Jul 252018
 
 July 25, 2018  Posted by at 12:59 pm Finance Tagged with: , , , , , , , , , , ,  


René Magritte Empire of light 1950

 

There’s not a shade of a doubt that I’m not an expert on tariffs, trade barriers and subsidies, and I’d be the last to suggest any such thing. But I can read. Still, do correct me if I’m wrong anywhere. The whole field is so complicated -no doubt often on purpose- that there’s always the possibility that there are side issues involved for which one would need to actually be an expert.

But still. Now that EU chief Jean-Claude -‘When it becomes serious, you have to lie’- Juncker is due to arrive at the White House soon, I looked at some of the items involved. Last night Trump said that all tariffs, barriers and subsidies should be dropped between the EU and US. Why the TTiP doesn’t come anywhere close to that is anyone’s guess. Too complicated for the boys and girls?

In at least some major fields, Trump does seem to have a point or two. The US has a 2.5% tariff on European cars, while the EU slaps a 10% tariff on American cars. That’s 4x as much, or a 300% difference. Whoever said yes to that? Sure, the US has a 25% tariff on EU pickups, but nobody in Europe drives pickups, hence they don’t produce them, so that’s not consequential.

So what had Trump done? He’s threatened a 20% tariff on Beemers and Mercs, and added -for entertainment value only- that he doesn’t want to see any of them in on Fifth Avenue anymore. Cue EU carmakers warning about the cost to American customers.

That’s all fine and well, but those tariffs on personal cars are still 300% higher. So push your European government to make them equal. Easy as -American- pie. How about zero? I can see where Trump’s coming from. Issuing warnings to the American public about BMW’s getting more expensive doesn’t look entirely on the up and up.

 

Also, I was looking at agriculture. Now, I grew up in Europe, and I do have an idea about EU farm subsidies (they’re notorious even inside the EU, going all the way back to the 1950s-60s). There was a point where they were over 70% of the total EU budget. They’re 30% or even somewhat below that now, but that’s not because subsidies have gone down, it’s because the EU budget has grown exponentially.

US farm subsidies were some $23 billion last year, and a year ago the Trump administration proposed a $4.8 billion cut to that. Now that Trump has initiated a one-time $12 billion for farmers to make up for the effects of his tariff proposals, one half of America -Conservatives- cry foul because: “that’s Soviet-style politics”, and no doubt the EU will cry right with them.

But look: under the EU’s Common Agriculture Policy (CAP), EU farm subsidies for the 2021-2027 period will fall a whole 5% to ‘only’ $420 billion. And that’s just a proposal, and already France, the main beneficiary of the subsidies, has declared that such a cut is unacceptable. Soviet style?

The meeting of tee-totaller Trump and wine-totaller Juncker is interesting enough in and of itself, and you bet the Donald knows what and who Juncker is, but unless Jean-Claude comes with something very substantial, the numbers I cited above would seem to be very clear. And that’s without steel, aluminum etc etc.

If your side gives its farmers almost 20 times as much as the other side, what are you going to say? You may ask for some time to adapt, but that would seem to be it. However, Juncker could never sell egalization of subsidies ‘at home’. France and others would shave his head and ass and apply tar and feathers. And Macron would fear the same fate if he gives in. As Merkel would on the car issue.

Juncker has no room to wiggle on the whole shebang. All he can do is damage control and a good glass of wine (wonder if Trump instructed his staff not to give him any, or merely cut him off after the first bottle). It’s just that Trump has noticed the policy damage, and doesn‘t like it. And you have to wonder, who ever accepted those terms, and signed treaties like that TTiP that they are engraved in?

 

If you ask me, communities and countries should always make sure they remain in control of all their basic necessities. And food is certainly one of them. Also. if any politician near you ever proposes selling the rights to your drinking water to some foreign party, tar and feathers is your reply. Let Americans make their own cars, And German and French theirs. It’s not of the same importance as food, water, shelter and clothing, but you get the drift.

Schlepping food halfway across the planet is a dangerous thing once you become dependent on it to feed your children and your community (schlepping it halfway through Europe is as well). Selling your local water rights is even worse. That’s downright insane.

But if you’re going to trade, and once you’ve excluded basic necessities, zero tariffs or at least equal tariffs seems the way to go. Just wait till Trump starts that discussion with China for real. That conversation is largely about barriers, it’s different from Europe, though -hidden- subsidies feature ‘bigly’ as well.

 

Still, summarized, though I’m far from a Trumponado, I can see his point(s). I find it much harder to see what earlier US administrations were thinking when they agreed to all this stuff. And sure, his approach is brusque and perhaps brutal, but the country he’s, for better or for worse, president of, does seem to have gotten the short end of an very extensive array of sticks.

But by all means, don’t listen to me, listen to the experts. Then again, also look at the numbers.

 

 

Sep 182016
 
 September 18, 2016  Posted by at 9:15 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle September 18 2016


John Collier FSA housing project for Martin aircraft workers, Middle River, MD 1943

Rogoff’s Cashless Society Proposal Is An Admission Of US Insolvency (Sprott)
How A ‘Twist’ By The Bank Of Japan Could Upstage The Fed (MW)
China ‘Tulip Fever’ Sees House Prices Skyrocket 76% (CNBC)
Italian Banking Crisis Turns into Mission Impossible (DQ)
Most Likely Scenario For Hanjin Is Liquidation (WSJ)
US Bombs Assad’s Troops, ISIS Makes Dramatic Advance as Result (McAdams)
Italian PM Renzi Says He Is Tired Of Wasting Time At European Summits (DW)
Greek Public Assets Being Sold For A Fraction Of Their Actual Value (Kath.)
Hundreds Of Thousands Take To Streets In Germany To Protest TTiP (CNBC)
France Bans All Plastic Cups, Plates And Cutlery (Ind.)

 

 

“..the US government and the Federal Reserve have spent, borrowed, and printed so much that there is no future left to mortgage.”

Rogoff’s Cashless Society Proposal Is An Admission Of US Insolvency (Sprott)

Ken Rogoff is by all accounts a brilliant man. The Harvard professor and former IMF chief economist is a chess grandmaster. His thesis committee included current Fed vice-chair Stanley Fischer. But like many survivors of Ivy League hoop jumping, the poor fellow appears to have emerged punch drunk. That’s the only conclusion to be drawn from Rogoff’s new book, The Curse of Cash , which, in effect, proposes a ban on paper currency. It’s terrifying piece of work, for several reasons. [..]

Rogoff’s “cashless society” is an elegant solution to a key problem bedeviling the Federal Reserve: with interest rates at the zero bound, the US central bank has no ammunition left to fight the next recession – because if cuts rates below zero, savers will withdraw their cash and put it under their mattresses. “In principle, cutting interest rates below zero ought to stimulate consumption and investment in the same way as normal monetary policy,” Rogoff writes. “Unfortunately, the existence of cash gums up the works.” That argument is spurious at best. By now, it is fairly clear from experiences in Japan and the US since 2008 that below neutral level interest rates provide little or no net new economic stimulus. At best, easy monetary policy brings forward spending and investment from the future into the present.

However, the US government and the Federal Reserve have spent, borrowed, and printed so much that there is no future left to mortgage. Rogoff, one of the country’s top economists, knows this; which is an important clue that there is much more to his proposals than meet the eye. It seems clear that Rogoff’s negative interest rate/cashless society proposal is structured to engineer a back-door US government debt default. Over the long term, by forcing savers, businesses, and banks to give the US government their money, and allowing Washington to repay less of that money each year, the US can legally default – on all that it owes. More worrying for investors: the fact that Rogoff, Ben Bernanke and others are proposing negative rates despite the considerable evidence that they will do no economic good suggests that they believe that the US government cannot pay back its debts – that it is already insolvent.

[..] maybe Rogoff is just as good a player on the public policy front as he is on the chess board. There is a possibility that he wrote The Curse of Cash as a quasi-job application for a higher government post, possibly as Treasury Secretary in a Clinton Administration. “If you give me the job, I’ll help make sure that government can borrow all it wants and it won’t have to pay any of it back,” may be the sub-text to Rogoff’s book. There is a precedent for this. Ben Bernanke’s 2002 “helicopter money” speech is widely credited with having set the ground for his appointment as Fed Chairman several years later. Brilliant? Cynical? Delusional? Or maybe all three? Take your pick. Either way, you haven’t heard the last of Ken Rogoff.

Read more …

“Speculation has mounted that the Bank of Japan could undertake an “inverse twist,” shifting its bond purchases away from the longer end of the yield curve. ..”

How A ‘Twist’ By The Bank Of Japan Could Upstage The Fed (MW)

News reports paint a picture of a Bank of Japan board that remains solidly in favor of maintaining an ultra-easy monetary policy, but is sharply divided over the best way to proceed as the country’s banking sector feels the pinch of low rates and a flat yield curve. Ideas the Bank of Japan could ultimately move to adjust its program in a way designed to further steepen the yield curve are behind recent market moves, analysts said, and could pave the way for further steepening of yield curves around the world, including U.S. Treasurys. Speculation has mounted that the Bank of Japan could undertake an “inverse twist,” shifting its bond purchases away from the longer end of the yield curve.

That would be a mirror image of a Federal Reserve maneuver dubbed “Operation Twist” that the central bank used in 1961 and 2011 to flatten the yield curve by buying long-term debt and selling short term debt. Bond yields move inversely to prices. There are other measures the Bank of Japan could take to try to steepen the yield curve, including simply changing the mix of maturities it buys or setting a yield target. Christoph Rieger at Commerzbank urged against undertaking an inverse twist, noting that Kuroda has expressed concerns that a “bear steepening” of the yield curve—a phenomenon in which long-term rates rise faster than short term rates—tends to tighten monetary conditions. Obviously, that would blunt the impact of the BOJ’s easing efforts and prove unwelcome in an economy that’s contracting.

Read more …

“The (stock) market exploded to the upside and then crashed dramatically. That money had to go somewhere, so it washed around the system … so a lot of it has gone into housing.”

China ‘Tulip Fever’ Sees House Prices Skyrocket 76% (CNBC)

Housing in major cities in China has seen price hikes over the last year that resemble the famous Dutch “Tulip Fever” bubble of 1637, according to new research by economic consultancy firm Longview Economics. “I think what’s going on in China is troubling … some of the valuations there are really quite extraordinary,” Chris Watling, the CEO of Longview Economics, told CNBC Thursday. “We’ve double checked these numbers about seven times, because I found them quite hard to believe.” The firm’s research found that only San Jose in the Silicon Valley is more expensive than Shenzhen. The Chinese city has seen prices rise 76% since the start of 2015, with the acceleration beginning in April 2015 as the country’s stock market was nearing its peak.

The situation in Beijing and Shanghai is similar, albeit less extreme, the company states. “Housing in some of the tier 1 cities is more expensive than it is in London, which I think itself is on a bubble, Watling added. “The (stock) market exploded to the upside and then crashed dramatically. That money had to go somewhere, so it washed around the system … so a lot of it has gone into housing.” The analysis suggests that the typical home in Shenzhen costs approximately $800,000. Watling said that the house-income ratio in Shenzhen is now running at 70 times, compared to around 16 times in somewhere like London.

China, the biggest economic story of the last 30 years, has soured in the eyes of many analysts. A stock market crash that began in the country last summer has highlighted the vast difficulties Chinese lawmakers are now facing. Watling said Chinese housing was a story built on credit, lots of liquidity and lots of debt. He added that all bubbles, though, once established, will eventually burst and deflate. “It’s simply a question of when,” Watling said in a research note earlier this week, adding that the removal of cheap money would be the likely scenario that would lead to the beginning of the tightening and subsequent prices falls.

Read more …

“.. the collapse of Unicredit, which has vast, sprawling operations across Germany and Eastern Europe, would threaten the stability of the entire Eurozone.”

Italian Banking Crisis Turns into Mission Impossible (DQ)

[..] for Monte dei Paschi’s latest rescue plan to have any chance of working, both parts of the plan — Part A and Part B — must succeed. Part A consists of a €28 billion bad-loan sale for which JP Morgan Chase, Citi and Italian investment bank Mediobanca are already assembling a bridge loan, in return for very handsome fees. Atlante, Italy’s deeply opaque, Luxembourg-based bank rescue fund, has reportedly agreed to buy the so-called mezzanine tranche in Monte dei Paschi’s bad loan securitization. Apparently demand for heavily discounted, slowly-decomposing bank debt in Italy is high, which is great news considering Italy is purportedly home to roughly a third of all of the bad debt at EU banks.

In a perfect sign of our yield-starved times, last week saw around 250 global investors converge on Venice to attend Banca Ifi s SpA’s “Non-performing Loan” conference. That’s twice as many as last year, reports Bloomberg. In other words, Part A of the rescue plan seems to be coming along nicely — as long as no one asks who will make up the difference between the book value of the bank’s toxic assets and the discount value at which they’re now being sold. As for Part B of the Plan — MPS’ €5 billion cash call scheduled for the end of this year — it’s going nowhere fast. Twice-bitten, thrice-shy investors are no longer buying the hype. Gennaro Pucci at London-based PVE Capital said that even if a significant proportion of MPS’ bad loans were “spun off into a special vehicle,” he would not buy more MPS shares out of fear that the bank could suffer further losses from the remaining soured debt.

This is a serious problem in today’s Italy: as long as the economy continues to stagnate, much of the supposedly good debt currently on the banks’ books will also, sooner or later, end up putrefying. It’s already happened to Banca Popolare di Vicenza, a regional lender that was rescued from bankruptcy late last year by the Atlante fund, but which is already in need of fresh funds. So, too, is Italy’s biggest and only global systemically important financial institution, Unicredit, which has a staggering €80 billion in bad debt on its balance sheets — more than any other European bank. While the downfall of MPS would be enough to cause serious damage to Italy’s already fragile financial system, the collapse of Unicredit, which has vast, sprawling operations across Germany and Eastern Europe, would threaten the stability of the entire Eurozone.

Read more …

But first a fire sale.

Most Likely Scenario For Hanjin Is Liquidation (WSJ)

Debt-ridden Hanjin Shipping is working on a restructuring plan that calls for the drastic reduction of its owned fleet and returning the vast majority of the ships it charters to their owners, according to people with direct knowledge of the matter. Despite the efforts, these people say the most likely scenario is still that the Korean operator— the world’s seventh-biggest in terms of capacity—will be liquidated, marking one of the shipping industry’s biggest failures. Hanjin filed for bankruptcy protection last month. The South Korean government has strongly indicated it has no plans to bail out the company. A Korean court will decide in December whether to accept the plan or let the company go under, according to court officials in Seoul.

One person with knowledge of Hanjin’s efforts to restructure said the operator is considering a number of scenarios but focusing on one that involves Hanjin keeping up to 15 of its 37 ships, and returning to owners almost all of the 61 chartered vessels. Under that scenario, which is subject to approval by the bankruptcy court, “Hanjin will emerge as a small regional operator in Asia that will move a small part of Korea’s exports,” the person said. [..] Hanjin’s main charterers, including Danaos, Navios and Seaspan, with a combined exposure of more than $1 billion to Hanjin, were hoping for a last-minute intervention by the Korean government that would allow Hanjin to honor its vessel-leasing commitments. That looks less and less likely.

“Hanjin now has two alternatives: either to drastically downsize or to liquidate,” said Iraklis Prokopakis, Danaos’s COO. “We have eight ships chartered to Hanjin and five will be returned. The other three still have cargo on them so I don’t know what will happen.” Danaos has a $560 million exposure to Hanjin. Mr. Prokopakis said the key issue at the December court hearing will be whether Hanjin has enough cash to continue operating, even at a much smaller scale.

Read more …

“Yesterday, US-backed FSA “moderate” opposition troops chased US Special Forces out of one town in Syria.”

US Bombs Assad’s Troops, ISIS Makes Dramatic Advance as Result (McAdams)

The US military has bombed Syrian government positions in the eastern province of Deir el-Zour today, where the Syrian military had been battling ISIS. According to the report, the US attack on Syrian troops “enabled an [ISIS] advance on the hill overlooking the air base.” This is the second time US forces have directly targeted Syrian government troops inside Syria. It would be the first time such an attack produced a battlefield advantage to ISIS. The US attack has killed at least 62 and perhaps as many as 100 Syrian government troops. Earlier today it was reported that the Syrian government had sent some 1,000 members of the elite Republican Guard into the Deir el-Zour province, as battles with ISIS in the area increase.

This US attack has wiped out perhaps 10% of this force and has obliterated Syrian army weapons and other materiel. The US government has admitted to the attack, but claims it was all a mistake. As some observers have pointed out, however, ISIS does not behave as traditional military units. They do not generally gather in large numbers like this or establish “bases.” The US Central Command released a statement earlier today claiming that the US coordinated the strike with the Russians, but Moscow has vehemently denied the claim. In fact, spokesman for the Russian Foreign Ministry Maria Zakharova was quoted by the state news agency Tass as saying that “after today’s attack on the Syrian army, we come to the terrible conclusion that the White House is defending the Islamic State.”

This dramatic development comes as the latest ceasefire begins to crumble. Russia has condemned Washington’s refusal to implement a key component of the agreement, to press US-backed rebels to cease fighting alongside al-Qaeda; and the main US-backed “moderate” Islamist group, Ahrar al-Sham, has refused to take part in the ceasefire at all. Yesterday, US-backed FSA “moderate” opposition troops chased US Special Forces out of one town in Syria. Is today’s attack a turning point in the war, where the US will begin to strike Syrian government forces more frequently? If so, how will Russia and Iran react to this overt shift in US strategy? Is this the flashpoint?

Read more …

But that’s all he’s going to get.

Italian PM Renzi Says He Is Tired Of Wasting Time At European Summits (DW)

Italian Prime Minister Matteo Renzi blasted the latest European Union summit in Bratislava on Saturday, effectively labeling Friday’s high-level meeting a waste of time. “I don’t think it would be right for Italy to pretend not to notice when things are not getting any better,” Renzi said at a conference in Florence. Hours earlier, he criticized the summit in an interview with TV broadcaster RTV38. “As Italy, we strongly believe that the EU has a future, but we need to be doing things for real, because we have no use for staged events,” he said. Renzi also said he did not partake in the closing press conference with Angela Merkel and Francois Hollande because he was unhappy with the decisions reached concerning economic and migrant policy.

Renzi said Italy would not “serve as a fig leaf” for the likes of France or Germany. In what was the first European summit without the United Kingdom in over four decades, European leaders sought to show unity in the wake of this summer’s Brexit vote. This, Renzi said, “signals a small step forward, but it is still a rather long way away from the idea of Europe that we have in mind.” Renzi castigated the summit for not raising the African migrant issue. The documents “didn’t even mention Africa,” he said. As the first European destination for migrants arriving from Africa, Italy has been left to cope with the influx of refugees largely on its own while politicians debate how to address refugees in Turkey and along the so-called Balkan Route though Greece, eastern and central Europe.

Italy has long pushed for an international agreement with African states that would close migrant routes to Europe in exchange for increased investment. Renzi repeated his critiques of the EU’s austerity policy. While the country is respecting the EU’s strict budget disciplinary rules, he said Italy retains the right to stress that the rules are not working and it is not prepared “to pretend not to notice.”

Read more …

Insult to injury. It never stops. Electricity prices were raised 4-5% in Greece. Who can afford that?

Greek Public Assets Being Sold For A Fraction Of Their Actual Value (Kath.)

Public properties, including real estate assets, are very often sold for extremely low prices, as the political risk factor supersedes even the crucial financial risk that comes with investing in Greece. The Hellenic Federation of Enterprises (SEV) this week commented on the issue, saying that this institutional shortfall of the Greek state and the lack of trust this generates in the three pillars of power (legislative, executive, judiciary) have turned the optimum utilization of state property into “a political point-scoring battle among parties.” As SEV pointed out, “in many instances we see the state’s assets devalued, owing to the delays that political tensions bring about in privatizations, so that they are sold off at particularly low prices. In other instances the prevailing criterion becomes the price of the privatization, without taking into consideration any distortions created in the market from incomplete planning.”

For the industrialists’ association there is no doubt that “the correct utilization of public property along clear and stable rules and terms of economic efficiency, both for state revenues and for the operation of markets, can become a key growth factor for the economy.” All this becomes clearer when one considers the tenders that the state privatization fund (TAIPED) has been conducting for the concession of real estate assets. As property market professionals observe, in most cases the prices investors offer – particularly in instances of plot development – are just a fraction of each asset’s actual value. The reason for that is not to be found in the financial crisis and the drop in market prices, but in investors’ need to factor the political risk into their calculations regarding the sustainability of their chosen investment, in order to secure the desired returns.

Read more …

CNBC tries an odd twist by claiming it’s not really a TTiP protest, but a form of general ‘easy anti-Americanism’. The same tactics as used in Brexit and the US elections. Curious to see when these people will realize these are losing tactics.

Hundreds Of Thousands Take To Streets In Germany To Protest TTiP (CNBC)

Hundreds of thousands of Germans took to the streets Saturday, in protest of pending trade deals with the United States and Canada. The deals in question are the Transatlantic Trade and Investment Partnership (TTIP) between the U.S. and the European Union and the Comprehensive Economic and Trade Agreement (CETA) for the Canadian-EU relationship. Neither free trade agreement has been ratified yet, but popular outcry has been growing for the last few years. The demonstrations took place in seven cities throughout Germany: Berlin, Frankfurt, Hamburg, Cologne, Leipzig, Munich and Stuttgart. Organizers told CNBC that the official estimate is 320,000 demonstrators across Germany.

In Berlin, where discussions of trade policy are frequently overheard in cafes and most available surfaces are plastered in posters and stickers against the deals, the largest demonstration of the day took place with about 70,000 attendees, according to the organizers. Earlier, local reports had indicated there could be as many as 80,000 in the German capital, but a heavy downpour close to the start time may have depressed turnout. A broad coalition of organizations helped plan the event, but the stated rationale for opposing the agreements centers on the belief that such deals “primarily serve the interests of powerful economic interest groups, and thus only cement the imbalance between the common good and economic interests,” according to one organization.

Read more …

Under TTiP, this would have been impossible.

France Bans All Plastic Cups, Plates And Cutlery (Ind.)

France has passed a new law to ensure all plastic cups, cutlery and plates can be composted and are made of biologically-sourced materials. The law, which comes into effect in 2020, is part of the Energy Transition for Green Growth – an ambitious plan that aims to allow France to make a more effective contribution to tackling climate change. Although some ecologists’ organisations are in favour of the ban, others argue that it has violated European Union rules on free movement of goods. Pack2Go Europe, a Brussels-based organization representing European packaging manufacturers, says it will keep fighting the new law and hopes it doesn’t spread to the rest of the continent. “We are urging the European Commission to do the right thing and to take legal action against France for infringing European law,” Pack2Go Europe secretary general Eamonn Bates told AP. “If they don’t, we will.”

Read more …

Aug 312016
 
 August 31, 2016  Posted by at 8:58 am Finance Tagged with: , , , , , , , , , , , ,  


Esther Bubley Watching parade to recruit civilian defense volunteers, Washington DC 1943

The Central Pillar Of Global Order Is In Danger As TTIP Disintegrates (AEP)
The New TTIP? Meet TISA, ‘Secret Privatisation Pact’ (Ind.)
Debt, Deficits & Economic Warnings (Roberts)
The Academic Math of This Economy and The Long Run Consequences (Snider)
China Turmoil Looms As Traders Bet On Post-G-20 Yuan Tumble (ZH)
Chinese Banks Step Up Bad-Loan Write-Offs (WSJ)
China’s Biggest-Ever Metals Deal Snaps Up Cleveland’s Aleris (BBG)
Case Shiller Lags and Understates the Housing Bubble (Adler)
25 Email Questions Hillary Clinton Must Answer Under Oath By September 29 (SBA)
Could EU’s ‘Apple Tax’ Reboot Corporate Tax Reform In The US? (Forbes)
Bitcoin Was Brought Down By Its Own Potential – And The Banks (Qz)
The Dawn Of The Anthropocene (G.)
Greek Islands Raise Alarm Over Fast Increasing Refugee Arrivals (Kath.)
Counting The Lost And Nameless Dead Of The Mediterranean (SMH)

 

 

Another wonderful Ambrose dramatic exeggaration.

Central Pillar Of Global Order In Danger Of Collapse As TTIP Disintegrates (AEP)

The Transatlantic pact intended to unite Europe and North America in a vast free trade zone is close to collapse after France called for a complete suspension of talks, accusing the US of blocking any workable compromise. “Political support in France for these negotiations no longer exists,” said Matthias Fekl, the French commerce secretary. Mr Fekl said his country would request a formal decision by EU ministers at a summit in Bratislava to drop the hotly-contested deal, known as the Transatlantic Trade and Investment Partnership (TTIP). “The Americans are offering nothing, or just crumbs. That is not how allies should negotiate. There must be a clear and definite halt to these talks, to restart them later on a proper basis,” he said.

The project is infinitely more than a trade deal. It is part of a strategic push to bind together the two halves of North Atlantic civilisation at a dangerous moment when the Western liberal order is under threat. The two sides are currently drifting towards divorce. “TTIP was supposed to set the rules for the global trade,” said Rem Korteweg, a trade expert at the Centre for European Reform. “It was to be a central pillar of an alliance of like-minded countries. If it all falls apart in acrimony, what kind of global governance are we going to have?” he said. Mr Fekl’s hard-line comments were echoed in slightly softer language by French president François Hollande, who said on Tuesday that there was no chance of a deal on TTIP before the next administration takes power in Washington.

