Dec 182016
 
 December 18, 2016  Posted by at 9:43 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »
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Dorothea Lange Country store, Person County, NC Jul 1939


Here’s How Americans Spent Their Money In The Last 75 Years (MW)
Global Debt, Equity Markets Lose $1 Trillion In Value This Week (ZH)
January 2017 Earnings Is Going To Be a Bloodbath (EconMatters)
Trump Talked, the Fed Listened: Shrink the Balance Sheet, Bullard Says (WS)
Pentagon Says China to Return Drone; Trump Says They Can Keep It (BBG)
Free Cash in Finland. Must Be Jobless. (NYT)
Monte dei Paschi to Start Taking Orders for Shares on Monday (BBG)
Hillary’s Campaign The Most Incompetent In Modern History (Davis)
Just Who Is Undermining Election? Russians Or CIA? (Albuquerque Journal Ed.)
‘Shocking’ Rise in Number of Homeless Children in UK B&Bs at Christmas (G.)
Tsipras’s Spending Spree May Be Relief To Greeks But It Won’t End Crisis (G.)

 

 

The rise in spending on housing should initiate a national debate. And not just in the US. It makes you wonder about the real dimensions of the ‘housing bubble’. Is it perhaps 75 years old already?

Here’s How Americans Spent Their Money In The Last 75 Years (MW)

Housing expenses have almost always been the largest drain on American budgets, unchanged in over 70 years. Between 1941 and 2014, Americans spent money on most of the same things, with a few changes. Housing has persisted as a large area of spending for Americans, as has the food category. However, spending on food and clothing has fallen when adjusting for inflation while spending on education and health care has risen quickly. That’s according to Bureau of Labor Statistics data, adjusted for inflation and representing median spending of all Americans, charted here.


click for larger version

There is one exception to housing’s dominance, in 1941, when spending on food averaged $8,311 annually, topping the $7,537 spent on shelter that year. Interestingly, in 1941 the government included alcohol in the food spending category, which inflates the food spending data for that year. In other years, alcohol was given its own category. Americans spent the most on clothing in 1961, at an average of $4,157. In every year measured since 1961, spending on clothing fell, even when accounting for inflation. At the same time, Americans began spending more on education, transportation and health care. Spending on education has increased far more than any other category, jumping from $242 in 1941 to $1,236 in 2014. Education spending increased at a particularly fast rate between 1984 and 1994 and onward. While spending on health care increased between 1941 and 2014, overall spending dipped between 1973 and 1984, but then began rising rapidly thereafter.

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@Boomfinance: “Bonds are collateral assets. Collateral is needed to expand Credit. This is Debt Deflation writ large. Yes?”

Global Debt, Equity Markets Lose $1 Trillion In Value This Week (ZH)

Thanks to Janet Yellen’s rate-hike-hawkishness (but, but, but, we’re still ultra-easy), global equity and debt markets lost over $1 trillion in value – the biggest weekly loss since early May (weak China data and huge surge in dollar). Global bonds lost over $430 billion in market value this week (Yellen hawkishness and China bond carnage) but stocks lost even more ($525 billion) as China financial turmoil added to the world’s woes (and “three rate hikes next year” and fiscal stimulus efficacy questions did not help).

Having retraced back to pre-Trump levels before The Fed statement this week, the combination of China turmoil and Janet’s un-dovishness sent global stocks and bonds down over $1 trillion on the week – the worst week globally since May 2016 (when the dollar surged amid China weakness and slowing EU growth forecasts)

In fact, while US bank stockholders are ebullient at The Trump presidency-to-be, the rest of the world has lost a combined $1.5 trillion in market value across its bonds and stocks (thanks in major part to Janet’s help this week).

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No holding back here.

January 2017 Earnings Is Going To Be a Bloodbath (EconMatters)

We discuss a preview of January`s Earnings releases and how massive the gap down in most of these stocks will be when they report in a month. There have already been two earning`s guide downs from industrial companies this past week in UTX, and HON. But with the run up in financials and energies for the last month we are going to experience big $5 chunks taken out of these stocks and massive after hours and pre-market gap downs that will cause entire sectors to sell off during earnings in January. It is just going to be brutal, expect 500 point down days in the Dow during this upcoming earnings period. You have seasonal stocks that selloff every year like Apple and Amazon, as the 4th quarter is their best by far for sales and revenues.

And you have energy companies with exorbitant p/e ratios like COP, XOM, CVH that are priced for $115 dollar oil not $55 oil that 4th quarter earnings releases are going to bring some fundamental realities back to investors of how overpriced these stocks are right here. You have “dogshit” stocks like C, BAC that are serial underperformers in the financial sector along with WFC with its legal problems and operating distractions of the past year, and JPM which has moved too far entirely too fast and the amount of Monkey Hammering Selling Smack downs of these financials upon reporting is going to be outright brutal for investors stupid enough not to have taken profits before earnings. Not to mention all the other broken companies that have been lifted up in this 4th quarter rally, and are going to be taken out to the woodshed for a red beating when they report.

Throw in all those idiot investors who don`t take profits for tax reasons who will wish they did as everybody sells in the new year at the same time running for the tax exits together, and this January 2017 Earnings period is going to be outright one of the worst we have seen since last January`s massive stock selloff. It is the difference between being able to use a selling algorithm program that gets a decent price for the closing of the position versus taking what the market gives you during selloff and gap down closing of positions where profits are annihilated in a very short timespan. Investors need to evaluate all of the parameters when making tax deferral decisions, and it isn`t as simple as they always mistakenly calculate when making these boneheaded simpleton calculations.

No wonder they cannot outperform the market, you have to take profits into strength, not weakness when everybody and their brother is selling. Why Investors continue to exhibit the same stupid patterns is beyond me, but the smart ones will be selling in the next two weeks to beat the carnage selling that occurs in January due to tax deferral selling, and reality setting in that no amount of Trump Magic can make these pig stocks earnings for the 4th quarter look good relative to the current stock prices. It is going to get ugly folks!

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Nice piece from Wolf Richter. He recognizes the inherent risks: “Trump, as President, would be more than embarrassed to see financial markets sag under his watch.”

Trump Talked, the Fed Listened: Shrink the Balance Sheet, Bullard Says (WS)

Bullard would start by allowing maturing securities to roll off the balance sheet without replacing them with new asset purchases, he said. That would shrink the balance sheet. And it would make financial conditions more restrictive. Shedding assets accumulated on the Fed’s balance sheet is the ultimate form of tightening. It would pull liquidity out of the markets and force them to stand on their own wobbly feet. And he’s a dove! He sees only one rate hike next year. Until recently, he saw only one rate hike, period – the one we just got – and no additional hikes over the next few next years. But he’s ogling the balance sheet. If shrinking the balance sheet is too radical for now, the Fed could replace longer term securities as they mature with short-dated securities, he said. This would make unwinding the balance sheet easier, once the decision is made.

These short-dated securities could just be allowed to mature without replacement. It could go pretty quickly. “My preference would be to allow some runoff in the balance sheet,” he said. But before markets could spiral into a paroxysm, he added that he didn’t think efforts to shrink the balance sheet were “imminent.” He has been a voting member of the Federal Open Market Committee, which makes the decisions on rates, QE, and balance sheet shrinkage. But next year, he’ll rotate into a non-voting slot. So he’s just setting some trial balloons adrift. A few Fed heads have dared to suggest that they’d want to shrink the balance sheet eventually, possibly after everyone’s life expectancy expires. They’d want to raise rates first, and if the economy hasn’t fallen into a recession or worse by then, it might be time to think about letting the balance sheet contract.

But the economy might never get to where there are some sort of normal rates without a recession. And a recession would start the whole process of rate cutting and perhaps QE all over again, and the balance sheet might never be shrunk in this scenario. Bullard doesn’t want to wait that long. For good reason. QE has caused enough distortions. Shrinking the balance sheet by allowing bonds to roll off, while keeping the fed funds rate relatively low, for example at 1.5% by next year, would cause long term rates to rise sharply while keeping a lid on short-term rates. It would steepen the yield curve. In this scenario, the 10-year yield – at 1.38% in July and now at 2.6% – might go to 4% or beyond.

It would have an epic impact on Trump’s “artificial stock market.” It would cause all kinds of mayhem, because Trump was right: The epic bond market bubble and the stock market rally that has pushed all conventional metrics off the charts have been fueled by the Fed. The effects of removing, to use Trump’s term, the “artificial” elements from the stock market could be interesting. We’d have to avert our eyes from the carnage in the bond market. And Housing Bubble 2, with 30-year fixed-rate mortgages at 6%? That’s historically low and worked just fine ten years ago (it helped create Housing Bubble 1). But with the inflated home prices of today, it would mark a big reset.

Today’s equations won’t work at these interest rates. The fireworks could be astounding. But in the big picture, it would just unravel some of the excesses of the past few years, bring a hue of normalcy to the markets, and refocus attention on the real economy instead of wild financial speculations. Trump, as he was talking during the campaign, should appreciate that. Trump, as mega-investor, might get queasy. And Trump, as President, would be more than embarrassed to see financial markets sag under his watch.

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China knows Trump is a dealmaker. Just like they are. They must have chuckled at his response. But not officially of course.

Pentagon Says China to Return Drone; Trump Says They Can Keep It (BBG)

The Pentagon said China will return a U.S. Navy underwater drone after its military scooped up the submersible in the South China Sea late this week and sparked a row that drew in President-elect Donald Trump, who said on Twitter the Chinese stole it, so they can keep it. “Through direct engagement with Chinese authorities, we have secured an understanding that the Chinese will return the UUV to the United States,” Pentagon spokesman Peter Cook said in a statement on Saturday, referring to the unmanned underwater vehicle the U.S. said had been operating in international waters. China’s ministry of defense pledged an “appropriate” return of the drone on its Weibo social media account, while also criticizing the U.S. for hyping the incident into a diplomatic row.

It followed assurances from Beijing that the governments were working to resolve the spat, punctuated by a tweet from Trump denouncing the seizure as “unprecedented.” The drone incident was disclosed by the Pentagon on Friday. China’s ministry said the U.S. “hyped the case in public,” which it said wasn’t helpful in resolving the problem. The U.S. has “frequently” sent its vessels and aircrafts into the region, and China urges such activities to stop, the ministry said in its Weibo message. Trump slammed the Chinese navy’s capture of the vehicle in a message to his 17.4 million Twitter followers. “China steals United States Navy research drone in international waters – rips it out of water and takes it to China in unprecedented act,” Trump wrote Saturday hours after the Chinese government said it had been in touch with the U.S. military about the incident.

In a follow-up Twitter message, the president-elect said: “We should tell China that we don’t want the drone they stole back – let them keep it!” The tensions unleashed by the episode underscored the delicate state of relations between the two countries, weeks before Trump’s inauguration. Trump has threatened higher tariffs on Chinese products and questioned the U.S. approach to Taiwan, which Beijing considers part of its territory. Meanwhile, China is growing more assertive over its claims to disputed sections of the South China Sea.

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An ‘experiment’ targeted at 2000 specific people has nothing to do with Universal Basic Income. These ‘experiments’ are only valid when it’s truly universal, or at least nationwide. And when they involve people with AND without jobs. You simply can’t do ‘universal’ on a small scale.

Free Cash in Finland. Must Be Jobless. (NYT)

No one would confuse this frigid corner of northern Finland with Silicon Valley. Notched in low pine forests just 100 miles below the Arctic Circle, Oulu seems more likely to achieve dominance at herding reindeer than at nurturing technology start-ups. But this city has roots as a hub for wireless communications, and keen aspirations in innovation. It also has thousands of skilled engineers in need of work. Many were laid off by Nokia, the Finnish company once synonymous with mobile telephones and more recently at risk of fading into oblivion. While entrepreneurs are eager to put these people to work, the rules of Finland’s generous social safety net effectively discourage this. Jobless people generally cannot earn additional income while collecting unemployment benefits or they risk losing that assistance.

For laid-off workers from Nokia, simply collecting a guaranteed unemployment check often presents a better financial proposition than taking a leap with a start-up in Finland, where a shaky technology industry is trying to find its footing again. Now, the Finnish government is exploring how to change that calculus, initiating an experiment in a form of social welfare: universal basic income. Early next year, the government plans to randomly select roughly 2,000 unemployed people — from white-collar coders to blue-collar construction workers. It will give them benefits automatically, absent bureaucratic hassle and minus penalties for amassing extra income. The government is eager to see what happens next. Will more people pursue jobs or start businesses? How many will stop working and squander their money on vodka?

Will those liberated from the time-sucking entanglements of the unemployment system use their freedom to gain education, setting themselves up for promising new careers? These areas of inquiry extend beyond economic policy, into the realm of human nature. The answers — to be determined over a two-year trial — could shape social welfare policy far beyond Nordic terrain. In communities around the world, officials are exploring basic income as a way to lessen the vulnerabilities of working people exposed to the vagaries of global trade and automation. While basic income is still an emerging idea, one far from being deployed on a large scale, the growing experimentation underscores the deep need to find effective means to alleviate the perils of globalization.

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Covered by taxpayers.

Monte dei Paschi to Start Taking Orders for Shares on Monday (BBG)

Banca Monte dei Paschi di Siena SpA will begin taking orders for shares as soon as Monday as it aims to complete raising €5 billion of capital before Christmas, people with the knowledge of the matter said. Monte Paschi will attempt to sell stock through Thursday, said the people, who asked to not be named because the plan isn’t public yet. The price and total number of shares to be sold will be determined based on investor demand and on the outcome of the separate debt-to-equity swap, the people said. CEO Marco Morelli, who took over in September, is racing to find backers for his effort to clean up the bank’s balance sheet.

The failure of the recapitalization would be a blow to Italy’s sputtering efforts to revive a banking industry that’s burdened with about €360 billion in troubled loans, dragging down the economy by limiting lending. The lender earlier this week extended a debt-for-equity swap that is one of the three main interlocking pieces of the bank’s capital-raising plan. The bank also plans a cash infusion from anchor investors and a share sale. The offer, involving the exchange of about 4.5 billion euros of Tier 1 and Tier 2 securities, is set to end at 2 p.m. on Dec. 21. Monte Paschi, facing a Dec. 31 deadline to complete the fundraising, also will promote an exchange on 1 billion euros of hybrid securities issued in 2008 known as FRESH at 23.2% of face value, the lender said in a filing on its website.

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Almost funny.

Hillary’s Campaign The Most Incompetent In Modern History (Davis)

It wasn’t sexism, or racism, or the FBI, or fake news, or the Russians, which cost Hillary Clinton the presidential election. According to a blockbuster campaign dispatch published by Politico on Wednesday, sheer incompetence was the real cause of Clinton’s electoral implosion in November. Clinton’s loss was caused not by one bad decision here or there, the Politico report shows, but by a cascade of mind-bogglingly stupid decisions made throughout the campaign. For example, there was the time campaign surrogates were ordered to stay and campaign in Iowa, which Clinton lost by 10 points, instead of working to get out the vote for Clinton in Michigan:

Everybody could see Hillary Clinton was cooked in Iowa. So when, a week-and-a-half out, the Service Employees International Union started hearing anxiety out of Michigan, union officials decided to reroute their volunteers, giving a desperate team on the ground around Detroit some hope. They started prepping meals and organizing hotel rooms. SEIU — which had wanted to go to Michigan from the beginning, but been ordered not to — dialed Clinton’s top campaign aides to tell them about the new plan. According to several people familiar with the call, Brooklyn was furious. Turn that bus around, the Clinton team ordered SEIU. Those volunteers needed to stay in Iowa to fool Donald Trump into competing there, not drive to Michigan, where the Democrat’s models projected a 5-point win through the morning of Election Day.

Then there was the time the campaign, instead of spending its cash in competitive states the candidate needed to win to clinch an electoral college victory, sent millions to the Democratic National Committee, which used the money to run up vote totals in uncompetitive states so Clinton would win the popular vote:

But there also were millions approved for transfer from Clinton’s campaign for use by the DNC — which, under a plan devised by Brazile to drum up urban turnout out of fear that Trump would win the popular vote while losing the electoral vote, got dumped into Chicago and New Orleans, far from anywhere that would have made a difference in the election.

There was also the time Clinton didn’t even bother to show up at a Michigan event for the United Auto Workers, a key union constituency on which Democrats traditionally rely for get-out-the-vote (GOTV) efforts throughout the Rust Belt:

Clinton never even stopped by a United Auto Workers union hall in Michigan, though a person involved with the campaign noted bitterly that the UAW flaked on GOTV commitments in the final days, and that AFSCME never even made any, despite months of appeals.

The Clinton campaign also completely ignored cries for last-second, all-hands-on-deck GOTV help in Michigan on election day. According to Politico, Brooklyn-based campaign staff waved off data showing massive shortfalls in urban turnout and insisted the Democrat would win the state by at least five points:

On the morning of Election Day, internal Clinton campaign numbers had her winning Michigan by 5 points. By 1 p.m., an aide on the ground called headquarters; the voter turnout tracking system they’d built themselves in defiance of orders — Brooklyn had told operatives in the state they didn’t care about those numbers, and specifically told them not to use any resources to get them — showed urban precincts down 25%. Maybe they should get worried, the Michigan operatives said. Nope, they were told. She was going to win by 5. All Brooklyn’s data said so.

Clinton would eventually lose the state by 11,000 votes, less than one quarter of one %age point of all votes cast in the state. In the end, though, it appears that hubris may have been Hillary’s ultimate downfall. Hours before polls closed and long before returns began trickling in, Clinton’s top staffers weren’t scrambling for every last vote. Instead, they were busy measuring the Oval Office curtains and searching for champagne bottles to uncork to celebrate their historic victory. “In at least one of the war rooms in New York, they’d already started celebratory drinking by the afternoon, according to a person there,” Politico reported. “Elsewhere, calls quietly went out that day to tell key people to get ready to be asked about joining transition teams.” Oops.

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An editorial that means sense. Maybe America’s papers are not all doomed to oblivion after all.

Just Who Is Undermining Election? Russians Or CIA? (Albuquerque Journal Ed.)

Congress needs to dust off its Magic 8 Ball. At this point, how else are our elected representatives going to get to the bottom of allegations that Russia and its president, Vladimir Putin, tried to influence the U.S. general election? After all, the CIA isn’t being very open – at least not with our elected representatives. Instead of briefing the House Intelligence Committee about the alleged Russian role in hacked emails made public during the campaign – which Democrats desperately seek to blame for Hillary Clinton’s loss – the agency is leaking conclusions without facts to the Washington Post, New York Times and television networks. The media, naturally, are quick to report the anonymous bits of “blame Putin” information to the public. So to the extent Putin meddled, our own spies have at least matched his efforts to discredit our electoral system.

To recap: Private emails from the Democratic National Committee and Clinton campaign were made public via WikiLeaks, allegedly through hacking, even though the FBI had tried to warn the DNC back in September 2015 of problems with its security system. The agency couldn’t get past the party’s technical help desk – harking back to Hillary’s email security problems on her own private server. The media reported on the leaks daily – and if a reporter had obtained the same information from inside sources, there would be no controversy at all. Today’s uproar is over the source – not the substance. But the CIA’s alleged conclusion – that Russia intervened to help Trump win – does not square with comments made Nov. 17 by James Clapper, director of National Intelligence. He said he lacked “good insight” about whether there was a connection between the WikiLeaks releases and Russia.

Congressional Republican leaders are taking the allegations seriously. “The Russians are not our friends,” Senate Majority Leader Mitch McConnell said. House Speaker Paul Ryan called any Russian intervention “especially problematic because, under President Putin, Russia has been an aggressor that consistently undermines American interests.” But Intelligence Committee member Peter King of New York flatly accused the U.S. intelligence community of waging a disinformation campaign aimed at undermining Trump’s credibility – if not changing the course of the Electoral College. Not surprisingly, President Obama is seizing a newfound political opportunity and is taking a new interest despite earlier claims of knowing all along of Russian shenanigans but choosing not to go public with whatever evidence he had – none of which he has produced.

[..] The source of the campaign leaks remains an interesting question, but one unlikely to be answered credibly unless the CIA coughs up its findings to Congress. Cooperation also might help answer the question of possible Russian motives if it was involved: Was it to cast doubt on the U.S. election system? If so, it was highly successful with the help of our own intelligence community and desperate Democrats who simply can’t accept that Trump won 306 Electoral College votes. Though the CIA based its supposed findings of pro-Trump intervention on the fact that no Republican emails were leaked before the election, the Republican National Committee says it wasn’t hacked. And Wikileaks co-founder Julian Assange stands firm in his claim the Russians were not the source of the leaks.

Cyber hacking has become one of the mainstays of life – Yahoo most recently was hacked of more than one billion user accounts. And intervention into foreign elections is something many nations, including the United States, do regularly. Obama recently tried to influence the Brexit vote. And while nobody should feel good about foreign interests intervening in U.S. elections, the reluctance of the U.S. intelligence community to share its information with official sources charged with making decisions about national security, while leaking information via media outlets, is very disturbing, raising the spectre of a political coup by our nation’s intelligence forces.

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Maybe Britain needs a full-size reboot.

‘Shocking’ Rise in Number of Homeless Children in UK B&Bs at Christmas (G.)

The number of children living in temporary accommodation this Christmas, including in bed and breakfasts, has risen by more than 10% since last year to 124,000, according to the latest government figures. The numbers of children forced into temporary housing in the run up to Christmas have described as “shocking” by the country’s leading charity for the homeless. The data, released by the Department for Communities and Local Government, also reveals a rise of more than 300% since 2014 in the number of families in England who are being housed illegally (for more than the statutory maximum period of six weeks) in B&Bs by local authorities, because they cannot find any alternative places. Campbell Robb, Shelter’s chief executive, said: “The latest figures show that councils are increasingly struggling to help homeless families.

“But the number of children placed in B&Bs illegally is truly shocking, and there’s a worrying rise in families moved away from their support network to a new area. We know first-hand the devastating impact this can have on their lives.” He blamed a “perfect storm” of welfare cuts and rising rents, together with a lack of social and affordable housing, that was creating impossible pressure for local authorities. “Councils know that neither option is acceptable but increasingly find themselves with no alternatives,” he said. “Welfare cuts have made private rents unaffordable and that – combined with unpredictable rent rises and a lack of genuinely affordable homes – mean many families are struggling to get by.

“With the loss of private rented homes the single biggest cause of homelessness, it’s no wonder that’s so many families are turning to their council, desperate for help.” [.] The number of households that have become homeless after an eviction over the last year is up 12% compared to a year ago at 18,820 while the total number of households in temporary accommodation has risen to 74,630, up 9% on a year earlier. While 21,400 homeless households have been moved away to a different council area – a 15% rise in the last year.

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Helena Smith is the Guardian’s Athens correspondent. I haven’t met a Greek who knows of her and had positive things to say. But this is insane. I know editors make headlines, not reporters, but calling Tsipras’ move to soften the crisis blow a little for pensioners, and to feed children at school who don’t eat at home, a “spending spree”, that is way beyond the pale. Shameless.

Tsipras’s Spending Spree May Be Relief To Greeks But It Won’t End Crisis (G.)

Alexis Tsipras, the Greek prime minister, likes to shake things up and, in recent days, he has reverted to form. After 16 months of faithfully toeing the line, the leader rebelled, cautiously at first and then almost jubilantly, casting off the fiscal straightjacket that has encased his government with thinly veiled glee. First came the announcement that low-income pensioners, forced to survive in tax-heavy post-crisis Greece on €800 or less a month, would receive a one-off, pre-Christmas bonus. Then came the news that Greeks living on Aegean isles which have borne the brunt of refugee flows would not be subject to a sales tax enforced at the behest of creditors keeping the debt-stricken country afloat.

Finally, another announcement both antagonising and pointed: 30,000 children living in poverty-stricken areas of northern Greece will henceforth be entitled to free meals in schools. The reaction wasn’t instant but, when it came, it was delivered with force. The European Stability Mechanism, the eurozone’s financing arm, announced that short-term relief measures, agreed only a week before to ease Greece’s debt pile, would be frozen with immediate effect. It did not take long before the German finance ministry, under the unwavering stewardship of Wolfgang Schäuble, followed suit, requesting that creditor institutions assess whether Tsipras had acted in flagrant violation of Athens’ bailout commitments with his unilateral moves.

The leftist insisted that the aid – €61m in supplementary support for pensions and €11.5m for the school meals – would be taken from the primary surplus his government, unexpectedly, had managed to achieve. The assistance would help “heal the wounds of crisis”. “We want to … alleviate all those who have over these difficult years made huge sacrifices in the name of Europe,” he announced before holding talks with German chancellor Angela Merkel late Friday.

Read more …

Nov 212016
 
 November 21, 2016  Posted by at 9:56 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »
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NPC Fordson tractor exposition at Camp Meigs, Washington DC 1922


Japan Exports Drop 13th Month By 10.3%, Imports Down 22nd Month By 16.5% (WSJ)
Negative Rates Are Failing to Halt Savings Obsession in Europe (BBG)
More Than 1 in 3 European Workers Have Difficulty Making Ends Meet (ETUC)
Now it Begins to Unravel (WS)
Former UBS, Credit Suisse CEO: “A Recession Is Sometimes Necessary” (ZH)
Big Shock In France’s Presidential Election As Sarkozy Eliminated (BBG)
The EU’s New Bomb Is Ticking in the Netherlands (WSJ)
APEC Summit Closes With Call for More Globalization, Free Trade (AP)
Obama Says World Leaders Want To Move Forward With TPP (AFP)
The Grey Champion Assumes Command – Part 1 (Quinn)
The Silver Lining In This Disaster: Clinton & Co Are Finally Gone (G.)
Disaffected Rust Belt Voters Embraced Trump. They Had No Other Hope (G.)
Tsipras Ready To Give In On Labor Reform To Ensure Debt Relief (Kath.)

 

 

With trade growth goes globalization.

Japan Exports Drop 13th Month By 10.3%, Imports Down 22nd Month By 16.5% (WSJ)

Japanese exports extended their losses to a 13th straight month in October, indicating that the world’s third-largest economy has yet to regain full fitness despite better-than-expected growth in the third quarter. Exports fell 10.3% from a year earlier in October to 5.870 trillion yen, figures released Monday by the Ministry of Finance showed. The reading came in worse than a 9.4% drop forecast by economists polled by WSJ. Exports decreased 6.9% in September. Despite the grim monthly figures, exports appear to be in better shape than in the spring, when Japan’s manufacturers were being buffeted by worries over a Chinese slowdown and other headwinds from abroad. Government estimates released last week showed that Japan’s economy grew 2.2% from the previous quarter in the July-September period, beating economists’ expectations.

Exports were stronger than in the previous three months. The near-term prospects for exports have also improved after Donald Trump’s victory of U.S. presidential election put the yen’s previous uptrend in reversal. The finance ministry said export volumes for October fell 1.4% from their year-earlier levels. That marked the first fall in three months. But seasonally adjusted month-on-month figures showed exports increased 1.6%. Imports declined 16.5% on year in October to Y5.374 trillion, the 22nd consecutive month of contraction, the ministry said. Japan’s trade balance came to Y496.2 billion in surplus, according to the data. Economists polled by the Nikkei expected a surplus of Y610.0 billion.

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Anything reported as a ‘savings obsession’ can be filed under ‘fake news’. It takes this article a while to get to it, but then it does: “About 44% of all Europeans were unable to pay at least one bill on time during the last 12 months, mainly because of a lack of money..” Combine that with the accounting practice of filing ‘paying off debts’ under ‘saving’, and you know what’s really happening.

Negative Rates Are Failing to Halt Savings Obsession in Europe (BBG)

After years of turbo-driven central bank stimulus, most Europeans still want to leave their spare cash in savings accounts, even if those accounts pay zero interest. That’s the finding of a survey by Europe’s biggest debt collector, Stockholm-based Intrum Justitia AB. “After the financial crisis, people have felt a need – even if they have small means – to create some kind of security,” CEO Mikael Ericson said in an interview in Stockholm on Nov. 16. “It can’t be that people save in a bank account because of the fantastic returns, so it must be about a sense of security, having money in the bank.” Some 69% of Europeans put their savings into bank accounts, according to Intrum Justitia’s European Consumer Payment Report.

The survey is based on feedback gathered in September and covers about 21,000 people in 21 countries. The survey also shows that 26% of Europeans prefer keeping their surplus funds in cash, while 16% hold stocks. Only 14% turn to investment funds, 8% invest in real estate and 8% in bonds. In Denmark and Sweden, where central bank benchmark rates are negative, almost 80% of people put their surplus cash in bank accounts. In France, the U.K. and the Netherlands, the figure is above 80%. [..] The survey also revealed how financially fragile many Europeans continue to be almost half a decade after the region’s debt crisis. About 44% of all Europeans were unable to pay at least one bill on time during the last 12 months, mainly because of a lack of money, the survey found. Greece was worst, with 76% of households failing to pay on time.

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Yeah. Savings Obsession. Sure.

More Than 1 in 3 European Workers Have Difficulty Making Ends Meet (ETUC)

According to the European Working Conditions Survey launched today more than one third of workers report some or great difficulty in making ends meet. This is the reality behind the rosier picture painted by the European Foundation for the Improvement of Living and Working Conditions which highlights an “increasingly skilled workforce, largely satisfied with work”. However, the study also reveals that • A shocking 1 in 5 workers “has a poor quality job with disadvantageous job quality features and job holders …. reporting an unsatisfactory experience of working life.” • Only 1 in 4 workers have “a smooth running job where most dimensions of job quality are satisfactory”.

Luca Visentini, General Secretary of the European Trade Union Confederation said “European workers are struggling to make ends meet. Work no longer assures a decent life. Is it any wonder that more and more voters are losing their faith in “the European Union and mainstream political parties? ”These results only strengthen the ETUC’s determination to fight for more public investment to create quality jobs, and for a pay rise for European workers to tackle poverty and drive economic recovery for all. Economic policies that result in 1 in 3 workers struggling to make ends meet are fundamentally wrong and must be radically changed.” “These are deeply worrying results that cannot be hidden by claiming that the world of work is increasingly complex. The survey actually shows that work is unsatisfactory or unrewarding for far too many workers.”

