump can win, we will know just how broad US presidents’ power had become, before Trump. And we can judge whether we like things that way. He either has the authority, or he doesn’t. That should be clear from the law, not a matter of taste or preference.

Trump Travel Ban: Judges Skeptical About Arguments On Executive Order (G.)

A lawyer seeking to reinstate Donald Trump’s travel ban was grilled by a panel of three judges on Tuesday, facing questions over the president’s inflammatory campaign promise to close America’s borders to Muslims. August Flentje, of the Department of Justice, was put on the spot over why seven Muslim-majority countries had been targeted in Trump’s executive order, as well as past statements made by the president and his ally Rudy Giuliani. The hour-long hearing before the San Francisco-based ninth circuit court of appeals was the most significant legal battle yet over the ban. The judges said they would try to deliver a ruling as soon as possible but gave no indication of when. Flentje, reportedly called up for the hearing at short notice, asked the judges for a stay on the temporary restraining order placed on Trump’s travel ban by district court judge James Robart last week.

[..] During a hearing conducted by telephone between various locations, Flentje described the ban as putting a “temporary pause” on travelers from countries that “pose special risk”. He said the seven countries targeted had “significant terrorist presence” or were “safe havens for terrorism”. Trump’s actions were “plainly constitutional”, Flentje argued, as the president sought to strike a balance between welcoming visitors and securing the nation of the risk of terrorism. “The president has struck that balance,” he said. “The district court order upset that balance.” Flentje argued that the district court restraining order was too broad, giving rights to people “who have never been to the United States” and “really needs to be narrowed”. Judge Michelle Friedland asked: “Are you arguing then that the president’s decision in the regard is unreviewable?”

Flentje replied: “Yes, there are obviously constitutional limitations.” But Judge William Canby pointed out that people from the seven countries already could not come into the country without a visa and were subject to “the usual investigations”. How many of these people had committed terrorist attacks in the US, he wondered, before pointing out it was none. Flentje pointed to Congress’s determination that they were countries of concern, an argument that Judge Richard Clifton dismissed as “pretty abstract”. Trying to regain ground, the lawyer said: “Well, I was just about to at least mention a few examples. There have been a number of people from Somalia connected to al-Shabaab [an Islamist militant group] who have been convicted in the United States.” Friedland, who was appointed by Barack Obama, interjected: “Is that in the record? Can you point us to what, where in the record you are referring?” Flentje admitted: “It is not in the record.”

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“..if you went to the local souk [bazaar] in Aleppo and brought one of the retail shop owners, he would do the same thing Trump is doing. Like making a call to Boeing and asking why are we paying so much..”

‘Trump Makes Sense To A Grocery Store Owner’ – Taleb (Hindu)

In Skin in the Game, you seem to build on theories from The Black Swan that give a sense of foreboding about the world economy. Do you see another crisis coming? Oh, absolutely! The last crisis [2008] hasn’t ended yet because they just delayed it. [Barack] Obama is an actor. He looks good, he raises good children, he is respectable. But he didn’t fix the economic system, he put novocaine [local anaesthetic] in the system. He delayed the problem by working with the bankers whom he should have prosecuted. And now we have double the deficit, adjusted for GDP, to create six million jobs, with a massive debt and the system isn’t cured. We retained zero interest rates, and that hasn’t helped. Basically we shifted the problem from the private corporates to the government in the U.S. So, the system remains very fragile.

You say Obama put novocaine in the system. How will the Trump administration be able to address this? Of course. The whole mandate he got was because he understood the economic problems. People don’t realise that Obama created inequalities when he distorted the system. You can only get rich if you have assets. What Trump is doing is put some kind of business sense in the system. You don’t have to be a genius to see what’s wrong. Instead of Trump being elected, if you went to the local souk [bazaar] in Aleppo and brought one of the retail shop owners, he would do the same thing Trump is doing. Like making a call to Boeing and asking why are we paying so much.

You’re seen as something of an oracle, given that you saw the 2008 economic crash coming, you predicted the Brexit vote, the outcome of the Syrian crisis. You said the Islamic State would benefit if Bashar al-Assad was pushed out and you predicted Trump’s win. How do you explain it? Not the Islamic State, but al-Qaeda at the time, and I said the U.S. administration was helping fund them. See, you have to have courage to say things others don’t. I was lucky financially in life, that I didn’t need to work for a living and can spend all my time thinking. When Trump was running for election, I said what he says makes sense to a grocery store owner. Because the grocery guy can say Trump is wrong because he can see where he is wrong. But with Obama, he can’t understand what he’s saying, so the grocery man doesn’t know where he is wrong.

Is it a choice between dumbing down versus over-intellectualisation, then? Exactly. Trump never ran for archbishop, so you never saw anything in his behaviour that was saintly, and that was fine. Whereas Obama behaved like the Archbishop of Canterbury, and was going to do good but people didn’t feel their lives were better. As I said, if it was a shopkeeper from Aleppo, or a grocery store owner in Mumbai, people would have liked them as much as Trump. What he says makes common sense, asking why are we paying so much for this rubbish or why do we need these complex taxes, or why do we want lobbyists. You can call Trump’s plain-speaking what you like. But the way intellectuals treat people who don’t agree with them isn’t good either. I remember I had an academic friend who supported Brexit, and he said he knew what it meant to be a leper in the U.K. It was the same with supporting Trump in the U.S.

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Amen to that.

Do Not Let Elliott Abrams Anywhere Near The State Department (Rand Paul)

I hope against hope that the rumors are wrong and that President Donald Trump will not open the State Department door to the neocons. Crack the door to admit Elliott Abrams and the neocons will scurry in by the hundreds. Neoconservative interventionists have had us at perpetual war for 25 years. While President Trump has repeatedly stated his belief that the Iraq War was a mistake, the neocons (all of them Never-Trumpers) continue to maintain that the Iraq and Libyan Wars were brilliant ideas. These are the same people who think we must blow up half the Middle East, then rebuild it and police it for decades. They’re wrong and they should not be given a voice in this administration.

One of the things I like most about President Trump is his acknowledgement that nation building does not work and actually works against the nation building we need to do here at home. With a $20 trillion debt, we don’t have the money to do both. I urge him to keep that in mind this week when he meets with Elliott Abrams, the rumored pick for second in command to the Secretary of State. Abrams would be a terrible appointment for countless reasons. He doesn’t agree with the president in so many areas of foreign policy and he has said so repeatedly; he is a loud voice for nation building and when asked about the president’s opposition to nation building, Abrams said that Trump was absolutely wrong; and during the election he was unequivocal in his opposition to Donald Trump, going so far as to say, “the chair in which Washington and Lincoln sat, he is not fit to sit.”

Why then would the president trust him with the second most powerful position in the State Department? Abrams was equally dismissive throughout Trump’s entire candidacy. As a Never-Trumper, he repeatedly said he would neither vote for Clinton nor Trump. He likened the choice to the one the nation faced of McGovern vs. Nixon. I voted for Rex Tillerson for secretary of state because I believe him to have a balanced approach to foreign policy. My hope is that he will put forward a realist approach. I don’t see Abrams as part of any type of foreign policy realism. Elliott Abrams is a neoconservative too long in the tooth to change his spots, and the president should have no reason to trust that he would carry out a Trump agenda rather than a neocon agenda. But just as importantly, Congress has good reason not to trust him – he was convicted of lying to Congress in his previous job.

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It’s not only a broken record, it’s a really bad song too.

EU Faces Crisis As IMF Warns Greek Debts Are On ‘Explosive’ Path (Tel.)

The EU faces a looming crisis which could threaten the sustainability of the eurozone as the IMF has warned Greece’s debts are on an “explosive” path despite years of attempted austerity and economic reforms. Global financiers at the IMF are increasingly unwilling to fund endless bailouts for the eurozone’s most troubled country, passing more of the burden onto the EU – at a time when Germany does not want to keep sending cash to Athens. The assessment opens up a fresh split with Europe over how to handle Greece’s massive public debts, as the IMF called on Europe to provide “significant debt relief” to Greece – despite Greece’s EU creditors ruling out any further relief before the current rescue programme expires in 2018. Jeroen Dijsselbloem, the Eurogroup President repeated that position last night, saying there would be no Greek debt forgiveness and dismissing the IMF assessment of Greece’s growth prospects as overly pessimistic.

“It’s surprising because Greece is already doing better than that report describes,” said Mr Dijsselbloem, who chairs meetings of eurozone finance ministers, adding that Greece was on track for a “pretty good recovery at the moment”. The renewed divisions over how to handle the Greek debt crisis has raised fresh questions over whether the IMF will be a full participant in the next phase of the Greek rescue – a key condition for backing from the German and Dutch parliaments. As Angela Merkel, the German chancellor, fights a tough reelection battle, Germany is particularly reluctant to send funds directly to Greece, with populist parties in Germany arguing that the payments amount to an unfair bailout from hard-working Germans to less deserving Greeks.

The IMF split came as Mrs May last night comfortably defeated a Brexit rebellion in the Commons as MPs rejected Labour plans to give Parliament a “meaningful” vote on the terms of a final deal. Despite suggestions that up to 30 Tory MPs could defy their party whip and back the Labour amendment just seven chose to do so. Mrs May stemmed the rebellion after the Government pledged to hold a vote in Parliament on the deal before it is sent to the European Parliament. However ministers said that MPs would have to “take or leave it”, meaning that Mrs May is prepared to walk away from Europe without a deal if Parliament rejects it. A fresh crisis over Greek debt could be triggered as soon as in July when Greece is due to repay some €7bn to its creditors – money the country cannot pay without a fresh injection of bailout cash.

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As they do the same thing again and again, things only get worse. And then they have to do it again.

Greece’s Debt Costs Rise Sharply As Worries Grow Over IMF Role (G.)

Fresh worries over Greece’s debts have pushed the country’s borrowing costs sharply higher amid renewed insistence from Athens it will not swallow further austerity demands from international lenders. The yields on two-year government bonds jumped to their highest level since last June and went above 10% to reflect growing anxiety on financial markets over Greece’s ability to keep up to date with debt repayments. Yields on 10-year government bonds were also higher at above 7.8%, the highest close since November. The renewed focus on Greece’s debts came as the International Monetary Fund revealed its board was split over how far spending cuts in the country should go, raising fresh doubts over its participation in rescue plans for the struggling Greek economy.

The fund has made repeated warnings that Greece’s debt burden of about €330bn is unsustainable despite the government pushing through spending cuts and tax increases that have badly hit popularity ratings for the government of prime minister Alexis Tsipras. The IMF declined to join other international lenders – the ECB and the EU – in funding the country’s third bailout, agreed in August 2015, and it is currently deciding whether to take part in a new chunk of rescue funds needed by mid-2018. Germany has warned the IMF’s involvement is crucial if support for Greece is to continue. News of a split on the IMF board raised new questions over whether Germany will see its wish granted for the fund joining the next rescue. In its latest annual review of the Greek economy, the IMF revealed that its board members were in disagreement over whether Athens should enforce even more austerity to satisfy its lenders.

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Barry Eichengreen basically says the euro will stay because of fear (of the consequences of leaving). That doesn’t seem a very stable foundation.

Don’t Sell the Euro Short. It’s Here to Stay. (Eichengreen)

Two forms of glue hold the euro together. First, the economic costs of break-up would be great. The minute investors heard that Greece was seriously contemplating reintroducing the drachma with the purpose of depreciating it against the euro, or against a “new Deutsche mark,” they would wire all their money to Frankfurt. Greece would experience the mother of all banking crises. The “new Deutsche mark” would then shoot through the roof, destroying Germany’s export industry. More generally, those predicting, or advocating, the euro’s demise tend to underestimate the technical difficulties of reintroducing national currencies. They suggest briefly imposing capital controls to prevent holders of euros from fleeing while the new money, electronic or other, is quickly put in place.

This ignores the complexity of actually removing controls once they are adopted. Recall the experiences of Iceland and Cyprus, which required years, not days, to completely remove their “temporary” controls. The proponents advocate quickly restructuring the debts of banks, firms and households with euro-denominated liabilities, without realizing that one person’s debt is another’s asset. Moreover, because borrowing and lending occurs across borders, agreement on debt restructuring will require lengthy negotiation between countries if the country abandoning the euro is to avoid harsh retaliatory measures. This process would make the U.K.’s Brexit negotiations look like a stroll in the park.

