Feb 232017
 
 February 23, 2017  Posted by at 9:53 am Finance Tagged with: , , , , , , , , , ,  5 Responses »
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Jack Delano Colored drivers entrance, U.S. 1, NY Avenue, Washington, DC 1940

 


The Absolute Dominance Of The US Economy, In One Chart (MW)
Trump Scorns the IMF’s Globalism, and Now He Gets to Vote on It
The Problem with Gold-Backed Currencies (CHS)
What’s So Great About Europe? (BBG)
Italy Warned by EU Over High Public Debt With Spillover Risk (BBG)
‘Spain Is Ruined For 50 Years’ (Exp.)
Why Greece’s Crisis Has Broken All Previous Records (K.)
Millions In UK Are Just One Unpaid Bill Away From The Abyss (G.)
Oz Reserve Bank Interest Rate Moves Limited By High Debt, House Prices (AbcAu)
Exxon Wiped A Whopping 19.3% Of Its Oil Reserves Off Its Books In 2016 (Q.)
Turkish Provocations Test Greek Resolve (K.)
Greece Okays Asylum Requests Of 10,000 Refugees (K.)

 

 

Not sure that’s what I get from the graph.

The Absolute Dominance Of The US Economy, In One Chart (MW)

Despite the bleak picture painted by President Donald Trump of the U.S. as a country in disarray, America’s status as an economic superpower is still very much intact, even as China steadily closes the gap. The U.S. economy, as measured by GDP, is by far the largest in the world at $18.04 trillion. China, the closest thing the U.S. has for a competitor, is No. 2 with a GDP of $11 trillion, while Japan is a distant third with $4.38 trillion. As the chart by HowMuch.net illustrates, the U.S. accounts for about a quarter of the global economy, nearly 10 percentage points more than China’s 14.84%. Put another way, the U.S. economy is roughly equivalent to the combined GDPs of the eight next-biggest countries after China — Japan, Germany, the U.K., France, India, Italy, Brazil and Canada.

However, the narrative shifts when countries are grouped by geography, with Asia clearly in the lead. The region, denoted in yellow in the chart, contributed 33.84% to the global GDP. “Asia’s economic center of gravity is in the east, with China, Japan and South Korea together generating almost as much GDP as the U.S.,” said Raul Amoros at HowMuch.net. North America follows Asia at 27.95%, and Europe trails at 21.37%. The three blocs combined represent about 83% of the world’s economic activity. The chart also highlights the chasm between wealthy and poor countries. South America’s four largest economies — Brazil, Argentina, Venezuela and Colombia — only add up to 4% of the global GDP, while Africa’s three biggest — South Africa, Egypt and Nigeria — account for around 1.5%.

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I picked the last bit of the article.

Trump Scorns the IMF’s Globalism, and Now He Gets to Vote on It

The IMF has already survived one major mission-change. It’s known today as the lender of last resort to countries facing balance-of-payments crises. But in its first three decades, the Fund managed the world’s currency order. That was the role assigned at Bretton Woods in 1944, when the IMF and World Bank were set up. Forty-five nations attended the summit, but two men dominated it: John Maynard Keynes and America’s Harry Dexter White. From the back of her car in Uganda, Lagarde calls them the “founding fathers.” Their goal was to avoid a repeat of the 1930s, when competitive devaluations and tariff wars led to the collapse of world trade. Keynes wanted the IMF to act as a central bank of central banks, denominating their accounts in a new global currency. It would let members devalue or borrow with relative ease. Both creditors and debtors would pay interest on their holdings, discouraging large trade surpluses as well as deficits.

White’s plan was more creditor-friendly, reflecting the U.S. position as world lender. There would be no new currency: IMF members would tie their money to the dollar. They couldn’t devalue without consulting the Fund, and were only supposed to borrow short-term to close balance-of-payments gaps. “The British wanted an automatic source of credit, the Americans a financial policeman,” wrote Keynes’s biographer Robert Skidelsky. The English economist was one of the 20th century’s sharpest thinkers, but it was the U.S. Treasury official who got his way. The system turned out to have a flaw: It depended on the supply of U.S. dollars backed by gold. That link came under pressure as America, financing social programs at home and war in Vietnam, slipped into persistent deficit. In 1971, President Richard Nixon took the dollar off the gold standard, ending phase one at the IMF.

Today there’s a patchwork of floating rates, pegs and currency unions like the euro. It’s not working to everyone’s satisfaction – notably Trump’s. His team has called out several countries, from China to Germany, for gaming the system. Money courses around that system on a scale that would have been unimaginable at Bretton Woods. Massive trade imbalances built up. The dollar remains central. The risks were laid bare in 2008, when a collapsed U.S. housing bubble led to world recession. Since then, some financial leaders – among them the governor of the People’s Bank of China, Zhou Xiaochuan, and his U.K. counterpart Mark Carney – have gently hinted that something more like Keynes’s plan might be in order, to reduce the world’s dollar dependency.

Lagarde doesn’t see that happening on her watch. “It didn’t happen in 1944, when the world had destroyed itself,” she said. “I’m not a dreamer.” She argues instead that what the IMF is doing today will remain useful tomorrow. Countries will always be getting in a financial mess. Someone has to clean it up. Ukraine needed money in 2015: without the IMF, “where would the $17.5 billion come from? Whose pocket would it be?”

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The curse of the reserve currency. And if you look a bit deeper, any gold-backed currency.

The Problem with Gold-Backed Currencies (CHS)

There is something intuitively appealing about the idea of a gold-backed currency –money backed by the tangible value of gold, i.e. “the gold standard.” Instead of intrinsically worthless paper money (fiat currency), gold-backed money would have real, enduring value–it would be “hard currency”, i.e. sound money, because it would be convertible to gold itself. Many proponents of sound money identify President Nixon’s ending of the U.S. dollar’s gold standard in 1971 as the cause of the nation’s financial decline. If our currency was still convertible to gold, the thinking goes, the system would never have allowed the vast pile of debt to accumulate. The problem with this line of thinking is that it is disconnected from the real-world mechanisms of capital flows and the way money is created in our financial system.

This article explains why Nixon took the USD off the gold standard: since the U.S. was running trade deficits, all of America’s gold would have been transferred to the exporting nations. America’s gold reserves would have disappeared, leaving nothing to back the dollar. The U.S. Empire Would Have Collapsed Decades Ago If It Didn’t Abandon The Gold Standard. The problem to sound-money proponents is trade deficits: if the U.S. only had trade surpluses, then the gold would not drain away. But Triffin’s Paradox explains why this doesn’t work for a reserve currency: a reserve currency has two distinct sets of users: domestic users and global users. Each has different needs, so there is a built-in conflict between the two sets of users.

Global users of the USD need enormous quantities of dollars to use as reserves, to pay debts denominated in USD and to facilitate international trade. The only way the issuing nation can provide enough currency to meet this global demand is to run large, permanent trade deficits–in effect, “exporting” dollars in exchange for goods and services. This is the paradox: to maintain the “exorbitant privilege” of a reserve currency, a nation must “export” its currency in size; a nation that runs trade surpluses cannot supply the world with enough of its currency to act as a reserve currency.

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That is one damning set of numbers.

What’s So Great About Europe? (BBG)

A woman said that maybe the problem with the European Union – or at least the common currency, the euro – was that it was too advantageous to Germany. “Because we have a common currency, we get an edge in exports,” she said. “I profit from this. Thanks!” “Do you think this is harming our neighbor countries?” Armbruster asked. “Yes, definitely,” she responded. “Germany was always a problem in Europe,” interjected Andre Wilkens, a Berlin-based policy wonk who was one of the evening’s featured speakers but mostly sat and listened. “The EU was formed to solve that problem.” Others got up to say that Europe needed more solidarity, with Germans leading the way. It needed more of a sense of community. More attention needed to be paid to the millions of jobless young people in Greece, Italy, Portugal and Spain.

Then things shifted to straight-out Euroenthusiasm. “To be totally honest, I think Europe is super,” said a woman sitting in the front row. Added a man a few rows back: “There are problems that we Germans alone can’t solve.” By working together with the rest of Europe, he went on, Germany had a better shot at fighting climate change and preventing war. It isn’t exactly news that a bunch of people gathered in a theater in downtown Stuttgart support the idea of Europe and even, for the most part, the reality of the European Union. The home of Daimler, Porsche and Robert Bosch is one of the continent’s great economic success stories – and its residents’ political views aren’t necessarily shared by other Germans. On the whole, Germans see the EU in a more positive light than the citizens of most other European countries (I’ve included the 10 most populous EU member countries in the chart below), but they’re still pretty negative about it.

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All Italy can do is pretend. And Brussels likes it that way.

Italy Warned by EU Over High Public Debt With Spillover Risk (BBG)

The European Commission warned that Italy faces excessive economic imbalances as the country’s shaky center-left government struggles to control public debt, boost sluggish growth and mend ailing banks. Troubles including soured bank loans risk spilling into other euro-area countries, the commission said on Wednesday. Italy’s public debt is projected to rise to 133.3% of gross domestic product this year from an estimated 132.8% in 2016. “High government debt and protracted weak productivity dynamics imply risks with cross-border relevance looking forward, in a context of high non-performing loans and unemployment,” the European Union’s executive arm in Brussels said in a set of annual policy recommendations to EU governments. Italy is struggling to maintain government stability amid infighting in the ruling Democratic Party, where some members are pushing for early elections.

The country also faces sluggish GDP growth of 0.9% this year and lingering issues at domestic banks, which are weighed down by €360 billion of bad loans that have eroded profitability, undermined investor confidence and curtailed new lending. “The stock of non-performing loans has only started to stabilize and still weighs on banks’ profits and lending policies, while capitalization needs may emerge in a context of difficult access to equity markets,” the commission said. In May it plans to recommend whether Italy should be subject to a stricter oversight regime – one with fines as a last resort – for failing to keep public debt on a trajectory toward the EU limit of 60% of GDP. The assessment will take into account final economic data for 2016 and Italian government pledges to adopt by the end of April budget-austerity measures worth 0.2% of GDP.

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“We have a third world production model of speculators and waiters, with a labour market where the majority of jobs created are temporary and with remunerations of €600, the largest wage decline in living memory..”

‘Spain Is Ruined For 50 Years’ (Exp.)

A leading Spanish economist has hit out at the ECB saying “crazy” loans will ruin the lives of the population for the next 50 years.And it is only a matter of time before the Government is forced to default as a debt bubble and low wages effectively forge the worst declines in “living memory”. Leading economist Roberto Centeno, who was an advisor to US president Donald Trump’s election team on hispanic issues, says the country has borrowed €603 billion that it cannot conceivably pay back. And he says Spanish politicians including Minister of Economy Luis de Guindos are “insulting their intelligence” after doing back door deals with the ECB. In a blog post Mr Centeno says there needs to be audits so the country can understand the magnitude of its debt mountain.

He said Spain was “moving steadily towards the suspension of payments which is the result of out of control public waste, financed with the largest debt bubble in our history, supported by the ECB with its crazy policy of zero interest rate expansion and without any supervision.” The expert added the doomed situation will “lead to the ruin of several generations of Spaniards over the next 50 years”. And that current Prime Minister Rajoy has employed 2500 special advisors in his central government as opposed to other leaders. He said: ”Our economic future requires drastic decisions to cut public waste, such as eliminating thousands of useless public companies, thousands of useless advisers, [Prime Minister Mariano] Rajoy has 2,500 in Moncloa, compared to Obama’s 600, Merkel’s 400 or the 250 working for Theresa May.

“There’s disastrous management of Health and Education, the cost of which has skyrocketed 60 per cent since they were transferred to the Autonomous Communities while the quality plummeted.” Mr Centento also said the Government and the European Union’s estimations of GDP are completely wrong and has presented them with figures he claims are accurate. He said the country is currently suffering from a “third world production model”. He added: “We have a third world production model of speculators and waiters, with a labour market where the majority of jobs created are temporary and with remunerations of €600, the largest wage decline in living memory, “And all this was completed with a broken pension system and an insolvent financial system.”

Forecasting an unprecedented shock to the European financial model, Mr Centento is calling for an immediate audit despite a recent revelation that the ECB is failing in its supervisory role over Europe’s banks. He also claimed the Spanish government and European Union leaders have been manipulating figures since 2008. Mr Centento said: “We will require the European Commission and Eurostat to audit and audit the Spanish accounting system for serious accounting discrepancies that may jeopardise stability. “The gigantic debt bubble accumulated by irresponsible governments, and that never ceases to grow, will be the ruin of several generations of Spaniards. “The Bank of Spain’s debt to the Eurosystem is the largest in Europe. “The day that the ECB minimally closes the tap of this type of financing or markets increase their risk aversion, the situation will be unsustainable.”

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A feature not a bug.

Why Greece’s Crisis Has Broken All Previous Records (K.)

How unique is the Greek crisis? Two charts tell the tragic tale. The first – from the International Monetary Fund’s recent Article IV report on Greece – compares four major economic crises that took place in the developed world in the last 100 years: the Great Depression in the United States, the Asian financial crisis of the late 1990s, the eurozone recession and Greece’s long collapse. Greece’s performance is by far the worse. The East Asian countries caught in the hurricane of 1997-8 returned to pre-crisis real GDP within three years. The eurozone needed six years, and today its real GDP is only 2% higher than the pre-crisis high point. The output of the US economy had shrunk by a quarter three years after the Wall Street Crash of 1929, but by 1936 it had recovered to pre-crisis levels. The Greek economy contracted by 26% in real terms between 2007 and 2013, and at the end of 2016 – nine years after the start of its own Great Depression – it remained stuck at the bottom.

The second chart, from the analysis service Macropolis, compares the performance of eight countries that have sought assistance from the IMF since 1997 seven years after the start of their programs. The Fund’s best student was Turkey, which doubled its GDP in real terms between 2000 and 2007. Russia was a close second, largely thanks to growth fueled by climbing oil and gas prices. South Korea comes next, with growth well above 50% from its baseline year, while Indonesia, Brazil and Thailand are hovering around 25%. The only countries which remained below their pre-crisis GDP levels seven years after seeking the Fund’s assistance are Argentina (in the aftermath of the 1998-2002 crisis) and Greece. At its low point, three years into its crisis, Argentina’s dollar-denominated GDP – largely because of the devaluation of the peso after the abolition of convertibility – had fallen by two-thirds compared to pre-crisis highs. At the seven-year mark, Argentina, unlike Greece, was experiencing a robust recovery.

Focusing on the comparison with the Great Depression in the United States, US unemployment peaked in May 1933 at 26%, to be cut by more than half by the end of 1936. In Greece it reached 28% in July 2013, and has since fallen to 23%. The Dow Jones Industrial index lost 85% of its value between August 1929 and May 1932, but it rose fourfold in the three-and-a-half years to the end of 1936 (another 23 years would pass, however, before it got back to pre-crisis levels).

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No, it’s not just the EU, or the euro.

“..an economic climate that is normalising low-income families having to live hand to mouth..”

Millions In UK Are Just One Unpaid Bill Away From The Abyss (G.)

As the cocktail of long-term austerity, rising living costs and a slumping post-Brexit economy hits, what’s really frightening is the crisis that is brewing but is barely being noticed. Look at this week’s finding that one in four families now have less than £95 in savings. That’s staggering, not simply because it gives an insight into how large swaths of families in Britain are clinging on financially in a climate of low wages, cut benefits and high rents, but also because it offers us a warning of how little it will take to push them over the edge. There are now 19 million people in this country living below the minimum income standard (an income required for what the wider public view as “socially acceptable” living standards), according to figures released by the Joseph Rowntree Foundation (JRF) this month.

Around 8 million of them could be classed as Theresa May’s “just about managing” families: those who can, say, afford to put food on the table and clothe their children but are plagued by financial insecurity. The other 11 million live far below the minimum income standard and are, the JRF warns, “at high risk of falling into severe poverty”. We are entering a period not simply of growing hardship in this country but of what I would call precarious poverty: the sort that isn’t characterised by the traditional image of lifelong, deep-seated deprivation, but which can hit in a matter of days: a broken washing machine, a late child tax credit payment, an injury that leads to time off work. In an economic climate that is normalising low-income families having to live hand to mouth, increasingly, for a whole economic class, one small unexpected cost can trigger a spiral into debt.

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And now they’re stuck. This is where it gets risky.

Oz Reserve Bank Interest Rate Moves Limited By High Debt, House Prices (AbcAu)

Fears of inflating housing bubbles in Sydney and Melbourne are stopping the Reserve Bank from cutting interest rates to boost the economy, the central bank governor conceded today. The stark admission by Reserve Bank governor Phillip Lowe about the RBA’s dilemma comes as soaring house prices in the eastern states have Australians carrying “more debt than they ever have before”. Dr Lowe delivered the reality check at the Australia Canada Economic Leadership Forum, where he said low interest rates made it attractive for borrowers in both countries to invest in real estate, making further rate cuts an undesirable option. “We are trying to balance multiple objectives at the moment,” he said in response to questions after the speech.

“We’d like the economy to grow a bit more quickly and we’d like the unemployment rate to come down a bit more quickly than is currently forecast. “But if we were to try and achieve that through monetary policy it would encourage people to borrow more money and it probably would put more upward pressure on housing prices and, at the moment, I don’t think either of those two things are really in the national interest.” For the moment, it looks like the Reserve Bank feels content — or locked in — to leaving official interest rates on hold at a record low 1.5%. However, Dr Lowe expressed optimism that this level of rates was low enough to spark business investment and stronger economic growth, and therefore there would be no need to lower rates further.

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That’s a lot of (not) oil.

Exxon Wiped A Whopping 19.3% Of Its Oil Reserves Off Its Books In 2016 (Q.)

ExxonMobil has taken a big hit to one of the pillars underlying its decades of braggadocio: its oil reserves. In an announcement today, Exxon said it had written down its proven oil reserves by a massive 19.3%, a stinging reduction to what is a primary measure of any oil company’s value. As of the end of 2016, Exxon had 20 billion barrels in proven reserves, compared with 24.8 billion a year earlier. This includes the erasure of all 3.5 billion barrels of Exxon’s proven oil sands reserves at Canada’s Kearl field. Last year’s low oil prices made it uneconomical to drill at Kearl, which had been at the core of Exxon’s growth strategy. In addition, for the second straight year, Exxon failed to replace all the reserves it pumped—in 2016, it replaced just 65% of its produced reserves. In 2015, it replaced just 67%.

Prior to these years, Exxon had replaced at least 100% of its production every year since 1993. As bad as that was, it was expected: Exxon had signaled that it would write down reserves in 2016, and analysts had expected the company not to replace what it pumped. What wasn’t anticipated was the impact on Exxon’s vaunted longer-term performance. Almost every year, when Exxon announces its earnings, dividend payouts, reserve replacement results—and nearly any other important annual result—it throws in its 10-year record in the respective category to demonstrate its steady, reliable hand on the tiller. This time, bringing up the 10-year record backfired: The replacement failures of the last two years and the 2016 writedown punched a hole in Exxon’s vaunted 10-year reserves replacement average—it plunged to 82% in 2016, from 115% a year earlier.

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Simmering conflict.

Turkish Provocations Test Greek Resolve (K.)

The recent spike in Turkish provocations in the Aegean and incendiary comments emanating from Ankara are aimed at testing Greece’s resolve, according to Greek analysts. In what was seen as its latest transgression, Turkey dispatched its Cesme research vessel to conduct surveys on Wednesday in international waters between the islands of Thasos, Samothrace and Limnos, but within the area of responsibility of the Hellenic Search and Rescue Coordination Center. The night before, Turkish coast guard vessels conducted patrols in the region around the Imia islets. At the same time, the Cyprus talks are being undermined over what Greeks believe is a minor detail – the decision by the Cyprus Parliament for schools to commemorate a 1950 referendum calling for union with Greece.

Greeks say it is an attempt to shift attention from the fundamental issues of the peace talks, namely post-settlement security and guarantees. In response, Athens has pursued the principle of proportionality by countering the presence of Turkish military and coast guard vessels with an equivalent number of Greek ones, while embarking on a diplomatic campaign at international organizations and in major capitals. Analysts also attribute the spike in tension to the Supreme Court’s refusal to extradite the Turkish servicemen that Ankara says were involved in the July coup attempt. But they also note that it serves as a convenient pretext for Turkey to up the nationalistic rhetoric ahead of the April 16 referendum called by President Recep Tayyip Erdogan in a bid to expand his powers.

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Think maybe rich Europe has slipped Tsipras a few bucks?

Greece Okays Asylum Requests Of 10,000 Refugees (K.)

At least 10,000 refugees, including around 2,000 minors, are expected to remain in Greece over the coming three years as their asylum applications have been approved. The approved asylum claims account for about a sixth of more than 60,000 migrants who are currently stranded in Greece following the decision last year by a series of Balkan states to close their borders amid a massive influx of refugees from Syria and other war-torn states. The arrival of migrants in Greece has slowed significantly following an agreement between the European Union and Turkey in March last year to crack down on human smuggling across the Aegean.

However, boatloads of migrants continue to arrive on Greek shores from neighboring Turkey. On Wednesday, another 145 migrants arrived on the eastern Aegean island of Chios alone. Authorities attribute the sudden spike in arrivals to the unseasonably good weather. According to the Greek Asylum Service, a total of 1,912 migrants lodged asylum applications in January of this year. Last year, when hundreds of thousands of migrants flooded through Greece toward other parts of Europe, a total of 51,091 people applied for asylum in Greece, compared to 13,195 in 2015, 9,432 in 2014 and 4,814 in 2013.

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Feb 222017
 
 February 22, 2017  Posted by at 9:45 am Finance Tagged with: , , , , , , , ,  4 Responses »
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DPC Launch of battleship Georgia, Bath, Maine, Oct 1904

 


Finance as Warfare: IMF Lent to Greece Knowing It Could Never Pay Back (CP)
Will EU and IMF Finally Offer Light At The End Of The Greek Debt Tunnel? (G.)
France Exiting The Euro Would Be Largest Sovereign Default In History (CNBC)
EU Tax Chief Admits Le Pen Win Would Be The End Of The European Project (CNBC)
Marine Le Pen’s Party’s Headquarters Raided Over ‘Fake Jobs’ Scandal (AFP)
Revised Trump Travel Ban Will Face Legal Hurdles, Too (BBG)
The Cognitive Bias President Trump Understands Better Than You (Wired)
US Car Loans, Delinquencies Hit Record Levels (Q.)
‘Trapped Wealth’ Drives Toronto’s Speculative Real Estate Dilemma
China’s Central Bank To Shine Regulatory Light On Shadow Banking (SCMP)
Tech CEOs Back Call For Basic Income (CNBC)
Monsanto and Bayer’s Chemical Romance: Heroin, Nerve Gas and Agent Orange (AN)
Canada Will Not Halt Illegal Border Crossing Despite Opposition – Trudeau (R.)
Canada To Welcome 1,200 Yezidi Refugees From Iraq (AFP)
Europe Wrote The Book On Demonising Refugees, Long Before Trump Read It (G.)
Bodies Of At Least 74 Migrants Wash Ashore In Western Libya (G.)

 

 

Michael Hudson speaking. “..when Greece fails, that’s a success for the foreign investors that want to buy the Greek railroads. They want to take over the ports. They want to take over the land. They want the tourist sites.”

Finance as Warfare: IMF Lent to Greece Knowing It Could Never Pay Back (CP)

I take issue with one thing that you said. You said the lenders expect Greece to grow. That is not so. There is no way in which the lenders expected Greece to grow. In fact, the IMF was the main lender. It said that Greece cannot grow, under the circumstances that it has now. What do you do in a case where you make a loan to a country, and the entire staff says that there is no way this country can repay the loan? That is what the IMF staff said in 2015. It made the loan anyway – not to Greece, but to pay French banks, German banks and a few other bondholders – not a penny actually went to Greece. The junk economics they used claimed to have a program to make sure the IMF would help manage the Greek economy to enable it to repay. Unfortunately, their secret ingredient was austerity.

Sharmini, for the last 50 years, every austerity program that the IMF has made has shrunk the victim economy. No austerity program has ever helped an economy grow. No budget surplus has ever helped an economy grow, because a budget surplus sucks money out of the economy. As for the conditionalities, the so-called reforms, they are an Orwellian term for anti-reform, for cutting back pensions and rolling back the progress that the labor movement has made in the last half century. So, the lenders knew very well that Greece would not grow, and that it would shrink. So, the question is, why does this junk economics continue, decade after decade? The reason is that the loans are made to Greece precisely because Greece couldn’t pay.

When a country can’t pay, the rules at the IMF and EU and the German bankers behind it say, don’t worry, we will simply insist that you sell off your public domain. Sell off your land, your transportation, your ports, your electric utilities. This is by now a program that has gone on and on, decade after decade. Now, surprisingly enough, America’s ambassador to the EU, Ted Malloch, has gone on Bloomberg and also on Greek TV telling the Greeks to leave the euro and go it alone. You have Trump’s nominee for the ambassador to the EU saying that the EU zone is dead zone. It’s going to shrink. If Greece continues to repay the loan, if it does not withdraw from the euro, then it is going to be in a permanent depression, as far as the eye can see. Greece is suffering the result of these bad loans. It is already in a longer depression today, a deeper depression, than it was in the 1930s.

[..] when Greece fails, that’s a success for the foreign investors that want to buy the Greek railroads. They want to take over the ports. They want to take over the land. They want the tourist sites. But most of all, they want to set an example of Greece, to show that France, the Netherlands or other countries that may think of withdrawing from the euro – withdraw and decide they would rather grow than be impoverished – that the IMF and EU will do to them just what they’re doing to Greece. So they’re making an example of Greece. They’re going to show that finance rules, and in fact that is why both Trump and Ted Malloch have come up in support of the separatist movement in France. They’re supporting Marine Le Pen, just as Putin is supporting Marine Le Pen. There’s a perception throughout the world that finance really is a mode of warfare.

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Suggestion: lock them up until they have an agreement. Then let Greeks vote on that.

Will EU and IMF Finally Offer Light At The End Of The Greek Debt Tunnel? (G.)

Simon Tilford, deputy director of the Centre for European Reform, a thinktank, said he believed the IMF and eurozone would find a compromise, whereby the fund signed up to the 3.5% target for a limited period of time, as the price of stabilising the eurozone in an election year. “My feeling is they will largely settle for a fig leaf. It will be made to look as if the pace of austerity has been eased, ie that the eurozone will agree that the size of the primary budget surplus will be reassessed at some specified point in the future.” “All we are going to see us another round of extend and pretend.” He added that this would not do anything “significant to alleviate the pressure we see on Greece”. He pointed out that even a primary budget surplus of 1.5% (favoured by the IMF) “would still mean ongoing austerity in Greece”. The IMF’s reforms may also prove politically difficult to sell to a population reeling from nearly eight years in the EU’s bailout regime.