“The picture painted by the European Working Conditions Survey of widespread poverty in improving working conditions highlights the need for a comprehensive approach to tackle inequality across Europe. Improvements in labour markets and working conditions are modest and uneven at best; what’s more, these are being wiped out by spiralling costs of housing and austerity policies that drive insecurity for workers and their families.”

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“Debt is good” is just another way of saying “Greed is good”.

Now it Begins to Unravel (WS)

Debt is good. More debt is better. Funding consumer spending with debt is even better – that’s what economists have been preaching – because the consumed goods and services are gone after having been added to GDP, while the debt, which GDP ignores, remains until it is paid off with future earnings, or until it blows up. Corporations too have gone on a borrowing binge. Unlike consumers, they have no intention of paying off their debts. They issue new debt and use the proceeds to pay off maturing debts. Funding share-buybacks and dividends with debt is ideal. It’s called “unlocking value.” Debt must always grow. For that purpose, the Fed has manipulated interest rates to rock bottom. Actually paying off and reducing debt has the dreadful moniker, bandied about during the Financial Crisis, “deleveraging.”

It’s synonymous with “The End of the World.” At the institutional level, “debt” is replaced with more politically correct “leverage.” More leverage is better. Particularly if you can borrow short-term at near zero cost and bet the proceeds on risky illiquid long-term assets, such as real estate, or on securities that become illiquid without notice. Derivatives are part of this institutional equation. The notional value of derivatives in the US banking system is $190 trillion, according to the Office of the Comptroller of the Currency. Four banks hold over 90% of them: JP Morgan ($53 trillion), Citibank ($52 trillion), Goldman ($44 trillion), and Bank of America ($26 trillion). Over 75% of those derivative contracts are interest rate products, such as swaps.

With them, heavily leveraged institutional investors that borrow short-term to invest in illiquid long-term assets hedge against interest rate movements. But Treasury yields and mortgage rates have moved violently in recent weeks, and someone is out some big money. These credit bubbles always unravel to the greatest surprise of those institutions and their economists. When they unravel, the above “End-of-the-World” scenario of orderly deleveraging turns into forced deleveraging, which can get messy. Assets that had previously been taken for granted are either repriced or just evaporate. But they’d been pledged as collateral. Suddenly, the collateral no longer exists….

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“..the Swiss National Bank’s balance sheet now accounts for 100% of GDP. Japan is also 100%, but mainly invested in its own state paper. The ECB and the Fed are 30%.”

Former UBS, Credit Suisse CEO: “A Recession Is Sometimes Necessary” (ZH)

Remember when bashing central banks and predicting financial collapse as a result of monetary manipulation and intervention was considered “fake news” within the “serious” financial community, disseminated by fringe blogs? Good times. In an interview with Swiss Sonntags Blick titled appropriately enough “A Recession Is Sometimes Necessary”, the former CEO of UBS and Credit Suisse, Oswald Grübel, lashed out by criticizing the growing strength of central banks and their ‘supremacy over the markets and other banks’. He claimed that the use of negative interest rates and huge positive balance sheets represent ‘weapons of mass destruction’. He calls for an end to the use of negative interest rates. Sounding more like a “tinfoil” blog than the former CEO of the two largest Swiss banks, Grübel warned that central banks have “crossed the point of no return” which will ultimately “end in a crash.”

Joining Deutsche Bank in slamming NIRP, Grubel said that banks are losing hundreds of millions of francs each year to negative interest rates paid to central banks. Worse, he warned that central banks will eventually lose their credibility in the markets but that this could take 10 years or more, at which point it will “all end in a crash.” What happens then? The former CEO believes that the final outcome will be wholesale financial nationalization: “after that all banks could belong to the state” Grubel also the doubted the wisdom of the Swiss National Bank’s balance sheet: “the Swiss National Bank’s balance sheet now accounts for 100% of GDP. Japan is also 100%, but mainly invested in its own state paper. The ECB and the Fed are 30%. Switzerland is far, far, far ahead. Is that wise?”

Grübel also touched on a point we have made ever since 2010 when we said that in a world of unprecedented political polarity, politicians now control the world almost exclusively through monetary policy, to wit: “After the financial crisis, politics has taken power in the banking sector: It has bound the banks into a regulatory corset and now they can no longer move. Politicians have told central banks: now you determine what is going on with the economy.” What are the implications of this power shift? “Previously, the risk was distributed to thousands of banks. They had to pay for their mistakes. The risk lay with the shareholders. Today, more and more the state carries the risk.” Which, of course, is another word for taxpayers. In other words, the next crash will be one where central – not commercial – banks are failing, and the one left with the bill will once again be the ordinary person in the street.

In a tangent, Grübel gave his thoughts on what makes a man rich: “rich is a man when he goes to bed in a carefree manner and wakes up without care.” He is then asked if, by that definition, a billionaire is rich to which he replied: “No. Money has little to do with wealth. The real rich are carefree. Those who are healthy, are not dependent. The greatest wealth is independence.”

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“..the winner will be favorite to become president in May..”. Really? Then why am I thinking Le Pen is the favorite?

Big Shock In France’s Presidential Election As Sarkozy Eliminated (BBG)

Former Prime Minister Francois Fillon, the new front-runner in France’s 2017 presidential election, is offering voters an economic-policy revolution inspired by Margaret Thatcher. Fillon, 62, vaulted from third position in most polls to win the first round of the Republican primary by 16 percentage points from the veteran Alain Juppe on Sunday with the most free-market platform among the seven candidates. They’ll face each other again in next Sunday’s runoff and the winner will be favorite to become president in May 2017. The lifelong politician is pledging to lengthen the work week to 39 hours from 35, to increase the retirement age to 65 and add immigration quotas. He’s vowed to eliminate half a million public-sector jobs and cut spending by €100 billion over his five years in office.

And he proposes a €40 billion tax-cut for companies and a constitutional ban on planned budget deficits. “Who is Fillon? The classic conservative, right-wing candidate,” Bruno Cautres, a political scientist at the Sciences Po Institute in Paris, said in an interview. “He wants a deep reform of the French model: shrinking the role of the state and cutting the welfare system.” Compared with the brash style of former boss, Nicolas Sarkozy, Fillon has a more low-key approach but he makes a virtue of telling it straight. When he took office as premier in 2007, he shocked even Sarkozy by announcing that France was a bankrupt state. Today he’s promising to reverse that, just like his role model when she became U.K. prime minister in 1979.

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Europe and the scourge of direct democracy.

The EU’s New Bomb Is Ticking in the Netherlands (WSJ)

If the European dream is to die, it may be the Netherlands that delivers the fatal blow. The Dutch general election in March is shaping up to be a defining moment for the European project. The risk to the EU doesn’t come from Geert Wilders, the leader of anti-EU, anti-immigration Party for Freedom. He is well ahead in the polls and looks destined to benefit from many of the social and economic factors that paved the way for the Brexit and Trump revolts. But the vagaries of the Dutch political system make it highly unlikely that Mr. Wilders will find his way into government. As things stand, he is predicted to win just 29 out of the 150 seats in the new parliament, and mainstream parties seem certain to shun him as a coalition partner. In an increasingly fragmented Dutch political landscape, most observers agree that the likely outcome of the election is a coalition of four or five center-right and center-left parties.

Instead, the risk to the EU comes instead from a new generation of Dutch euroskeptics who are less divisive and concerned about immigration but more focused on questions of sovereignty—and utterly committed to the destruction of the EU. Its leading figures are Thierry Baudet and Jan Roos, who have close links to British euroskeptics. They have already scored one significant success: In 2015, they persuaded the Dutch parliament to adopt a law that requires the government to hold a referendum on any law if 300,000 citizens request it. They then took advantage of this law at the first opportunity to secure a vote that rejected the EU’s proposed trade and economic pact with Ukraine, which Brussels saw as a vital step in supporting a strategically important neighbor. This referendum law is a potential bomb under the EU, as both Dutch politicians and Brussels officials are well aware.

Mr. Baudet believes he now has the means to block any steps the EU might seek to take to deepen European integration or stabilize the eurozone if they require Dutch legislation. This could potentially include aid to troubled Southern European countries such as Greece and Italy, rendering the eurozone unworkable. Indeed, the Dutch government gave a further boost to Mr. Baudet and his allies when it agreed to accept the outcome of the Ukraine referendum if turnout was above 30%, even though it was under no legal obligation to do so. This was a major concession to the euroskeptics, as became clear when strong turnout among their highly motivated supporters lifted overall turnout to 31%. With Mr. Wilders’s party, currently polling above 25%, and both Mr. Baudet and Mr. Roos having launched their own parties, Dutch euroskeptics are confident they will be able to reach the 30% threshold in future referendums.

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Do they mean things would have been even worse without free trade? (if they do, let them say so): “..the benefits of trade and open markets need to be communicated to the wider public more effectively, emphasizing how trade promotes innovation, employment and higher living standards.”

APEC Summit Closes With Call for More Globalization, Free Trade (AP)

Leaders of 21 Asia-Pacific nations ended their annual summit Sunday with a call to resist protectionism amid signs of increased free-trade skepticism, highlighted by the victory of Donald Trump in the U.S. presidential election. The Asia Pacific Economic Cooperation forum also closed with a joint pledge to work toward a sweeping new free trade agreement that would include all 21 members as a path to “sustainable, balanced and inclusive growth,” despite the political climate. “We reaffirm our commitment to keep our markets open and to fight against all forms of protectionism,” the leaders of the APEC nations said in a joint statement. APEC noted the “rising skepticism over trade” amid an uneven recovery since the financial crisis and said that “the benefits of trade and open markets need to be communicated to the wider public more effectively, emphasizing how trade promotes innovation, employment and higher living standards.”

Speaking to journalists at the conclusion of the summit, Peruvian President Pedro Pablo Kuczynski said the main obstacle to free trade agreements in Asia and around the world is the frustration felt by those left behind by globalization. “Protectionism in reality is a reflection of tough economic conditions,” said Kuczynski, the meeting’s host. Referring to Brexit and Trump’s election win in the U.S., he said those results highlighted the backlash against globalization in former industrial regions in the U.S. and Britain that contrasts with support for trade in more-prosperous urban areas and developing countries. “This is an important point in recent economic history because of the outcome of various elections in very important countries that have reflected an anti-trade, anti-openness feeling,” he said.

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Fuhget about it.

Obama Says World Leaders Want To Move Forward With TPP (AFP)

US President Barack Obama said Sunday that leaders from across the Asia-Pacific have decided to move ahead with a trade deal opposed by his successor Donald Trump. “Our partners made clear they want to move forward with TPP,” Obama said at a press conference after meeting leaders in Peru. “They would like to move forward with the United States.” It is unclear whether there is any future for the TPP, a vast, arduously negotiated agreement between 12 countries that are currently at different stages of ratifying it. It does not include China. Trump campaigned against the proposal as a “terrible deal” that would “rape” the United States by sending American jobs to countries with cheaper labor.

The agreement must by ratified in the US Congress – which will remain in the hands of Trump’s Republican allies when the billionaire mogul takes office on January 20. Without the United States, it cannot be implemented in its current form. However, some have suggested Trump could negotiate a number of changes and then claim credit for turning the deal around. Obama defended the increasing integration of the global economy at the close of his final foreign visit as president – a trade summit held against the backdrop of rising protectionist sentiment in the United States and Europe, seen in both Trump’s win and Britain’s “Brexit” vote. He said that “historic gains in prosperity” thanks to globalization had been muddied by a growing gap “between the rich and everyone else.” “That can reverberate through our politics,” he said.

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Jim Quinn’s longtime series on the Fourth Turning continues. A problem might be that you can’t really know who’s who until afterwards. Maybe Mike Pence will turn out to be the real grey champion, or someone as yet unknown.

The Grey Champion Assumes Command – Part 1 (Quinn)

In September 2015 I wrote a five part article called Fourth Turning: Crisis of Trust. In Part 2 of that article I pondered who might emerge as the Grey Champion, leading the country during the second half of this Fourth Turning Crisis. I had the above pictures of Franklin, Lincoln, and FDR, along with a flaming question mark. The question has been answered. Donald J. Trump is the Grey Champion. When I wrote that article, only one GOP debate had taken place. There were eleven more to go. Trump was viewed by the establishment as a joke, ridiculed by the propaganda media, and disdained by the GOP and Democrats. I was still skeptical of his seriousness and desire to go the distance, but I attempted to view his candidacy through the lens of the Fourth Turning. I was convinced the mood of the country turning against the establishment could lead to his elevation to the presidency. I was definitely in the minority at the time:

“Until three months ago the 2016 presidential election was in control of the establishment. The Party was putting forth their chosen crony capitalist figureheads – Jeb Bush and Hillary Clinton. They are hand-picked known controllable entities who will not upset the existing corrupt system. They are equally acceptable to Goldman Sachs, the Federal Reserve, the military industrial complex, the sickcare industry, mega-corporate America, the moneyed interests, and the never changing government apparatchiks. The one party system is designed to give the appearance of choice, while in reality there is no difference between the policies of the two heads of one party and their candidate products. But now Donald Trump has stormed onto the scene from the reality TV world to tell the establishment – You’re Fired!!!”

Strauss and Howe wrote their prophetic tome two decades ago. [..] They did not know which events or which people would catalyze this Fourth Turning. But they knew the mood change in the country would be driven by the predictable generational alignment which occurs every eighty years. “Soon after the catalyst, a national election will produce a sweeping political realignment, as one faction or coalition capitalizes on a new public demand for decisive action. Republicans, Democrats, or perhaps a new party will decisively win the long partisan tug of war. This new regime will enthrone itself for the duration of the Crisis. Regardless of its ideology, that new leadership will assert public authority and demand private sacrifice. Where leaders had once been inclined to alleviate societal pressures, they will now aggravate them to command the nation’s attention. The regeneracy will be solidly under way.” – Strauss & Howe – The Fourth Turning

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“This is a revolutionary moment. We must not allow them to shift the blame on to voters. This is their failure, decades in the making.”

The Silver Lining In This Disaster: Clinton & Co Are Finally Gone (G.)

Hillary Clinton has given us back our freedom. Only such a crushing defeat could break the chains that bound us to the New Democrat elites. The defeat was the result of decades of moving the Democratic party – the party of FDR – away from what it once was and should have remained: a party that represents workers. All workers. For three decades they have kept us in line with threats of a Republican monster-president should we stay home on election day. Election day has come and passed, and many did stay home. And instead of bowing out gracefully and accepting responsibility for their defeat, they have already started blaming it largely on racist hordes of rural Americans. That explanation conveniently shifts blame away from themselves, and avoids any tough questions about where the party has failed.

In a capitalist democracy, the party of the left has one essential reason for existing: to speak for the working class. Capitalist democracies have tended towards two major parties. One, which acts in the interest of the capitalist class – the business owners, the entrepreneurs, the professionals – ensuring their efforts and the risks they took were fairly rewarded. The other party represented workers, unions and later on other groups that made up the working class, including women and oppressed minorities. This delicate balance ended in the 1990s. Many blame Reagan and Thatcher for destroying unions and unfettering corporations. I don’t. In the 1990s, a New Left arose in the English-speaking world: Bill Clinton’s New Democrats and Tony Blair’s New Labour. Instead of a balancing act, Clinton and Blair presided over an equally aggressive “new centrist” dismantling of the laws that protected workers and the poor.

[..] .. let us be as clear about this electoral defeat as possible, because the New Democratic elite will try to pin their failure, and keep their jobs, by blaming this largely on racism, sexism – and FBI director Comey. This is an extremely dangerous conclusion to draw from this election. So here is our silver lining. This is a revolutionary moment. We must not allow them to shift the blame on to voters. This is their failure, decades in the making. And their failure is our chance to regroup. To clean house in the Democratic party, to retire the old elite and to empower a new generation of FDR Democrats, who look out for the working class – the whole working class.

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What happens when you think the economy means the rich.

Disaffected Rust Belt Voters Embraced Trump. They Had No Other Hope (G.)

The industrial midwest is the vast sweep, from western Pennsylvania through eastern Iowa, that drove the American economy for nearly a century. The great industrial cities, such as Chicago and Detroit, led the way, but it spread into hundreds of small towns and cities – from the steel mills of Ohio to the auto parts factories of Michigan and Wisconsin and the appliance makers of Iowa and Illinois. This was Hillary Clinton’s blue wall, the states she had to win to become president. Of the 11 swing states that decided the election, five – Pennsylvania, Ohio, Michigan, Wisconsin and Iowa – lie in this battered old industrial heartland. If, as expected, Trump’s lead in Michigan holds, she lost them all. How did it happen? There are many reasons. The Clinton team barely campaigned there and in Wisconsin until it was too late.

Misogyny played a role. So did Clinton’s personal unpopularity and the relatively low turnout. But the real reason is that the industrial era created this region and gave a good middle-class way of life to the people who worked there. That economy began to vanish 40 years ago, moving first to the sun belt and then Mexico, before finally China. The good jobs that were left increasingly went to robots. Factories closed. So did the stores and bars and schools around them. The brightest kids fled to universities and then to the cities – to New York or Chicago or the state capital. Those left behind worked two or three non-union jobs just to stay afloat. Families broke up. Drug use increased. Life spans shortened. And nobody seemed to care – until Trump. But does he really? Who knows? He said he did.

His tirades – against trade, against elites, against Obamacare, against immigrants, against the Clintons – sounded like unhinged rants in cities and on campuses, which never took him seriously. In the old industrial zones and withering farm towns, he echoed their own resentments. Mitt Romney couldn’t do this; neither could John McCain. But Trump did, and so they embraced him. Why was this such a surprise? It’s impossible to overstate the alienation between the two Americas, between the global citizens and the global left-behinds, between the great cities that run the nation’s economy and media, and the hinterland that feels not only cheated but, worse, disrespected.

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Tsipras goes from one blunder to the next. Still, as long as he’s there, the streets are quiet, amazingly quiet for a society that’s under such economic fire. But he is soon going to be voted out in favor of someone, anyone, who will then see things get much worse in the streets. A smouldering powder keg.

Tsipras Ready To Give In On Labor Reform To Ensure Debt Relief (Kath.)

Prime Minister Alexis Tsipras is prepared to make further concessions to Greece’s creditors in tough negotiations that are currently under way to ensure that there is no delay in launching crucial talks on relief for the country’s debt burden, Kathimerini understands. According to sources, Tsipras and his key ministers are ready to give in to calls by foreign auditors for more flexibility in the crucial area of labor laws. The government has already agreed to put off its demands for the restoration of collective wage bargaining, a key pledge of leftist SYRIZA before it came to power last year. It is unclear to what degree the Greek side is willing to concede on other issues – such as calls by foreign officials for facilitating mass layoffs for struggling employers and making it harder for unions to call strikes.

A source at the Labor Ministry said over the weekend that the Greek side has submitted its proposals for changes to labor laws and is awaiting the reaction of foreign officials. Tsipras is said to be set on a strategy of withdrawal despite the risks. The key danger is that cohesion in the ranks of leftist SYRIZA, which has already been tested by a series of concessions to foreign creditors, is further compromised, weakening the beleaguered coalition. The other risk is that the further concessions may boost the lead of conservative New Democracy over SYRIZA in opinion polls, which is already significant, thereby enhancing the sense that SYRIZA’s coalition with the right-wing Independent Greeks is on its way out.

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 September 11, 2016  Posted by at 9:28 am Finance Tagged with: , , , , , , , ,  6 Responses »
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Harris&Ewing No caption, Washington DC 1915


Fed Dove Frets About Asset Bubbles, Wall Street Freaks Out (WS)
Hostage to a Bull Market (Jim Grant)
Leverage Soars to New Heights as Corporate Bond Deluge Rolls On (BBG)
On Nov. 8 Americans Decide To Either Rescue The Banks Or The Consumer (RI)
Wells Fargo Opened a Couple Million Fake Accounts (BBG)
It’s Business As Usual At Wells Fargo After Record Fine (MW)
New Zealand Prepares for the Party to End (Hickey)
Italy’s Renzi: At Last Hollande Is With Us, We Can Cause A Stir (Kath.)
Yanis Varoufakis’s Fantasy Politics (Jacobin)
Greek PM Tsipras Pledges Growth Amid Protests, Austerity Plans (AP)
EU Adds €115 Million In Aid For Migrants In Greece (DW)
Rescuers Bring 2,300 Migrants To Safety From Mediterranean on Saturday (R.)

 

 

There’s only one solution: take away from central banks their current powers to manipulate markets and economies.

Fed Dove Frets About Asset Bubbles, Wall Street Freaks Out (WS)

When Boston Fed governor Eric Rosengren, a voting member of the Federal Open Markets Committee, where monetary policy is decided, shared some aspects of his worries on Friday morning, markets tanked instantly. This came just after the ECB’s refusal to please the markets with promises of additional bond purchases. Instead, it stuck to the promises it had made previously. What a disappointment for markets running on nothing but central-bank mouth-wagging and money-printing! [..] In his speech, Rosengren discussed how the US economy has been “fairly resilient” and is near “reaching the Federal Reserve’s dual mandate from Congress (stable prices and maximum sustainable employment),” despite all the global headwinds, some of which he enumerated.

And so, he said, “a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy.” Hence, rate increases, even though there were some “conflicting signals” in the economic data – “Clearly, the first two quarters did not live up to the forecasts,” he said. But “waiting too long to tighten” would expose the economy to two risks: First, the economy overheats – the belated tightening might “require more rapid increases in interest rates later in the cycle,” which will likely “result” in a recession, as it did “frequently” in the past. And second, asset bubbles – “that some asset markets become too ebullient.” He pointed at commercial real estate prices that “have risen quite rapidly over the past five years, particularly for multifamily properties.”

He added: Because commercial real estate is widely held in the portfolios of leveraged institutions, commercial real estate cycles can amplify the impact of economic downturns as financial institutions need to write down the value of loans and cut back on lending to maintain their capital ratios. And what a bubble it is. Over the past 12 months, prices have jumped only 6%, according to the Green Street Commercial Property Price Index, compared to the double-digit gains in prior years. “Equilibrium,” the report called it. The index has soared 107% from May 2009, and 26.5% from the peak of the totally crazy prior bubble that ended with such spectacular fireworks:

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Excellent from Grant, fully in line with Nicole’s series the past week.

Hostage to a Bull Market (Jim Grant)

If there is a curse between the covers of this thin, self-satisfied volume, it doesn’t have to do with cash, the title to the contrary notwithstanding. Freedom is rather the subject of the author’s malediction. He’s not against it in principle, only in practice. Ken Rogoff is a chaired Harvard economics professor, a one-time chief economist at the International Monetary Fund and (to boot) a chess grandmaster. He laid out his case against cash in a Saturday essay in this newspaper two weeks ago. By abolishing large-denomination bills, he said there, the government could strike a blow against sin and perfect the Federal Reserve’s control of interest rates. “The Curse of Cash,” the Rogoffian case in full, comes in two parts.

The first is a helping of monetary small bites: a little history (in which the gold standard gets the back of the author’s hand), a little central-banking practice, a little underground economy. It’s all in the service of showing where money came from and where it should be going. Terrorists traffic in cash, Mr. Rogoff observes. So do drug dealers and tax cheats. Good, compliant citizens rarely touch the $100 bills that constitute a sizable portion of the suspiciously immense volume of greenbacks outstanding—$4,200 per capita. Get rid of them is the author’s message. Then, again, one could legalize certain narcotics to discommode the drug dealers and adopt Steve Forbes’s flat tax to fill up the Treasury. Mr. Rogoff considers neither policy option. Government control is not only his preferred position.

It is the only position that seems to cross his mind. Which brings us to the business end of this production. Come the next recession, the book’s second part contends, the Fed should have the latitude to drive interest rates below zero. Mr. Rogoff lays the blame for America’s lamentable post-financial-crisis economic record not on the Obama administration’s suffocating tax and regulatory policies. The problem is rather the Fed’s inability to put its main interest rate, the federal funds rate, where it has never been before. In a deep recession, Mr. Rogoff proposes, the Fed ought not to stop cutting rates when it comes to zero. It should plunge right ahead, to minus 1%, minus 2%, minus 3% and so forth.

At one negative rate or another, the theory goes, despoiled bank depositors will stop saving and start spending. According to the worldview of the people who constitute what Mr. Rogoff fraternally calls the “policy community” (who elected them?), the spending will buttress “aggregate demand,” thus restore prosperity. You may doubt this. Mr. Rogoff himself sees difficulties. For him, the problem is cash. The ungrateful objects of the policy community’s statecraft will stockpile it. What would you do if your bank docked you, say, 3% a year for the privilege of holding your money? Why, you might convert your deposit into $100 bills, rent a safe deposit box and count yourself a shrewd investor. Hence the shooting war against currency.

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Historians will see us as too deluded to be true.

Leverage Soars to New Heights as Corporate Bond Deluge Rolls On (BBG)

Here’s a gut check for bond investors: corporate America is now more leveraged than ever. As this year’s corporate bond sales raced past $1 trillion on Wednesday – marking the fifth consecutive year of trillion-plus issuance – Morgan Stanley published a report Friday highlighting the growing strains on company balance sheets. The report, which estimated US companies’ collective debt at a record 2.4 times their collective earnings as of June, comes at a time of growing angst in global bond markets “The investment-grade ‘safe’ part of the market is becoming the most dangerous,” said Ashish Shah, CIO at AllianceBernstein. “There are so little returns out there. People are crowding into whatever they can.”

The debt metric, which doesn’t include banks and other financial companies, has climbed for five straight quarters as corporate profits decline at the same time companies load up on the increasingly cheap borrowings, Morgan Stanley analysts led by Adam Richmond wrote in a note to clients. In 2010, when the U.S. economy started recovering from the longest recession since the Great Depression, the ratio fell to 1.7 times. But what has the analysts uneasy isn’t just the speed at which leverage is climbing, but that it’s happening while the economy continues to grow. “Leverage tends to rise most in a recession – so the fact that it is this high in a ‘healthy economy’ is even more concerning,” the analysts wrote. In other words, they said, “mistakes are both more likely and more costly.”

The analysts’ assessment wasn’t totally worrisome. Years of near-zero interest rates have made it a lot easier to service those debt loads. The typical company’s annual earnings before interest, taxes, depreciation and amortization, known as Ebitda, is still almost 10 times its interest payments, Morgan Stanley’s data shows. Even that number has been declining, though, as earnings slump.

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“Today, consumption can only increase if someone hands out money. This money cannot be earned by companies, because consumers are unable to buy additional products.”

On Nov. 8 Americans Decide To Either Rescue The Banks Or The Consumer (RI)

Recently, the Fed decided not to change interest rates. Various reasons were given, but as we know, there are two “parties” in the US, one which favors monetary easing, and the other, tightening, and each has arguments for their case. Economists are divided on how to proceed. They disagree on precisely this: which economic policies can facilitate growth in our times? A brief look at the last 50 years provides some context. In the 70s, household incomes fell, most of all from 1972-73, and with them, spending. Starting in 1981, (Reaganomics!), spending began to rise, but income, hardly at all. Economic growth was due to increased consumption driven by a rise in household debt, and from 2008 on, in government debt. If we look at real disposable household income, it is the same today as it was in the early 60s.

Today, average household debt is 120% of annual income, whereas up until 1981 it never exceeded 65%. Note too, that in 1981, the discount rate was 19%, whereas today it is practically zero. Today, consumption can only increase if someone hands out money. This money cannot be earned by companies, because consumers are unable to buy additional products. So the only way is to increase debt. But lowering interest rates is impossible because they are already at zero. So there are two options: 1) print money and hand it out to people through the banks, with the understanding that this money will not be returned, or 2) restructure the existing debt, both personal and corporate, in the hopes that then people will start to consume.

In order to do this, interest rates would have to be raised to at least 3-4%, with the banks taking a major hit, because their customers cannot service their loans at those rates… Voila the collision of interests between the people and the banks. Unsurprisingly, the two US candidates disagree on this issue. Clinton is for option 1, i.e. more monetary easing (helping the banks), and Trump is for tightening (helping the people). The choice, of course, lies with the American voter.

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And nobody in management noticed a thing?

Wells Fargo Opened a Couple Million Fake Accounts (BBG)

[..] Wells Fargo was fined $185 million by various regulators for opening customer accounts without the customers’ permission, and that is bad, but there is also something almost heroic about it. There’s a standard story in most bank scandals, in which small groups of highly paid traders gleefully and ungrammatically conspire to rip-off customers and make a lot of money for themselves and their bank. This isn’t that. This looks more like a vast uprising of low-paid and ill-treated Wells Fargo employees against their bosses. The Consumer Financial Protection Bureau, which fined Wells Fargo $100 million, reports that about 5,300 employees have been fired for signing customers up for fake accounts since 2011. You’d have a tough time organizing 5,300 people into a conspiracy, which makes me think that this was less a conspiracy and more a spontaneous revolt.

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“Wells Fargo’s punishment comes to only 0.9% of the $22.9 billion that the bank earned last year..”

It’s Business As Usual At Wells Fargo After Record Fine (MW)

“The fine is a rounding error, and I don’t see any unintended consequences.” So said FBR analyst Paul Miller, describing the $185 million in fines and penalties, plus another $5 million for “customer remediation,” that Wells Fargo agreed to pay. Wells Fargo’s punishment comes to only 0.9% of the $22.9 billion that the bank earned last year. The Consumer Financial Protection Bureau (CFPB) found “widespread unlawful practices” at the third-largest U.S. bank by assets, including the opening of “hundreds of thousands” of accounts by employees without customers’ knowledge so employees could hit lofty sales targets. The fine was the largest levied since the CFPB’s founding in 2011.

Shares of San Francisco-based Wells Fargo fell 2.4% at the close of regular trading Friday, in line with the benchmark S&P 500 suggesting a low level of worry among investors. But there could be longer-term consequences for the bank’s reputation, as Federal Reserve Gov. Daniel Tarullo said during a CNBC interview that criminal charges against bank officers should be pursued. In Wells Fargo’s more than 6,000 retail branches, there has long been a culture of cross-selling as many products to customers as possible, which has been a big part of the bank’s success for decades, according to Marty Mosby, director of bank and equity strategies at Memphis, Tenn.-based broker-dealer Vining Sparks.

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I’m afraid the walls will have to come crumbling down before Kiwis accept their reality.