For southern European countries, there is an additional complication. They would have a massive bill to the ECB, and by implication to the other member states that are shareholders in the ECB, in settlement of their so-called Target2 balances, liabilities incurred as a result of cross-border payments in central bank money. ECB President Mario Draghi recently made clear that countries abandoning the euro would be presented with this bill. For Italy, to pick a case not entirely at random, those balances currently stand at €360 billion ($383 billion), or approximately €6,000 for every man, woman and child. That’s about 10 times on a per capita basis what the U.K. likely owes the EU as alimony for its divorce. And if a country like Italy chooses to default on its Target2 obligations, it will be unceremoniously kicked out of the EU.

This brings us to the second form of glue: namely that European countries, Britain aside, still attach very considerable value to EU membership. That membership matters even more now that that President Trump has cast NATO into doubt and the United States is no longer seen as a reliable ally. The example of U.K. Prime Minister Theresa May, reduced to cozying up to Mr. Trump and Turkish Prime Minister Recep Tayyip Erdogan, is not one that many other European politicians care to follow. In a 2007 article, I too made a bet — namely that the euro, while flawed, wasn’t going away. I argued that it is the roach motel of currencies. Like the Hotel California of the song: you can check in, but you can’t check out. For 10 years I’ve been right. To be sure, past performance is no guarantee of future returns, as any prudent investor knows. Even so, unlike ambassador-in-waiting Malloch, I continue to think that shorting the euro is bad advice.

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And this is before Trump.

Money Is Pouring Out Of China, And The Government Can’t Stop It (R.)

China’s foreign exchange reserves unexpectedly fell below the closely watched $3 trillion level in January for the first time in nearly six years, even as authorities tried to curb outflows by tightening capital controls. Reserves fell by $12.3 billion in January to $2.998 trillion, compared with a drop of $41 billion drop in December. Economists polled by Reuters had forecast forex reserves would fall by about $10.5 billion to $3 trillion. While the $3 trillion mark is not seen as a firm “line in the sand” for Beijing, concerns are swirling in global financial markets over the speed at which the country is depleting its ammunition to defend the currency and staunch capital outflows.

Some analysts fear a heavy and sustained drain on reserves could prompt Beijing to devalue the currency. The yuan fell 6.6% against the rising dollar in 2016, its biggest annual drop since 1994. For 2016 as a whole, China burned through nearly $320 billion of reserves, on top of a record drop of $513 billion in 2015. The yuan has found some respite in recent weeks as the dollar retreated, helped also by recent steps to curb capital outflows. But analysts expect downward pressure on the yuan to resume, especially if the U.S. continues to raise interest rates, which would likely trigger fresh capital outflows from emerging economies such as China and test its enhanced capital controls.

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“What was presented as a gradual depreciation of the yuan last year was in reality a significant 6% weakening of the currency versus the dollar as China’s domestic woes mounted. A collapse of the crawling peg could lead to yuan depreciation that is three times as large.”

China’s Reserves Approach Breaking Point As Another Devaluation Looms (BBG)

In his first few weeks in office, President Donald Trump has ordered the U.S. to withdraw from the Trans-Pacific Partnership and confirmed his intention to renegotiate the North American Free Trade Agreement. The consensus is that it won’t be long before he turns his focus to China, which he calls a currency manipulator. China can weather such criticism, for now. But if Trump’s threats of trade sanctions and 45% tariffs become real, the economic impact for the world’s second-biggest economy would be meaningful and could upend financial markets, potentially leading to a global recession. With economic growth already slowing and capital fleeing the nation, China’s $11 trillion economy is operating from a position of weakness.

Here’s how it plays out: As the world’s dominant reserve currency, the dollar has no peer. IMF data show that the greenback accounts for 63.3% of global foreign-exchange reserves, with the euro next at 20.3%, followed by the British pound and Japanese yen, both at 4.5%. That means that in times of crisis, the dollar benefits from global investors seeking a haven, even if the strife and the the uncertainty emanates from the U.S. It’s possible that a trade war would drive flows into the dollar, putting upward pressure on the currency at the expense of other exchange rates. That would be on top of the natural demand for the greenback created by the anticipation of significant fiscal stimulus floated by the Trump administration and a faster pace of interest-rate increases by the Federal Reserve.

In terms of China, it’s important to remember that the yuan’s external value is managed by authorities in a way that isn’t compatible with a sharp appreciation pressure of the dollar vis-à-vis all other currencies. The currency is managed to achieve a stable, effective, trade-weighted exchange rate and to foster a gently crawling peg relative to the dollar. That peg would be threatened if a trade war weakened China’s economy at a faster rate than forecast. What was presented as a gradual depreciation of the yuan last year was in reality a significant 6% weakening of the currency versus the dollar as China’s domestic woes mounted. A collapse of the crawling peg could lead to yuan depreciation that is three times as large.

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The ruble lost 50% vs the USD. A similar path for the yuan would be catastrophic.

Russia Shows Why China Should Just Stop Burning Up Its Reserves (BBG)

China has wiped out about a quarter of the world’s heftiest foreign-currency stockpile over the past 18 months in its quest to keep the yuan stable. According to Commerzbank, such intervention is futile. Data Tuesday showed China’s foreign reserves slipped below $3 trillion in January, the first time they’ve breached that psychologically potent level in almost six years. Yet the experiences of some fellow BRICs show that drawing down the stockpile will probably have little effect on the currency’s long-term fate, Hao Zhou, Commerzbank’s Singapore-based senior emerging-markets economist, wrote in a research note late Tuesday.

While efforts by Russia and Brazil in recent years might have cushioned the blow of currency declines, they couldn’t change the market’s dynamics. In Russia’s case, a collapse in oil prices and the imposition of economic sanctions over the Crimea crisis proved more powerful drivers than the sale of a third of the country’s foreign-currency hoard between April 2013 and March 2015. The ruble fell more than 50% versus the dollar in the period.

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Get out while you can.

Cracks Are Appearing In Australia’s Trillion-Dollar Property Debt Pile (BBG)

The Reserve Bank of Australia frequently seeks feedback on the health of the economy. It might want to call the debt counsellors soon. Homeowners, consumers and property investors around Australia are making more calls to financial helplines as three warning signs back up the spike in demand: mortgage arrears are creeping up, lenders’ bad debt provisions have increased and personal insolvencies are near an all-time high. “It’s steadily out of control – I don’t know of too many financial counselling services where demand doesn’t exceed supply,” said Fiona Guthrie, chief executive officer of Financial Counselling Australia, who says the biggest increase in calls is from people suffering mortgage stress. “There are more people who have got mortgages that they can’t afford to pay.”

Australia’s households are among the world’s most-indebted after bingeing on more than $1 trillion of mortgages amid a housing boom that’s fizzled out in parts of the country, but still roaring in Sydney and Melbourne. While most are capably servicing their debts, a worsening of credit metrics has seen executives and analysts take a more cautious tone. It’s also a key factor in the central bank’s rate decisions this year, as RBA governor Philip Lowe places financial stability at the forefront of monetary policy. The concerns are understandable. Australians’ private debt has soared to 187% of their income, from about 70% in the early 1990s, encouraged by low interest rates. In a November speech, Lowe said that while most households are managing these levels of debt, many feel they are closer to their borrowing capacity than they once were.

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Odd that this reaches the press.

Putin Orders Russian Air Force To Prepare For ‘Time Of War’ (Ind.)

Russia’s air force has been ordered to prepare for a “time of war”. President Vladimir Putin has ordered a “snap check” of the country’s armed forces, accoording to defense minister Sergey Shoigu. As well as checking whether agencies and troops are ready for battle, the same order will ensure that systems are ready to fight, according to state news agency TASS. Those preparations have already begun, according to Russian ministers. “In accordance with the decision by the Armed Forces Supreme Commander, a snap check of the Aerospace Forces began to evaluate readiness of the control agencies and troops to carry out combat training tasks,” he said, according to TASS.

“Special attention should be paid to combat alert, deployment of air defense systems for a time of war and air groupings’ readiness to repel the aggression,” Shoigu added. The preparations come amid increasing concern about tensions between Russia and many of the world’s largest superpowers. Donald Trump has both condemned Russia’s military campaigns and been criticised for being too close to the country’s leaders, and Russia itself is standing in an increasingly tense relationship with some Nato countries. The country has been increasing movement of its military including the launch of the biggest Arctic military push since the fall of the Soviet Union, last month. It has also revealed plans to expand its military over 2017, including a huge boost in the number of tanks, armoured vehicles and aircraft controlled by the company.

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Really? Trump is willing to strongarm veterans and Native Americans? Bad PR.

Controversial Dakota Pipeline To Go Ahead After Army Approval (R.)

The U.S. Army will grant the final permit for the controversial Dakota Access oil pipeline after an order from President Donald Trump to expedite the project despite opposition from Native American tribes and climate activists. In a court filing on Tuesday, the Army said that it would allow the final section of the line to tunnel under North Dakota’s Lake Oahe, part of the Missouri River system. This could enable the $3.8 billion pipeline to begin operation as soon as June. Energy Transfer Partners is building the 1,170-mile (1,885 km) line to help move crude from the shale oilfields of North Dakota to Illinois en route to the Gulf of Mexico, where many U.S. refineries are located. Protests against the project last year drew drew thousands of people to the North Dakota plains including Native American tribes and environmental activists, and protest camps sprung up.

The movement attracted high-profile political and celebrity supporters. The permit was the last bureaucratic hurdle to the pipeline’s completion, and Tuesday’s decision drew praise from supporters of the project and outrage from activists, including promises of a legal challenge from the Standing Rock Sioux tribe. “It’s great to see this new administration following through on their promises and letting projects go forward to the benefit of American consumers and workers,” said John Stoody, spokesman for the Association of Oil Pipe Lines. The Standing Rock Sioux, which contends the pipeline would desecrate sacred sites and potentially pollute its water source, vowed to shut pipeline operations down if construction is completed, without elaborating how it would do so.

The tribe called on its supporters to protest in Washington on March 10 rather than return to North Dakota. “As Native peoples, we have been knocked down again, but we will get back up,” the tribe said in the statement. “We will rise above the greed and corruption that has plagued our peoples since first contact. We call on the Native Nations of the United States to stand together, unite and fight back.” Less than two weeks after Trump ordered a review of the permit request, the Army said in a filing in District Court in Washington D.C. it would cancel that study. The final permit, known as an easement, could come in as little as a day, according to the filing. There was no need for the environmental study as there was already enough information on the potential impact of the pipeline to grant the permit, Robert Speer, acting secretary of the U.S. Army, said in a statement.

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The case is not that hard to make. You just need to erase the ideological resistance.

Why Should A Libertarian Take Universal Basic Income Seriously? (Dolan)

In a recent post on EconLog, Bryan Caplan writes, “I’m baffled that anyone with libertarian sympathies takes the UBI [universal basic income] seriously.” I love a challenge. Let me try to un-baffle you, Bryan, and the many others who might be as puzzled as you are. Here are three kinds of libertarians who might take a UBI very seriously indeed. Philosophical issues aside, what galls many libertarians most about government is the failure of many policies to produce their intended results. Poverty policy is Exhibit A. By some calculations, the government already spends enough on poverty programs to raise all low-income families to the official poverty level, even though the poverty rate barely budges from year to year. Wouldn’t it be better to spend that money in a way that helps poor people more effectively?

A UBI would help by ending the way benefit reductions and “welfare cliffs” in current programs undermine work incentives. When you add together the effects of SNAP, TANF, CHIP, EITC and the rest of the alphabet soup, and account for work-related expenses like transportation and child care, a worker from a poor household can end up taking home nothing, even from a full-time job. A UBI has no benefit reductions. You get it whether you work or not, so you keep every added dollar you earn (income and payroll taxes excepted, and these are low for the poor). But, wait, you might say. Why would I work at all if you gave me a UBI? That might be a problem if you got your UBI on top of existing programs, but if it replaced those programs, work incentives would be strengthened, not weakened.