One of the IMF’s key demands is an overhaul of the Greek tax system to ensure more middle-class professionals pay their dues. More than 50% of Greek wage earners do not pay income tax, compared with 8% in the rest of the eurozone. But the low tax take partly reflects the economic collapse that has pushed down wages and squeezed people out of regular work. Reforming pensions, another IMF priority, may also run into trouble. The fund wants to rein in “extremely generous” Greek pensions that absorb 11% of national income. But Greek pensions have already been slashed since 2010, with 43% of pensioners living on €660 a month, compared with an average annual income of €20,000 for over-65s in other eurozone countries, according to government figures. Many Greek pensioners are also supporting unemployed children and grandchildren, as other benefits have been cut. With these politically tough reforms ahead, the light at the end of tunnel looks dim and distant. “Greeks are facing ongoing austerity into the foreseeable future,” Tilford says.

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Sorry, but fearmongering no longer works.

France Exiting The Euro Would Be Largest Sovereign Default In History (CNBC)

A few days ago, David Rachline of the far-right National Front party in France said that “the debt of France is about €2 trillion, about €1.7 trillion are issued under French law, which means that it can be re-denominated.” The economic program of the National Front specifically calls for the exit of the euro and the creation of a new currency, the French franc, which would be “closely” linked to the euro while allowing the government to undertake “competitive devaluations” making the transition in an “orderly way”. There is only one problem. It does not work. There is no “orderly exit” from the euro. It is an oxymoron. This would be the largest credit event in history and would create a massive contagion effect throughout the euro zone. The euro, obviously, would suffer from the break-up risk, so the fallacy of the “closely linked” second currency is simply a joke.

Both would collapse in tandem. The risk is already evident. The French-German yield spread has reached the highest level since 2012 despite the ECB’s massive quantitative easing. The ECB has bought more than €255 billion of French bonds. This mirage of an “orderly exit” ignores that the French financial system, which carries assets more than three times the size of France´s GDP, would be severely damaged from the impact of the credit event. A financial system that already suffers from weak net income margins and more than 160 billion euros in non-performing loans, would collapse as these bad loans escalate and the losses in the banks’ bond portfolios eat away their core capital. This would inevitably lead to Greek-style capital controls and bank runs as the entities would lose liquidity support from the ECB.

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“I think the rise of Le Pen is a result of the disappointment in other candidates..” Eh, no, it’s disappointment in the EU.

EU Tax Chief Admits Le Pen Win Would Be The End Of The European Project (CNBC)

A win for far-right presidential candidate Marine Le Pen would spell the end of the EU – but the French are not crazy enough to let that happen, insists European Commissioner Pierre Moscovici. “I’m confident. I know my citizens and my compatriots well and know they are not going to elect a candidate who is proposing France exiting (Europe). That would be the end of the European project,” Moscovici, who is European Commissioner for Economic and Financial Affairs, told CNBC Monday. In a clear nod to the rising populist movements in Europe, the election of U.S. President Donald Trump and the U.K.’s EU referendum, Moscovici, said he believes common sense will prevail as France goes to the polls in the two-round election this year. “I cannot imagine 50% of the French are crazy enough to vote for her,” he said.

“I’m quite convinced that she cannot win … she never even ever won a regional election in France – never ever.” Moscovici appealed, however, to the other presidential candidates, who include Independent Emmanuel Macron and Republican Francois Fillon, to prove themselves to the electorate and, ultimately, make a stronger case for remaining in the EU. “The other candidates need to have a stronger campaign and show that they are credible to propose a future that is likeable for the French. “I think the rise of Le Pen is a result of the disappointment in other candidates, so I urge them to make a strong proposal for France, and as well for Europe, and for France in Europe.”

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It’s amazing that they haven’t tried more of these tactics to make her look bad (they will, though). “For the second time, a raid took place at the same offices, over the same allegations, which confirms that the first raid amounted to nothing..”

Marine Le Pen’s Party’s Headquarters Raided Over ‘Fake Jobs’ Scandal (AFP)

French investigators probing an alleged fake jobs scam by the far-right National Front (FN) raided the group’s headquarters outside Paris on Monday, the party said. The raid is the second in a year by investigators trying to determine whether the FN used European Parliament funds to pay for 20 assistants presented as parliamentary aides while continuing to work for the party elsewhere. “For the second time, a raid took place at the same offices, over the same allegations, which confirms that the first raid amounted to nothing,” the party said in a statement. The group accused investigators acting for the Paris prosecutor’s office of a “media operation” designed to disrupt the presidential campaign of FN leader Marine Le Pen. Le Pen, who has led the anti-EU party since 2011, is a member of the European Parliament which accuses her of defrauding it of nearly €340,000.

She is riding high in polls ahead of the two-stage presidential election on April 23 and May 7 election, and has denied the claims, describing the investigation as a vendetta against her. According to a report by the EU’s anti-fraud office OLAF, leaked last week, the parliament paid out 41,554 euros towards a contract for Le Pen’s bodyguard Thierry Legier who was falsely presented as a parliamentary assistant. The allegations against Le Pen have been drowned out by a fake jobs scandal engulfing her conservative rival Francois Fillon. Fillon’s campaign has been adrift since it emerged that his wife netted at least 680,000 euros for a suspected fake job as a parliamentary assistant over a period spanning 15 years. He has denied the allegations. Polls currently show Le Pen winning the first round of the election, but failing to garner the more than 50% of voters needed for victory in the second round.

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I still think it’s a good thing the US is having this conversation. But the upcoming ugliness is terrible. You need to always take care of individual people first.

Revised Trump Travel Ban Will Face Legal Hurdles, Too (BBG)

President Donald Trump is poised to announce a redrafted executive order on immigration from seven majority-Muslim countries. Will it pass legal muster? Or will the courts once again thwart the president’s will? Early reports suggest that the new order will be drafted to avoid many of the legal problems that were posed by the earlier version, and to make judicial review harder to obtain. But the crucial question is whether the courts will consider the political context in which the order was drafted to conclude that it is still a Muslim ban under another name. Whether the court should do so turns out to be a close legal question. But Supreme Court precedent suggests that it should – in which case the new order could well be blocked like the original. The expected fixes in the new order would improve the administration’s legal position.

For one thing, the new order is expected to exclude legal permanent residents with green cards, who were included in the original order according to the administration’s early guidance, then excluded by a later interpretation. In its decision upholding a temporary restraining order by a federal judge in Seattle against enforcement of the first travel ban, the U.S. Court of Appeals for the Ninth Circuit treated the executive order as covering green card holders. That mattered because, as the court said, green card holders have a stronger constitutional claim to be covered by the due-process clause of the Constitution than do other visa holders. By excluding green card holders, the new order would force plaintiffs to identify different people who are harmed by the order.

Another smart revision would be to omit the provision that said religious minorities in the seven countries – which is to say, almost certainly Christians – would be given preferential treatment when refugees are once again let into the U.S. That provision was the only part of the text that could be used to suggest that the order unconstitutionally favored one religion, Christianity, over another, Islam. The Trump administration would also be smart to phase in the new order to avoid trapping visa holders who are in transit, which creates sympathetic plaintiffs detained at the airports. But that’s not the end of the game, constitutionally speaking. Even if due process is omitted from the case entirely, plaintiffs could still allege once more that the order discriminates on the basis of religion in violation of the free-exercise and establishment clauses of the First Amendment.

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Paint a strong picture of something that’s not the norm.

The Cognitive Bias President Trump Understands Better Than You (Wired)

Americans born in the United States are more murderous than undocumented immigrants. Fighting words, I know. But why? After all, that’s just what the numbers say. Still, be honest: you wouldn’t linger over a story with that headline. It’s “dog bites man.” It’s the norm. And norms aren’t news. Instead, you’ll see two dozen reporters flock to a single burning trash can during an Inauguration protest. The aberrant occurrence is the story you’ll read and the picture you’ll see. It’s news because it’s new. The problem here is not just that this singling out creates a distorted, fish-eye lens version of what’s really happening. It’s that the human psyche is predisposed to take an aberration—what linguist George Lakoff has called the “salient exemplar”—and conflate it with the norm.

This cognitive bias itself isn’t new. But in a media environment driven by clicks, where politicians can bypass journalistic filters entirely to deliver themselves straight to citizens, it’s newly exploitable. You know who else isn’t as likely to commit murders in the US as native-born citizens? Refugees. Or immigrants from the seven countries singled out in President Trump’s shot-down travel ban. Or for that matter, immigrants at all. According to numerous studies, increased immigration correlates with lower violent crime rates in a community. Yet next week, Trump is promising a revised travel ban in the name of safety. In the past, the president has also promised to publish a weekly list of crimes committed by undocumented immigrants. What he hasn’t promised to publish is a list of crimes committed by Americans. That’s not news.

But his list is likely to create the false impression that undocumented immigrants are especially prone to commit violent crimes—an impression in which the human brain is complicit. Lakoff, a University of California, Berkeley linguist and well-known Democratic activist, cites Ronald Reagan’s “welfare queen” as the signature “salient exemplar.” Reagan’s straw woman—a minority mother who uses her government money on fancy bling rather than on food for her family—became an effective rhetorical bludgeon to curb public assistance programs even though the vast majority of recipients didn’t abuse the system in that way. The image became iconic, even though it was the exception rather than the rule. Psychologists call this bias the “availability heuristic,” an effect Trump has sought to exploit since the launch of his presidential campaign, when he referred to undocumented Mexican immigrants as rapists.

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Slaves.

US Car Loans, Delinquencies Hit Record Levels (Q.)

Last year, Americans bought more new cars than ever before. Given that auto sales make up around a fifth of all retail spending, 2016’s banner year is being hailed as a sign of burgeoning consumer confidence across the country. But something else is revving up, too: auto loans. The US closed out 2016 with just shy of $1.2 trillion in outstanding auto loan debt, a rise of 9% from the previous year and 13% above the pre-crisis peak in 2005, in inflation-adjusted terms. The number of cars and trucks on the road, meanwhile, rose by only 1.5% last year, and 9% since 2005, according to US transportation department data.

Total household debt levels are now a hair under their 2008 peak, with some of the fastest growth in recent years down to auto loans. If America’s car-buying bonanza is being fueled by cheap credit, is consumer sentiment really as robust as it might seem? And is it sustainable? There are reasons to wonder. While car purchases and financing have leapt since 2009, wages have picked up only slightly over the same period. Meanwhile, the average loan taken out to buy a new car has risen steadily.

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TO learned nothing from Vancouver.

‘Trapped Wealth’ Drives Toronto’s Speculative Real Estate Dilemma

Toronto’s housing boom is unrelenting. Prices in Canada’s largest city surged more than 20% over the past year, the fastest pace in three decades, data released last week show. Some of the city’s neighboring towns are posting even bigger gains. It’s become a matter of considerable alarm. Stability is one concern: if the market tumbles, so will Canada’s economy. Pricier real estate also drives away less-affluent, younger people and boosts the cost of doing business, eroding competitiveness. “I don’t think anybody is cheering,” said Doug Porter, the Toronto-based chief economist of Bank of Montreal, who used the dreaded “bubble” word last week to describe the market. “I don’t see who benefits other than real estate agents. It’s trapped wealth.”

So, what’s driving the boom? The housing industry – builders and brokers – claim lack of supply is the main culprit. Others, Porter included, see demand as the problem. Lately, evidence is mounting that speculation is behind the jump. Builders say they are being held back by everything from regulations to prohibitive taxes and land restrictions. Ontario’s greenbelt region around Toronto is one example. This is no doubt true for one segment of the market: single-detached homes. Just over one-quarter of the 176,000 homes built in Toronto over the past five years were single-detached. That’s well down from the 1990s, when they accounted for almost half of all construction. Supply constraints don’t explain the price gains for condominiums, which have seen a flood of new completions. The average sale price of a condo is up 15% year-over-year. That’s after builders completed more than 54,000 apartment units over the past two years, easily a record supply for Toronto.

Canada’s recent census results, released this month, also provide some evidence against the shortage argument. Occupied private dwellings have risen by 7.2% in Toronto over the past five years, faster than population growth. The census, however, doesn’t say what type of homes are being built. Plus, there is also the recent puzzle of disappearing listings. New listings in Toronto fell 17% in January from a month earlier, the biggest one-month decline since 2002. Sales as a share of new listings rose above 90%, smashing the record. Is this a sign of a bubble? Are sellers holding off putting their homes on the market to see where prices settle? Has supply become so tight that potential sellers are pulling out of the market altogether since they have nowhere to move to? “The market is thinning out basically, you know what that means,” said David Madani, an economist at Capital Economics in Toronto, said in a telephone interview.

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They keep on announcing this. And the shadow system keeps growing, rapidly.

China’s Central Bank To Shine Regulatory Light On Shadow Banking (SCMP)

China’s financial watchdogs are considering casting a huge new regulatory net over the country’s vast shadow banking sector. The central bank has spearheaded the drafting of new regulations to tame China’s 60 trillion yuan “asset management” industry. According to people who have seen the draft regulations, the rules would bring the various kinds of asset management products and investment schemes offered by all kinds of financial institutions under the one regulatory umbrella. Oversight for the flourishing sector is now split between the securities, banking and insurance regulators. China Minsheng Banking chief analyst Wen Bin said regulatory standards differed between watchdogs and a unified system would help regulators cut systemic risks and financial leverage.

“China’s financial innovation has grown quickly in the past few years and the blending of financial operations through asset management products has challenged the fragmented regulatory system,” Wen said. Mainland financial institutions, including banks, mutual fund firms, brokerages and insurance companies, have rushed to set up asset management schemes, raising funds from clients and then investing in a range of markets and projects. These schemes are usually beyond the watch of regulators and harbour growing risks for the country’s financial stability, something the leadership is determined to eliminate ahead of a big power reshuffle due late this year. If rolled out, the rules would ban financial institutions from promising clients a minimum or fixed return from their products. Institutions would have to contribute 10% of their management fees to a risk reserve fund, and funds in one “asset management product” could not be used in another, except in authorised cases.

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These people really think they will rule the world. But what happens when the economy collapses? When the S&P falls 50%+? Are robots going to grow your food?

Tech CEOs Back Call For Basic Income (CNBC)

It’s 2067 and robots have wiped out millions of jobs, AI is rampant, and unemployment is on the rise. Technology companies and CEOs have become public enemy number one. This portrayal of the future is one tech executives are keen to avoid and has driven a growing chorus to support the idea of a universal basic income (UBI). “There is going to be backlash when it comes to jobs,” Sayantan Ghosal, an economics professor at the University of Glasgow who has written about UBI, told CNBC by phone. U.S. technology firms have been investing heavily in research and development of AI. Tesla with driverless cars, Amazon with workerless shops, and the likes of Google developing smarter-than-human software. Even Sergey Brin, the co-founder of Google, recently stated that he was “surprised” by the pace of AI developments.

Over the past few months, major technology executives have come out in support of a UBI. In an interview with CNBC in November, Tesla Chief Executive Elon Musk backed the idea. “There is a pretty good chance we end up with a universal basic income, or something like that, due to automation,” Musk said. He reiterated his thoughts last week at the World Government Summit in Dubai, in which he said a UBI would be “necessary”. Marc Benioff, chief executive of Salesforce, warned of AI creating “digital refugees”. At the World Economic Forum (WEF) in Davos in January, Benioff said there was “no clear path forward” on how to deal with the job displacement that will occur. Other tech executives talked up the industry’s responsibility. “We should do our very best to train people for the jobs of the future,” Microsoft CEO Satya Nadella said at Davos.

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The dark side of the man.

Monsanto and Bayer’s Chemical Romance: Heroin, Nerve Gas and Agent Orange (AN)

Fifty years ago, the Monsanto and Bayer corporations were forced to separate in order to avoid violating basic antitrust regulations. U.S. courts declared that the two chemical giants, when operating together under the name Mobay, stymied market competition and comprised a monopoly that could not stand. But that was then. Today, under a much different regulatory climate that all but rubberstamps such corporate monopolies, the Germany-based Bayer’s $66 billion offer to purchase Monsanto is being fast-tracked by U.S. regulators. The proposed mega-merger, or re-marriage, will result in nearly 30% of all worldwide pesticide and seed sales being controlled by the new partnership. The merger faces federal antitrust scrutiny before it can be finalized, a process currently underway.

It already passed its first test in January when it got the blessings of President-elect Donald Trump, who held an exclusive meeting with the CEOs of both corporations and emerged—not surprisingly—with his thumbs up. Trump’s exclusive meeting with these corporate titans came well before he had even bothered to name his selection to lead the U.S. Department of Agriculture, a not-so-subtle acknowledgement of where the true power lies when it comes to the politics of food. In addition to market control, Bayer’s proposed purchase is aimed at steadying a reeling Monsanto, which is mired in turmoil from a long list of objectionable activities involving toxic pesticides and its increasingly unpopular genetically-modified organisms.

Ironically, given its own sullied past that includes Nazi sympathizing and marketing heroin-laced cough syrup for children, Bayer is being portrayed as the one riding to the rescue of Monsanto’s poor public image. If anything, it’s a sign of just how low the Monsanto brand and reputation has plummeted, forcing it to try and improve its image by sidling up to Bayer, a participant in some of the cruelest crimes in human history. While these types of mergers are nothing new to the agribusiness sector, where consolidation has been king for decades, last year’s proposed mega-mergers shattered the record for such deals. There were $125 billion worth of proposed agri-chemical mergers in 2016, nearly doubling the previous record of $65 billion in 2010. In addition to the proposed Bayer/Monsanto deal, there are also pending mergers between Dow and DuPont as well as Syngenta and the Chinese National Chemical Corporation.

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Canada continues to set the standard. But protests begin.

Canada Will Not Halt Illegal Border Crossing Despite Opposition – Trudeau (R.)

Canada will continue to accept asylum seekers crossing illegally from the United States but will ensure security measures are taken to keep Canadians safe, Canadian Prime Minister Justin Trudeau said on Tuesday. The number of would-be refugees crossing into Canada at isolated and unguarded border crossings has increased in recent weeks amid fears that U.S. President Donald Trump will crack down on illegal immigrants, and photos of smiling Canadian police greeting the migrants have gone viral. Opposition Conservatives want Trudeau’s center-left Liberal government to stem the flow of asylum seekers from the United States because of security fears and a lack of resources to deal with them.

“One of the reasons why Canada remains an open country is Canadians trust our immigration system and the integrity of our borders and the help we provide people who are looking for safety,” Trudeau told parliament. “We will continue to strike that balance between a rigorous system and accepting people who need help.” Immigration Minister Ahmed Hussen also said Canada would continue to honor the Canada-U.S. Safe Third Country Agreement, which requires it to turn back refugees if they make asylum claims at Canadian border crossings with the United States. Refugee advocates have argued this drives asylum seekers to cross illegally at isolated locations, risking their lives in frigid weather. Amnesty International and other groups are pressuring the Canadian government to abandon the agreement, arguing the United States is not safe for refugees.

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Very smart move. They will contribute a lot to the country. Stong, hardened, intelligent and grateful.

Canada To Welcome 1,200 Yezidi Refugees From Iraq (AFP)

Canada will resettle 1,200 Yezidi refugees who faced persecution by the Islamic State group, the immigration minister said Tuesday. Some 400 have already been airlifted to this country. “Our operation is under way and individual survivors of Daesh have been arriving in Canada for resettlement in the last number of months and this began on October 25, 2016,” Immigration Minister Ahmed Hussen, using an Arabic name for the Islamic State. “Our government will resettle approximately 1,200 highly vulnerable survivors of Daesh and their family members in Canada,” he added. The initiative follows Parliament’s resolution last fall to take in Yezidis facing “genocide” in Iraq at the hands of the Islamic extremist IS group.

The original aim was to bring over women and girls at risk, but Hussen told a news conference that Ottawa had learned that “Daesh has also deliberately targeted boys and as such we are helping to resettle all child survivors of Daesh.” Hussen said the migrants are arriving on commercial flights at a “controlled pace” to avoid overwhelming Canada’s refugee system. The operation is expected to cost Can$28 million (US$21 million). Since coming to power in late 2015, Prime Minister Justin Trudeau’s government has resettled 40,000 Syrian refugees. The Yezidis taken in have been subjected to comprehensive security checks and medical examinations, Hussen said. Yezidis are a Kurdish-speaking minority with a pre-Islamic religion thought partly to have its origin in the Zoroastrianism of ancient Persia. They are neither Arab nor Muslim and IS considers them polytheistic heretics.

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And don’t you forget it.

Europe Wrote The Book On Demonising Refugees, Long Before Trump Read It (G.)

It has become an article of faith among liberals that Donald Trump is the world’s biggest enemy to refugees and Muslims, while the EU somehow offers them a safe harbour. After all, with the words “We can do it” Angela Merkel invited a million Syrian refugees into Germany, while Trump’s travel ban has slammed shut America’s door to some of the world’s most vulnerable displaced people. In today’s liberal mindset, it is Brexit that has stirred up hostility against migrants, while the EU is a bulwark of civilised values, protecting refugees from the threat of a resurgent far right. If you were a migrant in a leaking boat approaching Lesbos, however, the treatment you would receive from Frontex, the EU’s border patrol, would be no less hostile than anything Trump could inflict.

In Tunis last week a video showed Tunisian border police whipping cowering migrants from elsewhere in north Africa. This brutality was EU-sponsored. Like Libya, Morocco, Turkey and Egypt, Tunisia receives funding and training from Brussels through the European neighbourhood policy (ENP). Under a broader framework of “development” and “reforms”, these ENP countries serve as a buffer zone, making sure that refugees are intercepted and turned back – or, in Libya, locked up and tortured in refugees’ prisons – before these desperate people can reach the EU’s shores. The idea that the Europe of Merkel and Theresa May is more welcoming to refugees than Trump’s America simply isn’t borne out by the facts. The EU’s deal with Turkey, condemned by humanitarian agencies, ensures that refugees arriving in Greece – regardless of their point of departure – will be sent to Turkey.

Turkey now has the largest refugee population in the world, at about 3 million people. This month Britain reneged on its promise to admit 3,000 unaccompanied child refugees. Concerned that the Balkan route is a weak link into Europe, Austria has mobilised aspiring EU members including Macedonia, Serbia and Kosovo into a Balkan frontier defence project to fortify the refugee entry points of the “Balkan corridor”. Last year Macedonian police used tear gas, grenades and stun guns against Iraqis and Syrians attempting to get through a razor-wire fence and into the country.

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“..traffickers came and removed the engine from the boat and left the craft adrift..”

Bodies Of At Least 74 Migrants Wash Ashore In Western Libya (G.)

The bodies of at least 74 people, believed to be migrants, have washed ashore on the Libyan coast in the latest tragedy at sea for people fleeing to Europe to escape war and poverty. The Libyan Red Crescent said on Tuesday the bodies had been found the previous morning on the coast of the city of Zawiya, and aid workers had spent six hours recovering them, with more dead believed to be in the vicinity. A spokesman for the organisation, Mohammed al-Misrati, told the Associated Press that a torn rubber boat was found nearby and it was likely that more migrants had drowned in the incident, as such vessels usually carry about 120 people.

The Zawiya coastguard later posted a video that showed the migrants’ boat with no engine. Joel Millman, a spokesman for the International Organization for Migration (IOM), told Reuters a local staff member had reported that “traffickers came and removed the engine from the boat and left the craft adrift”. “This is not a only horrible number of deaths in one incident but it strikes us as something that we haven’t really seen much of, which is either deliberate punishment or murder of migrants,” Millman said.

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Feb 202017
 
 February 20, 2017  Posted by at 10:13 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Henri Cartier Bresson Moscow Metro 1954

 


Seven Years of Demanding The Impossible in Greece (MP)
Cost Of Greece, Troika Impasse Over Numbers Is Adding Up (K.)
Pre-Departure Migrant Camps Planned For Greek Islands (K.)
Democrats Suggest Invoking The 25th Amendment Unless Trump “Gets A Grip” (ZH)
Greenspan Blames Productivity Decline For Political, Economic Crises (BI)
S&P 500 Earnings Stuck at 2011 Levels, Stocks up 87% Since (WS)
The Nasty Little Secret About Housing Affordability (ABC.au)
The Unthinkable Just Happened in Spain (DQ)
Kim Dotcom Loses New Zealand Extradition Case But Claims Major Victory (NZH)
UK Vegetable Shortage A Sign Of Things To Come (G.)
Fukushima Aborts Latest Robot Mission Radiation At “Unimaginable” Levels (ZH)
Tulsi Gabbard vs. ‘Regime Change’ Wars (Wright)
UN Envoy Questions US Engagement On Syria (AFP)
Kaziranga: The Park That Shoots People To Protect Rhinos (BBC)

 

 

A glimpse of the madness bestowed upon Greece. You might think this settles it, that the IMF is going to back off. You would be wrong.

Seven Years of Demanding The Impossible in Greece (MP)

In a recent presentation of his book, Laid Low, which examines the IMF’s role in the eurozone crisis, author and journalist Paul Blustein disclosed a memo dated May 4, 2010, from the IMF’s then head of research Olivier Blanchard, to Poul Thomsen, who headed the Greek mission at the time. In his missive, Blanchard warned that the cumulative fiscal adjustment of 16 %age points being demanded of Greece in such a short period of time and with such a high level of frontloading had never been achieved before. According to Blanchard, not only was the task unprecedented, but Greece was being asked to achieve the impossible in unfavourable external circumstances, when everyone was barely recovering from the 2008 global financial crisis and without any other policy levers (low interest rates or exchange rate adjustment).

Blanchard foresaw what became a reality only about a year later: Even with “perfect policy implementation” the programme will be thrown off track rather quickly and the recession will be deeper and longer than expected, he warned. Blanchard’s scepticism and warnings were ignored. Instead, political limitations took hold of the decision-making process and domestic-focussed calculations pushed Greece into trying to achieve the impossible. This week, the former IMF chief economist admitted on Twitter that although he was not the one that leaked the memo he was not unhappy that the truth has been revealed because “it is seven years and still there is no clear/realistic plan” for Greece.

