Nov 142017
 
 November 14, 2017  Posted by at 10:15 am Finance Tagged with: , , , , , , , ,  11 Responses »
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Vincent van Gogh Laboureur dans un champ 1889

 

The Largest Transfer Of Wealth In Living Memory (OD)
How The American Dream Turned Into Greed And Inequality (WEF)
The Fed Destroyed Functioning American Democracy and Bankrupted the Nation (CH)
The Fatal Flaw Of Neoliberalism: It’s Bad Economics (Rodrik)
China Home Sales Fall by Most in Almost Three Years on Curbs (BBG)
Australia’s Whole Economy Is Built On China Buying Our Stuff (News.com.au)
Austerity, Not Brexit, Has Doomed The Tory Party (G.)
Saudi Retreat From U.S. Oil Market Cuts Exports to 30-Year Low (BBG)
Arab States Spent $130 Billion To Destroy Syria, Libya, Yemen (PressTV)
EU Countries Agree To Create A European Mega-Army (R.)
Fisheries Collapse On US West Coast: “It’s The Worst We’ve Seen” (SHTF)

 

 

Or, as yours truly phrased it 2 weeks ago: The Biggest Ponzi in Human History. But the writer makes a big mistake when she says “this will be passed on to the next generation via inheritance or transfer”. It won’t, because prices will plunge. What will be passed on is the debt.

The Largest Transfer Of Wealth In Living Memory (OD)

Last week, the Office for National Statistics (ONS) released new data tracking how wealth has evolved over time. On paper, the UK has indeed become much wealthier in recent decades. Net wealth has more than tripled since 1995, increasing by over £7 trillion. This is equivalent to an average increase of nearly £100,000 per person. Impressive stuff. But where has all this wealth come from, and who has it benefitted? Just over £5 trillion, or three quarters of the total increase, is accounted for by increase in the value of dwellings – another name for the UK housing stock. The Office for National Statistics explains that this is “largely due to increases in house prices rather than a change in the volume of dwellings.” This alone is not particularly surprising. We are forever told about the importance of ‘getting a foot on the property ladder’.

The housing market has long been viewed as a perennial source of wealth. But the price of a property is made up of two distinct components: the price of the building itself, and the price of the land that the structure is built upon. This year the ONS has separated out these two components for the first time, and the results are quite astounding. In just two decades the market value of land has quadrupled, increasing recorded wealth by over £4 trillion. The driving force behind rising house prices — and the UK’s growing wealth — has been rapidly escalating land prices. For those who own property, this has provided enormous benefits. According to the Resolution Foundation, homeowners born in the 1940s and 1950s gained an unearned windfall of £80,000 between 1993 and 2014 alone.

In the early 2000s, house price growth was so great that 17% of working-age adults earned more from their house than from their job. Last week The Times reported that during the past three months alone, baby boomers converted £850 million of housing wealth into cash using equity release products – the highest number since records began. A third used the money to buy cars, while more than a quarter used it to fund holidays. Others are choosing to buy more property: the Chartered Institute of Housing has described how the buy-to-let market is being fuelled by older households using their housing wealth to buy more property, renting it out to those who are unable to get a foot on the property ladder. And it is here that we find the dark side of the housing boom.

House prices are now on average nearly eight times that of incomes, more than double the figure of 20 years ago. It’s unlikely that house prices will be able to outpace incomes at the same rate for the next 20 years. The past few decades have spawned a one-off transfer of wealth that is unlikely to be repeated. While the main beneficiaries of this have been the older generations, eventually this will be passed on to the next generation via inheritance or transfer. Already the ‘Bank of Mum and Dad’ has become the ninth biggest mortgage lender. The ultimate result is not just a growing intergenerational divide, but an entrenched class divide between those who own property (or have a claim to it), and those who do not.

Read more …

The dream is dead.

How The American Dream Turned Into Greed And Inequality (WEF)

[..] the idea that every American has an equal opportunity to move up in life is false. Social mobility has declined over the past decades, median wages have stagnated and today’s young generation is the first in modern history expected to be poorer than their parents. The lottery of life – the postcode where you were born – can account for up to two thirds of the wealth an individual generates.The growing gap between the rich and the poor, the old and the young, has been largely ignored by policymakers and investors until the recent rise of anti-establishment votes, including those for Brexit in the UK and for President Trump in the US. This is a mistake. Inequality is much more than a side-effect of free market capitalism.

It is a symptom of policy negligence, where for decades, credit and monetary stimulus shortcuts too easily substituted for structural reform, investment and economic strategy. Capitalism has been incredibly successful at boosting wealth, but it has failed at redistributing it. Today, without a push to redistribute wealth and opportunity, our model of capitalism and democracy may face self-destruction. The widening of inequality has deep historical roots. Keynes’ interventionist policies worked well during the post-war recovery, as fiscal stimulus for the reconstruction boosted demand for US goods from Europe and Japan. But soon the stimulus faded. The U.S. found itself with declining growth and rising inflation at a time when it was mired in the Cold War and Vietnam conflicts. The baby boomer generation demanded higher living standards.

The response was the Nixon shock in 1971: a set of policies which moved away from the gold standard, initiating the era of fiat money and free credit. Credit was the answer to declining growth and rising inequality: if you couldn’t afford university, a new house or a new car, Uncle Sam would lend you the key to the American Dream in the form of that extra loan you needed. Over the following decades, state subsidies to private credit became popular, spreading to the U.K. and Europe. It was the start of debt-based democracies. Private debt outgrew GDP four times in the US and Europe over the following decades up to the 2008 financial crisis, accompanied by the deregulation of financial markets and of banks. The rest is history: nine long years after the crisis, our economies are still healing from excess debt, and regulators are still working on strengthening our financial system. Inequality, however, has deepened even further. Has capitalism failed?