In which situation would you be more likely to take a job: one where you get $800 a month as a UBI plus a chance to earn another $800 from a job, all of which you can keep, or one where your get $800 a month in food stamps and housing vouchers, and anything extra you earn is taken away in benefit reductions? Or, you might say, a UBI might be fine for the poor, but wouldn’t it be unaffordable to give it to the middle class and the rich as well? Yes, if you added it on top of all the middle-class welfare and tax loopholes for the rich that we have now. No, if the UBI replaced existing tax preferences and other programs that we now lavish on middle- and upper-income households. Done properly, a UBI would streamline the entire system of federal taxes and transfers without any aggregate impact on the federal budget.

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Oct 072015
 
 October 7, 2015  Posted by at 9:02 am Finance Tagged with: , , , , , , , , ,  6 Responses »
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John Collier Street Corner, Monday after Pearl Harbor, San Francisco 1941

Storm Clouds Gather Over Global Economy As World Struggles To Shake Crisis (T.)
IMF Warns On Worst Global Growth Since Financial Crisis (FT)
Most Americans Have Less Than $1,000 In Savings (MarketWatch)
Less Than a Third of Unemployed Americans Get Benefit Checks (WSJ)
Making Bank: Wall Streeters Are Earning More Than Ever Before (Forbes)
61,064 Failing US Bridges Must Wait as Cities Borrow at Decade Low (Bloomberg)
‘US Oil Output On Brink Of ‘Dramatic’ Decline’ (Reuters)
VW to Delay, Cancel Non-Essential Investments Due to Scandal (Bloomberg)
Hedge Funds Suffer Worst Month Since October 2008 (FT)
Chinese Money Flows Into US Housing (CNBC)
Mighty Dollar Sends US Exports To 3-Year Low, Trade Deficit Soars (MarketWatch)
Bernanke Tries to Rewrite the Financial Crisis in New Book (Pam Martens)
Parasites In The Body Economic: The Disasters Of Neoliberalism (Michael Hudson)
EU Parliament Backs Urgent Frontloading Of €35 Billion For Greece (Kath.)
Turkey Warns 3 Million More Refugees May Be Headed To EU From Syria (AP)
EU Launches Operation Targeting Libyan Refugee Smugglers (Guardian)
Bosnia: A European Tinderbox Just Waiting For A Spark (Fortune)
Doctors Without Borders Airstrike: US Alters Story 4th Time In 4 Days (Guardian)
No Foreign Aid Agencies Left In Afghanistan’s Kunduz (AFP)
Amnesty Urges UK, US To Stop Providing Weapons To Saudi Arabia (Guardian)

Oh, really?! “..downside risks to the world economy appear more pronounced than they did just a few months ago.”

Storm Clouds Gather Over Global Economy As World Struggles To Shake Crisis (T.)

Britain is among a handful of shining lights in the global economy this year as the world sees the slowest period of growth since the depths of the financial crisis, according to the IMF. The IMF edged up its forecast for UK growth in 2015 amid downgrades “across the board” for advanced and emerging economies. It said China’s slowdown, falling commodity prices and an expected increase in US interest rates would all weigh on output. The world economy is now expected to expand by 3.1pc in 2015, from a forecast of 3.3pc in July. This represents the slowest expansion since 2009, when global growth ground to a halt. Growth in 2016 is expected to pick up to 3.6pc. However, this is below the 3.8pc expansion that was previously forecast.

“Six years after the world economy emerged from its broadest and deepest post-war recession, the holy grail of robust and synchronised global expansion remains elusive,” said Maurice Obstfeld, the IMF’s chief economist. “Despite considerable differences in country-specific outlooks, the new forecasts mark down expected near-term growth marginally but nearly across the board. Moreover, downside risks to the world economy appear more pronounced than they did just a few months ago.” The Fund warned that the risk of recession in the US, eurozone and Japan over the next year had increased over the past six months, as emerging markets face a fifth year of slowing growth. Years of weak demand and anaemic productivity growth meant the likelihood of damage to growth over the medium term was “increasingly a concern”, the IMF warned.

A further decline in global demand could lead to “near stagnation” in advanced economies if emerging markets continued to falter, it added. The UK economy is projected to grow by 2.5pc this year, up slightly on the IMF’s July forecast of 2.4pc. Its projection for 2016 growth was unchanged, at 2.2pc. “In the United Kingdom, continued steady growth is expected, supported by lower oil prices and continued recovery in wage growth,” the IMF said in its latest World Economic Outlook. The outlook also showed US growth for 2015 was also higher than it expected three months ago, while Italy saw upgrades for both 2015 and 2016. The world’s biggest economy is expected to lead growth in the G7 this year. However, both the UK and US economies have recently shown signs of slowing down.

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Remind me why we pay attention to anything the IMF says.

IMF Warns On Worst Global Growth Since Financial Crisis (FT)

The world economy will this year grow at its slowest pace since the global financial crisis, the IMF said on Tuesday, with a deep slowdown in China and other emerging economies masking a strengthening recovery in rich countries. 2015 will mark the fifth consecutive year that average growth in emerging economies has declined, the fund predicts in its twice-yearly world economic outlook. This drag on global growth is sufficient to pull it down to 3.1% this year even though advanced economies will post their best performance since 2010. With downgrades to its growth forecasts, the fund called for countries to redouble efforts to boost domestic spending and reform their economies to improve the potential for expansion.

There was not one specific cause of the global economic weakness, the IMF said, although the slowdown in China and its realignment towards consumption and services compounded pain for countries which export oil and metals. Instead, the fund said the weakness reflected common longer-term forces slowing the potential for growth in many countries, including lower productivity growth, high public and private debt levels, ageing populations and a hangover from post-crisis investment booms in many emerging economies. Maurice Obstfeld, the IMF’s new chief economist, said: “Of course, countries with multiple diagnoses are faring worst, in some cases also facing high inflation.”

The fund has cut the global growth forecast for 2015 from 3.5% in April to 3.1% with a gradual recovery in the years ahead as it expects the faster growing emerging economies to recover and continue to account for the lion’s share of global expansion. In a move that will surprise many analysts, the IMF has not downgraded its forecast for China, despite the stock market crash, its August devaluation and policy U-turns which suggested the country’s economy was more troubled than official figures suggest.

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One minor event away from the vortex.

Most Americans Have Less Than $1,000 In Savings (MarketWatch)

Americans are living right on the edge — at least when it comes to financial planning. Approximately 62% of Americans have less than $1,000 in their savings accounts and 21% don’t even have a savings account, according to a new survey of more than 5,000 adults conducted this month by Google Consumer Survey for personal finance website GOBankingRates.com. “It’s worrisome that such a large percentage of Americans have so little set aside in a savings account,” says Cameron Huddleston, a personal finance analyst for the site. “They likely don’t have cash reserves to cover an emergency and will have to rely on credit, friends and family, or even their retirement accounts to cover unexpected expenses.”

This is supported by a similar survey of 1,000 adults carried out earlier this year by personal finance site Bankrate.com, which also found that 62% of Americans have no emergency savings for things such as a $1,000 emergency room visit or a $500 car repair. Faced with an emergency, they say they would raise the money by reducing spending elsewhere (26%), borrowing from family and/or friends (16%) or using credit cards (12%). And among those who had savings prior to 2008, 57% said they’d used some or all of their savings in the Great Recession, according to a U.S. Federal Reserve survey of over 4,000 adults released last year. Of course, paltry savings-account rates don’t encourage people to save either.

In the latest survey, 29% said they have savings above $1,000 and, of those who do have money in their savings account, the most common balance is $10,000 or more (14%), followed by 5% of adults surveyed who have saved between $5,000 and just shy of $10,000; 10% say they have saved $1,000 to just shy of $5,000. Just 9% of people say they keep only enough money in their savings accounts to meet the minimum balance requirements and avoid fees. But minimum balance requirements can vary widely and be hard to meet for some consumers. They can vary anywhere between $300 a month and $1,500 a month at some major banks.

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So much for socialism.

Less Than a Third of Unemployed Americans Get Benefit Checks (WSJ)

The number of unemployed Americans dipped below eight million last month for the first time since 2008–but that figure doesn’t entirely reflect job growth. Unemployment dropped to a new low the same month that 350,000 Americans exited the labor force, the Labor Department said Friday. The civilian labor force has shrunk three of the past four months since touching a record high in May. One explanation for the trend is that Americans out of work for an extended period of time are giving up looking for jobs. The long-term jobless drop out of the labor force at a faster pace than those with shorter spells of unemployment, said Claire McKenna, policy analyst at the National Employment Law Project, an organization that advocates on behalf of the unemployed.

“The headline numbers are masking other vulnerabilities in the job market,” she said. Why are workers leaving the labor force? It could be because relatively few unemployed are receiving jobless benefits. The number of Americans receiving ongoing unemployment benefits touched a 15-year low last month. Those receiving government payments last month represented less than 28% of all unemployed Americans, according to an analysis of Labor Department data. That figure is down from 31% a year earlier. And it’s well below the 67% who received the assistance in September 2010, when emergency federal programs extended benefits beyond the 26 weeks granted in most states, to as long as 99 weeks.

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Divvying up the looot.

Making Bank: Wall Streeters Are Earning More Than Ever Before (Forbes)

If you work on Wall Street, you’re pulling in bigger bucks than ever before. Wall Street pay set a new record last year, according to a report out Tuesday from the New York State Comptroller’s office, with the average salary (including bonuses) rising 14% to $404,800. This is the first time since 2007 that the average pay on Wall Street has exceeded $400,000 and is the third-highest annual pay on the books when you adjust for inflation. The rise in pay has been propelled by larger bonuses, which rose 2% to $172,900 last year. The only times that workers collected bigger bonuses were in the two years leading up to the financial crisis. As New York City dwellers are well-aware, someone with a job on Wall Street is making a lot more money than their neighbors.

Here’s just how much: Average salaries on Wall Street were almost six times higher than the average salary of $72,300 at other NYC private-sector companies last year. The pace of wage growth on Wall Street has far outstripped other industries in the last 30 years, too. In 1981, Wall Street workers were making just twice as much as the average employee in the city’s private sector. There’s a disproportionate number of high-earners in finance, which helps bolster the numbers. Some 23% of Wall Street workers pulled in more than a quarter million dollars in 2013, the latest year in which there is data available, while less than 3% of the city’s other workers can say the same.

While Wall Street is still 9% smaller than before the recession and the industry has undergone years of downsizing, the number of people being hired is finally growing. In fact, Wall Street added 2,300 jobs in 2014, which was the first year of gains since 2011. Still, recent financial turmoil could potentially derail that. “After a very strong first half of the year, the securities industry faces volatile financial markets and an unsteady global economy,” said New York State Comptroller Thomas P. DiNapoli in a statement. “After years of downsizing, the industry has been adding jobs in New York City, but it may curtail hiring to bolster profits.” The city depends on Wall Street not only to pad its tax coffers, but to generate jobs and support the local economy.

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“The American Society of Civil Engineers reckons that more than $3 trillion of work should be done.”

61,064 Failing US Bridges Must Wait as Cities Borrow at Decade Low (Bloomberg)

States and cities rely on the $3.7 trillion U.S. municipal-bond market to pay for roads, commuter trains and water works. Yet even with a growing backlog of projects, 61,064 deficient bridges and interest rates near a half-century low, such borrowing has dropped to the slowest pace in at least a decade. About $14.8 billion of municipal debt has been sold this year for highway, airport and mass-transit projects, on pace for the smallest amount since at least 2005, data compiled by Bloomberg show. The population has grown by 7.5% since then, placing an increasing demand on America’s infrastructure: The Federal Highway Administration estimates that when it comes to bridges alone, one in 10 is structurally deficient. The American Society of Civil Engineers reckons that more than $3 trillion of work should be done.

“It’s a pretty deteriorated backbone,” Marc Lipschultz, head of energy and infrastructure at KKR, said in an interview at Bloomberg Markets Most Influential Summit 2015 in New York on Tuesday. “There’s not enough capital in the public domain,” he said. “It’s trillions of dollars of capital that has to be invested.” One reason for the lack of borrowing: officials at local governments that were stung by budget shortfalls after the recession have been leery of taking on new debt. Instead, they’ve been seizing on low interest rates to refinance higher-cost bonds. About two-thirds of the $312.5 billion issued through Sept. 30 has been for that purpose, Bank of America Merrill Lynch data show. Federal subsidies briefly spurred work on infrastructure, though the program has since lapsed. Borrowing for new highway, airport and mass transit projects reached a record $65 billion in 2010, the last year of the federal Build America Bonds program, Bloomberg data show.