Athens is currently under pressure to adopt another 2% of GDP in new fiscal measures, which relate to the tax-free threshold and pension spending. Since 2010, Greece has adopted revenue-raising measures and spending cuts that are equivalent to more than a third of its economy and more than double what Blanchard had described as unprecedented almost seven years ago.

The Greek economy has been burdened with €35.6 billion in all sorts of taxes on income, consumption, duties, stamps, corporate taxation and increases in social security contributions. When totting all this up, it is remarkable that the economy still manages to function. During the same period, the state has also found savings of €37.4 billion from cutting salaries, pensions, benefits and operational expenses. Discretionary spending is now so lean that even the IMF argues that in certain areas it needs to increase if Greece is to meet the minimum requirements in the provision of public services. When this misery started, Greece had to correct a primary deficit of €24 billion. But the painful fiscal adjustment Greeks have had to endure had turned out to be three times as much. The IMF’s Thomsen, now the director of its European Department, recently argued that Greece doesn’t need any more austerity but brave policy implementation. Somehow, though, the discussion has ended up being about finding another €3.5 billion in taxes and cuts to pension spending. Bravery is nowhere to be seen.

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The cuts have hit Greek consumer spending so severely that a recovery is no longer possible. And without a recovery, the Troika demands will get more severe, rinse and repeat.

Cost Of Greece, Troika Impasse Over Numbers Is Adding Up (K.)

Another week of back-and-forth between Greece and its lenders seems to have brought us no closer to an agreement between all the parties involved in the country’s bailout. Monday’s Eurogroup meeting may produce some progress, but the complexity of the situation facing Athens, the eurozone and the IMF means it is likely that any forward movement will involve inching, rather than hurtling, towards an agreement. One of the key areas of disagreement is Greece’s fiscal performance. The government insists that the primary surplus for 2016 provides all the evidence needed that there should be no concerns about Greece meeting its fiscal targets in the coming years. Finance Ministry estimates put the primary surplus for 2016 at 2% of gross domestic product, against a target of 0.5%.

In an interview with Germany’s Bild newspaper last week, Finance Minister Euclid Tsakalotos suggested that last year’s primary surplus is actually 1.7 %age points above the target, ie 2.2% of GDP in total. On Friday, reports indicated that government officials believe the final figure, which is not due to be announced until April, will be around 3% of GDP. There is skepticism on the creditors’ side. Even before we get to debating how large last year’s primary surplus was, some of those who are lending Greece money are not convinced that enough of the overperformance is structural and that much of it may be driven by one-off occurrences. It will require further scrutiny of the final data to come up with a definitive answer to this question. The director of the IMF’s European Department, Poul Thomsen, told another German newspaper, Handelsblatt, last week that the Fund may revise its fiscal forecasts for Greece once it has last year’s statistics at its disposal.

This is crucial because the volume of measures being demanded of Greece by the institutions has been set at 3.6 billion euros largely due to the fact that the IMF believes Greece will fall short of the 3.5% of GDP primary surplus target it has been set for an, as yet, unspecified period after 2018. Athens hopes that if the IMF rethinks its figures, this may lead to a lower volume of measures being demanded and the first step in the grand bargain between the government and the institutions being taken. However, there are several added layers of complexity that have to be addressed. For example, the IMF does not only have doubts about the structural nature of Greece’s primary surplus, it also has lingering reservations about the reliability of the fiscal data coming out of Athens.

“Lack of fiscal transparency was clearly one of the factors that led to Greece finding itself in a difficult spot in 2010,” IMF Managing Director Christine Lagarde said in response to a question when she spoke at the Atlantic Council on February 8. “A lot has been improved but I’m not sure that the job is entirely completed. We are still seeing frequent revisions of some of those numbers. Everybody revises, let’s face it… but it’s a fact that Greece revises quite often and with significant variations.”

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People or cattle?

Pre-Departure Migrant Camps Planned For Greek Islands (K.)

Greek authorities are planning the creation of pre-departure detention facilities on the eastern Aegean islands, where thousands of migrants and refugees remain stranded, so as to accelerate returns to Turkey. According to officials from the Citizens’ Protection Ministry, the biggest%age of new arrivals over the past few months are from countries without a refugee profile: Pakistan, Morocco, Afghanistan and Bangladesh. Significant numbers also arrived from Egypt, the Dominican Republic, Tunisia, Nigeria and Libya. Officials say that the creation of closed-structure facilities, each with a capacity of 150-200 people, is key to taking some of the pressure off the islands of Lesvos, Chios, Samos, Kos and Leros, which have borne the brunt of the influx.

The mayors of these five islands are expected to travel to Brussels in early March to meet with Europe’s Migration Commissioner Dimitris Avramopoulos to voice their concerns. During a tour of these islands last week, the EU’s special envoy on migration, Maarten Verwey, said that the aim was to cut current numbers by half by the end of April. According to official figures, some 14,600 migrants and refugees are currently accommodated at official facilities on the islands. In comments made during the visit, Verwey, who is also the coordinator for the implementation of the EU-Turkey agreement to stem migrant flows, repeated that these detention facilities would be “temporary.”

Sources suggest that authorities have almost finalized plans for facilities on Samos, Lesvos and Kos, while looking for spaces on Leros and Chios. The plans have met with resistance from locals. Since the beginning of 2017, authorities have reportedly deported 160 individuals from Pakistan, 150 from Iraq, 70 from Algeria, 30 from Afghanistan, 25 from Morocco and 20 from Bangladesh. Police said 60 Syrians had left Greece voluntarily.

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Regime change. Who’s crazy now?

Democrats Suggest Invoking The 25th Amendment Unless Trump “Gets A Grip” (ZH)

After questioning President Trump’s sanity earlier in the week, it appears Democrats have found another narrative to cling to – invoke the 25th Amendment unless Trump “gets a grip.” With a growing number of Democrats openly questioning President Trump’s mental health. Rep. Earl Blumenauer (D-Ore.) in a floor speech this week called for a review of the Constitution’s procedures for removing a president. He warned the 25th Amendment of the Constitution falls short when it comes to mental or emotional fitness for office. Sen. Al Franken (D-Minn.) during a weekend interview with CNN’s “State of the Union” said that “a few” Republican colleagues have expressed concern to him about Trump’s mental health. And Rep. Ted Lieu (D-Calif.) plans to introduce legislation that would require the presence of a psychiatrist or psychologist in the White House.

[..] So, what’s Article 4 to the 25th Amendment? In the abstract, the amendment itself is about presidential succession, and includes language about the power of the office when a president is incapacitated. But Digby recently highlighted the specific text of growing relevance: “Whenever the Vice President and a majority of either the principal officers of the executive departments or of such other body as Congress may by law provide, transmit to the President pro tempore of the Senate and the Speaker of the House of Representatives their written declaration that the President is unable to discharge the powers and duties of his office, the Vice President shall immediately assume the powers and duties of the office as Acting President.”

What does that mean exactly? Well, it means Congress isn’t the only institution that can remove a president from office between elections. Under the 25th Amendment, a sitting vice president and a majority of the executive branch’s cabinet could, on their own, agree to transfer power out of the hands of a sitting president. At that point, those officials would notify Congress, and the vice president would assume the office as the acting president. And what if the challenged president wasn’t on board with the plan to remove him/her from the office? According to a recent explainer, “If the president wants to dispute this move, he can, but then it would be up to Congress to settle the matter with a vote. A two-thirds majority in both houses would be necessary to keep the vice president in charge. If that threshold isn’t reached, the president would regain his powers.”

All of this comes up in fiction from time to time, and in all likelihood, Americans will probably never see this political crisis play out in real life. And that’s probably a good thing: by all appearances, the intended purpose of the constitutional provision was to address a president with a serious ailment – say, a stroke, for example – in which he or she is alive, but unable to fulfill the duties of the office. In other words, for the first time, the concept of a “soft palace coup” has been officially brought up on public media; we expect such speculation will only get louder. The ball is now in Trump’s court.

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“Populism is not a philosophy or a concept, like socialism or capitalism, for example. Rather it is a cry of pain, where people are saying: Do something. Help!”

Greenspan Blames Productivity Decline For Political, Economic Crises (BI)

Alan Greenspan, the former chairman of the US Federal Reserve whose low-interest policies (some say) helped inflate the dot-com and mortgage bubbles of 2000 and 2008, did a fascinating interview with Gold Investor recently. In it, Greenspan produced an incredibly cogent explanation of the role that reduced long-term productivity has had in fuelling populism, Brexit and Trump. Before we deliver Greenspan’s quote, some background: “Productivity” is one of the least-sexy areas of macroeconomics, even though right now it is one of the biggest issues bedevilling it. Here’s a chart from the Resolution Foundation showing the phenomena:

The “productivity puzzle” is this: The amount investors get in return, in aggregate, for investing in new workers is in long-term decline. Productivity growth is in decline globally and heading toward zero. This is counterintuitive because new technology ought to make workers more productive and more efficient. A single employee with a laptop can do more today than a roomful of secretaries, mathematicians, and writers could in the 1960s. We ought to be getting more bang for our bucks. Fix productivity, and you fix everything, economists believe – including GDP growth, workers’ pay, investment returns, and so on. But instead we’ve got stagnating incomes, low growth, and low productivity for money invested. The productivity decline isn’t a complete mystery, of course. We know it is a mixture of deflationary forces, an aging population, excessive debt, and increased inequality. But putting that all together in a simple, elegant way is tough. That’s why this answer from Greenspan is so good. He was asked whether he was concerned about Stagflation.

“We have been through a protracted period of stagnant productivity growth, particularly in the developed world, driven largely by the aging of the ‘baby boom’ generation. Social benefits (entitlements in the US) are crowding out gross domestic savings, the primary source for funding investment, dollar for dollar. The decline in gross domestic savings as a share of GDP has suppressed gross non-residential capital investment. It is the lessened investment that has suppressed the growth in output per hour globally. Output per hour has been growing at approximately 0.5% annually in the US and other developed countries over the past five years, compared with an earlier growth rate closer to 2%.

That is a huge difference, which is reflected proportionately in GDP and in people’s standard of living. As productivity growth slows down, the whole economic system slows down. That has provoked despair and a consequent rise in economic populism from Brexit to Trump. Populism is not a philosophy or a concept, like socialism or capitalism, for example. Rather it is a cry of pain, where people are saying: Do something. Help!”

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Seek shelter.

S&P 500 Earnings Stuck at 2011 Levels, Stocks up 87% Since (WS)

The S&P 500 stock index edged up to an all-time high of 2,351 on Friday. Total market capitalization of the companies in the index exceeds $20 trillion. That’s 106% of US GDP, for just 500 companies! At the end of 2011, the S&P 500 index was at 1,257. Over the five-plus years since then, it has ballooned by 87%! These are superlative numbers, and you’d expect superlative earnings performance from these companies. Turns out, reality is not that cooperative. Instead, net income of the S&P 500 companies is now back where it first had been at the end of 2011. Hype, financial engineering, and central banks hell-bent on inflating asset prices make a powerful fuel for stock prices. And there has been plenty of all of it, including financial engineering.

Share buybacks, often funded with borrowed money, have soared in recent years. But even that is now on the decline. Share buybacks by the S&P 500 companies plunged 28% year-over-year to $115.6 billion in the three-month period from August through October, according to the Buyback Quarterly that FactSet just released. It was the second three-month period in a row of sharp year-over-year declines. And it was the smallest buyback total since Q1 2013. Apple with $7.2 billion in buybacks in the quarter, GE with $4.3 billion, and Microsoft with $3.6 billion topped the list again. Still, despite the plunge in buybacks, 119 companies spent more on buybacks than they’d earned in the quarter. On a trailing 12-month basis, 66% of net income was blown on buybacks.

Alas, net income has been a problem. By now, with 82% of the S&P 500 companies having reported their results for Q4 2016, earnings rose 4.6% year-over-year, according to FactSet. It’s the second quarter in a row of year-over-year earnings growth, after six quarters in a row of earnings declines. For the entire year 2016, earnings edged up 0.4% from 2015. And revenue inched up 2.4% – in a year when inflation, as measured by the Consumer Price Index, rose 2.8%.

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“..Australians are in hock to the tune of more than $1.4 trillion on housing. That’s a hell of a lot of debt just to keep the wind and rain out.”

The Nasty Little Secret About Housing Affordability (ABC.au)

There’s a nasty little secret about housing affordability. For all the furrowed brows, the sombre looks and the public handwringing from policy makers, no-one is actually serious about fixing the problem because they all fear the potential fallout. The Government is running in circles on the issue while the Reserve Bank is praying the mess will slowly evaporate over time. It’s become a regular event; a politician conjures up an outlandish idea to again make housing affordable to the masses. If it’s not a cash splash to first home buyers, it’s a harebrained scheme to allow younger Australians to dip into their superannuation. Last week, it was a plan to force banks to lower lending standards. In each case, the net effect would be to lift demand and raise the cost of housing. Unfortunately, at this point in the economic cycle, there are only two mechanisms that could solve the social and political issue of our time.

The first is for housing prices to experience a dramatic fall. And the second is for wages to rise substantially. The first comes with a nasty side-effect: it would create economic chaos and send many of our banks to the wall. Achieving, or at least promising, the second might get you elected but ultimately would prove disastrous with spiralling inflation and, you guessed it, a probable spike in housing prices. Both are unthinkable. A crash could be catastrophic because our banks essentially have morphed into glorified building societies, with the bulk of their earnings geared towards residential mortgages. The two biggest lenders, Commonwealth and Westpac, have around 60% of their loan books devoted to housing.

Real estate is baked into the Australian psyche. We talk about it ad nauseam, owners obsess over upgrades and renovations and those outside the owners’ club fret about how to enter. All up, Australians are in hock to the tune of more than $1.4 trillion on housing. That’s a hell of a lot of debt just to keep the wind and rain out. Of that, more than half a trillion is on loan to property investors.

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Bankers going to court.

The Unthinkable Just Happened in Spain (DQ)

Untouchable. Inviolable. Immunity. Impunity. These are the sort of words and expressions that are often associated with senior central bankers, who are, by law, able to operate more or less above the law of the jurisdictions in which they operate. Rarely heard in association with senior central bankers are words or expressions like “accused”, “charged” or “under investigation.” But in Spain this week a court broke with that tradition, in emphatic style. As part of the epic, multi-year criminal investigation into the doomed IPO of Spain’s frankenbank Bankia – which had been assembled from the festering corpses of seven already defunct saving banks – Spain’s national court called to testify six current and former directors of the Bank of Spain, including its former governor, Miguel Ángel Fernández Ordóñez, and its former deputy governor (and current head of the Bank of International Settlements’ Financial Stability Institute), Fernando Restoy.

It also summoned for questioning Julio Segura, the former president of Spain’s financial markets regulator, the CNMV (the Spanish equivalent of the SEC in the US). The six central bankers and one financial regulator stand accused of authorizing the public launch of Bankia in 2011 despite repeated warnings from the Bank of Spain’s own team of inspectors that the banking group was “unviable.” Though they have so far only been called to testify, the evidence against the seven former public “servants” looks pretty conclusive. Testifying against them are two of Banco de España’s own inspectors who have spent the last two years investigating Bankia’s collapse on behalf of the trial’s presiding judge, Fernando Andreu.

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“We have won. We have won the major legal argument. This is the last five years of my life and it’s an embarrassment for New Zealand.”

Kim Dotcom Loses New Zealand Extradition Case But Claims Major Victory (NZH)

The evidence of the case has not been argued in New Zealand courts with the legal debate here being one of trying to match the crimes Dotcom and others are charged with to the crimes listed in the Extradition Act. In an interview with the Herald, Dotcom said the ruling was a “major victory” because it ruled that there was no New Zealand equivalent to the US criminal charges of copyright violation. “The major part of this litigation has been won by this judgment – that copyright is not extraditable. “They destroyed my family, destroyed my business, spied on me and raided my home and they did all of this on a civil copyright case. “We have won. We have won the major legal argument. This is the last five years of my life and it’s an embarrassment for New Zealand.”

He said it was effectively a statement from the court that neither he, his co-accused or Megaupload had broken any New Zealand laws. “Now they’re trying through the back door to say this was a fraud case. I’m confident going with this judgment to the Court of Appeal. The ruling today has created an unusual bureaucratic contradiction – the warrant which was served on Dotcom when he was arrested on January 20, 2012, stated he was being charged with “copyright” offences. Likewise, the charges Dotcom will face in the US are founded in an alleged act of criminal copyright violation. Dotcom said there were plans to take a separate court action over the arrest warrant, given it showed he had been arrested for a crime which effectively did not exist in New Zealand. “My arrest warrant, the document that kicked everything off in New Zealand, is not for fraud. In my arrest warrant, there is nothing about fraud.”

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Recognize this? “The shelves looked wonderful, perfect, almost clinical, as though invented in a lab in my absence; but there was no smell.”

UK Vegetable Shortage A Sign Of Things To Come (G.)

The UK’s clock has been set to Permanent Global Summer Time once more after a temporary blip. Courgettes, spinach and iceberg lettuce are back on the shelves, and the panic over the lack of imported fruit and vegetables has been contained. “As you were, everyone,” appears to be the message. But why would supermarkets – which are said to have lost sales worth as much as £8m in January thanks to record-breaking, crop-wrecking snow and rainfall in the usually mild winter regions of Spain and Italy – be so keen to fly in substitutes from the US at exorbitant cost? Why would they sell at a loss rather than let us go without, or put up prices to reflect the changing market? Why indeed would anyone air-freight watery lettuce across the whole of the American continent and the Atlantic when it takes 127 calories of fuel energy to fly just 1 food calorie of that lettuce to the UK from California?

The answer is that, in the past 40 years, a whole supermarket system has been built on the seductive illusion of this Permanent Global Summer Time. As a result, a cornucopia of perpetual harvest is one of the key selling points that big stores have over rival retailers. If the enticing fresh produce section placed near the front of each store to draw you in starts looking a bit empty, we might not bother to shop there at all. But when you take into account climate change, the shortages of early 2017 look more like a taste of things to come than just a blip, and that is almost impossible for supermarkets to admit. Add the impact of this winter’s weather on Mediterranean production, the inflationary pressures from a post-Brexit fall in the value of sterling against the euro, and the threat of tariffs as we exit the single market, and suddenly the model begins to look extraordinarily vulnerable.

I can remember the precise moment I first understood that we had been taken into this fantastical, nature-defying system without most of us really noticing. It was 1990 and I had been living and working with Afghan refugees in Pakistan’s North-West Frontier province for a long period. The bazaars where we bought our food were seasonal, and stocked from the immediate region. Back home on leave in the UK, I had that sense of dislocation that enables you to see your own culture as if from the outside. It was winter, but the supermarkets were full of fresh fruits and vegetables from around the world. The shelves looked wonderful, perfect, almost clinical, as though invented in a lab in my absence; but there was no smell. It was vaguely troubling in a way I couldn’t identify at the time.

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Excellent overview of the very scary latest on Fukushima from multiple sources at Zero Hedge.

Fukushima Aborts Latest Robot Mission Radiation At “Unimaginable” Levels (ZH)

Two years after sacrificing one robot, TEPCO officials have aborted their latest robot mission inside the Fukushima reactor after the ‘scorpion’ became unresponsive as it investigated the previously discovered hole where the core is believed to have melted. A “scorpion” robot sent into a Japanese nuclear reactor to learn about the damage suffered in a tsunami-induced meltdown had its mission aborted after the probe ran into trouble, Tokyo Electric Power company said Thursday. As Phys.org reports, TEPCO, the operator of the Fukushima nuclear plant, sent the remote-controlled device into the No. 2 reactor where radiation levels have recently hit record highs.

The “scorpion” robot, so-called because it can lift up its camera-mounted tail to achieve better viewing angles, is also designed to crawl over rubble inside the damaged facility. But it could not reach its target destination beneath a pressure vessel through which nuclear fuel is believed to have melted because the robot had difficulty moving, a company spokeswoman said. “It’s not immediately clear if that’s because of radiation or obstacles,” she said, adding that TEPCO is checking what data the robot was able to obtain, including images.

[..] The robot, 60 centimetres (24 inches) long, is made by Toshiba and equipped with two cameras and sensors to gauge radiation levels and temperatures. Scorpion’s mission is to take images of the situation and collect data inside the containment vessel,” TEPCO spokesman Shinichi Nakakuki said earlier. “Challenges include enduring high levels of radiation and moving on the rough surface,” he said. Radiation levels inside the reactor were estimated last week at 650 sieverts per hour at one spot, which can effectively shut down robots in hours.

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Ann Wright served 29 years in the US Army/Army Reserves and retired as a colonel. She also was a U.S. diplomat for 16 years and served in U.S. Embassies in Nicaragua, Grenada, Somalia, Uzbekistan, Kyrgyzstan, Sierra Leone, Micronesia, Afghanistan and Mongolia. She resigned in March 2003 in opposition to the war in Iraq. She has lived in Honolulu since 2003.

Tulsi Gabbard vs. ‘Regime Change’ Wars (Wright)

I support Rep. Tulsi Gabbard, D-Hawaii, going to Syria and meeting with President Bashar al-Assad because the congresswoman is a brave person willing to take criticism for challenging U.S. policies that she believes are wrong. It is important that we have representatives in our government who will go to countries where the United States is either killing citizens directly by U.S. intervention or indirectly by support of militia groups or by sanctions. We need representatives to sift through what the U.S. government says and what the media reports to find out for themselves the truth, the shades of truth and the untruths. We need representatives willing to take the heat from both their fellow members of Congress and from the media pundits who will not go to those areas and talk with those directly affected by U.S. actions.

We need representatives who will be our eyes and ears to go to places where most citizens cannot go. Tulsi Gabbard, an Iraq War veteran who has seen first-hand the chaos that can come from misguided “regime change” projects, is not the first international observer to come back with an assessment about the tragic effects of U.S. support for lethal “regime change” in Syria. Nobel Peace Laureate Mairead Maguire began traveling to Syria three years ago and now having made three trips to Syria. She has come back hearing many of the same comments from Syrians that Rep. Gabbard heard — that U.S. support for “regime change” against the secular government of Syria is contributing to the deaths of hundreds of thousands of Syrians and – if the “regime change” succeeded – might result in the takeover by armed religious-driven fanatics who would slaughter many more Syrians and cause a mass migration of millions fleeing the carnage.

[..] During the Obama administration, Rep. Gabbard spoke critically of the U.S. propensity to attempt “regime change” in countries and thus provoking chaos and loss of civilian life. On Dec. 8, 2016, she introduced a bill entitled the “Stop Arming Terrorists Act” which would prohibit the U.S. government from using U.S. funds to provide funding, weapons, training, and intelligence support to extremists groups, such as the ones fighting in Syria – or to countries that are providing direct or indirect support to those groups. In the first days of the Trump administration, Rep. Gabbard traveled to Syria to see the effects of the attempted “regime change” and to offer a solution to reduce the deaths of civilians and the end of the war in Syria. A national organization Veterans For Peace, to which I belong, has endorsed her trip as a step toward resolution to the Syrian conflict.

Not surprisingly, back in Washington, Rep. Gabbard came under attack for the trip and for her meeting with President Assad, similar to criticism that I have faced because of visits that I have made to countries where the U.S. government did not want me to go — to Cuba, Iran, Gaza, Yemen, Pakistan, North Korea, Russia and back to Afghanistan, where I was assigned as a U.S. diplomat.

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“How you square this circle, that I understand is what they are discussing in Washington..”

UN Envoy Questions US Engagement On Syria (AFP)

UN envoy Staffan de Mistura on Sunday questioned US President Donald Trump’s engagement in solving the Syrian war, just days ahead of a new round of peace talks in Geneva. “Where is the US in all this? I can’t tell you because I don’t know,” he said, adding that the new administration was still trying to work out its priorities on the conflict. The top three US priorities include fighting Islamic State jihadists, “how to limit the influence of some major regional players and how to not to damage one of their major allies in the region,” de Mistura told the Munich Security Conference. “How you square this circle, that I understand is what they are discussing in Washington,” he said. He did not say who the regional player or major ally were but the first reference appeared to be to Iran, with the second likely to be either Turkey or Saudi Arabia.

Mistura stressed that what was ultimately key was an inclusive political solution to end the six-year conflict. “Even a ceasefire with two guarantors can’t hold too long if there is no political horizon,” he said, referring to a fragile truce brokered by Russia and Turkey in December. Any political solution has to be inclusive to be credible, he said, stressing that peace talks in Astana last week organised by Russia, Turkey and Iran, and the ceasefire deal provided an opening that should be explored. The US envoy for the anti-IS coalition, Brett McGurk, acknowledged that Trump’s administration is “re-looking at everything, which is a very healthy process from top to bottom.” “We will be very selfish about protecting and advancing our interests,” he told the same forum.

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This will always remain controversial. But it’s the only way.

Kaziranga: The Park That Shoots People To Protect Rhinos (BBC)

Kaziranga National Park is an incredible story of conservation success. There were just a handful of Indian one-horned rhinoceros left when the park was set up a century ago in Assam, in India’s far east. Now there are more than 2,400 – two-thirds of the entire world population. This is where David Attenborough’s team came to film for Planet Earth II. William and Catherine, the Duke and Duchess of Cambridge, came here last year. But the way the park protects the animals is controversial. Its rangers have been given the kind of powers to shoot and kill normally only conferred on armed forces policing civil unrest. At one stage the park rangers were killing an average of two people every month – more than 20 people a year. Indeed, in 2015 more people were shot dead by park guards than rhinos were killed by poachers. Innocent villagers, mostly tribal people, have been caught up in the conflict.

Rhinos need protection. Rhino horn can fetch very high prices in Vietnam and China where it is sold as a miracle cure for everything from cancer to erectile dysfunction. Street vendors charge as much as $6,000 for 100g – making it considerably more expensive than gold. Indian rhinos have smaller horns than those of African rhinos, but reportedly they are marketed as being far more potent. But how far should we go to protect these endangered animals? I ask two guards what they were told to do if they encountered poachers in the park. “The instruction is whenever you see the poachers or hunters, we should start our guns and hunt them,” Avdesh explains without hesitation. “You shoot them?” I ask. “Yah, yah. Fully ordered to shoot them. Whenever you see the poachers or any people during night-time we are ordered to shoot them.” Avdesh says he has shot at people twice in the four years he has been a guard, but has never killed anybody. He knows, however, there are unlikely to be any consequences for him if he did.