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Very good from Chris Hamilton.

The Fed Destroyed Functioning American Democracy and Bankrupted the Nation (CH)

Against the adamant wishes of the constitutions framers, in 1913 the Federal Reserve System was Congressionally created. According to the Fed’s website, “it was created to provide the nation with a safer, more flexible, and more stable monetary and financial system.” Although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was supposedly established to serve the public interest. A quick overview; monetary policy is the Federal Reserves actions, as a central bank, to achieve three goals specified by Congress: maximum employment, stable prices, and moderate long-term interest rates in the United States. The Federal Reserve conducts the nation’s monetary policy by managing the level of short-term interest rates and influencing the availability and cost of credit in the economy.

Monetary policy directly affects interest rates; it indirectly affects stock prices, wealth, and currency exchange rates. Through these channels, monetary policy influences spending, investment, production, employment, and inflation in the United States. I suggest what truly happened in 1913 was that Congress willingly abdicated a portion of its responsibilities, and through the Federal Reserve, began a process that would undermine the functioning American democracy. How, you ask? The Fed, believing the free-market to be “imperfect” (aka; wrong) believed it should control and set interest rates, determine full employment, determine asset prices; not the “free market”. And here’s what happened:

• From 1913 to 1971, an increase of $400 billion in federal debt cost $35 billion in additional annual interest payments.
• From 1971 to 1981, an increase of $600 billion in federal debt cost $108 billion in additional annual interest payments.
• From 1981 to 1997, an increase of $4.4 trillion cost $224 billion in additional annual interest payments.
• From 1997 to 2017, an increase of $15.2 trillion cost “just” $132 billion in additional annual interest payments.

[..] As the chart below highlights, since the creation of the Federal Reserve the growth of debt (relative to growth of economic activity) has gone to levels never dreamed of by the founding fathers. In particular, the systemic surges in debt since 1981 are unlike anything ever seen prior in American history. Although the peak of debt to GDP seen in WWII may have been higher (changes in GDP calculations mean current GDP levels are likely significantly overstating economic activity), the duration and reliance upon debt was entirely tied to the war. Upon the end of the war, the economy did not rely on debt for further growth and total debt fell.

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Perhaps the biggest mystery is why the (formerly) left got so involved with it.

The Fatal Flaw Of Neoliberalism: It’s Bad Economics (Rodrik)

We live in the age of neoliberalism, apparently. But who are neoliberalism’s adherents and disseminators – the neoliberals themselves? Oddly, you have to go back a long time to find anyone explicitly embracing neoliberalism. In 1982, Charles Peters, the longtime editor of the political magazine Washington Monthly, published an essay titled A Neo-Liberal’s Manifesto. It makes for interesting reading 35 years later, since the neoliberalism it describes bears little resemblance to today’s target of derision. The politicians Peters names as exemplifying the movement are not the likes of Thatcher and Reagan, but rather liberals – in the US sense of the word – who have become disillusioned with unions and big government and dropped their prejudices against markets and the military.

The use of the term “neoliberal” exploded in the 1990s, when it became closely associated with two developments, neither of which Peters’s article had mentioned. One of these was financial deregulation, which would culminate in the 2008 financial crash and in the still-lingering euro debacle. The second was economic globalisation, which accelerated thanks to free flows of finance and to a new, more ambitious type of trade agreement. Financialisation and globalisation have become the most overt manifestations of neoliberalism in today’s world.

That neoliberalism is a slippery, shifting concept, with no explicit lobby of defenders, does not mean that it is irrelevant or unreal. Who can deny that the world has experienced a decisive shift toward markets from the 1980s on? Or that centre-left politicians – Democrats in the US, socialists and social democrats in Europe – enthusiastically adopted some of the central creeds of Thatcherism and Reaganism, such as deregulation, privatisation, financial liberalisation and individual enterprise? Much of our contemporary policy discussion remains infused with principles supposedly grounded in the concept of homo economicus, the perfectly rational human being, found in many economic theories, who always pursues his own self-interest.

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Wonder what Xi is thinking.

China Home Sales Fall by Most in Almost Three Years on Curbs (BBG)

China’s new home sales fell by the most in almost three years last month, adding to signs of cooling as local governments keep rolling out curbs to limit price increases. Sales by value dropped 3.4% from a year earlier to 909 billion yuan ($137 billion), according to Bloomberg calculations based on data released Tuesday by the National Bureau of Statistics. That was the biggest year-on-year decline since November 2014. Signs of a property slowdown, including price rises in fewer cities in September, may concern policy makers who want to avoid any sharp economic deceleration. The government is grappling with fueling growth while containing runaway home prices.

President Xi Jinping last month renewed a yearlong call that homes are built “to be inhabited’’ and not for speculation, in his speech at the twice-a-decade Communist Party Congress, inking the language in one of the nation’s top policy frameworks. Investment in real estate development slowed, growing 5.6% last month from a year earlier, down from a 9.2% increase in September, according to Bloomberg calculations. A Bloomberg Intelligence index of Chinese real-estate owners and developers slipped 0.3%. It’s up 89% this year. The data came amid signs of the government easing financing for property developers and as economic releases for October pointed to a moderating economy.

Read more …

Excellent takedown of Australia’s dying economic model.