New Zealand Prepares for the Party to End (Hickey)

Should we all celebrate? Or sink into a great depression, or run for the nearest bunker? It’s hard to know how to react to the news Auckland’s average house value rose over $1 million in August. Auckland’s homeowners should in theory be celebrating their good fortune and voting for more of the same. Anyone who invested just over $53,000 of their money in 2011 to buy an average Auckland house with a 90% mortgage would now be sitting on tax-free capital gains of $486,000. Indeed, some are celebrating. New car sales are at record highs and spending in Auckland’s cafes, bars and restaurants is growing at double-digit rates. But it’s not the sort of go-for-broke debt-fuelled spending binge like the one we saw from 2002-07 when mortgage lending grew at an annual rate of 15%.

Mortgage debt grew 9% in the last year and most people think it has peaked, given the Reserve Bank’s latest restrictions on low deposit lending and a limit on debt to income multiples expected next year. Most Aucklanders don’t believe the manna from the great housing gods in the heavens is real enough to go withdrawing from their household ATMs, which is why the lending growth is relatively subdued. They can also feel in their bones that house prices at 10 times incomes are hyper≠ventilated, if not downright over-valued. New Zealand’s house-price-to-income multiple is the second-most-expensive relative to long run averages in the OECD (behind Belgium), and is the most expensive relative to rents in the OECD. That overvaluation has grown more than any other country in the OECD over the past six years.

This is not the sort of world champion tag we want. The $1m milestone is clearly a moment of despair for those young Aucklanders aspiring to own a home and start a family, particularly those whose parents were also renters. The combination of the price rises and the new LVR rules mean they face decades of saving for a deposit, let along being able to borrow the hundreds and hundreds of thousands to buy a home. All they can hope for is to win Lotto or to marry into a rich family. Another response is to hunker down and prepare for an implosion, which means saving madly to repay debt ahead of the housing market end-times and to diversify into other types of assets. This isn’t so much a celebration as a preparing for the party to be shut down.

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Really?

Italy’s Renzi: At Last Hollande Is With Us, We Can Cause A Stir (Kath.)

After the EU-Mediterranean summit in Athens on Friday, Italian Prime Minister Matteo Renzi expressed his satisfaction that French President Francois Hollande joined Alexis Tsipras’s initiative to form a front against austerity, Italy’s Corriere della Sera newspaper reported on Saturday. “At last, Hollande is with us, he got over his indecisiveness,” the paper quoted Renzi as saying. “Now we can take action.” On the flight back to Rome from Athens, Renzi appeared more than satisfied with the outcome of the summit, the paper reported. Renzi is said to have expressed relief, in comments to journalists, that Hollande signed a declaration embracing the policies that Italy and other southern European countries are promoting. “Now we are many, we can cause a stir,” Renzi is reported to have said, adding that he expected that “in the future the balance of power will change.”

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Much as I appreciate Yanis, I’m afraid I have to agree with much of this article. Reforming the EU is akin to reforming the mob. Why not put your energy into an organization that exists ‘parallel’ to the EU?

Yanis Varoufakis’s Fantasy Politics (Jacobin)

To his credit, Varoufakis at least recognizes that progressives “have no alternative” but a “head-on clash with the EU establishment,” since the European Union simply cannot be reformed to make it more democratic. But, he nonetheless insists, leftists must not support referenda to leave the EU. He offers two confused reasons for this. First, since exit referenda are “movements that have been devised and led primarily by the Right,” it is “unlikely” that joining them “will help the Left block their opponents’ political ascendancy.” This left defeatism is simply a self-fulfilling prophecy. If the Left refuses to lead exit referenda campaigns, of course the running will be left to the Right. And since the Left cannot convincingly defend the European Union, that leaves the Right to benefit.

Secondly, Varoufakis suggests that restoring national democracy will mean the end of the free movement of “workers.” “Given that the EU has established free movement, Lexit involves acquiescence to – if not actual support for – the reestablishment of national border controls, complete with barbed wire and armed guards.” Leaving aside the fact that left-wing leadership could theoretically persuade an electorate to accept open borders, this defence of the EU is simply bizarre. The European Union is very far from “borderless” (his word). It has created free movement not for “workers,” but for EU citizens, albeit limited for the citizens from accession countries.

But for non-EU workers, the European Union has established Fortress Europe: “barbed wire and armed guards” surround the continent, resulting in thousands of dead Africans and Asians in the Mediterranean Sea, and hundreds of thousands more languishing in squalid conditions in southeast Europe (including Varoufakis’s own home country, Greece) and Turkey. Moreover, the migration crisis has led to the restoration of “barbed wire and armed guards” across the continent. The idea that the European Union safeguards some sort of workers’ paradise of open borders against right-wing revanchism is ludicrous.

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Growth is a pipedream wih half your young people long term unemployed (which kills economic activity), wages as low as €100 a week, and pensions at €380 a month (both of which kill consumption).

Greek PM Tsipras Pledges Growth Amid Protests, Austerity Plans (AP)

Greece’s prime minister promised Saturday to deliver economic growth to a country hammered by years of economic hardship, as thousands gathered in protest at more planned austerity measures. About 15,000 protesters – beating drums, waving black flags and holding helium balloons bearing anti-government slogans – took part in demonstrations, marching through the center of Greece’s second-largest city, Thessaloniki, where Prime Minister Alexis Tsipras spoke on the state of the nation’s economy. “In five disastrous years … a quarter of our national wealth was destroyed, disposable income fell by 40%, unemployment soared to 28% and the level of poverty rose to 38%,” Tsipras told an audience of politicians and business leaders, referring to governments before he took office in early 2015.

“Now, all the indications are that this chapter is closing…Finally, we are going from a negative direction to a positive one.” As expected Tsipras said that €246 million, the proceeds of a recent auction of TV licenses, would go toward the “needs of the welfare state.” He promised 10,000 new jobs at state hospitals, thousands more free meals at schools, more kindergarten places and a program aimed at bringing back young Greeks who left the country due to the crisis. “Every last euro of the €246 million will go the people,” he said. He also heralded a 5-year action plan – “a realistic road map for the recovery of the economy and reduction of burdens” – that would bring about a “new Greece” by 2021 and promised to freeze the social security contributions of self-employed Greeks as well as reducing taxes in two years time.

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I had to read 5-6 versions of this, in order to find where the money would be going. Turns out, as I feared, that it goes not to the Greeks but to -mostly- international NGOs, who’ve done a far from stellar job. Give a fraction of the €115 million to Konstantinos and his O Allos Anthropos ‘movement’ that we support, and many more people get help. That this is still needed despite the 100s of millions of euros doled out to those NGOs says more than enough. International NGOs are way too expensive and inefficient. So please click that link and help The Automatic Earth help where it counts.

EU Adds €115 Million In Aid For Migrants In Greece (DW)

The European Union will provide humanitarian organizations in Greece an additional €115 million on top of €83 million from earlier this year, the European Commission said on Saturday. “The European Commission continues to put solidarity into action to better manage the refugee crisis, in close cooperation with the Greek Government,” Humanitarian Aid Commissioner Christos Stylianides said. “The new funding has the key aim to improve conditions for refugees in Greece, and make a difference ahead of the upcoming winter.”

About 60,000 refugees and migrants are stranded in Greece due to border closures implemented earlier this year in the Balkans. Rights organizations have documented poor conditions in overcrowded camps. The new funding will help improve existing shelters and build new ones, pay for a voucher system for migrants, and provide education and other support to unaccompanied minors. It will be channelled via humanitarian organizations. The EU’s emergency support aid is in addition to financial assistance given under other funding programmes.

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A routine day.

Rescuers Bring 2,300 Migrants To Safety From Mediterranean on Saturday (R.)

Rescuers pulled 2,300 migrants to safety on Saturday in 18 separate rescue operations in the Mediterranean coordinated by the Italian coast guard. A Spanish boat belonging to an EU naval force, an Irish navy vessel and boats of four non-governmental organizations were involved in the rescue operations, the coast guard said in a statement. It did not say where the migrants, who were traveling in 17 rubber vessel and one small boat, originally came from. Since moves to stop people crossing from Turkey to Greece, Europe’s worst migrant crisis since World War Two is now focused on Italy, where some 115,000 people had arrived by the end of August, according to the United Nations refugee agency UNHCR.

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Aug 172016
 
 August 17, 2016  Posted by at 9:15 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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Harris&Ewing Buying Army surplus food sold at fish market 1919


Global Central Banks Dump US Debt At Record Pace (CNN)
The $6 Trillion US Public Pension Sinkhole (MW)
UK Dividends at Risk as Pension Holes Deepen (BBG)
Japan Official Threatens Action If Yen Rises Too Sharply (WSJ)
Bank Of Japan Buying Sends Nikkei 225 To Highest In 18 Years (ZH)
The “Housing Crisis” in San Francisco Strangles Demand (WS)
Chinese Investors Are Largest International Buyers Of US Real Estate (Forbes)
Australia Central Bank Governor In Complete Bubble Denial (BI)
“Racketeering Is Ruining Us” (Kunstler)
Iceland Prepares To End Currency Controls (Tel.)
‘I Want You Back,’ Cries East Europe as Emigrant Tide Erodes GDP (BBG)
Tsipras Revives Greek Bid To Seek Wartime Reparations From Berlin (Kath.)
Turkey To Free 38,000 From Prisons To Make Space For Alleged Coup Plotters (AP)
German Officials Say Erdogan Supports Militants (DW)

 

 

Concerted effort to relieve the USD?

Global Central Banks Dump US Debt At Record Pace (CNN)

Global central banks are unloading America’s debt. In the first six months of this year, foreign central banks sold a net $192 billion of U.S. Treasury bonds, more than double the pace in the same period last year, when they sold $83 billion. China, Japan, France, Brazil and Colombia led the pack of countries dumping U.S. debt. It’s the largest selloff of U.S. debt since at least 1978, according to Treasury Department data. “Net selling of U.S. notes and bonds year to date thru June is historic,” says Peter Boockvar, chief market analyst at the Lindsey Group, an investing firm in Virginia. U.S. Treasurys are considered one of the safest assets in the world. A lot of countries keep their cash holdings in U.S. government bonds.

Many countries have been selling their holdings of U.S. Treasuries so they can get cash to help prop up their currencies if they’re losing value. The selloff is a sign of pockets of weakness in the global economy. Low oil prices, China’s economic slowdown and currencies losing value are all weighing down global growth, which the IMF described as “fragile” earlier in the year. Despite all the selling by these countries, private demand for the bonds has sky rocketed. Demand is so high that the U.S. can afford to pay historically low interest rates. The 10-year U.S. Treasury hit a record low of 1.34% earlier this year, before bouncing back to about 1.58%, currently.

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Nice try, but I’m not so sure a different way of accounting would make the hole itself any smaller.

The $6 Trillion US Public Pension Sinkhole (MW)

U.S. state and local employee pension plans are in trouble — and much of it is because of flaws in the actuarial science used to manage their finances. Making it worse, standard actuarial practice masks the true extent of the problem by ignoring the best financial science — which shows the plans are even more underfunded than taxpayers and plan beneficiaries have been told. The bad news is we are facing a gap of $6 trillion in benefits already earned and not yet paid for, several times more than the official tally. Pension actuaries estimate the cost, accumulating liabilities and required funding for pension plans based on longevity and numerous other factors that will affect benefit payments owed decades into the future.

But today’s actuarial model for calculating what a pension plan owes its current and future pensioners is ignoring the long-term market risk of investments (such as stocks, junk bonds, hedge funds and private equity). Rather, it counts “expected” (hoped for) returns on risky assets before they are earned and before their risk has been borne. Since market risk has a price — one that investors must pay to avoid and are paid to accept — failure to include it means official public pension liabilities and costs are understated. The current approach calculates liabilities by discounting pension funds cash flows using expected returns on risky plan assets. But Finance 101 says that liability discounting should be based on the riskiness of the liabilities, not on the riskiness of the assets.

With pension promises intended to be paid in full, the science calls for discounting at default-free rates, such as those offered by Treasurys. Here’s the problem: 10-year and 30-year Treasurys now yield 1.5% and 2.25%, respectively. Pension funds on average assume a 7.5% return on their investments – and that’s not just for stocks. To do that, they have to take on a lot more risk – and risk falling short. Much debate focuses on whether 7.5% is too optimistic and should be replaced by a lower estimate of returns on risky assets, such as 6%. This amounts to arguing about how accurate is the measuring stick. But financial economists widely agree that the riskiness of most public pension plans liabilities requires a different measuring stick, and that is default-free rates.

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“It’s happening to pension schemes but will feel like it’s happening to the whole company.”

If these companies cut dividends, investors will sell their shares. But they also will if and when true pensions deficits become public. Can’t win.

UK Dividends at Risk as Pension Holes Deepen (BBG)

Workers have long fretted about funding gaps in U.K. companies’ retirement plans. Now investors are starting to join them. Since the U.K.’s June 23 vote to leave the European Union, pension deficits have swelled as record-low U.K. government bond yields have reduced returns on fund investments. That has added to pressure on companies facing gaps in their retirement funding, including telecommunications provider BT, grocer Tesco and military contractor BAE. With little prospect of higher returns after the Bank of England cut interest rates this month, companies may have to reduce dividend payments to raise pension contributions and close funding gaps. That means investors, who have been insulated from the U.K.’s pension crisis, could feel the effects.

“There is no doubt that shareholders of companies with major pension deficits will be concerned,” said Raj Mody, who heads PricewaterhouseCoopers’ pension consulting group. “It’s happening to pension schemes but will feel like it’s happening to the whole company.” Companies in the FTSE 100 paid around five times as much in dividends as they provided in contributions to defined-benefit pension plans last year, a report published Tuesday by consultant Lane Clark & Peacock showed. Through July 31 the FTSE 100 companies’ combined pension deficits – the amount by which liabilities outstrip assets – increased to £46 billion ($59.7 billion) from £25 billion a year earlier, Lane Clark said. Total pension liabilities of the 350 largest U.K. companies as a percentage of market capitalization rose to 40% in June, the highest level in the last 10 years except during the global financial crisis, according to Citigroup.

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Like what? QE?

Japan Official Threatens Action If Yen Rises Too Sharply (WSJ)

Japan’s top currency bureaucrat issued a fresh warning Wednesday over the soaring yen, saying the government would have to act should it rise too sharply. “If there are excessively sharp movements, we will have to take action,” Vice Finance Minister for International Affairs Masatsugu Asakawa told reporters at the ministry’s headquarters. The comment was likely a veiled threat of direct intervention in the currency market to force lower the yen — a step increasingly seen as undesirable manipulation among wealthy economies. The remark followed the yen’s surge Tuesday beyond the 100 mark against the dollar. A higher yen reduces Japanese manufacturers’ repatriated profits and undermines a positive growth cycle sought by Prime Minister Shinzo Abe. The dollar rose against the yen following Asakawa’s remark. Japan last intervened to undercut the yen in 2011.

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Abe and Kuroda are a success story.

Bank Of Japan Buying Sends Nikkei 225 To Highest In 18 Years (ZH)

Having noted the farcical share ownership of The Bank of Japan (biggest shareholder in 55 companies) as Kuroda's ETF-buying goes to '11', we thought it interesting that the distortion caused by these "pick a winner" purchases has sent Japan's Nikkei 225 to its richest relative to Japan's Topix index in 17 years. As Bloomberg notes, Japan’s two major equity benchmarks have moved mostly together over the years. That changed this month following the latest meeting by the Bank of Japan, which boosted its purchases of exchange-traded funds as part of its easing program.

The BOJ’s heavier allocation to ETFs tracking the Nikkei 225 has helped push the gauge to its highest level versus the Topix index in 18 years.

 

Which – as we noted previously – leaves one big question… just how will the BOJ ever unwind its unprecedented holdings of not only bonds, which are now roughly 100% of Japan's GDP, but also of stocks, without crashing both the bond and the stock market. And then we remember, that the BOJ will simply never unwind any of its "emergency" opertions just because nobody actually thought that far, plus the whole point of the exercise is hyperinflation or bust, as the sheer lunacy of Japan's authorities is exposed for the entire world to see, leading to the terminal collapse of faith in the local currency. With every passing day, we get that much closer to said terminal moment.

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Time for a hole new approach to housing. It should be a basic right, not some financial bet.

The “Housing Crisis” in San Francisco Strangles Demand (WS)

Here’s the other side of central-bank engineered asset price inflation, or “healing the housing market,” as it’s called in a more politically correct manner: San Francisco Unified school district, which employs about 3,300 teachers, has been hobbled by a teacher shortage. Despite intense efforts this year – including a signing bonus – to bring in 619 new teachers to fill the gaps left behind by those who’d retired or resigned, the district is short 38 teachers as of Monday, when the school year started. Others school districts in the Bay Area have similar problems. For teachers, the math doesn’t work out. Average teacher pay for the 2014-15 school year was $65,000. And less after taxes. But the median annual rent was $42,000 for something close to a one-bedroom apartment.

After taxes and utilities, there’s hardly any money left for anything else. A teacher who has lived in the same rent-controlled apartment for umpteen years may still be OK. But teachers who need to find a place, such as new teachers or those who’ve been subject of a no-fault eviction, are having trouble finding anything they can afford in the city. So they pack up and leave in the middle of the school year, leaving classes without teachers. It has gotten so bad that the Board of Supervisors decided in April to ban no-fault evictions of teachers during the school year. Yet renting, as expensive as it is in San Francisco, is the cheaper option. Teachers trying to buy a home in San Francisco are in even more trouble at current prices. And it’s not just teachers!

This aspect of Ben Bernanke’s and now Janet Yellen’s asset price inflation – and consumer price inflation for those who have to pay for housing – is what everyone here calls “The Housing Crisis.” As if to drive home the point, so to speak, the California Association of Realtors just released its Housing Affordability Index (HAI) for the second quarter. It is based on the median house price (only houses, not condos), prevailing mortgage interest rate, household income, and a 20% down payment. In San Francisco, the median house price – half sell for more, half sell for less – is $1.37 million. According to Paragon Real Estate, if condos were included, the median price would drop to $1.2 million.

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Wonder what Trump thinks about this.

Chinese Investors Are Largest International Buyers Of US Real Estate (Forbes)

Over the past five years, Chinese buyers spent about $17 billion on U.S. commercial real estate while spending roughly $93 billion on homes in the U.S. over the same period. Last year they paid about $832,000 per U.S. home in high profile cities like New York, Chicago, Miami, Los Angeles, Las Vegas and San Francisco. The Society indicated that Chinese purchase of residential property is primarily motivated by a desire for second homes; primary residences for those moving to the U.S. on EB-5 investor visas or as rental or resale investments. Concerns about the stability of the renminbi exchange rate have accelerated the pace of Chinese commercial investment abroad since the middle of 2015.

Motivations aside, China’s interest in investing in the U.S. has legs that carry implications for our enterprises and communities alike. When coupled with the 100 million mainland Chinese travelers expected to visit the U.S. annually by 2020 it’s clear the U.S. travel and hospitality industry and business community at large need to prepare for a changing landscape. For the travel and hospitality industry, it won’t be long before we see mainland Chinese hoteliers exporting their national lodging brands to the U.S. and other countries to complement the high-profile global brands in which they’ve invested. As their countrymen increasingly travel the world, just like generations of Americans and Europeans before them, they will want to stay in hotels with which they’re familiar back home.

Soon, it will be commonplace to find hotel brands developed by hoteliers like Jinling Hotels & Resorts or Jin Jiang International Holdings sitting side by side U.S. brands like Hilton, Sheraton, Hyatt or Marriott in cities throughout the U.S. Across the country, already more than 100,000 Americans get their weekly paychecks from a company based in China. That number will grow exponentially in coming years. As mainland Chinese investors continue to buy U.S. companies and brands and establish their own enterprises here, they will be eager to become members and leaders of the local chamber of commerce, to join the neighborhood PTA, represent their companies on area social and charitable boards and so on—just as our nationals who work and live abroad do in the countries in which they reside.

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And so is the author of this piece. Stunning. The heading is mine.

Australia Central Bank Governor In Complete Bubble Denial (BI)

The surge in property prices, especially in Sydney and Melbourne has made home owners extremely wealthy but cruelled the prospect of home ownership for many who aren’t already in the market. That’s especially true for younger Australians. That is causing some intergenerational issues in housing, which is a bigger question than “is there a housing bubble or not” according to RBA governor Glenn Stevens in the full transcript of his interview with the Australian and Wall Street Journal. Stevens acknowledged “it’s always been hard to be that cohort that’s trying to enter the market. There’s always been a hurdle. It may be getting worse, though part of this is – I mean, there’s a lot of things happening here”.

One of things that’s happening, Stevens believes, is that a chunk of the wealth home owners think they are sitting on in their house will prove ephemeral. That’s because if they want their children to own a home then they are going to have to give them some of that cash to do so. Here’s Stevens: “I think that a lot of people of my generation are actually going to find themselves, if they haven’t already, helping their children into the housing market because that may be almost the only way that their children can enter the Sydney market, anyway, and be not too far from mum and dad. And I suspect that will happen a lot, and that, of course, means that for people of my age, that the wealth we think we have in our house, actually, we don’t have quite as much as we thought because we’re going to have to give some of it to the next generation.”

He acknowledged that for renters locked out of the property market this could mean the issue perpetuates into the next generation. But his point about the shared wealth of families is also an important one for the future. It suggests for many children of those with property, who feel locked out of the market, the problem of home ownership can be self-curing. That’s because, as Stevens notes, older Australians can share their wealth now. [..] With the nuclear family shrinking, and the number of children and grandchildren on average reduced from a generation or two ago, there is likely to be a large number of younger Australians coming into some serious wealth when their parents or grandparents pass on. It could take a decade or two, but ultimately younger Australians could end up the longest living and richest generation in the nation’s history.

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“..oil priced at over $75 a barrel in today’s dollars tends to crush economies, and oil priced under $75 a barrel in today’s dollars tends to crush oil companies.”

“Racketeering Is Ruining Us” (Kunstler)

The disorders in politics that we’re seeing now are really expressions of the larger disorders in our economic life and our financial life. That just happens to be the avenue that the expression is coming out of. Another point I’d like to make is that the reason that people are against Hillary or dumping on Hillary or don’t like her, is because she’s a poster child for racketeering. I encourage people who are talking about our circumstances and people who are interested in the news and election, to use the word racketeering to describe what’s going on in this country. You really need the right vocabulary to understand exactly what’s going on.

Racketeering is just pervasive in all of our activities. Not just in politics but in things even like medicine and education. Obviously the college loan scheme is an example of racketeering. Anybody who has to go to an emergency room with a child whose broken their finger or something, is going to end up with a bill for $20,000. You know why? Because of medical racketeering. And so, these are really efforts to money-grub by any means necessary, often in ways that are unethical and probably illegal. Let’s use that word racketeering to describe our national situation. And let’s remember by the way, the activities of the central banks is just another form of racketeering. Using debt issuance and attempting to control interest rates in order to conceal our inability to generate the kind of real wealth that we need to continue as a techno-industrial society.

Societies have a really hard time understanding what they’re doing, articulating the problems that they face and coming up with a coherent consensus about what’s happening, and coming up with a coherent consensus about what to do about it. Combine that with another quandary, the relationships between energy and the dead racket for concealing real capital formation. I like to reduce it to one particular formula that is pretty easy for people to understand. It’s a classic quandary: that oil priced at over $75 a barrel in today’s dollars tends to crush economies, and oil priced under $75 a barrel in today’s dollars tends to crush oil companies. There is no real sweet spot between those two places. We’re ratcheting between them and each one of them entails a lot of destruction. That’s a terrible quandary that we’re in and it’s being expressed in banking and finance…and the people in charge of those things don’t really know what else to do except continue the deformation of institutions and instruments.

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Strong.

Iceland Prepares To End Currency Controls (Tel.)

Iceland plans to significantly ease capital controls for individuals and companies, marking the end of a regime that was described as the crutch for the Icelandic economy following the 2008 crisis. The Finance Ministry plans to put forward legislation on Wednesday to pave the way for the removal of capital controls for Icelanders who have been living with the restriction for eight years. The recommendations will mean that outward foreign direct investment will be unrestricted, but still subject to confirmation by the central bank.

Investment in foreign currency financial instruments will also be allowed and individuals will be authorised to buy one piece of property abroad each calendar year, irrespective of purchase price. Requirements, under penalty of law, to repatriate any foreign currency obtained abroad will also be eased and individual households will be given authorisation to buy foreign currency for travel. Iceland’s finance ministry said that next January the current ceiling on foreign investments will be raised. It is estimated that the changes in the bill will lead to a reduction of about 50-65pc in the number of requests for exemptions from the Foreign Exchange Act, which will speed up the processing time.

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The flipside of Soros.

‘I Want You Back,’ Cries East Europe as Emigrant Tide Erodes GDP (BBG)

Eastern Europe is borrowing a line from the Jackson 5 as it bids to turn a tide of emigration that’s eroding its economic prospects and compounding an already-gloomy demographic outlook. “I want you back” is the slogan Latvia has chosen to lure home citizens who’ve upped sticks to Europe’s west in search of more job opportunities and higher salaries. Poland’s Return program offers tips on jobs, housing and health care, while Romania is teaming up with private business, offering scholarships and hosting employment fairs to tempt back talented citizens. The campaigns have gained fresh impetus after the Brexit vote threw into doubt the future status of foreign workers in the U.K.

“The diaspora living abroad represent a huge untapped potential for their countries of origin,” said Rokas Grajauskas, an economist at Danske Bank who’s based in the Lithuanian capital of Vilnius. Stints abroad can be beneficial, instilling new skills and ways of thinking, he said. The hunt for greener pastures isn’t new. The Soviet collapse prompted an unprecedented outflow of eastern Europeans to the wealthier west, with EU membership and the 2008 financial crisis triggering further waves. The Baltic region suffered most over the past decade, the latest Eurostat data show. Making matters worse, much of the continent is grappling with low birth rates and aging populations.

Losing workers to other countries has already cost 21 central and eastern Europe nations an average of about 7 percentage points of GDP, according to the IMF, which predicts a hit of as much as 9 percentage points over the next 14 years should current trends continue. It recommends the EU maintain funding to ease migration pressures, and that countries improve labor-market conditions and engage with their diaspora abroad. As governments belatedly heed that last piece of advice, they may well recall other lines from the Jackson 5’s 1969 hit song. “I was blind to let you go,” the group sang. “I need one more chance.”

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Report due in 3 weeks.

Tsipras Revives Greek Bid To Seek Wartime Reparations From Berlin (Kath.)

Greece’s leftwing Prime Minister Alexis Tsipras on Tuesday revived the country’s bid to seek war reparations over Nazi atrocities in Greece. “We will go all the way, first diplomatically and then legally, if necessary,” Tsipras said during events marking the World War II massacre in the village of Kommeno, in Arta, northwestern Greece. More than 300 people were executed on August 16, 1943 at the village which was then torched by German forces. The findings of an intra-party committee which was set up to look into Greek claims for German war reparations are expected to be submitted to Parliament in early September. The committee wrapped up its probe on July 27.

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I bet you there are coup plotters among those 38,000.

Turkey To Free 38,000 From Prisons To Make Space For Alleged Coup Plotters (AP)

Turkey has issued a decree paving the way for the conditional release of 38,000 prisoners in an apparent move to make jail space for thousands of people who have been arrested after last month’s failed coup. The decree allows the release of inmates who have two years or less to serve of their prison terms and makes convicts who have served half of their term eligible for parole. Some prisoners are excluded: people convicted of murder, domestic violence, sexual abuse or terrorism and other crimes against the state. The measures would not apply for crimes committed after 1 July.

The justice minister, Bekir Bozdag, said the move would lead to the release of 38,000 people, adding it was not a pardon or an amnesty but a conditional release of prisoners. The government says the coup attempt on 15 July, which led to at least 270 deaths, was carried out by followers of the movement led by the US-based Muslim cleric Fethullah Gülen who have infiltrated the military and other state institutions. Gülen has denied any prior knowledge or involvement in the coup but Turkey is demanding that the US extradite him.

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Greece lives in fear. Because Merkel can’t give Turkey visa-free travel amid reports like this.

German Officials Say Erdogan Supports Militants (DW)

Citing a classified document from the Interior Ministry to representatives of the Left party on Tuesday the German public broadcaster ARD reported, that members of the government consider Turkey’s regime a supporter of militant groups in the Middle East. German officials appear to have publicly acknowledged, if in a classified document, President Recep Tayyip Erdogan’s weapons support for militants fighting the regime of Bashar al-Assad in Syria, which Turkish journalists have reported in the past. “Especially since the year 2011 as a result of its incrementally Islamized internal and foreign policy, Turkey has become a central platform for action for Islamist groups in the Middle East,” the German officials said, according to ARD.

German security officials also said Erdogan had an “ideological affinity” with Egypt’s Muslim Brotherhood, ARD reported. Suppressed under Hosni Mubarak’s dictatorship, the movement went on to produce Egypt’s first democratically elected president, Mohammed Morsi. Despite the “affinity,” Erdogan has been publicly at odds with the Muslim Brotherhood in the past though he has since also criticized current Egyptian President Abdel-Fattah el-Sissi, who overthrew Morsi in a 2013 coup. Neither the United States nor the EU considers the Muslim Brotherhood a terror organization. The German officials also said Erdogan supported Hamas, the democratically elected governing party in the Gaza Strip.

Turkey’s president has said as much in the past, having told the US news host Charlie Rose, that “I don’t see Hamas as a terror organization.” Though the United States and EU do list Hamas as a prohibited group, nations such as Norway, Switzerland and Brazil do not. “It is a resistance movement trying to protect its country under occupation,” Erdogan added in the 2011 interview, referring to the Israeli state, with which Turkey also enjoys diplomatic ties.