“The talks have become bogged down, the positions have not been respected, and the imbalance is obvious. It is better that we face up to this candidly rather than prolong a discussion on foundations that cannot succeed,” he said.

Read more …

There’s a lot more to get rid of.

The New TTIP? Meet TISA, ‘Secret Privatisation Pact’ (Ind.)

An international trade deal being negotiated in secret is a “turbo-charged privatisation pact” that poses a threat to democratic sovereignty and “the very concept of public services”, campaigners have warned. But this is not TTIP – the international agreement it appears campaigners in the European Union have managed to scupper over similar concerns – this is TISA, a deal backed by some of the world’s biggest corporations, such as Microsoft, Google, IBM, Walt Disney, Walmart, Citigroup and JP Morgan Chase. Few people may have heard of the Trade In Services Agreement, but campaign group Global Justice Now warns in a new report: “Defeating TTIP may amount to a pyrrhic victory if we allow TISA to pass without challenge.” Like the Transatlantic Trade and Investment Partnership, TISA is being negotiated in secret, even though it could have a major impact on countries which sign up.

While TTIP is only between the EU and US, those behind TISA have global ambitions as it involves most of the world’s major economies – with the notable exceptions of China and Russia – in a group they call the “Really Good Friends of Services”. The Department for International Trade dismissed the idea that public services were at risk from TISA, adding that the UK was committed to securing an “ambitious” deal. But according to Global Justice Now’s report, the deal could “lock in privatisation of public services”; allow “casino capitalism” by undermining financial regulations designed to prevent a recurrence of the 2008 recession; threaten online privacy; damage efforts to fight climate change; and prevent developing countries from improving public services.

Nick Dearden, director of group, said: “This deal is a threat to the very concept of public services. It is a turbo-charged privatisation pact, based on the idea that rather than serving the public interest, governments must step out of the way and allow corporations to ‘get on with it’. “Of particular concern, we fear TISA will include clauses that will prevent governments taking public control of strategic services, and inhibit regulation of the very banks that created the financial crash.” He suggested pro-Brexit voters should be concerned at the potential loss of sovereignty. “Many people were persuaded to leave the EU on the grounds they would be ‘taking back control’ of our economic policy,” Mr Dearden said. “But if we sign up to TISA, our ability to control our economy – to regulate, to protect public services, to fight climate change – is massively reduced. In effect, we would be handing large swathes of policy-making to big business. “

Read more …

Growth based on debt reduces productive investment.

Debt, Deficits & Economic Warnings (Roberts)

By increasing taxes, to generate additional revenue for the government, you decrease the available capital that could be used for productive investments. Since the government doesn’t want factories, office buildings, or oil wells, but rather cash, this forces the liquidation of productive investments thereby reducing capacity for economic growth. The current Administration is failing once again to recognize the problems that exist with this country, at this moment, does not lie with the “rich.” Instead, the problem is a lack of ability for consumers to maintain a standard of living that is well beyond their earnings capability. While the two most recent Administrations have been heavily criticized for running burgeoning deficits – the reality is that the average American has been doing the same for the past thirty years.

[..] as the “rich” invest in productive investments it leads to higher employment, strong consumer demand and economic growth. In turn, this leads to higher tax revenue. “However, deficits, and deficit spending, are HIGHLY destructive to economic growth as it directly impacts gross receipts and saved capital equally. Like cancer – running deficits, along with continued deficit spending, continues to destroy saved capital and damages capital formation.” Debt is, by its very nature, a cancer on economic growth. As debt levels rise it consumes more capital by diverting it from productive investments into debt service. As debt levels spread through the system it consumes greater amounts of capital until it eventually kills the host. The chart below shows the rise of federal debt and its impact on economic growth.

The reality is that the majority of the aggregate growth in the economy since 1980 has been financed by deficit spending, credit creation and a reduction in savings. This reduced productive investment in the economy and the output of the economy slowed. As the economy slowed, and wages fell, the consumer was forced to take on more leverage to maintain their standard of living which in turn decreased savings. As a result of the increased leverage more of their income was needed to service the debt – and with that the “debt cancer” engulfed the system.

Read more …

Excellent from Jeffrey Snider.

The Academic Math of This Economy and The Long Run Consequences (Snider)

[..] the continued and “unexpected” lack of recovery after nine years of failure in monetary policy is forcing the math to recognize what is obvious in non-mathematical terms. No regressions are at all necessary to conclude that the bond market has, in fact, made sense this whole time and that it is economists who have no idea what is going on or why. By the mathematics of 2011, real GDP “should be” $19.3 trillion in Q2 2016; it was instead just $16.6 trillion after the third straight quarter near 1%. To the academics, “gloom” is irrational and thus requires translation into math to become somehow backwards explanatory for why the economy that “should be” isn’t.

In the actual economy, “gloom” is properly called reality. In this world, people know all-too-well that jobs disappeared during and after the Great Recession and never came back. No amount of asset price manipulation can possibly make up that difference. Economists try to convince everyone but really themselves that it didn’t matter when it is this very math that proves yet again it did; in fact, the true state of labor beyond the unemployment rate and Establishment Survey is all that matters.

The math of potential and even gloom is just the frustratingly late catch-up forcing economists to come to terms with the fact they have been all wrong about all of this all along. You need no PhD to so easily understand that you just cannot substitute jobs with debt; doing so is economic suicide. At some point over the long run you must come to terms with that discrepancy. This math is finally welcoming economists to that long run, a place their patron saint, Keynes, said didn’t exist. It really does as the math has been recalculated far more toward the “impossible” [..]

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Yikes graphs. A G-20 that might actually count for something.

China Turmoil Looms As Traders Bet On Post-G-20 Yuan Tumble (ZH)

Something is different this time. For the last few years, China has ‘ensured stability’ in the Yuan ahead of major geopolitical events – no matter what – only to let things slide back into turmoiling after. Ahead of this weekend’s G-20, however, and amid notably deteriorating fundamentals (and an increasingly hawkish-sounding Fed), China has let the Yuan tumble in the last week… and traders are piling into bets on post-G-20 weakness to continue. As Bloomberg notes, history shows that the Chinese currency usually strengthens ahead of major political or economic events, such as President Xi Jinping’s state visits to the U.S. and the Boao Forum.

But this time – ahead of the G-20 gathering – onshore Yuan is being allowed to weaken… back near post-Brexit lows…

Perhaps as another warning to The Fed? But as Bloomberg reports, derivative markets are pointing to renewed bets on yuan depreciation, with a measure of expected price swings poised for the biggest monthly increase since January.

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Not even the same ballpark. “The IMF estimates China’s nonperforming-loan ratio at 15%, compared with the official 1.75% figure..”

Chinese Banks Step Up Bad-Loan Write-Offs (WSJ)

China’s largest banks are writing off huge volumes of soured loans in an effort to clean up their balance sheets, as they look to improve their future profitability despite the country’s economic slowdown. The country’s top four banks collectively wrote off 130.3 billion yuan ($19.5 billion) of bad loans in the first half of 2016, 44% more than in the same period a year earlier. The clear-out has helped banks in one sense: Overall, their nonperforming loans as a proportion of their lending book were unchanged at the close of the second quarter from the end of March, the first quarter since mid-2013 that the key metric hasn’t increased.

But the write-offs have come as a number of other challenges beset Chinese banks. New loans are shriveling—nearly all in July went to mortgages. A series of interest-rate cuts by the central bank since 2012 have squeezed banks’ earnings. And a plan by Beijing to let companies allot their equity to banks in exchange for loan forgiveness is likely to saddle lenders with more dubious assets in coming months, bankers and analysts say. The IMF estimates China’s nonperforming-loan ratio at 15%, compared with the official 1.75% figure reported by the government, because of differences in the way bad loans are recognized.

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Buying know-how.

China’s Biggest-Ever Metals Deal Snaps Up Cleveland’s Aleris (BBG)

China’s influence in global metals markets just stepped up a gear after the owner of its top supplier of aluminum products agreed to buy Aleris of the U.S. for $2.3 billion, marking the nation’s biggest-ever overseas purchase of a metals processor.
The purchase of the Cleveland, Ohio-based company by Zhongwang USA, owned by Liu Zhongtian, founder and chairman of China Zhongwang, will open up new markets for the Chinese company among aerospace and automotive companies. Monday’s deal underscores China’s shift to higher value-added products and will give Zhongwang access to technological know-how and more demanding customers, said Paul Adkins, managing director of Beijing-based aluminum consultancy AZ China.

“Aleris supplies the Boeings and the big carmakers of this world – very advanced consumers,” Adkins said by phone on Tuesday. “Buying it has to provide some sort of opportunity for Zhongwang to bring that know-how back to China. When you’ve got more than half of the world’s primary aluminum supply in China, there is a natural momentum for China to pull other parts of the supply chain into its orbit.” China Zhongwang is Asia’s biggest producer of extruded aluminum, and already has ambitions to sell aluminum sheet to China’s emerging auto and aerospace industries. It’s due this year to start up a flat-rolled aluminum plant in Tianjin, near Beijing, which will supply products that China still has to import.

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Not an entirely new criticism, but good to point out from time to time.

Case Shiller Lags and Understates the Housing Bubble (Adler)

Here’s how the Case Shiller Index (CSI) press release spun the data on the state of the US single family housing market today: “The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.1% annual gain in June, unchanged from last month. The 10-City Composite posted a 4.3% annual increase, down from 4.4% the previous month.The 20-City Composite reported a year-over-year gain of 5.1%, down from 5.3% in May.” The problem is that Case Shiller’s methodology causes price suppression and severe lag. That gives the impression that the US housing market isn’t in a bubble. It’s a misimpression, considering that market prices on average are actually above the 2006 bubble peak.

If 2006 was the top of the most extreme bubble in US history, what does that make today’s higher prices? Case Shiller uses only public record data. The current release, which purports to be June data, is really data culled from government records for recorded sales. The closings were purportedly in June, but the contracts were entered at least a month before, and in most cases 2 months to 3 months prior. So the current CSI release doesn’t represent the current market. In fact, the lag is even greater than that. Case Shiller doesn’t merely use only the most recent month’s data, as you would think. It uses that month and the two prior months, so that effectively it represents average recorded closed sale prices for the 3 months of April May and June. It’s the average price as of the time midpoint of the period, in this case mid May.

Add the typical 45-60 day closing and the current data represents contracts signed in mid to late March. It is now almost September. The Case Shiller data is from 5 months ago. The housing market normally moves in very stable trends over years, if not decades, until there’s a crash. This lag factor isn’t too critical for those buying homes for their families to live in. It’s a little more critical for stock market traders and investors, because at major turning points, misleading data can lead to costly investing mistakes. For traders, using the Case Shiller data would be like making decisions based on where the 3 month moving average of the S&P 500 back in late March. Who would do that when current market prices are available?

It’s the same for the housing market. We have near current data on contract prices from both the NAR, and from the online Realtor firm, Redfin. The NAR compiles the MLS data on contract prices from the entire US and releases it within 30 days of the end of the previous month. Redfin compiles sales from 30 large US metros. So whereas Case Shiller is giving us a smoothed average price as of March, we have current actual prices as of July from both the NAR and Redfin. Apply a little technical analysis to that data, and we can see the state of the housing market as of last month, not 5 months ago. It has actually accelerated a bit this year relative to the prior 12 months. And it’s definitely at a new high versus the last bubble.

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No space for the whole list. Useful read though.

25 Email Questions Hillary Clinton Must Answer Under Oath By September 29 (SBA)

Judicial Watch today announced it submitted questions to former Secretary of State Hillary Clinton concerning her email practices. Clinton’s answers, under oath, are due on September 29. On August 19, U.S. District Court Judge Emmet G. Sullivan granted Judicial Watch further discovery on the Clinton email matter and ordered Clinton to answer the questions “by no later than thirty days thereafter….” Under federal court rules, Judicial Watch is limited to twenty-five questions. The questions are:

1) Describe the creation of the clintonemail.com system, including who decided to create the system, the date it was decided to create the system, why it was created, who set it up, and when it became operational.

2) Describe the creation of your clintonemail.com email account, including who decided to create it, when it was created, why it was created, and, if you did not set up the account yourself, who set it up for you.

3) When did you decide to use a clintonemail.com email account to conduct official State Department business and whom did you consult in making this decision?

4) Identify all communications in which you participated concerning or relating to your decision to use a clintonemail.com email account to conduct official State Department business and, for each communication, identify the time, date, place, manner (e.g., in person, in writing, by telephone, or by electronic or other means), persons present or participating, and content of the communication.

5) In a 60 Minutes interview aired on July 24, 2016, you stated that it was “recommended” you use a personal email account to conduct official State Department business. What recommendations were you given about using or not using a personal email account to conduct official State Department business, who made any such recommendations, and when were any such recommendations made?

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Corporations have too much political power to let that happen.

Could EU’s ‘Apple Tax’ Reboot Corporate Tax Reform In The US? (Forbes)

For years, corporate tax reform in the U.S. has been dead in the water, in part because of deep disagreements within the American business community over what such a restructuring should look like. But the European Union’s increasingly aggressive effort to force its members to collect tax on U.S.-based multinationals has the potential to change that dynamic. The EU’s push has resulted in a series of major initiatives, none bigger than its decision to order Ireland to collect a stunning $14.5 billion in back taxes from Apple. That ruling has generated a swift backlash from the U.S. high-tech industry, U.S. policymakers across the political spectrum, and from Ireland itself. Yet, for all the howling, it might open the door for long-awaited tax reform in the United States.

To understand why, think about two kinds of U.S. corporations—those that pay lots of taxes and those that pay little or none. Some—especially companies whose business is built on intellectual property—have structured themselves in a way that sharply reduces their worldwide taxes. They shift income to related firms located in low-tax or no-tax countries while allocating interest costs and other expenses to the high-rate U.S. The result: Many pay effective tax rates in the single digits. At the same time, firms such as retailers, without the ability to shift income to low-tax countries, pay quite high effective tax rates. That split hamstrings the debate over corporate tax reform, especially the version that would eliminate tax preferences in exchange for a lower corporate rate.

If you are already paying close to the top statutory rate of 35%, you love that swap. After all, you are paying a high effective rate because those tax preferences are not helping you, so why not support legislation to ditch them in exchange for a lower rate? But for low-tax firms, the political calculation is dramatically different. If tax preferences make it possible for you to pay an effective rate of 10%, why would you give them up in return for a new U.S. statutory rate of 28%, or even 25%? How do you explain to your shareholders why more than doubling your rate is a good thing?

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Too many doubts.

Bitcoin Was Brought Down By Its Own Potential – And The Banks (Qz)

The best that can be said about Bitcoin right now is that it still exists. Split by internal divisions while its most useful aspects are harvested by the very financial behemoths it once hoped to destroy, Bitcoin is fast becoming the tech world’s version of Waiting for Godot, wherein a hermetically sealed community squabbles and bickers over arcane points of code and law as their world slowly crumbles around them. In the last 12 months, attempts made to produce a road map for the cryptocurrency’s future have come to naught, all while core developers abandon the project and opaque Chinese mining concerns wield outlandish power. Welcome to today’s Bitcoin—a phenomenon so internally focused that its advocates have barely noticed the battle has already been lost.

Back at its inception, the conversation around the currency was driven by an almost unconscionable optimism. This wasn’t simply a mechanism for the easy transfer of capital: This was a tool by which the entire international financial system could be made anew, with corrupt central banks, inflationary currencies, and immoral stockbrokers consigned to the dustbin of history. In a world still reeling from the chaos of the global financial crisis, Bitcoin seemed less like a currency and more like a way of future-proofing the global economy from ever having to deal with something so awful again.

The Bitcoin boom of late 2013 brought greater mainstream attention to the cryptocurrency. Bitcoin’s value surged from $200 to $1,200 over the space of a few weeks, temporarily rendering it more valuable than gold. This was to be a short-lived state of affairs, however, as a string of scandals, hacks, exchange collapses, and—dare I say it—common sense brought the price of Bitcoin plummeting back to Earth. Cue three years of stagnation and false promise, as Bitcoin has struggled to prove its use for, well … anything, really. Even after all this time, Bitcoin is still an economy driven almost entirely by potential—by the dream that, one day soon, Bitcoin will become the lingua franca of the global economic order.

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“One criticism of the Anthropocene as geology is that it is very short,” said Zalasiewicz. “Our response is that many of the changes are irreversible.”

The Dawn Of The Anthropocene (G.)

Humanity’s impact on the Earth is now so profound that a new geological epoch – the Anthropocene – needs to be declared, according to an official expert group who presented the recommendation to the International Geological Congress in Cape Town on Monday. The new epoch should begin about 1950, the experts said, and was likely to be defined by the radioactive elements dispersed across the planet by nuclear bomb tests, although an array of other signals, including plastic pollution, soot from power stations, concrete, and even the bones left by the global proliferation of the domestic chicken were now under consideration. The current epoch, the Holocene, is the 12,000 years of stable climate since the last ice age during which all human civilisation developed.

But the striking acceleration since the mid-20th century of carbon dioxide emissions and sea level rise, the global mass extinction of species, and the transformation of land by deforestation and development mark the end of that slice of geological time, the experts argue. The Earth is so profoundly changed that the Holocene must give way to the Anthropocene. “The significance of the Anthropocene is that it sets a different trajectory for the Earth system, of which we of course are part,” said Prof Jan Zalasiewicz, a geologist at the University of Leicester and chair of the Working Group on the Anthropocene (WGA), which started work in 2009. “If our recommendation is accepted, the Anthropocene will have started just a little before I was born,” he said. “We have lived most of our lives in something called the Anthropocene and are just realising the scale and permanence of the change.”

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“The number of migrants on Lesvos has reached 5,226 while existing camps are only designed to host 3,500. The situation on Chios is equally disheartening, with 3,309 migrants in accommodation for 1,100.”

Greek Islands Raise Alarm Over Fast Increasing Refugee Arrivals (Kath.)

Local and port authorities on the islands of the eastern Aegean are demanding immediate government action to decongest overcrowded migrant camps, insisting that they cannot cope with the recent surge in arrivals from neighboring Turkey. In a letter addressed to Shipping and Island Policy Minister Theodoros Dritsas, the Lesvos Port Authority raised the alarm, saying the island simply does not have the available infrastructure to accommodate the increased flows. The number of migrants on Lesvos has reached 5,226 while existing camps are only designed to host 3,500. The situation on Chios is equally disheartening, with 3,309 migrants in accommodation for 1,100.

According to the latest data, there are 12,120 migrants on the islands. A March deal between the European Union and Turkey to stem the flow managed to limit monthly arrivals to just a few thousand. However, the figure rose to its highest in four months in August. While Interior Ministry officials have attributed the overcrowded conditions at the camps to delays in the registration process, some critics have interpreted the increased traffic as a form of pressure from Ankara, which has linked the deal’s implementation to visa-free travel for its citizens within the EU.

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“There are still an estimated 277,000 migrants in Libya, as well as 348,000 internally displaced people and 310,000 returnees..”

Counting The Lost And Nameless Dead Of The Mediterranean (SMH)

The central Mediterranean is by far the most dangerous crossing into Europe for migrants. On Monday alone, 6908 migrants were rescued in the Channel of Sicily in 35 rescue operations, pulling them from 44 rubber dinghies, eight small wooden boats and two bigger fishing boats. The surge came after a week of windy and rough conditions had kept would-be migrants on the shores of Libya. Two people were reported to have died. There has also been a surge this week in the number of migrants arriving on Greek islands, where on average 100 people come ashore each day.

Of the 3165 people who have died or went missing this year crossing the sea (as of August 28), 2725 were attempting the passage to Italy from North Africa, according to the International Organization for Migration’s figures. More people died on this route than last year in the same period. [..] As of August 28, 272,070 migrants had crossed the Mediterranean into Europe in 2016. Just under half of the arrivals, or 106,461 (as of August 24) arrived in Italy. There, most arrivals came from Nigeria, Eritrea and Gambia. There are still an estimated 277,000 migrants in Libya, as well as 348,000 internally displaced people and 310,000 returnees – refugees returned from abroad.

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Aug 292016
 
 August 29, 2016  Posted by at 5:01 am Finance Tagged with: , , , , , , , , , ,  


DPC Up Sutter Street from Grant Avenue, San Francisco 1906

Asia Currencies Head Down The Jackson Hole (CNBC)
German Economy Minister Says EU-US TTiP Talks Have Failed (AP)
UK Must Pay For Brexit Or EU Is In ‘Deep Trouble’, Says German Minister (G.)
German Vice Chancellor Says Can’t See Turkey In EU Anytime Soon (R.)
Brexit, Grexit: When The Sky Didn’t Fall (WSJ)
TTIP’s ‘Failure’ Signals Clues About UK’s Post-Brexit Trading (Ind.)
The 11 Bone-Chilling Things I Gleaned from Yellen’s Chart (WS)
“If This Does Not Disqualify Hillary For The Presidency, What Will?” (ZH)
There Is A Third Pole On Earth, And It’s Melting Quickly (WEF)
Italy Rescues 1,100 Migrants In Mediterranean In One Day (R.)
What Life Will Be Like After An Economic Collapse (Stewart)

 

 

Travel day today, so an early Debt Rattle

 

 

Abe won’t mind.

Asia Currencies Head Down The Jackson Hole (CNBC)

The newly resurgent dollar pressured Asian currencies as markets revived bets that the U.S. Federal Reserve could possibly raise interest rates as soon as next month. The advances in regional currencies were substantial. The dollar was fetching 102.03 yen at 9:51 a.m. HK/SIN, after flirting with levels around 100 yen just before the Fed’s conclave in Jackson Hole, Wyoming. The Australian dollar also felt the sting, fetching $0.7534 Monday morning, down from nearly $0.77 on Friday. The Singapore dollar was also lower, with the greenback fetching S$1.3614 Monday morning, up from as little as S$1.3469 on Friday.

The Malaysian ringgit also fell, with the dollar fetching 4.0425 ringgit on Monday morning, compared with as little as 4.0100 ringgit on Friday. The dollar index, which measures the greenback’s performance against a basket of currencies, jumped to 95.525 on Monday morning, from as low as 94.246 on Friday. Analysts pointed to Fed Chair Janet Yellen’s speech at the conclave on Friday as the reason for the newly resurgent dollar. While markets still saw December as the most likely timing for a Fed rate hike, Yellen opened the door to a September hike when she said the case for a rate hike strengthened in recent months.

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Not making Merkel happy.

German Economy Minister Says EU-US TTiP Talks Have Failed (AP)

Free trade talks between the European Union and the United States have failed, Germany’s economy minister said Sunday, citing a lack of progress on any of the major sections of the long-running negotiations. Both Washington and Brussels have pushed for a deal by the end of the year, despite strong misgivings among some EU member states over the Trans-Atlantic Trade and Investment Partnership, or TTIP. Sigmar Gabriel, who is also Germany’s vice chancellor, compared the TTIP negotiations unfavorably with a free trade deal forged between the 28-nation EU and Canada, which he said was fairer for both sides. “In my opinion, the negotiations with the United States have de facto failed, even though nobody is really admitting it,” Gabriel said during a question-and-answer session with citizens in Berlin.

He noted that in 14 rounds of talks, the two sides haven’t agreed on a single common item out of 27 chapters being discussed. Gabriel accused Washington of being “angry” about the deal that the EU struck with Canada, known as CETA, because it contains elements the U.S. doesn’t want to see in the TTIP. “We mustn’t submit to the American proposals,” said Gabriel, who is also the head of Germany’s center-left Social Democratic Party. In Washington, there was no immediate comment from the office of the U.S. trade representative. Christian Wigand, a spokesman for the European Commission, the EU’s executive arm and which is leading the TTIP negotiations, said Sunday that the institution had no comment or reaction at this time.

Gabriel’s ministry isn’t directly involved in the negotiations with Washington because trade agreements are negotiated at the EU level. But such a damning verdict from a leading official in Europe’s biggest economy is likely to make further talks between the EU executive and the Obama administration harder. Gabriel’s comments contrast with those of Chancellor Angela Merkel, who said last month that TTIP was “absolutely in Europe’s interest.” Popular opposition to a free trade agreement with the United States is strong in Germany. Campaigners have called for nationwide protests against the talks on Sept. 17 — about year before Germany’s next general election.

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Same guy.

UK Must Pay For Brexit Or EU Is In ‘Deep Trouble’, Says German Minister (G.)

German economy minister Sigmar Gabriel has said that Britain must not be allowed to “keep the nice things” that come with EU membership without taking responsibility for the fallout from Brexit. As Theresa May called a cabinet meeting to discuss the UK government’s Brexit strategy on Wednesday, Gabriel warned if the issue was badly handled and other member countries followed Britain’s lead, Europe would go “down the drain”. “Brexit is bad but it won’t hurt us as much economically as some fear – it’s more of a psychological problem and it’s a huge problem politically,” he told a news conference. The world now regarded Europe as an unstable continent, said Gabriel, who is the deputy to chancellor Angela Merkel in Germany’s governing coalition. “If we organise Brexit in the wrong way, then we’ll be in deep trouble, so now we need to make sure that we don’t allow Britain to keep the nice things, so to speak, related to Europe while taking no responsibility,” Gabriel said.