Australia’s Whole Economy Is Built On China Buying Our Stuff

Australia’s Whole Economy Is Built On China Buying Our Stuff (News.com.au)

I recently watched the federal Treasurer Scott Morrison proudly proclaim that Australia was in “surprisingly good shape”. Indeed, Australia has just snatched the world record from the Netherlands, achieving its 104th quarter of growth without a recession, making this achievement the longest streak for any OECD country since 1970. I was pretty shocked at the complacency, because after 26 years of economic expansion, the country has very little to show for it. For over a quarter of a century our economy mostly grew because of dumb luck. Luck because our country is relatively large and abundant in natural resources, resources that have been in huge demand from a close neighbour — China. Out of all OECD nations, Australia is the most dependent on China by a huge margin, according to the IMF.

Over one-third of all merchandise exports from this country go to China including all physical products and things we dig out of the ground. Outside of the OECD, Australia ranks just after the Democratic Republic of the Congo, Gambia and the Lao People’s Democratic Republic and just before the Central African Republic, Iran and Liberia. Does anything sound a bit funny about that? As a whole, the Australian economy has grown through a property bubble inflating on top of a mining bubble, built on top of a commodities bubble, driven by a China bubble. Unfortunately for Australia, that “lucky” free ride is just about to end. Societe Generale’s China economist Wei Yao recently said: “Chinese banks are looking down the barrel of a staggering $1.7 trillion worth of losses”. Hayman Capital’s Kyle Bass calls China a “$34 trillion experiment” which is “exploding”, where Chinese bank losses “could exceed 400% of the US banking losses incurred during the subprime crisis”.

A hard landing for China is a catastrophic landing for Australia, with horrific consequences to this country’s delusions of economic grandeur. The initial rally in commodities at the beginning of 2016 was caused by a bet that more economic stimulus and industrial reform in China would lead to a spike in demand for commodities used in construction. That bet rapidly turned into full-blown mania as Chinese investors, starved of opportunity and restricted by government clamp downs in equities, piled into commodities markets. This saw, in April of 2016, enough cotton trading in a single day to make a pair of jeans for everyone on the planet, and enough soybeans for 56 billion servings of tofu. Market turnover on the three Chinese exchanges jumped from a daily average of about $78 billion in February to a peak of $261 billion on April 22, 2016 — exceeding the GDP of Ireland.

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It’s the people.

Austerity, Not Brexit, Has Doomed The Tory Party (G.)

What is destroying the Conservatives is not outside forces, nor the cack-handed pricking of a gusher of ministerial ineptitude. No, the fundamental cause is their own economic strategy of austerity. Of cutting taxes for the wealthy, while cutting public services and social security for the rest. Of rewarding the owners of capital, while punishing those who rely on their labour. Of claiming to have fixed the economy, while tanking voters’ living standards. Austerity is now the thudding drumbeat behind every ministerial misstep, from a family holiday with the Netanyahus to a fauxpology over Nazanin Zaghari-Ratcliffe. It is what unites these individual Westminster outrages into an outline of a ruling party no longer fit for office. By forcing an arbitrary limit on already severely constrained Whitehall and town hall budgets, it renders meaningful government close to impossible.

This is what makes next week’s autumn budget from Philip Hammond so crucial. If the Tories wish to regain any credibility, they will have to ditch the very strategy that defines them. In the days immediately following this summer’s general election, I asked a number of leading figures in Labour how they managed to pull off one of the biggest surprises in postwar political history and rob May of her majority. Their answers all circled back to one thing: austerity fatigue. After seven straight years of seeing their kids’ school classes get bigger and their parents’ hospital waits grow longer, voters were ready for an anti-austerity party leader such as Jeremy Corbyn. Austerity has done more than tear up the public realm; it has imposed private misery on millions of households.

The age of austerity has been the era of the foodbank, the zero-hours contract, the privately rented slum. Unless there is a miracle, the economists at the Resolution Foundation project that the 2010s will be the worst decade for wage growth since the Napoleonic wars of the early 1800s.

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But but.. the petrodollar!

Saudi Retreat From U.S. Oil Market Cuts Exports to 30-Year Low (BBG)

For a generation, the huge, whitewashed storage tanks at America’s largest oil refinery in Port Arthur, Texas, have stored almost nothing but Saudi crude. The plant is owned the Saudi Arabia’s state-run oil company, Aramco, and since it first bought a stake in 1988, the Motiva refinery guaranteed the kingdom a strategic foothold in the world’s largest energy market. The tankers carrying millions of barrels a month of Arab Light crude from the Saudi export terminals to Port Arthur were testament to the strength of the energy and political ties binding Riyadh and Washington. All of a sudden, there are very few Saudi ships arriving in Texas. Since July, Aramco has constricted supply, attempting to drain the crude storage tanks at Motiva – and many others across America -part of a plan to lift oil prices, even at the cost of sacrificing its once prized U.S.

While Motiva is most affected, the rest of the U.S. oil refining system, from El Segundo in California to Lake Lake Charles in Louisiana, has also taken a hit. The result: Saudi crude exports into America fell to a 30-year low last month. “The drop is huge,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London. “It’s not just that Saudi exports are low, but they have been low for several months.” At a stroke, the freedom from Saudi oil that’s been a rhetorical aspiration for generations of American politicians, from Jimmy Carter to George W. Bush, is within reach – even if it’s largely the choice of supplier rather than the customer. The U.S. imported just 525,000 barrels a day of Saudi crude in October, the lowest since May 1987 and down from 1.5 million barrels a day a decade ago, according to Bloomberg News calculations based on custom data.

The combination of falling Saudi oil exports into the U.S. last year, cheap crude and higher exports of American weapons had already turned upside-down the trade relationship between the two countries. Last year, the U.S. enjoyed its first trade surplus with Saudi Arabia since 1998 — only the third in 30 years, according to data from the U.S. Census Bureau. The sharper cuts in oil exports since the summer will likely amplify that trend.