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Feb 192017
 
 February 19, 2017  Posted by at 10:23 am Finance Tagged with: , , , , , , , , ,  4 Responses »
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John Vachon Beer signs on truck, Little Falls, Minnesota 1940

 


Fed: From Lender Of Last Resort To Destroyer Of American Wealth (DDMB)
“There’s Something Weird Going On”: The Global Dollar Shortage (ZH)
Merkel Suggests Euro Is Too Low For Germany (R.)
Empowering “Deep State” is Prescription for Destroying Democracy (Greenwald)
Sekulow: Obama Should Be “Held Accountable” For “Soft Coup” Against Trump (ZH)
Russia Calls For ‘Post-West’ World Order – Lavrov (R.)
Lavrov on US Election Hacking Claims: ‘Give Us Some Facts’ (BBG)
Nine People Flee US Border Patrol To Seek Asylum In Canada (R.)
GMO Crops Are Driving Genocide And Ecocide – Keep Them Out Of The EU! (Paul)
‘From Bad To Worse’: Greece Hurtles Towards A Final Reckoning (O.)
Greek Banks Worry Over Sudden Bad Loan Spike In January (K.)
Greeks Turn to the Black Market as Another Bailout Showdown Looms (NYT)
Tensions Escalate In Aegean As Turkish Boat Fires Shots in Greek Waters (K.)
Defend The Sacred (Bell)

 

 

Looks like a must read: [..] a special preview excerpt from FED UP: An Insider’s Take on Why The Federal Reserve is Bad for America by Danielle DiMartino Booth.

She agrees with me: “The one true growth industry? That would be all that high cotton harvested in high finance. Since 2007, world debt has grown by about $60 trillion, enriching legions of investment bankers one bond deal at a time.”

Fed: From Lender Of Last Resort To Destroyer Of American Wealth (DDMB)

Created in 1913 after the Panic of 1907, the Federal Reserve was founded to keep the public’s faith in the buying power of the U.S. dollar. After failing miserably in the 1930s, the Fed aimed to be more responsive. This led the institution to find discipline in the rising macroeconomic models championed by top monetary theorists. During the ensuing “Quiet Period” in American banking, deposit insurance prevented panics, the Fed controlled interest rates and manipulated the money supply, and though occasional disruptions flared, like the failure of Continental Illinois National Bank and Trust Company in 1984, no systemic risk erupted for seventy years. The Fed had tamed the volatile U.S. economy.

Until September 2008, when all hell broke loose in a worldwide panic that completely blindsided and, embarrassed the Federal Reserve. The Fed had used billions of dollars in taxpayer funds to bail out Wall Street fat cats. Everyone blamed the Fed. Just before 9 a.m., the door to the chairman’s office opened. Federal Reserve Chairman Ben Bernanke took his place in an armchair at the center of a massive oval table. The members of the FOMC found their designated places around the table; aides sat in chairs or couches against the wall. With staff, the room contained fifty or sixty people, far more than normal for this momentous occasion. In front of each FOMC member was a microphone to record their words for posterity. To a casual observer, the content of their conversation would be obscured by economic jargon.

This day, their essential task was to vote on whether to take the “fed funds” rate—the interest rate at which banks lent money to each other in the overnight market—to the zero bound. The history-making low rate would ripple throughout the economy, affecting the price to borrow for businesses and consumers alike. Bernanke was calm but insistent. His lifetime of study of the Great Depression indicated this was the only way. His sheer depth of knowledge about the Fed’s mishandling of that tragic period was undoubtedly intimidating. By the end of the meeting, the vote was unanimous. The FOMC officially adopted a zero-interest-rate policy in the hopes that companies teetering on the brink of insolvency would keep the lights on, keep employees on their payrolls, and keep consumers spending. It would even pay banks interest on deposits.

Free cash. We’ll even pay you to take it! As they gathered their belongings, everyone shook hands, all very collegial despite the sometimes vigorous discussion. They journeyed back to their nice homes in the toniest neighborhoods of America’s richest cities: New York, Boston, Philadelphia, Chicago, Dallas, San Francisco, Washington, DC. They returned to their lofty perches, some at the Eccles Building, others to the executive floors of Federal Reserve District Bank buildings, safely cushioned from the decision they had just made. Most of them were wealthy or had hefty defined benefit pensions. Their investments were socked away in blind trusts. They would feel no pain in their ivory towers.

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A Eurodollar is a dollar held anywhere outside the US.

“There’s Something Weird Going On”: The Global Dollar Shortage (ZH)

While we urge readers to listen to the full interview below, here are some of the highlights, starting with “why the Dollar shortage a symptom of an inherently unstable system.” As Snider explains, “the dollar shortage isn’t so much the shortage per se, it’s the fact that it’s a symptom of what is an inherently unstable system.” He notes that “the reason banks are withdrawing from the system is that it’s just is no longer tenable” and “so there has to be some kind of – whether you want to look at it like another Bretton Woods – conference, a global monetary system, a global monetary get together where people start to analyze solutions to the problem as they are rather than keep trying to apply band aids that are not going to work. ” But, he concludes, “step one of that task is to actually recognize the problem as it is and so doing more stimulus or doing more QE isn’t going to solve anything it isn’t do anything just like prior QEs and prior stimulus haven’t done anything either because the problem is an unstable system.”

Snider focuses on the Eurodollar system, which he defines as a problem of “decay and dysfunction” and explains that “nothing ever happens in a straight line even the Eurodollar problem has not been a singular event. It’s not been a decade long straight line of decay and dysfunction.” He goes on to say that the fact that after enough time these markets have adjusted to the fact that the economy’s going to be bad for a very long time until something actually changes and so true reflation is predicated on something actually changing rather than the hope that something might change.

Looking at history, Snider observes that “what happened in July 2008 obviously was the fact that everyone decided almost all at once that wasn’t the right interpretation of what the Fed was doing nor was it the right interpretation of the dollar system overall. So, that reflation ended in reality which was the dollar system was eroding and it was eroding in a very dangerous way and that’s why oil prices essentially crashed from July till I think January 2009.” An implication of the ongoing reserve currency funding shortage is that, according to Snider, despite the occasional blip (arguably funded by massive Chinese credit creation), “reflation is going to fail and there’s nothing the Fed can do about it.” He goes on to state that “until they fix the global dollar problem we’re not going to fix the global economy and so we’re kind of stuck gyrating between various levels of really bad. We go from the lack of recovery to what looks like a global recession to the lack of recovery and back again” as a result he thinks that “reflation is going to fail.”

[..] Snider summarizes by saying that “the fact that these markets realize that there’s a problem in Eurodollar system, there’s no banking to be had, no additional marginal banking capacity being added and without it none of these stuff really matters, none of these other stuff really matters. That’s the only thing that truly matters” and concludes gloomily that “the probability scenarios for economic and financial future are much darker now than they were three years ago.”

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It’s blowing the EU apart but its de facto leader says she has “no power to address this problem”. That’s just great.

Merkel Suggests Euro Is Too Low For Germany (R.)

German Chancellor Angela Merkel suggested on Saturday that the euro was too low for Germany but made clear that Berlin had no power to address this “problem” because monetary policy was set by the independent ECB. Merkel made her remarks at the Munich Security Conference as U.S. Vice President Mike Pence looked on. They seemed aimed at addressing recent criticism from a top trade adviser to President Donald Trump, who has accused Germany of profiting from a “grossly undervalued” euro. “We have at the moment in the euro zone of course a problem with the value of the euro,” Merkel said in an unusual foray into foreign exchange rate policy.

“The ECB has a monetary policy that is not geared to Germany, rather it is tailored (to countries) from Portugal to Slovenia or Slovakia. If we still had the (German) D-Mark it would surely have a different value than the euro does at the moment. But this is an independent monetary policy over which I have no influence as German chancellor.” The euro has fallen nearly 25% against the dollar over the past three years, touching a 14-year low of $1.034 in January. But it has since risen to roughly $1.061. In late January, Peter Navarro, the head of Trump’s new National Trade Council, said the euro’s low valuation was giving Germany an edge over the United States and its European Union partners. His comments came weeks after Trump himself said the dollar’s strength against the Chinese yuan “is killing us”, deepening concerns that his administration could pursue a more confrontational, protectionist approach to trade. Merkel and other German officials pushed back forcefully at the time.

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Lots of Deep State pieces these days. Greenwald provides some balance.

Empowering “Deep State” is Prescription for Destroying Democracy (Greenwald)

The deep state, although there’s no precise or scientific definition, generally refers to the agencies in Washington that are permanent power factions. They stay and exercise power even as presidents who are elected come and go. They typically exercise their power in secret, in the dark, and so they’re barely subject to democratic accountability, if they’re subject to it at all. It’s agencies like the CIA, the NSA and the other intelligence agencies, that are essentially designed to disseminate disinformation and deceit and propaganda, and have a long history of doing not only that, but also have a long history of the world’s worst war crimes, atrocities and death squads. This is who not just people like Bill Kristol, but lots of Democrats are placing their faith in, are trying to empower, are cheering for as they exert power separate and apart from—in fact, in opposition to—the political officials to whom they’re supposed to be subordinate.

And you go—this is not just about Russia. You go all the way back to the campaign, and what you saw was that leading members of the intelligence community, including Mike Morell, who was the acting CIA chief under President Obama, and Michael Hayden, who ran both the CIA and the NSA under George W. Bush, were very outspoken supporters of Hillary Clinton. In fact, Michael Morell went to The New York Times, and Michael Hayden went to The Washington Post, during the campaign to praise Hillary Clinton and to say that Donald Trump had become a recruit of Russia. The CIA and the intelligence community were vehemently in support of Clinton and vehemently opposed to Trump, from the beginning. And the reason was, was because they liked Hillary Clinton’s policies better than they liked Donald Trump’s.

One of the main priorities of the CIA for the last five years has been a proxy war in Syria, designed to achieve regime change with the Assad regime. Hillary Clinton was not only for that, she was critical of Obama for not allowing it to go further, and wanted to impose a no-fly zone in Syria and confront the Russians. Donald Trump took exactly the opposite view. He said we shouldn’t care who rules Syria; we should allow the Russians, and even help the Russians, kill ISIS and al-Qaeda and other people in Syria. So, Trump’s agenda that he ran on was completely antithetical to what the CIA wanted. Clinton’s was exactly what the CIA wanted, and so they were behind her. And so, they’ve been trying to undermine Trump for many months throughout the election. And now that he won, they are not just undermining him with leaks, but actively subverting him. There’s claims that they’re withholding information from him, on the grounds that they don’t think he should have it and can be trusted with it. They are empowering themselves to enact policy.

Now, I happen to think that the Trump presidency is extremely dangerous. You just listed off in your news—in your newscast that led the show, many reasons. They want to dismantle the environment. They want to eliminate the safety net. They want to empower billionaires. They want to enact bigoted policies against Muslims and immigrants and so many others. And it is important to resist them. And there are lots of really great ways to resist them, such as getting courts to restrain them, citizen activism and, most important of all, having the Democratic Party engage in self-critique to ask itself how it can be a more effective political force in the United States after it has collapsed on all levels. That isn’t what this resistance is now doing.

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The timing is indeed very peculiar.

Sekulow: Obama Should Be “Held Accountable” For “Soft Coup” Against Trump (ZH)

[..] what until recently was a trickle of private data captured about US individuals by the NSA with only a handful of people having full, immersive access, suddenly became a firehose with thousands of potential witnesses across 16 other agencies, each of whom suddenly became a potential source of leaks about ideological political opponents. And with the universe of potential “leaking” culprits suddenly exploding exponentially, good luck finding the responsible party. However, the implications are far more serious than just loss of privacy rights. According to civil right expert and prominent First Amendement Supreme Court lawyer, Jay Sekulow, what the agencies did by leaking the Trump Administration information was not only illegal but “almost becomes a soft coup”, one which was spurred by the last minute rule-change by Obama, who intentionally made it far easier for leaks to propagate, and next to impossible to catch those responsible for the leaks.

This is his explanation: “There was a sea-change here at the NSA with an order that came from president Obama 17 days before he left office where he allowed the NSA who used to control the data, it now goes to 16 other agencies and that just festered this whole leaking situation, and that happened on the way out, as the president was leaving the office. Why did the Obama administration wait until it had 17 days left in their administration to put this order in place if they thought it was so important. They had 8 years, they didn’t do it, number one. Number two, it changed the exiting rule which was an executive order dating back to Ronald Reagan, that has been in place until 17 days before the Obama administration was going to end, that said the NSA gets the raw data, and they determine dissemination.

Instead, this change that the president put in place, signed off by the way by James Clapper on December 15, 2016, signed off by Loretta Lynch the Attorney General January 3, 2017, they decide that now 16 agencies can get the raw data and what that does is almost creates a shadow government. You have all these people who are not agreeing with President Trump’s position, so it just festers more leaks. If they had a justification for this, wonderful, why didn’t they do it 8 years ago, 4 years ago, 3 years ago. Yet they wait until 17 days left. One potential answer: they knew they had a “smoking gun”, and were working to make it easier to enable the information to be “leaked” despite the clearly criminal consequences of such dissemination.

As this point Hannity correctly points out, “it makes it that much more difficult by spreading out the information among 16 other agencies, if they want to target or take away the privacy rights, and illegally tap the phones, in this case General Flynn, it’s going to be much harder to find the perpetrator. Sekulow confirms, noting that back when only the NSA had access to this kind of raw data, there would be a very small amount of people who have access to this kind of data. “But this change in the Obama Administration was so significant that they allowed dissemination to 16 other agencies, and we wonder why there’s leaks.” Sekulow’s conclusion: “President Obama, James Clapper, Loretta Lynch should be held accountable for this.”

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Russia’s no big fan of -unfetterred- globalization either: “I hope that (the world) will choose a democratic world order – a post-West one – in which each country is defined by its sovereignty.”

Russia Calls For ‘Post-West’ World Order – Lavrov (R.)

Russian Foreign Minister Sergei Lavrov called Saturday for an end to a world order dominated by the West and said Moscow wanted to establish a “pragmatic” relationship with the United States. Lavrov was speaking at the Munich Security Conference shortly after US Vice President Mike Pence told the audience Washington remained “unwavering” in its commitment to the US-led NATO military alliance as it faced a more assertive Russia. Lavrov said that the time when the West called the shots was over and, dismissing NATO as a relic of the Cold War, added: “I hope that (the world) will choose a democratic world order – a post-West one – in which each country is defined by its sovereignty.”

Lavrov said Moscow wanted to build relations with Washington which would be “pragmatic with mutual respect and acknowledgement of our responsibility for global stability.” The two countries had never been in direct conflict, he said, noting that they were actually close neighbours across the Baring Straits. Russia wanted to see a “common space of good neighbour relations from Vancouver to Vladivostok,” he added. Pence was in Europe along with Secretary of State Rex Tillerson and defence chief James Mattis as part of efforts to reassure allies rattled by President Donald Trump’s “America First” stance and his calls for improved ties with Russia despite the continuing crisis in Ukraine.

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“He said Russia had “many years ago” initiated work at the United Nations to discuss information security. “Our western partners evaded that work..”

Lavrov on US Election Hacking Claims: ‘Give Us Some Facts’ (BBG)

Foreign Minister Sergei Lavrov pushed back against accusations that Russian hackers meddled in last year’s U.S. presidential election, saying no one had put forward any proof and former President Barack Obama’s administration ignored repeated overtures to discuss cyber-security norms. “Somehow when we are blamed, no one asked for facts,” Lavrov said at the Munich Security Summit on Saturday. “Give us some facts.” In his remarks, made in response to an audience question about whether Russia interferes in other countries’ elections, Lavrov portrayed Russia as a leader in efforts to focus on information security. He said Russia had “many years ago” initiated work at the United Nations to discuss information security. “Our western partners evaded that work,” he said.

After Donald Trump won the election in November, the U.S. intelligence community issued an assessment that Russia sought to sway the election in his favor through the hacking of the Democratic National Committee and Hillary Clinton’s campaign staff. In the waning days of his administration, Obama imposed new sanctions on Russia’s military intelligence agency and the successor agency to the KGB, saying the actions had been directed “at the highest level” of the government. [..] “I have seen no facts, there were just some accusations that we tried to hack some Democratic party website; that’s happening in France, Germany, Italy,” Lavrov said. He went on to point blame at the U.S. and make a reference to recent leaks that the CIA may have spied on French political parties before the 2012 election there. WikiLeaks released e-mails making that claim this week.

Lavrov said he had suggested to the Obama administration in 2015 that the two countries discuss working together on cyber-security, and repeatedly asked former Secretary of State John Kerry about the proposal. “For a year we had no reaction from them,” he said. “Then in December last year they said let’s meet, and later they said now we have transitional administration let’s postpone it.”

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Not the first time in history people flee from the US to Canada.

Nine People Flee US Border Patrol To Seek Asylum In Canada (R.)

Nine asylum-seekers, including four children, barely made it across the Canadian border on Friday as a U.S. border patrol officer tried to stop them and a Reuters photographer captured the scene. As a U.S. Customs and Border Patrol officer seized their passports and questioned a man in the front passenger seat of a taxi that had pulled up to the border in Champlain, New York, four adults and four young children fled the cab and ran to Royal Canadian Mounted Police on the other side. One by one they scrambled across the snowy gully separating the two countries. RCMP officers watching from the other side helped them up, lifting the younger children and asking a woman, who leaned on her fellow passenger as she walked, if she needed medical care. The children looked back from where they had come as the U.S. officer held the first man, saying his papers needed to be verified.

The man turned to a pile of belongings and heaved pieces of luggage two at a time into the gully – enormous wheeled suitcases, plastic shopping bags, a black backpack. “Nobody cares about us,” he told journalists. He said they were all from Sudan and had been living and working in Delaware for two years. The RCMP declined on Friday to confirm the nationalities of the people. A Reuters photo showed that at least one of their passports was Sudanese. The man then appeared to grab their passports from the U.S. officer before making a run for the border. The officer yelled and gave chase but stopped at the border marker. Canadian police took hold of the man’s arm as he crossed. The border patrol officer told his counterpart that the man was in the United States illegally and that he would have detained him. Officers on both sides momentarily eyed the luggage strewn in the snow before the U.S. officer took it, and a walker left on the road, to the border line.

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Overview of the damage done across the world by GMO.

GMO Crops Are Driving Genocide And Ecocide – Keep Them Out Of The EU! (Paul)

We currently face a desperate, almost farcical push for GM crops in the UK and Europe, characterised by hyperbolic and inaccurate claims. So rather than taking those claims on trust, let’s look at the impacts of GM crops in countries that have adopted them. That means North and South America, where GM crops were first launched in 1996. The cultivation of herbicide tolerant crops in Argentina began in 1996 with GM soya and spread swiftly through the country. As Argentina’s Grupo Reflexion Rural (GRR) wrote to the Vatican in April 2013, “The model was based on the political decision that Argentina, which had once been the grain basket of the world and a producer of healthy and high-quality foods, would be transformed into a producer of animal forage, firstly, to provide fodder for European livestock, and then for livestock in China.”

At first, herbicide tolerant crops seemed to simplify the farming process, especially for larger mechanised farms. Instead of skillful weed management, farmers applied large quantities of the herbicide glyphosate, mainly from the air. Powerful groups of investors helped drive GM soya production. Small farmers could not compete and many have left or been driven off their land, often into urban slums. People who remain in the countryside and small towns find themselves bombarded from the air with increasingly complex mixtures of chemicals intended to combat the problem of increasing weed and pest resistance. Although GM crops were promoted as a means to reduce levels of pesticides used, pesticide use in Argentina has increased massively, “from nine million gallons (34 million litres) in 1990 to more than 84 million gallons (317 million litres) today”.

[..] Europe has been wise to resist the pressure to adopt GM crops for cultivation except for a GM maize mainly grown in Spain. In the face of the evidence from countries with experience of these crops, and their associated cocktails of agrotoxics, why should Europe be forced to consider another GM crop for cultivation? But Europe should go further. The soya boom is driven by markets for animal feed, in the form of soya meal or cake, and biodiesel from soya oil. Vast quantities of both are imported into Europe, making it a major driver of South America’s unfolding GM disaster. The EU should surely stop importing GM animal feeds and oils from North and South America.

Indeed Europe should change its whole approach to livestock and crop production to address human health impacts, biodiversity loss and climate change. Far from being a “museum of world farming” as the UK’s current environment minister, Owen Paterson, likes to claim, Europe could show the way to a rich and varied GM free agriculture that provides nutritious, healthy food and jobs. It would at the same time address the profound degradation of soils and accelerating biodiversity loss, caused to a great extent by the industrial model of agriculture to which genetically engineered crops belong.

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“All I know is that we are all being pushed,” he said, searching for the right words. “Pushed in the direction of somewhere very explosive, somewhere we do not want to be.”

‘From Bad To Worse’: Greece Hurtles Towards A Final Reckoning (O.)

The assumption is that the prime minister, Alexis Tsipras, will cave in, just as he did when the country came closest yet to leaving the euro at the height of the crisis in the summer of 2015. But the 41-year-old leader, like Syriza, has been pummelled in the polls. Persuading disaffected backbenchers to support more measures, and then selling them to a populace exhausted by repeated rounds of austerity, will be extremely difficult. Disappointment has increasingly given way to the death of hope – a sentiment reinforced by the realisation that Cyprus and other bailed-out countries, by contrast, are no longer under international supervision.

In his city centre office, the former finance minister Evangelos Venizelos pondered where Greece’s predicament was now. “[We are] at the same point we were several years ago,” he joked. “The only difference is that anti-European sentiment is growing. What was once a very friendly country towards Europe is becoming increasingly less so, and with that comes a lot of danger, a lot of risk.” When historians look back they, too, may conclude that Greece has expended a great deal of energy not moving forward at all.

The arc of crisis that has swept the country – coursing like a cancer through its body politic, devastating its public health system, shattering lives – has been an exercise in the absurd. The feat of pulling off the greatest fiscal adjustment in modern times has spawned a slump longer and deeper than the Great Depression, with the Greek economy shrinking more than 25% since the crisis began. Even if the latest impasse is broken and a deal is reached with creditors soon, few believe that in a country of weak governance and institutions it will be easy to enforce. Political turbulence will almost certainly beckon; the prospect of “Grexit” will grow.

“Grexit is the last thing we want, but we may arrive at a point of serious dilemmas,” said Venizelos. “Whatever deal is reached will be very difficult to implement, but that notwithstanding, it is not the memoranda [the bailout accords] that caused the crisis. The crisis was born in Greece long before.” Like every crisis government before it, Tsipras’s administration is acutely aware that salvation will come only when Greece can return to the markets and raise funds. What happens in the weeks ahead could determine if that is likely to happen at all. Back in Syntagma, Costopoulos the good-natured farmer ponders what lies ahead. Like every Greek, he stands to be deeply affected. “All I know is that we are all being pushed,” he said, searching for the right words. “Pushed in the direction of somewhere very explosive, somewhere we do not want to be.”

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Greek banks never recovered.

Greek Banks Worry Over Sudden Bad Loan Spike In January (K.)

Nonperforming loans last month posted a major spike of almost 1 billion euros, reversing the downward course set in the last few months of 2016. This has generated major concerns among local lenders regarding the achievement of targets for reducing bad loans, as agreed with the Single Supervisory Mechanism (SSM) of the ECB for the first quarter of this year. Bank sources say that after several months of stabilization and of a negative growth rate in new nonperforming exposure,the picture deteriorated rapidly in January, as new bad loans estimated at €800 million in total were created. This increase in a period of just one month is considered particularly high, and is a trend that appears to be continuing this month as well.

Bank officials attribute the phenomenon to uncertainty from the government’s inability to complete the second bailout review, fears for a rekindling of the crisis and mainly the expectations of borrowers for extrajudicial settlements of bad loans. Senior bank officials note that a large number of borrowers will not cooperate with their lenders in reaching an agreement for the restructuring of their debts, in the hope that the introduction by the government of the extrajudicial compromise could lead to better terms and possibly even to a debt haircut

Banks further observe that the issue of the extrajudicial settlement, along with the matter of the deferred tax assets for the tackling of banks’ losses from the write-off or sale of bad loans, are of major significance to the general issue of dealing with the NPL problem, so they have to be arranged rapidly. Even more important to the banking sector is the completion of the pending bailout review, as uncertainty and the re-emergence of fears over a possible Greek exit from the eurozone have frozen the market and encouraged many people to avoid paying their dues in anticipation of negotiations. This unexpected deterioration in the quality of loan portfolios in recent weeks has banks on edge, as NPLs will have to be reduced by €2.5 billion by end-March, which will be particularly difficult to achieve given the fresh addition of another €800 million.

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Forced out of work by Troika demands.

Greeks Turn to the Black Market as Another Bailout Showdown Looms (NYT)

During seven years of a grinding economic crisis, Dimitri Tsamopoulos has lost at least half the clients from his once bustling tax consultancy. But in the past few months, business has jumped, not because the Greek economy is finally recovering but because it is falling even deeper into the abyss. With the Greek government pushing through more tax increases to comply with austerity requirements, more than 21,000 self-employed workers and small firms have shut down in the past two months, with many seeking help from accountants like Mr. Tsamopoulos to close their books. Yet many are not actually closing their businesses. “Most of these people will keep working,” Mr. Tsamopoulous said, arching an eyebrow from behind his desk as clients waited in a smoky room outside. “But now, they’ll do it on the black market. They’re saying they need a way to survive.”

Greece is the crisis that never quite goes away for the EU, and with another tense negotiation with creditors scheduled for this coming week, the country is struggling to recover from the longest downturn in the eurozone. The budget-slashing policies and reform medicine required by creditors have done little to revive growth, leaving Greece even more dependent on the three international bailouts the country has received since 2010. Few problems are more ingrained, or harder to combat, than the shadow economy, which appears to be growing again as new austerity measures compel once law-abiding Greeks to go off the books. Greece’s black market is estimated at 20 to 25% of the gross domestic product, as more people have stopped reporting their income to avoid paying taxes that, by some estimates, have risen to 70% of an individual’s gross income.

As of last month, unpaid taxes in Greece had soared to €95 billion, up from €76 billion two years ago. Most of that is considered uncollectable. “The heart of the matter for an ever-rising number of citizens and businesses is that they simply do not have the financial resources anymore to meet their rising tax obligations,” said Jens Bastian, an economist and a member of a team of European Union specialists that helped supervise the country’s earlier bailouts. Short on alternatives, he said, “many are falling back into the gray economy.”

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Again: US and EU need to be very careful about this. And act.

Tensions Escalate In Aegean As Turkish Boat Fires Shots in Greek Waters (K.)