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As predicted: “..the main reason for the decline would be a lack of bank financing for new shale developments.”

‘US Oil Output On Brink Of ‘Dramatic’ Decline’ (Reuters)

Oil executives warned on Tuesday of a “dramatic” decline in U.S. production that could pave the way for a future spike in prices if fuel demand increases. Delegates at the Oil and Money conference in London, an annual gathering of senior industry officials, said world oil prices were now too low to support U.S. shale oil output, the biggest addition to world production over the last decade. “We are about to see a pretty dramatic decline in U.S. production growth,” the former head of oil firm EOG Resources Mark Papa, told the conference. Papa, now a partner at U.S. energy investment firm Riverstone, said U.S. oil production would stall this month and begin to decline from early next year. He said the main reason for the decline would be a lack of bank financing for new shale developments.

Official data show that nationwide U.S. output has already begun to decline after reaching a peak of 9.6 million barrels per day in April, although production in some big shale patches, including North Dakota, has held steady thus far. The Energy Information Administration forecast on Tuesday that output would reach a low of around 8.6 million bpd next year. Until this year, U.S. oil output was growing at the fastest rate on record, adding around 1 million bpd of new supply each year thanks to the introduction of new drilling techniques that have released oil and gas from shale formations. But oil prices have almost halved in the last year on oversupply in a drop that deepened after OPEC in 2014 changed strategy to protect market share against higher-cost producers, rather than cut output to prop up prices as it had done in the past.

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“Volkswagen’s R&D spending was higher than at Ford and GM combined.” “Where’s the innovation? Obviously not in diesel engines,” Ellinghorst said. “There’s a culture of spending and a lack of focus on efficiency in favor of striving to be bigger.”

VW to Delay, Cancel Non-Essential Investments Due to Scandal (Bloomberg)

Volkswagen CEO Matthias Mueller said the company will delay or cancel non-essential projects as pressure mounts to slash spending in the wake of the diesel-emissions scandal. “We will review all planned investments, and what isn’t absolutely vital will be canceled or delayed,” Mueller told some 20,000 employees at the German company’s headquarters Tuesday, according to an e-mailed statement of his remarks. “And that’s why we will re-adjust our efficiency program. I will be completely clear: this won’t be painless.” Fixing about 11 million rigged diesel vehicles is a costly prospect. The €6.5 billion Volkswagen already set aside for repairs won’t be enough to cover fines and potential legal damages as well, Mueller said.

The company is exploring options from a simple software upgrade to outright replacing some cars. Fines may reach $7.4 billion in the U.S. alone, according to analysts from Sanford C. Bernstein. Volkswagen could put a push to gain market share in the North America on hold as long as there’s no clarity on the extent of the costs of fixing the cars and potential fines, said Jose Asumendi, a London-based analyst at JPMorgan Chase. The carmaker outlined plans in March for an investment of about $1 billion to expand its vehicle assembly plant in Mexico’s Puebla state. That work could face a delay, Asumendi said. “It’s going to to be tough to find projects they could chop that will actually move the needle,” Asumendi said. “What they really need to do is get costs under control.”

Labor leaders have been pushing VW to reel in research and development spending to protect jobs, while management wants personnel expenses reduced as well, people familiar with the situation said before the carmaker published Mueller’s statement. Other options include lowering purchasing expenses and reducing sponsorship activities, with the extent of the measures dependent on the cost of the cleanup, said the people, who asked not to be named because the talks are private. “We’ll pay extra attention to bonus payments to members of the management board,” Bernd Osterloh, a supervisory board member and head of the works council, told employees. All projects and investments will need to be examined, and “we’ll have to question everything that’s not economical,” he said.

The German company may be forced to tighten an “incredibly inefficient” organization and lop funding out of a $17.4 billion research and development budget that was the world’s biggest last year, about equal to the combined figure at Apple and the former Google, said Arndt Ellinghorst with Evercore ISI. Volkswagen’s R&D spending was higher than at Ford and GM combined. “Where’s the innovation? Obviously not in diesel engines,” Ellinghorst said. “There’s a culture of spending and a lack of focus on efficiency in favor of striving to be bigger.”

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“The only thing that seemed to work was cash. Of course that’s the one thing they [the hedge funds] don’t have..”

Hedge Funds Suffer Worst Month Since October 2008 (FT)

Hedge funds have suffered their biggest monthly monetary loss since the 2008 financial crisis in the wake of market turbulence that battered the portfolios of some of the industry’s best known investors. The sector as a whole lost $78 billion due to its performance in August, the worst monthly absolute fall in assets since October 2008 – the month following the collapse of Lehman Brothers – according to research by Citi. “The only thing that seemed to work was cash. Of course that’s the one thing they [the hedge funds] don’t have,” said Paul Brain, head of fixed income for Newton Investment Management and a former credit hedge fund manager.

Some of the worst hit were funds that specialised in stock picking, with David Einhorn’s $11 billion Greenlight Capital having lost 17% up to the end of September, Daniel Loeb’s $17 bilion Third Point down about 4% and Bill Ackman’s Pershing Square vehicle down double digits over the summer. Total hedge fund industry assets at the end of August stood at $3.05 trillion, according to Citi, down 0.2% year on year. Total hedge fund assets have doubled since 2008, according to HFR.

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Q: what happens to house prices when the Chinese stop buying?

Chinese Money Flows Into US Housing (CNBC)

From sunny suburban developments in Irvine, California, to shiny new condominium towers overlooking Manhattan’s skyline, Chinese buyers are sinking cash into U.S. residential real estate. Chinese are now the top foreign buyers of domestic properties, according to the National Association of Realtors, and nearly half of them are paying cash, according to RealtyTrac, a real estate sales and analytics company. 46% of Chinese buyers paid cash for their U.S. homes so far in 2015, up 229% from a decade ago. Compare that to a 33% cash share for buyers overall, up 65% from a decade ago.

“Cash buyers across the board are playing a much bigger role in the housing market now than they were 10 years ago, and that is particularly true for Chinese Mandarin-speaking cash buyers, who are more likely to be foreign nationals,” said Daren Blomquist at RealtyTrac. “Foreign cash buyers have helped to accelerate U.S. home price appreciation over the past few years given that these buyers are often not as constrained by income as local, traditionally financed buyers.” Recent instability in China’s economy and stock market has driven even more buyers to the U.S. — so much so that Long & Foster, a Virginia-based real estate agency, recently began working with Juwai, a China-based real estate listing site.

“We’re seeing demand from Chinese buyers with children of all ages – some as young as 1 year old – and they’re relying on our team for insight into the local areas and their educational offerings, from elementary to university level,” said Pandra Richie, president of Long & Foster’s corporate real estate services. “Access to quality education is one of the top priorities for Chinese buyers, and from Philadelphia to Richmond, our market areas offer some of the best school districts and universities.” Asian buyers accounted for 35% of all international purchases of U.S. real estate for the 12-month period ended in March 2015, spending more than $28 billion. They have been very active in high-end markets, especially in California and New York City.

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Funny that iPhones count as imports.

Mighty Dollar Sends US Exports To 3-Year Low, Trade Deficit Surges (MarketWatch)

U.S. exports have fallen 6% compared to one year ago, hurt by a rising value of the dollar that’s made American goods and services more expensive overseas. “The strongest dollar in more than a decade, coupled with waning demand overseas as a result of tepid economic growth, is undermining demand for U.S.-made goods, said Lindsey Piegza, chief economist at Stifel Fixed Income. Large U.S. manufacturers, energy producers and other internationally oriented firms have borne the brunt of a strong dollar. Barely any manufacturing jobs have been created in 2015, and energy producers have cut 120,000 jobs since December. In August, the U.S. exported less oil, plastic and other industrial supplies. A drop in oil prices at the end of the summer also reduced the value of American petroleum exports.

Overall, U.S. exports fell to $186.1 billion in August, marking the smallest amount since October 2012. At the same time, though, the strong dollar and decline in oil prices cut U.S. demand for foreign petroleum to the lowest level since 2004. That frees up more money for American consumers to save or buy other goods and services. Still, total U.S. imports rose 1.2% in August to $233.4 billion, driven by a surge in shipments of the latest iPhones that are hitting store shelves in time for the holiday season. The value of this category, ”cellphones and other household goods,” shot up 30% to $9.01 billion, the government said. The U.S. trade deficit with China, where most cell phones are made, increased 14.4% to $32.9 billion in August. The gap with the European Union rose 17% to $14.5 billion. Country data is not seasonally adjusted, and only includes goods and not services.

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One more time: “..the Federal Reserve lends to healthy firms on a collateralized basis…”

Bernanke Tries to Rewrite the Financial Crisis in New Book (Pam Martens)

Will the American people ever get an honest writing of the 2008-2009 Wall Street collapse? If you think it is to be found in the new book released on Monday by former Fed Chairman Ben Bernanke (which we seriously doubt you are thinking) you will be disappointed. What you will find in Bernanke’s book are photos of his grandparents, a photo of the Time Magazine cover with himself named “Man of the Year,” a photo of Bernanke with the masterminds of the repeal of the investor protection act known as Glass-Steagall (Robert Rubin, Alan Greenspan, Larry Summers), a photo of the grand double staircase in the Federal Reserve building, and so forth. What you will not find is an honest accounting of how the Fed allowed Citigroup to grow into a financial Frankenstein and then quietly and secretly shoveled trillions of dollars into the firm to keep it afloat.

You won’t find any of that because on March 3, 2009, former Fed Chairman Ben Bernanke testified under questioning from Senator Bernie Sanders that “the Federal Reserve lends to healthy firms on a collateralized basis…” In reality, Citigroup was a financial basket-case at that point. Its stock closed that day at $1.22. It would take a court battle launched by Bloomberg News and legislation pushed by Senator Bernie Sanders to unearth from the Fed the fact that it had funneled over $16 trillion in cumulative loans to save the financial system. Citigroup was the largest recipient of those loans, with a take of over $2.5 trillion cumulatively, on top of $45 billion in TARP funds and over $306 billion in asset guarantees.

Bernanke’s account in his new book, The Courage to Act: A Memoir of a Crisis and Its Aftermath, attempts to resuscitate the bogus scenario that it was the collapse of Lehman and AIG that set the crisis in motion, not mega banks weakened by lax regulation by the Fed and the repeal of the Glass-Steagall Act, a decision supported by the Fed. (Lehman Brothers, an investment bank, and AIG, an insurance company, were not overseen by the Federal Reserve at that time.)

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” In nature, the parasite makes the host think that the free rider, the parasite, is its baby, part of its body, to convince the host actually to protect the parasite over itself. That’s how the financial sector has taken over the economy.”

Parasites In The Body Economic: The Disasters Of Neoliberalism (Michael Hudson)

Economists for the last 50 years have used the term “host economy” for a country that lets in foreign investment. This term appears in most mainstream textbooks. A host implies a parasite. The term parasitism has been applied to finance by Martin Luther and others, but usually in the sense that you just talked about: simply taking something from the host. But that’s not how biological parasites work in nature. Biological parasitism is more complex, and precisely for that reason it’s a better and more sophisticated metaphor for economics. The key is how a parasite takes over a host. It has enzymes that numb the host’s nervous system and brain. So if it stings or gets its claws into it, there’s a soporific anesthetic to block the host from realizing that it’s being taken over. Then the parasite sends enzymes into the brain.

A parasite cannot take anything from the host unless it takes over the brain. The brain in modern economies is the government, the educational system, and the way that governments and societies make their economic policy models of how to behave. In nature, the parasite makes the host think that the free rider, the parasite, is its baby, part of its body, to convince the host actually to protect the parasite over itself. That’s how the financial sector has taken over the economy. Its lobbyists and academic advocates have persuaded governments and voters that they need to protect banks, and even need to bail them out when they become overly predatory and face collapse.

Governments and politicians are persuaded to save banks instead of saving the economy, as if the economy can’t function without banks being left in private hands to do whatever they want, free of serious regulation and even from prosecution when they commit fraud. This means saving creditors – the 1%– not the indebted 99%. It was not always this way. A century ago, two centuries ago, three centuries ago and all the way back to the Bronze Age, almost every society has realized that the great destabilizing force is finance – that is, debt. Debt grows exponentially, enabling creditors ultimately to foreclose on the assets of debtors. Creditors end up reducing societies to debt bondage, as when the Roman Empire ended in serfdom.