Read more …

“..the United Arab Emirates had planned a military invasion of Qatar with thousands of US-trained mercenaries [..] but it was never carried out as Washington did not give the green light to it..”

Arab States Spent $130 Billion To Destroy Syria, Libya, Yemen (PressTV)

Algerian Prime Minister Ahmed Ouyahia says some regional Arab states have spent $130 billion to obliterate Syria, Libya and Yemen. Ouyahia made the remarks on Saturday at a time when much of the Middle East and North Africa is in turmoil, grappling with different crises, ranging from terrorism and insecurity to political uncertainty and foreign interference. Algeria maintains that regional states should settle their differences through dialog and that foreign meddling is to their detriment. Syria has been gripped by foreign-sponsored militancy since 2011. Takfirism, which is a trademark of many terrorist groups operating in Syria, is largely influenced by Wahhabism, the radical ideology dominating Saudi Arabia.

Libya has further been struggling with violence and political uncertainty since the country’s former ruler Muammar Gaddafi was deposed in 2011 and later killed in the wake of a US-led NATO military intervention. Daesh has been taking advantage of the chaos in Libya to increase its presence there. Yemen has also witnessed a deadly Saudi war since March 2015 which has led to a humanitarian crisis. Last Month, Qatar’s former deputy prime minister Abdullah bin Hamad al-Attiyah said the United Arab Emirates had planned a military invasion of Qatar with thousands of US-trained mercenaries. The UAE plan for the military action was prepared before the ongoing Qatar rift, but it was never carried out as Washington did not give the green light to it, he noted. In late April, reports said the UAE was quietly expanding its military presence into Africa and the Middle East, namely in Eritrea and Yemen.

Read more …

As I wrote yesterday, insanity.

EU Countries Agree To Create A European Mega-Army (R.)

France and Germany edged toward achieving a 70-year-old ambition to integrate European defenses on Monday, signing a pact with 21 other EU governments to fund, develop and deploy armed forces after Britain’s decision to quit the bloc. First proposed in the 1950s and long resisted by Britain, European defense planning, operations and weapons development now stands its best chance in years as London steps aside and the United States pushes Europe to pay more for its security. Foreign and defense ministers gathered at a signing ceremony in Brussels to represent 23 EU governments joining the pact, paving the way for EU leaders to sign it in December. Those governments will for the first time legally bind themselves into joint projects as well as pledging to increase defense spending and contribute to rapid deployments.

“Today we are taking a historic step,” Germany’s Foreign Minister Sigmar Gabriel told reporters. “We are agreeing on the future cooperation on security and defense issues … it’s really a milestone in European development,” he said. The pact includes all EU governments except Britain, which is leaving the bloc, Denmark, which has opted out of defense matters, Ireland, Portugal and Malta. Traditionally neutral Austria was a late addition to the pact. Paris originally wanted a vanguard of EU countries to bring money and assets to French-led military missions and projects, while Berlin has sought to be more inclusive, which could reduce effectiveness. Its backers say that if successful, the formal club of 23 members will give the European Union a more coherent role in tackling international crises and end the kind of shortcomings seen in Libya in 2011, when European allies relied on the United States for air power and munitions.

Read more …

There are a few things we need to stop doing, urgently.

Fisheries Collapse On US West Coast: “It’s The Worst We’ve Seen” (SHTF)

The Gulf of Alaska cod populations appears to have taken a nose-dive. Scientists are shocked at the collapse and starving fish, making this the “worst they’ve ever seen.” “They [Alaskan cod] get weak and die or get eaten by something else,” said NOAA’s Steve Barbeaux. The 2017 trawl net survey found the lowest numbers of cod on record forcing scientists to try to unravel what happened. A lot of the cod hatched in 2012 appeared to survive, but by 2017, those fish were largely gone for the surveys, which also found scant evidence of fish born in subsequent years. Many of the cod that have come on board trawlers are “long skinny fish” according to Brent Paine, executive director of United Catcher Boats. “This is a big deal,” Paine said. “We just don’t see these (cod) year classes disappear from one year to the next.”

The decline is expected to substantially reduce the gulf cod harvests that in recent years have been worth — before processing — more than $50 million to Northwest and Alaska fishermen who catch them with nets, pot traps, and baited hooks set along the sea bottom. Barbeaux says the warm water, which has spread to depths of more than 1,000 feet, hit the cod like a kind of a double-whammy. Higher temperatures sped up the rate at which young cod burned calories while reducing the food available for the cod to consume. And many are blaming “climate change” for the effects on the fish, although scientists aren’t directly correlating the two events. “They get weak and die or get eaten by something else,” said Barbeaux, who in October presented preliminary survey findings to scientists and industry officials at an Anchorage meeting of the North Pacific Fishery Management Council.

Read more …

Nov 082017
 
 November 8, 2017  Posted by at 1:47 pm Finance Tagged with: , , , , , , , , , , ,  12 Responses »
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Salvador Dalí The oecumenial council 1960

 

Trying to figure out what on earth is happening in the Middle East appears to have gotten a lot harder. Perhaps (because) it’s become more dangerous too. There are so many players, and connections between players, involved now that even making one of those schematic representations would never get it right. Too many unknown unknowns.

A short and incomplete list of the actors: Sunni, Shiite, Saudi Arabia, US, Russia, Turkey, ISIS, Syria, Iran, Iraq, Libya, Kurds, Lebanon, Hezbollah, Hamas, Qatar, Israel, United Arab Emirates (UAE), Houthis, perhaps even Chechnya, Afghanistan, Pakistan. I know I know, add your favorites. So what have we got, or what do we know we’ve got? We seem to have the US lining up with Israel, the UAE and Saudi Arabia against Russia, Iran, Syria, Hezbollah. Broadly. But that’s just a -pun intended- crude start.