Tension between Greece and Turkey escalated further on Friday after a Turkish coastal patrol boat fired live ammunition during a military exercise in Greek territorial waters in the eastern Aegean Sea. [..] a Greek diplomatic source described the incident in the area around the eastern Aegean island of Farmakonisi, as “a grave violation of international law.” “Turkey’s unacceptable act raises serious concerns about the potential consequences of its behavior on the stability of the wider region,” the same source said. Greek defense officials were reportedly preparing to lodge a demarche with Ankara and brief allies and international organizations on the incident.

According to the Defense Ministry, Turkish authorities issued a navigational telex, or Navtex, the day before informing of a military exercise with live ammunition within Greek territorial waters, east of Farmakonisi, on Friday [yesterday] morning between 7 and 9 a.m. The Greek Defense Ministry responded by issuing a Navtex turning down the Turkish notification, saying it covered Greek territorial waters. Turkish authorities have previously issued similar notifications without executing them. The Greek gunboat Nikiforos was sent to the area to monitor the Turkish Kusadasi vessel, which fired a volley of shots from small caliber (up to 40mm) guns between 7.40 and 7.55 a.m., until it left the area just before 8 a.m.

[..] Friday’s incident occurred in the wake of repeated Turkish violations of Greek air space and increased tensions between Athens and Ankara, which were further fueled last month when Greece’s highest court blocked the extradition of eight Turkish officers to Turkey for their alleged involvement in July’s failed coup. Reacting to the development on Friday, Greece’s conservative opposition requested a meeting of the country’s National Council of Foreign Policy. “We are deeply concerned to witness Turkey’s insistence on provoking [Athens] and maintaining a climate of tension in the Aegean,” New Democracy shadow foreign minister Giorgos Koumoutsakos said in a letter to Foreign Minister Nikos Kotzias.

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“How do you capture Spirit?”

Defend The Sacred (Bell)

Defend The Sacred: Documentary from Kyle Bell on Vimeo.

Capturing the heart of a movement that is constantly evolving is difficult. How do you capture Spirit? “Defend The Sacred” is a short documentary that attempts to capture the spirit of Indigenous people at Standing Rock.

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Feb 182017
 
 February 18, 2017  Posted by at 4:01 pm Finance Tagged with: , , , , , , , ,  8 Responses »
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Jackson Pollock Shooting Star 1947

 

It’s amusing to see how views start to converge, at the same time that it’s tiresome to see how long that takes. It’s a good thing that more and more people ‘discover’ how and why austerity, especially in Europe, is such a losing and damaging strategy. It’s just a shame that this happens only after the horses have left the barn and the cows have come home, been fed, bathed, put on lipstick and gone back out to pasture again. Along the same lines, it’s beneficial that the recognition that for a long time economic growth has not been what ‘we’ think it should be, is spreading.

But we lost so much time that we could have used to adapt to the consequences. The stronger parties in all this, the governments, companies, richer individuals, may be wrong, but they have no reason to correct their wrongs: the system appears to work fine for them. They actually make good money because all corrections, all policies and all efforts to hide the negative effects of the gross ‘mistakes’, honest or not, made in economic and political circles are geared towards making them ‘whole’.

The faith in the absurd notion of trickle down ‘economics’ allows them to siphon off future resources from the lower rungs of society, towards themselves in the present. It will take a while for the lower rungs to figure this out. The St. Louis Fed laid it out so clearly this week that I wrote to Nicole saying ‘We’ve been vindicated by the Fed itself.’ That is, the Automatic Earth has said for many years that the peak of our wealth was sometime in the 1970’s or even late 1960’s.

Intriguing questions: was America at its richest right before or right after Nixon took the country off the gold standard in 1971? And whichever of the two one would argue for, why did he do it smack in the middle of peak wealth? Did he cause the downfall or was it already happening?

As per the St. Louis Fed report: “Real GDP growth fell and leveled off in the mid-1970s, then started falling again in the mid-2000s”. What happened during that 30-year period was that we started printing and borrowing with abandon, making both those activities much easier while we did, until the debt load overwhelmed even our widest fantasies ten years ago. And we’ve never recovered from that, if that was not obvious yet. Nor will we.

As the first graph below shows, there was still growth post-Gold Standard but the rate of growth fell and then “leveled off”, only to fall more after, to a point where Real GDP per Capita is presently 0.5% or so -little more than a margin error-. How one would want to combine that with talk of an economic recovery is hard to see. In fact, such talk should be under serious scrutiny by now.

Still, the numbers remain positive, you say. Yes, that’s true. But there’s a caveat, roughly similar to the one regarding energy and the return on it. Where we used to pump oil and get 100 times the energy in return that we needed to pump it, that ratio (EROEI) is now down to 10:1 or less. Alternative energy sources do little better, if at all. Whereas to run a complex society, let alone one like ours that must become more complex as we go along – or die-, we would need somewhere along the lines of a 20:1 to even 30:1 EROEI rate.

Another place where a similar caveat can be found is the amount of dollars it takes to produce a dollar of real growth. That amount has been increasing, and fast, to the point where it takes over $10 to create $1 or growth in the US and Europe, and China too moves towards such numbers.

Both our energy systems and our financial systems are examples of what happens when what we should perhaps call the rate of ‘productivity’ (rather than growth) falls below a critical mass: it becomes impossible to maintain, even keep alive, a society as complex as ours, which requires an increase in complexity to survive. In other words: a Real GDP per Capita growth rate of 0.5% is not enough to stand still, just like oil EROEI of 5:1 is not; there is growth, but not -nearly- enough to keep growing.

One does not get the impression that the St. Louis Fed economists who wrote the report are aware of this -though the title is suggestive enough-, they seem to lean towards the eternal desire for a recovery, but they did write it nonetheless. Do note the sharp drop that coincides with the 1973 oil crisis. We never ‘recovered’.

Why Does Economic Growth Keep Slowing Down?

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 same dynamics (or lack thereof) are reflected in a recent piece by Chris Hamilton, in which he argues that global growth -as expressed by growth in energy consumption- has largely been non-existent for years, other than in China. Moreover, China has added a stunning amount of debt to achieve that growth, and since its population growth is about to stagnate -and then turn negative-, this was pretty much all she wrote.

Global Growth is All About China…Nothing but China

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

 

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

 

China’s core population is essentially peaking this year and beginning a decades long decline (not unlike the world. The chart below shows total Chinese core population peaking, energy consumption stalling, and debt skyrocketing.

 

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

 

• China of ’85-’00 grew on population and demographic trends.

• China of ’00-’15 grew despite decelerating population growth but on accelerating debt growth…this growth in China kept global growth alive.

• China of ’15-’30 will not grow, will not drive the global economy and absent Chinese growth…the world economy is set to begin an indefinite period of secular contraction. China ceased accumulating US Treasury debt as of July of 2011 and continues to sell while busy accumulating gold since 2011.

Unfortunately, neither quasi-democracies nor quasi-communist states have any politically acceptable solutions to this problem of structural decelerating growth and eventual outright contraction…but that won’t keep them from meddling to stall the inevitable global restructuring.

I can only hope that these data will convince more people that all the times I’ve said that growth is over, it was true. And perhaps even make them think about what follows from there: that when growth is gone, so is all centralization, including globalization, other than by force. This will change the world a lot, and unfortunately not always in peaceful ways.

What seems to have started (but was in the air long before) with Brexit and Trump, is merely a first indication of what’s to come. People will not accept that important decisions that affect them directly are taken by anonymous ‘actors’ somewhere far away, unless this promises and delivers them very concrete and tangible benefits. In fact, many have lost all faith in the whole idea, and that’s why we have Trump and Brexit in the first place.

This turn inward -protectionism if you will-, in the UK, US and many other places, is an inevitable development that follows from declining growth and soaring debt. Entire societies will have to be re-built from the ground up, and people will want to do that themselves, not have it dictated by strangers. At the same time, of course, those who profit most from centralization want that to continue. They can’t, but they will try, and hard.

Equally important, people who wish to try and save existing ‘central institutions’ for less selfish and more peaceful reasons should think twice, because they will fail too. It’s centralization itself that is failing, and the demise of the structures that represent it is but a consequence of that. We will see local structures being built, and only after that possibly -and hopefully- connect to each other. This is a big change, and therefore a big challenge.

Feb 182017
 
 February 18, 2017  Posted by at 10:40 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Unknown California State Automobile Association signage 1925

 


“That War You Ordered….” (Jim Kunstler)
US ‘Unwavering’ In NATO Support – Pence (BBC)
European Union President Rejects Trump Call For More NATO Spending (CNBC)
Four NATO Nations Would Pick Russia to Defend Them If Threatened (BBG)
Who Really Rules The United States? (FreeB)
Australia Headed For ‘Economic Armageddon’ (News.com.au)
China Is Going Broke (Jim Rickards)
Brexit Was A Revolt Against Snobs Like Tony Blair (Spec.)
Small Businesses Face Being ‘Driven Out Of London’ (Ind.)
Norway Central Bank Chief Warns Of Sharp Drop In Wealth Fund (BBG)
Only Germans Love the Euro These Days (BBG)
How Do You Say Deja Vu In Greek? (R.)
Can Tax Increases Bring Inflation To Greece? (KTG)
Greek Labor Minister Says Pensioners Can Barely Make Ends Meet (K.)

 

 

Hard to find any news articles these days that are not severely biased. So let’s go with Jim.

“That War You Ordered….” (Jim Kunstler)

The Russia paranoia frenzy is serious business because it indicates that a state-of-war exists between the permanent bureaucracy of government (a.k.a. the Deep State) and the new Trump administration. There are features of the struggle that ought to be much more disturbing than the dubious alleged monkey business about Russia hacking the election and the hoo-hah around a single intercepted phone call between Michael Flynn and the Russian ambassador, made to open a line-of-communication between high-ranking officials, strictly routine business in any other administration. Most disturbing are signs that the so-called intelligence community (IC) has gone rogue in collusion with forces aligned around Democratic Party functionaries up to and including former president Obama and Hillary Clinton, along with CNN, The Times, The Wash-Po, NBC News and a few other mouthpieces of the defeated establishment.

Obama and Hillary remain conspicuously sequestered from this maelstrom, but they must be working their phones like nobody’s business. (Is the IC monitoring them, too, one wonders?) Until his Queeg-on-steroids news conference late yesterday, Trump laid pretty low after General Flynn was thrown under the bus, but he must be plotting counter-moves, with Bannon and Steven Miller straining at their leashes, slavering for blood. Will some employees over at the CIA and the — what? — sixteen other IC outposts that stud the government like shipworms in a rotting hulk — be called on the carpet of the oval office, and possibly handed pink slips? How do you drain that swamp in Langley, VA? Perhaps with subpoenas? Surely Jeff Sessions over at the Department of Justice has got to be weighing action against the IC leakers. That shit is against the law.

The next disturbing element of the situation is all the war-drum beating by the same cast of characters: the IC, the Democratic Party, and major media. Why in hell are we antagonizing Russia? In the last month of Obama’s term — and for the first time in many years — NATO moved a bunch of tanks close to Russia’s border with the Baltic states. Do you really think Russia wants to reoccupy these countries for the pleasure of subsidizing them and draining the Russian treasury? In those twilight days of Obama, government officials made wild and unspecific charges about “Russian aggression,” and vague assertions about Russian plans to dominate the global scene. ajor what-the-fuck there. There’s the ugly situation in Ukraine, of course, but that was engineered by Obama’s state department.

Do you know why Russia annexed Crimea after that? It couldn’t have been for more transparently rational reasons. And what exactly is our beef with Russia in Syria? That they’re trying to prop up the Assad government because the last thing the Middle East needs is another failed state with no government whatsoever? What’s our plan for Syria, anyway? Same as Somalia, Iraq, and Libya? These stories about Russia’s intentions seem insane on their face. It’s amazing that readers of The New York Times swallow them whole. It must say something about the deterioration of the coastal gene pool. The story-mongers have a purpose though: to promote a state of permanent hostility, neo-cold-war style, to justify the grotesquely overgrown operations of the IC.

Read more …

Hollow words.

US ‘Unwavering’ In NATO Support – Pence (BBC)

The US will be “unwavering” in its support for Nato, vice-president Mike Pence told European leaders at the Munich Security Conference. In the first major foreign policy address for the Trump administration, Mr Pence said the US would “stand with Europe today and every day”. But he told the gathered leaders that European countries were “failing to pay their fair share” on defence. That failure “erodes the foundation of our alliance”, he said. Apart from the US, only four other nations had met a commitment to spend 2% of GDP on defence, “The time has come to do more,” he said.

President Donald Trump warned before taking office that the US might not uphold its commitment to come to the defence of Nato allies who were not perceived to have contributed enough financially. Mr Pence went on to say that the US would “continue to hold Russia accountable, even as we search for new common ground, which as you know, President Trump believes can be found”. Mr Pence said Russia must honour the Minsk peace accords on Ukraine and de-escalate its military operations in the east of the country.

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Juncker makes sense for a change.

European Union President Rejects Trump Call For More NATO Spending (CNBC)

European Commission President Jean-Claude Juncker has said Europe should resist U.S. pressure to spend more spending on defense. U.S. President Donald Trump has criticized the NATO defense alliance, suggesting he could withdraw support if European countries did not raise defense spending to at least 2% of their economic output.In a speech on the sidelines of the Munich Security Conference Thursday, Juncker, who heads the EU’s executive arm, suggested some resistance to Trump’s threat was in order. “It has been the American message for many, many years. I am very much against letting ourselves be pushed into this,” he said. Juncker also said the EU’s other spending commitments made up for any shortfalls in military funding. “Modern politics cannot just be about raising defense spending,” he said.

“If you look at what Europe is doing in defense, plus development aid, plus humanitarian aid, the comparison with the United States looks rather different,” he said. Juncker added that European nations should bundle their defense spending better and spend the money more efficiently. At a NATO meeting Wednesday, the U.S. Defense Secretary James Mattis reinforced Trump’s message, warning treaty allies they must boost their defense spending or America could “moderate its commitment.” “Americans cannot care more for your children’s future security than you do. I owe it to you to give you clarity on the political reality in the United States and to state the fair demand from my country’s people in concrete terms,” he said in a speech to NATO allies in the Belgian city of Brussels on Wednesday.

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Originally filed by reporter (see URL) as: “Melania Trump’s Slovenia Would Pick Russian Over US Protection”. Say no more.

Four NATO Nations Would Pick Russia to Defend Them If Threatened (BBG)

Who you gonna call? For the citizens of four NATO countries asked which military power they’d want fighting on their side if attacked, the answer was simple – Russia. That was among the findings of a multi-nation Gallup poll published just ahead of Friday’s annual gathering of the transatlantic security community in Germany that appeared to map out shifts in the post-Cold War security alliances which have come under renewed strain and scrutiny since Donald Trump’s election to the U.S. presidency. By far the largest number of countries polled by WIN/Gallup International chose the U.S. for their go-to defense partner, suggesting that it remains the world’s only military power with truly global reach and alliances. At the same time, however, China and Russia picked each other, war-torn Ukraine and Iraq split down the middle, while those four members of the U.S.-led North Atlantic Treaty Organization – Bulgaria, Greece, Slovenia and Turkey – plumped for Russia.

As U.S. Secretary of Defense James Mattis tours Europe delivering a message of tough love to NATO allies – increase spending or see the U.S. “moderate’’ its support – the poll shows the world’s gradual political reorganization around different security poles, according to Kancho Stoychev, vice president of WIN/Gallup International. “It isn’t surprising that Russians and Chinese chose each other, but it is new,’’ said Stoychev. “It shows us something very important – that U.S. policy over the last 20 years has driven Russia into the arms of China, which is quite strange because Russia is fundamentally a part of Europe.’’ At the same time, some of the results in European NATO countries showed how their fundamental security choices were moving beyond the alliance, he said. Bulgaria and Greece, for example, see their biggest security threat coming from Turkey.

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Right wing. As I said, very hard to find anything unbiased. All heels are dug in deeply.

Who Really Rules The United States? (FreeB)

Donald Trump was elected president last November by winning 306 electoral votes. He pledged to “drain the swamp” in Washington, D.C., to overturn the system of politics that had left the nation’s capital and major financial and tech centers flourishing but large swaths of the country mired in stagnation and decay. “What truly matters,” he said in his Inaugural Address, “is not which party controls our government, but whether our government is controlled by the people.” Is it? By any historical and constitutional standard, “the people” elected Donald Trump and endorsed his program of nation-state populist reform. Yet over the last few weeks America has been in the throes of an unprecedented revolt. Not of the people against the government—that happened last year—but of the government against the people. What this says about the state of American democracy, and what it portends for the future, is incredibly disturbing.

There is, of course, the case of Michael Flynn. He made a lot of enemies inside the government during his career, suffice it to say. And when he exposed himself as vulnerable those enemies pounced. But consider the means: anonymous and possibly illegal leaks of private conversations. Yes, the conversation in question was with a foreign national. And no one doubts we spy on ambassadors. But we aren’t supposed to spy on Americans without probable cause. And we most certainly are not supposed to disclose the results of our spying in the pages of the Washington Post because it suits a partisan or personal agenda. Here was a case of current and former national security officials using their position, their sources, and their methods to crush a political enemy. And no one but supporters of the president seems to be disturbed.

Why? Because we are meant to believe that the mysterious, elusive, nefarious, and to date unproven connection between Donald Trump and the Kremlin is more important than the norms of intelligence and the decisions of the voters. But why should we believe that? And who elected these officials to make this judgment for us? Nor is Flynn the only example of nameless bureaucrats working to undermine and ultimately overturn the results of last year’s election. According to the New York Times, civil servants at the EPA are lobbying Congress to reject Donald Trump’s nominee to run the agency. Is it because Scott Pruitt lacks qualifications? No. Is it because he is ethically compromised? Sorry. The reason for the opposition is that Pruitt is a critic of the way the EPA was run during the presidency of Barack Obama. He has a policy difference with the men and women who are soon to be his employees. Up until, oh, this month, the normal course of action was for civil servants to follow the direction of the political appointees who serve as proxies for the elected president.

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Personal debt.

Australia Headed For ‘Economic Armageddon’ (News.com.au)

Australia is headed for an “economic Armageddon”, with record household debt, record foreign debt and a massive housing bubble creating a perfect storm that could “wipe out” millions of families if there is a global shock. That is the apocalyptic warning of a former government economic advisor, who says the government needs to cut tax incentives such as negative gearing and welfare handouts and the RBA needs to increase interest rates in order to avoid a “devastating depression”. Corporate governance specialist John Adams, who was an economics and policy advisor to Senator Arthur Sinodinos and management consultant to a big four accounting firm, believes he has found seven disturbing signs that the global economy is primed for a major fall. Worse still, Australia is particularly vulnerable because of significant structural imbalances, including record levels of household debt not seen since the lead up to the last great depression in the 1920s.

“Australians should be concerned over the state of both the Australian and global economy,” Mr Adams told news.com.au. “The data clearly demonstrates that there are significant structural economic imbalances in the Australian economy. Significant expansion of the broad money supply and record low interest rates by the Reserve Bank of Australia as well as generous tax incentives and welfare provisions by the Federal Government have led Australians to amass record levels of personal debt which have fuelled the creation of asset bubbles, particularly in housing. “Millions of Australians are not only doing it tough through significant cost of living and debt serving pressures, but are at significant risk of being financially wiped out if an unanticipated adverse international economic shock were to hit Australia such as a new global financial crisis.”

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End of the year?

China Is Going Broke (Jim Rickards)

[..] of the 2.9 trillion, about one trillion of that is not liquid, meaning it’s wealth of some kind, it represents investment, but China wanted to improve their returns actually on their investments, so they invested in hedge funds, they invested in private equity funds, they made direct investments in gold mines in Zambia and so forth, so about a trillion of that is, it’s wealth, but it’s not liquid. It’s not money that you can use to pay your bills. So now, we’re down to 1.9 trillion liquid. Well, about another trillion is going to have to be held in what’s called a “precautionary reserve” to bail out the Chinese banking system.

When you look at the Chinese banking system, private estimates are that the bad debts are 25% of total assets. Banks usually run with 5, maybe 7-8% capital. Even if you said 10% capital, well, if 25% of your assets are bad, that completely wipes out your capital, so the Chinese banking system is technically insolvent, even though they don’t admit that. I mean, they cook the books, they take these bad loans. Let’s say I’m a bank and I have a loan to a state owned enterprise, a steel mill or something and the guy can’t pay me, can’t even come close to paying me and the loan’s due, I say, “Well, look, you owe me 300 million dollars. I’ll tell you what. I’ll give you a new loan for 400 million dollars, but I’ll take the money and pay myself back the old loan plus the interest, and then I’ll give the new loan to your maturity and I’ll see you in two years.”

So, if you did that in the U.S. banking system you’d go to jail. You’re not allowed to do that. You’re throwing good money after bad and you’re supposed to right off a loan that is clearly not performing or where the borrower is unable to pay. But in this case, it’s just extend to pretend, and so it’s still on the books, in my example, 400 million dollar good loan with a two year maturity, but in fact it’s a rotten loan that the guy couldn’t pay in the first place, and now he just can’t pay a bigger amount. He’s probably going to go bankrupt and I’ll have to write it off at the end of the day. So, with that as background for the Chinese banking system, people kind of shrug and say, “Well, can’t China just bail it out? They’ve got all this money.”

Well, the answer is they could, and they’ve done so before, and they can bail it out, but it’s going to trust a trillion dollars, so you’ve got to put a trillion dollars to one side, for when the time comes, to bail out the banking system. Well, now you’re down to 900 billion, right? Remember, we started with four trillion, 1.1 trillion’s out door, 1 trillion’s illiquid, 1 trillion you’ve got to hold to one side to bail out the banking system, well now you only have 900 billion of liquid assets to defend your currency, to prop up the Chinese yuan. But the problem is the reserves are going out the door at a rate of, it varies month to month, 30, 40, 50 billion dollars a month. Some months more, some months over 100 billion dollars.

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Blair getting involved will be a huge boon for Brexit.

Brexit Was A Revolt Against Snobs Like Tony Blair (Spec.)

The brass neck of Tony Blair. The Brexit vote was ‘based on imperfect knowledge’, says the man who unleashed barbarism across the Middle East on the basis of a student dissertation he printed off the internet. Who marched thousands into unimaginable horror on the basis of myth and spin. That NHS claim on the side of the Leave bus is small fry, infinitesimally small fry, in comparison with the guff this bloke came out with. It didn’t cause anyone to die, for one. For Blair to lecture the British people about truth is an affront to memory and decency and reason. No self-respecting citizen should put up with it. Blair made his comments about our ‘imperfect knowledge’ – dimwits that we are – in a speech for Open Britain, a cross-party pro-EU group, in London this morning.

The speech sums up the elitism and arrogance and contempt for democracy of those Remainers who just cannot accept that they lost. ‘The people voted without knowledge of the true terms of Brexit’, Blair haughtily declared. Rubbish. We all knew what it meant to tick the box saying ‘Leave the European Union’ — it meant leaving the European Union. It meant what it said — and we meant what we said. Blair and the connected, moneyed weepers for the EU who make up Open Britain can’t get their heads around this. They think we didn’t know what we were doing. And so they’ve come to enlighten us and make us think again. Remainers must ‘rise up’, says Blair, and turn the throng’s ‘imperfect knowledge’ into ‘informed knowledge’ by giving us ‘easy to understand’ information about how Brexit will ‘cause real damage to the country’.

Risen, brave, ‘informed’ Remainers must hold back the ‘rush over the cliff’s edge’, he said. The whole thing stinks to the heavens of paternalism. Blair is positioning himself and his switched-on mates as the possessors of information that we the imperfect plebs lack. Like lemmings we’re leaping off the cliff, and this good man must save us. He must impart to us his wisdom — in ‘easy to understand’ ways, of course, because we can’t handle anything too complex — and in the process fulfil the duty of the political leader to ‘give answers’ rather than ‘ride the anger’ of the public. He depicts Open Britain as cool and knowledgable, and Leavers as uninformed and angry. It’s positively aristocratic, with Open Britain fancying itself as the small but beautiful font of wisdom in a land of madness.

[..] Blair spoke in the language of revolution. Remainers must ‘rise up’. He talked about the need for a ‘revolt’, by ‘force of argument’, against the Leave vote. Excitable media outlets have gone even further, describing his speech as a call ‘for people to “rise up” against Brexit’, a plea that ‘Britain must rise up against Brexit’.

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How to kill a city, part 826.

Small Businesses Face Being ‘Driven Out Of London’ (Ind.)

An increase in business rates is one of biggest issues concerning small businesses in London, easily trumping fears around economic uncertainty and worries relating to recruiting the right talent. According to a survey by the Federation of Small Businesses (FSB) and trade body Camden Town Unlimited, the average micro business in the city, defined as a company with fewer than 10 employees, will be paying business rates of £17,000 as of April this year under a Government hike. “London is in serious danger of losing its vital support system of micro and small businesses,” the FSB’s chair for London, Sue Terpilowski, said in a statement. “We need to realise that the hard costs of operating a business in the capital are starting to outweigh the benefits which simply does not make economic sense – and so tacking these burdens at the spring Budget is critical,” Ms Terpilowski added.

Business rates – which are sometimes referred to as non-domestic rates – are levies that companies occupying commercial properties pay. That tax goes towards covering the cost of services provided by local authorities and the emergency services. The survey found that close to three quarters – 74% – of businesses consider rates to be one of the biggest issues affecting them, while 36% cited economic uncertainty, and, one third said that the difficulty around recruiting the right staff was their biggest concern. “The new business rates will drive firms out of London, force some businesses to cut staff or close down altogether,” said Simon Pitkeathley, the chief executive of Camden Town Unlimited.

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Fast and furious. Caught in the oil wars.

Norway Central Bank Chief Warns Of Sharp Drop In Wealth Fund (BBG)

Norway’s central bank governor sharpened his warning on rising spending of oil revenue as he drew up scenarios for a 50% loss of capital over the next 10 years for the world’s biggest sovereign wealth fund. Governor Oystein Olsen said that the continued rise in oil cash spending, which now accounts for about 20% of the budget and 8% of GDP, must now be halted to protect the $900 billion fund, the world’s largest sovereign pool of cash. “With a high level of oil revenue spending, there’s a risk of a sharp reduction in the fund’s capital,” Olsen said in the traditional Annual Address in Oslo Thursday. “This could, for example, happen if a global recession triggers both a decline in oil revenue and low or negative returns on the fund’s capital.” Government withdrawals from the fund are estimated to jump about 25% this year after an historic first outflow last year. The Conservative-led government was last year forced to dip into the oil fund for the first time to cover budget needs and protect the economy amid a plunge in oil prices.