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Aug 112016
 
 August 11, 2016  Posted by at 9:47 am Finance Tagged with: , , , , , ,  1 Response »
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G. G. Bain The new Queensboro (59th Street) Bridge over the East River, NYC 1909


‘Deutsche Bank Must Be Nationalized’ (Express)
Deutsche Bank Capital Gap Larger Than Its Entire Market Cap (ZH)
Beware The EU Dog That Doesn’t Bark (IE)
It’s Not Going To Be Pretty: German GDP Set To Stall (CNBC)
The Worst Place In The World To Bank (Simon Black)
BLS Just “Revised” Away Obama’s “Fastest” Wage Growth Since The Crisis (ZH)
Erdogan Warns Bank Resistance to Interest Cuts Could Be Treason (BBG)
Gravity Always Wins -ZZZZZZ- (Jim Kunstler)
Greek PM Calls on Europe to Ease Greek Debt as it Did for Germany in 1953 (GR)
Greek Public Health Services On Brink Of Collapse (Kath.)
Julian Assange To Be Questioned Inside Ecuador Embassy (G.)

 

 

Merkel must find a way to do what she forbids others to do.

‘Deutsche Bank Must Be Nationalized’ (Express)

A top economist has warned that Germany’s biggest bank is teetering on the edge of crisis and they only way to protect it against future shocks is to nationalise it. Martin Hellwig said stress tests carried out by the European Central Bank revealed the Deutsche Bank would be left in a precarious position in the event of another financial crisis. While it would probably not go bust in a fresh downturn – he predicted the bank which is crucial to the German economy would face serious equity problems. He said: “Putting it short: for a long and serious crisis there simply wouldn’t be enough money.” The Berlin government has previously only bailed out the banks under extreme circumstances but Mr Hellwig, director of the Max Planck Institute for Research on Collective Goods, backed the idea of using taxpayers’ money to fund public sector investment.

He said: “Turning banks into community property through public funds is not only possible but also necessary. “If a bank is no longer able to help itself, the federal government should take on shares and exercise the related control functions.” He continued: “In Sweden the state stepped in in 1992, filleted out unprofitable divisions and left stable companies. “It was a successful, temporary nationalisation. The goal had always been to enable a clean-up and to then get out again.” He said nationalisation may not have been part of Germany’s plan since the last financial crisis but unusual scenarios sometimes require desperate measures and would be appropriate for banks as such a large part of the economy is entirely dependent on them.

Mr Hellwig said: “I assume that this tool will be used when it comes to an institution where there are fear that a settlement procedure would bring significant system damage.” Banks that are “too big to fail” could be saved with tax-euros and the investment might even pay a return for the state. Another possible effect of state intervention would be the inevitable modernisation that would improve the bank which has seen its retail divisions become barely profitable. Mr Helwigg said: “From the outside, one gets the impression that in the last 20 years the investment bankers controlled the bank and sucked it dry. Nationalisation in an emergency could be a step towards more rationality in the banking world.”

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Creative accounting saves the day.

Deutsche Bank Capital Gap Larger Than Its Entire Market Cap (ZH)

After the ECB concluded its latest annual stress test, which as expected found no problems with Europe’s largest banks instead scapegoating Italy’s well-known troubled banks in results that were widely discredited by the market, yesterday in an unexpected outcome, German economic research institute ZEW found that Germany’s largest bank, Deutsche Bank, had the highest potential capital shortfall, as much as €19 billion in a study of 51 European banks using U.S. Federal Reserve stress test methods. The capital gap is greater than DB’s entire market cap. Using the Fed’s approach, and thus a far more credible approach than that proposed by the ECB, the 51 European banks showed a total capital shortfall of €123 billion, with the largest gaps at Deutsche Bank, Societe Generale (€13 billion) and BNP Paribas (€10 billion).

“European banks lack sufficient capital to offset the losses expected in the case of another financial crisis,” the ZEW said in a statement on Tuesday, cited by Reuters. ZEW Finance Professor Sascha Steffen worked with New York University Stern School of Business and the University of Lausanne researchers to run stress tests used by the Fed in 2016 and the European Banking Authority (EBA) in 2014 to compare capital needs and leverage. While Societe Generale and BNP have market capitalisations of 26 billion euros and 55 billion euros, respectively, well above the study’s theoretical capital gap, Deutsche Bank would find itself in trouble if the ZEW calculation is correct as it has a market capitalisation of less than €17 billion.

Which is why it promptly disagreed with ZEW’s calculation. “There is an official EBA stress test that checked the capital backing against very tough and adverse conditions and this showed there was no acute capital need at Deutsche Bank,” the bank said in a statement in response to the study. [..]

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Guess why Schäuble didn’t want Spain, Portugal fined.

Beware The EU Dog That Doesn’t Bark (IE)

Sometimes the most important thing that happens is what doesn’t happen — or, to paraphrase Sherlock Holmes, it’s the dog that doesn’t bark in the night. The lack of response to the European Commission’s non-enforcement in Spain and Portugal of the terms of the Stability and Growth Pact (SGP) is one of those times. According to SGP rules, the Commission should have proposed a fine to be levied on Spain and Portugal for overshooting their fiscal deficit targets by a wide margin. The fine would have been largely symbolic, but the Commission seems to have decided that the symbolism wasn’t worth it. And it was not only the Commission that chose not to bark; the rest of Europe remained silent as well. Not even Germany, the European Union’s leading austerity watchdog, perked up.

In fact, there have been reports that German finance minister Wolfgang Schäuble lobbied several commissioners not to impose fines on Spain or Portugal. The German financial press, which often criticises the European Commission for being too lax, barely registered the decision. What explains the silence? There is precedent for fiscal leniency in the EU. In 2003, all three large eurozone countries (France, Germany, and Italy) were running deficits in excess of 3% of GDP, the upper limit established by the SGP. Toward the end of that year, it was clear that France and Germany (then with record-high unemployment) were not fulfilling their deficit-reduction commitments. But, unlike today, the Commission did bark (even if it could not really bite). It proposed ratcheting up the SGP’s so-called excessive deficit procedure.

The proposal did not entail any fines; rather, it focused on the stage before fines would be considered. Nonetheless, EU finance ministers strenuously opposed it, largely for political reasons. The clash occupied the front pages of newspapers all over Europe, especially in Germany, where the press, like the political opposition, was eager to chastise Chancellor Gerhard Schröder’s government for its failure to uphold fiscal rectitude. There were heated debates on the fiscal rules, and the Commission’s role in enforcing them. In short, everyone was howling.

Despite the resistance, the Commission decided to plough ahead and censure Germany and France. With that decision, it sent a clear message that it took seriously its responsibility to administer the EU treaties — so seriously, in fact, that it would enforce rules with which it did not necessarily agree. Indeed, the Commission’s then-president, Romano Prodi, had already harshly criticised the SGP’s rigidity. Ultimately, however, political interests won the day, and the EU finance ministers voted down the proposal.

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There goes the eurozone.

It’s Not Going To Be Pretty: German GDP Set To Stall (CNBC)

Europe’s powerhouse could be stalling. German economic growth looks set to show a dip in the second quarter, raising questions about the health of the euro zone’s largest economy in the wake of the Brexit vote. Economists polled by Reuters expect Germany’s GDP figures, due Friday morning, to increase by a mere 0.2 percent in the months from April to June, compared with 0.7 percent growth in the previous three months. Experts said the export-driven economy is struggling to sustain momentum in an uncertain global environment that encompasses the unsteady emerging economies and the uncertainty surrounding Brexit. This has sparked fears among Europe-watchers as the country is by far the 28-country European Union’s biggest economy and when Germany catches a cold, it affects the rest of the region.

“No matter how you look at it, the economy is slowing,” said Carl Weinberg, chief economist at High Frequency Economics. “The economic trend is clear. It is not pretty.” Weinberg pointed to retail sales, industrial production, and export data stalling Germany’s growth engine. The country’s economic expansion, fueled by robust consumption and international trade, has been a bright spot in the euro zone in recent years. But global developments, including a slowdown in emerging economies from lower commodity prices as well as the U.K.’s vote to leave the European Union, could weigh on the outlook. “All of the risks are to the downside,” Weinberg said.

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Europe.

The Worst Place In The World To Bank (Simon Black)

Here’s the reality: Europe’s banking system is toast. Wholesale interest rates on the continent are already negative. Negative interest rates essentially penalize any bank that tries to be responsible and hold extra reserves. What an unbelievably stupid policy. Rather than encourage banks to be conservative with their customers’ deposits, the ECB is practically forcing them to make as many loans as possible. So it’s not exactly much of a shocker to find out that, in their haste to loan out almost 100% of their customers’ money, many of the loans went belly-up. EU data showed that by the end of September 2015, 17% of Italian loans were non-performing. The non-performing loan rate is a shocking 43.5% in Greece, and 50% in Cyprus. (That data is nearly a year old, so the numbers are worse now.)

This is a huge problem. Banks have lost a big chunk of their depositors’ savings. There’s a lot of talk now about government bail-outs. And some of that has already taken place. In Italy, the government already had to step in with a €150 billion guarantee just to forestall a potential bank run. But the Italian government is one of the most bankrupt in the world, with a debt level that exceeds 130% of GDP; they’re in no position to bail anyone out. That’s why, as of January 2016, European “bail in” legislation has taken effect. The rules are already in place whereby depositors can be held liable for the idiotic financial decisions of their banks. If the bank goes under, they can take your money down with it.

It’s already happened. In 2013, the government of Cyprus froze EVERY bank account in the country, locking every single depositor out of his/her savings. These risks are very real. Banks are illiquid and overleveraged. They’ve made far too many bad loans with their customer’s savings. The governments are in no financial position to bail them out. And the bail-in legislation already exists to steal from depositors. What’s the point of holding money in this kind of system, especially when the biggest benefit you could hope for is about a 0.1% yield on your savings account? When you step back think about the big picture, the conclusion is pretty obvious: don’t hold money in such a precarious banking system. And yet, it’s very seldom that anyone really thinks about his/her bank.

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More creative accounting.

BLS Just “Revised” Away Obama’s “Fastest” Wage Growth Since The Crisis (ZH)

Back in February 2016, Obama took to the stage at a press conference to boast about job growth and “most importantly” how the stronger job market was “finally starting to translate into bigger paychecks.” He also took the opportunity to jab at Republicans saying the strong jobs data was “inconvenient for Republican stump speeches” as they continued their “doom and despair tour.” Obama’s specific comments were: “Most importantly, this progress is finally starting to translate into bigger paychecks. Over the past six months, wages have grown at their fastest rate since the crisis. And the policies that I’ll push this year are designed to give workers even more leverage to earn raises and promotions. So, as I said at my State of the Union address, the United States of America, right now, has the strongest, most durable economy in the world. I know that’s still inconvenient for Republican stump speeches as their doom and despair tour plays in New Hampshire. I guess you cannot please everybody.”

Turns out that revisions to historical real wage growth figures issued by the Bureau of Labor Statistics yesterday are actually fairly “inconvenient” for Obama. Time to get the band back together for a reunion of that “doom and despair” tour. In yet another stunning tribute to the “accuracy” and “consistency” of economic propagandadata being reported by our government agencies, the Bureau of Labor Statistics yesterday reported a massive downward revision of the 1Q 2016 YoY real wage growth from +4.2% to -0.4% (a 4.6% swing).

But we wouldn’t worry much about it because the revisions resulted in only “small” changes in the underlying data according to the BLS: “Indexes of all hours-related measures in the business, nonfarm business, and nonfinancial corporate sectors show historical revisions because hours in the base year of 2009 were revised; resulting revisions to percent changes are small.” We guess “small” would be one way to describe a 4.6% swing in YoY real wage growth…we would probably choose something more like “abysmal” or “disastrous” but we’re not ones to split hairs.

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He feels invincible.

Erdogan Warns Bank Resistance to Interest Cuts Could Be Treason (BBG)

Turkish President Recep Tayyip Erdogan ratcheted up pressure on the nation’s banks, saying he would consider resistance to his calls to cut mortgage rates as an act of treason. Banks will be held “accountable” should they “act negatively in the matter of loans and interest rates,” Erdogan told members of Turkey’s Exporters Association at his palace in Ankara on Wednesday. “I would consider it as treason if the banks don’t open the way for investors.” Erdogan has demanded that lenders cut mortgage rates to an annual rate of about 9% from the market average of around 13.7% as he seeks to shore up the economy following the failed coup last month.

Lenders TC Ziraat Bankasi, Sekerbank, BNP Paribas unit Turk Ekonomi Bankasi as well as Denizbank, owned by Russia’s Sberbank, have all recently lowered interest charges to levels closer to what the president is demanding. Erdogan said he would “push the banking sector” to cut rates amid “disagreement between me and bankers.” He will convene with executives of Turkey’s banks soon in a meeting to be attended by Prime Minister Binali Yildirim, he said. The reduced rates also follow a decision by the central bank to cut the amount of cash commercial banks must keep locked up with the regulator – the so-called lira reserve requirement ratio – by half a %age point on Tuesday. It also allowed lenders to use a small amount of foreign currency and gold as reserves for lira liabilities. “You won’t lose money” if you cut rates, Erdogan told business groups in Ankara on Aug. 4. “Now is the time to do this and you can earn from the masses.”

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“..that’s what happens when debts can’t be repaid: money vanishes.”

Gravity Always Wins -ZZZZZZ- (Jim Kunstler)

What we face is discontinuity, the end of old spent dynamics and the beginning of new dynamics. Monetary deflation has been underway for years because that’s what happens when debts can’t be repaid: money vanishes. Now we will encounter the other dimensions of deflation: the contraction of manufacturing, trade, wages, and all the familiar markers of expansion in the waning techno-industrial era.

The many dodges and stratagems tried by the supreme central bankers to work around contraction only produce ever greater distortions in markets, currencies, and the distribution of dwindling capital, leading to a grand battle over the table-scraps of history, i.e. the rise of radical politics world-wide, including Islamic Jihadism, and the western response in Trump, LePen, and the nascent Germanic right-wing. These current manifestations may be mild versions of what’s coming. Nobody in power can come to grips with the reality of our situation. We have to salvage what we can and get smaller, becoming a more modest presence here, or the planet itself is going to hit the delete button on us.

It rubs against the current religion of progress, which has replaced the other old cultic practices. The choice now is between time-out or game over, and the debate over these things is absent from the arena. The aforesaid distortions in markets, currencies, and capital are spinning out in an ever broader, centrifugal gyre, coinciding, as chance would have it, with the most peculiar election in modern times. The incoherence and deceit on both sides is far beyond even the extravagant American norms of dauntless political bullshit. We literally have no idea what we’re doing in this country, or what we’re actually wishing for. The financial structures of everyday life look more fragile than ever. Gravity always wins.

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Broken record.

Greek PM Calls on Europe to Ease Greek Debt as it Did for Germany in 1953 (GR)

Prime Minister Alexis Tsipras has called on Europe to offer debt relief to Greece, on the 63rd anniversary of the generous debt write-off to Germany (August 8, 1953). In a message he posted on Facebook, the Greek prime minister reminds Europe that the 1953 London Debt Agreement secured the write-off of 50% of Germany’s External Debts. Tsipras argues that Europe should do the same and grant Athens substantial debt relief, in order for the country to come out of the economic crisis. The 1953 agreement in favor of Germany covered money owed before and after WWII and reduced West German debt by 50% and stretched the repayment period to 30 years. This helped Germany recover after the defeat and later become a world economic power.

“On this day, on August 8, 1953, a nearly six-month negotiation between Germany and its creditors was concluded, with the signing of the London Debt Agreement. The debt-ridden and war-torn Germany enjoys the ultimate move of solidarity in modern European history by having 60% of its foreign debt cancelled, its internal debts restructured and a trade surplus clause,” Tsipras wrote, stressing that Greece was one of the countries that signed the deal. The Greek PM also wrote that Greece’s debt relief has been a goal of SYRIZA from the start, even when in opposition. He also wrote that after the May 24 agreement between Greece’s and euro zone finance ministers, debt easing will be discussed again in 2018, after the successful completion of the country’s bailout program.

“Europe must rise to the occasion and turn its gaze to the future by signing a new social contract that will guarantee the prosperity of its people,” Tsipras added.

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Everything falls apart. This is why I ask for your help

Greek Public Health Services On Brink Of Collapse (Kath.)

The National Health Service (ESY) is on the brink of collapse after six years of underfunding and a freeze on hirings as a result of Greece’s protracted financial crisis, according to a damning report issued on Tuesday by the Panhellenic Federation of Employees at Public Hospitals (POEDIN) which blames the Health Ministry and Prime Minister Alexis Tsipras. “Hospitals, medical centers, EKAV [ambulance services] are in a state of dissolution,” POEDIN said in a statement, adding that the premier and Health Ministry officials will “soon have to answer for the destruction of ESY.” Painting a dire picture, the report notes a fundamental lack of medical equipment (even ambulance stretchers), the shutdown of intensive care units and operating theaters, as well as shortages in doctors and staff at medical units across the country.

The situation at the Geniko Kratiko Athinon Gennimatas Hospital is particularly acute as 40% of positions across all its medical departments are vacant, while different departments have been merged to allow overworked staff to take a five-day summer vacation. According to POEDIN, one of the two CT scanners at the hospital is often out of order for long periods of time, while its two x-ray machines don’t work, forcing patients and doctors to pay to use others at private clinics and hospitals. The report also warns that the Erythros Stavros Hospital in Athens will be forced to shut down if orthopedic doctors are not hired soon, as most are now about to retire, while 70% of administrative positions are vacant.

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Let’s see it happen first. Sweden delayed it for 4 years.

Julian Assange To Be Questioned Inside Ecuador Embassy (G.)

Julian Assange will be questioned by Swedish prosecutors inside the Ecuadorean embassy in London, in a possible breakthrough to the impasse over his case. The Ecuadorian attorney general delivered a document agreeing to a request by the Swedish prosecutor to question the founder of WikiLeaks. He is wanted for questioning over a rape allegation, which he denies. If he goes to Sweden he believes he will be taken to the US because of the activities of WikiLeaks. Assange has been living inside the embassy for more than four years and has been granted political asylum by Ecuador. He has offered to be questioned inside the embassy but Swedish prosecutors have only recently agreed.

A statement issued in Ecuador said: “In the coming weeks a date will be established for the proceedings to be held at the embassy of Ecuador in the United Kingdom. “For more than four years, the government of Ecuador has offered to cooperate in facilitating the questioning of Julian Assange in the Ecuadorian embassy in London, as well as proposing other political and legal measures, in order to reach a satisfactory solution for all parties involved in the legal case against Julian Assange, to end the unnecessary delays in the process and to ensure full and effective legal protection. “In line with this position, Ecuador proposed to Sweden the negotiation of an agreement on mutual legal assistance in criminal matters, which was signed last December and which provides the legal framework for the questioning.”

The statement said the proceedings did not affect the recent opinion of the Working Group on Arbitrary Detentions of the United Nations, which found that Assange was being arbitrarily detained. The working group called for Assange to be released and given compensation for violation of his rights. The Ecuador statement added: “Ecuador’s Foreign Ministry reiterates its commitment to the asylum granted to Julian Assange in August 2012, and reaffirms that the protection afforded by the Ecuadorian state shall continue while the circumstances persist that led to the granting of asylum, namely fears of political persecution.”

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Aug 052016
 
 August 5, 2016  Posted by at 9:46 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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G.G. Bain Three-ton electric sign blown into Broadway, New York. 1912


New Tool for Central Banks: Buying Corporate Bonds (WSJ)
UK Interest Rate Cut Is A ‘Hammer Blow’ For Workplace Pensions (G.)
UK Labor Market Enters “Freefall” After Brexit Vote (R.)
China Regulator Tells Banks to Evergreen Loans of Troubled Companies (ET)
For Europe’s Elite the Party Lives On After Brexit (BBG)
Tsipras Eyes Southern EU Alliance To Back Debt Deal (Kath.)
The 60-Year Decay of American Politics (Bacevich)
US Unlikely To Extradite Imam Turkey Blames For Coup (CNBC)
How Europe Is Getting Rich by Fueling Its Own Terror Epidemic (TAM)
War Or Peace: The Essential Question For American Voters On November 8th (RI)

 

 

Maybe we need to remind ourselves from time to time that we do NOT have functioning markets. Central banks buying up corporate bonds is of course about as distorting for markets as it comes.

We will yet take debt to its inevitable conclusion.

New Tool for Central Banks: Buying Corporate Bonds (WSJ)

Central banks have a new favorite tool for boosting lackluster growth: corporate-debt purchases. Two months after the ECB started buying corporate bonds, the Bank of England said Thursday that it would adopt a similar strategy. It will buy as much as £10 billion ($13.33 billion) of U.K. corporate debt starting in September as part of a larger package of stimulus measures, including £60 billion of additional government-bond purchases. The move, investors and analysts say, is likely to drive down borrowing costs even further around the globe for large companies already benefiting from ultralow interest rates.

But the decision again raises concerns about possible side effects of unconventional monetary policies, including excessive risk taking by investors, and faces substantial skepticism from investors who doubt such programs meaningfully address the global economy’s core deficiencies, centering on soft demand for goods and services. Already this year, negative-interest-rate policies and aggressive bond buying by central banks in Japan and Europe have helped create trillions of dollars of negative-yielding government bonds. That in turn has driven down corporate-bond yields, leading to robust debt issuance among companies in the U.S., if not all developed countries.

In the U.S., the average yield of investment-grade corporate bonds was 2.85% Wednesday, compared with 3.67% at the end of 2015, according to Barclays data. The average spread to Treasury yields also has shrunk, to 1.48 percentage points from 1.72. Companies have issued $519.2 billion of investment-grade corporate bonds this year, just below their pace at this time last year when issuance ultimately reached a record $794.6 billion, according to Dealogic.

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Wait till the stock market crashes, that’s when pensions will be hit.

UK Interest Rate Cut Is A ‘Hammer Blow’ For Workplace Pensions (G.)

Pension savers could be big losers from the Bank of England rate cut, as critics warned of a “hammer blow” to workplace schemes and forecast that pension payouts would fall to record lows. Within minutes of the Bank’s decision to cut the base rate to 0.25%, yields on government bonds, otherwise known as gilts, dived to all-time lows. Companies that still offer final salary pension schemes will as a result see the cost of maintaining them soar. Hymans Robertson, a pensions consultancy, said the rate cut meant a £70bn increase in the amount company schemes needed to meet their commitments to scheme members, to a total of £2.4trn. “To put this in context, UK GDP currently stands at £1.8trn. This has pushed the aggregate UK [company scheme] deficit up to £945bn – the worst it has ever been,” it said.

Companies will have to find the money to fill the gap in their pension schemes, or like most already have, close them to new members. In extreme cases, some may attempt to redraw pension contracts to cap their future liabilities. Patrick Bloomfield of Hymans Robertson said: “Pension schemes are being hit hard by recent events, but we need to remember that the impact will not be felt equally by all … There are schemes with robust funding plans that don’t take more risk than they need to, which will be able to weather this. The gap between pension schemes that hedged their risks and those that haven’t is starker than ever before.”

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A forced reset is not necessarily a bad thing.

UK Labor Market Enters “Freefall” After Brexit Vote (R.)

Britain’s labour market entered “freefall” after the vote to leave the European Union, with the number of permanent jobs placed by recruitment firms last month falling at the fastest pace since May 2009, a survey showed on Friday. The monthly report from the Recruitment and Employment Confederation (REC) showed starting salaries for permanent jobs rose in July at the slowest pace in more than three years. Overall, the survey added to evidence that business confidence and activity slowed sharply after the June 23 vote to leave the European. “The UK jobs market suffered a dramatic freefall in July, with permanent hiring dropping to levels not seen since the recession of 2009,” said REC chief executive Kevin Green. “Economic turbulence following the vote to leave the EU is undoubtedly the root cause.”

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Different countries have different ways of hiding their debt.

China Regulator Tells Banks to Evergreen Loans of Troubled Companies (ET)

On the surface, China is talking the reform talk. But is it also walking the walk? There are many examples to demonstrate it isn’t. The most recent one is a directive from the China Banking Regulatory Commission (CBRC) to not cut off lending to troubled companies and evergreening bad loans. This first reported by The Chinese National Business Daily on Aug. 4. “A Notice About How the Creditor Committees at Banks and Financial Institutes Should Do Their Jobs” tells banks to “act together and not ‘randomly stop giving or pulling loans.’ These institutes should either provide new loans after taking back the old ones or provide a loan extension, to ‘fully help companies to solve their problems,’” the National Business Daily writes.

“It’s big news. A couple of weeks ago they were threatening Liaoning Province to cut off all lending to them if they didn’t tighten loan standards,” said Christopher Balding, a professor of economics at Peking University in Shenzen. “This is a pretty significant turn-around for them to do and it indicates how significant the problem is.” The official reform narrative is espoused in this Xinhua piece which claims China has to reform because there is no Plan B. “Supply-side structural reform is also advancing as the country moves to address issues like industrial overcapacity, a large inventory of unsold homes and unprofitable ‘zombie companies.’” Clearly resolving the bad debt of zombie companies is not high on the priority list.

Goldman Sachs complained in a recent note to clients that companies can default on payments and often nothing happens. The investment bank notes that companies like Sichuan Coal default on payments of interest and principal for weeks or months and then maybe pay creditors later. The company in question defaulted on 1 billion yuan ($150 million) worth of commercial paper in June but made full payments later during the summer, a somewhat arbitrary process. Another case is Dongbei Special Steel, which missed at least five payments on $6 billion of debt since the beginning of the year, but has done nothing to resolve the problem. This is why creditors wrote an angry letter to the local government to help resolve the issue.

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Why the EU can’t be reformed.

For Europe’s Elite the Party Lives On After Brexit (BBG)

Europe’s political elite may have missed the Brexit memo. Six weeks since U.K. voters rebuked the ruling class by choosing to leave the European Union, the region’s establishment has reacted by carrying on as before. The revolving door of former policy makers joining the finance industry has spun again, with European Commission President Jose Manuel Barroso signing up with Goldman Sachs and former Bank of England Governor Mervyn King joining Citigroup. Meanwhile departed Prime Minister David Cameron is facing criticism for nominating numerous aides for honors, including his wife’s stylist.

The perception of elite coziness risks further disenfranchising those backing Brexit, and peers across the continent who share the feeling of being left behind by the powerful and wealthy in the era of globalization and financial crises. A potential upshot is more support for populist parties that tap into alienation such as the U.K. Independence Party or France’s National Front. “Anything that doesn’t show government or public institutions in a good light merely confirms some of the attitudes that probably contributed to the Brexit vote,” said Chris Roebuck, a visiting professor at London’s Cass Business School. For some voters, “there is a group of people out there who aren’t normal people like you or me, who have benefited since the financial crisis – because they’re an elite.”

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Tsipras already lost the ‘fight’. Beppe Grillo may lead such an alliance, not Tsipras.

Tsipras Eyes Southern EU Alliance To Back Debt Deal (Kath.)

Prime Minister Alexis Tsipras is planning to forge an alliance with the leaders of other countries in Southeastern Europe in a bid to bolster Greece’s bid for a debt restructuring and lower the primary surplus targets set by creditors. Tsipras is expected to explore the prospects for such an alliance at a meeting of European socialist heads of state scheduled to take place in Paris on August 25, particularly with Italian Prime Minister Matteo Renzi and French President Francois Hollande. The meeting had originally been planned for May 20 in Rome but was postponed after an Egyptian passenger plane crashed in the Mediterranean. The Greek premier’s aim, according to sources, is to arrange a subsequent meeting in Athens, probably on September 9, and in any case before a scheduled European Union leaders’ summit on September 16, to further explore the prospect of forming a Southeastern European alliance.

Tsipras and Renzi had agreed at their last meeting on the sidelines of an EU summit on June 28 on the need for southern states to create their own growth-focused agenda, compared to the austerity prescribed by Northern European countries. At the time, Hollande and Portuguese Prime Minister Antonio Costa had appeared open to the prospect of such an alliance. In Athens, sources close to Tsipras believe the time is right to pursue the creation of a strong southern “axis” to counter the stance of countries in Northern Europe. The idea of a united front of Southern European countries was first mooted by leftist SYRIZA before the general elections of January 2015 that brought it to power.

At the time, Tsipras thought Athens would attract the solidarity of Southern European countries in SYRIZA’s rhetoric against austerity and that those countries would stand by Greece in its negotiations with international creditors. That solidarity did not transpire then. However, sources close to Tsipras believe the current situation is potentially more beneficial for Athens as the protracted imposition of austerity on Greece and elsewhere has increased the pressure on countries in Southern Europe. Athens is also hopeful about forming a common front on another crucial issue that has divided Southern and Northern European countries: the ongoing refugee crisis. Indications by Turkey that it might not honor a migrant deal with the EU have fueled concerns in Greece that a slowed migrant influx could pick up again.

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Nostalgia. “And don’t kid yourself that things really can’t get much worse. Unless Americans rouse themselves to act, count on it, they will.”

The 60-Year Decay of American Politics (Bacevich)

Presidential campaigns today are themselves, to use Boorstin’s famous term, “pseudo-events” that stretch from months into years. By now, most Americans know better than to take at face value anything candidates say or promise along the way. We’re in on the joke — or at least we think we are. Reinforcing that perception on a daily basis are media outlets that have abandoned mere reporting in favor of enhancing the spectacle of the moment. This is especially true of the cable news networks, where talking heads serve up a snide and cynical complement to the smarmy fakery that is the office-seeker’s stock in trade. And we lap it up. It matters little that we know it’s all staged and contrived, as long as — a preening Megyn Kelly getting under Trump’s skin, Trump himself denouncing “lyin’ Ted” Cruz, etc., etc. — it’s entertaining.

This emphasis on spectacle has drained national politics of whatever substance it still had back when Ike and Adlai commanded the scene. It hardly need be said that Donald Trump has demonstrated an extraordinary knack — a sort of post-modern genius — for turning this phenomenon to his advantage. Yet in her own way Clinton plays the same game. How else to explain a national convention organized around the idea of “reintroducing to the American people” someone who served eight years as First Lady, was elected to the Senate, failed in a previous high-profile run for the presidency, and completed a term as secretary of state? The just-ended conclave in Philadelphia was, like the Republican one that preceded it, a pseudo-event par excellence, the object of the exercise being to fashion a new “image” for the Democratic candidate.

The thicket of unreality that is American politics has now become all-enveloping. The problem is not Trump and Clinton, per se. It’s an identifiable set of arrangements — laws, habits, cultural predispositions — that have evolved over time and promoted the rot that now pervades American politics. As a direct consequence, the very concept of self-government is increasingly a fantasy, even if surprisingly few Americans seem to mind.