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Frontloading funds from 2007?!

EU Parliament Backs Urgent Frontloading Of €35 Billion For Greece (Kath.)

The European Parliament on Tuesday backed a set of one-off measures aimed at boosting the effective spending of €35 billion earmarked for Greece in the EU 2014-2020 budget. This includes €20 billion from structural and investment funds and €15 billion from agricultural funds. MEPs followed the recommendation of Parliament’s regional development committee and adopted the Commission’s proposal by a vote of 586 to 87, with 21 abstentions, the European Commission said in a press release. This fast-track procedure paves the way for the swift adoption of the measures by the Council and their immediate implementation.

The measures are aimed at helping Greece ensure that all the money available from the 2007-2013 programming period is used before its expiry at the end of 2017 and to meet the requirements for accessing all the EU funds available to it in the current programing period of 2014-2020. The funding covers programing periods up to 2020. The amendment to the current regulation proposed by the Commission and agreed by Parliament allows some €500 million to be released as soon as the legislation is adopted and a further 800 million euros released in advance of the formal closure of the programs in 2017. Two specific measures will allow Greece to finish projects started under the 2007-2013 period by removing the need for national co-financing because the EU contribution rate is raised to 100% and making available the total amount, including pre-financing and interim payments, immediately (otherwise the last 5% of EU payments would have had to be held back until 2017).

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Europe had better prepare. And no, trying to stop them is not an option.

Turkey Warns 3 Million More Refugees May Be Headed To EU From Syria (AP)

Turkey has warned the European Union that 3 million more refugees could flee fighting in Syria as the EU struggles to manage its biggest migration emergency in decades. Around 2 million refugees from Syria are currently in Turkey, and tens of thousands of others have entered the EU via Greece this year, overwhelming coast guards and reception facilities. EU Council President Donald Tusk told lawmakers Tuesday that “according to Turkish estimates, another 3 million potential refugees may come from Aleppo and its neighborhood.” Tusk said that “today millions of potential refugees and migrants are dreaming about Europe.” He warned that “the world around us does not intend to help Europe” and that some of the EU’s neighbors “look with satisfaction at our troubles.”

Meanwhile, Austrian Chancellor Werner Faymann was heading to the eastern Aegean island of Lesvos with Greece’s prime minister to view first-hand the impact of the refugee crisis and tour the facilities set up to handle the new arrivals, which number in the hundreds and sometimes thousands every day. Faymann and Greece’s Alexis Tsipras were due on Lesvos around midday Tuesday and are to tour the reception center set up to register and process the arriving refugees and migrants. About 400,000 people have arrived in Greece so far this year, most in small overcrowded boats from the nearby Turkish coast. The vast majority don’t want to stay in the financially troubled country and head north through the Balkans to more prosperous European Union countries such as Austria, Germany and Sweden.

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I said: not an option. This is going to cost human lives, for no reason at all.

EU Launches Operation Targeting Libyan Refugee Smugglers (Guardian)

The EU hopes to begin intercepting people-smugglers in the southern Mediterranean on Wednesday, nearly six months after first pledging to target the Libyan smuggling industry. According to the EU’s foreign policy chief, Federica Mogherini, a combined EU naval mission known as EU Navfor Med will nominally now be able “to board, search and seize vessels in international waters, [after which] suspected smugglers and traffickers will be transferred to the Italian judicial authorities”. The move comes as the smuggling season begins to ebb, four months after the primary migration route to Europe switched from Libya to Turkey, and five-and-a-half months after EU heads of state, including David Cameron, promised to target Libyan smugglers.

EU officials have been vague about how their plan will be put into action, with a spokesman for the operation repeatedly avoiding direct questions on the subject. With no mandate from either the UN or the Libyan government, EU Navfor Med can only operate within international waters, raising questions about how it will be able to target smugglers who largely operate within Libya’s maritime borders. Smugglers currently cram migrants into rubber boats in Libyan waters, before sending the majority into international waters on their own. Only a minority of boats, usually wooden fishing vessels, are accompanied with a couple of expendable members of the smuggling network.

But both kinds of smuggling missions are already intercepted by rescue teams including EU Navfor Med, leading to confusion about whether Wednesday’s developments will constitute any significant change. The operation’s spokesman, Capt Antonello de Renzis Sonnino, acknowledged in an interview with the Guardian that boats laden with migrants will be handled just as they have been all year – with the passengers disembarked in Italy, and their smugglers presented to Italian policemen on arrival. The substantive change to the operation could conceivably come after the passengers are disembarked, when separate teams of smugglers dart into international waters to retrieve the abandoned fishing vessels and tow them back to Libya, ready to be reused in subsequent smuggling missions.

Even within the limits of its current mandate, the EU Navfor Med boats could pursue and seize smugglers who attempt to do this. Asked three times to confirm whether this was their plan, de Renzis Sonnino sidestepped each question, simply saying: “We are open 360 degrees to whatever is happening over there in international waters. So we are flexible. We can manage any situation – migrants alone, smugglers and migrants, or smugglers in their own boat.”

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“There is more hatred in 2015 Bosnia than there was in 1995” .. “I have a message for the IMF: ‘Stop giving us money. Let us collapse.’ That’s the only way to clean house and get rid of all of these people. Let us starve for the next six months, and people will rise up and throw the leaders out.”

Bosnia: A European Tinderbox Just Waiting For A Spark (Fortune)

For two decades, Srebrenica has memorialized the massacre, and this year a staggering 50,000 people came, including former U.S. President Bill Clinton, who resisted military engagement during post-Yugoslavia’s inter-ethnic battles (newly declassified White House minutes convey the vexing issues for the President and his advisors), and ultimately became the driver of the Dayton Peace Accords that ended the conflict. Bosnians have grown resentful of the U.S.-brokered agreement that pushed combatants into an uneasy peace, but offered little more than the template for separateness: Serb governance in the north and northeast (called Republika Srpska) with a Bosnian and Croat federation covering the rest of the landscape. And in the years since, festering animosity has had a crippling effect.

[..] The nation’s economy is at a standstill, and dangerously so. Industrial production is down, exports have slumped, consumer spending is anemic, and unemployment among youth is much higher than the official 60% jobless rate for 16 to 30 year-olds. Most employed Bosnians have secured government jobs through party patronage and ethnic ties. The IMF standby arrangement – an infusion of funds to avoid the country’s collapse – enables the government to meet payroll and to run public works, but critics say the help only delays coming up with a way forward. On one thing, at least, Bosnia’s fractured groups are in rare agreement: their state is a failure, emasculated by Serb, Muslim, and Croat entity presidents who operate on a mutually suspicious basis.

The Dayton accord effectively sanctioned leaders to push their own nationalist and religious agendas to the exclusion of one another. Savvy players profit by wielding ethno-centric power in public works, schools, arts, and especially memory. The National Art Gallery, along with a half dozen other major state institutions, have long been shuttered, as budgets shrink and Bosnian citizens reject anything that might suggest that they are part of a single nation. In mid-September, the government re-opened the National Museum after years of neglect. [..] Srebrenica survivor Muhamed Durakovic claims his pessimism about the nation’s economic future is well-placed and widely held. He echoes others’ indictment of Bosniak, Serb, and Croat leaders for financing and favoring loyalists regardless of an investment’s integrity, all at the expense of “actual development.”

Durakovic is wistful about his home in Srebrenica, where “hope for the future is really lost…there are very few sustainable projects.” In a bitter twist, the only consistent growth industry in Bosnia relates to the search for those lost to the war. Durakovic uses his forensics expertise with conflict-torn Libya as the Tripoli director of the International Commission on Missing Persons. Bosnia’s own search for skeletal parts and other clues is made more difficult by its ethnic rivalries. “There is more hatred in 2015 Bosnia than there was in 1995” as politicians prey on ethnic divides to preserve their own power, Durakovic asserts. “I have a message for the IMF: ‘Stop giving us money. Let us collapse.’ That’s the only way to clean house and get rid of all of these people. Let us starve for the next six months, and people will rise up and throw the leaders out.”

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One Nobel Peace Prize recipient bombing another.

Doctors Without Borders Airstrike: US Alters Story 4th Time In 4 Days (Guardian)

US special operations forces – not their Afghan allies – called in the deadly airstrike on the Doctors Without Borders hospital in Kunduz, the US commander has conceded. Shortly before General John Campbell, the commander of the US and Nato war in Afghanistan, testified to a Senate panel, the president of Doctors Without Borders said the US and Afghanistan and had made an “admission of a war crime”. Shifting the US account of the Saturday morning airstrike for the fourth time in as many days, Campbell reiterated that Afghan forces had requested US air cover after being engaged in a “tenacious fight” to retake the northern city of Kunduz from the Taliban. But, modifying the account he gave at a press conference on Monday, Campbell said those Afghan forces had not directly communicated with the US pilots of an AC-130 gunship overhead.

“Even though the Afghans request that support, it still has to go through a rigorous US procedure to enable fires to go on the ground. We had a special operations unit that was in close vicinity that was talking to the aircraft that delivered those fires,” Campbell told the Senate armed services committee on Tuesday morning. The airstrike on the hospital is among the worst and most visible cases of civilian deaths caused by US forces during the 14-year Afghanistan war that Barack Obama has declared all but over. It killed 12 Doctors Without Borders staff and 10 patients, who had sought medical treatment after the Taliban overran Kunduz last weekend. Three children died in the airstrike that came in multiple waves and burned patients alive in their beds.

On Tuesday, Doctors Without Borders denounced Campbell’s press conference as an attempt to shift blame to the Afghans. “The US military remains responsible for the targets it hits, even though it is part of a coalition,” said its director general, Christopher Stokes. Campbell did not explain whether the procedures to launch the airstrike took into account the GPS coordinates of the Doctors Without Borders field hospital, which its president, Joanne Liu, said were “regularly shared” with US, coalition and Afghan military officers and civilian officials, “as recently as Tuesday 29 September”.

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We bring mayhem wherever we go. Maybe we should leave.

No Foreign Aid Agencies Left In Afghanistan’s Kunduz (AFP)

All international aid organisations have left the embattled Afghan city of Kunduz following a US air strike on a hospital run by medical charity MSF and amid heavy fighting, the UN said Tuesday. The humanitarian situation in the strategic northern city, briefly captured by the Taliban last month, is thought to be difficult but the extent of what is needed remains unclear because of problems getting access, the UN humanitarian agency said. “There are presently no humanitarian agencies left inside Kunduz city,” said OCHA spokesman Jens Laerke. “Two UN entities, four national NGOs and 10 international NGOs have been temporarily relocated due to the ongoing conflict and unstable and fluid security situation in Kunduz,” he told AFP.

A US air strike hit MSF’s Kunduz hospital on Saturday, killing 22 people and sparking international outrage, with the charity branding the incident a war crime. The top US commander in Afghanistan on Tuesday said the hospital had been “mistakenly struck”. The strike came days after the Taliban briefly overran Kunduz in their most spectacular victory in 14 years. MSF has closed its trauma centre seen as a lifeline in the war-battered region after the incident, while UN Secretary General Ban Ki-moon has called for a “thorough and impartial investigation”. Laerke pointed out that the MSF hospital had been “the only facility of its kind in the entire northeastern region of the country, serving some 300,000 people in Kunduz alone.”

Now, he said, “the international aid agencies have been forced out of the city for the time being, so there is essentially no proper healthcare, no proper trauma care for those left inside the city.” In addition, he said water and electricity reportedly remained cut off across much of the city, and most food markets remained closed. “Thousands of people have fled Kunduz, and an estimated 8,500 families have been displaced in the northeast as a result of the fighting,” he said, adding that aid agencies were scrambling to gain access to the area so they could assess and address the needs. “Preliminary needs are expected to include food, emergency shelter, water and emergency health services, … and family tracing and reunification after the increased displacement,” Laerke said.

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One word: oil.