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Still same guy.

German Vice Chancellor Says Can’t See Turkey In EU Anytime Soon (R.)

German Vice Chancellor Sigmar Gabriel said on Sunday he did not see Turkey joining the EU during his political career, adding that the bloc would not be in a position to take Turkey in even if Ankara met all the entry requirements tomorrow. Turkey started talks about joining the European Union in 2005 but has made little progress despite an initial burst of reforms. Many EU countries are wary about the possibility of the large, mainly Muslim country becoming a member of the bloc and Europe has long worried that Turkey’s anti-terrorism laws are used to quash dissent. A crackdown since a failed July 15 coup in Turkey has fueled tension between Ankara and Brussels.

“Even if you’re very optimistic about my political career, I certainly won’t see Turkey becoming a member of this EU,” Gabriel, 56, told a news conference on Sunday. “With the state we’re in, we’re not even in a position to take in a city state,” said Gabriel, leader of the Social Democrats (SPD) – the junior coalition partner in Chancellor Angela Merkel’s government. He said one logistical problem was Turkey’s large population, which stands at about 79 million according to the World Bank. “How would that work in a European Union that is currently losing one of its most important member states, that has been rattled, that doesn’t know how it should reorganise itself?,” he added, referring to Britain’s recent vote to leave the bloc.

He said Turkey might instead, in the distant future, become a partner “in an outer ring” of a changed EU. Earlier this month, Turkish Foreign Minister Mevlut Cavusoglu said his government could stop helping to stem the flow of refugees and migrants to Europe if Brussels failed to relax travel rules for Turks from October. Visa-free access to the EU — the main reward for Ankara’s collaboration in choking off the influx of migrants — has been subject to delays due to a dispute over the anti-terrorism legislation, as well as the post-coup crackdown. Gabriel said in an interview on Saturday that Merkel’s conservatives had “underestimated” the challenge of integrating record migrant arrivals.

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Problem of course is there are no markets, there are only central banks. So no price discovery.

Brexit, Grexit: When The Sky Didn’t Fall (WSJ)

Some economists warned the U.S. congressional budget battles in 2013, which led to sharp spending cuts known as sequestration, could throw the economy back into recession. The economy grew 2.7% that year. Then, in 2010 and 2012, some economists warned the Federal Reserve’s massive bond-buying program would cause hyperinflation, soaring commodity prices and a collapse of the dollar. Nothing of the sort occurred. Warnings abounded in 2015 that if Greece rejected an international bailout, it could spark a sovereign default or a banking crisis or Greece being cast off the euro. Greece’s economy is far from a success story, but it hasn’t gone bankrupt. Its banking system has been battered and drained of deposits, but hasn’t collapsed. It remains in the euro.

So what about Brexit? It’s now been two months since British voters on June 23 cast their ballots to exit from the European Union, and it’s becoming unclear if the recession so many feared will materialize—at least in the near term. It’s worth revisiting the level of concern prior to the vote. George Osborne, the Chancellor of the Exchequer, said a vote for Brexit would cause a “DIY recession.” In the immediate aftermath of the vote, many market economists forecast recession would begin almost immediately. In the days after the vote, global stock markets indeed fell sharply. Perhaps if it had been just a little bit worse, a broader panic would have sent things into a spiral. Instead, markets have rebounded. The FTSE 100 climbed to near-record levels by the middle of August. Nor has the wider economy shown many signs of a coming downturn.

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What good’s a clue if you’re clueless?

TTIP’s ‘Failure’ Signals Clues About UK’s Post-Brexit Trading (Ind.)

The apparent failure of the EU-US trade talks signalled by German Vice-Chancellor Sigmar Gabriel should come as little surprise – for good and bad reasons – and contains some interesting clues about the UK’s post-Brexit trading future. One “good” reason for the negotiators being unable to agree so far on a single chapter of the 27 in the draft Transatlantic Trade and Investment Partnership is that the Europeans are deeply suspicious about how much power will be given to large multinational companies in the process. The secret “court” for settling disputes is absurdly opaque and unaccountable, for example. That would be bad enough across most areas of the economy, but when it impinges on the way the NHS operates for the public good, it is plainly unacceptable.

Anti-business sentiment is often facile and hypocritical, or worse, but TTIP just offers up too many egregious potential abuses to be comfortable with. It could be made more politically palatable, at any rate, and we should always remember that free trade is good for the long-term prosperity of all. Globalisation, unfashionable as it is, has done more good than harm, not least lifting 500 million Chinese out of poverty. TTIP could be made to work, in other words. The “bad” reason for the difficulties TTIP finds itself in is because the EU’s disparate membership can’t agree on what they want, as so often. This, then, supports the Leave camp who argue that the very size and complexity of the EU makes important trade deals such as this impossible to secure. They point to similar failures on EU trade with China and India.

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As I’ve said so often: They have no clue.

The 11 Bone-Chilling Things I Gleaned from Yellen’s Chart (WS)

At the Symposium in Jackson Hole, so feverishly anticipated by the entire world, Fed Chair Janet Yellen gave an even more feverishly anticipated speech on Friday, in which she said the same stuff she’d been saying all along, such as these nuggets: “And, as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course.” “Our ability to predict how the federal funds rate will evolve over time is quite limited because monetary policy will need to respond to whatever disturbances may buffet the economy.” To document this, she supplied the fan chart below, adding this explanation: “The line in the center is the median path for the federal funds rate based on the FOMC’s Summary of Economic Projections in June.” “The shaded region, which is based on the historical accuracy of private and government forecasters, shows a 70% probability that the federal funds rate will be between 0 and 3.25% at the end of next year and between 0 and 4.5% at the end of 2018.”

1. They have no clue about what might happen next. Their forecasts and “forward guidance” are either figments of their imagination or just efforts to manipulate the markets.

2. They have no clue how to get out of what initially was an emergency treatment of a Fed-sponsored financial system in full and self-inflicted collapse, but is now the “new normal” treatment for an economy buckling under its Fed-encouraged debt.

[..] 11. They’re trying to make us forget how long this insanity has been going on. Yellen’s chart begins in Q1 2015. But the Fed’s historic craziness began in 2008. So that we can remember for just how long the Fed has inflicted its policies on the economy, I have added to Yellen’s chart the prior six years, for a total of eight years. It shows that they have no clue about how to get back to normal, and that they have instead changed the definition of normal:

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Tyler.

“If This Does Not Disqualify Hillary For The Presidency, What Will?” (ZH)

This is the week that the steady drip, drip, drip of details about Hillary Clinton’s server turned into a waterfall. This is the week that we finally learned why Mrs. Clinton used a private communications setup, and what it hid. This is the week, in short, that we found out that the infamous server was designed to hide that Mrs. Clinton for three years served as the U.S. Secretary of the Clinton Foundation.

In March this column argued that while Mrs. Clinton’s mishandling of classified information was important, it missed the bigger point. The Democratic nominee obviously didn’t set up her server with the express purpose of exposing national secrets—that was incidental. She set up the server to keep secret the details of the Clintons’ private life—a life built around an elaborate and sweeping money-raising and self-promoting entity known as the Clinton Foundation.

Had Secretary Clinton kept the foundation at arm’s length while in office—as obvious ethical standards would have dictated—there would never have been any need for a private server, or even private email. The vast majority of her electronic communications would have related to her job at the State Department, with maybe that occasional yoga schedule. And those Freedom of Information Act officers would have had little difficulty—when later going through a state.gov email—screening out the clearly “personal” before making her records public. This is how it works for everybody else.

Mrs. Clinton’s problem—as we now know from this week’s release of emails from Huma Abedin’s private Clinton-server account—was that there was no divide between public and private. Mrs. Clinton’s State Department and her family foundation were one seamless entity—employing the same people, comparing schedules, mixing foundation donors with State supplicants. This is why she maintained a secret server, and why she deleted 15,000 emails that should have been turned over to the government.

Most of the focus on this week’s Abedin emails has centered on the disturbing examples of Clinton Foundation executive Doug Band negotiating State favors for foundation donors. But equally instructive in the 725 pages released by Judicial Watch is the frequency and banality of most of the email interaction. Mr. Band asks if Hillary’s doing this conference, or having that meeting, and when she’s going to Brazil. Ms. Abedin responds that she’s working on it, or will get this or that answer. These aren’t the emails of mere casual acquaintances; they don’t even bother with salutations or signoffs. These are the emails of two people engaged in the same purpose—serving the State-Clinton Foundation nexus.

The other undernoted but important revelation is that the media has been looking in the wrong place. The focus is on Mrs. Clinton’s missing emails, and no doubt those 15,000 FBI-recovered texts contain nuggets. Then again, Mrs. Clinton was a busy woman, and most of the details of her daily State/foundation life would have been handled by trusted aides. This is why they, too, had private email. Top marks to Judicial Watch for pursuing Ms. Abedin’s file from the start. A new urgency needs to go into seeing similar emails of former Clinton Chief of Staff Cheryl Mills.

Mostly, we learned this week that Mrs. Clinton’s foundation issue goes far beyond the “appearance” of a conflict of interest. This is straight-up pay to play. When Mr. Band sends an email demanding a Hillary meeting with the crown prince of Bahrain and notes that he’s a “good friend of ours,” what Mr. Band means is that the crown prince had contributed millions to a Clinton Global Initiative scholarship program, and therefore has bought face time. It doesn’t get more clear-cut, folks. That’s highlighted by the Associated Press’s extraordinary finding this week that of the 154 outside people Mrs. Clinton met with in the first years of her tenure, more than half were Clinton Foundation donors. Clinton apologists, like Vox’s Matthew Yglesias, are claiming that statistic is overblown, because the 154 doesn’t include thousands of meetings held with foreign diplomats and U.S. officials.

Nice try. As the nation’s top diplomat, Mrs. Clinton was obliged to meet with diplomats and officials—not with others. Only a blessed few outsiders scored meetings with the harried secretary of state and, surprise, most of the blessed were Clinton Foundation donors. Mrs. Clinton’s only whisper of grace is that it remains (as it always does in potential cases of corruption) hard to connect the dots. There are “quids” (foundation donations) and “quos” (Bahrain arms deals) all over the place, but no precise evidence of “pros.” Count on the Clinton menagerie to dwell in that sliver of a refuge.

But does it even matter? What we discovered this week is that one of the nation’s top officials created a private server that housed proof that she continued a secret, ongoing entwinement with her family foundation – despite ethics agreements – and that she destroyed public records. If that alone doesn’t disqualify her for the presidency, it’s hard to know what would.

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Lest we forget.

There Is A Third Pole On Earth, And It’s Melting Quickly (WEF)

When we think of the world’s polar regions, only two usually spring to mind – the North and South. However, there is a region to the south of China and the north of India that is known as the “Third Pole”. That’s because it is the third largest area of frozen water on the planet. Although much smaller than its north and south counterparts, it is still enormous, covering 100,000 square kilometres with some 46,000 glaciers. Scientists conducting research in the area have warned of disturbing global warming trends, and how, if they continue, they could affect the lives of 1.3 billion people. What happens to ice in the polar regions is taken as clear evidence of climate change. When the ice melts, we know that the planet is warming up.

The Earth’s north and south extremities are crucial for regulating the climate, and at the same time are particularly sensitive to global warming. The Third Pole, because it is high above sea level, is also sensitive to changes in temperatures. It also powers life for many thousands of miles. It is estimated that the water that flows from the Third Pole supports 120 million people directly through irrigation systems, and a total of 1.3 billion indirectly through river basins in China, India, Nepal, Pakistan, Bangladesh and Afghanistan. That’s nearly one fifth of the world’s population.

It is remote – the region encompasses the Himalaya-Hindu Kush mountain ranges and the Tibetan Plateau – but 10 of Asia’s largest rivers begin here, including the Yellow river and Yangtze river in China, the Irrawaddy river in Myanmar, the Ganges, which flows through India and Bangladesh, and the trans-boundary Mekong river. Australian TV company ABC was recently invited to visit one of the remote research stations in the Third Pole by lead researcher, Professor Qin Xiang. Scientists have been gathering data from this remote area for over 50 years, and recent findings are disturbing. Among them, the fact that temperatures there have increased by 1.5 degrees – more than double the global average.

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As the fighting continues.

Italy Rescues 1,100 Migrants In Mediterranean In One Day (R.)

About 1,100 migrants were rescued from boats in the Strait of Sicily on Sunday as they tried to reach Europe, Italy’s coastguard said. The migrants were picked up from eight rubber dinghies, one large boat and two punts through 11 rescue operations in the Mediterranean, the coastguard said in a statement. It did not mention the migrants’ country of origin. Latest data from the International Organization for Migration, released on Friday, said some 105,342 migrants have reached Italy by boat this year, many of them setting sail from Libya. An estimated 2,726 men, women and children have died over the same period trying to make the journey, often dangerously packed into small vessels unsuitable for the voyage. Italy has been on the front line of Europe’s migrant crisis for three years, and more than 400,000 have successfully made the voyage to Italy from North Africa since the beginning of 2014, fleeing violence and poverty.

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A useful and thorough reminder.

What Life Will Be Like After An Economic Collapse (Stewart)

If you have been waiting for a public announcement or news headline to let you know that an economic collapse has begun, you are in for the surprise of your life. If history in other countries and in Detroit, Michigan is any indication, there won’t be an announcement. An economic collapse tends to sneak up on a city, region, or country gradually over time. In some cases, the arrival of an economic collapse is so gradual that most people living in it aren’t even aware of it at first. Things just get gradually worse, often so gradually that people and families adjust as best they can until one day they actually realize that it’s not just their home or their neighborhood that has been hit so hard financially, it’s everyone. By that time, it’s often too late to take preventative action.

In March of 2011, Detroit’s population was reported as having fallen to 713,777, the lowest it had been in a century and a full 25% drop from 2000. In December 2011, the state announced its intention to formally review Detroit’s finances. In May of 2013, almost two years later, the city is deemed “clearly insolvent” and in July of 2013, the state representative filed a Chapter 9 bankruptcy petition for Motor City. Detroit became one of the biggest cities to file bankruptcy in history. So we have only to look at what happened in Detroit, Michigan post-bankruptcy, to get an indication of what might soon be widespread across the United States and what is already widespread in countries like Brazil and Venezuela.

Grocery stores and other businesses will fail one by one or be shut down from the riots and looting. In Detroit, the economic collapse left less than 5 national grocery stores for over 700,000 people. Imagine the lines even if food was still being shipped in on trucks. Small independent corner stores and family owned stores become the most convenient place to shop. These are stores with already high prices who make most of their profit from beer, wine, lottery, and cigarettes. Now imagine that shipping schedules have been affected by the economic crisis, this would mean longer lines with less certainty that any food would even be available once you got into the store to shop. People in Venezuela are actually dealing with government-run grocery stores and are limited to two days per week they can shop.

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Jul 062016
 
 July 6, 2016  Posted by at 10:56 am Finance Tagged with: , , , , , , , ,  


LOOK Detroit’s 1960 look. Sneak preview of the new models. Dodge Polara 1959

Remember the referendum in April in which voters in the Netherlands rejected the EU-Ukraine trade deal? Seems forever ago, doesn’t it? But to date nothing has been done with the outcome of the vote, even though Dutch law requires a government to implement referendum outcomes as swiftly as possible.

PM Mark Rutte told parliament this week that ‘changing’ the deal would be very difficult, and that talks on the topic in the European Council ‘don’t make him happy’. Since one of the things Rutte has demanded from the EU is a pledge that Ukraine will not become an EU member, none of this should be surprising.

But more importantly, the Dutch didn’t vote for Rutte to renegotiate the deal, they outright rejected it. Ergo, Rutte is playing fast and loose with the integrity and credibility of the Dutch legal and political systems as much as the FBI does with America’s in the Clinton email sleight of hand, and as later today Britain will do with its credibility following the Chilcot report on Tony Blair et al.

As if the Brexit fall-out hasn’t done enough damage to that credibility. One might get the distinct impression that the powers-that-be could get awfully annoyed with the riff-raff out there wanting a say in their own lives. But the riff-raff don’t just want a say anymore, they are getting mighty annoyed with the powers-that-be too.

And that is guaranteed to increase if more ‘incidents’ happen like FBI director Jim Comey’s announcement yesterday that Hillary won’t be charged. At some point credibility must come with accountability, or else. The Hillary files bring the US awfully close to that point, as well as to ‘or else’.

Eric Zuesse explains very well why that is:

In Clinton Case, Obama Administration Nullifies 6 Criminal Laws

There can be no excuse for Obama’s depriving the public, via a grand jury decision, of the right to determine whether a full court case should be pursued in order to determine in a jury trial whether Hillary Clinton’s email system constituted a crime (or several crimes) under U.S. laws. The Obama Administration’s ‘finding’ that “clearly intentional and willful mishandling of classified information” would need to have been proven, in order for her to have been prosecuted under any U.S. criminal law, is a flagrant lie..

[..] anyone who in the future would be charged with violating any one of those six laws could reasonably cite the precedent that Ms. Clinton was not even charged, much less prosecuted, for actions which clearly fit the description provided in each one of those U.S. criminal laws. Anyone in the future who would be charged under any one of these six laws could prove discriminatory enforcement against himself or herself.

It is highly irresponsible for any government to play such games, and it’s skating on the edge of the law, something a government should always attempt to avoid. That is essential.

Someone who’s not known to be overly bothered by accountability or integrity is everybody’s favorite wino, European Commission President Jean-Claude Juncker. But Juncker, whatever else may be wrong with him, is not a stupid man. And unless I’m gravely mistaken, he has just saddled the European Union with a problem that could well trigger its undoing.

What happened was that at some point last week, reports started coming out that several parties, especially in Germany, were planning to oust Juncker from his plush job. He read them too, of course. And he may have gotten other signals as well in Brussels backrooms.

Then, Germany and France began to clamor for their parliaments to have a say in the ratification of CETA, the Comprehensive Economic and Trade Agreement between the EU and Canada. And Juncker must have seen his chance for revenge. Because yesterday he announced that all 27 parliaments of EU member nations get to have a crack at CETA.

That is Pandora’s box, and I don’t believe for a second that Juncker is not aware of it. Here’s what Deutsche Welle had to say:

EU Commission: CETA Should Be Approved By National Parliaments

European Commission chief Jean-Claude Juncker is expected to scrap plans to fast-track a trade agreement with Canada through the EU. After pressure from Germany and France, Juncker appears to be backtracking. Juncker will reportedly propose a mixed agreement – one that requires both the approval of the European parliament and national legislatures – at an European Commission meeting on Tuesday. Last week he was reported saying he “personally couldn’t care less” whether lawmakers get to vote on the deal. A report in the Financial Times noted that Germany and France wanted their national parliaments to be involved, which would inevitably lengthen the process.

That Juncker quote indicates something had been brewing for a while. Given the position he’s in, it’s quite funny, though

The deal was scheduled to be signed at the end of October during a summit in Brussels with Canadian Prime Minister Justin Trudeau, and it was due to be implemented in 2017. Trade ministers in Germany, France, Italy, the Netherlands and UK have reportedly said they will support the Comprehensive Economic and Trade Agreement, or CETA. CETA is similar to the agreement under negotiation between the EU and US and has drawn strong criticism in EU countries. Canadian and EU leaders concluded CETA in 2014, but implementation was delayed due to last-minute objections in Europe. This was related to an investment protection system to shield companies from government intervention.

Yes, CETA is TTiP on a smaller scale. A sort of test. The nonsensical audacity of ‘an investment protection system to shield companies from government intervention’ says it all.

With opposition to the EU’s impending free trade deal with Canada apparently growing, German Chancellor Angela Merkel said recently that the German parliament should be consulted on the EU’s free trade deal with Canada. “It is a highly political agreement that has been widely discussed,” said Merkel, adding that the “Bundestag is allowed to be involved of course… in national decisions”. German Economy Minister Sigmar Gabriel told the Tagesspiegel daily that Juncker’s comment was “incredibly stupid” and “would stoke opposition to other free trade deals,” including with the US. German media has also described Juncker’s position as badly timed given the growing skepticism among European voters about the EU.

What Gabriel actually said was that Juncker was “unglaublich töricht”, I looked it up. And it wasn’t his reaction to a ‘comment’, but to Juncker’s initial decision to NOT let national parliaments get their say on CETA. It’s brilliant and hilarious, isn’t it? I think I think quite a bit higher of Juncker now.

Because it was Germany itself that insisted they wanted the Bundestag to get involved (under domestic pressure). But they thought that would be it, that and the French parliament. And Jean-Claude threw it right back in their faces. Since they were going to get rid of him anyway, he decided to leave them the perfect parting gift, the ultimate poisoned chalice.

Getting back to the Dutch referendum on EU and Ukraine, one of the things to know about how this works is that the Dutch can ask for a referendum not on any topic, but only on bills the government sends to parliament to discuss. CETA will now be such a case, and a referendum looks at least quite possible.

I don’t know what comparable legislation is in other EU countries, but no doubt in many countries it’s enough to have their parliaments discuss the issue, to cause havoc. That will mean huge delays and/or worse (just what Juncker initially sought to prevent).

The ‘worse’ in this regard -in the eyes of the politicians- is the possibility of referendums, on CETA, and then on TTiP. And before you know it somewhere in Europe such a referendum will be combined with the question whether the country where it’s held should Remain in the EU or Leave it. It seems for all intents and purposes, inevitable.

How the EU can be kept together is a behemoth conundrum already, even without all these new issues. But now we can be absolutely sure that Brexit is only the beginning.

Beppe Grillo’s Five Star Movement (M5S) came out as no. 1 in a poll in Italy yesterday. When I visited Beppe almost 5 years ago in Genoa he was still torn over the EU and the euro, but he has since made up his mind: he’s determined to take Italy out of the unholy Union. Europe’s powers-that-be are in for troubled times.

And Jean-Claude Junker will be sitting somewhere in the world in a beach chair by one of his luxurious summer homes, with a big smile on his face and a stiff drink in his hand.

Jun 252016
 
 June 25, 2016  Posted by at 8:26 am Finance Tagged with: , , , , , , , ,  


Harris&Ewing Underwood Typewriter Co., Washington, DC 1919

World’s 400 Richest People Lose $127 Billion on Brexit (BBG)
Global Markets Lose $2.1 Trillion In Brexit Rout (AFP)
[Friday Was] The Appetizer For Monday (ZH)
Alan Greenspan Says Brexit Is The ‘Tip Of The Iceberg’ For Europe (MW)
Bravo Brexit! (David Stockman)
The Sky Has Not Fallen After Brexit But We Face Years Of Hard Labour (AEP)
They Got It Wrong: Swarms of Global Chatterers Misread Brexit (BBG)
UK ‘Leave’ Vote Deflates Hopes For TTIP (R.)
Chinese Bankruptcies Surge More Than 50% In Q1; Worse To Come (ZH)
A Look At The Global Economic Malaise Through Deutsche Bank (MW)
Electoral Surge Of Far Left Likely To Shake Up Spanish Politics (R.)
Regling: Varoufakis’ FinMin Tenure Cost Greece €100 Billion (Kath.)
Hillary Clinton Adopts The Shorthand Of The Hyperinflation Fearmongers (Dayen)
Rural Pennsylvanians Say Fracking ‘Just Ruined Everything’ (CPI)
Italy Coastguard Rescues 7,100 In Mediterranean In Two Days (G.)

Try and feel sorry. I dare you.

World’s 400 Richest People Lose $127 Billion on Brexit (BBG)

The world’s 400 richest people lost $127.4 billion Friday as global equity markets reeled from the news that British voters elected to leave the European Union. The billionaires lost 3.2% of their total net worth, bringing the combined sum to $3.9 trillion, according to the Bloomberg Billionaires Index. The biggest decline belonged to Europe’s richest person, Amancio Ortega, who lost more than $6 billion, while nine others dropped more than $1 billion, including Bill Gates, Jeff Bezos and Gerald Cavendish Grosvenor, the wealthiest person in the U.K.

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Meaningless. If the euro loses against the dollar, what is lost exactly? Besides, it’s all virtual overkill anyway.

Global Markets Lose $2.1 Trillion In Brexit Rout (AFP)

Britain’s shock vote to pull out of the European Union wiped $2.1 trillion from global equity markets Friday as traders panicked in the face of a new threat to the global economy. Investors fled to the safety of gold, the yen and blue-chip bonds as the seismic shift in the structure of Europe left many huge questions hanging, including who will lead Britain following the resignation of Prime Minister David Cameron. The Brexit vote sparked 8% losses in the Tokyo and Paris bourses, nearly 7% in Frankfurt and more than 3% in London and New York. Central banks stepped in to bolster confidence, promising to inject liquidity where needed and appearing to mitigate some of the sharpest losses.

Still, the pound crashed 10% to a 31-year low at one point, before rebounding slightly for a 9.1% loss against the greenback in late trade. The euro also plummeted, dropping 2.6% on the dollar. Benefitting from a massive safety selloff, gold jumped nearly 5% and the yen surged 4.2% against the dollar and 7.0% on the euro. The dollar at one point fell below 100 yen for the first time since November 2013. US 10-year treasury bond yields hit their lowest since 2012 at 1.42% before edging higher, while the German 10-year bund fell into negative territory for the second time in history.