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Why the euro is doomed.

Only Germans Love the Euro These Days (BBG)

French presidential candidate Marine Le Pen unsettled investors with her pledge to pull France out of the euro and re-denominate all French debt in newly minted francs. Polls suggest Le Pen won’t get the chance; she is expected to lose a second-round runoff. Even if polls are correct this time, that doesn’t mean the euro is safe. In fact, political support for the single currency has been waning – especially in Germany’s two largest euro-zone trading partners. In both France and Italy, there is now a plurality of support for candidates who advocate a withdrawal from the euro, with pro-euro candidates gathering less than 30% in polls. In France, anti-euro candidates – Le Pen and Socialist Jean-Luc Melanchon – together have nearly 40% support.

Of course, that doesn’t mean that all of Le Pen’s supporters, or Melanchon’s, oppose the euro. Most French voters still tell pollsters they favor the euro; but clearly that support waning, as the latest Eurobarometer poll showed. Anti-euro sentiment, once a blip on the fringes of public opinion, is now credible and has found its way onto political platforms. Respondents are asked whether they think the euro is a good or bad thing for their country. In Italy, the euro gets even less love than in France, with 47% saying the euro is a “bad” thing for their country. That is in stark contrast to Germany, where there is now a clear majority in favor of the euro. This chart shows how opinion has changed over time:

This is a dramatic reversal in opinion: A German population that was initially reluctant to give up the Deutsche mark is now firmly wedded to the euro, while support in France and Italy has declined (particularly sharply in Italy’s case). But this shift is the logical result of the euro’s structural deficiencies. German industry, whose productivity has been increasing more than its European counterparts, now dominates the continental economy. While German unemployment was decreasing and its economy recovering from the financial crisis, Italy was stagnant with rising unemployment. Already saddled with a very large public debt (now over 130% of gross domestic product), Italy could neither reflate its economy, nor bail out its banks, while whole segments of its industry, particularly in lower and medium-cost goods, have disappeared.

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Damning: 56% of Greeks make less than €8,600 a year. And the Troika wants to tax them more. “..the tax- free income threshold, now at about €8,600 per person per year, a number the IMF maintains lets some 56% of wage-earning Greeks escape paying income tax.”

How Do You Say Deja Vu In Greek? (R.)

[..] it would not be trite to say that another festering row with Greece is the last thing the euro zone needs when faced with a protectionist U.S. president, Britain leaving the European Union, and anti-euro politicians vying for power or presence in French, Dutch and German elections. So EU officials have been urging speed in finding agreement and calmly warning of instability ahead if none is found. “There is a common understanding that time lost in reaching an agreement will have a cost for everyone,” the European commissioner responsible for the euro, Valdis Dombrovskis, told Greek news portal Euro2day. The issue, however, is multi-layered and thus particularly complex. Part of it is about what kind of primary surplus – what is left in a surplus budget before debt obligations – Greece must reach and run for some time.

The bailout, signed by Greece and euro zone lenders, says 3.5% of GDP(which would be by far the highest in the euro zone). The IMF, the other major lender, says that is undoable without further Greek belt-tightening. It says 1.5% of GDP and some form of debt relaxation – for example, over what is paid when – would be more realistic and sustainable. The IMF, furthermore, says it won’t participate in any bailout that it does not believe to be viable. Germany and others say that the IMF must be a part of the bailout or there is no deal. Both lenders have told Greece they want about €3.6 billion in additional savings, including a reduction in the tax- free income threshold, now at about €8,600 per person per year, a number the IMF maintains lets some 56% of wage-earning Greeks escape paying income tax.

Greece says no. Its economy contracted again in the fourth quarter of 2016, nearly one in four Greeks is unemployed and its pensioners have already seen 11 cuts to income. So plenty of scope for crisis – if not quite yet.

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Good example of why rising prices do not equal inflation. Greece is deflating like mad. Money velocity has plummeted, making recovery impossible.

Can Tax Increases Bring Inflation To Greece? (KTG)

Special consumption fees imposed on fuel, coffee, tobacco products and telecommunications beginning of the year skyrocketed consumer prices and led to the inevitable: inflation. According to Greek Statistics Authority ELSTAT inflation reached 1.5% in January from 0.3% in December. ‘This is almost a five-year high and above market expectations that were forecasting a 0.4% for January,’ Reuters notes. I do not know how ‘markets’ make their forecasts, but real Greek life shows a different picture. The supermarkets had massive discount offers in a plethora of goods in December. The special fees imposed as of 1.1.2017 were not immediately seen in supermarket prices but in fuel and tobaccoo products and telecommunications. Super markets kept offering discounts until around January 20th. Then the “households party” was over.

On February 1st, the price for half a kilo filter coffee went up to €7.68 from €5.46. Apparently sales stagnated, the import company lowered the price by 1 euro. A week later, the discount offer was just 50 cents. Officially, the special fee was supposed to be €2-3 per kilo of roasted coffee. In real life, the increase is higher €2.12 for just half a kilo. Similarly, the price for 400-gr package for a cocoa drink of a well known international brand went up to €3.40 from €2.60. At the same time, the cheaper soft package disappeared from the supermarket shelves. Here to note that for year the hard package used to contain 500gr. Sometime in 2010, I was badly surprised to see the package was down to 400gr, while the price remained the same.

In real life, I have to spend a total of €9 to €10 more per supermarket visit once a week. This makes a nice sum of €40 more per month. And that’s alone for the supermarket. Add the increases in other sectors and start the calculation.

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As the EU keeps stressing the importance of unity, the Troika inches ever closer to causing a civil war in Greece. Unity is not just a word.

Greek Labor Minister Says Pensioners Can Barely Make Ends Meet (K.)

Greece’s Minister of Labor, Social Security and Social Solidarity Effie Achtsioglou insisted in a letter published Friday in the Financial Times that Greek pensioners have barely enough to live on and urged IMF chief Christine Lagarde to listen. “We cannot accept IMF insistence on further cuts in pensions. As minister for pensions I must answer, hoping that IMF managing director Christine Lagarde will listen,” she said, ahead of Monday’s Eurogroup, in a bid to explain why Greece cannot make any more pension cuts. “The narrative about Greek pensions is driven by demands of its creditors. They argue that the pension system is overgenerous and a drain on the economy,” she said, adding that it is based on the crude statistic that pensions require annual transfers from the state budget of around 11% of GDP in Greece compared with the eurozone average of 2.25%.

This comparison, she said, is misleading. “Following the implementation of the new pension law last year, total state financing of pensions is projected at less than 9% of GDP,” she explained. “The bottom line is that Greece’s old people are much worse off than elsewhere in Europe because they do not have access to other benefits. Per capita income for individuals aged over 65 is about €9,000, compared with €20,000 in the eurozone.” she added, asking “how could the major problem confronting Greece be overgenerous pensions, when 43% of pensioners receive less than €660 a month?.”

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PRESS CONFERENCE

searching
inside his cranium

trying to find
a brain to rack,

he found the word
”uranium”

and launched
an unclear attack

Brian Bilston

Feb 172017
 
 February 17, 2017  Posted by at 11:00 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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John Collier Workmen at emergency office construction job, Washington, DC Dec 1941

 


Global Growth is All About China…Nothing but China (Econimica)
US Household Debt Is Dangerously Close To 2008 Levels (CNN)
“Seriously Delinquent” US Auto Loans Surge (WS)
3 Reasons The US Could Be Headed For A Fresh Debt Crisis (MW)
Fed President Says US Banks Have “Half The Equity They Need” (Black)
Harward Turns Down National Security Adviser Job Over Staffing Dispute (CBS)
The Swamp Strikes Back (Escobar)
Who’s Sucking Up All the World’s Safest Bonds? (WSJ)
Mary Jo White Seriously Misled the US Senate to Become SEC Chair (Martens)
European Financial Centres After Brexit (E.)
Putin Orders Russian Media To “Cut Back” On Positive Trump Coverage (ZH)
‘Bank Run’ under Capital Controls: Greeks withdraw €2.5bn in 45 days (KTG)

 

 

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

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

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

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

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

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

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

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

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

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

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

“Seriously Delinquent” US Auto Loans Surge (WS)

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

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

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Not a new topic, but some useful numbers.

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

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

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

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

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

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It’s all about political power.

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

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

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

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

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Murky.

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

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

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

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

The Swamp Strikes Back (Escobar)

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

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

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

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

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A big way in which central banks distort markets.

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

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

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

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

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

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

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

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

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

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

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Bankers have too much money and too much power.

European Financial Centres After Brexit (E.)

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

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

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

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

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

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

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

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

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

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And there we go again.

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

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

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

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

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Feb 162017
 
 February 16, 2017  Posted by at 10:31 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Pablo Picasso Femme 1930

 

 

Great read from Ed. “..while Brazil and Greece faced the same type of downturn in dollar terms — about 45% in GDP per person — Brazilian living standards only deteriorated about 2%, compared to 26% in Greece.” Good part on Dutch elections too.

Europe’s Delusional Economic Policies (Edward Harrison)

This chart encapsulates the narrative in Matt’s post – namely that Greece has underperformed other emerging market crisis countries on post-crisis growth. Here’s how Matt put it: Greece had a very different post-crisis experience: it never recovered. By contrast, all the other countries were well past their pre-crisis peak after this much time had elapsed. On average, Argentina, Brazil, Indonesia, Thailand, and Turkey have outperformed Greece by more than 40 percentage points after nine years. The reasonable question is why. Matt answers that in the paragraph before, saying: “But unlike those countries, Greece lacked the ability to use the exchange rate as a shock absorber. So while Brazil and Greece faced the same type of downturn in dollar terms — about 45% in GDP per person — Brazilian living standards only deteriorated about 2%, compared to 26% in Greece. The net effect is that Greece had a relatively typical crisis in dollars but an unprecedently painful one in the terms that matter most”.

My view is that what we are seeing, therefore, is the difference monetary sovereignty can make in post-crisis recovery because the currency does a lot of the heavy lifting. And this is true for developed economies as well. For example, we saw the UK and Sweden recover after a housing bubble and EMU turmoil in the early 1990s in part because of currency depreciations. But of course, Greece doesn’t have its own currency so the currency can’t depreciate. Greece must use the internal devaluation route, which makes its labor, goods and services cheaper through a deflationary path – and that is very destructive to demand, to growth, and to credit. This, in my view, accounts for much of Greece’s underperformance relative to emerging market crisis countries.

In response to my tweet on Greece, Danish economist Lars Christensen pointed out to me that he had compared Greece to Turkey in 2015 and Greece came out poorly too. And his post noted that: “14 years later Turkey is still in many ways politically dysfunctional – in fact it has gotten worse in recent years – there has been rumours of plans of military coups, there has been major corruption scandals even involving the Prime Minister (now president Erdogan) and the governing AKParty and lately the civil war in Syria has created a massive inflow of refugees and increased tensions with Turkish Kurdish population.” Translation: it’s not about reforms, people. It’s about growth. And the euro – and the policies tied to membership – is anti-growth, particularly for a country like Greece that is forced to hit an unrealistic 3.5% primary surplus indefinitely. And there will be no debt forgiveness either, as the IMF has said is necessary.

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The WaPo takes a break from its political campaign and shows it still has at least one person left who can write an actual -and execellent- report.

Austerity Was A Bigger Disaster Than We Thought (WaPo)

We now take a break from your regularly scheduled scandals to bring you some not-so-breaking news: austerity was as big a disaster as its biggest critics said it was. That, at least, is what economists Christopher House and Linda Tesar of the University of Michigan and Christïan Proebsting of the École Polytechnique Fédérale de Lausanne found when they looked at Europe’s budget-cutting experience the last eight years. It turns out that cutting spending right after the worst crisis in 80 years only led to a lower GDP and, in the most extreme cases, higher debt-to-GDP ratios. That’s right: trying to reduce debt levels sometimes increased debt burdens. Other than that, how was the policy, Mrs. Lincoln? But let’s back up a minute. This isn’t something that’s always true. In fact, it almost never used to be.

Cutting spending, you see, shouldn’t be a problem as long as you can cut interest rates too. That’s because lower borrowing costs can stimulate the economy just as much as lower government spending slows it down. What happens, though, if interest rates are already zero, or, even worse, you’re part of a currency union that means you can’t devalue your way out of trouble? Well, nothing good. House, Tesar and Proebsting calculated how much each European economy grew — or, more to the point, shrank — between the time they started cutting their budgets in 2010 and the end of 2014, and then compared it with what actually realistic models say would have happened if they hadn’t done austerity or adopted the euro.

According to this, the hardest-hit countries of Greece, Ireland, Italy, Portugal and Spain would have contracted by only 1% instead of the 18% they did if they hadn’t slashed spending; by only 7% if they’d kept their drachmas, pounds, liras, escudos, pesetas and the ability to devalue that went along with them if they hadn’t become a part of the common currency and outsourced those decisions to Frankfurt; and only would have seen their debt-to-GDP ratios rise by eight percentage points instead of the 16 they did if they hadn’t tried to get their budgets closer to being balanced. In short, austerity hurt what it was supposed to help, and helped hurt the economy even more than a once-in-three-generations crisis already had.

[..] the euro really has been a doomsday device for turning recessions into depressions. It’s not just that it caused the crisis by keeping money too loose for Greece and the rest of them during the boom and too tight for them during the bust. It’s also that it forced a lot of this austerity on them. Think about it like this. Countries that can print their own money never have to default on their debts — they can always inflate them away instead — but ones that can’t, because, say, they share a common currency, might have to. Just the possibility of that, though, can be enough to make it a reality. If markets are worried that you might not be able to pay back your debts, they’ll make you pay a higher interest rate on them — which might make it so that you really can’t. In other words, the euro can cause a self-fulfilling prophecy where countries can’t afford to spend any more even though spending any less will only make everything worse.

That’s actually a pretty good description of what happened until the ECB belatedly announced that it would do “whatever it takes” to put an end to this in 2012. Which was enough to get investors to stop pushing austerity, but, alas, not politicians. It’s a good reminder that you should never doubt that a small group of committed ideologues can destroy the economy. Indeed, it’s the only thing that ever has. That’s true whether you’re talking about the European politicians who pushed for the creation of the euro itself – they ignored the economists who warned them that it might turn out just as badly as it has – or the ones who pushed for austerity a few decades later. After all, it shouldn’t have been a surprise that trying to balance your budget when interest rates were zero would end badly.

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What’s lacking in Europe is self-reflection. Maybe that’s because it has no flexibility in its policies. But that still doesn’t make Malloch wrong.

‘The European Project Has Failed’ – Trump EU Envoy Pick Malloch (Exp.)

Donald Trump’s likely EU ambassador has launched a blistering attack on the “undemocratic” bloc and its “elitist” leaders.In comments that will terrify Brussels, Ted Malloch said the EU had become “bloated” by bureaucracy and “anti-Americanism”. And he called for member states to hold their own Brexit-style referendums – which could spark the break-up of the union. It comes after Mr Trump hailed Brexit as a “blessing to the world” and said the UK would be far stronger outside the bloc. Mr Malloch, who is the President’s pick to become Washington’s envoy to Brussels, made the comments in The Parliament magazine.

He said: “Put the EU to a referendum vote in every member country. “It is time for greater scepticism and realism about the European Union and its not so hidden agenda and ever closer union.” He added: “The failure of the European integration project should by now be self-apparent to everyone. “This is simply not something Churchill or Roosevelt would countenance. “The European Union has become undemocratic and bloated by both bureaucracy and rampant anti-Americanism.” He said: “We want democracy and accountability, while the EU is intrinsically undemocratic and unaccountable. “So should the US continue to promote such a damaged European model, which is alien to our own traditions? Is it not working against US interests to do so?”

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It may be an option considered fleetingly, but that’s it.

Greece ‘May Ditch Euro In Favour Of The Dollar’ – Malloch (Ind.)

The man tipped to be Donald Trump’s ambassador to the European Union has said that Greece is contemplating leaving the euro in favour of the US dollar. According to the transcript of a translated interview with Greek local online news site ekathimerini.com, Professor Ted Malloch claimed Greek economists are looking into taking on the US banknotes if the country turns its back on the European single currency in a move that he said would “freak out” Germany. He said: “I know some Greek economists who have even gone to leading think tanks in the US to discuss this topic and the question of dollarisation. “Such a topic of course freaks out the Germans because they really don’t want to hear such ideas.”

Mr Malloch added that a “Grexit” would be the best options for Greek people as the current situation is “unsustainable”. Mr Malloch, a strident Brexiteer, has indicated he is no fan of Brussels on several occasions. Earlier this month, in an interview with Bloomberg, Mr Malloch said that he didn’t want to speak on behalf of the Greek people but “I think there is probably – from an economist’s perspective – a very strong reason for Greece moving away from the euro.” Last month, Mr Malloch said the euro “could collapse” in the next 18 months. “The one thing I would do in 2017 is short the euro,” he said. “I think it is a currency that is not only in demise but has a real problem and could in fact collapse in the coming year, year and a half,” he added.

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‘He will die in jail’:

US Intelligence Community Ready To ‘Go Nuclear’ On Trump (RawS)

U.S. national security officials are reportedly ready to “go nuclear” after President Donald Trump’s latest attack on the intelligence community. In a series of tweets on Tuesday and Wednesday, Trump insisted that the “real scandal” was not that former National Security Adviser Michael Flynn lied about his contact with Russia. Instead, the president blasted what he said were “un-American” leaks that led to Flynn’s ousting.On Wednesday, former NSA intelligence analyst John Schindler provided some insight into the reaction of national security officials. “Now we go nuclear,” he wrote on Twitter. “[Intelligence community] war going to new levels. Just got an [email from] senior [intelligence community] friend, it began: ‘He will die in jail.’” “US intelligence is not the problem here,” Schindler added in another tweet. “The President’s collusion with Russian intelligence is. Many details, but the essence is simple.”

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No matter where you stand, this must be of concern. A state within the state is not what the founders had in mind.

Spies Keep Intelligence From Donald Trump on Leak Concerns (WSJ)

U.S. intelligence officials have withheld sensitive intelligence from President Donald Trump because they are concerned it could be leaked or compromised, according to current and former officials familiar with the matter. The officials’ decision to keep information from Mr. Trump underscores the deep mistrust that has developed between the intelligence community and the president over his team’s contacts with the Russian government, as well as the enmity he has shown toward U.S. spy agencies. On Wednesday, Mr. Trump accused the agencies of leaking information to undermine him. In some of these cases of withheld information, officials have decided not to show Mr. Trump the sources and methods that the intelligence agencies use to collect information, the current and former officials said.

Those sources and methods could include, for instance, the means that an agency uses to spy on a foreign government. A White House official said: “There is nothing that leads us to believe that this is an accurate account of what is actually happening.” A spokesman for the Office of Director of National Intelligence said: “Any suggestion that the U.S. intelligence community is withholding information and not providing the best possible intelligence to the president and his national security team is not true.” Intelligence officials have in the past not told a president or members of Congress about the ins and outs of how they ply their trade. At times, they have decided that secrecy is essential for protecting a source, and that all a president needs to know is what that source revealed and what the intelligence community thinks is important about it.

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Fewer reserve requirements means less Treasury appetite.

How Trump Could Trigger A Massive Wave Of Selling In The Treasury Market (CNBC)

Since the financial crisis, banks have been stockpiling Treasurys because they qualify as “safe” assets that count toward required regulatory capital levels. U.S. commercial banks now hold $2.4 trillion in government debt and agency securities, more than double the total from nine years ago, according to the St. Louis Fed. But House Republicans – with the support of the administration – are pushing to roll back parts of the Dodd-Frank regulations that were put in place after the 2008 financial crisis. That means banks could get a reprieve from those capital level requirements, and they could reduce their Treasury holdings as a result. In a report, RBC managing director and banking analyst Gerard Cassidy calculates the 24 largest bank holding companies already hold $100 billion in excess capital, with Citigroup and JPMorgan Chase having the highest dollar amount.

As regulation eases, the capital that was once used as a large cushion against a future recession could be funneled into stock buybacks. Those Treasury-heavy portfolios “will certainly be the source of cash to use to buy back stock,” Cassidy wrote in an e-mail to CNBC. Banks have already been slowly selling off the debt, which causes yields to rise. Between the middle of 2013 and 2014, Bank of America’s holdings of U.S. Treasurys grew from $2.9 billion to $58 billion. At the end of 2016, that figure had dropped to $48 billion, according to the bank’s earnings. Wells Fargo’s $26 billion Treasury balance in September is down nearly 30% from a year ago. Not all banks break out the specific balance, but the totals as of the third quarter of 2016 range from $23 billion (Morgan Stanley) to $111 billion (Citigroup).

But banks are just one source of possible selling en masse. China is a creditor of a different magnitude: The country held $1.05 trillion in Treasurys as of November, down by $215 billion from a year earlier. It dumped $41 billion in U.S. debt in October alone, a move that relinquished its ranking as the largest foreign creditor to the United States. One reason for the country selling U.S. debt previously was its need to raise cash to prop up its currency, the yuan, after years of seeking to devalue it to make its exports more attractive. Its intervention in the currency markets led President Donald Trump, while campaigning, to label China a currency manipulator and threaten a 45% tariff on products made in China but sold in the United States.

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Interesting phenomenon, but the writers have a hard time explaining.

Houses as ATMs No Longer (NYFed)

Housing equity is the primary form of collateral that households use for borrowing. This makes it a potentially important source of consumption funding, especially for younger households. In a previous post we showed that owner’s equity in residential real estate has finally, thanks to increasing home prices, rebounded to and essentially re-attained its 2005 peak level. Yet in spite of a gain of more than $7 trillion in housing equity since 2012, so far homeowners haven’t been tapping this equity at anything like the pace we witnessed during the housing boom that ended in 2006. In this post, we analyze the changes in equity withdrawal.

The blue line in the chart below shows total owner’s equity in real estate from the Flow of Funds—this is the same series as in our previous post. It shows a dramatic rebound in aggregate home equity over the last several years. The red line shows the combination of two ways that households can withdraw equity—assuming they have some—without selling the house: they can originate a junior lien against the property or they can refinance using a cash-out refinancing of an existing first-lien mortgage. The series in the chart, which we have shown in an earlier post on household debt, captures both of these, while excluding the equity withdrawal associated with selling a home.

The first observation that’s striking about the chart is the dramatic change in borrower behavior with respect to home equity. During the boom between 2000 and 2006, household equity and its extraction were both rising rapidly. From 2003 to 2007, homeowners were extracting more than $350 billion per year, resources that were available for use in a variety of purposes from home improvement to consumption. The second major point of the chart is the effect of the housing and financial crises. Beginning in 2008, equity extraction began to decline quickly and was hovering around zero by 2010, where it remained through 2012. The virtual elimination of equity withdrawal was a big contributor to the household deleveraging that ultimately shaved more than $1.5 trillion from household debt. It also likely contributed to the sharp decline of consumption during the Great Recession and its subsequent sluggish recovery.

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Looks dangerous. Fighting bubbles with bigger bubbles is always a bad idea.

Fed Frets about $2 Trillion Commercial Real Estate Bubble (WS)

Boom and bust: that’s the material CRE is made of. We had seven years of boom, and now the Fed is worried about the bust. Yellen didn’t mention CRE in her prepared testimony on Tuesday before the Senate Committee on Banking, Housing, and Urban Affairs. But it featured in the twice-yearly report that the Fed delivered to Congress in support of Yellen’s testimony. And it wasn’t the first time that it was mentioned in these twice-yearly reports – but the fifth time in a row. In its February report two years ago, the Fed first pointed at “valuation pressures” in CRE. And warnings about CRE have appeared since then in every report, twice a year, with growing sharpness, including in the report issued in June 2016, which warned that “valuations in the CRE sector appear increasingly vulnerable to negative shocks….”

Other Fed governors have also warned about the CRE boom and a potential bust, particularly Boston Fed governor Eric Rosengren, who was gazing with amazement at a stunning crane forest in his own city. What concerns the Fed about CRE aren’t the valuations per se, but the fact that the sector is highly leveraged, and that when prices collapse, which they tend to do, the collateral value gets crushed, and banks are left to twist in the wind. That’s what happened during the Financial Crisis. Just how badly can prices get crushed? The national averages hide the drama that happens on the ground in particular cities. But even these national averages still show enough drama, as per data from the Green Street Commercial Property Price Index. The index shows that overall prices across the major markets in the nation plunged nearly 40% during the Great Recession and have since more than doubled:

So that’s why the Fed is fretting about it. This time around, the Fed report said: “Commercial real estate (CRE) valuations, which have been an area of growing concern over the past year, rose further, with property prices continuing to climb and capitalization rates decreasing to historically low levels.” Then the report discusses the debt that nurtured this boom to these heights. This debt has ballooned to $1.98 trillion, and is now 14% higher than during the crazy peak of the prior bubble that collapsed with such spectacular results:

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All of a sudden Hamon has 38%?! Oh wait, the numbers don’t add up at all. More countries should discuss their colonial past- and present.

France’s Colonial Past Muscles Into Presidential Race (AFP)

French presidential frontrunner Emmanuel Macron drew a storm of criticism Wednesday after calling France’s colonisation of Algeria a “crime against humanity”. In a TV interview in Algiers this week, the centrist said French actions in Algeria, which achieved independence in 1962 after eight years of war, were “genuinely barbaric, and constitute a part of our past that we have to confront by apologising”. His visit also included a stop at the Martyrs’ Memorial in Algiers, saying he wanted to promote a “reconciliation of memories” between the two countries. His rivals on the right for the French presidency – due to be decided in a first round election in April and a run-off between the two top candidates in May – pounced on the comments.

Les Republicans candidate Francois Fillon on Wednesday denounced what he called “this hatred of our history, this perpetual repentance that is unworthy of a candidate for the presidency of the republic”. Wallerand de Saint-Just, an official in Marine Le Pen’s far-right National Front party, accused Macron of “shooting France in the back”, while Gerald Darmanin, an ally of ex-president Nicolas Sarkozy, tweeted “Shame on Emmanuel Macron for insulting France while abroad”. It was the not the first time Macron, who currently leads the polls for the two rounds of voting in April and May, has touched on the livewire issue. “Yes, there was torture in Algeria, but there was also the emergence of a state, or wealth, of a middle class,” he told the magazine Le Point in October.