At an earlier juncture back in 1956, out of a population of 168 million, we got Ike and Adlai. Today, with almost double the population, we get — well, we get what we’ve got. This does not represent progress. And don’t kid yourself that things really can’t get much worse. Unless Americans rouse themselves to act, count on it, they will.

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Can’t see US handing Gulen over on a platter, but Turkey is not done demanding his head. And many others.

US Unlikely To Extradite Imam Turkey Blames For Coup (CNBC)

U.S. officials weren’t likely to extradite Fethullah Gulen, an imam Turkey blames for plotting the recent failed coup, The Wall Street Journal reported Thursday, citing people familiar with the discussion. Those people said the evidence presented so far by Turkey wasn’t convincing and U.S. officials were also concerned about Turkish officials’ threatening public statements, which made the fairness of his potential treatment questionable, the report said. Gulen, who lives in Pennsylvania, has denied wrongdoing, the report said.

Separately, Reuters reported that Turkey’s President Tayyip Erdogan pledged on Thursday to cut off revenues from businesses tied to the 75-year-old Gulen, which include schools, firms and charities. Even before the failed coup, authorities in Turkey had seized Islamic lender Bank Asya, closed media businesses and arrested businessmen on accusations of funding the imam’s movement, Reuters reported. The failed coup, which took place on July 15, left more than 230 dead. Since then, more than 60,000 people across various branches of government have been detained, suspended or put under investigation, Reuters reported. That’s spurred concerns Erdogan was cracking down on all dissent.

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“68 flights that took place within 13 months transported weapons and ammunition to the Middle East, including to NATO member Turkey, which in turn “funnelled arms into brutal civil wars in Syria and Yemen.”

How Europe Is Getting Rich by Fueling Its Own Terror Epidemic (TAM)

Though Europe does not have the rates of gun violence the United States continues to grapple with, European governments have made over a billion euros by fueling gun violence in the Middle East and North Africa. A report conducted by a team of reporters from the Balkan Investigative Reporting Network (BIRN) and the Organized Crime and Corruption Reporting Project (OCCRP) found a group of European nations has been funneling arms into the Middle East region since 2012, making at least 1.2 billion euros in the process. According to the report, 68 flights that took place within 13 months transported weapons and ammunition to the Middle East, including to NATO member Turkey, which in turn “funnelled arms into brutal civil wars in Syria and Yemen.”

The report also notes that these flights make up only a small portion of the 1.2 billion euros in arms deals between Europe and the Middle East since 2012. The report’s conclusions are horrifying, to say the least. The report states: “Arms export licenses, which are supposed to guarantee the final destination of the goods, have been granted despite ample evidence that weapons are being diverted to Syrian and other armed groups accused of widespread human rights abuses and atrocities.” Considering Europe is battling a continually rising terrorist threat, they seem to be going about tackling this issue the wrong way. Surely the best way to counter terrorism is to cease funding it in the first place.

One astounding aspect of the report is that the lucrative war-profiteering business involves nations the world would not usually regard as overly-interested in war. The countries contributing to the rising terror threat, as identified by the report, are Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, and Romania, among others. This report adds to the already glaring problem of European countries making billions of dollars off the death and destruction of Middle Eastern civilian life. The Stockholm International Peace Research Institute (SIPRI) found the United Kingdom was second only to the United States in arms sales, making up 10.4% of the total $401 billion worth of arms sold around the world for the 2014 period.

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Trump for Peace. We have 3 months left to get used to that.

War Or Peace: The Essential Question For American Voters On November 8th (RI)

In matters of substance as opposed to character assassination that both parties’ candidates have engaged in freely, what separates the candidates and makes it worthwhile to register and vote on November 8th is the domain of international relations. This, as a general rule, is the only area where a president has free hands anyway, whatever position his party holds in the Congress. Here the choice facing voters is stark, I would say existential: do we want War or Peace? Do we want to pursue our path of global hegemony, which is bringing us into growing confrontation with Russia, meaning a high probability of war, (the policy of Hillary Clinton), or do we want a harmonious international order in which the U.S. plays its role at the board of governors, just like other major world powers (the policy of Donald Trump).

Let me go one step further and explain what “war” means, since it is not something that gets much attention in our media, whereas it is at the top of the news each day in Russia. “War” does not mean Cold War-II, a kind of scab you can pick to indulge a pleasure in pain that is not life threatening. War means what our military like to call “kinetics” to mask the horror of it all. It means live ammunition, ranging from conventional to thermonuclear devices that can devastate large swathes of the United States if we play our hand badly, as would likely be the case for reasons I explain below should Hillary and her flock of Neocon armchair strategists take the reins of power in January 2017.

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Dec 052015
 
 December 5, 2015  Posted by at 7:15 pm Finance Tagged with: , , , , , ,  3 Responses »
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Yannis Bahrakis Witnessing the refugee crisis 2015

Perhaps the best way to show what a mess Europe is in is the €3 billion deal they made with Turkey head Erdogan, only to see him being unmasked by EU archenemy Vlad Putin as a major supporter, financial and who knows how else, of the very group everyone’s so eager to bomb the heebees out after Paris. It could hardly have been more fitting. That’s not egg on your face, that’s face on your egg.

But Brussels thinks it’s found a whipping boy for all its failures. Greece. It’s fast increasing its accusations against Athens’ handling of the 100s of 1000s of refugees flooding the country. Everything that goes wrong is the fault of Greece, not Brussels. The EU has so far given Greece €30 million in ‘assistance’ for the refugee crisis, while the country has spent over €1.5 billion in money it desperately needs for its own people. But somehow it’s still not done enough.

The justification given for this insane shortfall is that Greece doesn’t blindly follow all orders emanating from Europe’s ‘leaders’. Orders such as setting up a joint patrol of the Aegean seas with … yes, Erdogan’s Turkey. Where Greece gets next to nothing as the children keep drowning, Turkey gets €3 billion and a half-baked promise to join the Union sometime in the future.

Which was never going to happen, the EU would blow up before Turkey joins and certainly if it does, and most certainly now that Russia’s busy detailing the link between the Erdogan cabal and Europe’s supposed new archenemies -move over Putin?!, which, incidentally, are reason for France to ponder a kind of permanent state of emergency; ostensibly, this is Hollande’s way of exuding confidence. ‘We must protect our way of life’.

Given Schengen -while it lasts-, which effectively erases all frontiers, this de facto means permanent emergency across the entire EU. And that, to a degree, though the two may seem unrelated, plays into the EU’s insistence to station foreign border guards (military police) at Greek borders. A, we can’t put it in different words, completely insane demand to which Alexis Tsipras’ government has apparently even acceded.

Insane because once you have foreigners deciding who can enter or leave your country, you’re effectively a country under occupation. It really is that simple. This latest attempt at power grabbing on the part of Brussels could have some ‘unexpected side effects’, though. And that may be a good thing.

We are not specialists in the Greek constitution -terribly hard to read-, but we very much question whether an elected government can decide to give up its nation’s sovereignty this way. Two -related- issues here are: 1) does the EU have the legal capacity to force this (EU border guards agency Frontex) on a member state, and 2) does Tsipras have the legal capacity to sign over the sovereignty of his country to foreigners?

Brussels may claim that Athens voluntarily ‘invited’ in German and Polish ‘officers’, but that’s far short of even half the story. EU countries have been complaining about the way Greece has dealt with the refugee crisis, stating that it is not capable of protecting its borders, which it ‘should’ under Schengen.

Nonsense of course. Athens is very capable of protecting its borders, but it has stated -quite correctly, it would seem- that it protects its borders from enemies, and the refugees are not enemies. The reason the refugees keep arriving -and/or drowning-, mind you, has a lot more to do with Angela Merkel’s ‘invitation’ for them to come, and with Turkey’s eagerness to let them leave, than it does with anything Greece has done. Or not done.

But that’s not what Brussels talks about. Far from it. The EU claims it has the power to take over, even if Greece would resist. Reuters quotes a EU official as saying: “One option could be not to seek the member-state’s approval for deploying Frontex but activating it by a majority vote among all 28 members..”

In other words, if 15 countries vote to occupy Greece, it’s a done deal. Once more, we’re quite shaky on Greek constitution at the moment, but we’re thinking someone somewhere (preferably but not necessarily Greece) should take this to a constitutional court. Again, preferably in Athens, but that’s not where the buck stops.

Because if the EU can do this to Greece, it can ostensibly do it to any member state. All 28 countries in the EU could be subject to their borders being taken over. And no matter how shaky we are on any of the 28 constitutions, we are darn sure that at the very least some of them will not allow for this kind of tomfoolery. A nation is either sovereign or it’s not.

Can anyone imagine Frontex taking control of British borders, or German or French? The very notion is too silly to even bring up in serious conversation. But that is exactly what Tsipras has just accepted. It would seem wise to let that sink in.

And we, in all the innocence and ignorance we have, and we have plenty, fail to see how Alexis Tsipras can retain his position as prime minister in the face of this. No prime minister gets elected to sign over his country’s sovereignty to some group of bureaucrats the country happens to be aligned with on one way or the other.

There must be terms written into the Greek constitution, too, that prevent this from happening. Or else the nation was handed over to the dogs long ago, just waiting to be conquered once again. We don’t think Greeks are stupid, and most certainly not that stupid.

The refugee crisis is not Greece’s fault. In much the same way that the EU/ECB decision to bail out French/Dutch/German banks from their losses on Greek casino loans was not Greece’s fault. The EU is turning rapidly into a theater where the largest and most powerful countries get to play the weaker for whatever they desire. And that won’t last. Not with sovereign nations and their constitutions.

The internal problem in Greece, and we have to hand it to Tsipras that he understands this, is that when he leaves, the old guard will take over again. And that will be even worse for Greeks. Whose economy is being systematically dismantled by Brussels as we speak. Greece has zero chance of recovering from its crisis under the terms the EU has forced upon it.

But that doesn’t mean that an elected prime minister has the legal power to sign over the entire nation to a bunch of international bankers and power-thirsty politicians. There are still laws in this world. Written into constitutions.

Europe’s own Real Donald (there’s one on each side of the Atlantic), the one called Tusk, who owes his job exclusively to badmouthing Putin, on top of all sorts of suggestions to halt Schengen for 2 years or so, talked about detaining all refugees for 18 months, pending background checks and the like.

And we’re thinking, in our innocence, pray tell where, Don? In Poland, where you guys have such great experience with detention camps? But we’re drifting, straying… We’ve written too many times to count over the past while that the EU is bound to collapse because its structure selects for sociopaths. Who dream of power, night and day.

Look, Greece should leave while it can. Britain’s going to sign some convoluted deal to keep up appearances, though the ECB is not at all pleased with the idea of a multi-currency union, but deep down David Cameron is a second-hand car salesman who can’t even spell principles or morals, so it’ll get done.

The Danes voted down more EU in their country this week, in an outcome eerily familiar when it comes to actual votes on the Union. It seems every time such a vote takes place, Brussels loses.

But neither Britain nor Denmark not any other EU nation would vote to give up their sovereignty, their borders, their control over who enters and who leaves. And very rightly so. Greece shouldn’t either, it’s gone way too far already trying to please the bully.

Alexis Tsipras has made exactly that decision, however. And that makes his position untenable, even though neither he nor -allegedly- anyone else realizes it yet. He’ll be lucky not to face trial for treason. We’re not kidding.

Nov 302015
 
 November 30, 2015  Posted by at 10:26 am Finance Tagged with: , , , , , , , , , , , ,  4 Responses »
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John Vachon Trucks loaded with mattresses at San Angelo, Texas Nov 1939


COP-21 Climate Deal In Paris Spells End Of The Fossil Era (AEP)
Oil’s Big Players Line Up for $30 Billion of Projects in Iran (Bloomberg)
India Opposes Deal To Phase Out Fossil Fuels By 2100 (Reuters)
Beijing Smog Levels So High They Move ‘Beyond Index’ (Bloomberg)
World’s Biggest Pension Fund Loses $64 Billion Amid Equity Rout (Bloomberg)
Iron Ore Falls Below $40 A Metric Ton For The First Time (Bloomberg)
Fed To Take Up ‘Too Big To Fail’ Emergency Lending Curb (Reuters)
Did the Yuan Really Pass the IMF Currency Test? You’ll Know Soon (Bloomberg)
IMF Move Would Pressure China on Management of Yuan (WSJ)
IMF’s Yuan Inclusion Signals Less Risk Taking In China (Reuters)
VW Top Execs Knew Fuel Usage In Some Cars Was Too High A Year Ago (Reuters)
BlackRock Spreads its Tentacles in Brussels (Don Quijones)
The Silk Road Affair: Power, Pop and a Bunch of Billionaires (Bloomberg)
The Strange Case Of Julian Assange (Crikey)
Saudi Arabia’s 2015 Beheadings The Most In 20 Years (Al Jazeera)
EU Split Over Refugee Deal As Germany Leads Breakaway Coalition (Guardian)
European Union Reaches Deal With Turkey on Migration (WSJ)
Tsipras Takes On Turkey’s Davutoglu On Twitter (AP)
As the World Turns Away, Refugees are Still Drowning in the Mediterranean (HRW)

Ambroses say the darndest things. This Ambrose looks through rosy glasses. Probably drinks from them too. “..both countries have come to the realisation that it is possible to decarbonise without hurting economic growth..” Oh, for Christ sake.

COP-21 Climate Deal In Paris Spells End Of The Fossil Era (AEP)

A far-reaching deal on climate change in Paris over coming days promises to unleash a $30 trillion blitz of investment on new technology and renewable energy by 2040, creating vast riches for those in the vanguard and potentially lifting the global economy out of its slow-growth trap. Economists at Barclays estimate that greenhouse gas pledges made by the US, the EU, China, India, and others for the COP-21 climate summit amount to an epic change in the allocation of capital and resources, with financial winners and losers to match. They said the fossil fuel industry of coal, gas, andoil could forfeit $34 trillion in revenues over the next quarter century – a quarter of their income – if the Paris accord is followed by a series of tougher reviews every five years to force down the trajectory of CO2 emissions, as proposed by the United Nations and French officials hosting the talks.

By then crude consumption would fall to 72m barrels a day – half OPEC projections – and demand would be in precipitous decline. Most fossil companies would face run-off unless they could reinvent themselves as 21st Century post-carbon leaders, as Shell, Total, and Statoil are already doing. The agreed UN goal is to cap the rise in global temperatures to 2 degrees centigrade above pre-industrial levels by 2100, deemed the safe limit if we are to pass on a world that is more or less recognisable. Climate negotiators say there will have to be drastic “decarbonisation” to bring this in sight, with negative net emissions by 2070 or soon after. This means that CO2 will have to be plucked from the air and buried, or absorbed by reforestation.

Such a scenario would imply the near extinction of the coal industry unless there is a big push for carbon capture and storage. It also implies a near total switch to electric cars, rendering the internal combustion engine obsolete. The Bank of England and the G20’s Financial Stability Board aim to bring about a “soft landing” that protects investors and gives the fossil industry time to adapt by forcing it to confront the issue head on. Barclays said ,$21.5 trillion of investment in energy efficiency will be needed by 2040 under the current pledges, which cover 155 countries and 94pc of the global economy. It expects a further $8.5 trillion of spending on solar, wind, hydro, energy storage, and nuclear power. Those best-placed to profit in Europe are: Denmark’s wind group Vestas; Schneider and ABB for motors and transmission; Legrand for low voltage equipment; Alstom and Siemens for rail efficiency; Philips, and Osram for LEDs and lighting.

But this is a minimalist scenario. While the Paris commitments suggest a watershed moment, they do not go far enough to meet the targets set by the Intergovernmental Panel on Climate Change (IPPC). The planet has already used up two-thirds of the allowable “carbon budget” of 2,900 gigatonnes (GT), and will have used up three quarters of the remaining 1,000 GT by 2030. Barclays advised clients to prepare for a more radical outcome, entailing almost $45 trillion of spending on different forms of decarbonisation. “The fact that COP-21 in itself is clearly not going to put the world on a 2 degree track does not mean that fossil-fuel companies can simply carry on with business-as-usual. We think they should be stress-testing their business models against a significant tightening of global climate policy over the next two decades,” it said.

[..] Mr Jacobs said a deal in Paris is highly likely. “You can never rule out a break-down. These meetings always go to the wire. But we have gone past the turning point in the US and China, and both countries have come to the realisation that it is possible to decarbonise without hurting economic growth,” he said. It will not be a legally-binding treaty, but it is expected to have the same effect as each country transposes the targets into its own law. In the US it will be enforced through the legal mechanism of the Clean Air Act, anchored on earlier accords, without need for Senate ratification. The sums of money are colossal. Macro-economists say this is just what is needed to soak up the global savings glut and rescue the world from its 1930s liquidity trap. There might even be a boom.

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End of the fossil era, Ambrose? Not everyone agrees.

Oil’s Big Players Line Up for $30 Billion of Projects in Iran (Bloomberg)

Total, Royal Dutch Shell and Lukoil are among international companies that have selected oil and natural gas deposits to develop in Iran as the holder of the world’s fourth-largest crude reserves presents $30 billion worth of projects to investors. Total is one of the companies that have been in the forefront of discussions and Eni is also looking to invest, Oil Minister Bijan Namdar Zanganeh said. Shell, Total and Lukoil all specified fields they would be interested in developing in Iran, Ali Kardor, deputy director of investment and financing at National Iranian Oil Co. said in an interview in Tehran. “Many companies are interested. Europeans are interested, Asian companies are interested,” Zanganeh told reporters at a conference in Tehran on Saturday. “Total is interested, Eni is interested.”

Iran is pitching 70 oil and natural gas projects valued at $30 billion to foreign investors at a two-day conference in Tehran as the Persian Gulf country prepares for the end of sanctions that have stifled its energy production. All banking and economic sanctions will be lifted by the first week of January,” Amir Hossein Zamaninia, deputy oil minister for international and commerce affairs, said at the event. “We are interested to come back to Iran when the sanctions are lifted and if the contracts are interesting,” Stephane Michel, Total’s head of exploration and production in the Middle East said at the conference. “We have worked in this country for a long time, so we know specific fields on which we’ve worked.”

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Eh, Ambrose? “The entire prosperity of the world has been built on cheap energy. And suddenly we are being forced into higher cost energy. That’s grossly unfair..”

India Opposes Deal To Phase Out Fossil Fuels By 2100 (Reuters)

India would reject a deal to combat climate change that includes a pledge for the world to wean itself off fossil fuels this century, a senior official said, underlying the difficulties countries face in agreeing how to slow global warming. Almost 200 nations will meet in the French capital on Nov. 30 to try and seal a deal to prevent the planet from warming more than the 2 degrees Celsius that scientists say is vital if the world is to avoid the most devastating effects of climate change. To keep warming in check, some countries want the Paris agreement to include a commitment to decarbonize – to reduce and ultimately phase out the burning of fossil fuels like coal, oil and gas that is blamed for climate change – this century.

India, the world’s third largest carbon emitter, is dependent on coal for most of its energy needs, and despite a pledge to expand solar and wind power has said its economy is too small and its people too poor to end use of the fossil fuel anytime soon. “It’s problematic for us to make that commitment at this point in time. It’s certainly a stumbling block (to a deal),” Ajay Mathur, a senior member of India’s negotiating team for Paris, told Reuters in an interview this week. “The entire prosperity of the world has been built on cheap energy. And suddenly we are being forced into higher cost energy. That’s grossly unfair,” he said. Mathur said India, whose position at climate talks is seen by some in the West as intransigent, was committed to the 2 degrees ceiling as a long-term goal and was confident a deal would be reached.

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If PM2.5 is the threat, what good is staying indoors? You’d have to live in a bunker.

Beijing Smog Levels So High They Move ‘Beyond Index’ (Bloomberg)

Smog levels spiked in Beijing on Monday, highlighting the environmental challenges facing China as President Xi Jinping arrives in Paris for global climate talks. The concentration of PM2.5, fine particulates that pose the greatest risk to human health, went “beyond index” in the afternoon, according to a U.S. Embassy monitor. The PM2.5 level was 678 micrograms per cubic meter near Tiananmen Square, the Beijing government said. The World Health Organization recommends average 24-hour exposure to PMI of 25 or below. Public outrage over air pollution has been a catalyst for China’s transformation into a driving force for a breakthrough deal in Paris. Leaders including U.S. President Barack Obama and Chinese President Xi Jinping are scheduled to being discussions in the French capital Monday.

Beijing on Sunday raised its air pollution alert to orange, the second-highest level in its four-tier system, for the first time in 13 months. The heavy pollution in Beijing won’t clear up until Dec. 2, according to the environment bureau. The city will ask some factories to suspend or limit production and construction sites to stop transporting materials and waste while the orange alert is active, it said. Under the orange alert, people are advised to cut down on outdoor activity, while the elderly and people with heart and lung ailments should stay inside. Severe pollution was also reported in at least 17 other cities around Beijing, Tianjin, Hebei and Shandong, according to the Ministry of Environmental Protection. Shanghai’s air was also heavily polluted, the second worst level on a six-grade scale, with the PM2.5 reading at 170.4 micrograms per cubic meter as of 12 p.m..

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I warned this would happen the moment Abe pushed pension funds to prop up stock markets: they lose big. Japanese who read this will save even more, further crippling Abenomics.

World’s Biggest Pension Fund Loses $64 Billion Amid Equity Rout (Bloomberg)

The world’s biggest pension fund posted its worst quarterly loss since at least 2008 after a global stock rout in August and September wiped $64 billion off the Japanese asset manager’s investments. The 135.1 trillion yen ($1.1 trillion) Government Pension Investment Fund lost 5.6% last quarter as the value of its holdings declined by 7.9 trillion yen, according to documents released Monday in Tokyo. That’s the biggest percentage drop in comparable data starting from April 2008. The fund lost 8 trillion yen on its domestic and foreign equities and 241 billion yen on overseas debt, while Japanese bonds handed GPIF a 302 billion yen gain.

The loss was GPIF’s first since doubling its allocation to stocks and reducing debt last October, and highlights the risk of sharp short-term losses that come with the fund’s more aggressive investment style. Fund executives have argued that holding more shares and foreign assets is a better approach as Prime Minister Shinzo Abe seeks to spur inflation that would erode the purchasing power of bonds. [..] GPIF had 39% of its assets in Japanese debt at Sept. 30, and 21% in the nation’s equities, according to the statement. That compares with 38% and 23% three months earlier, respectively. The fund had 22% of its investments in foreign stocks at the end of September, and 14% in overseas bonds.

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Overleveraged overcapacity will disappear no matter how powerful the interests.

Iron Ore Falls Below $40 A Metric Ton For The First Time (Bloomberg)

Most-active iron ore futures in Singapore sank below $40 a metric ton for the first time on concern that the economic slowdown in China will cut demand as supplies from the largest miners climb. [..] The raw material has been pummeled since the start of 2014 as surging supplies from low-cost producers including BHP Billiton Ltd. and Rio Tinto in Australia and Brazil’s Vale combine with faltering demand in China to spur a glut. Losses in Singapore and Dalian could presage a drop in the benchmark price for spot ore in Qingdao, which will be updated later in the day. The latest sign of new supply came from Australia, with a vessel waiting offshore on Monday to load the first cargo from Gina Rinehart’s Roy Hill mine.

“Supply continues to rise while port inventories are starting to climb, weighing on iron ore prices,” analysts at Maike Futures Co. said in a note on Monday. “The overseas producers are still profitable and are greatly reducing costs.” The top miners are betting that higher output will enable them to cut unit costs and defend market share while smaller rivals shut. Mills in China, contending with overcapacity and depressed margins, will cut steel production by almost 3% next year, according to the China Iron & Steel Association.

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The Fed can elect to ignore the law, and Congress?

Fed To Take Up ‘Too Big To Fail’ Emergency Lending Curb (Reuters)

The Federal Reserve Board will consider on Monday a proposal to curb its emergency lending powers, a change demanded by Congress after the central bank’s controversial decision to aid AIG, Citigroup and others in 2008. A proposed rule, to be considered by the Fed’s Washington-based board in an open meeting, would require that any future emergency lending be only “broad-based” to address larger financial market problems, and not tailored to specific firms. The 2010 Dodd-Frank financial reform law instructed the Fed to curtail emergency loans to individual banks and prohibited it from lending to companies considered insolvent.

While some at the Fed worry the new rules will hamper the central bank’s response in future crises, some politicians have said the proposed regulations are too imprecise, for example in defining insolvency, to prevent the types of deals done in 2008. As the financial crisis intensified in 2008, the Fed invoked its little-used emergency lending power to stave off the failure of AIG and Bear Stearns, and help other “too big to fail” companies including Citigroup and Bank of America. The Fed also enacted a series of more general emergency programs, in all providing $710 billion in loans and guarantees. Those programs were separate from the much larger Fed asset and bond purchases known as quantitative easing.

The loans have been repaid and the guarantees ended, ultimately earning the Fed a net profit of $30 billion, according to a September Congressional Research Service review. However the effort was criticized as overreach, arguably important in limiting the crisis but also not clearly in line with the intended use of the Fed’s emergency authority. The Fed routinely lends money to banks on a short-term basis to smooth the operations of the financial system. That is part of why it exists. But since the 1930s it has had the power to lend more broadly in a crisis.

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Can’t see Lagarde crushing the expectations she herself built up. Unless there’s a dirty game going on behind the curtain.

Did the Yuan Really Pass the IMF Currency Test? You’ll Know Soon (Bloomberg)

IMF Managing Director Christine Lagarde and some two dozen officials on the fund’s executive board will gather Monday at headquarters in Washington for one of the most-anticipated decisions outside of actually approving loans for nations in crisis. The question inside the 12th-floor, oval boardroom: whether to grant China’s yuan status as a reserve currency by adding it to the fund’s Special Drawing Rights basket. The SDR, created in 1969, gives IMF member countries who hold it the right to obtain any of the currencies in the basket – currently the dollar, euro, yen and pound – to meet balance-of-payments needs. While there’s little suspense in the main thrust of the expected approval – Lagarde already announced that fund staff had recommended the yuan be included and that she supported the finding – the IMF is likely to give more details on how it arrived at the decision.

The IMF’s highest decision-making body is its board of governors, a group of mostly finance ministers and central bankers from its 188 member countries. The board of governors has delegated most of its powers to the executive board, made up of 24 executive directors who represent the membership. The meeting Monday has been classified as “restricted,” meaning no support staff will be allowed to attend. The executive board, which meets more than 200 times a year, usually makes decisions based on consensus, rather than formal votes. Mark Sobel, the U.S. executive director who answers to the Obama administration, wields the most power, with a 17% voting stake. Together, the Group of Seven countries control 43% of the vote, making them a formidable bloc. China, which holds a 3.8% voting share, is represented by former People’s Bank of China official Jin Zhongxia.

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Beijing’s hands will be tied.

IMF Move Would Pressure China on Management of Yuan (WSJ)

The IMF is on the verge of labeling China’s yuan a reserve currency. Now Chinese officials will have to prove they can treat it like one. The IMF on Monday is widely expected to say that next year, it will add the yuan to the elite basket of currencies that comprise its lending reserves, a status enjoyed only by the U.S. dollar, the euro, the British pound and the Japanese yen. The inclusion would represent recognition that the yuan’s status is rising along with China’s place in global finance. Now comes the hard part. The inclusion puts new pressure on Beijing to change everything from how it manages the yuan, also known as renminbi, to how it communicates with investors and the world. China’s pledges to loosen its tight grip on the currency’s value and open its financial system will come under new scrutiny.

“We will have to build up confidence in renminbi assets from investors both at home and abroad and at the same time, prevent the financial risks associated with a more global currency,” said Sheng Songcheng, head of the survey and statistics department at the People’s Bank of China, the country’s central bank. “That calls for carrying out various financial reforms in a coordinated way.” Inclusion would also put pressure on the central bank to offer the same degree of clarity and transparency that the U.S. Federal Reserve, the European Central Bank and other vital institutions strive for. That could be difficult: In the past six months alone, the PBOC shocked markets with a surprise currency devaluation, stood mostly silent during a Chinese stock-market rout and confused investors by issuing a new proclamation that turned out to be months old.

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Is the SDR Xi’s Trojan Horse?

IMF’s Yuan Inclusion Signals Less Risk Taking In China (Reuters)

When the IMF agrees on Monday to add the Chinese yuan to its reserves basket in the biggest shake-up in more than three decades, the IMF can afford itself a congratulatory nod. By acknowledging the yuan as a major global currency alongside the dollar, euro, yen, and pound, as is widely expected, IMF members will endorse the efforts of China’s economic reformers and by doing so hope that will spur fresh change in China. But Chinese policy insiders and international policymakers say reforms may not continue at the breakneck pace of recent months. In addition, Chinese sources suggest adding the yuan to the IMF basket leaves economic conservatives better positioned to resist further significant reform in a reminder of the period following China’s entry to the World Trade Organization (WTO).

A slowing in the pace has implications for those who bet that making the yuan a global reserve currency will give it a boost. The yuan has fallen almost 3% against the dollar this year, on course for its biggest annual fall since its landmark 2005 revaluation. The IMF decision will remove a key incentive – bolstering national pride – that reformers used to push otherwise reluctant conservatives to support reforms. More importantly, however, are worries in Beijing that the rickety economy can’t handle more aggressive reform that allows a freer flow of currency across China’s borders. Beijing is already rapidly losing a taste for more experimentation with capital flows, say the sources – economists involved in policy discussions who declined to be identified because of the sensitivity of the subject.

After the stock market buckled more than 40% in the summer – which many blamed on nefarious foreign capital – regulators have made it harder for money to leave China to counter yuan selling pressure and have intervened heavily in onshore and offshore currency markets. Not just conservatives, but more liberal economists are calling for a pause. “Our ability to control financial risk has yet to be improved,” said a senior economist at the China Centre for International Economic Exchanges (CCIEE), an influential Beijing think-tank. “Any rush to open up the capital account completely could be unfavorable for controlling financial risks … we will definitely be very cautious.”

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Which is why former CEO Winterkorn left in a hurry as soon as the scandal first broke.