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Try Italian banks: “..Monday is where we’re going to see a truer-look at “where the bodies are buried” and a more accurate “price discovery” process than what we’re seeing today..”

[Friday Was] The Appetizer For Monday (ZH)

RBC’s Charlie McElligott: “I do feel that Monday is where we’re going to see a truer-look at “where the bodies are buried” and a more accurate “price discovery” process than what we’re seeing today (as we’re washing out all the delta one flows which are dwarfing client trading)…lots of discipline being displayed thus far, with low turnovers and folks not chasing.

FTSE (UKX, benchmark equities index) is an absolute CHAMP right, trading -8.7% within the first 10 minutes of the open before clawing-back to all but -1.9% at ‘highs.’ Wrap your head around this: week-to-date, UKX is up over 2.8%! What’s the driver of today’s massive rally? People are getting their arms around the impact of this extraordinarily weak Sterling as a backdoor stimulus for exporters (ironic the power of what a departure from the EU can do vs what x # of kagillions of QE purchases couldn’t get done) and the inevitable rate cut from the BoE.

What I have to continue keeping one eyeball on is SX7E (EU banks index); the thing cannot get off mat. And if that can’t get off the mat, peripheries (and their sovereign debt) won’t either, as we re-enter the EU-crisis-era “Doom Loop” where widening sovereign spreads drag down the banks who are stuffed to the gills with them….vicious cycle, what else is new. FWIW, as I write and we’ve had this massive bounce in equities, Italian stocks (FTSEMIB) are back at their lows. This will likely be the next “hot zone” as we begin playing EU existential dominos (Spanish elections Sunday too).

My model Equity L/S portfolio is -285bps today. That is NOT cool. Elsewhere, from a thematic or factor perspective, we see the implications we spoke about earlier of the RAGINGLY STRONGER DOLLAR smashing the reflation / cyclical beta trade (value, energy, beta all struggling, while momentum mkt neutral works with defensive longs + and fins / biotech / energy -)”

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Of his own making.

Alan Greenspan Says Brexit Is The ‘Tip Of The Iceberg’ For Europe (MW)

The global economy is suffering from even bigger woes than the decision by U.K. voters to leave the European Union, Former Federal Reserve Chairman Alan Greenspan said Friday. ”This is just the tip of the iceberg,” Greenspan said in an interview on CNBC. “The global economy is in real serious trouble.” The rejection of British voters of the status quo in Europe was fueled by a “massive slowing” in the growth rate of real incomes that is widespread across Europe, Greenspan said. This, he said, is creating serious political problems that are not easy to resolve. Behind the slowdown in income is the sharp drop in worker productivity, according to Greenspan. Governments have to cut entitlements to reflect this weakness, he said.

The biggest concern is not a recession, but stagnation, the former Fed chief said. “The euro-area…is failing,” Greenspan said. “Greece is in real serious trouble and it is not going to continue in the euro very much longer irrespective of what is going on currently,” he said. Asked what he would do if he was still Fed chief, Greenspan said: “I would worry.” “This is the worst period I recall since I’ve been in public service,” he said. “There is nothing like it,” he said, including the 23% drop in the Dow Jones Industrial Average on a single day in October 1987.

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“..there will be payback, clawback and traumatic deflation of the bubbles. Plenty of it, as far as the eye can see.”

Bravo Brexit! (David Stockman)

At long last the tyranny of the global financial elite has been slammed good and hard. You can count on them to attempt another central bank based shock and awe campaign to halt and reverse the current sell-off, but it won’t be credible, sustainable or maybe even possible. The central banks and their compatriots at the EU, IMF, White House/Treasury, OECD, G-7 and the rest of the Bubble Finance apparatus have well and truly over-played their hand. They have created a tissue of financial lies; an affront to the very laws of markets, sound money and capitalist prosperity. So there will be payback, clawback and traumatic deflation of the bubbles. Plenty of it, as far as the eye can see.

On the immediate matter of Brexit, the British people have rejected the arrogant rule of the EU superstate and the tyranny of its unelected courts, commissions and bureaucratic overlords. As Donald Trump was quick to point out, they have taken back their country. He urges that Americans do the same, and he might just persuade them. But whether Trumpism captures the White House or not, it is virtually certain that Brexit is a contagious political disease. In response to today’s history-shaking event, determined campaigns for Frexit, Spexit, NExit, Grexit, Italxit, Hungexit and more centrifugal political emissions will next follow. Smaller government – at least in geography – is being given another chance. And that’s a very good thing because more localized democracy everywhere and always is inimical to the rule of centralized financial elites.

The combustible material for more referendums and defections from the EU is certainly available in surging populist parties of both the left and the right throughout the continent. In fact, the next hammer blow to the Brussels/German dictatorship will surely happen in Spain’s general election do-over on Sunday (the December elections resulted in paralysis and no government). When the polls close, the repudiation of the corrupt, hypocritical lapdog government of Prime Minister Rajoy will surely be complete. And properly so; he was just another statist in conservative garb who reformed nothing, left the Spanish economy buried in debt and gave false witness to the notion that the Brussels bureaucrats are the saviors of Europe. So the common people of Europe may be doubly blessed this week with the exit of both David Cameron and Mariano Rajoy. Good riddance to both.

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“..It was the first episode of a pan-Europe uprising against the Caesaropapism of the EU Project and its technocrat priesthood.”

The Sky Has Not Fallen After Brexit But We Face Years Of Hard Labour (AEP)

It is time for Project Grit. We warned over the final weeks of the campaign that a vote to leave the EU would be traumatic, and that is what the country now faces as markets shudder and Westminster is thrown into turmoil. The stunning upset last night marks a point of rupture for the post-war European order. It will be a Herculean task to extract Britain from the EU after 43 years enmeshed in a far-reaching legal and constitutional structure. Scotland and Northern Ireland will now be ejected from the EU against their will, a ghastly state of affairs that could all too easily lead to the internal fragmentation of the Kingdom unless handled with extreme care. The rating agencies are already pricing in a different British destiny. Standard & Poor’s declared that Brexit “spells the end” of the UK’s AAA status.

The only question is whether the downgrade is one notch or two, and that hangs on Holyrood. Moody’s has cocked the trigger too. Just how traumatic Brexit will be depends on whether Parliament can rise to the challenge and fashion a credible trade policy – so far glaringly absent – to safeguard access to European markets and ensure the viability of the City, and it depends exactly how Brussels, Berlin, Paris, Rome, Madrid, and Warsaw react once the dust settles. Both sides are handling nitroglycerin. Angry reproaches are flying in all directions, but let us not forget that the root cause of this unhappy divorce is the conduct of the EU elites themselves. It is they who have pushed Utopian ventures, and mismanaged the consequences disastrously.

It is they who have laid siege to the historic nation states, and who fatally crossed the line of democratic legitimacy with the Lisbon Treaty. This was bound to come to a head, and now it has. The wild moves in stocks, bonds, and currencies this morning were unavoidable, given the positioning of major players in the market, and given that the Treasury, the IMF, and the Davos brotherhood have been deliberately – in some cases recklessly – stirring up a mood of generalized fear.

[..] Some in Europe accuse the British people of strategic nihilism, of setting in motion the disintegration of the EU. It is true that French, Dutch, Italian, and Swedish eurosceptics are now agitating even more loudly for their own referenda, but voters are rising up across the EU in defence of national self-government and cultural ‘terroir’ for parallel reasons. Brexit is not the cause and this is not contagion. The latest PEW survey shows that anger with Brussels is just as great in most of Northwest Europe as it is Britain, and in France it is higher at 61pc. This referendum was never a fight between Britain and Europe, as so widely depicted. It was the first episode of a pan-Europe uprising against the Caesaropapism of the EU Project and its technocrat priesthood. It will not be the last.

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No-one got it more wrong than the bookmakers. At least, what they said.

They Got It Wrong: Swarms of Global Chatterers Misread Brexit (BBG)

A global cohort said before Thursday’s Brexit vote that Britain was unlikely to pull out of the European Union, the post-World War II international project that brought an unprecedented era of prosperity and peace. Yet some were led astray by the belief that free trade’s money and material goods outweighed nationalism and the tug of nostalgia. Conservative U.K. Prime Minister David Cameron called the referendum, presumably confident he would win. He lost, and he’s now resigning. “Brits don’t quit,” Cameron said in an impassioned plea on Tuesday to voters to support remaining in the EU. “We get involved, we take a lead, we make a difference, we get things done.” The Brits quit.

Opinion polls on Brexit were all over the place; the theoretical lead had changed hands dozens of times since September, although “leave” never reached 50% support. Still, betting odds put the chance of remaining at 90% as the polls closed on Thursday. Ladbrokes was offering 4-to-1 on a leave vote, according to The Guardian. Even though most players in the market were actually backing leave, more money was bet on remain by the affluent, who were generally behind staying, Matthew Shaddick, head of political betting at Ladbrokes, wrote in a blog post. Bookies are trying to make money, not help people forecast results, so the vote worked out fine for Ladbrokes, he said.

“Is this just one of the inevitable, normal occasions where an outsider wins, or a fatal blow to the idea of betting markets as being a useful forecasting tool?” Shaddick said. “Maybe unsurprisingly, I tend to think the former, but that doesn’t mean we don’t have to reflect on all of their potential flaws and decide how we best interpret them in the future.” The London-based Political Studies Association surveyed members, journalists, academics and pollsters from May 24 to June 2. Every group got it wrong. Overall, 87% of respondents said Britain was more likely to stay in the EU, 5% said it was likely to leave, and 8% said both sides had an exactly equal chance. The predicted probability of Britain voting to leave the EU: academics, 38%; pollsters, 33%; journalists, 32%; other, 38%; mean, 38%.

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The advantages keep coming in.

UK ‘Leave’ Vote Deflates Hopes For TTIP (R.)

Britain’s looming exit from the European Union is another huge setback for negotiations on a massive U.S.-EU free trade deal that were already stalled by deeply entrenched differences and growing anti-trade sentiment on both sides of the Atlantic. The historic divorce launched by Thursday’s vote will almost certainly further delay substantial progress in the Transatlantic Trade and Investment Partnership (TTIP) talks as the remaining 27 EU states sort out their own new relationship with Britain, trade experts said on Friday. With French and German officials increasingly voicing skepticism about TTIP’s chances for success, the United Kingdom’s departure from the deal could sink hopes of a deal before President Barack Obama leaves office in January.

“This is yet another reason why TTIP will likely be postponed,” said Heather Conley, European program director at the Center for Strategic and International Studies, a think tank in Washington. “But to be honest, TTIP isn’t going anywhere, I believe, before 2018 at the earliest,” she said. U.S. Trade Representative Michael Froman said in a statement on Friday that he was evaluating the UK decision’s impact on TTIP, but would continue to engage with both European and UK counterparts. “The importance of trade and investment is indisputable in our relationships with both the European Union and the United Kingdom,” Froman said. “The economic and strategic rationale for TTIP remains strong.”

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Xi can no longer hold off the tide. Q1: what happens to the unemployed? Q2: how are the shadow banks paid off?

Chinese Bankruptcies Surge More Than 50% In Q1; Worse To Come (ZH)

Two months ago, when looking at the soaring number of bond issuance cancellations and postponements as calculated by BofA, we commented that it was only a matter of time before the long overdue tide of corporate defaults, held by for so many years by the Chinese government which would do anything to delay the inevitable, was about to be unleashed. This prediction has indeed been validated and as the FT reports overnight, Chinese bankruptcies have surged this year “as the government uses the legal system to deal with “zombie” companies and reduce industrial overcapacity as part of a broader effort to restructure the economy.”

In just the first quarter of 2016, Chinese courts have accepted 1,028 bankruptcy cases, up a whopping 52.5% from a year earlier, according to the Supreme People’s Court. Just under 20,000 cases were accepted in total between 2008 and 2015. This is surprising because while China’s legislature had approved a modern bankruptcy law in 2007 it had barely been used for years, with debt disputes often handled through backroom negotiations involving local governments. “Bankruptcy isn’t just about creditor-borrower relations. It also touches on social issues like unemployment,” said Wang Xinxin, director of the bankruptcy research centre at Renmin University law school in Beijing. “For a long time many local courts weren’t willing to accept them, or local governments didn’t let them accept.”

However, following the dramatic collapse of global commodity prices, which as we showed last October meant that more than half of local companies could not afford to even make one coupon payment with cash from operations, Beijing had no choice but to throw in the towel. And as the FT adds, “bankruptcy courts have been recruited into China’s drive for “supply-side reform”, which centres on reduction of overcapacity in sectors such as steel, coal and cement.”

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Deflation.

A Look At The Global Economic Malaise Through Deutsche Bank (MW)

I like to keep an eye on major financials, as they are the backbone of the global economy. If the banks have problems, not much else will be doing all that great from a macro perspective. I know there are serious issues with European financials, as collapsing (and in some cases negative) government-bond yields, coupled with negative short-term policy rates, have basically shrunk their net-interest margins as their loans are priced off those rates. The same is the case in Japan. In the U.S, despite a massive flattening of the Treasury yield curve, we have so far been spared from this rather unfortunate banking situation.

So I punched out the ticker “DB” on my screen two Fridays ago and looked at the TV before the chart would load. I looked back at the screen, and I thought I had made a mistake as sometimes the web browser will “remember” ticker symbols on the drop-down quote menu and occasionally the wrong chart would load. It had to be a mistake, as I was looking at the 10-year Treasury yield chart that was just shown on the TV screen seconds earlier, with some futures trader making the comment that the U.S. Treasury market was “breaking out.” I looked closer, and I was stunned. There was no mistake. To that moment, I had not realized that Deutsche Bank’s stock was tracking the 10-year Treasury note yield almost tit for tat. If the Treasury market is breaking out, that would mean Deutsche Bank stock is breaking down, I thought.

It did not take long to figure out why the stock of a major global financial firm — DB, the largest bank in Germany — would follow the 10-year U.S. Treasury yield so closely. As I have explained on numerous occasions in this column, I think we face a global deflationary problem. There are numerous implications for this, but economic growth cycles driven by too much borrowing in the developed world and in many emerging markets — the largest of which is China — are causing that mountain of debt to catch up with faltering economies. Falling long-term U.S. interest rates at a time when the Federal Reserve has not officially given up on a hopelessly-misguided rate-hiking cycle are a symptom of this global deflation.

Banks tend to perform very poorly in a deflationary environment as weak nominal corporate revenues make servicing debts problematic and lending growth tends to suffer. In a deflationary environment, the real value of debts rises as they stay nominally constant; but the assets those debts are financing tend to fall in price, causing rising non-performing loan (NPL) ratios. Combine this with the unorthodox global QE monetary policies and negative short-term interest rates, and you have collapsing net interest margins for many global banks like Deutsche Bank as many yield curves globally, including the one in Germany, have vanished.

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One more technocrat government gone on Monday?

Electoral Surge Of Far Left Likely To Shake Up Spanish Politics (R.)

The parched olive groves and tranquil towns of Spain’s southern Cordoba province are an unlikely backdrop for a political upset that could reverberate across Europe. Yet some locals like 57-year-old Lorenzo Molina, an unemployed librarian, hope they can help deliver just that in a fresh nationwide election on June 26 following an inconclusive December ballot. Gains for an anti-austerity alliance led by the young Podemos party in tightly-contested provinces like this could tip the balance in its bid to lead the next government, and this could turn Spain into the European Union’s next headache after Britain’s June 23 referendum on EU membership. A surge into second place for Unidos Podemos (“Together We Can”) ahead of Spain’s Socialists would make the far-left front a serious contender to form a coalition government, cementing the decline of Spain’s once-mighty center-left in the process.

After radical leftist Syriza’s success in crushing the social democratic Pasok in Greece, a Podemos breakthrough could also buoy euro-skeptic anti-establishment movements in the likes of Italy or France as worsening inequality fuels discontent. For Molina, a dyed-in-the-wool backer of the ex-communists now part of the leftist alliance, it’s a momentous prospect after decades on the fringes of Spanish politics, hankering after this so-called “sorpasso” (eclipse) of the Socialists. “It’s time to air things out,” Molina said on a balmy evening in the city of Cordoba, as an eclectic mix of families and people waving hammer and sickle flags arrived at a rally in a local park. “The Socialists have been in charge of our institutions for many years,” he added, as cries of “Yes we can” rang out among the crowd of several hundred.

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The cost of not doing what you’re told. Take heed, Britain and everyone else. All your base are belong to us.

Regling: Varoufakis’ FinMin Tenure Cost Greece €100 Billion (Kath.)

The cost of Yanis Varoufakis’s tenure as Greece’s Finance Minister during the January-August 2015 period was estimated at around €100 billion, Klaus Regling, head of the European Financial Stability Facility (EFSF) and first managing director of the European Stability Mechanism, told Skai TV. In the interview that aired on Wednesday, Regling noted that during the Varoufakis era, relations between Greece and its lenders were not good, that reforms were halted and that the overall situation at the time did not serve the interests of the Greek economy.

Regling also urged the current Greek government to stick to agreed reforms and noted that the next two months would see negotiations between Greece and its creditors regarding changes in the country’s labor laws, among others, before a second review of the country’s bailout program in September. Regling also argued that some members of the coalition administration did not seem committed to the bailout program, particularly with regard to privatizations and the privatization fund. On the subject of debt relief for Greece, Regling noted that the institutions had agreed on principle, but disagreed over the time frame.

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“..Alan Greenspan, former chair of the Federal Reserve, echoed Trump’s comments almost verbatim back in 2011, when the U.S. came close to reaching the debt limit. “The United States can pay any debt it has because we can always print money to do that..”

Hillary Clinton Adopts The Shorthand Of The Hyperinflation Fearmongers (Dayen)

Deficit hawks often raise the specter of hyperinflation to scare people who disagree with them. And that’s exactly what Hillary Clinton did on Tuesday. Speaking in Columbus, Clinton criticized Donald Trump for saying last month that the U.S. can never default on its debt obligations “because you print the money.” “We know what happened to countries that tried that in the past, like Germany in the ‘20s and Zimbabwe in the ‘90s,” Clinton said. “It drove inflation through the roof and crippled their economies.” But printing money — otherwise known as increasing the money supply – is a routine occurrence for governments that control their own currency.

The Federal Reserve has increased its balance sheet by over $3 trillion since the financial crisis, explicitly to support the economy. (The Fed does this by buying stocks and bonds with electronic cash that didn’t exist before.) In fact, an increasingly influential school of economics, known as Modern Monetary Theory, argues that deficit spending, including through money printing, is critical to promote full employment. Even Alan Greenspan, former chair of the Federal Reserve, echoed Trump’s comments almost verbatim back in 2011, when the U.S. came close to reaching the debt limit. “The United States can pay any debt it has because we can always print money to do that,” Greenspan told “Meet the Press.”

“If you think about it, it is precisely this power that makes U.S. Treasuries [T-Bonds] so safe in the first place,” said Stephanie Kelton, an economics professor at the University of Missouri-Kansas City and a former chief economist to Bernie Sanders on the Senate Budget Committee. Kelton is one of the leading proponents of Modern Monetary Theory. But deficit hawks – typically members of the economic elite who favor small government and correspondingly low taxes, and are terrified of the effect inflation would have on their investments and cash reserves — have repeatedly warned that these perfunctory monetary policy actions would lead to Weimar Germany-levels of chaos.

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A mess in the name of Mammon.

Rural Pennsylvanians Say Fracking ‘Just Ruined Everything’ (CPI)

Sixty years after his service in the Army, Jesse Eakin still completes his outfits with a pin that bears a lesson from the Korean War: Never Impossible. That maxim has been tested by a low-grade but persistent threat far different than the kind Eakin encountered in Korea: well water that’s too dangerous to drink. It gives off a strange odor and bears a yellow tint. It carries sand that clogs faucets in the home Eakin shares with his wife, Shirley, here in southwestern Pennsylvania. The Eakins told the state environmental agency about their bad water nearly seven years ago and hoped for a quick resolution. Like thousands of others who live in the natural gas-rich Marcellus Shale, however, they learned their hopes were misplaced.

Today, the state is still testing their water. The results of those tests will dictate whether a gas exploration and production company is held responsible for providing them with a clean supply. Meanwhile, the Eakins drink donated bottled water and in late 2014 began paying for deliveries of city water to avoid showering in contaminants such as lead and manganese. Since 2007, at least 2,800 water-related complaints have been investigated by the Pennsylvania Department of Environmental Protection’s Oil and Gas Program. Officials found ties to the drilling industry in 279. Another 500 or so cases, including the Eakins’, are open. While regulators try to catch up to natural gas exploration, some residents of the state have gone months, even years, without access to clean water at their homes.

Responding to a public-records request by the Center for Public Integrity, the Department of Environmental Protection, or DEP, provided data on 1,840 complaints lodged since 2010. More than half took longer than the agency’s target of 45 days to resolve. Almost one in 10 took more than a year. The state’s often-plodding response has left hundreds of rural Pennsylvanians in a sort of forced drought, scrambling to pay for water deliveries, seek remedies in court, take out second mortgages or even abandon their homes.

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Off the top of my head, over 150,000 landed in Italy so far this year. And Germany has a backlog of 450,000 asylum applications.

Italy Coastguard Rescues 7,100 In Mediterranean In Two Days (G.)

Ship crews have pulled more than 2,000 refugees from overcrowded boats in the Mediterranean, Italy’s coastguard has said, as people-smugglers stepped up operations during two consecutive days of good weather. More than 7,100 people have now been rescued from international waters since Thursday, many of them on the dangerous journey from Libya. Europe’s worst immigration crisis since the second world war is in its third year, and there has been little sign of any let-up in the flow of people coming from North African to Italy.

Ships belonging to Doctors without Borders, Migrant Offshore Aid Station, Italy’s navy, the EU’s border agency Frontex and the bloc’s anti-people-smuggling mission Sophia all helped take the migrants off nine boats on Friday. About 60,000 boat refugees have been brought to Italy so far this year, according to the interior ministry.

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May 292016
 
 May 29, 2016  Posted by at 9:12 am Finance Tagged with: , , , , , , , ,  


Matt Black/Magnum Photos USA. El Paso, Texas. 2015

Iceland Puts Freeze on Foreign Investors (WSJ)
Japan’s Abe To Delay Sales Tax Hike Until 2019 (R.)
Fade The Oil Bounce (CNBC)
Trade Deals Going Nowhere (DR)
Schrödinger’s Cat Gets a Playmate (CSM)
The Geography of American Poverty (G.)
Miracle In Athens As Greek Tourism Numbers Keep Growing (Observer)
The EU Has Turned Greece Into a Prison for Refugees (Nation)
13,000 People Rescued In Mediterranean In One Week (G.)
Rescued Migrants Say Ship Sank Off Italy With Hundreds Aboard (R.)

Recovering from debt addiction: “We don’t need the money..”

Iceland Puts Freeze on Foreign Investors (WSJ)

Iceland has spent eight years locking down its financial markets to keep foreign investors in. Now some are complaining the island nation is trying to shove them out. A law passed May 22 by Iceland’s parliament offers the foreign holders of about $2.3 billion worth of krona-denominated government bonds a Hobson’s choice: Sell out in June at a below-market exchange rate, or have the money they receive when their bonds mature impounded indefinitely in low-interest bank accounts. Investors, including Boston-based mutual-fund companies Eaton Vance and Loomis Sayles, a unit of Natixis, don’t want to go. They say they will reject the government’s offer. “We would like to stay invested,” said Patrick Campbell, a global bond analyst at Eaton Vance.

The dispute is the result of a wholesale turnaround in Iceland’s relationship with foreign investors. The country became synonymous with financial alchemy after its banks ballooned by borrowing in bond markets and attracting foreign depositors with high interest rates. That system imploded in 2008 when depositors made a run on the banks just as their bonds fell due, causing the krona to sharply devalue against the euro. Yet a growing number of fund managers are now buying Icelandic government bonds, including those that were marooned on the island when it applied capital controls. The country is now one of the few offering a combination of high interest rates and strong economic growth prospects.

Eaton Vance and another holder of the legacy debt, also called “offshore” debt, hedge fund Autonomy Capital LP, have been courting the government for months to allow them to keep their cash on the island, even offering to swap their holdings into long-term bonds that they would pledge to hold on to.But the country isn’t interested. Instead, officials behind the law say they aim to keep the $16.7 billion economy of the island with a population of 327,386 from being swamped anew by the ebb and flow of offshore funds. “We don’t need the money,” said Mar Gudmundsson, governor of Iceland’s central bank. “These are remnants from the last boom and bust, and we are not going to repeat that mistake.”

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“..Japan “must reignite powerfully the engine of Abenomics”..”

Japan’s Abe To Delay Sales Tax Hike Until 2019 (R.)

Japanese Prime Minister Shinzo Abe plans to delay an increase in sales tax by two and a half years, a government official said on Sunday, as the economy sputters and Abe prepares for a national election. Abe told Finance Minister Taro Aso and the secretary general of his ruling Liberal Democratic Party, Sadakazu Tanigaki, on Saturday of his plan to propose delaying the tax hike for a second time, until October 2019, said the official, who was briefed on the meeting. The prime minister, who has promised to announce steps on Tuesday to spur economic growth and promote structural reform, is also expected to order an extra budget to fund stimulus measures, just two months into the fiscal year and on the heels of a supplementary budget to pay for recovery from recent earthquakes in southern Japan.