Amnesty Urges UK, US To Stop Providing Weapons To Saudi Arabia (Guardian)

Britain is being urged to halt the supply of weapons to its ally Saudi Arabia in the light of evidence that civilians are being killed in Saudi-led attacks on rebel forces in Yemen. Amnesty International has warned that “damning evidence of war crimes” highlights the urgent need for an independent investigation of violations and for the suspension of transfer of arms used in the attacks. Amnesty said it found a pattern of “appalling disregard” for civilian lives by the Saudi-led coalition in an investigation of 13 air strikes in north-eastern Saada governorate during May, June and July: these killed some 100 civilians – including 59 children and 22 women and injured a further 56, including 18 children. “In at least four of the airstrikes investigated … homes attacked were struck more than once, suggesting that they had been the intended targets despite no evidence they were being used for military purposes,” it said.

The complexities of the war in Yemen – overshadowed by the larger and more familiar conflict in Syria – were underlined again on Tuesday when a new affiliate of Islamic State claimed responsibility for four suicide bombings in the port city of Aden that killed at least 15 people including Saudi, Emirati and Yemeni troops. The UAE and other Gulf states are also taking part in the campaign against Yemeni Houthi rebels of the Zaydi sect who are widely seen as being supported by Iran, Saudi Arabia’s strategic rival. The declared aim is to restore the internationally recognised government of president Abed Rabbu Mansour Hadi, who is currently in Aden, having fled the capital, Sana’a, when the Houthis took over. Since last March coalition air strikes have hit homes, schools, markets and other civilian infrastructure, as well as miltiary objectives.

[..] “The conflict and restrictions imposed by the Saudi Arabia-led coalition on the import of essential goods have exacerbated an already acute humanitarian situation resulting from years of poverty, poor governance and instability,” Amnesty says. Currently 80% of Yemenis need some form of humanitarian assistance. The call to the UK is made because it is a major supplier of weapons to Saudi Arabia, including a recent consignment of 500lb Paveway IV bombs, used by Tornado and Typhoon fighter jets, which are manufactured and supplied by the UK arms company BAE Systems. Both aircraft have been used in Yemen.

“The UK government has previously claimed its arms are being properly used in Yemen, but what on earth is it basing this on?” said Amnesty International UK’s arms control programme director Oliver Sprague. “It seems to be no more than claims from the Saudi Arabian authorities themselves. With mounting evidence of the reckless nature of the Saudi-led coalition’s bombing campaign in Yemen, the government must urgently investigate whether UK-supplied weaponry has killed civilians in places like Saada.” The US is also a major arms supplier to Saudi Arabia. Amnesty also said coalition forces have repeatedly launched strikes using internationally banned cluster bombs.

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May 062015
 
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Jack Delano Foggy night in New Bedford, Massachusetts 1941

Death Of The American Dream As A Big Bubble Readies To Pop (MarketWatch)
US Trade Deficit Soars To Worst Since 2008; Q1 GDP To Be Negative (Zero Hedge)
3 Out Of 4 US Retirees Receive Reduced Social Security Benefits (MarketWatch)
One In Five US Adults Have No Credit Score, Can’t Borrow Money (MarketWatch)
California’s Drought Could Upend America’s Entire Food System (ThinkProgress)
Steve Keen Explains Why Austerity Policies Are Naïve (EIUk)
Germany’s Record Trade Surplus Is A Bigger Threat To Euro Than Greece (AEP)
It’s Not Greek ATMs Running Out of Cash. It’s Germany’s (Bloomberg)
Greek Government Takes Aim At Creditors Over Stalled Bailout Talks (Guardian)
Greece Says Compromise Not Possible Under Current Conditions (Bloomberg)
Debt Talks On Hold Until Greece Agrees Reforms, Warns Moscovici (FT)
Varoufakis’ First 100 Days: All Style, No Substance? (CNBC)
Greece To Finalise Airports Deal ‘Immediately’ (Reuters)
Why Elizabeth Warren Makes Bankers So Uneasy, and So Quiet
China Mulls New Monetary Tool That ‘The World Has Never Seen’ (Caixin)
CFR Says China Must Be Defeated And TPP Is Essential To That (Zuesse)
Forget Tanks. Russia’s Ruble Is Conquering Eastern Ukraine (Bloomberg)
Moscow’s Last Stand: How Soviet Troops Defeated Nazis For First Time In WW2 (RT)

“..given the palpable sense of investor uneasiness lately, weakness on the social landscape bears watching.”

Death Of The American Dream As A Big Bubble Readies To Pop (MarketWatch)

Retail appetite for risk may be drying up, if last week’s unsettling action in the sexy social-media corner of the market is any indication. Sure, Friday ended with a strong push for the major indexes, but that didn’t erase the sting of a stretch that saw 20% post-result drops for Twitter, LinkedIn and Yelp. Broad market bellwethers they ain’t, of course. That doesn’t, however, mean this double-digit blip should be shrugged off like a wayward Pacquiao punch. When the frothy names get rocked, market mood tends to change. It’s too early to draw any ghastly conclusions, but given the palpable sense of investor uneasiness lately, weakness on the social landscape bears watching.

The flip side is that dip-buyers over the past few years have generally pounced when their faves wobble. This is also something to keep an eye on as the week pushes forward. A rebound, and it’s business as usual. Further weakness, and it’s beware the unravel. At this point, there’s no bounce in the making for that social-media trio ahead of the bell. And the rest of the market is poised to open in the red, with the must-watch jobs report due at the end of the week. Big-picture, those fretting about the potential for a tech bubble might want to gird against what’s about to happen to the American Dream. Again. The “smart money” is signaling trouble ahead in housing.

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Recession looming. Remind me, in what quarter was the growth 5%?

US Trade Deficit Soars To Worst Since 2008; Q1 GDP To Be Negative (Zero Hedge)

After shrinking notably in Feb, March’s US Trade deficit exploded. Against expectations of a $41.7bn deficit, the US generated a $51.4bn deficit – the worst since Oct 2008 and the biggest miss on record. Exports rose just $1.6bn while imports soared $17.1bn with the goods deficit with China soaring from $27.3bn to $37.8bn in March. Ironically, just as the “harsh winter” was found to lead to a GDP boost due to a surge in utility spending, so the West Coast port strike which was blamed for the GDP drop, was actually benefiting the US economy as it lead to a plunge in imports. In March, however, the pipeline was cleared, and US imports from China soared by over $10 billion to $38 billion. End result: prepare for upcoming Q1 GDP downgrades into negative territory, which with a Q2 GDP of 0.8% (per the Atlanta Fed) means the US is this close to a technical recession.

The increase in imports of goods mainly reflected increases in consumer goods ($9.0 billion), in capital goods ($4.0 billion), and in automotive vehicles, parts, and engines ($2.7 billion). A decrease occurred in petroleum and products ($1.1 billion). The goods deficit with China increased from $27.3 billion in February to $37.8 billion in March. From the report: The U.S. monthly international trade deficit increased in March 2015 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit increased from $35.9 billion in February (revised) to $51.4 billion in March, as imports increased more than exports. The previously published February deficit was $35.4 billion. The goods deficit increased $14.9 billion from February to $70.6 billion in March. The services surplus decreased $0.6 billion from February to $19.2 billion in March.

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And that’s just the beginning.

3 Out Of 4 US Retirees Receive Reduced Social Security Benefits (MarketWatch)

Growing numbers of workers expect to rely heavily on Social Security as a major source of income in retirement, but almost three-quarters of current retirees are receiving reduced benefits, according to two new reports. According to a recent Gallup survey, 36% of adults who are not yet retired expect Social Security to be a “major source” of retirement income. That figure is roughly 10 percentage points higher than a decade ago and higher than any response in the past 15 years. Of course, the best way to maximize Social Security is to delay claiming benefits until “full retirement age,” which is climbing gradually to 67, or beyond. A person due to receive a benefit of $1,000 at a full retirement age of 66 would receive only $750 at age 62 (the earliest age at which most people can claim benefits) – and $1,320 at age 70.

But that math isn’t stopping many workers from claiming benefits early. Among the 37.9 million Americans receiving Social Security retirement benefits as of December 2013, fully 73% were receiving reduced benefits “because of entitlement prior to full retirement age,” according to a new report from the Social Security Administration. Relatively more women (75.4%) than men (70.3%) received reduced benefits. The findings come at a time when the Social Security program itself is straining to meet demands and when many workers are anxious about the size of their nest eggs. Currently, the Social Security Administration is tapping the interest on the program’s trust funds to pay beneficiaries and, soon, will begin drawing down the assets themselves.

At the moment, the trust fund is scheduled to run out in 2033, after which Social Security recipients would receive about 75% of their benefits. Against that backdrop, a recent Wells Fargo/Gallup survey found that only 28% of non-retired investors are very confident they will have enough savings at the time they decide to retire. An additional 48% are somewhat confident. The latest Gallup survey concludes: “To the degree [workers’] savings are not sufficient to fund their retirement, [they] will have to make up the shortfall somehow. The guaranteed Social Security benefit is an obvious way to do that, if not by also seeking part-time work or scaling back their standard of living considerably.”

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“..disproportionately Black or Hispanic..”

One In Five US Adults Have No Credit Score, Can’t Borrow Money (MarketWatch)

One in 10 U.S. adults is invisible to much of the American economy because they have no credit report or score, a new report by the Consumer Financial Protection Bureau has found. Those 26 million adults — disproportionately Black or Hispanic — have virtually no chance to borrow money or use credit cards. And another 19 million adults have credit reports so “thin” that they are unscoreable by traditional methods, and also left behind by the credit system. Together, that means 45 million Americans — one in five adults — have no traditional credit score. “Today’s report sheds light on the millions of Americans who are credit invisible,” said CFPB Director Richard Cordray.

“A limited credit history can create real barriers for consumers looking to access the credit that is often so essential to meaningful opportunity — to get an education, start a business, or buy a house. Further, some of the most economically vulnerable consumers are more likely to be credit invisible.” The CFPB found that 188.6 million American adults have credit records that can be scored using traditional models, or 80% of the population. Most of the Americans left behind by traditional scoring methods are young. Over 10 million of the estimated 26 million credit invisibles are younger than 25, the CFPB found.

The findings are consistent with other recent studies about the “credit invisibles.” FICO, which created the most widely-used formula for credit scoring, told The Wall Street Journal last month that 25 million Americans have no credit events on file and an additional 28 million have thin files. VantageScore, which offers an alternative to FICO scores, said last year that 30-35 million Americans don’t have a traditional credit score. Among those with thin files, the CFPB said the group was evenly split between those who have an insufficient credit history and those who lack a recent credit history.

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Much has to shift to other states.

California’s Drought Could Upend America’s Entire Food System (ThinkProgress)

On April 1, California Governor Jerry Brown stood in a field in the Sierra Nevada Mountains, beige grass stretching out across an area that should have been covered with five feet of snow. The Sierra’s snowpack — the frozen well that feeds California’s reservoirs and supplies a third of its water — was just 8% of its yearly average. That’s a historic low for a state that has become accustomed to breaking drought records. In the middle of the snowless field, Brown took an unprecedented step, mandating that urban agencies curtail their water use by 25%, a move that would save some 500 billion gallons of water by February of 2016 — a seemingly huge amount, until you consider that California’s almond industry, for example, uses more than twice that much water annually. Yet Brown’s mandatory cuts did not touch the state’s agriculture industry.

Agriculture requires water, and large-scale agriculture, like that in California, requires large amounts of water. So when Governor Brown came under fire for exempting farmers from the mandatory cuts — farmers use 80% of the state’s available water — he was unmoved. “They’re not watering their lawn or taking long showers,” he told ABC’s “The Week”. “They’re providing most of the fruits and vegetables of America to a significant part of the world.” Almonds get a lot of the attention when it comes to California’s agriculture and water, but the state is responsible for a dizzying diversity of produce. Eaten a salad recently? Odds are the lettuce, carrots, and celery came from California. Have a soft spot for stone fruit? California produces 84% of the country’s fresh peaches and 94% of the country’s fresh plums. It produces 99% of the artichokes grown in the United States, and 94% of the broccoli.