Putin has been getting closer to the Saudis because of the OPEC production cuts, trying to jack up the price of oil. Which ironically has now been achieved on the heels of the arrests of 11 princes and scores of other wealthy and powerful in the kingdom. But Putin also recently signed a $30 billion oil -infrastructure- deal with Iran. And he’s been cuddling up to Israel as well.

In fact, Putin may well be the most powerful force in the Middle East today. Well played?! He prevented the demise of Assad in Syria, which however you look at it at least saved the country from becoming another Iraq and Libya style failed state. If there’s one thing you can say about the Middle East/North Africa it’s that the US succeeded in creating chaos there to such an extent that it has zero control left over any of it. Well played?!

 

One thing seems obvious: the House of Saud needs money. The cash flowing out to the princes is simply not available anymore. The oil price is a major factor in that. Miraculously, the weekend crackdown on dozens of princes et al, managed to do what all the OPEC meetings could not for the price of oil: push it up. But the shrinkage of foreign reserves shows a long term problem, not some momentary blip:

 

 

Another sign that money has become a real problem in Riyadh is the ever-postponed IPO of Saudi Aramco, the flagship oil company supposedly worth $2 trillion. Trump this week called on the Saudi’s to list it in New York, but despite the upsurge in oil prices you still have to wonder which part of that $2 trillion is real, and which is just fantasy.

But yeah, I know, there’s a million different stocks you can ask the same question about. Then again, seeing the wealth of some of the kingdom’s richest parties confiscated overnight can’t be a buy buy buy signal, can it? Looks like the IPO delay tells us something.

And then you have the 15,000 princes and princesses who all live off of the Kingdom’s supposed riches (‘only 2,000’ profit directly). All of them live in -relative- wealth. Some more than others, but there’s no hunger in the royal family. Thing is, overall population growth outdoes even that in the royal family. Which means, since the country produces nothing except for oil, that there are 1000s upon 1000s of young people with nothing to do but spend money that’s no longer there. Cue mayhem.

 

 

And things are not getting better, Saudi Arabia loses money on every barrel it produces. There are stories about them lowering their break-even price, but let’s take that with a few spoonfuls of salt. A 25% drop in break-even prices in just one year sounds a bit too good. Moreover, main competitors like Iran would still have a much lower break-even price. So even if prices would rise further, the Saudi’s might only break even while Iran gets much richer. Running vs standing still.

 

Saudi Arabia Leads Gulf Nations in Cutting Break-Even Oil Price

Saudi Arabia, OPEC’s biggest oil producer, is also a leader when it comes to slashing the crude price the country needs to balance its budget. The kingdom will need oil to trade at $70 a barrel next year to break even, the IMF said Tuesday in its Regional Economic Outlook for the Middle East and Central Asia. That’s down from a break-even of $96.60 a barrel in 2016, the biggest drop of eight crude producers in the Persian Gulf. The break-even is a measure of the crude price needed to meet spending plans and balance the budget.

 

 

Gulf oil producers are cutting spending and eliminating subsidies after crude plunged from more than $100 a barrel in 2014 to average just over half that this year. The need to curb spending is more urgent with the Organization of Petroleum Exporting Countries cutting output to reduce a global glut. Oil will trade at $50 to $60 a barrel for the “medium term,” the IMF said.

 

 

So a thorough cleansing job of the royal family is perhaps inevitable, albeit very risky. King Salman and crown prince Mohammed bin Salman are up against a very large group of rich people. But there’s no way back now.

 

Saudi Banks Freeze More Than 1,200 Bank Accounts in Anti-Corruption Purge

Saudi Arabian banks have frozen more than 1,200 accounts belonging to individuals and companies in the kingdom as part of the government’s anti-corruption purge, bankers and lawyers said on Tuesday. They added that the number is continuing to rise. Dozens of royal family members, officials and business executives have been detained in the crackdown and are facing allegations of money laundering, bribery, extorting officials and taking advantage of public office for personal gain. Since Sunday, the central bank has been expanding the list of accounts it is requiring lenders to freeze on an almost hourly basis…

Much more will have to follow that. Doing a half way job is far too risky once the job has started. Not even $800 billion sounds like all that much. Separate families and factions within the royal family have had decades to accumulate wealth.

 

Saudi Crackdown Targets Up to $800 Billion in Assets

The Saudi government is aiming to confiscate cash and other assets worth as much as $800 billion in its broadening crackdown on alleged corruption among the kingdom’s elite, according to people familiar with the matter. Several prominent businessmen are among those who have been arrested in the days since Saudi authorities launched the crackdown on Saturday, by detaining more than 60 princes, officials and other prominent Saudis, according to those people and others. The country’s central bank, the Saudi Arabian Monetary Authority, said late Tuesday that it has frozen the bank accounts of “persons of interest” and said the move is “in response to the Attorney General’s request pending the legal cases against them.”

The most visible – and perhaps richest- of all those arrested -in western eyes- is Al-Waleed. The Bloomberg estimate of his wealth that came out this week is $19 billion. But their own article seems to indicate a much higher number. He owns 5% of Apple -says Bloomberg-, and that share alone would be worth $45 billion.

 

Alwaleed, Caught in Saudi Purge, Has Assets Across the World

Apple – Alwaleed bought 6.23 million shares, or 5 percent, of the computer and mobile-device maker for $115.4 million in 1997. He made these purchases between mid-March and April of that year while the company was still struggling to turn itself around. He has since continued to hold the stake while Apple’s valuation has soared to as high as $900 billion.