After chairing a summit of Group of Seven leaders on Friday, Abe said Japan would mobilize “all policy tools” – including the possibility of delaying the tax hike – to avoid what he called an economic crisis on the scale of the global financial crisis that followed the 2008 Lehman Brothers bankruptcy. “There is a risk of the global economy falling into crisis if appropriate policy responses are not made,” Abe told a news conference after the summit. To play its part, Japan “must reignite powerfully the engine of Abenomics,” he said, referring to his easy-money policies aimed at getting Japan out of two decades of deflation and fitful growth. Abe has long said he would proceed with a plan to raise the tax rate to 10% from 8% next April unless Japan faced a crisis on the magnitude of the Lehman shock.

He said the G7 “shares a strong sense of crisis” about the global outlook, with the most worrisome risk being a global contraction led by a slowdown in emerging economies like China. Other G7 leaders, however, appeared to differ with Abe on the risk of a global crisis, fuelling comment that Abe was using the G7 to justify delaying the painful tax hike.

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Interesting graph.

Fade The Oil Bounce (CNBC)

This week, oil broke above the key $50 level for the first time since October 2015. Yet rather than interpret the move as a sign to buy, one top technician is warning investors not to chase the rally. “I think it’s all about risk-reward and there’s probably no more important chart right now than the oil chart,” Chris Verrone, a technician at Strategas Research Partners, told CNBC’s “Fast Money” this week. According to Verrone, it’s the steepness of the move that bothers him most. In the past 72 days, oil has moved 20% above its 200-day moving average. “It looks excessive to us, we think there’s a higher likelihood you come back and retest the 200 near 39, 40 bucks,” said Verrone.

Also troubling to Verrone is the fact that while crude has surged to new highs, energy stocks and the Mexican peso — both of which are closely tied to oil — have not made new highs in a month. Energy names have fallen since peaking on April 27, whereas crude has surged 12%. Since peaking back April 29, the peso’s gains are still lagging those in oil. They are up 8% and 33%, respectively, this year. Indeed, analysts at Bank of America Merrill Lynch warned this week that continued strength in the dollar could trigger a series of knock-on effects that may push crude off its new highs. The bank said a “black swan event” such as Saudi Arabia removing its currency peg could lead to a collapse of Brent crude to as deep as $25 per barrel, and it expects oil prices to average $46 per barrel this year. On Friday, crude ended the session above $49 per barrel.

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Pretty soon exactly zero people outside of the elite will want these deals.

Trade Deals Going Nowhere (DR)

As the politics of this election year heat up, the chances of Congress debating — let alone passing — either of the White House’s marque trade deals continue to melt away. Oh, there’s plenty of talk about the westward-looking Trans-Pacific Partnership and the Euro-centered Transatlantic Trade and Investment Partnership, or TPP and TTIP, respectively. Most of the yakking, however, flows from Obama Administration officials; nary a word trickles out of Congress. Worse than Capitol Hill silence is the vocal pounding free trade takes when any of Obama’s would-be successors talk trade.

Bernie Sanders, a Democrat by name but socialist by heart, makes it crystal clear that he would rather eat glass than back “free” trade. Hillary Clinton, who three years ago called the TPP “exciting,” “innovative” and “ambitious,” now sees it as an agreement that has “failed to provide the basic safety net support needed” for American workers. Take that as an “innovative” no. And the Donald? He’s against TPP because, as he noted in one Republican debate this spring, “It’s a deal that was designed for China to come in, as they always do, through the back door … ” China, however, is not part of the Trans-Pacific Partnership, so whatever Trump meant must have been more of a “suggestion” than a fact. Whatever.

[..] Big Ag’s big push for the pending trade deals is understandable, given the two changed realities of today’s election year politics. First, even as we lean on the EU to alter its biotech food rules, the U.S. Senate still can’t agree on how to write a biotech food labeling law here. Members know the tide has turned on labeling; 89 out of 100 Americans want it. Majority Republicans, however, don’t and they continue to search for a way to be anti-labeling without becoming anti-incumbents. Second, not one presidential contender sees free trade as a vote-winning issue. Taken together, it’s hard to see how any trade deal goes anywhere this year. After that, you have to take the word of Hillary or Bernie or Donald. Well, maybe not Donald. Or Hillary. Bernie’s solid, though.

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Entanglement is poorly understood, and poorly explained.

Schrödinger’s Cat Gets a Playmate (CSM)

Schrödinger’s cat is something many of us have heard of, but perhaps fewer actually understand. The idea was first dreamed up by an Austrian physicist, Erwin Schrödinger, who wanted to illustrate the mind-bending nature of quantum mechanics. He created a thought experiment in this world to illustrate the point, which would allow a cat to be both dead and alive in a box at the same time. Now, scientists have added another box. And another cat. And the first cat being dead and alive simultaneously in the first box, so this causes the second cat in the second box to also be dead and alive at the same time. Makes perfect quantum sense, right? “It’s understandable that people don’t understand it,” lead author Chen Wang of Yale University told The Washington Post.

“You can’t understand it using common sense. We can’t either.” But here’s the premise: A cat sits in a box. Alongside the cat, there’s poison. That poison will only be released upon the decay of a radioactive subatomic particle. According to quantum mechanics, and specifically the theory of “superposition,” these particles actually exist in all possible states at the same time – until, that is, someone takes a measurement. At that point, the particle falls into a single, known state. So, the particles could be decaying, and not decaying, simultaneously. As a consequence, the poison is being released – and not released. And so the cat is both dead and alive. Until someone opens the box, of course, and is observed. Then, the cat can’t be doing both things at once.

What Dr. Wang and his team have done is to add another dimension: the concept of “entanglement.” This proposes that two objects can be intimately linked, even if billions of light-years separate them, and any change that happens to one will happen to the other instantaneously, a relationship Einstein once described as “spooky action at a distance.” For our cat, this means, quite simply, that there’s a twin, in another box. And everything that happens to one, happens to the other. In Wang’s experiment, there were no cats, just light. He used two aluminum cavities, each with a wave of light bouncing around inside. The researchers induced such a state so that the light existed in two different wavelengths at the same time, in both boxes.

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‘Poverty Is Often Looked At In Isolation, But It Is An American Problem’

The Geography of American Poverty (G.)


USA. Allensworth, California. 2014. Fence post. Allensworth has a population of 471 and 54% live below the poverty level. Matt Black/Magnum Photos

Last summer Matt Black left the Central Valley of California, where he lives, to travel 18,000 miles across the US on a road trip that took him through 30 states and 70 of the poorest towns in America. The startling image of a hand resting on a fence post against a barren backdrop was taken in the small town of Allensworth, California, where 54% of the population of 471 people live below the poverty level. “California always seemed special and unique in terms of how it symbolised promise and progress,” says Black, 45, during a break in shooting landscapes in Idaho, where he’s working on another stage of the same series, Geography of Poverty. “So it seemed somehow symbolic to begin there and travel east, but what has surprised me is the similarities I have encountered as I travelled from one community to another.

All these diverse communities are connected, not least in their powerlessness. In the mainstream media, poverty is often looked at in isolation, but it is an American problem. It seems to me that it goes unreported because it does not fit the way America sees itself.” As if to bear this out, Black tells me that the route he took was mapped out in advance using geotagged photographs found online alongside census information to identify the poorest areas. In each instance, the communities he visited were never more than a two-hour drive apart. “I was able to drive from California to the east coast and back without ever leaving these poor areas.” Black’s striking images are on show in a group exhibition, New Blood, at the Magnum Print Room in London…


USA. El Paso, Texas. 2015. El Paso has a population of 649,121 and 21.5% live below the poverty level. Matt Black/Magnum Photos

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More tourists, more refugees.

Miracle In Athens As Greek Tourism Numbers Keep Growing (Observer)

It’s been a busy winter in downtown Athens, where scaffolding, tarpaulins and dust have been symbols of hope: a mini construction boom heralding a tourist renaissance. Nine hotels are being built or restored around the city centre. Their arrival correlates with the huge upturn in holidaymakers visiting the Greek capital since a low point in late 2008, when Athens erupted into riots after the police killing of a teenage boy. “It’s a miracle, what’s been happening in Athens,” Greece’s tourism chief, Andreas Andreadis, told the Observer. “The tourist industry in Greece grew two to three times faster than in Spain, Portugal, Italy or France last year. This year we expect around 4.5 million visitors in Athens alone.”

For an economy stuck in depression-era recession, dependent on emergency bails and seemingly locked in a perpetual fiscal vice, tourism is vital. A record 23.5 million holidaymakers visited Greece in 2015 – generating €14.2bn in direct receipts, or 24% of GDP. In 2010, at the start of the country’s debt crisis – which has seen it struggle to avert default and remain in the euro – revenues from tourism were €10bn, or 15% of GDP. The Greek Tourism Confederation, Sete, is predicting another bumper season for an industry that has long been the single biggest contributor to the economy and job market. Arrivals could reach 25 million (27.5 million including cruise ship passengers), which is more than twice the country’s population. Economic recovery will depend on the sector to a great degree.

Andreadis said: “If we get 1.5 million more visitors it will produce an additional €800m in direct receipts. Such a positive kick that would come in the third and fourth quarters.” Much of the upsurge is linked to Greece’s safety record. Tourists are staying away from resort in Egypt, Tunisia, Turkey and elsewhere in the wake of high-profile attacks. Countries whose economies are also dependent on holidaymakers have suffered incalculable damage following a severe drop in arrivals. Travel advice from governments and fears of fresh violence are simply keeping tourists away. But other countries’ loss could be Greece’s gain. And it could not come at a better time: tourism provides one in five jobs in Greece, at a time when unemployment in the effectively bankrupt nation has hovered stubbornly around 25%. Youth unemployment stands at an astonishing 67%.

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And Greece has no way of dealing with it.

The EU Has Turned Greece Into a Prison for Refugees (Nation)

In the port-side café before the sun comes up, a group of men are talking. “In the beginning, when there were maybe 40 of them in the boats, all wet, we helped them. Now they’re too many. They steal chickens. They shit in the fields. They threw stones at a woman.” “Do you think it’s chance that they’re all coming here? The NGOs, the whatever they’re called, are making money off it. It’s a plan. A racket.” “Eventually they’ll set off a bomb and sink the island.” “Sink or float, what difference does it make? Are we happy, now we’re floating?” Chios, my grandfather’s island in the northeast Aegean Sea, has become an open-air prison for more than 2,000 refugees. Almost all of them arrived after the March 20 “statement” signed by the EU and Turkey, designed to stop the flow of people from Turkey to the Greek islands and then to mainland Europe.

The statement, which followed the unilateral closure by Central European countries of the western Balkans route, cut time and space like a guillotine, arbitrarily separating those who’d arrived before it from those who landed after, trapping more than 50,000 refugees and migrants in Greece. These late arrivals can’t leave the islands until their cases have been decided by the Greek asylum system, which is overloaded to the point of paralysis. The refugees are supposed to prove not only that they’re at risk in their home country but that they’d be at risk in Turkey, which the EU (but not Greece) considers a “safe third country,” if they want to have their asylum claim heard in Greece. Otherwise, they will be returned to Turkey.

Of the 8,500 women, children, and men who have landed on the islands since the agreement was signed, 400 have been returned so far, some to be detained for weeks without legal representation. About 200 have been granted asylum in Greece. The rest are rotting in overcrowded camps, “hot spots,” and locked detention centers, without information, adequate food, medical care, or security. And the boats from Turkey, though many fewer than before, continue to come in.

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Are we going to keep acting as if this will stop when we simply look away?

13,000 People Rescued In Mediterranean In One Week (G.)

A flotilla of ships saved 668 people from boats in the Mediterranean Sea on Saturday, authorities in Italy said, bringing the week’s total of refugees plucked from the sea to 13,000 people. The rescues by the Italian coast guard and navy ships, aided by Irish and German vessels and humanitarian groups, are the latest by a multinational patrol south of the Italian island of Sicily. Warner spring weather has led to a surge of people attempting the perilous crossing from Africa to Europe. The Irish military said the vessel Le Roisin saved 123 people from a 12m-long (40-ft) rubber dinghy and recovered a male body. A German ship was involved in four separate rescue operations, the Italian coast guard said on Saturday evening.

Meanwhile, with shelters filling up in Sicily, the Italian navy vessel Vega headed toward Reggio Calabria, a southern Italian mainland port, bringing 135 survivors and 45 bodies from a rescue a day earlier. The Vega was due to dock on Sunday. Other survivors who arrived on Saturday in the Sicilian port of Pozzallo told authorities they had witnessed a fishing boat filled with“ hundreds” of people sink on Thursday, a Save The Children spokeswoman, Giovanna Di Benedetto, told The Associated Press by telephone from Sicily. According to survivors, two smugglers’ fishing boats and a dinghy set sail on Wednesday night from Libya’s coast. Di Benedetto said the survivors were among 500 or so aboard the one fishing boat that didn’t sink and the dinghy. “All of this must be verified, of course,” said Di Benedetto, but if the survivors’ accounts bear out, as many as 400 people could have drowned, with only a very few of those on the vessel that sank able to reach the other boats.

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Not an isolated incident.

Rescued Migrants Say Ship Sank Off Italy With Hundreds Aboard (R.)

Migrants rescued from two boats in the Mediterranean this week told humanitarian workers in Italy that they saw another vessel carrying some 400 migrants sink, Save the Children said on Saturday. Three vessels carrying migrants already are confirmed to have sunk or capsized this week. More than 60 bodies are said to have been recovered, including those of three infants, and hundreds are believed to be missing. But the possible sinking of a fourth vessel on Thursday had not been reported, said Giovanna Di Benedetto, spokeswoman for Save the Children in Italy. That ship along with another fishing boat and a rubber boat left Sabratha in Libya late Wednesday night, according to interviews on Saturday with some of the more than 600 survivors from the two other vessels in the Sicilian port of Pozzallo.

They said the rubber boat had its own motor, but the smaller fishing boat, carrying some 400 migrants, did not. It was towed by the larger fishing vessel, which held about 500 others. Eventually the smaller boat began to take on water and, when the captain of the larger boat ordered the tow line cut, sank with most of its passengers, the survivors told Save the Children. Those aboard the other two vessels were not rescued until much later. “There were many women and children on board,” the survivors said, according to Di Benedetto. “We collected testimony from several of those rescued from both (the rubber and fishing) boats. They all say they saw the same thing.”

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May 082016
 
 May 8, 2016  Posted by at 9:31 am Finance Tagged with: , , , , , , , ,  Comments Off on Debt Rattle May 8 2016


DPC Peanut stand, New York 1900

Saudi Arabia’s Oil ‘Maestro’ Exits As Young Prince Flexes Muscles
Saudi Shake-Up Rolls On With Big Reshuffle Of Economic Posts (R.)
Canada Fire ‘Out Of Control,’ Doubles In Size (AFP)
70,000 Fort McMurray Foreign Workers May Have To Leave Canada (AFP)
China April Exports, Imports Decline More Than Expected (R.)
Britain Braced For A Ban On Second Homes (DM)
The TTIPing Point: German Protests Threaten Trade Deal (Spiegel)
Is For-Profit Care For The Elderly The Answer? (Economist)
On The Frontline Of Africa’s Wildlife Wars (G.)
German Vice Chancellor Urges Debt Relief For Greece (R.)
Greece Has ‘Basically Achieved’ Reform Goals, Says Juncker (AFP)
1,700 Years Ago, Mismanagement Of A Migrant Crisis Cost Rome Its Empire (Q.)

Panic in Riyadh.

Saudi Arabia’s Oil ‘Maestro’ Exits As Young Prince Flexes Muscles

The end of Ali al-Naimi’s more than two-decade tenure as Saudi Arabia’s oil minister signals a new era for crude markets, analysts said on Saturday, and appeared to be a reaffirmation of Saudi policy to let oil set its own pricing. On Saturday, Saudi Arabia issued a royal decree that replaced al-Naimi with Khalid al-Falih, chairman of Saudi Aramco, as part of a broad reshuffling of the cabinet. The move came as the world’s largest oil producer continues to grapple with the fallout from the global bear market in crude oil. Al Naimi was the most watched figure in the oil world, and was often described as a “maestro” of the market. His utterances on production levels could swing prices and drive the direction of oil for months. Last month, a high-stakes summit in Doha between OPEC and non-OPEC producers failed to produce an agreement to freeze output, in what was seen as the product of tensions between Saudi Arabia and Iran.

The failure of Doha reinforced what many analysts have said for months: That the oil cartel was quickly losing its ability to set the agenda of world oil markets, and influence prices. Al-Naimi battled to manage the price of oil throughout his time as minister. In his absence, the Saudis may allow market forces to play a greater role in setting the cost of crude, according to observers. “What that means is you’ll have much more market volatility. You’ll have higher highs and lower lows if you don’t manage” crude prices, Pira Energy Group founder and executive chairman Gary Ross told CNBC on Saturday. Al-Naimi was a “stabilizing force,” and markets could react negatively to his absence, said Ross, who has known al-Naimi for more than 20 years. Although savvy observers say the aging al-Naimi was ready to vacate his post, the implications of the shake up are still far reaching. “The Saudi put is gone,” Ross added.

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Say what? “..encouraging Saudis to spend money at home by creating more entertainment opportunities.”

Saudi Shake-Up Rolls On With Big Reshuffle Of Economic Posts (R.)

Saudi Arabia’s King Salman on Saturday replaced his veteran oil minister and restructured some big ministries in a major reshuffle apparently intended to support a wide-ranging economic reform programme unveiled last week. The most eye-catching move was the creation of a new Energy, Industry and Natural Resources Ministry under Khaled al-Falih, chairman of the state oil company Aramco. He replaces the 80-year-old oil minister Ali al-Naimi, in charge of energy policy at the world’s biggest oil exporter since 1995. But major changes were also made to the economic leadership, with Majed al-Qusaibi named head of the new Commerce and Investment Ministry, and Ahmed al-Kholifey made governor of the Saudi Arabian Monetary Agency (SAMA), the central bank.

The changes, announced in a series of royal decrees, go far beyond Salman’s previous reshuffles since he became king in January last year, and also put the stamp of his son, Deputy Crown Prince Mohammed bin Salman, author of the Vision 2030 reform programme, on the government. Prince Mohammed’s programme has been presented as a sweeping rethink of the entire way that Saudi Arabia’s government and economy will function to prepare for a future that is less dependent on oil income. Some of the most important elements of the plan, which will be fleshed out in coming weeks, involve creating a massive sovereign wealth fund, privatizing Aramco, cutting energy subsidies, expanding investment and streamlining government. The plan also seeks to boost revenues by increasing the number of foreign pilgrims outside the main annual Haj, and encouraging Saudis to spend money at home by creating more entertainment opportunities.

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The Alberta blaze is so big smoke from the fire is being detected in Florida.. It’s now threatening to cross the border into both Sasketchewan and the Northwest Territories too. It’ll take months to get it under control.

Canada Fire ‘Out Of Control,’ Doubles In Size (AFP)

A ferocious wildfire wreaking havoc in Canada doubled in size and officials warned that the situation in the parched Alberta oil sands region was “unpredictable and dangerous.” “This remains a big, out of control, dangerous fire,” Public Safety Minister Ralph Goodale said of the raging inferno bigger than London that forced the evacuation of the city of Fort McMurray. Winds were pushing the flames east of the epicenter around the oil city late Saturday, as nearly all 25,000 people who were still trapped to the north finally left town, either via airlift or convoys on the roads. The wildfire had doubled in size in one day, covering more than 200,000 hectares (494,000 acres) by midnight and continuing to grow, the Alberta Emergency Management Agency said in an update late Saturday. “Fire conditions remain extreme,” it said.

Low humidity, high temperatures nearing 30 degrees Celsius (86 Fahrenheit) and gusty winds of 40 kilometers (25 miles) in forests and brush dried out from two months of drought are helping fan the flames. Still, in a glimmer of positive news, the authorities have recorded no fatalities directly linked to the blaze that began almost a week ago. Cooler, moist air with some chance of rainfall could help slow the fires in the coming days, Alberta Fire Service director Chad Morrison said. However, “we need heavy rain,” he cautioned. “Showers are not enough.” The only “good news,” he said, was that the wind was pushing the fires away from Fort McMurray and oil production sites to the northeast, presenting less threat to people although causing serious damage to the environment.

The government has declared a state of emergency in Alberta, a province the size of France that is home to one of the world’s most prodigious oil industries. In the latest harrowing chapter, police convoys shuttling cars south to safety through Fort McMurray resumed at dawn. Making their way through thick, black smoke, the cars were filled with people trapped to the north of the city, having sought refuge there earlier in the week. Police wearing face masks formed convoys of 25 cars, with kilometers (miles) of vehicles, smoke swirling around them, patiently awaiting their turn. Separate convoys of trucks carried essential equipment to support “critical industrial services,” according to the Alberta government. With elevated risk that something could go wrong, the convoys along Highway 63 were reduced in size compared to the previous day.

Those being evacuated – for a second time, after first abandoning their homes – had fled to an area north of the city where oil companies have lodging camps for workers. But officials concluded they were no longer safe there because of shifting winds that raised the risk of them becoming trapped, and needed to move south to other evacuee staging grounds and eventually to Edmonton, 400 kilometers away. Some 2,400 vehicles made it to safety on Friday. But concerns are growing about the effect on the oil industry, the region’s economic mainstay, as the fires come dangerously close to extraction sites. Syncrude, one of several oil companies in the region, announced that it had shut down its facility 50 kilometers (31 miles) north of Fort McMurray due to smoke, followed by Suncor, after the local authorities ordered them to evacuate personnel. The military dispatched C130 aircraft to help evacuate 4,800 Syncrude employees.

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Hard to see how the tar sands industry could ever be rebuilt.

70,000 Fort McMurray Foreign Workers May Have To Leave Canada (AFP)

Jonathan Infante fled for his life from wildfires ravaging Canada’s remote Athabasca oil-producing region, and now he and other migrant workers face the grim prospect of having to altogether leave Canada. Their residency here is tied to their employment and if that is now gone – literally up in smoke – they could be forced to leave this country. The wildfires in northern Alberta have forced the evacuation of 100,000 people. Among the evacuees were almost two dozen distraught migrant workers who arrived late Friday at a government shelter in Edmonton, Alberta’s capital. Marco Luciano of the migrant advocacy group Coalition for Migrant Worker Rights in Canada, who was on hand to greet them, said many showed up in their work uniforms.

“They had been evacuated from work and did not have time to stop at home to pick up any of their clothes or belongings,” Luciano told AFP. “They’re not sure what’s coming… Because they no longer have work, their (residency) status has become precarious.” “Many are bracing for the worst,” he said. Infante’s wages support a wife and two children back in the Philippines. The Wendy’s fast food restaurant in Fort McMurray where he worked is believed to have survived the wildfires, so far. “Our employer told us to wait and see,” Infante said outside an evacuation center in Lac La Biche, about 300 kilometers (185 miles) south of Fort McMurray. According to Luciano’s group, there are about 70,000 temporary foreign workers accredited in Alberta. There’s no breakdown available of how many were displaced by the fires.

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“April imports dropped 10.9% from a year earlier, falling for the 18th consecutive month. ”

China April Exports, Imports Decline More Than Expected (R.)

China’s exports fell more than expected in April, reversing the previous month’s brief recovery, as weak global demand weighed on trade out of the world’s second-largest economy. Exports fell 1.8% from a year earlier, the General Administration of Customs said on Sunday, supporting the government’s concerns that the foreign trade environment will be challenging in 2016. April imports dropped 10.9% from a year earlier, falling for the 18th consecutive month. The continued decline in imports suggests domestic demand remains weak, despite a pickup in infrastructure spending and record credit growth in the first quarter. China had a trade surplus of $45.56 billion in April, versus forecasts of $40 billion. [..]

An official factory survey and Caixin’s private-sector gauge for April painted a mixed picture of the health of the manufacturing sector. The official purchasing managers’ index (PMI) showed factory activity expanded for the second month in a row in April but only marginally, while Caixin’s manufacturing PMI pointed to 14 straight months of sector contraction. Concerns of a hard-landing in China had eased after the strong March economic data, but analysts have warned that the rebound may be short-lived. Economists expect a slowdown in credit growth and industrial production in April although inflation could accelerate. Key economic data is expected over the next two weeks. [..] Amid shrinking global demand, China still managed to grow its share of world exports to 13.8% last year from 12.3% in 2014, indicating the country’s export sector remains competitive despite higher costs.

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“..I worry that it is discriminatory..” Well, what is more discriminatory? A person not being able to buy a second home, or a person not having access to any home?

Britain Braced For A Ban On Second Homes (DM)

Councils across the UK are set to consider banning people who already own homes from buying holiday cottages after a historic vote yesterday. More than 80% of voters in St Ives, Cornwall, backed proposals that will mean new housing developments will only get planning permission if homes there are reserved for full-time residents. And now councils in the Lake District, Derbyshire Dales, north Devon and the Isle of Wight are all looking at schemes to prevent outsiders buying holiday homes. But ministers are poised to oppose the ban, saying it could be regarded as unfair and discriminatory. Tory MP Mark Garnier told The Times: ‘The only home I own is in St Ives but I live in rented properties elsewhere. Would it be considered as a second home? ‘I worry that it is discriminatory – that one person can buy a home but another can’t.’