As spring begins to creep in, almost half of asparagus will come from California. “California is running through its water supply because, for complicated historical and climatological reasons, it has taken on the burden of feeding the rest of the country,” Steven Johnson wrote in Medium, pointing out that California’s water problems are actually a national problem — for better or for worse, the trillions of gallons of water California agriculture uses annually is the price we all pay for supermarket produce aisles stocked with fruits and vegetables. Up to this point, feats of engineering and underground aquifers have made the drought somewhat bearable for California’s farmers. But if dry conditions become the new normal, how much longer can — and should — California’s fields feed the country? And if they can no longer do so, what should the rest of the country do?

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MUST SEE! Brilliant exposé.

Steve Keen Explains Why Austerity Policies Are Naïve (EIUk)

In an exclusive interview with Every Investor, Professor Steve Keen from Kingston University has warned that politicians who promote austerity economics are naïve. The economist, who was one of the few who predicted the Great Recession, warned last year that the US and UK economies wouldn’t make a sustainable recovery due to the problem of high levels of private debt – public debt being more a symptom than a cause of this economic malaise. In this interview he gives a detailed explanation as to why the austerity-heavy economic policy of the Conservatives (and the Liberal Democrats), and the austerity-lite version from Lab is naïve and will lead not to economic growth but to economic stagnation.

Indeed, while not endorsing any political party, he does acknowledge that the economic policies of the SNP and Greens make more sense. This is a video that needs to be watched. It will give you insights that most professional economists appear to lack. (Hence, their evident surprise at news that the UK and US are slowing down). It should also encourage investors to be in ‘risk-off’ mode, which seems very sensible given likely market volatility that will follow the election and the grave economic news that we can expect this year.

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Germany violates a lot of EU agreements. It could face huge fines.

Germany’s Record Trade Surplus Is A Bigger Threat To Euro Than Greece (AEP)

Germany’s current account surplus is out of control. The European Commission’s Spring forecasts show that it will smash all previous records this year, reaching a modern-era high of 7.9pc of GDP. It will still be 7.7pc in 2016. Vague assurances that the surplus would fall over time have once again come to nothing. The country is now the biggest single violator of the eurozone stability rules. It would face punitive sanctions if EU treaty law was enforced. Brussels told Germany to do its “homework” a year ago, but recoiled from taking any action. We will see if Jean-Claude Juncker’s commission does any better this time. If not, cynics might justifiably conclude that big countries play by their own rules in Europe, and that Germany can defy all rules. The EMU punishment machinery is highly political, in any case.

The story of the EMU debt crisis is that the authorities persistently enforce a creditor agenda rather than macro-economic welfare (an entirely different matter). This is the fifth consecutive year that Germany’s surplus has been above 6pc of GDP. The EU’s Macroeconomic Imbalance Procedure states that the Commission should launch infringement proceedings if this occurs for three years in a row, unless there is a clear reason not to. There are few extenuating circumstances in this case. Germany’s surplus is not caused by a one-off shock. The surplus remains huge even if adjusted for lower energy import costs. It is a chronic structural abuse, rendering monetary union unworkable over time, and is surely more dangerous for eurozone unity than anything going on in Greece. “The European Commission should stop pulling its punches: Germany should be fined,” said Simon Tilford, from the Centre for European Reform.

“Their surplus should be treated in the same way as the southern deficits were treated earlier, as a comparable threat to eurozone stability. What is so worrying is that the surplus would normally be falling rapidly at this stage of the economic cycle,” he said. Germany’s jobless rate is at a post-Reunification low of 4.7pc. It should therefore be enjoying a surge of consumption. This it is not happening because the rebalancing mechanism is jammed. What this shows is the EMU remains fundamentally out of kilter, and doomed to lurch from crisis to crisis even if there is a recovery. Any rebound in southern Europe will lead to the same build-up in intra-EMU trade imbalances, and therefore in the same offsetting capital flows, vendor-debt financing, and asset bubbles that led to the EMU crisis in the first place.

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Major strikes for more pay.

It’s Not Greek ATMs Running Out of Cash. It’s Germany’s (Bloomberg)

European travelers have contended for weeks with the possibility that Greece’s dwindling finances might lead to empty ATMs. They should have concerned themselves instead with Germany. While cash machines in Athens are still operating without any trouble, striking couriers in Berlin this week stopped filling ATMs, leading to a crunch for those trying to make withdrawals. And the open-ended labor dispute with a local security company means there’s no end in sight. “That all depends on how the company reacts,” said Andreas Splanemann, a spokesman for the Ver.di union representing the security personnel. “There are now a lot of cash machines that are empty.” Berlin’s strike is the latest in a series of walkouts that have riled a nation more accustomed to mocking the labor strife which has so often beset neighboring France.

A strike by train drivers that began Tuesday is paralyzing travel and clogging highways throughout Germany. That action follows a March walkout by pilots at Deutsche Lufthansa AG that led to flight cancellations for 220,000 people. “It’s really annoying, especially if you’re pressed for time,” Batgerel Militz, a Berlin student, said as she unsuccessfully tried to withdraw cash at two banks. She finally got lucky at the third – just in time to catch her delayed train. “Probably because of the train strike,” she said with a laugh. Joking aside, Germany is seeking to curb the influence of smaller unions by drafting a law that would limit companies’ labor representation to one union per group of employees. The measure is currently winding its way through the Bundestag, the country’s lower house of parliament.

In the case of the passenger train strike, which is set to run through May 10, the walkout was called by the GDL union, which represents 19,000 train drivers, switch-yard engineers and conductors. The GDL is far smaller than the larger EVG, which has about 213,000 members staffing Germany’s rail network. The Lufthansa strike crippled travel because it was called by pilots. “They can strike more readily if they do so with solely their own goals in mind,” said Stefan Heinz, an academic specializing in labor politics at Berlin’s Free University. “They can get more out of it for their group.” While Germans still strike less than the French, those who’ve walked out recently in Germany often hold posts that have a wider ripple effect across society.

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“The responsibility lies exclusively with the institutions [EU and IMF] and failure to agree between them..”

Greek Government Takes Aim At Creditors Over Stalled Bailout Talks (Guardian)

Greece’s government has blasted its creditors for holding back progress on bailout talks, laying the blame squarely on differences between the European Union and the International Monetary Fund. Racheting up the pressure on the two bodies, the anti-austerity Syriza government said conflicting strategies and opposing views were not only impeding negotiations but injecting “a high level of danger” into the talks at a time when the country’s finances had hit rock bottom. “Serious disagreements and contradictions between the IMF and European Union are creating obstacles in the negotiations and a high level of danger,” said a senior government source. The official added that both lenders were digging in their heels on divergent issues, effectively enforcing “red lines everywhere”.

While the IMF was refusing to compromise on labour deregulation and pension reform but was relaxed on fiscal demands, the EU was insistent that primary surplus targets be met while being much more conciliatory about structural changes. The official insisted: “In such circumstances, it is impossible to have a compromise. The responsibility lies exclusively with the institutions [EU and IMF] and failure to agree between them”. Speaking exclusively to the Guardian, the Greek health minister, Panagiotis Kouroumblis, said creditors were constantly moving the goalposts. “They are not only implacable, the feeling that they give us is that they are impossible to satisfy,” he said. “They ask for 10 things to be done and then come back the next day and ask for another 10 more. As much as we would like, that’s not going to lead to compromise.”

The warnings came as the European commission slashed its forecast for Greece’s growth rate this year, predicting the economy would expand by a mere 0.5%, compared with the 2.5% it had projected barely three months ago. The downgrade was the clearest sign yet that the stalled negotiations have thrown the country, last year believed to be emerging from its worst recession on record, back into reverse. Talks aimed at unlocking desperately needed rescue funds – €7.2bn (£5.3bn) from the last bailout has been held up as both sides haggle over reforms – have been beset by problems since the far-left Syriza leader Alexis Tsipras assumed power in January. The EC said Greece’s economic recovery had been hit by the political tumult that had plagued the country in the four months since the previous government was forced to call snap polls. “In the light of the persistent uncertainty, a downward revision has been unavoidable,” said the EU’s monetary affairs commissioner, Pierre Moscovici.

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“The IMF won’t compromise on labor deregulation and pension reforms, while the European Commission is insisting on fiscal targets being met..”

Greece Says Compromise Not Possible Under Current Conditions (Bloomberg)

Greece blamed international creditors for the failure to achieve a breakthrough in bailout talks, saying a deal won’t be possible until they agree on a common set of demands. A Greek official said that the European Commission and the IMF are confronting the country with too many red lines and need to better coordinate their message. Greek bonds and stocks tumbled on Tuesday as optimism that an interim deal was close gave way to angst that the country isn’t moving fast enough to guarantee the continued flow of bank liquidity and bailout funds. Euro region finance ministers are next scheduled to meet on May 11, with Germany’s Wolfgang Schaeuble saying earlier he’s “skeptical” that an agreement can be reached by then.

Greece’s new line of argument focuses on what it says are divisions among the international creditors. The IMF won’t compromise on labor deregulation and pension reforms, while the European Commission is insisting on fiscal targets being met, said the official, who spoke on condition of anonymity because the talks are confidential. The commission is also refusing to consider a debt write down, he said. Greece is sending mixed signals about just how much money it has left. While officials say they’re confident of making payments to the IMF this week and next, one policy maker signaled last month that the country may struggle to keep its finances afloat beyond the end of this month.

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What’s the use of threatening Greece even further?

Debt Talks On Hold Until Greece Agrees Reforms, Warns Moscovici (FT)

Greece’s eurozone creditors will not discuss how to get the country’s sovereign debt back on a sustainable path until Athens agrees to a new economic reform programme that would release €7.2bn in desperately needed bailout funds, the EU’s economic chief said on Tuesday. The talks over the reform programme, which have intensified in recent days, are at the centre of a three-month stalemate between eurozone creditors and the new radical leftist Greek government. The Syriza administration in Athens has resisted many of the reforms in the existing bailout programme but needs the funding to fill its rapidly dwindling coffers.

Pierre Moscovici, the European commissioner for economic affairs, said debt issues “can only be discussed after we have agreed a reform programme”. His statement reflects resistance in eurozone capitals to any form of “haircut” on Greek sovereign debt, which is now mostly held by EU governments and institutions. Mr Moscovici’s comments come as the IMF has suggested eurozone creditors may need to write down some of their Greek bailout loans to ensure the country’s debt levels begin to decline more sharply. Officials involved in the talks said the IMF was not seeking large-scale debt relief immediately.

Instead, it was warning that any concessions to Athens that allowed the government to post lower budget surpluses — the likely trajectory of the current talks — would require debt relief to make up the difference. “Six months ago, we all concluded there was no need for debt relief,” said one senior official. “But if there’s a significant relaxation of the programme [targets], the IMF will want to see some debt relief.” Without a return to sustainable debt levels — or a larger bailout from the eurozone to ensure Athens can continue to pay its bills — the IMF may be forced under its rules to withhold its share of the current bailout tranche, which amounts to about half of the €7.2bn being negotiated.

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“..if Varoufakis was to leave public office and his life in the public eye, Greece would be the poorer for it, perhaps in more ways than one.”

Varoufakis’ First 100 Days: All Style, No Substance? (CNBC)

Negotiations with lenders over the future of Greece’s €240 billion bailout have been ongoing since Greece’s leftwing government came to power. And although Greece was given a four-month extension to its bailout in February, little has been achieved in terms of reforms. As talks dragged on into April, euro zone officials began to moan openly about Greece’s stance – and Varoufakis himself as he was in charge of negotiations — and the fact it was, as the Eurogroup’s President Jeroen Djisselbloem put it “wasting time.”The lack of progress raised concerns that Greece’s might not be able to find the money for upcoming loan repayments and whether it could avoid default and a potentially very messy exit from the euro zone.

Talk also turned to whether Varoufakis could lose his job as a way for show Greece to show its European partners that it was serious about reforms – serious enough to sack its own champion finmin. Instead, he was sidelined last Tuesday, keeping his job as finance minister but taken away from the frontline during negotiations – a move that one euro zone official said had helped negotiations to progress.Getting no love from either his euro zone counterparts or his own government, Varoufakis was verbally attacked and threatened with violence by anarchists in the Exarchia area of Athens, a neighborhood popular with anti-government protesters.

Varoufakis came out uscathed from the scuffle, but whether he can survive the blows and bruises of life in Greece’s tumultuous political landscape is yet to be seen. Just this weekend , the Greek finance ministry was denying reports that Varoufakis had offered to resign. Whether the reports are true or not, if Varoufakis was to leave public office and his life in the public eye, Greece would be the poorer for it, perhaps in more ways than one.