 

Going through all these numbers, you can imagine why the ruling family, or rather the rulers within that family, are getting nervous. And that’s where we get to an interesting piece by Ryan Grim at the Intercept, who says it’s not even 32-year-old crown prince Mohammed bin Salman, known as MBS, or King Salman, 81, who control the kingdom these days, it’s the United Arab Emirates (UAE) -and maybe Washington-.

The coup has already been perpetrated.

 

Saudi Arabia’s Government Purge – And How Washington Corruption Enabled It

The move marks a moment of reckoning for Washington’s foreign policy establishment, which struck a bargain of sorts with Mohammed bin Salman, known as MBS, and Yousef Al Otaiba, the United Arab Emirates ambassador to the U.S. who has been MBS’s leading advocate in Washington. The unspoken arrangement was clear: The UAE and Saudi Arabia would pump millions into Washington’s political ecosystem while mouthing a belief in “reform,” and Washington would pretend to believe that they meant it.

MBS has won praise for some policies, like an openness to reconsidering Saudi Arabia’s ban on women drivers. Meanwhile, however, the 32-year-old MBS has been pursuing a dangerously impulsive and aggressive regional policy, which has included a heightening of tensions with Iran, a catastrophic war on Yemen, and a blockade of ostensible ally Qatar. Those regional policies have been disasters for the millions who have suffered the consequences, including the starving people of Yemen, as well as for Saudi Arabia, but MBS has dug in harder and harder. And his supporters in Washington have not blinked.

The platitudes about reform were also challenged by recent mass arrests of religious figures and repression of anything that has remotely approached less than full support of MBS. The latest purge comes just days after White House adviser Jared Kushner, a close ally of Otaiba, visited Riyadh, and just hours after a bizarre-even-for-Trump tweet. Whatever legitimate debate there was about MBS ended Saturday — his drive to consolidate power is now too obvious to ignore. And that puts denizens of Washington’s think tank world in a difficult spot, as they have come to rely heavily on the Saudi and UAE end of the bargain.

As The Intercept reported earlier, one think tank alone, the Middle East Institute, got a massive $20 million commitment from the UAE. And make no mistake, MBS is a project of the UAE — an odd turn of events given the relative sizes of the two countries. “Our relationship with them is based on strategic depth, shared interests, and most importantly the hope that we could influence them. Not the other way around,” Otaiba has said privately.

The kingdom’s broke. Not today, or tomorrow morning, but crown prince MBS is able to look at the numbers and go: Oh Shit! And if he doesn’t see it, he has Kushner (re: Israel) and Al-Otaiba to fill him in. All three relative youngsters -MBS is 32, Kushner is 36, Otaiba is 43- are exceedingly nervous by now.

And then you get war, or the threat of war. War in Yemen, a blockade of Qatar, and now ‘mingling’ in Lebanon with the somewhat mysterious removal of billionaire PM Hariri -allegedly on an Iran/Hezbollah assassination plot-, and outright threats against Iran and Hezbollah:

 

Lebanon’s Hariri Visits UAE As Home Crisis Escalates

Lebanon’s outgoing prime minister, Saad al-Hariri, made a brief visit to the United Arab Emirates from Saudi Arabia on Tuesday despite a deepening crisis back home and a rise in regional tensions triggered by his surprise resignation. Hariri announced his resignation on Saturday during a visit to his ally Saudi Arabia and has not yet returned to Lebanon. He said he believed there was an assassination plot against him and accused Iran, Saudi Arabia’s arch-rival, and its Lebanese ally Hezbollah of sowing strife in the Arab world.

His resignation has thrust Lebanon back into the frontline of the regional rivalry that pits a mostly Sunni bloc led by Saudi Arabia and allied Gulf monarchies against Shi‘ite Iran and its allies. Hariri’s office said he had flown to Abu Dhabi on Tuesday and then returned to Riyadh, but it gave no reason for the trip. It also did not say when he would return home. Hariri’s Future TV channel said he would also visit Bahrain but gave no reason.

In short: billionaire PM Hariri is a puppet. Just perhaps not of Saudi Arabia, but of Abu Dhabi. Whether he’s under house arrest in Riyadh, as has been suggested, is still unclear. But it’s a safe bet that he didn’t fly to Abu Dhabi -and back- alone, or of his own accord. He went to receive instructions.

 

Saudi Arabia Accuses Iran Of ‘Direct Military Aggression’ Over Yemen Missile

Saudi Arabia’s crown prince has accused Iran of “direct military aggression” by supplying missiles to Houthi rebels in Yemen, raising the stakes in an already tense standoff between the two regional rivals. Mohammed bin Salman linked Tehran to the launch of a ballistic missile fired from Yemen towards the international airport in the Saudi capital of Riyadh on Saturday. The missile was intercepted and destroyed.

“The involvement of the Iranian regime in supplying its Houthi militias with missiles is considered a direct military aggression by the Iranian regime,” the prince said on Tuesday during a phone conversation with the UK foreign secretary, Boris Johnson, according to the state-run Saudi Press Agency. He added that the move “may be considered an act of war against the kingdom”. Iran has called Riyadh’s accusations as baseless and provocative.

We have way of knowing what is true or not about this. We do know that Saudi Arabia have been executing a barbaric war in Yemen. With weapons from the US, UK, et al. So someone firing back wouldn’t be that far-fetched.