The mayor of Aldeburgh on the Suffolk coast, Michael Kiff, admitted that he would be watching what happened in St Ives with interest, and Liberal Democrat MP Norman Lamb said that a vote to ban second homes would be ‘entirely justified’ in his North Norfolk constituency, which has a high percentage of holiday homes. The St Ives vote comes after figures revealed that 48% of homes in the town centre were second homes or holiday lets. Planning minister Brandon Lewis will meet the St Ives’ MP Derek Thomas on Monday to urgently discuss the ban – which is subject to a legal challenge by a firm of architects from Penzance. The town has been dubbed Kensington-on-Sea because of the number of rich holidaymakers who own houses there, and concerns were raised that local people in the town were struggling to stay in the area thanks to increasingly expensive house prices, and rents that spiral during the summer months.

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You’d almost hope they try to push it through regardless. Germany badly needs a wake-up call that is not right-wing and racist.

The TTIPing Point: German Protests Threaten Trade Deal (Spiegel)

As the battle over TTIP was lost, Angela Merkel feigned resolution yet one more time. “We consider a swift conclusion to this ambitious deal to be very important,” her spokesperson said on her behalf on Monday. And this is the government’s unanimous opinion. But the German population has a very different one. More than two-thirds of Germans reject the planned trans-Atlantic free trade agreement. And even in circles within Merkel’s cabinet, the belief that TTIP will ever become a reality in its currently planned form is disappearing. That’s because on Monday morning, Greenpeace published classified documents from the closed-door negotiations. Even if the papers only convey the current state of negotiations and do not document the end results, they still confirm the worst suspicions of critics of TTIP.

The 248 pages show that bargaining is taking place behind the scenes, even in areas which the EU and the German government have constantly maintained were sacrosanct. These include standards on the environment and consumer protection; the precautionary principle, a stricter EU policy that sets high hurdles for potentially dangerous products; the legislative self-determination of the countries involved, etc. Even the pledge made on the European side that there would be no arbitration courts has turned out to be wishful thinking. So far, the Americans have insisted on the old style of arbitration court. The result is that Merkel’s grandly staged meeting with US President Barack Obama in Hanover eight days earlier had been nothing more than a show – one aimed at hiding the fact that the two sides are anything but united in their positions.

The leaks have resulted in a failed attempt to bypass 800 million European citizens as they negotiate the world’s largest bilateral free trade agreement. From the very beginning, the government underestimated the level of resistance these incursions on virtually all aspects of life would unleash among the people. What began as a diffuse discomfort over opaque backroom dealings grew into a true public initiative, especially in Germany. It was fueled by an international alliance of non-government organizations that has acted in a more professional and networked way than anything that has come before.

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We need discussions on this. Big ones. On pensions and on health care. But we’re not having them. Not everything can be optimized for profit. What happens when the profit is gone, what happens when the economy crashes? We’re going to dump our elderly?

Is For-Profit Care For The Elderly The Answer? (Economist)

The forecasts are clear: by 2050 the number of people aged over 80 will have doubled in OECD countries, and their share of the population will rise from 3.9% to 9.1%. Around half will probably need help with daily tasks—particularly those with enduring chronic illnesses such as Alzheimer’s, heart disease and osteoporosis. Health systems designed only to offer hospital care for acute cases will struggle to provide such support. To maintain the well-being of wrinkly populations, hospital stays can be replaced by residencies in purpose-built facilities at less cost. A forthcoming report covering 20 countries from KPMG, a consultancy, suggests the number of care-home residents could grow by 68% over the next 15 years. How care is managed in any one country reflects a tussle between cultural attitudes, national budgets and gritty demographic realities.

The increasing availability of technology that would allow the elderly to stay in their homes for longer will also affect demand for such options. Residential care in America and Japan is flourishing. But in an era of tight public finances, some governments are trimming the payments they offer to cover, or subsidise, care-home places. Some operators now struggle to make money; in western Europe, for example, governments are encouraging the elderly to stay in their own houses for longer. This is why the length of stays in care homes has declined from an average of three to four years a decade ago to 12 to 18 months today, says Max Hotopf, the boss of Healthcare Business International, a publishing company. Thousands of residential beds in the Netherlands and Sweden have disappeared as a result. About 5,000 debt-laden British care homes—a quarter of the total—may close within three years.

This makes emerging markets a more attractive prospect, at least for European care firms. Senior Assist, a Belgian company which manages residential facilities and home help, is now expanding in Chile and Uruguay. But China is the big prize. The Chinese will rely heavily on residential care, thanks to the country’s one-child policy and increasing urbanisation: two parents and four grandparents often depend on one child far away. Families in other developing countries are more hesitant about handing Granny over to strangers, however. In Brazil, India and richer countries of the Middle East, such as Saudi Arabia, elderly care remains centred around hospitals. In Brazil taking the old from their neighbourhoods is frowned upon. In India and the Middle East, families are expected to look after their elderly when they are not in hospital.

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Let’s make our armies do something useful.

On The Frontline Of Africa’s Wildlife Wars (G.)

Brigadier Venant Mumbere Muvesevese, a 35-year-old father of four, became the 150th ranger in the last 10 years to be killed protecting lowland gorillas, elephants and other wildlife in Virunga national park last month. He and his young Congolese colleague, Fidèle Mulonga Mulegalega, were surrounded by local militia, captured and then summarily executed. For Emmanuel de Mérode, the Belgian head of Virunga, himself shot and wounded by militia in 2014, the two killings in Africa’s oldest park, in the Democratic Republic of the Congo, were yet another atrocity in the brutal wildlife wars raging through southern Sudan, the Central African Republic, Congo and parts of Uganda, Chad and Tanzania. “These two rangers were killed in situations that may amount to war crimes in any other conflict,” he said. “We cannot sustain these kind of losses in what is still the most dangerous conservation job in the world.”

Virunga has lost five rangers so far this year. Speaking to the Observer from the park’s fortified HQ in Goma, De Mérode said security had got worse in recent months. “We lost people in January, too. We have a state of armed conflict, a low-intensity war being fought over the exploitation of natural resources in the park,” he said. “For the rangers it is not impossible to work, but it is now very dangerous. We are training 100 new rangers now and there will be 120 more next year. We are still very committed and optimistic.” The battle for central Africa’s wildlife has exploded as heavily armed militia target elephants and rhino and gun down anyone trying to protect them. Three rangers were killed and two wounded in a shootout in the vast Garamba national park in DRC last week; others were killed in Kahuzi-Biéga park near the city of Bukavu in March; in northern Tanzania, poachers killed British helicopter pilot Roger Gower in January.

The five rangers shot in Garamba were working for African Parks, a Johannesburg-based nonprofit conservation group that sends South African and other military officials to train rangers in the 10 wildlife parks it manages on behalf of governments. According to Peter Fearnhead, African Parks director, Garamba is now the heart of the illegal African wildlife trade. Its 300-odd armed guards combat helicopters and drones and find poachers from as far afield as the Central African Republic, Uganda, Sudan, Chad, Somalia, Kenya and Tanzania. “We have lost probably 30 people in Garamba alone in seven years. Hundreds of elephants are killed every year. This is the last stronghold of elephant and giraffe in Congo, but probably the toughest park in Africa. Every elephant poached can turn into a firefight,” said Fearnhead. “Life for a wildlife ranger is now very dangerous in some countries, probably more risky than being in a national army.”

[..] “Last week we buried three people but morale is as strong as ever. When [the rangers] were told that their colleagues had been shot, they all wanted to respond. The poachers use automatic weapons, even grenades. Being a ranger is not about chasing people through the bush and arresting them. It’s war. The rangers put their lives on the line every day, and are under real siege in Garamba. We are not militia but it requires a militaristic response to defend wildlife. [Groups of militia] are now bidding for contracts to get tons of ivory. It’s big business with groups of armed people crossing multiple borders. These people have phenomenal bush skills, with AK-47s. They shoot for the head. They are a total law unto themselves.”

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Stop talking and do it already.

German Vice Chancellor Urges Debt Relief For Greece (R.)

German Vice Chancellor Sigmar Gabriel urged euro zone finance ministers to start talks on debt relief for Greece, saying it made no sense to crush the green shoots of economic recovery with further austerity measures. The finance ministers of the euro zone’s 19 countries are due to meet in Brussels on May 9 to discuss Greece’s debt and a new set of contingency measures that Athens should adopt to ensure it will achieve agreed fiscal targets in 2018. “The euro group meeting on Monday must find a way to break the vicious circle,” Gabriel, who is also Economy Minister, said in an emailed statement to Reuters on Saturday. “Everyone knows that this debt relief will have to come at some point. It makes no sense to shirk from that time and time again,” he added.

The IMF wants Greece’s European partners to grant Athens substantial relief on its debt, which it sees as vital for its long term sustainability. But Germany’s hardline Finance Minister Wolfgang Schaeuble opposes any debt relief, arguing it is not necessary. Thrice-bailed-out Greece needs to secure an overdue aid payment of €5 billion to repay IMF loans, bonds held by the ECB maturing in July, and growing state arrears. “It doesn’t help the people and the country to have to fight every 12 months to get new credit to pay off old loans,” Gabriel said. “Greece needs debt relief.” Gabriel spoke out against further austerity measures and said Athens had managed to achieve better economic growth than expected. “It makes no sense to destroy these tender shoots once again with new austerity measures,” he added.

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“Tsakalotos warned of the price of a “failed state” if the crucial talks on Monday run aground.”

Greece Has ‘Basically Achieved’ Reform Goals, Says Juncker (AFP)

Greece has “basically achieved” the objectives of the reforms required by its creditors and its eurozone partners will begin discussing possible debt relief for the country, according to European Commission head Jean-Claude Juncker. “We are now at the time of the first review of the programme (to aid Greece) and the objectives have been basically achieved,” Juncker said in an interview to be published on Sunday in Funke Mediengruppe newspapers in Germany. Greece’s creditors carried out the review intended to evaluate progress on reforms by the Athens government as it hopes to unlock the next tranche of its €86bn bailout agreed in July. The Eurogroup, comprised of the 19 finance ministers of the euro area countries, is set to meet on Monday in Brussels and take up this review of Greek reforms.

They will also “start the first discussions about how to make Greece’s debt sustainable in the long term”, Juncker told the German papers. Approval of the reforms is needed before any consideration of Greek debt relief, but despite months of talks, Greece’s reforms have yet to win the backing of all its creditors largely due to differences between the EU and the IMF, which has demanded more reforms. Juncker’s comments come as Greek finance minister Euclid Tsakalotos Saturday called on his eurozone partners to back Greece’s reform package of cuts worth €5.4 billion, and to put aside the creditors’ call for €3.6 billion of additional measures. “Any package in excess of €5.4 billion is bound to be seen by both Greek citiziens and economic agents, within and beyond Greece, as socially and economically counter-productive,” he wrote in a letter to the Eurogroup. Tsakalotos warned of the price of a “failed state” if the crucial talks on Monday run aground.

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History rhymes.

1,700 Years Ago, Mismanagement Of A Migrant Crisis Cost Rome Its Empire (Q.)

On Aug. 3, 378, a battle was fought in Adrianople, in what was then Thrace and is now the province of Edirne, in Turkey. It was a battle that Saint Ambrose referred to as “the end of all humanity, the end of the world.” The Eastern Roman emperor Flavius Julius Valens Augustus—simply known as Valens, and nicknamed Ultimus Romanorum, (the last true Roman)—led his troops against the Goths, a Germanic people that Romans considered “barbarians,” commanded by Fritigern. Valens, who had not waited for the military help of his nephew, Western Roman emperor Gratian, got into the battle with 40,000 soldiers. Fritigern could count on 100,000. It was a massacre: 30,000 Roman soldiers died and the empire was defeated. It was the first of many to come, and it’s considered as the beginning of the end of the Western Roman Empire in 476.

At the time of the battle, Rome ruled a territory of nearly 600 million hectares, with a population of over 55 million. The defeat of Adrianople didn’t happen because of Valens’s stubborn thirst for power or because he grossly underestimated his adversary’s belligerence. What was arguably the most important defeat in the history of the Roman empire had roots in something else: a refugee crisis. Two years earlier the Goths descended toward Roman territory looking for shelter. The mismanagement of Goth refugees started a chain of events that led to the collapse of one of the biggest political and military powers humankind has ever known. It’s a story shockingly similar to what’s happening in Europe right now—and a it should serve as a cautionary tale.

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May 052016
 
 May 5, 2016  Posted by at 9:23 am Finance Tagged with: , , , , , , , , , ,  


Lewis Wickes Hine Boys working in Phoenix American Cob Pipe Factory 1910

FX Market Truce Looks Increasingly Fragile (BBG)
The ‘Ostrich Approach’ Ignores Real Global and National Debt Figures (SM)
Easy Money Isn’t the Answer for Japan (BBG)
Japan’s Coma Economy Is A Preview For The World (GS)
Eurozone Retail Sales Fall More Than Expected In March (R.)
Kyle Bass Sees 30% To 40% Losses On Chinese Investments (BBG)
Hong Kong Cracks Down On Fake Trade Invoices From China (R.)
Regulators Want to Slow Runs on Derivatives (BBG)
Brexit, Like Grexit, Is Not About Economics (WSJ)
Even ‘Small Crisis’ Enough To Tear EU Apart, Moody’s Warns (Tel.)
Let The TTIP Die If It Threatens Parliamentary Democracy (AEP)
Turkey In Political Freefall As Erdogan Grabs More Power, PM To Resign (MEE)
Study: Bailouts Went To Banks, Only 5% To Greeks (Hand.)
The Terrible News From Fort McMurray, And The Hope That Remains (G&M)
‘Omega Block’ Behind Searing Heat Inflaming Fort McMurray Wildfire (WaPo)
UN Envoy Warns of New Wave of 400,000 Refugees From Syria (WSJ)

A truce that never stood a chance. Some may have believed in it, though.

Foreign-Exchange Market Truce Looks Increasingly Fragile (BBG)

The foreign exchange market is notorious for overshooting. A currency that starts moving in a particular direction as economic fundamentals change will often end up at a rate that can’t be justified by the data. So trying to nudge the matrix of currency values is akin to policy makers attempting to steer a Ouija board pointer – which is exactly what seems to have happened since their February Group of 20 meeting in Shanghai produced a tacit truce in the currency war. Suspicions that finance ministers had agreed in February to stop talking their currencies down seemed confirmed by the dollar’s decline of more than 6% from its Jan. 20 peak.

China’s recent moves to boost the yuan’s reference rate to its highest levels this year also backed the impression of a suspension of hostilities. But while U.S. manufacturers worried that a too-strong dollar would threaten their exports and profits, the recent reversal, and gains for the euro and the yen, pose bigger risks to the struggling economies of Europe, and Japan. The euro, for example, pierced $1.16 on Tuesday, reaching its highest level since August:

The yen, meanwhile, has breached 106 to the dollar, down from as weak as 122 in January:

Those are the kinds of moves that make central banks uncomfortable – especially when, like the ECB and the BOJ, they’re already struggling to avert deflation. Australia’s surprise decision to cut interest rates overnight, driving its currency lower against all 31 of its major trading peers, is a sign that skirmishes might be breaking out again. Marcus Ashworth, a strategist at Haitong Securities in London, said in a research note: The rumor mill has been incessant (despite official denials) that the so-called Shanghai G-20 accord to pacify markets and quell unrest between the members has actually served to make international relations as toxic as they have been for many years.

The Shanghai deal was to stop the negative feedback loop and thereby prevent a sharp devaluation of the yuan; however, it was meant to curtail the rise of the dollar, not sharply reverse it. [..] It’s clear the Treasury doesn’t want the dollar to resume its ascent. But it’s also clear that trying to steer the currency market into stasis has failed, and that the inflation outlooks in both the euro zone and Japan are deteriorating. The environment looks ripe for hostilities to break out again, providing yet another reason to be pessimistic about the prospects for a global economic recovery.

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Much more in the article.

The ‘Ostrich Approach’ Ignores Real Global and National Debt Figures (SM)

According to Hoisington and Hunt, the ratio of nonfinancial debt-to-GDP rose to 248.6% at the end of 2015, higher than the previous record of 245.5% set in 2009 and well above the average of 167.5% since this figure started to be tracked in 1952. They also point out that since 2000 it has taken $3.30 of debt to generate $1.00 of GDP compared with $1.70 in the 45 years prior to 2000. This points to the fact that a greater proportion of new debt is devoted to unproductive uses. Debt drains away vital resources from economic growth. Fighting a debt crisis with more debt is doomed to failure, yet that is not only what global central banks did during the crisis but long after markets stabilized (though the crisis never truly ended, just slowed). This was an epic policy failure that continues today.

U.S. government debt is growing to unsustainable levels. Gross debt (excluding off-balance sheet items) reached $18.9 trillion at the end of 2015, equal to 104% of GDP (considerably higher than the 63-year average of 55.2%). Government debt increased by $780.7 billion in 2015, or $230 billion more than the nominal or dollar rise in GDP. This actual debt increase is considerably larger than the budget deficit of $478 billion reported by the government because many spending items were shifted off-budget. Readers should remember this the next time The WSJ editorial page trumpets that the deficit dropped significantly from the four consecutive years of $1 trillion+ deficits between 2009 and 2012. And these figures don’t even touch upon the $60 trillion of unfunded liabilities (calculated on a net present value basis) for Social Security and other entitlement programs.

Globally, the debt picture is more disturbing. Total public and private debt/GDP is 350% in China, 370% in the U.S., 457% in Europe and 615% in Japan, respectively. Those numbers should speak for themselves.

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It isn’t the answer for anyone, certainly not today when everyone’s debts are through the roof.

Easy Money Isn’t the Answer for Japan (BBG)

Strolling through Tokyo on a Sunday afternoon, it’s hard to tell Japan’s economy is a mess. Deflation has returned, while growth hasn’t. But Shibuya Crossing remains as packed with diners, bag-toting shoppers and gawking tourists as ever. Nearby, a line of more than 50 people stretches outside a restaurant selling overpriced burgers. Lost decades be damned! Japan had the good fortune to have become wealthy before entering its years of stagnation. Some Japanese are now suffering in an economy that’s endured four recessions in eight years; the poverty rate has reached 16%, its highest level on record. But for many, especially in big cities such as Tokyo, life hasn’t so much deteriorated as frozen in time. GDP per capita, on a nominal basis, is little different now than in 1992.

And though the quality of many jobs has waned due to the increase of temporary work, joblessness remains a rarity. The unemployment rate is an enviable 3.2%. The Shibuya crowds raise serious and uncomfortable questions about the direction of Tokyo’s economic policy. Even as some analysts urge the Bank of Japan to double down on its monetary easing program and the government to ramp up its own spending in an effort to boost inflation, there’s a good argument to be made that the approach of Japan’s policymakers has been dead wrong, and for a very long time. The thrust of Japanese policies since the bursting of its gargantuan asset-price bubble in the early 1990s has been to spur growth with lots and lots of cash, whether from the government or the BOJ.

Since 2013, Prime Minister Shinzo Abe has dramatically pumped up that strategy – running large budget deficits, delaying taxes and encouraging the BOJ to print money on an ever grander scale. Arguably, however, Japan’s main focus should be to preserve the wealth it’s already accumulated. With a population that’s aging and shrinking, Japan can get richer on a per capita basis even if GDP remains perfectly flat. In that sense, deflation – long considered the scourge of Japan’s economy – is actually a boon: Falling prices raise the future value of savings, helping the elderly and others on fixed incomes. In constant terms, Japan’s GDP per capita is 17% higher than in 1992, thanks to deflation.

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“When you fly to Australia, you land in 2000, to China you land in 2016, Japan you land in 1989.”

Japan’s Coma Economy Is A Preview For The World (GS)

The 1980s were the apex of Japanese culture and economic might. Back then, Japan’s economy was growing so fast, it was thought they would overtake the US. But that all came to a screeching halt. Truth is, Japan’s meteoric rise was fueled by an epic lending bubble. Similar to the Roaring 20s in America. And when the bubble popped, the government launched massive and misguided measures that set Japan back decades. Their economy hasn’t expanded since. They are stuck in the 1980s. There’s been no growth for 30 years. And as you’ll hear about this in this special bonus video, the United States could be going down the same path. Imagine, if we are stuck in the 2000s for the next couple decades. How will you ever be able to retire?

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Deflation.

Eurozone Retail Sales Fall More Than Expected In March (R.)

Euro zone retail sales fell more than expected in March against February as consumers cut purchases of food, drinks and tobacco, the EU’s statistics office said on Wednesday. Retail sales, a proxy for household spending, decreased 0.5% in March month-on-month in the 19-country currency union, Eurostat said. Economists polled by Reuters had forecast a much smaller decrease of 0.1%. Yearly figures were also lower than expected, with sales up 2.1%, below market forecasts of a 2.5% rise. The fall in March sales was partly offset by an upward revision of data for February.

Eurostat said on Wednesday that in February sales rose 0.3% on a monthly basis and 2.7% year-on-year. It had previously estimated an increase of 0.2% monthly and 2.4% yearly. On a monthly basis, retail sales of food, drinks and tobacco products dropped 1.3% in March, the biggest fall among all the categories. Sales of non-food products, excluding automotive fuels, went down 0.5% month-on-month. Purchases of fuel for cars also dropped 0.4% on a monthly basis. Among the largest euro zone economies, Germany posted a 1.1% monthly drop of retail sales and France recorded a decrease of 0.7%. In Spain, sales increased 0.4% on a monthly basis in March.

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Conservative.

Kyle Bass Sees 30% To 40% Losses On Chinese Investments (BBG)

Kyle Bass, founder of Hayman Capital Management, said investors wouldn’t be investing in China if they realized how vulnerable its banking system is. “Common sense will tell you that they are going to have a loss cycle,” he said at the Milken Institute Global Conference in Beverly Hills, California, on Wednesday. “So if you think about how precarious that system is, you wouldn’t be allocating money to China.” Bass, a hedge fund manager famed for betting against U.S. subprime mortgages, is predicting losses for China’s banks and raising money to start a dedicated fund for bets in the nation. Bass said investors putting money in Asia should ask if they can handle 30 to 40% writedowns in Chinese investments.

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Or so we’re supposed to think.

Hong Kong Cracks Down On Fake Trade Invoices From China (R.)

Hong Kong is conducting a multi-pronged customs, shipping and financial sector crackdown against so-called fake trade invoicing that allows billions of dollars of capital to leave China illegally. Hong Kong’s central bank told Reuters it has beefed up its scrutiny of banks’ trade financing operations, while customs officials are doing more random checks on shipments crossing border posts and conducting raids on warehouses to ensure the authenticity of goods, senior officials working in shipping, logistics and banking said. The head of a logistics company said surprise customs inspections at Hong Kong border posts had doubled. The sources[..] said the increased efforts began this year and reflected concerns about billions of dollars in illicit cash authorities suspect are being channeled through Hong Kong following a stock market crash in China last year.

“Examinations and investigations reflect one of the strongest trends we are seeing now in the financial sector,” said Urszula McCormack, a partner at law firm King & Wood Mallesons, which helped co-author a report published by The Hong Kong Association of Banks in February that highlighted shipping as a sector where fake invoicing can thrive. “(Hong Kong) regulators are now in enforcement mode.” China has become increasingly concerned about capital outflows since the middle of last year when Chinese rushed to get money offshore for safekeeping or to invest following the stock market slump and unexpected yuan devaluation. Hong Kong is the most popular route, analysts say, because of its proximity to China.

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Until counterparties start raising their voices?!

Regulators Want to Slow Runs on Derivatives (BBG)

Nobody quite knows what it means for a bank to be “too big to fail,” so the regulators in charge of solving the problem have an understandable focus on tidiness. A bank that fails tidily, sensibly, in neat little compartments, probably won’t do much damage to anyone else. A bank whose failure is sprawling and incomprehensible might well turn out to be catastrophic. So the preferred mechanism for winding up a possibly too-big-to-fail bank these days is largely about compartmentalization. You put all of the important, messy stuff into subsidiaries – put the deposits in a bank subsidiary, the repurchase agreements and derivatives in a broker-dealer subsidiary, etc. – and put those subsidiaries under a “clean” bank holding company with a fairly large amount of capital and long-term debt.

Then if things go horribly wrong, the holding company’s shareholders and bondholders are the ones who lose money, shielding the people who have messier and more systemic claims on the subsidiaries. The regulators swoop in and recapitalize the holding company, or just sell the subsidiaries to other, healthier banks, in any case without ever interrupting service at the systemic subsidiaries. All the bad stuff happens at the holding company, all the important stuff happens at the subsidiaries, and you try to avoid mixing the two. Then all you have to do is make sure that the holding company has enough equity and long-term debt to shield the subsidiaries against any plausible bad outcome. But to make this work you really need to keep things in their boxes. Derivatives have a tendency to want to jump out of their boxes.