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Risky for Syriza, it threatens to go against its election promises.

Greece To Finalise Airports Deal ‘Immediately’ (Reuters)

Greece will finalise “immediately” a €1.2 billion deal with Fraport to run regional airports and reopen bidding for a majority stake in Piraeus port, a senior privatisations official said on Tuesday. The asset sales had been in doubt after Prime Minister Alexis Tsipras’ leftist-led government took power in January but may be the latest concessions offered by his government to try to secure more bailout cash from international creditors. The Greek finance, shipping and economy ministries involved in the sales declined to comment. “The issue of regional airports will be concluded immediately,” the official at Greece’s privatisations agency HRADF told Reuters on condition of anonymity, noting that an announcement could be expected by May 15.

Tsipras’ government is trying to renegotiate a 240-billion-euro bailout and has said it would review the sales, though various Greek officials have offered contradictory statements on the fate of both the airports and the Piraeus deals. Fraport and Greek energy firm Copelouzos had agreed with the privatisation agency in 2014 that it would run the airports in tourist destinations including Corfu, striking one of Greece’s biggest privatisation deals since the start of the debt crisis. Under the terms of the deal, the German-Greek group was expected to spend about €330 million in the first four years to upgrade the airports, that will be leased for 40 years.

On Tuesday, the privatisations official said Athens would invite shortlisted investors to submit by July binding offers for a 51% stake in Greece’s biggest port with the option to raise their stake to 67% over five years. “We will reopen the process in the coming days,” the official said. China’s Cosco Group, which already manages two of Piraeus port’s cargo piers, is among five preferred bidders. Greek port workers are due to stage a 24-hour strike on Thursday to protest against the privatisations of Piraeus and Thessaloniki ports, saying the government has rolled back on its pre-election pledges.

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“I agree with you, Dodd-Frank isn’t perfect.” She paused, then spoke very slowly and emphatically: “It should have broken you into pieces.”

Why Elizabeth Warren Makes Bankers So Uneasy, and So Quiet

The rollback of financial regulation is stalled. Income inequality is a campaign issue. Americans are still angry about the financial crisis. Things aren’t shaping up the way the big banks expected, and an important reason is one laser-focused senator from Massachusetts.

Let’s assume that when he woke up on the morning of Dec. 12, Michael Corbat, CEO of Citigroup, was feeling pretty good. The day before, the House of Representatives had passed a bill that would save his bank and others lots of money and headaches. The trouble was, Elizabeth Warren, the senior senator from Massachusetts, was getting ready to speak on the Senate floor. She had his bank on her mind. What Warren wanted to talk about was an item tucked into page 615 of a 1,603-page spending package: the repeal of section 716 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Known as the swaps push-out rule, section 716 required banks to set up separate subsidiaries, not backed by the government, to trade certain derivatives.

If the rule stood, it would generate huge administrative costs for the big banks. Citi had fought hard on this. The bank’s lobbyists had worked on lawmakers and helped draft language for the repeal. Getting it into a big spending package Congress was sure to pass was a coup. In the ongoing wars between Wall Street and the forces of government regulation, this repeal was a big win for the banks. “Today I am coming to the floor not to talk about Democrats or Republicans,” Warren began her speech, “but to talk about a third group that also wields tremendous power in Washington—Citigroup.” With that, Warren turned Citi into exactly the kind of villain so many people suspect lurks in the backrooms of the Capitol.

In one particularly striking moment, she connected nine top government officials—including Treasury Secretary Jacob J. Lew—directly to the megabank. She invoked Teddy Roosevelt, her favorite trust-busting president, who took on the big corporations of his day. “There is a lot of talk coming from Citigroup about how Dodd-Frank isn’t perfect,” Warren continued. “So let me say this to anyone who is listening at Citi. I agree with you, Dodd-Frank isn’t perfect.” She paused, then spoke very slowly and emphatically: “It should have broken you into pieces.”

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Will Beijing take on all debt to the shadow system?

China Mulls New Monetary Tool That ‘The World Has Never Seen’ (Caixin)

China’s central bank is considering lending to policy banks through a new tool so they can buy bonds issued by local governments, a person close to the regulator says. The loans would have a maturity of at least 10 years, the source said. Other details of how this would work remain unclear, but the tool will be unlike anything the bank has used before, he said. “It will be a new monetary tool the world has never seen,” the person said. “The format does not matter, and all possible means could be taken.” He said the regulator will use the new instrument to provide China Development Bank (CDB) and perhaps other policy banks with capital so they can buy bonds that local governments have issued.

The Ministry of Finance has said local governments can issue 1 trillion yuan ($160 billion) worth of bonds this year to repay their old debts — in other words allowing them to swap existing debts, which are mostly bank loans, for bonds that have longer maturities and cost less. The problem is that commercial banks are not interested in the bonds. Banks are “not at all interested” in buying such bonds because “their yields are too low and there is no liquidity,” a source from a joint-stock bank said. He said the bank he works for bought some local-government bonds only because its branches want to maintain a good relationship with local governments.

Xu Hanfei at Guotai Junan Securities said the interest rates of bank loans to local-government financing platforms — commercial vehicles that local governments used to circumvent a previous restriction that barred them from borrowing directly — are usually around 8%, and so are the yields of these platforms’ bonds. With local-government bonds, he said, the yields are usually halved. “Commercial banks do not want to buy local-government bonds … because the yields can hardly cover their capital cost,” a source from a bank’s financial-market division said. “There are many more assets that promise much better returns than local-government bonds. Why bother exchanging them for the bonds?”

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The war crazies.

CFR Says China Must Be Defeated And TPP Is Essential To That (Zuesse)

Wall Street’s Council on Foreign Relations has issued a major report, alleging that China must be defeated because it threatens to become a bigger power in the world than the U.S. This report, which is titled “Revising U.S. Grand Strategy Toward China,” is introduced by Richard Haass, the CFR’s President, who affirms the report’s view that, “no relationship will matter more when it comes to defining the twenty-first century than the one between the United States and China.” Haass gives this report his personal imprimatur by saying that it “deserves to become an important part of the debate about U.S. foreign policy and the pivotal U.S.-China relationship.” He acknowledges that some people won’t agree with the views it expresses.

The report itself then opens by saying: “Since its founding, the United States has consistently pursued a grand strategy focused on acquiring and maintaining preeminent power over various rivals, first on the North American continent, then in the Western hemisphere, and finally globally.” It praises “the American victory in the Cold War.” It then lavishes praise on America’s imperialistic dominance: “The Department of Defense during the George H.W. Bush administration presciently contended that its ‘strategy must now refocus on precluding the emergence of any potential future global competitor’—thereby consciously pursuing the strategy of primacy that the United States successfully employed to outlast the Soviet Union.”

The rest of the report is likewise concerned with the international dominance of America’s aristocracy or the people who control this country’s international corporations, rather than with the welfare of the public or as the U.S. Constitution described the objective of the American Government: “the general welfare.” The Preamble, or sovereignty clause, in the Constitution, presented that goal in this broader context: “in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity.” The Council on Foreign Relations, as a representative of Wall Street, is concerned only with the dominance of America’s aristocracy.

Their new report, about “Revising U.S. Grand Strategy Toward China,” is like a declaration of war by America’s aristocracy, against China’s aristocracy. This report has no relationship to the U.S. Constitution, though it advises that the U.S. Government pursue this “Grand Strategy Toward China” irrespective of whether doing that would even be consistent with the U.S. Constitution’s Preamble. The report repeats in many different contexts the basic theme, that China threatens “hegemonic” dominance in Asia. For example: “China’s sustained economic success over the past thirty-odd years has enabled it to aggregate formidable power, making it the nation most capable of dominating the Asian continent and thus undermining the traditional U.S. geopolitical objective of ensuring that this arena remains free of hegemonic control.”

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Kiev left Eastern Ukraine alone, no cash in ATMs, no pensions payments, no benefit payments. There’s only one alternative.

Forget Tanks. Russia’s Ruble Is Conquering Eastern Ukraine (Bloomberg)

As a wobbly cease-fire keeps eastern Ukraine’s warring factions apart, Russia’s ruble is conquering new territory across the breakaway republics. In Donetsk, the conflict zone’s biggest city, supermarkets have opened ruble-only checkout counters to serve the fighters in camouflage lining up along pensioners. Bus and tram tickets come with a conversion from Ukraine’s hryvnia to the Russian currency. Gas-station workers are paid in rubles because that’s what their rebel customers use to fuel their armored jeeps. “There are no problems in shops, they all accept rubles,” said Natalya, 36, a hairdresser buying groceries for her parents, who declined to give her surname for fear of reprisals. “They don’t always have small change, but they can give you chewing gum or a cigarette lighter instead.”

The ruble’s creeping advance shows how the troubled regions are slipping further from the government’s grasp, even as a peace accord brokered by Germany, France and Russia calls for the nation of more than 40 million to remain whole. Separatist officials haven’t yet made their currency plans clear. The precedent in ex-Soviet countries from Georgia to Moldova shows that similar shifts can help entrench pro-Russian insurgents. “The increasing use of the ruble is yet another sign Russia’s going to keep de facto sovereignty over the territory it and the separatists control,” said Cliff Kupchan, Eurasia Group chairman in New York. “If the sides implement the latest truce, which is unlikely, perhaps both the hryvnia and the ruble will be used. If not, it will be all ruble.”

Ukraine is the one place in the world where the ruble’s 46% plunge against the dollar in 2014 didn’t make it any less attractive, considering a 48% drop in the hryvnia, the world’s worst performer for the last two years. The Russian currency has staged a partial recovery in 2015, with April its best month on record. It advanced 0.4% on Tuesday. And the ruble has been welcomed in Donetsk, where most shops and businesses now accept it. Hryvnias are no longer available from cash machines in rebel-held territory, forcing locals to go to other parts of Ukraine to withdraw money.

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There’s not nearly enough appreciation in the west for what Russia suffered, and achieved, in WWII. Russia mourned more dead than all other countries combined.

Moscow’s Last Stand: How Soviet Troops Defeated Nazis For First Time In WW2 (RT)

In October 1941 Hitler launched an offensive on the Russian capital codenamed Operation Typhoon. It was supposed to crush Moscow in a so-called double pincer – two simultaneous attacks from the north and south. The Soviet troops vigorously fought back, disrupting Hitler’s plans for a quick operation. The Battle of Moscow eventually lasted through January 1942 and ended in the first battlefield defeat of the Nazi army. The battle was one of the bloodiest and lethal struggles in world history and was later considered to be a decisive turning point in the fight against Nazi troops. Memories of that battle are still fresh for WW2 veteran Gennady Drozdov, 98, who was assigned to the 4th Guards Mortar Regiment at that time.

“During the Battle of Moscow, in December 1941, there was a raid on the hinterlands of the Nazi German troops. We came so close we could see the position of their troops, their machine gun, in particular, and its operators,” Drozdov told RT. “On our command the division fired a salvo, missiles flew over our heads – we completed our task and returned to the base.” The weather seemed to be on the side of the Soviet army, as autumn brought heavy rains, and then winter caught the Nazis unawares with exceptionally freezing temperatures. While the epic battle raged on, Moscow residents had to “survive all the horrors of war: hunger, cold, devastation, loss of family and the loved ones,” according to Rimma Grachyova, who was seven years old when the war broke out. “Most frightening of all was the bombing – daily bombings that continued incessantly,” the woman recalls.

“At first we would shelter in the “Park Kultury” underground station that was not far from our house. Then our family decided that if it was our fate to die we would die together and we wouldn’t run from it. There were five kids in our family.” “We helped the front as much as we could. We’d collect scrap metal from courtyards. I’d knit socks and mittens together with grown-ups, as I knew how. We wrote letters too. We also sang for the wounded in hospitals,” the 80-year-old witness said, sharing her childhood experience. Almost one million Soviet soldiers died during the defense and counter-offensive operations, which included the construction of three defensive belts in the Moscow region, as well as deployment of reserve armies. The outcome of the Battle of Moscow saw German troops pushed back nearly 200 km from the capital, becoming the first-ever blow to the Wehrmacht’s reputation as an invincible army.

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