VW Top Execs Knew Fuel Usage In Some Cars Was Too High A Year Ago (Reuters)

Volkswagen’s top executives knew a year ago that some of the company’s cars were markedly less fuel efficient than had been officially stated, Sunday paper Bild am Sonntag reported, without specifying its sources. VW in early November revealed that it had understated the level of carbon dioxide emissions and fuel usage in around 800,000 cars sold mainly in Europe. The scandal, which will likely cost VW billions, initially centered on software on up to 11 million diesel vehicles worldwide that VW admitted was designed to artificially suppress nitrogen oxide emissions in a test setting. The Bild am Sonntag report contradicts VW’s assertion, however, that it only uncovered the false CO2 emissions labeling as part of efforts to clear up the diesel emissions scandal, which became public in September.

Months after becoming aware of excessive fuel consumption, former Chief Executive Martin Winterkorn decided this spring to pull one model off the market where the discrepancy was particularly pronounced, the Polo TDI BlueMotion, the paper cited sources close to Winterkorn as saying. The paper did not separately cite its sources for saying that top executives knew about the fuel usage problem a year ago, however. VW at the time cited low sales figures as the reason for the withdrawal. The paper said that VW did not inform Polo TDI BlueMotion owners of the high fuel consumption, which was 18% above the nameplate value.

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Goldman, BlackRock, they are the de facto executive rulers of the world. And it makes them filthy rich.

BlackRock Spreads its Tentacles in Brussels (Don Quijones)

Much like Goldman Sachs, Blackrock is spreading tentacles across Europe at a startling rate. In a sign of its growing influence, the firm met EU officials to discuss financial market matters more times than any other company in the seven months to July, Financial Times reported this week. During that period the firm met Jonathan Hill, European Commissioner for financial services (and former City of London lobbyist), and his team five times — one more time than HSBC and two more times than Deutsche Bank. In fact, the only institutions that met the Commissioner as many times were London Stock Exchange Group, the British Bankers’ Association and Insurance Europe.

BlackRock’s lobbying efforts have worried some investors amidst concerns that the fund house, which offers traditional active mutual funds, passive funds and alternative products such as hedge funds, could have too much influence on European policy. By pure happenstance, the growth in BlackRock’s influence coincided with a 10-fold increase in the company’s self-reported lobbying spending in Brussels: in 2012 the firm spent €150,000; by 2014 that number had catapulted to €1.5m. That kind of money gets you a heck of a lot of access and influence in Brussels, the world’s second most important lobbying hub, especially when you’re already the world’s biggest asset manager.

According to EU Integrity Watch, BlackRock held meetings with Brussels officials over issues as far-reaching as the regulatory agenda in financial services by the EU and the US – a vital issue given the looming TTIP and TiSA trade treaties – capital markets union, Mr. Hill’s plan to boost business funding and investment financing, and money market funds. BlackRock’s most audacious coup to date took place in August, 2014, when the ECB announced its decision to hire BlackRock Solutions to provide advice on the design and implementation of the central bank’s upcoming purchase of asset-backed securities. In other words, just before the ECB embarked on one of the biggest QE programs in world history, it sought the advice of the world’s largest asset manager – i.e. the company most invested in the assets it intended to buy.

To ensure that there were/are no conflicts of interest, BlackRock’s contract stipulates that there must be an effective separation between the project team working for the ECB and its staff involved in any other ABS-related activities, which, as you can imagine, is an immense relief. So too is the fact that “all external audits related to the management of conflicts of interest would be made available to the ECB,” an institution famed worldwide for its blinding institutional transparency and accountability. To put all lingering fears to bed, a spokesperson for BlackRock told FT, “BlackRock advocates for public policies that we believe are in our investors’ long-term best interests.”

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Juicy story. Let’s do a movie.

The Silk Road Affair: Power, Pop and a Bunch of Billionaires (Bloomberg)

Even in post-Soviet Uzbekistan, an ancient crossroads where torture and bribery allegations are endemic, Gulnara Karimova, the president’s Harvard-educated daughter, stood out for her ruthlessness. As the U.S. embassy noted in a secret dispatch from 2005 that was later published by Wikileaks, Karimova was viewed by most Uzbeks “as a greedy, power-hungry individual who uses her father to crush business people or anyone else who stands in her way.” These days the 43-year-old former globetrotting socialite who once publicly praised God for “my face” is confined to her homeland along the legendary Silk Road, watched over by the security services of her aging father, Islam Karimov, who has ruled for a quarter century.

Even in isolation, though, Googoosha, as she’s called herself in music videos, remains in the eye of a storm, the protagonist in a multibillion-dollar tale of alleged greed and graft unfolding across three continents. This story stretches back more than a decade, from the fringes of the czarist empire to the tidy streets of Oslo, via Gibraltar, Geneva and beyond. It touches companies owned by six of Europe’s richest men – five Russians and a native Norwegian – and thrusts the staid Scandinavian business world into a strange new light. It also offers a glimpse into a mercurial U.S. ally, a nation of 30 million that is ranked among the most repressive and corrupt in the world by Freedom House and Transparency International, even while providing occasional logistical support for American troops in neighboring Afghanistan.

[..] In Switzerland, where Karimova once lived in a Geneva mansion, prosecutors have widened their own probe into suspected money-laundering and fraud offenses related to her role in awarding telecommunications contracts in Uzbekistan. In August, they said they’d confiscated more than 800 million Swiss francs ($781 million) of assets linked to her, without elaborating, bringing the total amount seized to about $1.1 billion. Add the $900 million VimpelCom has set aside for potential liabilities and the amount tied up in the investigations is pushing $2 billion. And that’s not even counting the impact on the market values of VimpelCom, MTS and TeliaSonera or the future costs of litigation. VimpelCom’s market value has plunged 59% to $6.3 billion since March 12, 2014, when it disclosed the U.S. and Dutch probes…

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Good overview. No charges have ever been filed. No prosecutor wants to interview Assange.

The Strange Case Of Julian Assange (Crikey)

Julian Assange faces very serious allegations, politicians like to say. That was the description from UK Prime Minister David Cameron’s office three years ago, defending the UK s determination to extradite him to Sweden. And that was the description early this year from then-UK deputy PM Nick Clegg, too – he should go to Sweden to face very serious allegations and charges of rape, said Clegg, not long before leading his party to annihilation in this year’s general election. Clegg, of course, was peddling the oft-repeated lie that there are charges against Assange. But for very serious allegations -sexual molestation, unlawful coercion, sexual assault- the UK and Swedish governments have displayed zero interest in investigating them. In fact, the history of the case against Assange is a history of increasingly bizarre efforts by authorities to avoid questioning him.

When Swedish prosecutors first examined complaints about Assange by two women in 2010, the Chief Prosecutor of Stockholm dismissed all but one of the allegations, including the accusation of sexual assault, saying there is no suspicion of any crime whatsoever. After speaking to prosecutors, Assange remained in Sweden for another week to be interviewed about the one remaining allegation (of molestation). However, after an appeal by former Swedish politician Claes Borgstrom, another prosecutor, Marianne Ny, reopened the whole case. Assange remained in Sweden and offered to be interviewed again, but, in the first of what would turn out to be a long litany of excuses, was told Ny was ill and unable to speak to him. Ny’s office then told Assange’s lawyer he was free to leave Sweden, but once Assange did so, an arrest warrant was issued for him.

Assange then offered to return to Sweden to speak to Ny and gave her a full week of dates in which he would do so. These were all rejected. This was all despite Swedish police having access to the texts of one of the alleged victims of Assange saying she did not want to put any charges on JA but that the police were keen on getting a grip on him , that she was shocked when he was arrested given she only wanted him to take an STD test, and that it was the police who made up the charges . Ny’s unwillingnness to interview Assange would become the pattern for the next five years: Assange repeatedly offered to speak to Swedish authorities by phone, by videolink, or in person at the Australian embassy. The Swedes refused all opportunities to do so and demanded Assange return to Sweden, issuing a European arrest warrant for him.

Eventually the EAW would be upheld by British courts under UK laws, which since then have been amended. Under current British law, a similar case to Assange’s would now be successfully appealed and the EAW rejected. Once he had sought refuge in the Ecaudorean embassy in 2012, Assange continued to offer Swedish authorities the opportunity to speak with him, and they continued to reject them. But while they regularly rejected Assange s offer to be interviewed, other suspects were treated very differently: during the last five years, the Swedes have on 44 occasions asked to travel to the UK to interview, or asked British police to interview, other people in Britain in relation to allegations including violent crime, fraud and even murder. Assange, however, couldn’t be treated the same way – he had to go to Sweden.

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Nice company to keep: “Saudi Arabia, Iran, China, the United States, and Iraq are the top five countries with the most executions.”

Saudi Arabia’s 2015 Beheadings The Most In 20 Years (Al Jazeera)

Saudi Arabia has executed at least 151 people so far this year – the most put to death in a single year since 1995. The stark rise in the number of executions has seen, on average, one person killed every two days, according to the human rights group, Amnesty International. “The Saudi Arabian authorities appear intent on continuing a bloody execution spree,” Amnesty’s report released on Monday said, quoting James Lynch, deputy director at the Middle East and North Africa programme. It is the most people put to death in the kingdom in one year since 1995, when 192 executions were reportedly carried out. Most recent years have had between 79 and 90 people killed by beheadings annually for crimes including “nonlethal offences, such as drug-related ones,” according to the London-based rights group.

The large number of executions shed further light on what Amnesty referred to as unfair judicial proceedings, with a disproportionate imposition of capital punishment on foreign nationals. “Of the 63 people executed this year for drug-related charges, the vast majority, 45 people, were foreign nationals,” the report said. Khalid al-Dakhil, a Saudi political commentator based in Riyadh, challenged “the integrity” of Amnesty’s report, saying it failed to mention Iran’s execution record. “Iran executes far more people a year than Saudi Arabia, but it does not get the negative publicity Saudi Arabia has. This is something that must be addressed,” Dakhil told Al Jazeera. Saudi Arabia, Iran, China, the United States, and Iraq are the top five countries with the most executions. In total, 71 people executed so far in 2015 have been foreigners. The majority were migrant workers from poorer countries who are often sentenced to die without any knowledge of the court’s proceedings because they don’t speak Arabic and do not receive translations.

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These people are busy creating absolute mayhem in Europe.

EU Split Over Refugee Deal As Germany Leads Breakaway Coalition (Guardian)

Months of European efforts to come up with common policies on mass immigration unravelled when Germany led a “coalition of the willing” of nine EU countries taking in most refugees from the Middle East, splitting the EU on the issues of mandatory refugee-sharing and funding. An unprecedented full EU summit with Turkey agreed a fragile pact aimed at stemming the flow of migrants to Europe via Turkey. But the German chancellor, Angela Merkel, frustrated by the resistance in Europe to her policies, also convened a separate mini-summit with seven other leaders on Sunday to push a fast-track deal with the Turks and to press ahead with a new policy of taking in and sharing hundreds of thousands of refugees a year directly from Turkey.

The surprise mini-summit suggested that Merkel has given up trying to persuade her opponents, mostly in eastern Europe, to join a mandatory refugee-sharing scheme across the EU, although she is also expected to use the pro-quotas coalition to pressure the naysayers into joining later. Merkel’s ally on the new policy, Jean-Claude Juncker, president of the European commission, said of the mini-summit: “This is a meeting of those states which are prepared to take in large numbers of refugees from Turkey legally.” But the frictions triggered by the split were instantly apparent. Donald Tusk, the president of the European council who chaired the full summit with Turkey, contradicted the mainly west European emphasis on seeing Ankara as the best hope of slowing the mass migration to Europe.

“Let us not be naïve. Turkey is not the only key to solving the migration crisis. The most important one is our responsibility and duty to protect our external borders. We cannot outsource this obligation to any third country. I will repeat this again: without control on our external borders, Schengen will become history.” He was referring to the 26-country free-travel zone in Europe, which is also in danger of unravelling under the strains of the migratory pressures and jihadi terrorism. Merkel’s mini-summit brought together the leaders of Germany, Austria and Sweden – the countries taking the most refugees – Finland, Belgium, Luxembourg, the Netherlands, and Greece. President François Hollande of France did not attend the mini-summit because of scheduling problems, but it is understood that France is part of the pro-quotas vanguard.

The nine countries include the EU’s wealthiest. The EU-Turkey summit agreed to pay Turkey €3bn (£1.4bn) in return for a deal that would see Ankara patrolling the Aegean borders with Greece – the main point of entry to the EU for hundreds of thousands this year. Ankara is also to resume its long-stalled EU membership negotiations by the end of the year and, according to the schedule agreed, is to have visas waived by next year for Turks travelling to the EU. In response, the EU will be able to start deporting “illegal migrants” to Turkey by next summer under a fast-tracked “readmissions agreement”.

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No there there, just hot air. “..EU leaders made it clear there would be no shortcut in Turkey’s long-stalled bid to join the bloc. [..] And the Turks couldn’t say how effective the agreement would be in reducing the number of the migrants and refugees entering the EU..”

European Union Reaches Deal With Turkey on Migration (WSJ)

The EU on Sunday agreed with Turkey’s government for Ankara to take steps to cut the flow of migrants into Europe in exchange for EU cash and help with its bid to join the 28-nation bloc. EU leaders hailed the agreement as a key step toward substantially reducing the number of asylum seekers entering the bloc, while Turkey’s Prime Minister Ahmet Davutoglu said Sunday’s summit marked a historic new beginning in the often fraught relations between Brussels and Ankara. Yet the continued lack of trust on both sides remained evident, as EU leaders made it clear there would be no shortcut in Turkey’s long-stalled bid to join the bloc.

“The issue hasn’t changed,” French President François Hollande said after leaving the summit to return to Paris for global climate talks. “There is no reason either to accelerate or to slow it down.” And the Turks couldn’t say how effective the agreement would be in reducing the number of the migrants and refugees entering the EU via Turkey. EU officials have said cooperation with Turkey is the best way to reduce migrant flows, arguing that Ankara was very effective in previous years in preventing the outflow of refugees from the country. Alongside fresh efforts to tighten their external borders, EU officials hope the Turkey agreement can help turn the tide in the bloc’s migration crisis, the biggest since the aftermath of World War II.

[..] it appeared that substantial efforts would be required to turn Sunday’s agreement into reality. European Council President Donald Tusk said the EU will closely watch Turkey’s implementation of the deal and will review Ankara’s actions on a monthly basis. EU governments are also still at loggerheads over who would pay the €3 billion Turkey is to receive for its cooperation. Moreover, Turkey must complete dozens of EU requirements to win a recommendation for visa-free access to the bloc by autumn of 2016. Even then, a final decision will need backing of all 28 member states. Meanwhile, Mr. Davutoglu acknowledged he couldn’t promise the number of migrants heading into Europe via Turkey would fall. “Nobody can guarantee a drop,” he said of the refugees heading west from war-torn Syria.

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He’s simply right.

Tsipras Takes On Turkey’s Davutoglu On Twitter (AP)

A highly unusual online exchange took place on Twitter between the prime ministers of Greece and Turkey late Sunday before the former deleted his tweets – but only from the English version of his account. The official English-speaking account of Greek prime minister Alexis Tsipras (@Tsipras_eu) posted four tweets addressed to his Turkish counterpart Ahmet Davutoglu, needling him about Turkey’s downing of a Russian jet and Turkey’s violations of Greek airspace. “To Prime Minister Davutoglu: Fortunately our pilots are not mercurial as yours against the Russians #EuTurkey” Tsipras tweeted. Both prime ministers attended an EU-Turkey summit on refugees in Brussels Sunday. Tsipras did not explain whether his tweets reproduced a conversation between the two or were written especially for Twitter.

“What is happening in the Aegean is outrageous and unbelievable #EUTurkey” Tsipras continued. “We’re spending billions on weapons. You -to violate our airspace, we -to intercept you #EUTurkey” Tsipras said in a third tweet, referring to intrusions of Turkish planes into Greek airspace, which Turkey contests, and Greek and Turkish pilots frequently buzzing each other. Tsipras said the two countries should focus on saving refugees, not on weapons. “We have the most modern aerial weapons systems–and yet, on the ground, we can’t catch traffickers who drown innocent people #EUTurkey,” the Greek premier said in a fourth tweet. Davutoglu chose to respond to only the first tweet and not engage in a detailed dialogue.

“Comments on pilots by @atsipras seem hardly in tune with the spirit of the day. Alexis: let us focus on our positive agenda,” @Ahmet_Davutoglu responded. Then, the @Tsipras_EU account deleted the four tweets, which have remained posted, however, in Tsipras’ Greek language account, @atsipras. The deletion sparked further furious tweeting, with comments such as “who is handling your account?” being the most common. Then, the English account posted further tweets, but less controversial this time. “Important Summit today for the EU, Turkey and our broader region #EUTurkey” A last Tsipras tweet obliquely referred to the deleted ones: “We are in the same neighborhood and we have to talk honestly so we can reach solutions #EUTurkey.”

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But the disgrace goes on. And it’s ours, you, me, everyone. Want to protest something?

As the World Turns Away, Refugees are Still Drowning in the Mediterranean (HRW)

Her name was Sena. She was four years old. She was wearing blue trousers and a red shirt. She drowned in a shipwreck on November 18 in the Aegean Sea off Bodrum, Turkey. His name was Aylan. He was three years old. He drowned on September 2nd, along with his mother and his five-year-old brother. Like Sena, he was Syrian, dressed in blue and red, and travelling with his family on a desperate journey to reach safety and a future in Europe. The picture of his tiny lifeless body washed up on shore appeared to shake Europe’s—indeed, the world’s—conscience. Yet at least 100 more children, including Sena, have drowned in the Aegean in the weeks since. This year has seen an unprecedented number of asylum seekers and migrants—over 712,000 as of this week—crossing from Turkey to the Greek islands, most of them in overcrowded flimsy rubber dinghies.

One-quarter of those risking their lives are children. We have witnessed an unbearable death toll this year, with at least 585 people missing or lost in the Aegean, most of them since Aylan’s death. War, persecution, geopolitics, dangerous smuggler tactics, the weather – all of these factors contribute to the surge in arrivals as well as the number of lives lost. The UN refugee agency, UNHCR, estimates that 60% of those coming to Greece by sea are Syrians, while 24% are from Afghanistan. The response of the European Union has to be multifaceted. It should include measures to reduce the need for dangerous journeys and tackle the root causes of refugee and migration flows in a way that respects human rights.

But the immediate imperative has to be to save lives. Turkish and Greek coast guard boats are out there every day patrolling the waters. And various EU countries have sent boats, personnel and other equipment to participate in Operation Poseidon in the Aegean, a mission of the EU’s external border agency Frontex. Combined, these actions have saved tens of thousands of lives. I’ve seen a burly Portuguese coast guard officer gently take a baby from her mother’s arms after a rescue. I’ve observed the professionalism of Norwegian police officers on patrol for Frontex. A colleague of mine was impressed by the way Greek coast guard officers handled two difficult rescues. But more needs to be done.

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Nov 062015
 
 November 6, 2015  Posted by at 11:08 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »
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William Henry Jackson Hand cart carry, Adirondacks, New York 1902


European Union Predicts 3 Million More Refugees By End Of Next Year (WaPo)
UN Expects Daily Refugee Flow Of 5,000 To Europe This Winter (Reuters)
From Lesvos, Tsipras Says Greece Cannot Cope With Refugees (Reuters)
Tsipras To Hold Emergency Meeting On Refugees With Mayors And Governors (AP)
A Hand in the Water is not Like a Hand in the Fire (Press Project)
Merkel Hit By Refugee Crisis Setback As Berlin Drops Transit Zones Plan (Guar.)
The Economic Impact of the European Refugee Crisis (Atlantic)
Is Europe’s Economy So Bad the ECB Will Run Out of Things to Buy? (Bloomberg)
EU Cuts Growth and Inflation Outlook as ECB Decision Looms (Bloomberg)
Brussels Demands More Austerity ‘Measures’ In Greece (Kath.)
How China Broke the World’s ‘Bubble Machine’ (Bonner)
The Valeant Scandal and Steve Keen on China and Portugal (RT)
China’s Stock-Market Bulls Are Back, But Where Are the Earnings? (Bloomberg)
China’s Bonds Set for Worst Week Since May as PBOC Seen on Hold (Bloomberg)
Monetary Bazookas Or Not, “Global Crisis Is Inevitable” (Saxobank)
Deflation Risks May Warrant Radical New Central-Bank Thinking: IMF (WSJ)
Standard Chartered’s Shares Plunge 7% After Fitch Downgrade (Bloomberg)
MSF Says US Planes Attacked Staff Fleeing Kunduz Hospital (Reuters)
Exxon Mobil Investigated for Possible Climate Change Lies (NY Times)
World Only Half Way To Meeting Emissions Target With Current Pledges (Guardian)

Mayhem foretold.

European Union Predicts 3 Million More Refugees By End Of Next Year (WaPo)

The European Union predicted Thursday that up to 3 million additional asylum seekers could enter the 28-member bloc by the end of next year, suggesting the staggering pace of new arrivals in recent months shows no sign of abating. The forecast, buried in a 204-page report on the future of the European economy, will add to an already burning debate in Europe about whether the continent can handle the influx, which has broken all modern records. So far this year, more than 760,000 people have entered the continent seeking refuge or jobs, according to the U.N.’s refugee agency. The new arrivals have badly strained government resources in countries all along the trail, which leads from the Mediterranean Sea in the south to richer nations in Europe’s north.

One of the more affluent countries, Sweden, said Thursday that it would apply for emergency E.U. aid, an admission that it is failing to cope. Sweden, which has taken the largest per capita share of refugees of any E.U. country, is expecting 190,000 asylum seekers this year — double its previous record. “The major problem today is that the number of asylum seekers is growing faster than we can arrange for accommodation,” Morgan Johansson, the minister for justice and migration, told reporters. “Sweden can no longer guarantee accommodation to everyone who comes. Those who are arriving could be met with the news that there isn’t anywhere to stay.” [..] Despite the unprecedented scale of the flows, the overall population of the European Union was forecast to rise only 0.4% as a result of the influx.

In a separate forecast, the U.N. High Commissioner for Refugees said it predicted that an average of up to 5,000 migrants a day would travel from Turkey to Greece over the next four months. That would mark a substantial departure from the migrant travel patterns in previous years, when winter’s harsh weather vastly reduced the numbers. The refugee agency appealed for nearly $100 million to winterize tents and sanitation systems while it warned of more deaths among refugees if adequate measures are not taken. Peter Sutherland, the U.N. secretary general’s special representative on migration issues, told the BBC that there was no sign that the flow of migrants was diminishing, despite a rising death toll from rougher autumn seas. He called for Europe to take collective action to deal with the crisis. “This is now a global responsibility, but it is a particular European responsibility”, he said. “And in Europe we can’t say simply that those who are the closest to the problem, and therefore receive most of the migrants, have to handle it themselves”.

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At 5,000 a day, you don’t get to 3 million. Actually, you get to 1,825 million.

UN Expects Daily Refugee Flow Of 5,000 To Europe This Winter (Reuters)

Refugees and migrants are likely to continue to arrive in Europe at a rate of up to 5,000 per day via Turkey this winter, the United Nations said on Thursday, appealing for more funds to avert tragedy in Greece and the Balkans in coming months. More than 760,000 people have already crossed the Mediterranean so far this year, mainly to Greece and Italy, after fleeing wars in Syria, Afghanistan and Iraq, as well as conflicts in Eritrea and other parts of Africa. “Harsh weather conditions in the region are likely to exacerbate the suffering of the thousands of refugees and migrants landing in Greece and travelling through the Balkans, and may result in further loss of life if adequate measures are not taken urgently,” the U.N. High Commissioner for Refugees (UNHCR) said.

“UNHCR’s new winter plan anticipates that there could be up to 5,000 arrivals per day from Turkey between November 2015 and February 2016,” it said. The agency is seeking an additional $96.15 million to support Croatia, Greece, Serbia, Slovenia and the former Republic of Macedonia, bringing the total amount that it is trying to raise for Europe’s refugee crisis to $172.7 million. The fresh funds will be used to upgrade shelter and reception facilities for winter conditions, and to supply family tents and housing units equipped with heating, the statement said. Sanitation and water supply systems will also be improved. “Winter clothing and blankets, as well as other essential items for protecting people from the elements, will be included in the aid packages to be distributed to individuals with specific needs,” it said.

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He should be much more vocal on this.

From Lesvos, Tsipras Says Greece Cannot Cope With Refugees (Reuters)

Greece’s prime minister conceded on Thursday that the country was unable to cope with the thousands of migrants arriving daily on its shores, just days after saying that he was shamed by Europe’s handling of the crisis. Alexis Tsipras was visiting Lesvos the Greek island which has received the bulk of arrivals and where aid groups condemned living conditions for refugees as dire. ”I think we are battling something which is beyond our abilities, and everyone should understand that,” he said, on a visit to a packed migrant registration center with Martin Schulz, head of the European Parliament. Cash-strapped Greece has been struggling to handle an influx of hundreds of thousands of migrants fleeing from war and hardship in the Middle East. Aid organisations estimate more than 601,000 have entered Europe through Greece this year.

With at least 430 people having died this year trying to make the short sea crossing along Greece’s border with Turkey, Tsipras said it was “imperative” to reach a deal with Ankara to stem the flow. About 15,000 refugees and migrants were effectively stranded on Lesvos on Thursday because a ferry strike had stopped reception centres forwarding arrivals onto the Greek mainland. “It’s an asphyxiating situation,” Tsipras said. International aid agency IRC, which has a unit on Lesbos, said conditions at one main centre were unacceptable and that Greece had struggled for years to cope with far fewer migrants. At Moria, an army camp converted into a refugee centre, Schulz and Tsipras got a taste of some of the frustration. “We are here three days. We are hungry. I have two children, my children are sick,” one man shouted at Tsipras.

Tsipras patted his arm. “We will do our best.” The United Nations refugee agency UNHCR launched a new funding appeal on Thursday, saying it needed $96.15 million in additional support for Greece and affected Balkan countries. Greece has had €5.9 million in EU aid so far this year. UNHCR forecasts up to 5,000 arrivals per day from Turkey between now and February. With a recent bout of bad weather, people smugglers have started offering discounts on journeys with flimsy inflatables and charging more for trips on boats. “We were unfortunate enough to see an improvised dinghy as we were heading in, full of refugees,” Tsipras said. “It’s criminal.” ”It is imperative that we reach an agreement with Turkey to stop the flows by targeting the smugglers.”

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Far too late, and wrong meeting. What’s needed is something much higher up: UN.

Tsipras To Hold Emergency Meeting On Refugees With Mayors And Governors (AP)

Greek Prime Minister Alexis Tsipras has invited mayors of eastern Aegean islands bearing the brunt of the current refugee influx to Athens for an emergency meeting on how to deal with the crisis. The meeting, scheduled for midday Friday, was also to be attended by the north and south Aegean regional governors as well as mayors and religious officials from the islands of Lesvos, Samos, Kos, Leros and Chios, and government officials.

Greece is the main gateway into the European Union for hundreds of thousands of people fleeing war and poverty at home. The vast majority arrive after a short but dangerous sea journey to Greek islands from the nearby Turkish coast and then head to the mainland and on to more prosperous northern EU countries through the Balkans. Hundreds have drowned, including many children, when their overcrowded and unseaworthy boats have sunk or capsized.

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“Before the war, Syria had a population of 23ml, it was a middle income country and had one of the best education systems in the Arab world with 90% literacy rate. Today, more than half, 12.5ml people cannot survive without humanitarian aid..”

A Hand in the Water is not Like a Hand in the Fire (Press Project)

The number of internally displaced people in Syria is estimated at 7.6ml while the number of those who fled to neighboring countries; Turkey, Lebanon, Jordan and Iraq is more that 4ml. Before the war, Syria had a population of 23ml, it was a middle income country and had one of the best education systems in the Arab world with 90% literacy rate. Today, more than half, 12.5ml people cannot survive without humanitarian aid. 50% of the children no longer attends school, half of the population has no access to running water and electricity-not simply because they have no money to pay for it but, mostly, because the war has destroyed 50% of the water and electricity infrastructure. Syria used to host 12 refugee camps which accommodated 560.000 Palestinians.

Today, after the war, 450.000 Palestinians are still in the country, scattered everywhere. Jordan closed its borders to Palestinians from Syria at the beginning of the war while Lebanon did the same on May, 2015. In all, 80.000 Palestinians from Syria have found refuge in Turkey, Lebanon, Jordan, and Egypt hoping to be able to cross over to Europe. Almost all of them fear extradition back to Syria due to their particular circumstances. As expected, the first Syrian refugees fled to the neighboring countries; Jordan, Lebanon, Turkey and, in smaller numbers, Iraq and Egypt. The Syrians who chose to move to those countries usually did it because they could not pay the trafficker’s fees for a passage to Europe- during the first years the prices were three times higher than today. Another reason was that some of them believed that the war would not last long and they would be able to return to their country relatively soon.

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As Rome burns and babies drown…

Merkel Hit By Refugee Crisis Setback As Berlin Drops Transit Zones Plan (Guar.)

Angela Merkel has suffered a setback in her attempt to stabilise the influx of refugees into Germany by setting up “transit zones” on the border with Austria. The zones, denounced as detention camps by the Social Democrats (SPD), the German chancellor’s junior coalition partner, were rejected at crisis talks in Berlin on Thursday. Instead, her government announced it would establish up to five reception centres inside Germany for the swifter processing of asylum claims and the prompt deportation of those with little chance of obtaining refugee status, mainly people from the Balkans. Merkel’s climbdown came as the European commission predicted the arrival of up to 3 million people in the EU by 2017.

The Berlin agreement – reached at crisis talks between Merkel’s Christian Democrats, its Bavarian sister party, the Christian Social Union, and the SPD – represented an unusual defeat for the centre-right and a victory for Sigmar Gabriel, the SPD leader and vice-chancellor. The German interior ministry indicated the massive scale of the movement of people towards Germany this year when it supplied the latest figures on Thursday for registered refugees – 758,000, a record-breaking figure that suggests the number will exceed 1 million this year. They mainly came from Syria and Iraq, Afghanistan, Albania and Kosovo. The migrants from the latter two places are likely to be deported promptly under the tighter regime Merkel is trying to create while remaining open to those viewed as bona fide refugees.