In particular, if bad things are happening at a large and systemically important bank holding company, there isn’t a lot of reason for the bank’s derivatives counterparties and repo creditors to stick around. Repo is meant to be a super-safe place to park your money overnight; if it looks like a repo counterparty might default, then you look for a different counterparty. And derivatives are just supposed to work: If Bank A owes you money under an interest-rate swap, and you owe Bank B money under an offsetting swap, and Bank A defaults, then all of a sudden you have an unanticipated unhedged risk. So if your derivatives or repo counterparty gets in trouble, you bail immediately to protect yourself. (Also there is always the possibility of making a lot of money on the unwind.) But while this is individually rational, it is systemically bad. As Janet Yellen put it yesterday:

“The crisis underscored that when a large financial institution gets into trouble, its failure can destabilize other firms. This is because large banking organizations are connected with each other by the business they do together and through the contracts that result from that business. Indeed, in the 21st century, a run on a failing banking organization may begin with the mass cancellation of the derivatives and repo contracts that govern the everyday course of financial transactions. When these contracts, known collectively as Qualified Financial Contracts or QFCs, unravel all at once at a failed large banking organization, an orderly resolution of the bank may become far more difficult, sparking asset firesales that may consume many firms.”

So yesterday U.S. banking regulators proposed new rules to prevent that from happening. The rules basically say that a bank subsidiary’s derivatives and repo contracts can’t be cancelled for 48 hours after the bank’s holding company files for bankruptcy or otherwise enters resolution proceedings. This gives the regulators two days to swoop in and conduct the neat resolution of the bank before its derivatives spill out everywhere and create a mess.

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Not only about economics. But if the economy were growing like crazy, the Brexit risk would be much more subdued.

Brexit, Like Grexit, Is Not About Economics (WSJ)

Britain’s flirtation with leaving the European Union is as puzzling as Greece’s stubborn desire to stay. After all, Britain’s economy has done quite well inside the bloc while Greece’s has been decimated. What explains both sentiments is that the European project has always been about more than economics. It also seeks “an ever closer union among the peoples of Europe,” as the Treaty of Rome, its founding charter, declared in 1957. “Closer union” with Europe deeply appeals to Greeks, whose own state has failed them so badly. But it repels many Britons, whose state works just fine and who want no part of a European political union. For them, the quagmire of the euro, which Britain hasn’t adopted, is a cautionary tale of what such a union could bring.

How they decide between the economic benefits and political risks of staying could determine whether Britain votes to leave the EU in a June 23 referendum. Greece joined the European Economic Community, the EU’s predecessor, in 1981, in search of shelter from foreign invaders, domestic coups, and its own dysfunctional government. Economics actually argued against membership: EEC technocrats said Greece wasn’t ready, but were overruled by political leaders worried about geopolitical instability on the Continent’s southern flank. The same logic brought Greece into the euro in 2001 when its debts and deficits should have disqualified it. Greece’s underdeveloped, overprotected economy was poorly prepared for life inside the EU.

A study led by Nauro Campos of Brunel University concluded only Greece was poorer in 2008 for having joined the EU; Britain, they reckon, was 24% richer. Eurozone membership initially brought down Greek interest rates and unleashed a borrowing binge but resulted in crisis and a six-year depression. Yet Greeks still don’t want to give up the euro. “Anglo Saxons think the euro is only an economic and financial project,” said Yannis Stournaras, governor of the Greek central bank, in an interview. “It’s political as well. It’s a means to an identity. We feel safer in the euro.” British considerations were just the opposite. A Conservative government took Britain into the EEC in 1973 largely for its trade benefits, a decision voters overwhelmingly approved in a 1975 referendum.

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You don’t say.

Even ‘Small Crisis’ Enough To Tear EU Apart, Moody’s Warns (Tel.)

Fresh turmoil in the EU risks triggering the disintegration of the entire bloc, according to Moody’s. In a stark warning, the rating agency said the “painful adjustment” faced by some countries in the eurozone meant the collapse of the single currency area and wider EU was believed by some to be a question of “when” not “if”. Moody’s said that even a “small crisis” threatened to set off an uncontrollable chain of events that would “threaten the sustainability” of the EU and its institutions. The rating agency praised the “significant political progress” made since the crisis in putting the foundations in place for a banking union and creating a eurozone rescue fund. However, it said endless austerity demands in return for bail-outs had fuelled deep resentment across the region, especially in countries weighed down by sky-high unemployment.

“Significant vulnerabilities” facing the bloc such as a British exit from the EU also remained, which would fuel support for “anti-establishment and anti-EU parties elsewhere”, it warned in a report. Colin Ellis, Moody’s chief credit officer for Europe, said a British exit could spark an “existential moment” for the bloc. “Even if the EU survives its current challenges largely unscathed, even a ‘small’ future crisis could threaten the sustainability of current institutional frameworks, if it coincided with negative public sentiment and populist political developments,” the report said. “This can create the impression that the question is when the system breaks, rather than if.”

It came as Mervyn King, the former governor of the Bank of England, warned that the eurozone faced four “unpalatable choices” as policymakers struggle to lift the bloc out of its economic malaise. Lord King said the single currency area would have to choose between an economic “depression” in the south, higher inflation in northern states like Germany, permanent fiscal transfers or a “change of composition of the euro area”. However, he told an audience in Frankfurt that there was “a limit to the economic pain that can be imposed in pursuit of a federal Europe without risking a political reaction. “There are no empires in Europe any more and our leaders would do well not to try to recreate one.”

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Ambrose votes Brexit?!

Let The TTIP Die If It Threatens Parliamentary Democracy (AEP)

Unloved, untimely, and unnecessary, the putative free trade pact between Europe and America is dying a slow death. The Dutch people have amassed 100,000 signatures calling for a referendum on this Transatlantic Trade and Investment Partnership, or TTIP. The number is likely to soar after Greenpeace leaked 248 pages of negotiation papers over the weekend. The documents do not exactly show a “race to the bottom in environmental, consumer protection and public health standards” – as Greenpeace alleges – but they do raise red flags over who sets our laws and who holds the whip hand over our eviscerated parliaments. Dutch voters have already rebuked Brussels once this year, throwing out an association agreement with Ukraine in what was really a protest against the wider conduct of European affairs by an EU priesthood that long ago lost touch with economic and political reality.

French president François Hollande cannot hide from that reality. Faced with approval ratings of 13pc in the latest TNS-Sofres poll, a TTIP mutiny within his own Socialist Party, and electoral annihilation in 2017, he is retreating. “We don’t want unbridled free trade. We will never accept that basic principles are threatened,” he said. In Germany, just 17pc now back the project, and barely half even accept that free trade itself a “good thing”, an astonishing turn for a mercantilist country that has geared its industrial system to exports. The criticisms have struck home. The Dutch, Germans, and French, have come to suspect that TTIP is a secretive stitch-up by corporate lawyers, yet another backroom deal that allows the owners of capital to game the international system at the expense of common people.

Weighty principles are at stake. The Greenpeace documents show that the EU’s ‘precautionary principle’ is omitted from the texts, while the rival “risk based” doctrine of the US earns a frequent mention. Clearly, the two approaches are fundamentally incompatible. It is a heresy in our liberal age – a sin against Davos orthodoxies – to question to the premises of free trade, but this tissue rejection of the TTIP project in Europe may be a blessing in disguise. You can push societies too far. [..] The European Commission’s Spring forecast this week has an eye-opening section on the rise of inequality. Without succumbing to the fallacy of ‘post hoc, propter hoc’, it is an inescapable fact that the pauperisation of Europe’s blue collar classes corresponds exactly with the advent of globalisation.

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Let’s sign another set of deals with them.

Turkey In Political Freefall As Erdogan Grabs More Power, PM To Resign (MEE)

News that Turkish Prime Minister Ahmet Davutoglu, after meeting President Recep Tayyip Erdogan, is to announce the holding of a party congress on Thursday, effectively signifying his resignation, has sent shockwaves through the country. The value of the Turkish Lira dropped from 2.79 to the dollar earlier in the day to 2.94. Davutoglu is expected to make the announcement at 1100am local time. After 14 years in power, the ruling Justice and Development Party (AKP) may be coming apart at the seams. But far more threatening than the unravelling of a political party are fears about the direction in which the country is headed. Both domestic and international critics have for years pointed to the growing authoritarianism and strong-man tactics employed by Erdogan. The fact that he can so easily dismiss the prime minister, a man he rapidly promoted through the ranks, is sending shivers down the spines of many.

“This is a palace coup,” said Yusuf Kanli, a veteran commentator on Turkish politics. “The president wanted the prime minister to step down and that’s it. Now we will have a party convention in May or early June,” Kanli told Middle East Eye. Rumours of tensions within the party have been rife for almost a year, but not even the AKP’s worst enemies had imagined a split could occur on such a scale. Unconfirmed reports suggest the AKP will convene a party congress within 60 days and that Davutoglu will not stand as a candidate. “Events today show that the AKP will move to consolidate Erdogan’s aspirations of becoming a super president. Whether they will succeed remains to be seen. These are very fine political calculations,” Kanli said. The party congress elects the party chairman, who automatically becomes their choice for prime minister.

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Now confirmed by another study.

Study: Bailouts Went To Banks, Only 5% To Greeks (Hand.)

After six years of ongoing bailouts amounting to more than €220 billion, or $253 billion in loans, Greece just cannot get out of crisis mode. It is tempting to blame those who refused to reform the country’s pensions and labor markets for the latest calamity. But a study by the European School of Management and Technology, a copy of which Handelsblatt has obtained exclusively, gives another perspective. The aid programs were badly designed by Greece’s lenders, the ECB, the EU and the IMF. Their priority, the report says, was to save not the Greek people, but its banks and private creditors. This accusation has been around for a long time. But now, for the first time, the Berlin-based ESMT has compiled a detailed calculation over 24 pages.

Their economists looked at every individual loan instalment and examined where the money from the first two aid packages, amounting to €215.9 billion, actually went. Researchers found that only €9.7 billion, or less than 5% of the total, ended up in the Greek state budget, where it could benefit citizens directly. The rest was used to service old debts and interest payments. The report comes as the EU and the Greek government prepare to hold negotiations about further debt relief. E.U. Economics Commissioner Pierre Moscovici said he hoped all sides could reach an agreement at a special meeting of the Eurogroup of euro-zone finance ministers next Monday. Extensions of credit repayment periods, deferments and freezing interest rates are all being discussed. This “debt relief light” would not affect private investors – just the loans from Europeans.

At the moment, German Chancellor Angela Merkel and her colleagues are not inclined to listen to the Greek prime minister, Alexis Tsipras, as he asks for a new multi-billion euro aid package. It is easy to understand why. The chancellor must feel she has seen it all before. She has experienced many near state bankruptcies since early 2010 when she put together the first bailout for Greece. But Jörg Rocholl, president of the European School of Management and Technology said that his institute’s research shows that the biggest problem lies with the way the bailout packages were designed in the first place. “The aid packages served primarily to rescue European banks,” he said. For example, €86.9 billion were used to pay off old debts, €52.3 billion went on interest payments and €37.3 billion were used to recapitalize Greek banks.

Of course, the servicing of debts and interest payments is a major source of expenditure in any state budget – so the Greek state did benefit from it indirectly, as it had also spent the loan money beforehand. But the new calculations do throw doubts on whether the aid programs were sensibly constructed: The loans were used to service debt, although Greece has been de facto bankrupt since 2010.

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Apart form the obvious human tragedy, I don’t know why, but nobody talks about this being the end of the tar sands industry. That’s a real possibility, though. Nearly all workers live in the town. And so oil prices are up a bit for the moment.

The Terrible News From Fort McMurray, And The Hope That Remains (G&M)

On Monday, residents of Fort McMurray watched anxiously as wildfires burned southwest of the northern Alberta city. Fort Mac’s streets are carved out of the boreal forest at the spot where the Clearwater River flows into the Athabasca. Backyards in the residential neighbourhoods in the west and northwest run up against walls of pine and spruce. Forest fire is always a threat, but on Monday the smoke and flames appeared to be far enough away to allow for hope that the city was safe. On Tuesday, the worst happened. The winds came up and the wildfires flanked the city. The two oldest residential developments, Abasands and Beacon Hill, have been decimated. Thickwood, Timberlea and Parsons Creek, the newest and by far the largest residential developments, where there are modern schools and shopping malls and a beautiful ravine park, were on the verge of being overrun by the flames.

The destruction by fire of an entire Canadian city of more than 80,000 people is suddenly a possibility. Fort McMurray is a remarkable place. People from across Canada and the world have built lives there. In grocery stores, you’ll find halal meats displayed alongside cod tongues. Muslim and Christian children mix easily at the new Roman Catholic high school. Fort Mac is often maligned as a transient, wild west town and a symbol of oil extraction at all costs, but it is in fact a tolerant, diverse and progressive city – a very Canadian boomtown. Not perfect, but doing its best to be a durable home for oil sands workers in spite of the capriciousness of oil prices, the isolation and the long winters.

The focus now is on the logistics of caring for 89,000 evacuees – a staggering challenge. Government officials at all levels and in all provinces, along with private industry and the many native bands around Fort McMurray, are offering aid. Residents are safe and, miraculously, no one has been reported killed or injured. But many, or even perhaps all, may not have homes to return to.

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Temperature anomalies keep spreading.

‘Omega Block’ Behind Searing Heat Inflaming Fort McMurray Wildfire (WaPo)

Unseasonably hot weather in Alberta, Canada, is fueling the worst wildfire disaster in the country’s history. An extreme weather pattern, known as an omega block, is the source of the heat. An omega block is essentially a stoppage in the atmosphere’s flow in which a sprawling area of high pressure forms. This clog impedes the typical west-to-east progress of storms. The jet stream, along which storms track, is forced to flow around the blockage. At the heart of the block in Canadian’s western provinces, the air is sinking and much warmer than normal. Such a clog can persist for days until the atmosphere’s flow is able to break it down and flush it out.

Centers of storminess form on both sides of the block, and the resulting jet stream configuration takes on the likeness of the Greek letter omega. In this case, cool and unsettled weather is affecting the eastern Pacific Ocean and eastern North America, including much of the U.S. East Coast. As the Fort McMurray wildfire rapidly spread Tuesday, temperatures surged to 90 degrees (32 Celsius), shattering the daily record of 82 degrees set May 3, 1945. Dozens of other locations in Alberta also had record high temperatures. More records are likely to fall today. Temperatures are forecast to climb well into the 80s today at Fort McMurray, about 30 degrees warmer than normal. The average high is in the upper 50s.

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This is very far from over.

UN Envoy Warns of New Wave of 400,000 Refugees From Syria (WSJ)

A top United Nations official warned of a new tide of refugees from Syria if world powers didn’t succeed in calming an outbreak of hostilities in and around the northern Syrian city of Aleppo. Staffan de Mistura, the U.N.’s special envoy for Syria, said after meeting with European diplomats and Syrian opposition officials Wednesday that the priority in moving forward with a peace process for Syria was to stop the fighting around what was once Syria’s most populous city. “The alternative is truly quite catastrophic,” Mr. de Mistura said. “We could see 400,000 people moving toward the Turkish border.” The talks in Berlin centered on ways to return to talks in Geneva on Syria’s political future. The opposition’s High Negotiations Committee, headed by Riad Hijab, pulled out of those talks on April 18 as a cessation of hostilities agreed to in February disintegrated.

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May 042016
 
 May 4, 2016  Posted by at 9:20 am Finance Tagged with: , , , , , , , , , ,  


Jack Delano Myrtle Beach, S.C. Air Service Command Technical Sergeant Choken 1943

US Dollar Plunges As World Plays Dangerous Game Of Pass The Parcel (AEP)
90% of Americans Worse Off Today Than in 1970s (VW)
High Anxiety: Markets Get Roiled (WSJ)
China’s Improbable Commodities Frenzy Leaves Stocks in the Dust (BBG)
Commodities Are China’s Hottest New Casino (FT)
China’s $1 Trillion In Bad Debt Makes A Sharp Slowdown Inevitable (BI)
$571 Billion Debt Wall Points to More Defaults in China (BBG)
The Global Economy is at Stall Speed, Rapidly Losing Lift (Stockman)
Fed Expected To Drag Hedge Funds Into Plan To Halt Next Lehman (BBG)
Barclays Launches First 100% Mortgages Since Crisis (FT)
Whistleblowing Is Not Just Leaking, It’s an Act of Resistance (Snowden)
Whistle-Blower Needed a Smoke Before Giving Up LuxLeaks Data (BBG)
The Kleptocrats’ $36 Trillion Heist Keeps Most of the World Impoverished (DB)
France Threatens To Block TTiP Deal (G.)
TTIP Has Been Kicked Into The Long Grass … For A Very Long Time (G.)
After The Leaks Showing What It Is, This Could Be The End For TTIP (Ind.)
Spain, France, Italy, Portugal To Miss EU Deficit, Debt Reduction Targets (R.)
Theft Of Sausage And Cheese By Hungry Homeless Man ‘Not A Crime’ (G.)

“..the Fed is pursuing a “weak dollar policy” [..] “They are forcing currency appreciation onto weaker economies. It is irrational..” No, it’s not irrational, but it certainly is short term only. “.. the soaring euro is in the end self-correcting since the eurozone cannot withstand the pain for long..”

US Dollar Plunges As World Plays Dangerous Game Of Pass The Parcel (AEP)

The US dollar has plunged to a 16-month low in the latest wild move for the global financial system, tightening the currency noose on the eurozone and Japan as they struggle to break out of a debt-deflation trap. The closely-watched dollar index fell below 92 for the first time since January 2015, catapulting gold through $1300 an ounce in early trading and setting off steep falls on stock markets in Asia and Europe. The latest data from the US Commodity Futures Trading Commission shows that speculative traders have switched to a net “short” position on the dollar. This is a massive shift in sentiment since the end of last year when investors were betting heavily that the US Federal Reserve was on track for a series of rate rises, which would draw a flood of capital into dollar assets.

Markets have now largely discounted a rate rise in June, and are pricing in just a 68pc likelihood of any increases this year. The dollar slide has been a lifeline for foreign borrowers with $11 trillion of debt in US currency, notably companies in China, Brazil, Russia, South Africa, and Turkey that feasted on cheap US liquidity when the Fed spigot was open, and were then caught in a horrible squeeze when the Fed turned to tap off again and the dollar surged in 2014 and 2015. But it increases the pain for the eurozone and Japan as their currencies rocket. The world is in effect playing a high-stakes game of pass the parcel, with over-indebted countries desperately trying to export their deflationary problems to others by nudging down exchange rates. The Japanese yen appreciated to 105.60, the strongest since September 2014 and a shock to exporters planning on an average of this 117.50 this year.

The wild moves over recent weeks have blown apart the Japan’s reflation strategy. Analysts from Nomura said Abenomics is now “dead in the water”. The eurozone is also in jeopardy, despite enjoying a sweet spot of better growth in the first quarter. The euro touched $1.16 to the dollar early in the day. It has risen over 7pc in trade-weighted terms since the Europe Central Bank first launched quantitative easing in a disguised bid to drive down the exchange rate. Prices fell by 0.2pc in April and deflation is becoming more deeply-lodged in the eurozone economy, with no safety buffers left against an external shock. The European Commission this week slashed its inflation forecast to 0.2pc this year from 1.0pc as recently as November.

There is little that the Bank of Japan or the ECB can do to arrest this unwelcome appreciation. The Obama Administration warned them at the G20 summit in February that any further use of negative interest rates would be regarded by Washington as covert devaluation, and would not be tolerated. “These central banks have reached the limits of what they can do with monetary policy to influence their exchange rates, and this is putting their entire models at risk,” said Hans Redeker, currency chief at Morgan Stanley. “Europe and Japan are operating in a Keynesian liquidity trap. We are nearing a danger point like 2012 when it could lead to an asset market sell-off. We’re not there yet,” he said.

Stephen Jen from SLJ Macro Partners said the Fed is pursuing a “weak dollar policy”, reacting to global events in a radical new way. “They are forcing currency appreciation onto weaker economies. It is irrational,” he said. Yet it may not last long if the US economy comes roaring back in the second quarter a after a soft patch. “I doubt this is really the end of multi-year run for the dollar,” he said. Neil Mellor from BNY Mellon says the soaring euro is in the end self-correcting since the eurozone cannot withstand the pain for long, and as this becomes evident the currency will start sliding again.

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“Many believe that globalization is largely to blame.”

90% of Americans Worse Off Today Than in 1970s (VW)

A recent study in March from the Levy Economics Institute found that 90% of Americans were worse off financially in 2015 than at any time since the early 1970s. Furthermore, for the vast majority of Americans, the nation’s economy is in a prolonged stagnation, far worse than that of Japan. Worse than Japan? When we think of the Japanese economy, we think of the “Lost Decades.” Japan’s economy was the envy of the world in the 1980s, but starting in 1991, it fell into a prolonged recession and deflation which lasted from then to 2010. Japan’s GDP fell from $5.33 trillion to $4.36 trillion during that period, which saw wages fall by apprx. 5%. So are we really worse off today than Japan? The Levy Economics Institute at Bard College thinks the answer is YES, when it comes to real income – that is, income adjusted for inflation.

According to their findings, 90% of Americans earn roughly the same real income today as the average American earned back in the early 1970s. As a result of this stagnation in incomes and the plunge in housing values during the Great Recession, 99% of American households have seen their net worth fall since 2007 according to the study. Economic stagnation hasn’t reached the remaining 1% of the US population, which has seen a recovery in their real incomes over the same period to near new highs. The chart below has not been updated to include results for 2015, but the trends are clear. The bottom 99% of US income-earning households have seen their net worth decline since the financial crisis of 2007-2009.

Once upon a time, the American economy worked for nearly everybody, and even the middle class got richer. Things were quite different in the decades preceding the 70s, a period that stretches back to the late 1940s, when real incomes rose for both groups. Simply put, for the vast majority of Americans, the dream of a steady increase in income was lost back in the early 1970s. What can explain this big shift in the income distribution in the last four decades? One clue is in the timeframe of the shift, which coincides with the growing openness of the American economy to international trade and investments. Many believe that globalization is largely to blame.

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The game is getting dangerous. But it’s the only game in town.

High Anxiety: Markets Get Roiled (WSJ)

Stocks and oil futures tumbled and Japan’s yen hit its highest intraday level against the dollar since October 2014, as investors struggled to reconcile recent market gains with unease over the pace of global growth. The latest tumult erupted after the Reserve Bank of Australia on Tuesday cut its benchmark rate by one-quarter of a percentage point to 1.75%. The move reflects soft inflation and economic sluggishness driven in part by weak demand from China, the largest buyer of Australian exports. Adding to concerns were a drop in Chinese manufacturing and signals that eurozone growth is slowing more than previously forecast, traders said.

Tuesday’s developments reflect worries that have shadowed a surprising 2016 recovery in the prices of stocks and many commodities. Global growth has slowed this year, prompting major forecasters to cut their outlooks. Yet in recent months the decline of the U.S. dollar and easier policy from global central banks have helped fuel gains in many riskier assets, allowing the Dow industrials to recover from a decline of as much as 10% earlier this year. The action has vexed many portfolio managers and traders, who came into the year expecting the dollar to gain against the yen and euro as the Fed prepared to further tighten its policy and its peers loosened theirs. Instead, both currencies have surged against the dollar.

The dollar fell as low as ¥105.53 during trading Tuesday before retracing to ¥106 later in the session. The dollar traded at ¥120 at the start of the year, according to CQG. The gains threaten to add to economic turmoil in the world’s third-largest economy while deepening investors’ anxiety. “The financial markets are on edge,’’ said Jack McIntyre at Brandywine Global Investment Management. ”Economic growth is still hard to come by.’’

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Hard to imagine that this still has legs..

China’s Improbable Commodities Frenzy Leaves Stocks in the Dust (BBG)

The wild ride in China’s commodity futures is making the nation’s $5.9 trillion stock market look docile. Compared with the stock market, even eggs have been a better investment in China in 2016, with futures climbing 27%. That’s as the cost of a dozen eggs in the U.S. slumped 24% in the first quarter. The epicenter of the commodities boom, however, has been steel reinforcement bars, which have surged 38%. The dizzying increase in speculative activity prompted the head of the world’s largest metals exchange to say that some traders probably don’t even know what they are buying or selling. The Shanghai Composite Index is down 15% this year.

Fluctuations in steel futures have sent a gauge of price swings to the highest level on record. Rebar surged 29% in Shanghai from the end of March through April 22, before dropping about 11%. Bourses in Dalian, Shanghai and Zhengzhou have announced measures to cool the commodities boom including higher fees and a reduction in night hours. Meanwhile, volatility on the Shanghai Composite, which saw gut-wrenching moves over the summer and the start of 2016, has fallen to the lowest level in more than a year as the market turned flat. The intensity of futures trading on Chinese commodities exchanges is making some of the world’s most liquid markets look leisurely. The average iron ore and steel rebar contracts on the Shanghai Futures Exchange are held for less than four hours, compared with almost 40 hours for WTI crude futures on the New York Mercantile Exchange.

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Time to get out. The House wins.