 

Regardless, Pepe Escobar, a journalist who knows much more than his peers, or at least doesn’t hold back as much as them, doesn’t see this end well for MBS, UAE, Israel, US, and whoever else is in their corner. Another losing war for the US in the Middle East? We’re losing count.

 

The Inside Story Of The Saudi Night Of Long Knives

A top Middle East business/investment source who has been doing deals for decades with the opaque House of Saud offers much-needed perspective: “This is more serious than it appears. The arrest of the two sons of previous King Abdullah, Princes Miteb and Turki, was a fatal mistake. This now endangers the King himself. It was only the regard for the King that protected MBS. There are many left in the army against MBS and they are enraged at the arrest of their commanders.” To say the Saudi Arabian Army is in uproar is an understatement. “He’d have to arrest the whole army before he could feel secure.”

[..] The story starts with secret deliberations in 2014 about a possible “removal” of then King Abdullah. But “the dissolution of the royal family would lead to the breaking apart of tribal loyalties and the country splitting into three parts. It would be more difficult to secure the oil, and the broken institutions whatever they were should be maintained to avoid chaos.” Instead, a decision was reached to get rid of Prince Bandar bin Sultan – then actively coddling Salafi-jihadis in Syria – and replace the control of the security apparatus with Mohammed bin Nayef. The succession of Abdullah proceeded smoothly.

Power was shared between three main clans: King Salman (and his beloved son Prince Mohammed); the son of Prince Nayef (the other Prince Mohammed), and finally the son of the dead king (Prince Miteb, commander of the National Guard). In practice, Salman let MBS run the show. And, in practice, blunders also followed. The House of Saud lost its lethal regime-change drive in Syria and is bogged down in an unwinnable war on Yemen, which on top of it prevents MBS from exploiting the Empty Quarter – the desert straddling both nations. The Saudi Treasury was forced to borrow on the international markets. Austerity ruled …

[..] aversion to MBS never ceased to grow; “There are three major royal family groups aligning against the present rulers: the family of former King Abdullah, the family of former King Fahd, and the family of former Crown Prince Nayef.” Nayef – who replaced Bandar – is close to Washington and extremely popular in Langley due to his counter-terrorism activities. His arrest earlier this year angered the CIA and quite a few factions of the House of Saud – as it was interpreted as MBS forcing his hand in the power struggle. According to the source, “he might have gotten away with the arrest of CIA favorite Mohammed bin Nayef if he smoothed it over but MBS has now crossed the Rubicon though he is no Caesar. The CIA regards him as totally worthless.”

[..] The source, though, is adamant; “There will be regime change in the near future, and the only reason that it has not happened already is because the old King is liked among his family. It is possible that there may be a struggle emanating from the military as during the days of King Farouk, and we may have a ruler arise that is not friendly to the United States.”

In the end, it all comes down to a familiar theme: follow the money. And we need to seriously question the economic reality of Saudi Arabia. That graph above of their foreign reserves looks downright grim.

With money comes power. Who loses money loses power. Saudi Arabia is bleeding money. The population surge is uncanny, and there are no jobs for all these young people. Perhaps the best they can do is be a US/Israel puppet in an attempt to ‘redo’ the map of the Middle East, but that has not been a very successful project off late -like the past 100 years-.

Then again, when you’re desperate you do desperate things. And when you’re a 32-year-old crown prince with more enemies than you can keep track of, you use what money is left to 1) keep up appearances, 2) steal what others have gathered, 3) buy weapons up the wazoo, and 4) go to war.

It all paints a very dark picture for the world. Russia won’t stand for attacks on Iran. And Iran won’t let attacks on Lebanon/Hezbollah go unanswered. All that is set to push up oil prices further, and all parties involved are just fine with that. Because they can buy more weapons with the additional profits.

I’ll leave you with Nassim Taleb’s comments on the situation. After all, Nassim’s from Lebanon, and knows that part of the world like the back of his hand:

 

 

 

Jun 232017
 
 June 23, 2017  Posted by at 9:55 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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Fred Lyon Embarcadero lunch San Francisco 1948

 

Americans Are Dying With An Average Of $61,500 In Debt (ZH)
34 Biggest Banks in US Clear First Hurdle In Fed’s Annual Stress Tests (R.)
Credit-Card Debt Slaves Move to Top of Fed’s Bank Worries (WS)
Citizens Will Soon Turn Their Rage Towards Central Bankers (Albert Edwards)
UK Homelessness Surges 34% Under Tories Since 2010 (Ind.)
UK High Court Judges Tory Policy Causes ‘Real Misery For No Purpose’ (Ind.) /span>
Buy-to-Let Uk Property Sales Fall By Almost 50% In A Year (G.)
Canada’s Private Sector Debt Growing Faster Than Any Advanced Economy (PA)
Warren Buffett Becomes Lender Of Last Resort For Canada’s Home Capital (BBG)
EU Political Class Rides Roughshod over Citizens’ Concerns & Frustrations (DQ)
Dear Oliver: About Those Putin Interviews (RM)
Arab States Send Qatar 13 Demands To End Crisis (R.)
In Yemen’s Secret Prisons, UAE Tortures and US Interrogates

 

 

Double or nothing?!

Americans Are Dying With An Average Of $61,500 In Debt (ZH)

According to a recent study, the average total household debt in America is just over $132,500, broken down as per the chart below… and thanks to the Fed’s recent and ongoing rate increases, the repayment of said debt will become increasingly more difficult. So difficult, in fact, that most Americans will be saddled with a sizable chunk of it at the time of their death. Actually, most already are. According to December 2016 data from credit bureau Experian provided to credit.com, 73% of American consumers had outstanding debt when they were reported as dead. Those consumers carried an average total balance of $61,554, including mortgage debt. Without home loans, the average balance was $12,875. As credit.com reports, the data is based on Experian’s FileOne database, which includes 220 million consumers.