“This is the reality of colonialism. There are elements of civilisation and elements of barbarism.” And Fillon has been tripped up by his own comments on French colonialism. In August, he drew claims of trying to sanitise history, claiming that “France is not guilty of having wanted to share its culture with the peoples of Africa”. Macron remains the frontrunner in the presidential race, with 39% of those surveyed in the latest survey by pollsters Ipsos giving him a favourable opinion. In the poll released by the magazine Le Point on Wednesday, Macron was followed by Socialist candidate Benoit Hamon, with 38%, while Fillon tumbled 18 percentage points to 25%, just behind Le Pen, on 26%.

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One step away from a formal investigation. Does he really want it that bad?

French Prosecutor Keeps Fillon Fake Work Probe Open (R.)

France’s financial prosecutor announced on Thursday that an investigation into fake work allegations surrounding presidential candidate Francois Fillon would remain open, in a new blow to the ex-prime minister’s campaign. A three week-old scandal over hundreds of thousands of euros in taxpayers’ money which his wife was paid for work she may not have done has cost conservative Fillon his status as favorite to win the French presidency in May. “It is my duty to affirm that the numerous elements collected (by investigators) do not, at this stage, permit the case to be dropped,” prosecutor Eliane Houlette said in a statement, after receiving an initial police report on the subject.

The prosecutor did not announce any further steps, but among the choices before it are dropping the case, taking it further by appointing an investigating magistrate, or sending it straight to trial. Fillon, 62, has said he would step down should he be put under formal investigation, but his camp has also challenged the legitimacy of the probe. The first round of the election is less than 10 weeks away.

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Feb 152017
 
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Times Square New York City, 1958

 


The Political Assassination of Michael Flynn (BBG)
Kucinich Pins Flynn Leak on Intel Community, Warns of Another Cold War (Fox)
America’s Spies Anonymously Took Down Flynn. That Is Deeply Worrying (Week)
Russian Foreign Ministry Says Crimea Will Not Be Returned To Ukraine (R.)
China Credit Surging to Record Underscores PBOC Shift to Tighten (BBG)
China Should Prudently Manage Deleveraging Process – PBOC (R.)
Nigel Farage – You’re In For a Bigger Shock in 2017 (TNTV)
Germany’s Burden: The Euro Is The Most Crisis-Ridden Currency (MW)
Greece Defies Creditors Over More Cuts As Economy Shrinks Unexpectedly (G.)
‘Fed Up’ Exposes The Elite Rot Inside The Federal Reserve (MW)
Why “Everyone Wins” When Housing Is More Expensive (AS)
Who Will Be Blamed if the Oroville Dam Fails? (McMaken)
The Technosphere: You Are Not In Control (Dmitry Orlov)
Greece’s Frozen Children: What Will Happen To Young Refugees? (NS)

 

 

So many diffferent angles. This one from Eli Lake is bearable. “Nunes told me Monday night that this will not end well. “First it’s Flynn, next it will be Kellyanne Conway, then it will be Steve Bannon, then it will be Reince Priebus,” he said. Put another way, Flynn is only the appetizer. Trump is the entree.”

The Political Assassination of Michael Flynn (BBG)

Representative Devin Nunes, the Republican chairman of the House Permanent Select Committee on Intelligence, told me Monday that he saw the leaks about Flynn’s conversations with Kislyak as part of a pattern. “There does appear to be a well orchestrated effort to attack Flynn and others in the administration,” he said. “From the leaking of phone calls between the president and foreign leaders to what appears to be high-level FISA Court information, to the leaking of American citizens being denied security clearances, it looks like a pattern.” Nunes said he was going to bring this up with the FBI, and ask the agency to investigate the leak and find out whether Flynn himself is a target of a law enforcement investigation. The Washington Post reported last month that Flynn was not the target of an FBI probe.

The background here is important. Three people once affiliated with Trump’s presidential campaign – Carter Page, Paul Manafort and Roger Stone – are being investigated by the FBI and the intelligence community for their contacts with the Russian government. This is part of a wider inquiry into Russia’s role in hacking and distributing emails of leading Democrats before the election. Flynn himself traveled in 2015 to Russia to attend a conference put on by the country’s propaganda network, RT. He has acknowledged he was paid through his speaker’s bureau for his appearance. That doesn’t look good, but it’s also not illegal in and of itself. All of this is to say there are many unanswered questions about Trump’s and his administration’s ties to Russia. But that’s all these allegations are at this point: unanswered questions.

It’s possible that Flynn has more ties to Russia that he had kept from the public and his colleagues. It’s also possible that a group of national security bureaucrats and former Obama officials are selectively leaking highly sensitive law enforcement information to undermine the elected government. Flynn was a fat target for the national security state. He has cultivated a reputation as a reformer and a fierce critic of the intelligence community leaders he once served with when he was the director the Defense Intelligence Agency under President Barack Obama. Flynn was working to reform the intelligence-industrial complex, something that threatened the bureaucratic prerogatives of his rivals. He was also a fat target for Democrats. Remember Flynn’s breakout national moment last summer was when he joined the crowd at the Republican National Convention from the dais calling for Hillary Clinton to be jailed.

In normal times, the idea that U.S. officials entrusted with our most sensitive secrets would selectively disclose them to undermine the White House would alarm those worried about creeping authoritarianism. Imagine if intercepts of a call between Obama’s incoming national security adviser and Iran’s foreign minister leaked to the press before the nuclear negotiations began? The howls of indignation would be deafening. In the end, it was Trump’s decision to cut Flynn loose. In doing this he caved in to his political and bureaucratic opposition. Nunes told me Monday night that this will not end well. “First it’s Flynn, next it will be Kellyanne Conway, then it will be Steve Bannon, then it will be Reince Priebus,” he said. Put another way, Flynn is only the appetizer. Trump is the entree.

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Interesting 8-minute, very clear take from Kucinich: “This is like the electronic version of Mad magazine; Spy vs Spy..”

Kucinich Pins Flynn Leak on Intel Community, Warns of Another Cold War (Fox)

During an interview on the FOX Business Network’s Mornings with Maria, former Democratic presidential candidate Dennis Kucinich said the intelligence community was responsible for leaking information that Trump’s national security advisor, Mike Flynn, had secretly discussed sanctions with Russian officials before the inauguration and argued their goal was to spoil the relationship between the U.S. and Russia. “What’s at the core of this is an effort by some in the intelligence community to upend any positive relationship between the U.S. and Russia,” Kucinich said.

And in his opinion, there is a big money motive behind it. “And I tell you there’s a marching band and Chowder Society out there. There’s gold in them there hills,” he said. “There are people trying to separate the U.S. and Russia so that this military industrial intel axis can cash in.” Kucinich added the intelligence community could start a war to succeed. “There’s a game going on inside the intelligence community where there are those who want to separate the U.S. from Russia in a way that would reignite the Cold War,” he said.

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Many on both the left and the right have these worries.

America’s Spies Anonymously Took Down Flynn. That Is Deeply Worrying (Week)

The United States is much better off without Michael Flynn serving as national security adviser. But no one should be cheering the way he was brought down. The whole episode is evidence of the precipitous and ongoing collapse of America’s democratic institutions — not a sign of their resiliency. Flynn’s ouster was a soft coup (or political assassination) engineered by anonymous intelligence community bureaucrats. The results might be salutary, but this isn’t the way a liberal democracy is supposed to function. Unelected intelligence analysts work for the president, not the other way around. Far too many Trump critics appear not to care that these intelligence agents leaked highly sensitive information to the press — mostly because Trump critics are pleased with the result.

“Finally,” they say, “someone took a stand to expose collusion between the Russians and a senior aide to the president!” It is indeed important that someone took such a stand. But it matters greatly who that someone is and how they take their stand. Members of the unelected, unaccountable intelligence community are not the right someone, especially when they target a senior aide to the president by leaking anonymously to newspapers the content of classified phone intercepts, where the unverified, unsubstantiated information can inflict politically fatal damage almost instantaneously.

President Trump was roundly mocked among liberals for that tweet. But he is, in many ways, correct. These leaks are an enormous problem. And in a less polarized context, they would be recognized immediately for what they clearly are: an effort to manipulate public opinion for the sake of achieving a desired political outcome. It’s weaponized spin. This doesn’t mean the outcome was wrong. I have no interest in defending Flynn, who appears to be an atrocious manager prone to favoring absurd conspiracy theories over more traditional forms of intelligence. He is just about the last person who should be giving the president advice about foreign policy. And for all I know, Flynn did exactly what the anonymous intelligence community leakers allege — promised the Russian ambassador during the transition that the incoming Trump administration would back off on sanctions proposed by the outgoing Obama administration.

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Silly idea. The New Cold War.

Russian Foreign Ministry Says Crimea Will Not Be Returned To Ukraine (R.)

Russia will not hand back control of Crimea to Ukraine, Russia’s foreign ministry said on Wednesday, responding to comments from the White House that the United States expected the Black Sea peninsula to be returned. “We don’t give back our own territory. Crimea is territory belonging to the Russian Federation,” Maria Zakharova, spokeswoman for the Russian Foreign Ministry, told a news briefing. On Tuesday, the White House said U.S. President Donald Trump had made it clear that he expects Russia to relinquish control of the territory. Russia annexed Crimea in 2014, prompting the United States and the European Union to impose sanctions on Russia, plunging Western relations with the Kremlin to their worst level since the end of the Cold War.

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Shadow banking resurgence? It was never gone.

China Credit Surging to Record Underscores PBOC Shift to Tighten (BBG)

China added more credit last month than the equivalent of Swedish or Polish economic output, revving up growth and supporting prices but also fueling concerns about the sustainability of such a spree. Aggregate financing, the broadest measure of new credit, climbed to a record 3.74 trillion yuan ($545 billion) in January, exceeding the median estimate of 3 trillion yuan in a Bloomberg survey. New yuan loans rose to a one-year high of 2.03 trillion yuan, less than the 2.44 trillion yuan estimate. The credit surge highlights the challenges facing Chinese policy makers as they seek to balance ensuring steady growth with curbing excess leverage in the financial system. The PBOC recently moved to tighten monetary policy by raising the interest rates it charges in open-market operations and on funds lent via its Standing Lending Facility.

“China is learning what other central banks realized decades ago: trying to control monetary aggregates in a modern financial system is next to impossible,” said James Laurenceson, deputy director of the Australia-China Relations Institute in Sydney. “I expect the PBOC will focus more on interest rates and prudential regulation and supervision going forward.” China’s major state-backed banks tend to splurge at the start of the year as they seek to maximize their profits on lending. The main categories of shadow finance all increased significantly. Bankers acceptances – a bank-backed guarantee for future payment – soared to 613.1 billion yuan from 158.9 billion yuan the prior month. “The PBOC is restraining loans but allowing private credit to flow through shadow banks,” said Andrew Collier, an independent analyst and former president of Bank of China International USA. “This is not a policy designed to conquer China’s debt burden.”

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Yeah, well, it does nothing of the kind.

China Should Prudently Manage Deleveraging Process – PBOC (R.)

China should prudently manage the country’s debt deleveraging process and seek to avoid a liquidity crisis and asset bubbles, according to a central bank working paper published on Wednesday. While overall debt ratios in the world’s second-largest economy were still not high relative to many other countries, the pace of increase has been rapid in recent years, the paper said. China’s debt to GDP ratio rose to 277% at the end of 2016 from 254% the previous year, with an increasing share of new credit being used to pay debt servicing costs, UBS analysts said in a recent note.

China’s top leaders have pledged to focus on addressing rising financial risks and asset bubbles this year. The People’s Bank of China has moved to a moderate tightening bias, raising some key primary money rates this year, which analysts said was part of a bid to control risks from rising leverage. The working paper said China should avoid the negative consequences of both increases in leverage and rapid deleveraging. China should let market forces play a decisive role in the deleveraging process, including allowing defaults, the paper published on the People’s Bank of China website said.

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h/t Mish. “The people want less Europe. We see this again and again when people have referendums and they reject aspects of EU membership. But something more fundamental is going on out there.”

Nigel Farage – You’re In For a Bigger Shock in 2017 (TNTV)

I feel like I am attending a meeting of a religious sect here this morning. It’s as if the global revolution of 2016, Brexit, Trump, the Italian rejection of the referendum, has completely bypassed you. You can’t face up to the fact that this bandwagon is going to roll across Europe in these elections in 2017. A lot of citizens now recognize this form of centralized government simply doesn’t work. … At the heart of it is a fundamental point: Mr. Verhofstadt this morning said, the people want more Europe. They don’t. The people want less Europe. We see this again and again when people have referendums and they reject aspects of EU membership. But something more fundamental is going on out there. ….

No doubt, many of you here will probably despise your own voters for what I am about to say because just last week, Chatham House, the reputable group, published a massive survey from 10 Europen states, and only 20% of people want immigration from Muslim countries to continue. Just 20%. … Which means your voters have a harder line position on this than Donald Trump, or myself, or frankly any party sitting in this Parliament. I simply cannot believe you are blind to the fact that even Mrs. Merkel has now made a u-turn and wants to send people back. Even Mr. Schulz thinks it is a good idea. And the fact is, the Europen Union has no future at all in its current form. And I suspect you are in for as big a shock in 2017 as you were in 2016.

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Throw this into the German election campaign and see what happens.

Germany’s Burden: The Euro Is The Most Crisis-Ridden Currency (MW)

Target-2 occupies a central place. According to latest Bundesbank figures, the German central bank’s claims under the system rose to €796 billion at the end of January, from €754 billion at the end of December, well above the previous record €751 billion in August 2012. The Bundesbank’s ECB claims make up more than half of Germany’s net foreign assets of €1.5 trillion, which have themselves increased enormously since the euro was launched in 1999. If the eurozone broke up, or euro members redenominated their liabilities in a new, lower valued currency, Germany would relinquish a large part of these assets — a loss of German savings that would rival the country’s forced write-downs after the first and second world wars.

Both the ECB and the Bundesbank are playing down the renewed Target-2 increase, saying it reflects technical reasons linked to cross-border payments stemming from the ECB’s asset purchase program. On the one hand, these facts would argue for Germany keeping the system going. On the other, they would suggest that the Germans should try to renegotiate the Target-2 arrangements. At the present rate of increase, the Target-2 balances could be close to €1 trillion by the German elections in seven months. Target was developed during the 1990s as a technical transfer mechanism for facilitating payments within the eurozone. The innocuous name — Trans-European automated real-time gross settlement express transfer — signals its original arcane purpose.

According to Helmut Schlesinger, former Bundesbank president, the system was expected to advance credit simply for overnight settlement. Two decades later, as Schlesinger explains, it has become an overdraft system under which Germany, through its central bank, extends interest-free credit without any repayment date and without economic conditions to the central banks of heavily indebted nations.

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Paradox: BECAUSE the economy shrinks, more cuts ‘reforms’ will be demanded. The IMF wants more pension cuts. But that’s what half the population lives on.

Greece Defies Creditors Over More Cuts As Economy Shrinks Unexpectedly (G.)

The standoff between Greece and its creditors has escalated, with the embattled Athens government vowing it will not give in to demands for further cuts as data showed the country’s economy unexpectedly contracting. As thousands of protesting farmers rallied in Athens over spiralling costs and unpopular reforms, the Hellenic statistical authority revealed that Greek GDP shrank by 0.4% in the last three months of 2016. After growth of 0.9% in the previous three-month period the fall was steep and unforeseen. On Monday the European commission announced that the eurozone’s weakest member was on course to achieving a surplus on its budget of 2.3% after exceeding its 2016 fiscal targets “significantly”.

The setback came as prime minister Alexis Tsipras’ lefist-led coalition said it would not consent to additional austerity beyond the cuts the country had already agreed to administer under its third, EU-led bailout programme. Speaking on state TV, the digital policy minister Nikos Pappas, Tsipras’ closest confidant, insisted that ongoing differences between the EU and IMF over how to put the debt-stricken state back on the road to recovery were squarely to blame for the failure to conclude a compliance review at the heart of the standoff. The IMF has argued vigorously that extra measures worth 2% of GDP will have to be enforced with immediate effect if Greece is to achieve a high post-programme primary surplus of more than 1.5%. “The negotiations should have ended. Greece has done everything that it was asked to do,” he said and added there would be “no more measures”.

The future of the €86bn financial aid programme is contingent on Athens implementing agreed economic reforms. The IMF has repeatedly said it will not sign up to the programme unless the crisis-plagued country is given more generous debt relief in the form of a substantial write-down. With Greece facing a €7bn debt repayment to the ECB in July, fears of a Greek default have once again hit markets with shares falling and interest rates on Greek debt rising. But Tsipras is also under pressure from back-benchers in his fragile two-party administration. After seven years of adopting grueling austerity in return for emergency bailout aid many are openly questioning the wisdom of applying yet more measures that have already put Greece in a permanent debt deflationary cycle.

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Yellen was “oblivious as the housing market in her region imploded on multiple fronts.”

‘Fed Up’ Exposes The Elite Rot Inside The Federal Reserve (MW)

She came armed with an M.B.A., not a Ph.D., which made her suspect in the eyes of staff economists as she gradually worked her way up to Class I Clearance, with access to all policy-related material and briefings. In her columns, DiMartino Booth had warned about lax mortgage-lending standards, a housing bubble and escalating systemic risk. Once ensconced at the Fed, she was left to wonder why so many “highly educated and well-paid economists” were “oblivious as the worst financial crisis since the Great Depression was about to break over their heads.” (One of the main reasons is the Fed’s reliance on econometric models that don’t include anything related to the financial system, such as debt or credit.) It wasn’t just the staff economists who were blind to what was going on in the real world.

Neither former Fed chairman Alan Greenspan, who can boast of two bubbles on his watch, nor his successor Ben Bernanke saw the train wreck coming. Greenspan said a national housing bubble was “unlikely” while Bernanke expected any fallout from the subprime mortgage crisis to be “contained.” Janet Yellen, the current Fed chairwoman, is subject to withering criticism in the book. From 2004-2010, Yellen was president of the San Francisco Fed, whose district encompasses nine Western states and was ground zero for the housing bubble and subsequent bust. DiMartino Booth portrays Yellen as an uber-dove and devout Keynesian, someone who was “oblivious as the housing market in her region imploded on multiple fronts.”

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Why bubbles are blown.

Why “Everyone Wins” When Housing Is More Expensive (AS)

The perceived creditworthiness of a nation is largely dependent on market sentiment of that nation insofar as that the volume and indeed the acceleration of capital flow from that nation towards traditionally hedge instruments is indicative of their realisation of mania and is often known as the Minsky moment. Human nature inherently creates inefficiencies in markets as the incentives for those involved continue to grow, and it is that immutable fact that creates opportunities for those that see the market as being overwhelmingly influenced by self interest. The housing market is a fantastic example of this incentivised self interest. There are layers of self interest that largely go ignored as driving factors for housing price growth and poor risk modelling.

On the lowest level, buyers see property as a safe investment, and most of the time they seek to either make a return on their investment either through rental that exceeds the cost of the mortgage repayments (positive gearing) or to make money by a perceived increase in market value of the property that they can realise once they resell the property, or in many cases a combination of both. There are also people who seek to reduce their tax payment by charging less for rent than they pay in mortgage repayments, however these losses are eventually passed on to tax payers as the government thinks this is a suitable method for reducing rental costs for low income earners and that it reduces overall rental costs. The next level up from this is a combination of brokers, people employed to undertake property valuations and real estate agents, all of whom receive commission as a percentage of the sale price of the property.

There exists such a thing as home equity loans wherein banks and borrowers agree upon a valuation of the property which allows mortgagees or property owners to take on debt based on the perceived value of the property, which extends further credit than the initial loan. This feature of home equity lends itself to false market valuations by appraisers, real estate agents and brokers, in particular because it means that they are incentivised to originate additional loans that then pay commissions based on the appreciation of the previous property investment. Even if the current broker, appraiser or real estate agent is not used by the borrower for financing further property purchases, the industry wide practice almost certainly means that these people will continue to receive additional income as a direct result of the availability of credit in the form of home equity for property purchases.

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Maintenance is far less sexy than building.

Who Will Be Blamed if the Oroville Dam Fails? (McMaken)

While everyone likes to see a shiny new dam or railroad or bridge, the problem with infrastructure projects is that they require maintenance. Unfortunately, while it’s fun to build new dams and promise cheap water to many voters and powerful special interests, maintaining those projects is less exciting. As The Mercury News has reported, 12 years ago, both California and federal officials refused to consider a demand that California heighten precautions and maintenance standards at the Oroville Dam. In response to the demands, the Federal Energy Regulatory Commission (FERC) said the dam’s emergency features were perfectly fine and that the emergency spillway “was designed to handle 350,000 cubic feet per second and the concerns were overblown.”

But, in a development reminiscent of the Army Corp of Engineers’ failure in New Orleans, state officials began ordering evacuations when flows over the spillway reached a mere “6,000 to 12,000 cubic feet per second” or “5% of the rate that FERC said was safe.” Basically, thanks to poorly maintained spillways — and perhaps other oversights — the dam itself is being eroded away, and may soon face total failure. If it does fail, the dam will have failed less than 50 years after its initial — and very, very expensive — construction. The “experts” assure us that this sort of thing has never happened before, of course, and it’s the fault of global warming or it’s just a fluke. But, it’s not as if the dam has never been under strain before. As Reisner recounted in 1987:

“In February of 1980, in the midst of a long spell of wet Pacific fronts, Oroville Reservoir, despite its capacity of something like a trillion gallons, was full, and the dam was spilling — 70,000 cubic feet per second, the Hudson River in full flood, roaring down the spillway at forty miles per hour, sending a plume of mist a thousand feet in the air.” At the time, the dam was only 12 years old. Today, the now-49-year old dam isn’t looking nearly as robust.

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Excellent Dmitry: “..there are at least 5.8 billion people alive in the world who don’t own a car. How can something be considered a necessity if 82% of us don’t seem to need it?”

The Technosphere: You Are Not In Control (Dmitry Orlov)

A good example of how the technosphere controls our tastes is the personal automobile. Many people regard it as a symbol of freedom and see their car as an extension of their personalities. The freedom to be car-free is not generally regarded as important, while the freedoms bestowed by car ownership are rather questionable. It is the freedom to make car payments, pay for repairs, insurance, parking, towing and gasoline. It is the freedom to pay tolls, traffic tickets, title fees and excise taxes. It is the freedom to spend countless hours stuck in traffic jams and to suffer injuries in car accidents. It is the freedom to bring up neurologically damaged children by subjecting them to unsafe carbon monoxide levels (you are encouraged to have a CO detector in your house, but not in your car—because it would be going off all the time). It is the freedom to suffer indignities when pulled over by police, especially if you’ve been drinking. In terms of a harm/benefit analysis, private car ownership makes no sense at all.

It is often argued that a car is a necessity, although the facts tell a different story. Worldwide, there are 1.2 billion vehicles on the road. The population of the planet is over 7 billion. Therefore, there are at least 5.8 billion people alive in the world who don’t own a car. How can something be considered a necessity if 82% of us don’t seem to need it? In fact, owning a car becomes necessary only in a certain specific set of circumstances. Here are some of the key ingredients: a landscape that is impassable except by motor vehicle, single-use zoning that segregates land by residential, commercial, agricultural and industrial uses, a lifestyle that requires a daily commute, and a deficit of public transportation. In turn, widespread private car ownership is what enables these key ingredients: without it, situations in which private car ownership becomes a necessity simply would not arise.

Now, moving people about the landscape is not a productive activity: it is a waste of time and energy. If you can live, send your children to school, shop and work all without leaving the confines of a small neighborhood, you are bound to be more efficient than someone who has to drive between these four locations on a daily basis. But the technosphere is rational to a fault and is all about achieving efficiencies. And so, an obvious question to ask is, What is it about the car-dependent living arrangement, and the landscape it enables, that the technosphere finds to be efficient? The surprising answer is that the technosphere strives to optimize the burning of gasoline; everything else is just a byproduct of this optimization.

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Not the strongest effort, but at the same time, children should always receive our protection.

Greece’s Frozen Children: What Will Happen To Young Refugees? (NS)

The snow-covered tents were an ugly spectacle around the island of Lesbos as this harsh winter gripped Greece. It was in this same area that an accident involving a gas heater had killed a mother and child in late November, when their tent – and others near it – went up in flames. It was pure luck that there weren’t more victims. The incident served as a stark reminder that there are numerous children living in these miserable conditions and that sometimes they die as a result. I had visited the camp just days earlier, hoping to talk to some of the approximately 80 unaccompanied minors who live there. Facilities for refugees around Greece can look anything from decent to shabby, but none resembles a prison as much as the Moria camp on Lesbos. It looks the last place you would host vulnerable children, some of whom are as young as 13.

Yet more than 5,000 children have arrived in Greece without their parents and, like everyone else, they have to be sorted through “hot spots” such as Moria. About 2,500 are still in Greece, and some of them have to live in places like this. While adults and children accompanied by their parents can leave the camp, unaccompanied children, who are placed formally under the guardianship of the district attorney, cannot. The facility, guarded by police in full riot gear and surrounded by concrete walls topped with barbed wire, is both home and prison. It takes nine months on average for an unaccompanied child to be reunited with family in another country – if indeed the child has one. The alternative is that they remain in Greece until they turn 18, when they can try to claim asylum. If a child’s application is rejected, he is then deported back to the country he left years earlier as a child.

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Feb 142017
 
 February 14, 2017  Posted by at 10:09 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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David Myers Theatre on 9th Street. Washington, DC July 1939

 


Top Trump Aide Flynn Resigns Over Russia Contacts (AFP)
Judge Grants Injunction Against Trump Travel Ban In Virginia (AP)
Is Trump the New Boris Yeltsin? (Max Keiser)
Bond Traders Fear Yellen Is Planning A ‘St. Valentine’s Day Massacre’ (MW)
Yellen Outlook ‘Irrelevant’ Because Trump Will Reshape Fed (CNBC)
The Fed Is Bad For America – But Getting Rid Of It Isn’t The Answer (DDMB)
Made For Each Other (Jim Kunstler)
Democracies Must Reclaim Power Over The Production Of Money (Pettifor)
China Factory Prices Surge Most Since 2011, Boosting Reflation (BBG)
Putin’s Central Banker Is on a Tear (BBG)
The Euro May Already Be Lost (ETT)
Greece To Exceed Its Primary Surplus Target In 2018 (R.)
Greece Lines Up Rothschild For Debt Advisory Role As Bankruptcy Looms (IW)
To Those Who Kept Me Alive All These Years: Thank You (Chelsea Manning)
Lesbos Doctors Accuse NGOs Of Failing To Care For Refugees (K.)