Commodities Are China’s Hottest New Casino (FT)

China’s market regulator may have succeeded in taking much of the froth off the country’s surging commodities markets last week, but the message is not filtering down to many dedicated retail traders. As Chinese markets reopened on Tuesday after the May Day holiday, a few dozen young traders in Shanghai crowded into a small room provided by a local brokerage. The mostly 20-something male traders, dressed in jeans and T-shirts, were looking forward to another week of fevered risk-taking in China’s hottest new casino. “It’s better for futures traders to be young because they can learn faster,” said Zhang Jun, 26, who has been trading commodities on the Shanghai Futures Exchange for three years but has only recently begun to make any money.

“This is not relevant to anything you study before you get here. I don’t know anyone who studied a relevant major,” said Mr Zhang, a mechanical engineer by training. On April 29, the China Securities Regulatory Commission ordered the country’s three commodities futures exchanges to curb speculation. The exchanges had already taken steps in that direction, by increasing margin requirements and transaction fees while reducing trading hours. The measures appeared to be aimed primarily at large institutional traders who have contributed to price surges for commodities ranging from steel to eggs, which have increased 50% and 10% respectively over recent months. Liu Shiyu, the CSRC’s new boss, wants to avoid the fate of his recently sacked predecessor, who last year presided over a boom and bust on the Shanghai and Shenzhen stock exchanges.

Poor economic data helped Mr Liu’s cause on Tuesday, with the price of the Shanghai exchange’s most popular steel rebar contract falling 4.52% to Rmb2,451 a tonne. Futures for iron ore, the key ingredient in steel production, also took a hit. The most actively traded contract on the Dalian Futures Exchange, which largely trades steel industry inputs, dropped 2.96% to Rmb442.5 per tonne. At the peak of last month’s China commodities fever, the number of steel rebar contracts traded in Shanghai exceeded volumes for the world’s two most important crude oil benchmarks, Brent and West Texas Intermediate.

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More dangerous by the day, but nothing to stop it.

China’s $1 Trillion In Bad Debt Makes A Sharp Slowdown Inevitable (BI)

The amount of debt being carried in the Chinese economy – mostly by state-owned “zombie” companies – is now so high that it could lead to a financial crisis, according to Macquarie analyst Viktor Shvets and his team. “Unless this vicious cycle is broken, financial crisis or at least a sharp slowdown is an inevitable ultimate outcome,” he wrote in a note to investors on April 29. The China debt problem is simple, at least in concept. To grow its economy, the Chinese government and its central bank have extended credit generously to all sorts of Chinese companies. Many of those are “state owned enterprises,” which are often old-fashioned, uncompetitive, or kept alive by political will rather than economic necessity.

These “zombie” companies exist largely to pay back those debts, but as time goes by some of them default, or fail to pay back all if their loans. This was not much of a problem until recently, Shvets argues, because China’s economy was growing so robustly that it eclipsed the rate of non-performing loans (NPLs). But as the economy has grown, so has its debt, to roughly $35 trillion, or nearly 350% of GDP. If too many companies fail to repay their debts, private lenders and banks will become fearful of lending more. And when that happens, it would plunge China into a financial crisis as liquidity dries up. The size of the debt at risk is so large – and the Chinese economy is such a global driving force – that such a crisis would cause a contagion into the markets of the rest of the world.

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It can’t be called an accident, but it sure is waiting to happen.

$571 Billion Debt Wall Points to More Defaults in China (BBG)

Chinese debt investors are turning bearish at just the wrong time for the nation’s corporate borrowers, which face a record 3.7 trillion yuan ($571 billion) of local bond maturities through year-end. With this year’s biggest note payments concentrated in some of the country’s most-cash strapped industries, China needs buoyant markets to help its companies refinance. Instead, yields in April rose at the fastest pace in more than a year and issuance tumbled 43% as borrowers canceled 143 billion yuan of planned debt sales. Deteriorating investor sentiment has heightened the risk of defaults in a market that’s already seen at least seven companies renege on obligations this year, matching the total for all of 2015.

While government-run banks may step in to help weaker borrowers, missed debt payments by three state-owned firms in the past three months suggest policy makers are becoming more tolerant of corporate failures as the economy slows. “The biggest risk to the onshore bond market is refinancing risk,” said Qiu Xinhong at First State Cinda Fund. “With such a big amount of bonds maturing, if Chinese issuers can’t sell new bonds to repay the old, more will default.”Repayment pressures are most extreme in China’s “old economy” industries, the biggest losers from the nation’s slowdown. Listed metals and mining companies, which generated enough operating profit to cover just half of their interest expenses in 2015, face principal payments of 389 billion yuan through year-end.

Power generation firms owe 332 billion yuan, while maturities at coal companies have swelled to 292 billion yuan. SDIC Xinji Energy, a state-owned coal producer that canceled a bond sale on March 11, must repay 1 billion yuan of notes on May 15, according to Bloomberg-compiled data. China International Capital highlighted the company as one of the riskiest onshore issuers in the second quarter. Fei Dai, SDIC’s board secretary, said Tuesday that the firm will arrange bank loans and other measures to avoid a default. The shares fell 5% to the lowest level since December 2014 in Shanghai on Wednesday. [..] “If you have a large number of companies in high-risk sectors that lose access to financing, there will be defaults or restructuring,” said Raja Mukherji, head of Asian credit research at PIMCO.

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“China can’t be growing at 6.7% when its export machine has run out of gas..”

The Global Economy is at Stall Speed, Rapidly Losing Lift (Stockman)

South Korea’s exports tumbled to $41 billion in April, marking the 16th consecutive month of declining foreign sales. Last month’s result represented a 11.2% decline from prior year, and an 18% drop from April 2014. Moreover, within that shrinking total, exports to China were down by 18.4% last month, following a 12.2% drop in March. The Korean export slump is no aberration. The same pattern is evident in the entire East Asia export belt. That’s because the Red Ponzi is in its last innings. Beijing is furiously pumping on the credit accelerator, but to no avail. As can’t be emphasized enough, printing GDP by means of wanton credit expansion does not create wealth or growth; it just results in an eventual day of reckoning when the speculative excesses inherent in central bank money printing collapse in upon themselves.

China is surely close to that kind of implosion. During Q1 total credit, or what Beijing is please to call “social financing”, expanded at a $4 trillion annualized rate. This was up 57% over prior year and represented debt growth at a 38% of GDP annual rate. Stated differently, during the first 90 days of 2016 China piled another $1 trillion of debt on its existing $30 trillion debt mountain, while its nominal GDP expanded by less than $175 billion. That’s right. The Red Ponzi is generating barely $1 of GDP for every $6 of new debt. And much of the “GDP” purportedly generated during Q1 reflected new construction of empty apartments and redundant public infrastructure. By now it ought to be evident that the Chinese economy is a brobdingnagian freak of nature that is destined for a collapse, and that its economic statistics are a tissue of fabrications and delusions.

Even its export figures, which are constrained toward minimum honesty because they can be checked against Chinese imports reported by the rest of the world, are padded to some considerable degree by phony export invoicing designed to hide illegal capital flight. Still, the implication of its export trends are unmistakable. When you put aside the statistical razzmatazz of the Chinese New Year’s timing noise in the data, exports were down by 10% in Q1 as a whole. That is the worst quarterly drop since 2009 amidst the global Great Recession, and was nearly twice the rate of decline during Q4 and Q3 2015. Here’s the thing. China can’t be growing at 6.7% when its export machine has run out of gas, as is so starkly evident in the graph below.

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Still festering in the dark.

Fed Expected To Drag Hedge Funds Into Plan To Halt Next Lehman (BBG)

Hedge funds, insurers and other companies that do business with Wall Street megabanks will pay a price for regulators’ efforts to make sure any future collapse of a giant lender doesn’t tank the entire financial system. The Federal Reserve is set to propose so-called stays on derivatives and other contracts that would prevent counterparties from immediately pulling collateral from a failed bank. The plan released Tuesday is meant to give authorities ample time to unwind a firm, hopefully heading off the frantic contagion that spread through markets when Lehman Brothers toppled in 2008. Though the world’s largest banks have already made strides to include such protections in transactions with each other, the Fed’s proposal insists that the shield be expanded to more contracts – including with non-bank firms.

The curbs would apply to any new contract signed by eight of the biggest and most complex U.S. bank holding companies and the U.S. arms of major foreign banks. So, hedge funds and asset managers that want to keep doing business with such lenders would have to comply. Fed Governor Daniel Tarullo said the proposal is “another step forward in our efforts to make financial firms resolvable without either injecting public capital or endangering the overall stability of the financial system.” Industry groups representing firms such as Citadel, BlackRock and MetLife have resisted efforts to rewrite financial contracts, arguing that it abuses investors’ rights and could make things worse by encouraging trading partners to try to pull away from a bank at the first whiff of trouble, even before a failure. But asset managers and insurers would face a tough task in persuading the Fed to change course.

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Party! It’ll be Britain’s last for a while…

Barclays Launches First 100% Mortgages Since Crisis (FT)

Barclays has become the first high street bank since the financial crisis to launch a 100% mortgage in the latest sign of a return to riskier lending. The bank is allowing some buyers to take out a mortgage to 100% of the value of the property, without needing a deposit. Most banks require at least a 5-10% lump sum. Barclays said the mortgage only needed to be supported by a family member or guardian, who must set aside 10% of the purchase price in cash for three years in return for interest. It said the new mortgage was designed to remove the issue of borrowers drawing from the “bank of Mum and Dad” to stump up a deposit. Ray Boulger, of broker John Charcol, said: “It is the first true 100% mortgage since the financial crisis.” The move marks a shift back to higher loan-to-value lending reminiscent of the boom times before the crisis of 2008, when 100% mortgages were widely available.

The defunct bank Northern Rock became renowned for its aggressive lending, with its “Together” mortgages offering 125% of the property value. Regulators have since clamped down on risky lending through regulation in 2014, called the Mortgage Market Review, designed to ensure borrowers can repay — although it does not prohibit 100% loans. The Bank of England would also be likely to take a dim view of any widespread return to deposit-free mortgage lending. So far, no other bank has offered such loans. “We haven’t seen a resurgence of 100% mortgages; I don’t think regulation would allow that,” said Charlotte Nelson, of consumer site Moneyfacts. “I don’t think it’s something many other banks will take on. If they’re seen to be lending at 100%, even with a guarantee, it doesn’t look great. Seeing 100% deals back on the market can come off as negative.”

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The attitude towards whistleblowers still feels medieval.

Whistleblowing Is Not Just Leaking, It’s an Act of Resistance (Snowden)

“I’ve been waiting 40 years for someone like you.” Those were the first words Daniel Ellsberg spoke to me when we met last year. Dan and I felt an immediate kinship; we both knew what it meant to risk so much — and to be irrevocably changed — by revealing secret truths. One of the challenges of being a whistleblower is living with the knowledge that people continue to sit, just as you did, at those desks, in that unit, throughout the agency, who see what you saw and comply in silence, without resistance or complaint. They learn to live not just with untruths but with unnecessary untruths, dangerous untruths, corrosive untruths. It is a double tragedy: What begins as a survival strategy ends with the compromise of the human being it sought to preserve and the diminishing of the democracy meant to justify the sacrifice.

But unlike Dan Ellsberg, I didn’t have to wait 40 years to witness other citizens breaking that silence with documents. Ellsberg gave the Pentagon Papers to the New York Times and other newspapers in 1971; Chelsea Manning provided the Iraq and Afghan War logs and the Cablegate materials to WikiLeaks in 2010. I came forward in 2013. Now here we are in 2016, and another person of courage and conscience has made available the set of extraordinary documents that are published in The Assassination Complex, the new book out today by Jeremy Scahill and the staff of The Intercept. We are witnessing a compression of the working period in which bad policy shelters in the shadows, the time frame in which unconstitutional activities can continue before they are exposed by acts of conscience.

And this temporal compression has a significance beyond the immediate headlines; it permits the people of this country to learn about critical government actions, not as part of the historical record but in a way that allows direct action through voting — in other words, in a way that empowers an informed citizenry to defend the democracy that “state secrets” are nominally intended to support. When I see individuals who are able to bring information forward, it gives me hope that we won’t always be required to curtail the illegal activities of our government as if it were a constant task, to uproot official lawbreaking as routinely as we mow the grass. (Interestingly enough, that is how some have begun to describe remote killing operations, as “cutting the grass.”)

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Case in point.

Whistle-Blower Needed a Smoke Before Giving Up LuxLeaks Data (BBG)

The man who uncovered secret Luxembourg deals that helped companies slash tax rates was actually looking for training documents when he stumbled upon the files on his computer at PricewaterhouseCoopers. On the eve of his departure from the accounting firm in 2010, Antoine Deltour wasn’t fully aware of what he had discovered. He copied the folder and within half an hour had about 45,000 pages detailing confidential tax agreements that became known as the LuxLeaks. Deltour’s discovery triggered the first in a wave of scandals over how thousands of international companies, including Walt Disney, Microsoft’s Skype and PepsiCo, moved money around the globe to avoid taxes. It also landed him in trouble after PwC sued and prosecutors charged him and two other men with theft and violation of business secrets.

“I had discovered gradually the administrative practice of these deals,” Deltour, 30, told a three-judge panel at his trial in Luxembourg Tuesday. “The opportunity to have stumbled over this folder led me to copy it at that moment without a clear goal in mind,” knowing about the “sensitive and highly confidential nature of these files.” Deltour “felt a bit surprised by the volume of the” files and “didn’t immediately do anything with this mass of information,” he told the court. He felt “isolated” and “alone” and unsure of who to turn to. Months later he was contacted by journalist Edouard Perrin, who was working on a documentary about tax practices. The pair met only once, at Deltour’s home in Nancy, France, where Deltour said he needed a moment before handing over the files. “Of course I hesitated,” Deltour told the judge. “I went to smoke a cigarette on the balcony to think a few moments about this.”

The resulting 2012 documentary by Perrin, who is also a defendant in the case, led to interest from the International Consortium of Investigative Journalists. The group put the documents online in 2014, triggering the LuxLeaks scandal. Perrin, 44, another French citizen, was charged in April 2015 with being the accomplice of Raphael Halet, another ex-PwC staffer who is accused of stealing 16 corporate tax returns from the accounting firm and giving them to the journalist. Perrin is also accused of having urged Halet to search for specific documents, a charge both men rejected.

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Grand Theft Auto. Redux.

The Kleptocrats’ $36 Trillion Heist Keeps Most of the World Impoverished (DB)

For the first time we have a reliable estimate of how much money thieving dictators and others have looted from 150 mostly poor nations and hidden offshore: $12.1 trillion. That huge figure equals a nickel on each dollar of global wealth and yet it excludes the wealthiest regions of the planet: America, Canada, Europe, Japan, Australia, and New Zealand. That so much money is missing from these poorer nations explains why vast numbers of people live in abject poverty even in countries where economic activity per capita is above the world average. In Equatorial Guinea, for example, the national economy’s output per person comes to 60 cents for each dollar Americans enjoy, measured using what economists call purchasing power equivalents, yet living standards remain abysmal.

The $12.1 trillion estimate—which amounts to two-thirds of America’s annual GDP being taken out of the economies of much poorer nations—is for flight wealth built up since 1970. Add to that flight wealth from the world’s rich regions, much of it due to tax evasion and criminal activities like drug dealing, and the global figure for hidden offshore wealth totals as much as $36 trillion. In 2014 the net worth of planet Earth was about $240 trillion, which means about 15% of global wealth is in hiding, significantly reducing the capital available to spur world economic growth. That $12.1 trillion figure for money looted from poorer countries has been hiding in plain sight. It comes from numbers in the global economic data—derived by comparing statistics from the IMF and the World Bank, supplemented by some figures from the United Nations and the CIA—that do not match up, but which until now no one had bothered to analyze.

You might think that with their vast staffs of economists and analysts the IMF, the World Bank, and other institutions would have run the numbers long ago, but no. Instead, one determined person combed 45 years of official statistics from around the world to calculate the flight wealth for nearly 200 countries that publish comparable economic data. That’s Jim Henry, who was a rising corporate star until he gave it all up to document illicit flows of money and the damage they do to billions of people. Henry has been the chief economist at McKinsey, arguably the world’s most influential business consultancy, and worked directly under Jack Welch at General Electric. A Harvard-educated economist and lawyer, Henry calls himself an investigative economist. His approach is simple: “Just look at the effing data and solve the puzzle” of mismatches between the various official sources.

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Seems like a bad time to keep on pushing through ever more deals people obviously don’t want.

France Threatens To Block TTiP Deal (G.)

Doubts about the controversial EU-US trade pact are mounting after the French president threatened to block the deal. François Hollande said on Tuesday he would reject the Transatlantic Trade and Investment Partnership “at this stage” because France was opposed to unregulated free trade. Earlier, France’s lead trade negotiator had warned that a halt in TTIP talks “is the most probable option”. Matthias Fekl, the minister responsible for representing France in TTIP talks, blamed Washington for the impasse. He said Europe had offered a lot but had received little in return. He added: “There cannot be an agreement without France and much less against France.” All 28 EU member states and the European parliament will have to ratify TTIP before it comes into force.

But that day seems further away than ever, with talks bogged down after 13 rounds of negotiations spread over nearly three years. The gulf between the two sides was highlighted by a massive leak of documents on Monday, first reported by the Guardian, which revealed “irreconcilable” differences on consumer protection and animal welfare standards. The publication of 248 pages of negotiating texts and internal positions, obtained by Greenpeace and seen by the Guardian, showed that the two sides remain far apart on how to align regulations on environment and consumer protection. Greenpeace said the leak demonstrated that the EU and the US were in a race to the bottom on health and environmental standards, but negotiators on both sides rejected these claims.

The European commission, which leads negotiations on behalf of the EU, dismissed the “alarmist headlines” as “a storm in a teacup”. But Tuesday’s comments from the heart of the French government reveal how difficult TTIP negotiations have become. France has always had the biggest doubts about TTIP. In 2013 the French government secured an exemption for its film industry from TTIP talks to try to shelter French-language productions from Hollywood dominance. Hollande, who is beset by dire poll ratings, indicated on Tuesday that the government has other concerns about TTIP. Speaking at a conference on the history of the left, Hollande said he would never accept “the undermining of the essential principles of our agriculture, our culture, of mutual access to public markets”. Fekl told French radio that the agreement on the table is “a bad deal”. “Europe is offering a lot and we are getting very little in return. That is unacceptable,” he said.

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With growth gone, so is the desire for deals. Too much domestic backlash.

TTIP Has Been Kicked Into The Long Grass … For A Very Long Time (G.)

As talks to broker a global trade deal entered a second tortuous decade, the US and the European Union came up with an idea. Since it was proving impossible to find agreement among the 150 or so members of the World Trade Organisation about how to tear down barriers to freer commerce, they would strike their own agreement. Talks on the Transatlantic Trade and Investment Partnership (TTIP) began in the summer of 2013 with officials in Washington and Brussels confident they could iron out any difficulties by the time American voters decide on who should succeed Barack Obama as president in November this year. This always looked a ridiculously tight timetable and so it has proved. Cutting trade deals is an agonisingly slow process. The last successful global deal – the Uruguay Round – took seven years before being concluding in 1993.

Talks continued on the Doha Round from 2001 until 2015 before terminal boredom and frustration set in. Was it really feasible that TTIP could be pushed through in little more than three years? Not a chance. There are three reasons for that. First, the main barriers to trade between the US and the EU are not traditional tariff barriers, which have been steadily whittled away in the decades since the second world war, but the differing regulatory regimes that operate on either side of the Atlantic. America and Europe have different views on everything from GM food to safety standards on cars so harmonising standards was always going to take a lot of time. Second, the talks have involved controversial issues and have been taking place when trust in politicians and business has rarely been lower. The main driving forces behind TTIP have been multinational corporations and business lobby groups, who stand to gain from harmonised regulations.

With information about the secret negotiations having to be chiselled out by groups hostile to TTIP, voters have drawn the obvious conclusion: the aim of the talks is to enrich big business even if it means playing fast and loose with environmental and health standards. Which leads to the final and most important factor: there are no votes in trade. It would have been no surprise had Angela Merkel voiced strong opposition to the state of the TTIP negotiations, given the level of public antipathy to the trade deal in Germany and her delicate position in the polls ahead of elections next year. Instead, the German chancellor was beaten to it by François Hollande (also facing a showdown with the voters in 2017) who has made it clear he will not sign TTIP in its current form. Years not months of hard slog lie ahead, by which time the US is likely to have a president much less wedded to the idea of striking trade deals. TTIP has just been kicked into the long grass for a very long time, and perhaps for good.

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Can we have no more of this please?! “The European Commission slapped a 30-year ban on public access to the TTIP negotiating texts at the beginning of the talks in 2013..”

After The Leaks Showing What It Is, This Could Be The End For TTIP (Ind.)

Today’s shock leak of the text of the Transatlantic Trade and Investment Partnership (TTIP) marks the beginning of the end for the hated EU-US trade deal, and a key moment in the Brexit debate. The unelected negotiators have kept the talks going until now by means of a fanatical level of secrecy, with threats of criminal prosecution for anyone divulging the treaty’s contents. Now, for the first time, the people of Europe can see for themselves what the European Commission has been doing under cover of darkness – and it is not pretty. The leaked TTIP documents, published by Greenpeace this morning, run to 248 pages and cover 13 of the 17 chapters where the final agreement has begun to take shape.

The texts include highly controversial subjects such as EU food safety standards, already known to be at risk from TTIP, as well as details of specific threats such as the US plan to end Europe’s ban on genetically modified foods. The documents show that US corporations will be granted unprecedented powers over any new public health or safety regulations to be introduced in future. If any European government does dare to bring in laws to raise social or environmental standards, TTIP will grant US investors the right to sue for loss of profits in their own corporate court system that is unavailable to domestic firms, governments or anyone else. For all those who said that we were scaremongering and that the EU would never allow this to happen, we were right and you were wrong.

The leaked texts also reveal how the European Commission is preparing to open up the European economy to unfair competition from giant US corporations, despite acknowledging the disastrous consequences this will bring to European producers, who have to meet far higher standards than pertain in the USA. According to official statistics, at least one million jobs will be lost as a direct result of TTIP – and twice that many if the full deal is allowed to go through. Yet we can now see that EU negotiators are preparing to trade away whole sectors of our economies in TTIP, with no care for the human consequences.

The European Commission slapped a 30-year ban on public access to the TTIP negotiating texts at the beginning of the talks in 2013, in the full knowledge that they would not be able to survive the outcry if people were given sight of the deal. In response, campaigners called for a ‘Dracula strategy’ against the agreement: expose the vampire to sunlight and it will die. Today the door has been flung open and the first rays of sunlight shone on TTIP. The EU negotiators will never be able to crawl back into the shadows again.

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That must be over half the eurozone right there.

Spain, France, Italy, Portugal To Miss EU Deficit, Debt Reduction Targets (R.)

Three of the euro zone’s four biggest economies look set to break European Union deficit and debt reduction targets this year and next unless they take urgent action, European Commission forecasts showed on Tuesday. The Commission forecast that the three – France, Italy and Spain – were likely to miss goals set for them set by EU finance ministers under a disciplinary procedure for those that run excessive budget deficits and have too high public debt. Portugal would also likely be in breach of EU budget rules. The euro zone’s biggest economy Germany, was in rude fiscal health, the forecasts showed. The Commission’s forecasts, together with medium-term fiscal consolidation plans submitted by governments last month will be the basis for a Commission decision, in the second half of May, on whether to step up the disciplinary procedure against those in breach of the rules.

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“..for supreme court judges, the right to survive still trumped property rights, a fact that would be considered blasphemy in America..”

Theft Of Sausage And Cheese By Hungry Homeless Man ‘Not A Crime’ (G.)

Italy’s highest court has ruled that the theft of a sausage and piece of cheese by a homeless man in 2011 did not constitute a crime because he was in desperate need of nourishment. The high court judges in the court of cassation found that Roman Ostriakov, a young homeless man who had bought a bag of breadsticks from a supermarket but had slipped a wurstel – a small sausage – and cheese into his pocket, had acted out of an immediate need by stealing a minimal amount of food, and therefore had not committed a crime. The case, which drew comparisons to the story of Jean Valjean, the hero of Victor Hugo’s Les Misérables, was hailed in some media reports as an act of humanity at a time when hundreds of Italians are being added to the roster of the country’s “hungry” every day, despite improvements in the economy.

One columnist writing in La Stampa said that, for supreme court judges, the right to survive still trumped property rights, a fact that would be considered “blasphemy in America”. But others commented that the case highlighted Italy’s notoriously inefficient legal system, in which the theft of food valued at about €4.70 (£3.70) was the subject of a three-part trial – the first hearing, the appeal, and the final supreme court ruling – to determine whether the defendant had in fact committed a crime. “Yes, you read that right,” an opinion column in Corriere della Sera said, “in a country with a burden of €60bn in corruption per year, it took three degrees of proceedings to determine ‘this was not a crime’.”

Ostriakov, who was described as a homeless 30-year-old from Ukraine, had been sentenced to six months in jail and a €100 fine by a lower court in Genoa, but that punishment was vacated by the supreme court. “The supreme court has established a sacrosanct principle: a small theft because of hunger is in no way comparable to an act of delinquency, because the need to feed justifies the fact,” said Carlo Rienzi, president of Codacons, an environmental and consumer rights group, told Il Mesaggero. “In recent years the economic crisis has increased dramatically the number of citizens, especially the elderly, forced to steal in supermarkets to be able to make ends meet.”

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