The Merkel’s climbdown on transit zones came as the EU prepares for a crucial week of summitry devoted for the fifth time in a matter of months to the migration emergency. EU interior and justice ministers are to meet on Monday to ponder their options amid growing evidence that their governments are failing to come up with coherent policies or to come good on repeated pledges of money, resources and refugee-sharing by quotas.

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Economic models on 3 million extra refugees are completelyt useless: nobody has a clue.

The Economic Impact of the European Refugee Crisis (Atlantic)

Three million refugees and migrants could arrive in Europe by the end of 2017, the European Commission says in its economic forecast for the fall of 2015. The report says the newcomers will have a relatively small economic impact in the medium term, with GDP rising between 0.2% and 0.3% above the baseline by 2020. But, the EC notes, that could vary by country with destination countries such as Germany seeing a more significant impact than transit countries. Here’s more:

“The impact from higher public spending and a larger labour force with a skillset similar to the existing one in the EU is expected to: “contribute to a small increase in the level of GDP this year and next, compared to a baseline scenario, rising to about 0.25% by 2017”. This however is less than the rise in the underlying population, implying a small, negative impact on GDP per capita throughout the period; and “strengthening the outlook for employment (which is expected to improve gradually to about 0.3% more employed persons by 2017), in part from a wage response.”

The EC reports points out that, typically, non-EU migrants typically receive less in individual benefits than they contribute in taxes and social contributions. And their employment is the most important factor of net fiscal contribution. The influx excluding failed asylum applications will increase the EU’s population by 0.4%, the forecast says. The report further says:

“For Member States with an ageing population and shrinking workforce, migration can alter the age distribution in a way that may strengthen fiscal sustainability yet, if the human potential is not used well, the inflow can also weaken fiscal sustainability. Moreover, while migration flows can partly offset unfavourable demographic developments, earlier studies have shown that immigration could not on its own solve the problems linked to ageing in the EU.”

Economic models examining the integration of 3 million extra people over the next two years notwithstanding, Europe is deeply divided over how to handle the most severe refugee crisis since World War II. More than 760,000 refugees and migrants have entered the EU in the first nine months of this year, but the bloc has only agreed on relocating 160,000 of them. Of these, as we reported Wednesday, 116 have been sent to their new homes. About 1.2 million people have sought asylum in the EU since the start of 2014. Many of them are people fleeing the Syrian civil war, and unrest in Afghanistan, Iraq, Eritrea, and elsewhere. Others, however, are economic migrants, and will likely be turned away by Europe.

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The ECB should not be buying a single piece of paper.

Is Europe’s Economy So Bad the ECB Will Run Out of Things to Buy? (Bloomberg)

With European Central Bank President Mario Draghi hinting at further easing by the central bank next month, markets are busy trying to work out whether the next move will be to lower deposit rates even further into negative territory or ramp up asset purchases. Or perhaps both. The terms of the ECB’s quantitative easing, or QE, program mean that it theoretically has a fixed universe of assets to purchase – a limit that could be hit earlier than its intended September 2016 deadline if the bank substantially increases the size of its purchases. Under its current rate of €60 billion a month, the ECB should be more than capable of purchasing the 893 billion euros of agency and government bonds with yields above the deposit rate planned through next September.

However, if the rate of purchases is ramped up then it could come close to running out of available assets, according to Bloomberg Intelligence economist David Powell. Instead, he said, the ECB could cut the deposit rate to increase the investible universe of assets, as well as significantly increasing QE purchases. “BI Economics calculates that a decline in bond yields of 25 basis points across the curve would shrink the universe of bonds to €1.3 trillion,” he said. “In that instance, a cut to the deposit rate would be required to implement asset purchases of €90 billion much beyond September 2016 – the total through September would be roughly €1.2 trillion of overall purchases of agency and government bonds.”

Rather than relying on a rate cut to free up assets, the ECB could simply shift the mix of purchases to agency debt, corporate debt, or even debt from other countries. In December last year, Draghi directly addressed the issue of eligible assets under the ECB’s QE program. Asked whether the board had discussed buying gold or U.S. Treasuries, he replied: “On what sort of assets should be included in QE, my sense and recollection is that we discussed all assets, but gold.” In other words, asset scarcity should not be a problem. However, lowering the deposit rate might be.

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Only blatant nonsense spouts from Brussels. Europe is toast.

EU Cuts Growth and Inflation Outlook as ECB Decision Looms (Bloomberg)

The European Commission cut its euro-area growth and inflation outlook for next year, citing more challenging global conditions and fading impetus from lower oil prices and a weaker euro. GDP in the 19-nation bloc is set to grow 1.8% in 2016, down from a previous projection of 1.9% in May, the Commission said in its autumn forecast published Thursday. Inflation is seen accelerating to 1.6% in 2017 from 0.1% this year. The economic recovery in the 19-nation region is resting on unprecedented stimulus by the European Central Bank. With a slowdown in emerging markets weighing on global trade, risks have increased that growth won’t be strong enough to sustain the decline in unemployment and bring inflation back in line with the ECB’s goal of just below 2%.

“Today’s economic forecast shows the euro-area economy continuing its moderate recovery,” Valdis Dombrovskis, vice president of the European Commission, said in a statement. “Sustaining and strengthening the recovery requires taking advantage of” temporary tailwinds including “low oil prices, a weaker euro exchange rate and the ECB’s accommodative monetary policy,” he said. While noting that the recovery has proved to be resilient to external shocks so far, uncertainty surrounding the economic outlook shows few signs of abating. Risks include a larger-than-anticipated slowdown in China and financial-market volatility triggered by a normalization of U.S. monetary policy, according to the report.

In Germany, factory orders dropped 2.8% in the third quarter from the previous one amid a slump in demand from outside the euro area, the Economy Ministry in Berlin said in a separate release on Thursday. Orders from within the country and the currency bloc are still supporting manufacturing, it said. The Commission upgraded its euro-area growth forecast for this year 1.6%, from a previous estimate of 1.5%. Output should accelerate to 1.9% in 2017, it said. Breaking down growth components, the Commission predicts domestic demand will pick up this year and continue to maintain its momentum over the near term, supported by a boost to nominal income, purchasing power and improving labor-market conditions.

Meanwhile, investment is forecast to strengthen “gradually,” albeit at a lower pace than in past recoveries, pointing to subdued demand expectations, credit-supply constraints and persistent corporate deleveraging pressures. Reacting to the report, EU Commissioner for Economic and Financial Affairs Pierre Moscovici said the recovery “remains on course,” but warned improvement is still unevenly spread across the euro area and major challenges remain going into next year. “These require bold and determined policy responses in 2016, especially in the face of an uncertain global outlook,” he said in a statement.

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Cutting spending in a contracting economy. Who still thinks Greece is better off inside the EU?

Brussels Demands More Austerity ‘Measures’ In Greece (Kath.)

The European Commission expects the recession that returned to Greece this year to continue into 2016 and is calling on the government to immediately draw up additional measures for 2017. Along with the release of its fall forecasts on Thursday, Brussels also criticized Athens for reversing the positive momentum recorded in the economy last year, which is attributed to the renewed uncertainty during 2015 and the introduction of capital controls. The Commission expects the Greek economy to contract 1.4% this year and 1.3% in 2016, before rebounding by 2.7% in 2017.

It blamed the loss of the 2014 momentum on the uncertainty created by the unsuccessful completion of the second bailout program, the referendum called by Prime Minister Alexis Tsipras in July, the three-week bank holiday and the capital controls, which came into effect on June 28. Despite the above constraints, the Greek economy expanded 1% in the first half of the year, although this was due to the rise in consumption as Greeks feared for their incomes and savings. It further reflected the decline in imports, while the very positive course of tourism for a second year in a row also helped. In the current second half of the year, Brussels believes that the Greek economy is burdened by the great volume of tax obligations that have to be paid out by the end of the year, the wait-and-see attitude of investors and the lack of credibility in the economy.

The Commission hopes that the stabilization of the credit sector after a successful recapitalization, the recovery of confidence and the return of investors through the privatizations program could lead the economy back to growth in the latter half of next year. It stressed that the application of the agreed reforms is key to a Greek recovery. Regarding the necessary primary budget surplus, the Commission says that besides the measures for 2015-17 already taken, amounting to 4% of gross domestic product, the government should take extra measures adding up to another 1.75% of GDP for 2017.

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“Imports into China – mostly raw materials – are dropping at a double-digit rate. Exports are rolling over, too. There is nothing like easy money to cause people to make mistakes. Americans overspent. China overproduced. Now, Americans can’t step up their buying (they owe too much already)… and China has too much capacity.”

How China Broke the World’s ‘Bubble Machine’ (Bonner)

Here’s how it worked: Once the world’s money lost its golden anchor in 1971, things got a little funny. Americans spent money they never earned and never saved – dollars created “out of nothing” with nothing more than keystrokes on a computer. Much of this new money went overseas, where foreign nations – notably China – had to print their own currency to keep up with it. But you’ve heard this story before. China makes. The U.S. takes. In the process, a glut of dollars ends up in the hands of the Chinese feds as foreign exchange reserves. The buildup of these reserves is both the cause and the measure of the globalized boom the world has enjoyed since the early 1980s. As Americans bought more goods from China than they sold to China, they sent more dollars to the Middle Kingdom.

These dollars boosted the world’s money supply… and set heads a’spinning, wheels a’turning, and chimneys a’smokin’. China (and other countries) filled the orders and banked the dollar sales. Of course, you can’t easily spend dollars in China. So the Chinese central bank, the People’s Bank of China (PBoC) exchanged merchants’ and manufacturers’ dollars for renminbi at a fixed rate (otherwise, the demand for renminbi would push up its exchange value – something the Chinese have been keen to avoid). This left the PBoC with lots of dollars. What could it do with its stash? Buy U.S. Treasury bonds! As China recycled its export dollars into U.S. government debt, it lowered U.S. interest rates and increased the amount of money bidding for U.S. financial assets.

That – roughly – is how we got to where we are today. China’s supply of foreign currency reserves rose from zero in 1979 to $4 trillion in 2014. Worldwide, reserves grew by $12 trillion. Here, you can easily see the difference between this new credit-based system and the gold-backed system it replaced. You could never add $12 trillion to the world’s money supply in the same way if it was linked to gold. All the gold ever mined has a present value of only about $6 trillion. This big increase in the global money supply was what set off the booms and bubbles of the last 35 years. But now, what’s this? The bubble machine is broken? The PBoC is no longer adding to its dollar reserves. Instead, it is offloading them. About $400 billion has been clipped from China’s foreign exchange reserves since 2014.

This drop is a big change for China… and for the world’s financial system. Imports into China – mostly raw materials – are dropping at a double-digit rate. Exports are rolling over, too. There is nothing like easy money to cause people to make mistakes. Americans overspent. China overproduced. Now, Americans can’t step up their buying (they owe too much already)… and China has too much capacity. China’s growth, by the way, has been heavily concentrated on building factories and infrastructure – capital investment. China spent $4.3 trillion on fixed capital investment in 2013 – 10 times more than in 2000. But when you produce too much already, building more factories only makes the situation worse. Prices fall; on a year-over-year basis, producer prices in China haven fallen every month for the last three and half years.

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Steve comes in at 13 minutes+.

The Valeant Scandal and Steve Keen on China and Portugal (RT)

The European Union cuts its Eurozone growth forecast for 2016. Despite this being the third year of consecutive growth for the European Union, growth is slow and will slow even further. Ameera David weighs in. Ameera also highlights a new smart Gmail feature that will be able to scan your email and offer quick replies. Then, Ameera and RT correspondent Manuel Rapalo update their earlier discussion on Airbnb’s fight in to stay legal in San Francisco and discuss Expedia’s $3.9 billion deal to buy Airbnb competitor HomeAway. Afterwards, Paul Craig Roberts gives us his take on the elimination of two popular social security claiming measures, part of his interview with Boom Bust’s Bianca Facchinei that will air Friday.

After the break, Boom Bust’s Edward Harrison sits down with Steve Keen, head of economics, history, and politics at Kingston University to get his thoughts on the path forward for China, emerging markets, and the global economy, as well as to assess whether politics in Portugal are radicalizing. And in The Big Deal, Ameera and Edward Harrison talk about the scandal surrounding former stock darling Valeant Pharmaceuticals.

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Casino.

China’s Stock-Market Bulls Are Back, But Where Are the Earnings? (Bloomberg)

Hao Hong has seen this movie before, and it didn’t end well for China’s stock-market bulls. Five months after an equity boom built on weak corporate profits turned into a $5 trillion crash, a similar scenario is playing out in China today. The benchmark Shanghai Composite Index has surged 20% from its Aug. 26 low, despite third-quarter profits that trailed analyst estimates at 68% of companies in the index, the eighth straight quarter of disappointing results. The absence of a rebound in earnings is one reason why Hong at Bocom International says the latest surge in stocks is a “bear market rally.” Foreign investors seem to agree: they’ve been selling mainland equities through the Shanghai-Hong Kong exchange link for four straight weeks, cutting holdings by the most in two months on Thursday.

“It’s very difficult to see this rally sustaining without an earnings recovery,” said Tony Chu at RS Investment. Foreign investors “don’t have a very strong medium-to-longer-term view.” The rally in China follows an unprecedented government campaign to prop up share prices, along with increased monetary stimulus to combat the deepest economic slowdown in 25 years. The official support has helped revive confidence among local investors, spurring a pick-up in trading activity and sending the Shanghai Composite to an 11-week high on Thursday. The $1.6 trillion recovery in Chinese share prices is also boosting valuations as earnings shrink. Trailing 12-month profits at Shanghai Composite companies have dropped 10% so far this year, leaving the index with a price-to-earnings ratio of 18. While that’s still below the multiple of 25 reached at the height of the boom in June, it’s about 38% more expensive than the five-year average.

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From bonds to stocks and back?

China’s Bonds Set for Worst Week Since May as PBOC Seen on Hold (Bloomberg)

China’s 10-year sovereign bonds headed for the biggest weekly drop in five months on speculation investors are taking profits amid signs the central bank is done cutting borrowing costs for now. The People’s Bank of China has lowered benchmark deposit and lending rates six times since November and reduced lenders’ reserve ratios in an attempt to spur a slowing economy. The monetary authority will leave its policy rates unchanged through the end of next year, a Bloomberg survey showed last week. China’s local-currency sovereign debt rallied for five months through October and the 10-year yield fell to a six-year low last week. The yield on the notes due October 2025 climbed six basis points from Oct. 30 and two basis points on Friday to 3.14% as of 10 a.m. in Shanghai, according to National Interbank Funding Center prices.

That’s the biggest weekly increase for a benchmark of that maturity since May. “Profit-taking will probably continue to be the theme through to the end of the year, especially for active traders,” said Qu Qing at Huachuang Securities. “Given the slide in yields earlier, this may not be a good time to enter the market.” The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, rose three basis points this week to 2.35% and declined one basis point on Friday. The seven-day repo rate, a gauge of interbank funding availability, fell four basis points from Oct. 30 and three basis points on Friday to 2.26%, a weighted average from the National Interbank Funding Center shows.

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What we have said for almost ten years now.

Monetary Bazookas Or Not, “Global Crisis Is Inevitable” (Saxobank)

Until recently, the consensus assumed a strengthening of the global economy in 2016. It won’t happen. If the global economic growth manages to reach 3.1% next year, as forecast by the IMF, it will be a miracle. We haven’t realised that the global economic recovery is already here for over six years. This recovery phase is weaker than previous ones and much more disparate. Since the onset of the global financial crisis in 2007, the potential growth rate has been much lower everywhere: from 3% to 2% for the US, from 9.4% to 7.20% for China and from over 5% to below 4% for Poland. Many regions, such as the euro area, have remained on the sidelines and experienced stalling economic growth. Over the last two decades, economic cycles have been shortened due to the financialization of the economy, trade globalization, deregulation and the acceleration of innovation cycles.

Since the 1990s, the US went through three recessions: in 1991, 2001 and 2009. It is erroneous to believe that the recovery has just begun. We are close to the end of the current economic cycle. The outbreak of a new global crisis in the coming years is inevitable. The lack of economic momentum next year and short periods of deflation related to falling oil prices will certainly push central banks to pursue their disastrous “extend-and-pretend” strategy which will increase the price of financial assets and global debt. The ECB could push further interest rates into negative territory and could increase or lengthen the purchase program. Several options are on the table: the central bank could drop the 25% purchase limit on sovereign bonds with AAA rating or could add a program to help the corporate bond market.

Following the same path, China could take out the monetary bazooka in the first half of 2016 by launching its own version of QE-style bond buys. Along with a dovish monetary policy, China could implement a massive Keynesian stimulus programme, relying on the already-expected bond issue plan which could raise 1 billion yuan. This move could temporarily reassure world markets. The only central bank that has a leeway to hike rates is the US Federal Reserve. 52% of investors expect a tightening of US monetary policy in December. However, the speed and magnitude of tightening will remain low. It is unlikely the rates will be back anytime soon to where they were before the global financial crisis. Too high interest rates could cause a myriad of bankruptcies in heavily indebted industries, such as the shale oil sector in the US.

The Fed and other central banks are in a dead-end having fallen in the same trap as the Bank of Japan. If they increase rates too much, they will precipitate another financial crisis. It is impossible to stop the accommodative monetary policy.

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Let’s get rid of the absurd idea that central banks can control economies. Not even the Soviet Union succeeded in that.

Deflation Risks May Warrant Radical New Central-Bank Thinking: IMF (WSJ)

The Bank of Japan and other central banks around the world may need to try radical new easy-money policies to stave off the rising specter of deflation and revive sickly economic prospects, the IMF’s new chief economist warns. “I worry about deflation globally,” new IMF Economic Counselor Maurice Obstfeld said in an interview ahead of an annual IMF research conference that focuses this year on unconventional monetary policies and exchange rate regimes. “It may be time to start thinking outside the box.” Weak—and in some cases falling—price growth has plagued Japan, Europe, the U.S. and other major economies since the financial crisis. Plummeting commodity prices are exacerbating the so-called “lowflation” and deflation problems that curb investment, spending and growth.

Surveying several dozen of the largest economies around the world, Mr. Obstfeld said the number of countries experiencing low inflation is rising. Combined with slowing emerging market output, ballooning government debt and monetary policy constrained by the lower limits of interest rates, the deflation risk is fueling fears the global economy could be fast stuck into a deep low-growth mire. In the wake of the financial crisis, the Federal Reserve, the Bank of Japan and the ECB launched unprecedented easy-money stimulus programs to avert economic disaster and jumpstart growth. The Fed’s efforts have cut the unemployment rate but failed to sufficiently juice inflation. Tokyo has struggled to pull the long-listless economy out of the doldrums. And the ECB’s efforts have only narrowly avoided a triple-dip recession. Some economists argue the ECB’s actions have pumped up corporate cash reserves, but done little to boost employment or investment.

So, what would be thinking outside the box for Mr. Obstfeld? One option is a proposal by Adair Turner, a member of the Bank of England’s Financial Policy Committee, for central bankers to overtly finance increased budget stimulus with permanent increases in the money supply. By contrast, the increased money supply resulting from recent central bank bond-buying programs is meant to be temporary. In a paper prepared for the IMF conference, Mr. Turner contends Japan will be forced to use such “monetary financing” within the next five years and says the policy should become a normal central bank tool for all economies facing stagnation. Such an option would be highly provocative to fiscal hawks and those who fear giving central banks too much power, especially when many economists question both the returns and financial-turmoil side effects from existing easy-money policies.

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2016 will be a very bad year for banks.

Standard Chartered’s Shares Plunge 7% After Fitch Downgrade (Bloomberg)

Standard Chartered shares slumped in Hong Kong after Fitch Ratings downgraded the bank, citing the outlook for the lender’s profits and asset quality. The London-based bank this week unveiled plans to tap investors for $5.1 billion, eliminate thousands of jobs and cut risky assets across Asia. The bank’s shares fell as much as 7.1% Friday in Hong Kong. They were down 4.8% as of 11:30 a.m. local time, extending this year’s decline to 35%. The benchmark Hang Seng Index slipped 0.9%. Standard Chartered is now lagging behind the Bloomberg World Banks Index by the most since the gauge started in 2003. While Chief Executive Officer Bill Winters’s measures to restructure the lender and boost capital address some of Fitch’s concerns about the bank, implementing the plan could be challenging because of credit risks and high management and staff turnover, the ratings firm said in a statement.

Fitch on Thursday cut the lender’s credit rating one grade to A+ from AA-, with a negative outlook. Winters, who took over in June, on Tuesday unveiled 15,000 job losses to help save $2.9 billion by 2018, with the bank scrapping the second-half dividend. Standard Chartered will also restructure or exit $100 billion of assets and reduce its riskiest lending in Asia after loan impairments surged. The bank reported an unexpected third-quarter loss of $139 million, compared with a profit of $1.5 billion a year earlier. The bank’s impaired-loan ratios remain above its peers’ and appear to have become more volatile as a result of concentrated sector and country exposures, Fitch said. “Standard Chartered remains vulnerable to volatility from a difficult operating and regulatory environment.” The bank’s shares fell 6.3% in London on Thursday.

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Apparently, the US army called the hospital prior to the attack to ask if there were any Taliban present.

MSF Says US Planes Attacked Staff Fleeing Kunduz Hospital (Reuters)

Medical aid group Medicins Sans Frontieres (MSF) said Thursday it was hard to believe a U.S. strike on an Afghan hospital last month was a mistake, as it had reports of fleeing people being shot from an aircraft. “All the information that we’ve provided so far shows that a mistake is quite hard to understand and believe at this stage,” MSF General Director Christopher Stokes told reporters while presenting the group’s internal report on the incident. The report said many staff described “seeing people being shot, most likely from the plane” as they tried to flee the main hospital building, which was under attack by U.S. military aircraft. At least 30 people were killed when the hospital in Kunduz was hit by a powerful U.S. attack aircraft on Oct. 3 while Afghan government forces were battling to regain control of the northern city from Taliban forces who had seized it days earlier.

The United States has said the hospital was hit by accident and two separate investigations by the U.S. and NATO are underway. But the circumstances of the incident, one of the worst of its kind during the 14-year conflict, are still unclear. Stokes told reporters the organisation was still awaiting an explanation from the U.S. military. “From what we are seeing now, this action is illegal in the laws of war,” Stokes said. “There are still many unanswered questions, including who took the final decision, who gave the targeting instructions for the hospital.” Capt. Jeff Davis, a Pentagon spokesman, said MSF shared the report in advance with the U.S. Defence Department. “Since this tragic incident, we have worked closely with MSF to determine the facts surrounding it,” he said in a statement, which did not address the report’s specifics.

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Exxon knew it all. But that means so did everybody else.

Exxon Mobil Investigated for Possible Climate Change Lies (NY Times)

The New York attorney general has begun an investigation of Exxon Mobil to determine whether the company lied to the public about the risks of climate change or to investors about how such risks might hurt the oil business. According to people with knowledge of the investigation, Attorney General Eric T. Schneiderman issued a subpoena Wednesday evening to Exxon Mobil, demanding extensive financial records, emails and other documents. The investigation focuses on whether statements the company made to investors about climate risks as recently as this year were consistent with the company’s own long-running scientific research.

The people said the inquiry would include a period of at least a decade during which Exxon Mobil funded outside groups that sought to undermine climate science, even as its in-house scientists were outlining the potential consequences — and uncertainties — to company executives. Kenneth P. Cohen, vice president for public affairs at Exxon Mobil, said on Thursday that the company had received the subpoena and was still deciding how to respond. “We unequivocally reject the allegations that Exxon Mobil has suppressed climate change research,” Mr. Cohen said, adding that the company had funded mainstream climate science since the 1970s, had published dozens of scientific papers on the topic and had disclosed climate risks to investors.

Mr. Schneiderman’s decision to scrutinize the fossil fuel companies may well open a new legal front in the climate change battle. The people with knowledge of the New York case also said on Thursday that, in a separate inquiry, Peabody Energy, the nation’s largest coal producer, had been under investigation by the attorney general for two years over whether it properly disclosed financial risks related to climate change. That investigation was not previously reported, and has not resulted in any charges or other legal action against Peabody. Vic Svec, a Peabody senior vice president, said in a statement, “Peabody continues to work with the New York attorney general’s office regarding our disclosures, which have evolved over the years.”

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Here’s the only safe bet: nothing will happen that costs too much money.

World Only Half Way To Meeting Emissions Target With Current Pledges (Guardian)

Current global efforts to cut greenhouse gas emissions leave about half of the reductions needed still to be found, according to a new analysis by the UN. The report suggests that governments will have to go much further in their pledges to limit future carbon dioxide emissions, which have been submitted to the UN ahead of the crunch conference on climate change taking place this December in Paris. Ways for governments to ramp up their commitments in future are one of the key components of the Paris talks. The UN Environment Programme (Unep) published a report showing that global emissions levels should not exceed 48 gigatonnes (GT) of carbon dioxide equivalent by 2025, and 42 GT in 2030, if the world is to have a good chance of holding global warming to no more than 2C on average above pre-industrial temperatures.

The 2C threshold is regarded by scientists as the limit of safety, beyond which the ravages of climate change – such as droughts, floods, heatwaves and sea level rises – are likely to become catastrophic and irreversible. But current pledges, known as Intended Nationally Determined Contributions (INDCs), are likely to lead to emissions of 53 to 58 GT of carbon dioxide equivalent in 2025, and between 54 and 59 GT in 2030. This means that emissions in 2030 are likely to be about 11GT lower than they would have been without the INDCs. But, according to Unep, they need to be about 12GT lower than that to give the world a two-thirds chance of avoiding more than 2C of warming. This leaves a large “emissions gap” to be made up.

Much work has gone into analysing the emissions pledges that countries have made, with branches of the UN, the International Energy Agency, the New Climate Economy group, and other independent organisations producing reports on what can be expected if the Paris pledges are fulfilled. There is broad consensus that the commitments that have so far been made are not yet adequate to meet the 2C limit. However, the commitments – which will come into force from 2020, when current international commitments on emissions, agreed at the Copenhagen summit in 2009, are scheduled to run out – represent a marked improvement on “business as usual”. The IEA has calculated that, if followed through, the emission plans would result in the growth of emissions from the energy sector slowing to near zero by the end of the next decade.

This would not be enough to meet scientific advice, but would be a remarkable reversal of the near-relentless upward trend of greenhouse gas emissions in modern times. Other analyses, endorsed by the UN, have suggested that warming would be limited to about 2.7C to 3C by the end of this century, under the current INDCs. While this would still not satisfy scientific advice, it would put the world on a much better footing than it is at present, as on current trends warming would reach as much as 5C above pre-industrial levels by 2100.

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 October 31, 2015  Posted by at 10:00 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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Louise Rosskam General store in Lincoln, Vermont 1940


US on Road to Third World (Paul Craig Roberts)
Janet Yellen Just Got Some Pretty Bad News (CNBC)
Fed’s Updated Model of Economy Suggests It’s Time to Raise Rates (Bloomberg)
China Has Created A Steel Monster And Now Must Tame It (Reuters)
VW Sticks to $24.2 Billion China Spending Plan Amid Cost Cuts (Bloomberg)
Chevron to Cut Up to 7,000 Jobs (WSJ)
Saudi Arabia Credit Rating Cut by S&P After Oil Prices Sink (Bloomberg)
Swiss Probe Banks to Gauge Exposure to Petrobras Scandal (Bloomberg)
Largest US Banks Face $120 Billion Shortfall Under New Rule (Reuters)
Portugal Risks Becoming ‘Ungovernable’: President (Telegraph)
Subprime Mortgages Make Surprise Comeback In The UK (Guardian)
Greek PM Tsipras Says Shamed By Europe’s Handling Of Refugee Crisis (Reuters)
Greece Says 22 Refugees Drown Off Aegean Islands, 144 Rescued (Reuters)
Tsipras: Aegean Waves Wash Up Dead Children, And Europe’s Very Civilization (AP)
Tsipras Blames Migrant Flows On Western Military Action In Middle East (AP)
The Next Wave: Afghans Flee To Europe in Droves (Spiegel)
Refugee Crisis: Germans Restrict Entry Points From Austria (BBC)

How to gut a society.

US on Road to Third World (Paul Craig Roberts)

On January 6, 2004, Senator Charles Schumer and I challenged the erroneous idea that jobs offshoring was free trade in a New York Times op-ed. Our article so astounded economists that within a few days Schumer and I were summoned to a Brookings Institution conference in Washington, DC, to explain our heresy. In the nationally televised conference, I declared that the consequence of jobs offshoring would be that the US would be a Third World country in 20 years. That was 11 years ago, and the US is on course to descend to Third World status before the remaining nine years of my prediction have expired. The evidence is everywhere. In September the US Bureau of the Census released its report on US household income by quintile. Every quintile, as well as the top 5%, has experienced a decline in real household income since their peaks.

[..] Only the top One Percent or less (mainly the 0.1%) has experienced growth in income and wealth. The Census Bureau uses official measures of inflation to arrive at real income. These measures are understated. If more accurate measures of inflation are used (such as those available from shadowstats.com), the declines in real household income are larger and have been declining for a longer period. Some measures show real median annual household income below levels of the late 1960s and early 1970s. Note that these declines have occurred during an alleged six-year economic recovery from 2009 to the current time, and during a period when the labor force was shrinking due to a sustained decline in the labor force participation rate. On April 3, 2015 the US Bureau of Labor Statistics announced that 93,175,000 Americans of working age are not in the work force, a historical record.

Normally, an economic recovery is marked by a rise in the labor force participation rate. John Williams reports that when discouraged workers are included among the measure of the unemployed, the US unemployment rate is currently 23%, not the 5.2% reported figure. In a recently released report, the Social Security Administration provides annual income data on an individual basis. Are you ready for this? In 2014 38% of all American workers made less than $20,000; 51% made less than $30,000; 63% made less than $40,000; and 72% made less than $50,000. The scarcity of jobs and the low pay are direct consequences of jobs offshoring. Under pressure from “shareholder advocates” (Wall Street) and large retailers, US manufacturing companies moved their manufacturing abroad to countries where the rock bottom price of labor results in a rise in corporate profits, executive “performance bonuses,” and stock prices.