 

 

I still don’t fully get it. Was Flynn set up? Hard to believe he didn’t know his calls would be recorded and transcribed. He ran US -military- intelligence for a number of years, for pete’s sake. How could he not have known?

Top Trump Aide Flynn Resigns Over Russia Contacts (AFP)

Donald Trump’s national security advisor Michael Flynn resigned amid controversy over his contacts with the Russian government, a stunning first departure from the new president’s inner circle less than a month after his inauguration. The White House said Trump had accepted Flynn’s resignation amid allegations the retired three star general discussed US sanctions strategy with Russia’s ambassador Sergey Kislyak before taking office. Flynn – who once headed US military intelligence – insisted he was honored to have served the American people in such a “distinguished” manner. But he admitted that he “inadvertently briefed” the now Vice President Mike Pence with “incomplete information” about his calls with Kislyak. Pence had publicly defended Flynn, saying he did not discuss sanctions, putting his own credibility into question.

“Regarding my phone calls with the Russian Ambassador. I have sincerely apologized to the President and the Vice President, and they have accepted my apology,” read Flynn’s letter, a copy of which was released by the White House. The White House said Trump has named retired lieutenant general Joseph Kellogg, who was serving as a director on the Joint Chiefs of Staff, to be interim national security advisor. Flynn’s resignation so early in an American administration is unprecedented, and comes after details of his calls with the Russian diplomat were made public – upping the pressure on Trump to take action. Several US media outlets in Monday reported that top Trump advisors were warned about Flynn’s contacts with the Russians early this year. Questions will now be raised about who knew about the calls and why Trump did not move earlier to replace Flynn.

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The ban is now all but dead. But they’ll throw out another one soon.

Judge Grants Injunction Against Trump Travel Ban In Virginia (AP)

A federal judge Monday granted a preliminary injunction barring the Trump administration from implementing its travel ban in Virginia, adding another judicial ruling to those already in place challenging the ban’s constitutionality. The ruling is significant from a legal standpoint because U.S. District Judge Leonie Brinkema found that an unconstitutional religious bias is at the heart of the travel ban, and therefore violates First Amendment prohibitions on favoring one religion over another. She said the evidence introduced so far indicates that Virginia’s challenge to the ban will succeed once it proceeds to trial. A federal appeals court in California has already upheld a national temporary restraining order stopping the government from implementing the ban, which is directed at seven Muslim-majority countries.

But the ruling by the 9th Circuit Court of Appeals was rooted more in due process grounds, said Virginia Attorney General Mark Herring, a Democrat who brought the lawsuit against Trump in Virginia. “Judge Brinkema’s ruling gets right to the heart of our First Amendment … claim,” Herring said in a conference call Monday night. In her 22-page ruling, Brinkema writes that Trump’s promises during the campaign to implement what came to be known as a “Muslim ban” provide evidence that the current executive order unconstitutionally targets Muslims. “The president himself acknowledged the conceptual link between a Muslim ban and the EO (executive order),” Brinkema wrote. She also cited news accounts that Trump adviser Rudy Giuliani said the executive order is an effort to find a legal way for Trump to be able to impose his Muslim ban. Herring said that “the overwhelming evidence shows that this ban was conceived in religious bigotry.”

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“The creeping tide of kleptocracy will be appeased at every juncture.”

Is Trump the New Boris Yeltsin? (Max Keiser)

The hope that Trump would take on Wall Street crooks is dead. It was a long shot to begin with but it’s now clear that his level of financial illiteracy and corruption, a hallmark of Obama’s Presidency, is on par, or perhaps even exceeds Obama’s. What we see shaping up in the first few weeks of Trump’s Presidency is his emergence as the new Boris Yeltsin, the puppet idiot installed by America’s neo-cons and Wall St. bankers after the Soviet Union collapsed to drown the country in debt and deceit. Yeltsin was a drunk clown who gave away the country to oligarchs, who turned the country into a kleptocracy – all happening under the laughing approval of President Bill Clinton. Today Trump fills the Yeltsin role in American politics. As Wall St. laughs, Trump begins the process of giving away (read: privatizing) America’s assets to be owned by our new ruling kleptocracy.

Inflation is coming…But not because wages go up, but because price gouging and monopoly pricing starts to dominate our everyday lives with no cheap substitutes coming from overseas due to an increasing global level of distrust and illiquidity among trading partners. Leveraged buyouts fueled by bailouts and free money from the central bankers will continue to kill competition in America. Media, energy, pharmaceutical, finance and agriculture will all be controlled by impregnable monopolies (and Warren Buffett). It’s a pitiful sham and a godawful shame – a situation where Trump’s supporters will, in the not too distant future, turn on him after they’ve had their illusions shattered – but will it be too late? The creeping tide of kleptocracy will be appeased at every juncture. The vanishing middle class will cling to their guns and bibles – hoping for a miracle. They simply will not be able to believe that they could have been so wrong. The triumph of the will.

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The always colorful language of Albert Edwards.

Bond Traders Fear Yellen Is Planning A ‘St. Valentine’s Day Massacre’ (MW)

Is Federal Reserve Chairwoman Janet Yellen capable of conducting a bond-market bloodbath? That’s what some on Wall Street are wondering. Albert Edwards, market strategist at Société Générale and noted permabear, expects Yellen, who is set to deliver semiannual testimony to the Senate Banking Committee on Tuesday, will trigger a steep bond selloff by talking up the possibility that the central bank will raise interest rates in March. In a note, he refers to the possibility as “The St. Valentine’s Day Massacre,” a homage to the 1929 gangland murder of seven men in a garage in the Lincoln Park neighborhood on Chicago’s North Side. The killings were allegedly planned by famed mobster Al Capone, who was trying to wrest power away from Chicago’s Irish gangsters.

Edwards isn’t the only one who expects Yellen to remind investors that the central bank could raise interest rates at its next meeting for what would be the third time in a decade. “The market is bracing for the possibility that Yellen will talk up the chances of a rate increase in March,” said Guy LeBas, chief fixed income strategist at Janney. Treasury yields, which move inversely to prices, are on track to rise for the third straight day, a selloff that has largely been driven by these concerns, LeBas said. The yield on the 10-year Treasury note rose 3.6 basis points to 2.447%. But a March hike is still viewed as far from likely. Although the central bank back projected back in December that it would raise interest rates three times in 2017, investors have remained skeptical—probably because they’ve been burned by the Fed before.

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If Brainard leaves too, that makes five seats to fill with Yellen gone early next year.

Yellen Outlook ‘Irrelevant’ Because Trump Will Reshape Fed (CNBC)

With at least three vacancies expected on the Federal Reserve’s Board of Governors this year, the central bank may not be exempt from a Trump-led shakeup, strategist Mark Grant told CNBC on Monday. “The Fed of today is not going to be the Fed of tomorrow,” the chief strategist at Hilltop Securities told “Squawk Box.” Grant, who accurately predicted the Brexit vote and Donald Trump’s victory, said the president and Treasury Secretary nominee Steven Mnuchin will take advantage of filling key vacancies on the Fed board to further their agenda. Grant spoke a day ahead of Fed Chair Janet’s Yellen’s semiannual monetary report to the Senate. The Fed has said it expect to raise interest rates three times this year.

“I think what the Fed says at this point is, for all practical purposes, irrelevant, because Mr. Trump is going to be able to appoint three members of the Fed,” Grant said. “I think they’re going to be business people and the days of an academic, economist Fed are going to be over.” Removing academics from the Fed’s board remains a point of contention, but Grant said the Trump administration is likely to do so with the economic landscape and policy goals in mind. “I also believe that Trump and company, as I call them, know as they put in the infrastructure or the military expansion that there’s going to be a balance to the balance sheet, and … that the new people on the Fed are going to keep interest rates low,” Grant said. “So all this talk of a three interest rate or four interest rate hike, in my opinion, is baloney.”

On Friday, Fed Governor Daniel Tarullo announced plans to leave the board in April, creating a third vacancy. Danielle DiMartino Booth, author of “Fed Up: An Insider’s Take on Why the Federal Reserve Is Bad for America,” said that there is a high probability that board member Lael Brainard will also leave, creating yet another vacancy. She said Trump’s bold spending plan may require low interest rates (and, in turn, a more dovish Fed), but she wondered about whom the president would appoint to the board. “It’s really going to come down to whether or not he’s got the gumption to totally change the complexion of the Federal Reserve board, or if he steps back and says, ‘You know what, I’ve got to finance all this stuff, so I’m going to put more doves in.’ These are hard decisions,” she said.

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Fed insider Danielle DiMartino Booth’s new book Fed Up is here.

The Fed Is Bad For America – But Getting Rid Of It Isn’t The Answer (DDMB)

On September 20, 2005, Mark Olson did something ordinary that’s since proved to be extraordinary. Never heard of him? You’re not alone. Nevertheless, the banking expert had the gumption to lob a dissenting vote in his capacity as a governor on the Federal Reserve Board. He joined the estimable company of Edward “Ned” Gramlich, a fellow governor who dissented at the September 2002 Federal Open Market Committee meeting. Gramlich is best known for sounding an early warning on the subprime crisis, and being resolutely dismissed by Alan Greenspan. The two gentlemen represent central banking’s answer to the “Last of the Mohicans,” the sole two dissents that have been recorded by governors since 1995. And that’s a problem. At last check, ‘No” was not a four-letter word.

It’s no longer a secret that an abundance of anger is churning among many working men and women who feel they’ve been excluded by the current economic recovery and the longest span of job creation in postwar history. The funny thing about a sense of abandonment is that more often than not, anger follows. What too few Americans appreciate is how directly the inability to say “no” at the Fed has determined their station in life. But that’s just the case. The Fed directly impacts a slew of the most important decisions we make — the values we instill in our children, the things we buy and how they are financed and how we best prepare for what follows after a lifetime of laboring in the trenches.

Stop and think for a moment about the first time you discovered the miracle of compounding interest, that first bank statement that proved savings does pay. Can your children experience that same sensation? What about the roof over your head and the car you drive? Can you afford the payments or did you stretch to buy more than you could afford, out of sheer necessity? What about your mom and dad’s retirements? Do they say their prayers that the stock market will hang in there and that the safety of their bond holdings will protect them if that’s not the case? All of these dysfunctional dynamics lay at the feet of an academic-led Fed being hellbent on launching unconventional monetary policy with the false prerequisite that interest rates had to be zero before quantitative easing (QE) could be deployed.

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“The Republican Party is Norma Desmond’s house in Sunset Boulevard, starring Donald Trump as Max the Butler, working extra-hard to keep the illusions of yesteryear going.”

Made For Each Other (Jim Kunstler)

Don’t be fooled by the idiotic exertions of the Red team and the Blue team. They’re just playing a game of “Capture the Flag” on the deck of the Titanic. The ship is the techno-industrial economy. It’s going down because it has taken on too much water (debt), and the bilge pump (the oil industry) is losing its mojo. Neither faction understands what is happening, though they each have an elaborate delusional narrative to spin in the absence of any credible plan for adapting the life of our nation to the precipitating realities. The Blues and Reds are mirrors of each other’s illusions, and rage follows when illusions die, so watch out. Both factions are ready to blow up the country before they come to terms with what is coming down.

What’s coming down is the fruit of the gross mismanagement of our society since it became clear in the 1970s that we couldn’t keep living the way we do indefinitely — that is, in a 24/7 blue-light-special demolition derby. It’s amazing what you can accomplish with accounting fraud, but in the end it is an affront to reality, and reality has a way of dealing with punks like us. Reality has a magic trick of its own: it can make the mirage of false prosperity evaporate. That’s exactly what’s going to happen and it will happen because finance is the least grounded, most abstract, of the many systems we depend on. It runs on the sheer faith that parties can trust each other to meet obligations. When that conceit crumbles, and banks can’t trust other banks, credit relations seize up, money vanishes, and stuff stops working.

You can’t get any cash out of the ATM. The trucker with a load of avocados won’t make delivery to the supermarket because he knows he won’t be paid. The avocado grower will have to watch the rest of his crop rot. The supermarket shelves empty out. And you won’t have any guacamole. There are too many fault lines in the mighty edifice of our accounting fraud for the global banking system to keep limping along, to keep pretending it can meet its obligations. These fault lines run through the bond markets, the stock markets, the banks themselves at all levels, the government offices that pretend to regulate spending, the offices that affect to report economic data, the offices that neglect to regulate criminal misconduct, the corporate boards and C-suites, the insurance companies, the pension funds, the guarantors of mortgages, car loans, and college loans, and the ratings agencies.

The pervasive accounting fraud bleeds a criminal ethic into formerly legitimate enterprises like medicine and higher education, which become mere rackets, extracting maximum profits while skimping on delivery of the goods. All this is going to overwhelm Trump soon, and he will flounder trying to deal with a gargantuan mess. It will surely derail his wish to make America great again — a la 1962, with factories humming, and highways yet to build, and adventures in outer space, and a comforting sense of superiority over all the sad old battered empires abroad. I maintain it could get so bad so fast that Trump will be removed by a cadre of generals and intelligence officers who can’t stand to watch someone acting like Captain Queeg in the pilot house.

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Ann Pettifor’s new book is out too.

Democracies Must Reclaim Power Over The Production Of Money (Pettifor)

Today, the international monetary system is run by the equivalent of Goethe’s Sorcerer’s Apprentice. In the absence of the equivalent of the Sorcerer – regulatory democracy – financial risk-takers and fraudsters have, since 1971, periodically crashed the global economy and trashed the lives of millions of people. And let’s be clear: there is no such thing as effective global regulation. Ask the Bitcoiners – that is why they operate in the ‘dark web’. The question is this: who should control our socially constructed, publicly-backed financial institutions and relationships? Private, unaccountable, rent-seeking authority? Or public, democratic, regulatory authority? Policy and regulation requires boundaries. Pensions policy, criminal justice policies, taxation policies, policies for the protection of intellectual property – all require boundaries.

Finance capital abhors boundaries. Like the Sorcerer’s Apprentice, global financiers want to be free to use the magic of money creation to flood the global economy with ‘easy’ (if dear) money, and just as frequently to starve economies of any affordable finance. And they want to have ‘the freedom’ to do that in the absence of the Sorcerer – regulatory democracy. If we want to strengthen democracy, then we must subordinate bankers to their role as servants of the economy. Capital control over both inflows and outflows, is, and will always be a vital tool for doing so. In other words, if we really want to ‘take back control’ we will have to bring offshore capital back onshore. That is the only way to restore order to the domestic economy, but also to the global economy.

Second, monetary relationships must be carefully managed – by public, not private authority. Loans must primarily be deployed for productive employment and income-generating activity. Speculation leads to capital gains that can rise exponentially. But speculation can also lead to catastrophic losses. Loans for rent-seeking and speculation, gambling or betting, must be made inadmissible. Third, money lent must not be burdened by high, unpayable real rates of interest. Rates of interest for loans across the spectrum of lending – short- and long-term, in real terms, safe and risky – must, again, be managed by public, not private authority if they are to be sustainable and repayable, and if debt is not going to lead to systemic failure. Keynes explained how that could be done with his Liquidity Preference Theory, still profoundly relevant for policy-makers, & largely ignored by the economics profession.

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Remember: there can be no inflation without consumer spending going up. Prices may rise for other reasons, but that’s not the same.

China Factory Prices Surge Most Since 2011, Boosting Reflation (BBG)

China’s producer prices increased the most since 2011, with the world’s biggest exporter further lifting the outlook for global inflation. Producer price index rose 6.9% in January from a year earlier, compared with a median estimate of 6.5% in a Bloomberg survey and a 5.5% December gain. Consumer-price index climbed 2.5%, boosted by the week-long Lunar New Year holiday beginning in January this year, versus a 2.4% rise forecast by analysts. Producer prices for mining products surged 31% year-on-year while those for raw materials climbed 12.9%, the National Bureau of Statistics said Tuesday. China is again exporting inflation as factories increase prices after emerging from years of deflation. That fresh strength may moderate in coming months as year-ago comparisons gradually rise and Donald Trump’s policies add uncertainties to the global demand outlook.

Continued pressure for raw materials is forcing companies to increase prices, according to Tao Dong at Credit Suisse in Hong Kong. “Without strong demand, producers have limited space for price hikes,” he said. “But I see a wide range of price increases because the cost push is so severe.” Both consumer and producer inflation will peak soon, Julian Evans-Pritchard, an economist at Capital Economics in Singapore, wrote in a report. “Tighter monetary policy, slowing income growth and cooling property prices should keep broader price pressure contained over the medium-term,” he said. “The latest inflation data add to the case for a continued moderate tightening in monetary policy,” Tom Orlik, chief Asia economist at Bloomberg Intelligence in Beijing, wrote in a report.

“The central bank is likely to continue on that path in the months ahead, as policy makers lean against excess leverage, yuan weakness and capital outflows, and nascent inflationary pressure.” “We haven’t seen significant pass-through effect from PPI to CPI inflation yet, suggesting that the strong rebound in PPI inflation is a reflection of proactive fiscal policies,” Zhou Hao, an economist at Commerzbank in Singapore, wrote in a report. With the Communist Party Congress later this year, “local governments are keen to deliver decent growth figures. Against this backdrop, the infrastructure investment pipeline will remain solid.”

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It’s almost 2 years ago that I wrote Russia’s Central Bank Governor Is Way Smarter Than Ours. This is a pretty crazy story. Russian banking appears to take place in some kind of black hole, complete with event horizons.

Putin’s Central Banker Is on a Tear (BBG)

In Russia, Peresvet Bank had an edge no other big private financial institution could match. Its largest shareholder was the powerful Russian Orthodox Church. In a 2015 pitch to investors, Peresvet said the backing of the church and the bank s other big owner, Russia’s Chamber of Commerce and Industry, gave it a quasi-sovereign status. For more than two decades, big state companies stashed their cash with the bank, whose ponderous full name Joint Stock Commercial Bank for Charity and Spiritual Development of Fatherland suggested its grand standing. Even so, it took less than a month last fall for the bank, one of Russia’s 50 largest, to come undone and be taken over by the central bank. Peresvet was just the latest casualty in a financial purge presided over by Central Bank chief Elvira Nabiullina, a bookish economist who’s a favorite of Vladimir Putin.

The regulator closed almost 100 banks in 2016, and in a cleanup with few precedents, Nabiullina has shut almost 300 over the past three years. This may be only the beginning. There are about 600 banks left across the world’s largest country, but Fitch Ratings analyst Alexander Danilov, adjusting for population, calculates that as an emerging market Russia would be fine with about 1 in 10 of those. A warning from Fitch signaled Peresvet’s fall: Almost a tenth of its loans were to companies seemingly without real businesses. Then Russian media reported that the chief executive officer, Alexander Shvets, had disappeared. The bank issued denials and publicized positive comments from other analysts. But within days, as depositors clamored for their cash, the bank said it was “temporarily” limiting withdrawals. The regulator took control of the lender four days later.

As of late January the central bank was still trying to determine the scale of Peresvet’s financial woes. Nabiullina, 53, has emerged as one of Putin’s most influential economic advisers following a low-key government career that began in the 1990s, before the Russian leader’s rise to power. Soft-spoken and unassuming, she runs what in Russia is called a “megaregulator.” When it comes to the economics behind Putin’s overarching goal of restoring Russia’s place in the world, there’s no one more influential. As central bank governor, she’s in charge of a banking system whose weak links are an economic burden, driving up the cost of financing so badly needed in the face of stagnant growth. She’s also the chief guardian of Russia’s foreign currency reserves. Those holdings are more than just a tool of monetary policy; according to several senior officials, Putin views them as a vital safeguard of the country’s sovereignty. [..]

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The eurozone’s core problem: as soon as harder economic times come, the poorer countries are hit hardest. Solution: a transfer union like the US. But that will never be accepted in the EU, because it means giving up more sovereignty.

From Finland’s EuroThinkTank, h/t Mish

The Euro May Already Be Lost (ETT)

The 1st of January 2017 marked the 18th anniversary of the European common currency, the euro. Despite its success from 1999 to 2007, after 2008 the euro has become a burden for many of its members. For example, living standards in Italy and Greece are below the levels when they joined the euro. Finland is the only Nordic country using the euro and it is also the only Nordic country which has not yet recovered from the financial crash of 2008. There have been many proposals on how to fix the euro and the EMU, but they are politically unpopular and unrealistic. In this blog-entry, we will argue that the euro will almost surely fail; we just do not know the exact timing of its demise. The problem of the euro can be visualized in the development of the GDP per capita.

Germany has been successful in the Eurozone, while Greece and Italy have not. France is not doing well either. The jury is still out for Finland. The different growth paths are a symptom of a general problem that has haunted currency unions for centuries. Competitiveness and productivity develop at a different pace in different countries. Over time, this leads to large competitiveness differences among the members of a currency union. These differences do not usually pose a problem during economic booms because strengthening aggregate demand supports ailing fields of production. However, when a currency union faces an economic downturn or a crisis, falling aggregate demand hits less competitive industries and countries hard and the financing costs of less competitive countries jump. This is an asymmetric shock.

The detrimental effects of asymmetric shocks can be mitigated by transferring funds from prosperous to declining member states. When the dollar union of the US threatened to fall apart during the Great Depression, the federal government enacted federal income transfers from prosperous states to aid ailing ones. The federal budget also increased rapidly and, in practice, income transfers became permanent. The no bailout policy of crisis-hit states had already been enacted earlier. According to the ECB, competitiveness of the German economy has improved by around 19.3%, Greece’s competitiveness has improved by around 6.5%, France’s around 3.9%, Finland’s around 1.7% and Italy’s around 0.9% since 1999. Thus, for survival in its present form and size, the Eurozone needs a similar income transfer system, that is, a full political union as in the US.

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Meaningless numbers.

Greece To Exceed Its Primary Surplus Target In 2018 (R.)

Greece will have a primary surplus in the budget of 3.7% of GDP next year, exceeding the target of 3.5% agreed with its euro zone creditors, the European Commission forecast on Monday. The size of next year’s Greek primary surplus, which is the budget balance before debt-servicing costs, is a bone of contention between euro zone governments and the IMF, which believes it will be only 1.5%. A further disagreement between the two lenders to Greece is what surplus Athens will be able to maintain in the years after 2018. The higher the surplus and the longer it is kept the less is the need for any further debt relief to Greece.

The IMF insists Greek debt, which the Commission forecast on Monday would fall to 177.2% of GDP this year from 179.7% in 2016 and then decline again to 170.6% in 2018, is unsustainably high and that Greece must get debt relief. Germany and several other euro zone countries say that, if Greece does all the agreed reforms, then debt relief will not be necessary. The Commission forecast that Greek investment would triple to 12% of GDP this year and rise further to 14.2% of GDP next year as the economy expands 2.7% in 2017 and 3.1% in 2018 after years of recession. It also forecast Greek unemployment would fall to 22% of the workforce this year from 23.4% last year and decline further to 20.3% in 2018.

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If all else fails, sell your soul.

Greece Lines Up Rothchild For Debt Advisory Role As Bankruptcy Looms (IW)

Greece is reportedly planning to hire Rothschild as its debt adviser, replacing current adviser Lazard in the role, as it attempts to end a long-running stand off with creditors. According to the Financial Times, government officials in Greece hope to finalise the appointment before a gathering of euro-area finance ministers on 20 February. Unless Greece receives fresh funds it will not be able to make €7bn of debt payments due this July, including €2.1bn to private sector creditors. In the role, Rothschild will reportedly advise the country on negotiations with creditors, potential inclusion in the European Central Bank’s bond-buying programme, and the sale of Greek government bonds.

The deal would replace the Greek government’s current deal with Lazard, which guided the country through its original bailout in 2012. According to the FT, out of Greece’s €323bn of outstanding government debt just €36bn is owned by private investors who hold Greek bonds, while the rest is owned by sector creditors. Last week, yields on two-year Greek bonds rose to their highest level since June last year after the IMF and the EU failed to reach an agreement on how to lend the €7bn required by the country to avoid bankruptcy. The IMF refused to sign up to the aid programme unless the EU grants further debt relief to Greece. However, the head of the eurozone’s €500bn rescue fund has rejected this demand.

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Power to you, Chelsea.

To Those Who Kept Me Alive All These Years: Thank You (Chelsea Manning)

To those who have kept me alive for the past 6 years: minutes after President Obama announced the commutation of my sentence, the prison quickly moved me out of general population and into the restrictive housing unit where I am now held. I know that we are now physically separated, but we will never be apart and we are not alone. Recently, one of you asked me “Will you remember me?” I will remember you. How could I possibly forget? You taught me lessons I would have never learned otherwise. When I was afraid, you taught me how to keep going. When I was lost, you showed me the way. When I was numb, you taught me how to feel. When I was angry, you taught me how to chill out. When I was hateful, you taught me how to be compassionate. When I was distant, you taught me how to be close. When I was selfish, you taught me how to share.

Sometimes, it took me a while to learn many things. Other times, I would forget, and you would remind me. We were friends in a way few will ever understand. There was no room to be superficial. Instead, we bared it all. We could hide from our families and from the world outside, but we could never hide from each other. We argued, we bickered and we fought with each other. Sometimes, over absolutely nothing. But, we were always a family. We were always united. When the prison tried to break one of us, we all stood up. We looked out for each other. When they tried to divide us, and systematically discriminated against us, we embraced our diversity and pushed back. But, I also learned from all of you when to pick my battles. I grew up and grew connected because of the community you provided.

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I’ll get back to this soon. It’s good to see others address this issue too.

Lesbos Doctors Accuse NGOs Of Failing To Care For Refugees (K.)

State hospital doctors on the eastern Aegean island of Lesvos, which has been hard particularly hit by the refugee crisis, have complained that nongovernmental organizations receiving European Union funding to help migrants are not doing enough, resulting in them being forced to bear an excessive burden. In a statement released on Monday, the island’s union of state hospital doctors said the two refugee camps at Moria and Kara Tepe do not have any pediatricians, meaning that all sick children from the camps must be treated at local hospitals, which are seriously understaffed. Noting that the NGOs “get paid handsomely” by the EU to help refugees, the union claimed they had “totally failed to provide humane conditions for the refugees.” Several human rights groups have complained about conditions at Greek refugee camps, particularly Moria and Elliniko, in southern Athens.

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