The departure of well-paid US manufacturing jobs was soon followed by the departure of software engineering, IT, and other professional service jobs. Incompetent economic studies by careless economists, such as Michael Porter at Harvard and Matthew Slaughter at Dartmouth, concluded that the gift of vast numbers of US high productivity, high value-added jobs to foreign countries was a great benefit to the US economy. In articles and books I challenged this absurd conclusion, and all of the economic evidence proves that I am correct. The promised better jobs that the “New Economy” would create to replace the jobs gifted to foreigners have never appeared. Instead, the economy creates lowly-paid part-time jobs, such as waitresses, bartenders, retail clerks, and ambulatory health care services, while full-time jobs with benefits continue to shrink as a percentage of total jobs.

These part-time jobs do not provide enough income to form a household. Consequently, as a Federal Reserve study reports, “Nationally, nearly half of 25-year-olds lived with their parents in 2012-2013, up from just over 25% in 1999.” When half of 25-year olds cannot form households, the market for houses and home furnishings collapses.

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Damned if you do and doomed if you don’t. The loss of credibility will finish the job for Yellen no matter what the Fed does.

Janet Yellen Just Got Some Pretty Bad News (CNBC)

Two days after the Federal Reserve released what was allegedly its most hawkish statement in months came a reminder that the path toward a rate hike won’t be an easy one. One of the main economic factors for Fed officials when it comes to assessing the right time to start hiking rates is wage growth, tied with the consumer spending that is supposed to follow. There was bad news on both fronts in economic data released Friday morning. The big releases of the day were on personal income, which increased just 0.1% in September, missing even the meager consensus estimate of 0.2%, and the University of Michigan consumer confidence survey, which, at 90, whiffed as well with its second-lowest reading of the year.

Below the Wall Street radar, though, came another report that doesn’t garner the headlines but is believed to be one watched closely by Fed Chair Janet Yellen and her fellow monetary policymakers: The employment cost index. The quarterly release from the Bureau of Labor Statistics showed that compensation costs for nongovernment workers rose just 0.6% in the three-month period – about what economists had expected but not much to move the inflation needle. On an annualized basis, compensation costs rose just 2%, which actually is a decline from the 2.2% increase realized for the same period a year ago. Benefit costs increased just 1.4%, despite a 3% jump in health-care packages. The news was slightly better for state and local government workers, who collectively saw a 2.3% annualized increase, compared with 1.8% in the year-ago period.

The pace of wage increases is critical to Fed thinking. Many on Wall Street took Wednesday’s statement, which referenced conditions for an interest rate increase by the end of the year, as indicating that central bank officials are close to hiking for the first time since taking their key policy rate to near-zero in late 2008. Federal Open Market Committee members are hoping to see demand-driven inflation, something hard to come by when wage increases are so anemic. The wage and confidence news comes just a day after the government reported gross domestic product growth of just 1.5% in the third quarter. With the slow wage growth, core inflation as measured through Yellen’s preferred indicator, the personal consumption expenditures index, is tracking at just 1.25%, according to Steve Blitz, chief economist at ITG.

“The FOMC, if true they are tied to trends, can only be disappointed by the trend in consumption and wage growth coming out of the third quarter,” Blitz said in a note. “Because [if] they really, really, really want to move 25 basis points in December they have to be, by their own rules, now focused on whether the individual data points for the economy in the next six weeks indicate a change in trends to the upside. In other words, the next two payroll numbers mean everything.”

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Channeling Groucho: “Those are my principles, and if you don’t like them… well, I have others..”

Fed’s Updated Model of Economy Suggests It’s Time to Raise Rates (Bloomberg)

The Federal Reserve Board released an updated version of its large-scale model on the U.S. economy that may hold clues into why policy makers pivoted at their meeting earlier this week toward a December interest-rate increase. The revised inputs and calculations on Friday suggest the economy will use up resource slack by the first quarter of 2016, according to an analysis by Barclays Plc, and that also indicates Fed staff lowered their near-term estimate for how fast the economy can grow without producing inflation – a concept known as potential growth. “The output gap appears closed,” said Michael Gapen at Barclays in New York. “This means further progress would lead to resource scarcity and potential upward pressure on inflation in the medium term.”

Gapen said that may explain why U.S. central bankers signaled this week that they will consider the first interest-rate increase since 2006 at their next meeting, on Dec. 15-16. The model assumes that the Federal Open Market Committee raises the benchmark lending rate in late 2015. However, immediate liftoff has “been a feature” of the model since late 2014, Barclays noted. In the current model, “the long-run growth rate is two-tenths lower” at 2%, Barclays said. FOMC participants forecast the economy’s long-run growth rate at 2% in September. The unemployment rate stood at 5.1% in September, and the Fed model assumes little change from that level, dipping to a low of 4.8% in a forecast horizon that extends to 2020, according to Barclays.

FOMC officials estimated full employment – or the level of the unemployment rate consistent with stable prices – at 4.9% last month. “This view is quite different than ours,” said Gapen, who formerly worked at the Fed. “We forecast ongoing declines in the unemployment rate and see it reaching 4.3% by end-2016.” The model, known as FRB/US and updated periodically, is a series of calculations put together by Fed staff that sketch out how broad measures of the economy would change based on a set of defined parameters. The staff also constructs a bottom-up forecast for policy makers before each FOMC meeting. U.S. central bankers use the models and forecasts as reference points, not sole determinants of their decision-making.

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“By 2014, China’s production had reached 823 million tonnes. It was not just the world’s largest producer, it produced more than the rest of the world combined.”

China Has Created A Steel Monster And Now Must Tame It (Reuters)

The British steel industry is in crisis. That statement may come as a surprise to non-UK readers, many of whom might well be forgiven for thinking the country’s steel mills had gone the way of other legacy industries such as coal mining and shipbuilding. But Britain produced 12.1 million tonnes of crude steel last year, making the country the fifth-largest producer in the EU. It won’t produce that much this year. The last couple of months have brought a string of closure announcements, including that of the Redcar plant in Teeside, a symbol of previous against-the-odds survival. British steel mills are struggling with UK-specific problems, particularly high energy costs that are significantly above the European average.

Stung into belated action, the government is scrambling to assemble a rescue plan, albeit with one hand tied behind its back by EU state subsidy rules. But there is a much, much bigger problem roiling steel production, not just in Britain, but across the globe. China. China exported 11.25 million tonnes of steel last month. It was an all-time high and, expressed in annualized terms, was equivalent to 80% of the entire steel output of the 28-member EU last year. This wave of Chinese steel is creating a global steel-making crisis, of which Britain is only a minor sub-plot. But the biggest crisis of all may yet turn out to be in China itself. With exquisitely bad political timing, Britain’s steel woes erupted just before the long-planned visit to the country by Chinese President Xi Jinpeng.

Xi said China was committed to eliminating surplus steel capacity with 77.8 million tonnes already shuttered and more closures planned. Overcapacity, he added, was a global problem, not just a Chinese problem. Which is true. Steel-making has been dogged for decades by structural overcapacity, a tendency to overproduction and resulting weak pricing. But this time is different, because there has never been a steel giant like China before. China’s crude steel production tripled between 1980 and 2000 to 128.5 million tonnes and then went supernova in the following decade with annual growth rates of up to 30%. By 2014, China’s production had reached 823 million tonnes. It was not just the world’s largest producer, it produced more than the rest of the world combined.

Underpinning that breakneck pace of growth was the country’s massive investment in urban infrastructure. From new cities to new roads to new airports, it all needed massive amounts of steel, and of course the iron ore used to make the steel, generating secondary booms in key suppliers such as Australia. But now the boom is over and the world is paying the price.

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All on red. Expansion plans for a shrinking market. Time to ditch shares?!

VW Sticks to $24.2 Billion China Spending Plan Amid Cost Cuts (Bloomberg)

Volkswagen will shield its five-year, €22 billion expansion plan in China from cost cuts, underscoring the importance of its largest market to stem the fallout of the diesel-emissions manipulation scandal. This year and next, VW is pushing to update about 70% of the vehicles it sells in China and introduce more than 30 models to the market. The company is aiming to boost its production capacity in China from last year’s 3 million cars to at least 5 million vehicles. The carmaker needs growth in China to at least partly offset the towering cost of recalling as many as 11 million diesel cars worldwide. Volkswagen set aside €6.7 billion for the recalls in the third quarter, acknowledging this won’t be enough.

Analysts’ estimates for the total price tag, including fines and legal costs, range from about €20 billion to as much as €78 billion. “We continue to be committed to our investment plans in China, including our capacity goal,” Larissa Braun, a spokeswoman for VW’s Chinese business, said Friday in an e-mailed response to questions. The Wolfsburg-based manufacturer will make the investments together with joint venture partners SAIC Motor and FAW Car. The expansion comes even as the Chinese economy slows and many cities consider restricting car purchases to fight traffic jams and pollution. The market is such a priority that VW’s new Chief Executive Officer Matthias Mueller made the country his first major trip destination as CEO, joining German chancellor Angela Merkel on a trade mission this week.

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All oil majors are in far deeper doodoo then they let on. All big producing nations too.

Chevron to Cut Up to 7,000 Jobs (WSJ)

Chevron on Friday said it could cut 6,000 to 7,000 jobs and pare its capital spending by 25% next year, as profit tumbled in its third quarter. Still, results for the quarter fell less than Wall Street had expected. Shares of Chevron, down 20% this year, added 1% in premarket trading. Chevron didnt detail when the job cuts could occur. As of December 2014, Chevron had about 64,700 employees, according to a securities filing. The second-biggest U.S. oil company said it expects capital spending of $25 billion to $28 billion in 2016, down 25% from this year’s budget. The company said it expects to cut spending further in 2017 and 2018, to around $20 billion to $24 billion. For the quarter ended Sept. 30, Chevron reported earnings of $2.04 billion, or $1.09 a share, down from $5.6 billion, or $2.95 a share, a year earlier. Revenue fell 37% to $34.32 billion.

Analysts polled by Thomson Reuters expected Chevron to post 76 cents a share in earnings on $29.76 billion in revenue for the third quarter. A 15% reduction in capital spending to $7.97 billion helped prop up earnings in the period. Foreign currency effects also added $394 million to profit in the quarter, up from $366 million a year earlier. The company eked out a $59 million profit in its exploration and production segment, down from a profit of $4.65 billion a year earlier. Its U.S. segment swung to a loss of $603 million from a profit of $929 million a year earlier. The company’s average price for a barrel of crude oil and natural gas liquids was $42 in the quarter, down from $87 a year ago. The average price for natural gas was $1.96 per thousand cubic feet, down from $3.46 in the prior year.

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A deflating fairy tale of riches.

Saudi Arabia Credit Rating Cut by S&P After Oil Prices Sink (Bloomberg)

Saudi Arabia’s credit rating was cut by Standard & Poor’s , which said the decline in oil prices will increase the budget deficit in a country that relies on energy exports for 80% of its revenue. S&P cut the sovereign rating one level to A+, the fifth-highest classification, as it said the biggest OPEC producer’s deficit will increase to 16% of GDP this year. The nation’s credit outlook is negative as the decline in oil prices makes it difficult to reverse the fiscal deterioration, S&P said in a statement. “Credit metrics for oil producers like Saudi Arabia are coming under pressure,” said Steve Hooker, a money manager at Newfleet in Hartford, Connecticut, who helps oversee $12.5 billion of debt. “It’s not likely to reverse until the oil prices go up.”

The widening deficit and a high reliance on energy revenue “point to vulnerabilities in Saudi Arabia’s public finances,” the ratings company said. Brent crude has plunged 27% from this year’s high in May amid a persistent global supply glut. Still, public debt in Saudi Arabia is among the world’s lowest, with a gross debt-to-GDP ratio of less than 2% in 2014. “We could lower the ratings within the next two years if Saudi Arabia did not achieve a sizable and sustained reduction in the general government deficit, or its liquid fiscal financial assets fell below 100% of GDP,” Trevor Cullinan, a credit analyst at the rating company, said in the statement.

The Saudi Finance Ministry said it “strongly disagrees with S&P’s approach to ratings management in this particular instance.” The downgrade was “driven by fluid market factors rather than changes in the fundamentals of the sovereign,” which “remain strong,” the ministry said in a statement on the website of state-run Saudi Press Agency. The country is rated Aa3 by Moody’s Investors Service, the equivalent of one step higher than S&P’s new grade. S&P’s classification for Saudi Arabia is the same as Slovakia, Ireland, Bermuda and Israel.

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No mention of action other than freeing up $120 million that had been frozen.

Swiss Probe Banks to Gauge Exposure to Petrobras Scandal (Bloomberg)

Switzerland’s finance regulator is investigating local banks to gauge their possible exposure to a widening scandal surrounding Brazilian oil producer Petrobras. The regulator, known as Finma, said it is looking into whether banks and securities trading firms met their due-diligence obligations in possible cases of money laundering, and whether any possible incidents were reported to authorities. Bern, Switzerland-based Finma didn’t identify the banks that it began talking to months ago as part of the ongoing investigation. Switzerland’s attorney-general in March released $120 million of $400 million in assets tied to suspicious Petrobras-related transactions that had previously been frozen. The Rio de Janeiro-based oil and gas producer is mired in a corruption scandal in which company executives allegedly directed hundreds of millions of dollars from overpriced contracts to politicians.

The worsening affair has sent investor confidence in Brazil tumbling, plunged Latin America’s largest country into recession and triggered calls for Brazilian President Dilma Rousseff to be impeached over her handling of the matter. Swiss prosecutors said in March they’d uncovered more than 300 accounts belonging to senior Petrobras executives and its suppliers at more than 30 banking institutions apparently used to “process bribery payments.” Valor reported on the Finma probe earlier. Swiss Attorney-General Michael Lauber and his Brazilian counterpart Rodrigo Janot have complimented each other on the speed and cooperation with which the two countries’ justice systems have worked together, at a time when Swiss justice has been criticized for moving too slowly.

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Makes no difference when you’re TBTF.

Largest US Banks Face $120 Billion Shortfall Under New Rule (Reuters)

Six big U.S. banks need to raise an additional $120 billion, most likely in long-term debt, under a rule proposed on Friday by the Federal Reserve. The requirements are aimed at ensuring that some of the biggest and most interconnected banks, which include Goldman Sachs, JPMorgan and Wells Fargo, can better withstand another crisis by turning some of their debt, particularly debt issued by their holding companies, into equity without disrupting markets or requiring a government bailout. The banks are expected to meet the $120 billion shortfall by issuing debt, which is usually more cost-effective than issuing equity, according to Federal Reserve officials speaking at a background press briefing Friday.

The rule proposed Friday, largely in line with banks’ expectations, concerns the lenders’ total loss-absorbing capacity. It is one of a series of rules aimed at reducing risk in the banking system by determining how much debt and equity banks should use to fund themselves. In a procedural vote, the Fed’s governors approved a draft of the proposal, meaning it will be submitted for public comment. During a public meeting with Fed officials, one staffer who worked on the rule said banks should have an easy time complying, because many requirements overlapped with existing rules. Further, the bulk of the debt requirements can be fulfilled by refinancing existing debt, the staffer said.

Some requirements must be met by Jan. 1, 2019, while more-stringent requirements must be met by Jan. 1, 2022. The requirements are most stringent for JPMorgan, followed by Citigroup. After that come Bank of America, Goldman Sachs and Morgan Stanley, all of which have the same requirement. Wells Fargo’s requirement is the next highest, followed by State Street and finally Bank of New York Mellon. JPMorgan has more than $2 trillion in total assets, making it the largest U.S. bank by that measure.

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Portugal’s president is playing a murky role in this.

Portugal Risks Becoming ‘Ungovernable’: President (Telegraph)

Portugal risks becoming “ungovernable” as Leftist forces prepare to topple the returning government of prime minister Pedro Passos Coelho after just 11 days, the country’s president has warned. Mr Passos Coelho – whose pro-bail-out coalition presided over four years of austerity policies – was sworn into office on Friday after his ruling coalition finished first in recent elections, but lost its parliamentary majority. The appointment was met with controversy after the country’s president vowed to block an alliance of Leftist, anti-EU parties from taking the reins of office. The coalition of Socialists, Communists and the radical Left have vowed to bring down the minority government when a parliamentary vote is held on November 10. A collapse would make it the shortest government in Portugal’s 40 years of post-war democracy.

Addressing the nation, president Anibal Cavaco Silva defended himself against accusations of constitutional over-reach. But the head of state struck a more conciliatory tone, calling for all the main parties to broker a compromise to stop Portugal from descending into political chaos. “Without political stability, Portugal will become an uncontrollable country. And, of course, no one trusts an ungovernable country,” said the president. “The government taking over today does not have majority in parliament so the effort of dialogue and compromise has to proceed with the other political forces to seek the necessary understanding.” Mr Cavaco Silva warned the anti-austerity Left against derailing four years of fiscal consolidation and poisoning relations with the EU.

Prime minister Passos Coelho said Portugal’s commitment to the eurozone was “imperative”. “Nobody should risk the well being of the Portuguese in the name of ideological agendas or personal or political ambition,” he said. Despite exiting its €78bn bail-out last year, Portugal has the highest combined debt levels in the eurozone and the second highest government deficit at -7.8pc. The pro-euro opposition Socialist party is presenting itself as the only stable government having agreed to work with the two more strident anti-EU forces on the left. Together they will command a majority of over 50pc in the 230-seat parliament. The Left-wing alliance has reportedly agreed to reverse many of the fiscal measures taken by the previous conservative government, providing relief to low-income pensioners and workers.

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A country ruled by money.

Subprime Mortgages Make Surprise Comeback In The UK (Guardian)

Sub-prime mortgages, widely blamed for causing the 2007-08 financial crisis, are making a surprise comeback in the UK, with several new lenders launching home loans for people with poor credit histories. Lenders are targeting people who have faced serious financial problems including repossession and bankruptcy – as well as those with more minor blots on their records – for the mortgages, which come with interest rates as high as 8%. Bluestone Mortgages, a lender part-owned by Australia’s biggest investment bank, has just launched in the UK, following hard on the heels of another Australian-owned business, Pepper Homeloans, which similarly caters for those who have experienced a “credit event” such as missing payments on a previous mortgage. Another recent arrival is Foundation Home Loans, which offers buy-to-let mortgages to people who have had financial problems.

These three join a group of other players in a sector that argues it is offering a lifeline to the sizeable number of people who have suffered a financial “hiccup” and as a result are being rejected by the big name high street lenders. But the new wave of sub-prime mortgages on offer may prompt concern among those who fear a return to the lending practices of the past. And these mortgages come at a price: some borrowers taking out a two-year fixed-rate deal will be charged as much as 7%-8%, compared with current best-buy rates of as little as 1.54% on conventional loans. Peter Tutton, head of policy at StepChange debt charity, sounded a note of caution, pointing out that “last time around, before the crash, there were some really bad lending practices. Certain sub-prime lenders were lending to people who couldn’t afford it and were vulnerable and were being repossessed.”

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“Tsipras also said any suggestion that Greece was not effectively safeguarding the EU’s outermost borders – he referred to leaders of “certain European countries” – was borne of ignorance of international law dictating protection of the lives of people in distress at sea.”

Greek PM Tsipras Says Shamed By Europe’s Handling Of Refugee Crisis (Reuters)

Greece’s prime minister said on Friday he was ashamed to be a member of a European Union that he said was sidestepping responsibilities over the migrant crisis and crying hypocritical tears for children who have drowned trying to reach its shores. In some of the hardest-hitting comments yet on a crisis resonating throughout Europe, Alexis Tsipras told parliament Greece didn’t want a “single euro” for saving lives as thousands of refugees continued to arrive daily on its shores, and the EU remained at odds on how to deal with the influx. At least 35 people drowned trying to cross the sea between Turkey and Greece this week. Authorities fear the death toll will rise as more people attempt the short but dangerous passage to Greece before the onset of winter.

“I feel ashamed as a member of this European leadership, both for the inability of Europe in dealing with this human drama, and for the level of debate at a senior level, where one is passing the buck to the other,” Tsipras told parliament. Impoverished Greece has been a transit point for more than 570,000 refugees and migrants fleeing conflict in the Middle East and beyond since January, triggering bickering among European nations. Speaking during prime ministers’ question time, Tsipras also said any suggestion that Greece was not effectively safeguarding the EU’s outermost borders – he referred to leaders of “certain European countries” – was borne of ignorance of international law dictating protection of the lives of people in distress at sea. “These are hypocritical, crocodile tears which are being shed for the dead children on the shores of the Aegean.”

“Dead children always incite sorrow. But what about the children that are alive who come in thousands and are stacked on the streets? Nobody likes them.” [..] Although his migration minister was quoted as saying earlier this week that EU financing was needed for a subsidized housing program to work, Tsipras said Greece did not expect to get paid for saving lives. “Greece is in crisis. We are a poor people, but we have retained our values and humanity, and we aren’t claiming a single euro to do our duty to people who are dying in our back yard,” Tsipras said, after an opposition lawmaker asked what Greece had received in return for agreeing to host refugees. His country, he said, couldn’t put a price on the human cost. “I’m not addressing you,” he told a lawmaker. “I’m addressing those European partners who are wagging their finger at Greece.

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The time for safe passage is long overdue.

Greece Says 22 Refugees Drown Off Aegean Islands, 144 Rescued (Reuters)

Greece rescued 144 refugees and recovered the bodies of 22, including four infants and nine children, after their boats sank in two separate incidents in the Aegean sea, the coastguard said on Friday. The death toll from drownings at sea has mounted recently as weather in the Aegean has taken a turn for the worse, turning wind-whipped sea corridors into deadly passages for thousands of refugees crossing from Turkey to Greece. The coast guard said 138 migrants were rescued and 19 drowned after their wooden boat capsized off the island of Kalymnos late on Thursday. In a second incident off the island of Rhodes, three people, including a child and an infant, drowned and four were missing. Six people were rescued at sea, the coastguard said.

Some 16 people, including two infants and eight children, were confirmed dead and 274 people were rescued when a wooden boat they were on literally fell apart in rough seas off the Greek island of Lesbos late on Wednesday. Greece has been a transit point for more than 570,000 refugees and migrants fleeing conflict in the Middle East and beyond this year, triggering bickering among European nations at odds on how to deal with one of the biggest humanitarian crises in decades. Refugees have reported smugglers offering ‘discounts’ of up to 50% on tickets costing between 1,100 to 1,400 euros to make the journey on inflatable rafts in bad weather, UN refugee agency UNHCR said on Thursday. Perceptibly sturdier wooden boats cost more, at between €1,800 and €2,500 €per passenger.

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“The waves of the Aegean are not just washing up dead refugees, dead children, but (also) the very civilization of Europe..”

Tsipras: Aegean Waves Wash Up Dead Children, And Europe’s Very Civilization (AP)

Drowned babies and toddlers washed onto Greece’s famed Aegean Sea beaches, and a grim-faced diver pulled a drowned mother and child from a half-sunk boat that was decrepit long before it sailed. On shore, bereaved women wailed and stunned-looking fathers cradled their children. At least 27 people, more than half of them children, died in waters off Greece Friday trying to fulfill their dream of a better life in Europe. The tragedy came two days after a boat crammed with 300 people sank off Lesbos in one of the worst accidents of its kind, leaving 29 dead. It won’t be the last. As autumn storms threaten to make the crossing from Turkey even riskier and conditions in Middle Eastern refugee camps deteriorate, ever more refugees – mostly Syrians, Afghans and Iraqis – are joining the rush to reach Europe.

More than 60 people, half of them children, have died in the past three days alone, compared with just over a hundred a few weeks earlier. Highlighting political friction in the 28-nation European Union, Greece’s left-wing prime minister, Alexis Tsipras, cited the horror of the new drownings to accuse the block of ineptitude and hypocrisy in handling the crisis. [..] Speaking in Athens, Tsipras accused Europe of an “inability to defend its (humanitarian) values” by providing a safe alternative to the sea journeys. “The waves of the Aegean are not just washing up dead refugees, dead children, but (also) the very civilization of Europe,” he said, dismissing Western shock at the children’s deaths as “crocodile tears.” “What about the tens of thousands of living children, who are cramming the roads of migration?” he said.

“I feel ashamed of Europe’s inability to effectively address this human drama, and of the level of debate … where everyone tries to shift responsibility to someone else.” Tsipras’ government has appealed for more assistance from its EU partners. It argues that those trying to reach Europe should be registered in camps in Turkey, then flown directly to host countries under the EU’s relocation program, to spare them the sea voyage. But it has resisted calls to demolish its own border fence with Turkey, which would also obviate the need to pay smugglers for a trip in a leaky boat. “My opinion is that at this stage — for purely practical reasons — … the opening of the border fence is not possible,” Greek Migration Minister Yiannis Mouzalas said.

“When talking about receiving refugees, it’s not under our control — they are coming,” he told state ERT TV. “So it’s a question of how we address this problem. … We will not put them in jail or try to drown them. They will have all the rights that they are allowed under (international) agreements and Greek law.” Greece’s Merchant Marine Ministry said 19 people died and 138 were rescued near the eastern island of Kalymnos early Friday, when a battered wooden pleasure boat capsized. Eleven of the victims were children, including three babies. At least three more people — a woman, a child and a baby — died when another boat sank off the nearby island of Rhodes, while an adult drowned off Lesbos.

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Curious: the version of the AP piece above, as posted by HuffPo, was quoted by Zero Hedge as containing the bolded lines in this piece below. But when I looked at the link, these lines had been edited out. An NBC version also misses the reference to western military action. The New York Post version still carries them.

Tsipras Blames Migrant Flows On Western Military Action In Middle East (AP)

Greek Prime Minister Alexis Tsipras accused Europe of an “inability to defend its (humanitarian) values” by providing a safe alternative to the dangerous sea journeys. “I want to express … my endless grief at the dozens of deaths and the human tragedy playing out in our seas,” he told parliament. “The waves of the Aegean are not just washing up dead refugees, dead children, but (also) the very civilization of Europe.” Tsipras accused western countries of shedding “crocodile tears” over children dying in the Aegean but doing little for those who make it across. “What about the tens of thousands of living children, who are cramming the roads of migration?” he said.

Tsipras blamed the migrant flows on western military interventions in the Middle East, which he said furthered geopolitical interests rather than democracy. “And now, those who sowed winds are reaping whirlwinds, but these mainly afflict reception countries,” he added. “I feel ashamed of Europe’s inability to effectively address this human drama, and of the level of debate … where everyone tries to shift responsibility to someone else,” Tsipras said.

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“Many Afghans dream of a better life in Europe. About 80,000 applied for asylum in Europe in the first half of 2015 alone, with most of them going to Germany.”

The Next Wave: Afghans Flee To Europe in Droves (Spiegel)

Redwan Eharai’s journey ends where it began: in Afghanistan, in the city of Herat. Eharai, a 15-year-old boy, is carrying the heavy body of his mother Sima up the hill to the cemetery, together with neighbors and relatives. He and his mother had set out from Afghanistan together, headed for Germany. Now he is standing at her grave. She died at the border between Iran and Turkey, struck in the head by a bullet fired by an Iranian police officer. Hundreds of people have now come to say their goodbyes. When she was still alive and urgently needed help, no one was there for her, says Eharai, as he looks into his mother’s grave. Despite his stubble, which makes him look almost like a grown man, he currently seems more like a child.

His family is poor – Eharai’s father died of a brain tumor five years ago, and Sima, his 43-year-old mother, suffered from depression. She had trouble sleeping and cried a lot. In Afghanistan, being a widow without an income, and with three children, is like being buried alive, says Eharai – you have no rights at all. Instead, Sima Eharai decided to leave Afghanistan and go to Germany with three of her children, Adnan, Erfan and Redwan. Sanaz, her eldest daughter, was already living in Frankfurt. Her mother, determined that she would have a better life, had arranged for her to marry a German of Afghan descent. “I can’t continue living like this,” Sima Eharai said when she called her daughter the last time. “Either I make it to you or I’ll follow my husband into death.”

Many Afghans dream of a better life in Europe. About 80,000 applied for asylum in Europe in the first half of 2015 alone, with most of them going to Germany. They are the second-largest group of refugees and migrants in Germany after Syrians. At the moment, people are flooding into Herat Province from all over Afghanistan. From there, they drive across the border to Iran or travel farther south to cross into Iran along a less well-guarded section of the border. About 3,000 Afghans are now coming into Iran every day illegally. From there, they continue to Turkey, where they board boats to the Greek islands of Lesbos or Kos and then cross the Balkans to Northern Europe.

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That just moves the problems somewhere else.

Refugee Crisis: Germans Restrict Entry Points From Austria (BBC)

Germany is to restrict the number of entry points for migrants arriving via Austria, in a bid to control the flow as thousands cross into Bavaria daily. It says it has reached agreement with Austria on five crossing points on the 800km (500-mile) border. Authorities in Bavaria have complained a lack of co-ordination with Austria is hampering efforts to aid new arrivals. Many others continue to make their way via Greece, in freezing temperatures, hoping to get asylum in Germany. Meanwhile, more than 20 migrants – many of them children – have drowned in more boat sinkings in Greek waters while they were trying to reach EU countries via Turkey. Greek officials said 19 people had died and 138 were rescued near the island of Kalymnos.

Three others died off Rhodes and three were missing. Six were rescued there. And the Spanish coastguard called off the search for 35 migrants missing at sea the day after their boat was shipwrecked en route from Morocco. Fifteen migrants were rescued alive from the vessel and the bodies of four others were found. A spokeswoman for Germany’s interior ministry told AFP news agency that the new rules on entry points would go into effect immediately. “We would like to have a more orderly procedure,” she said. A senior Bavarian politician said that under the agreement, 50 migrants an hour could cross into the state at the five agreed points.

Earlier this week, German Interior Minister Thomas de Maziere accused Austria of transporting refugees to the German frontier at night, leaving them there unannounced. Federal police spokesman Heinrich Onstein has said everything was being done to prevent the migrants from having to sleep outdoors. He said the problem had been that “we do not know how many people will arrive, and at which border post”. However an Austrian police spokesman dismissed such accusations as a “joke”, given that Austria was receiving 11,000 people a day just at the Spielfeld crossing from Slovenia. Germany expects at least 800,000 asylum seekers this year – some estimates put it as high as 1.5 million. That is at least four times the number who arrived last year.

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