To determine the average debt people have when they die, Experian looked at consumers who, as of October 2016, were not deceased, but then showed as deceased as of December 2016. Among the 73% of consumers who had debt when they died, about 68% had credit card balances. The next most common kind of debt was mortgage debt (37%), followed by auto loans (25%), personal loans (12%) and student loans (6%). The breakdown of unpaid balances was as follows: credit cards, $4,531; auto loans, $17,111; personal loans, $14,793; and student loans, $25,391. And, as a reminder, debt doesn’t just disappear when someone dies.

What happens to that debt when you die, aside from it continuing to accrue interest until someone remembers to inform the creditors? “Debt belongs to the deceased person or that person’s estate,” said Darra L. Rayndon, an estate planning attorney with Clark Hill in Scottsdale, Arizona. If someone has enough assets to cover their debts, the creditors get paid, and beneficiaries receive whatever remains. But if there aren’t enough assets to satisfy debts, creditors lose out (they may get some, but not all, of what they’re owed). Family members do not then become responsible for the debt, as some people worry they might. That’s the general idea, but things are not always that straightforward. The type of debt you have, where you live and the value of your estate significantly affects the complexity of the situation. For example, federal student loan debt is eligible for cancellation upon a borrower’s death, but private student loan companies tend not to offer the same benefit. They can go after the borrower’s estate for payment.

Read more …

Let’s do a stress test that assumes the Fed is no longer around, see what happens.

34 Biggest Banks in US Clear First Hurdle In Fed’s Annual Stress Tests (R.)

The 34 largest U.S. banks have all cleared the first stage of an annual stress test, showing they would be able to maintain enough capital in an extreme recession to meet regulatory requirements, the Federal Reserve said on Thursday. Although the banks, including household names like JPMorgan Chase and Bank of America, would suffer $383 billion in loan losses in the Fed’s most severe scenario, their level of high-quality capital would be substantially higher than the threshold that regulators demand, and an improvement over last year’s level. “This year’s results show that, even during a severe recession, our large banks would remain well capitalized,” said Fed Governor Jerome Powell, who leads banking regulation for the central bank. “This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough.”

The Fed introduced the stress tests in the wake of the financial crisis to ensure the health of the banking industry, whose ability to lend is considered crucial to the health of the economy. Since the first test was conducted in 2009, big banks have seen losses abate, loan portfolios improve and profits grow. The banks that now undergo the exam have also strengthened their balance sheets by adding more than $750 billion in top-notch capital, the Fed said. Banks and their investors have been hoping the improvements would prompt the Fed to allow them to use more capital for stock buybacks and dividends, especially as the Trump administration is seeking to relax financial regulations. Wall Street analysts and trade groups quickly cheered the results on Thursday, saying regulators should feel comfortable easing tough rules put in place since the financial crisis. “We see today’s…stress test results as a positive for Trump administration efforts to deregulate the banks,” said Jaret Seiberg, a policy analyst with Cowen & Co.

Read more …

The biggest debts are still in mortgages. Falling home prices will hurt most.

Credit-Card Debt Slaves Move to Top of Fed’s Bank Worries (WS)

The comforting news in the results from the Federal Reserve’s annual stress test is that the largest 34 bank holding companies would all survive a recession. Based on this glorious accomplishment, the clamoring has already started for regulators to allow these banks to pay bigger dividends and to blow more money on share buybacks, and for these regulators to slash regulation on these banks and make their life easier and riskier in general. We don’t want these banks to survive a recession in too good a condition apparently. And it would likely be better for Wall Street anyway if banks could lever up with risks so that a few of them would get bailed out during the next recession. Let’s remember, for the Fed’s no-holds-barred bailout-year 2009, Wall Street executives and employees were doused with record bonuses.

The Fed’s bailouts were good for them. And it has been good for them ever since. The less comforting news in the stress test is that credit card debt – generally the most expensive and risky debt for consumers – has now moved to the top of the Fed’s worry list in the “severely adverse scenario” of the stress test. The projected losses for the 34 largest banks – not counting the losses at the 4,997 smaller banks – are expected to hit $100 billion, up nearly 9% from the stress test a year ago. The projected losses rose for several reasons, including that credit card balances have grown by 5.6% from a year ago to over $1 trillion. The delinquency rate has risen to 2.4%. The Fed is also blaming looser lending standards. Sharing the top spot on the Fed’s worry list in the “severely adverse scenario” are Commercial & Industrial loans, whose balances are over twice as large, at $2.1 trillion, but whose projected losses are also pegged at $100 billion. In total, the “severely adverse scenario” sees $493 billion in losses for these 34 banks:

Read more …

“..investors, drunk with the liquor of loose money..”

Citizens Will Soon Turn Their Rage Towards Central Bankers (Albert Edwards)

Albert Edwards pwrites “Theft redux: the citizens will soon turn their rage towards Central Bankers.” The core of his argument is familiar: “While politics in the West reels from a decade of economic crisis and stagnation, asset prices continue to surge on the back of continued rapid growth in G3 QE. In an age of “radical uncertainty” how long will it be before angry citizens tire of blaming an impotent political system for their ills and turn on the main culprits for their poverty – unelected and virtually unaccountable central bankers? I expect central bank independence will be (and should be) the next casualty of the current political turmoil.” That’s just the beginning from Edwards, who appears to be getting increasingly angrier and more frustrated with a market that makes increasingly less sense: his fiery sermon continue with the following preview of the “inevitable catastrophe that lies ahead.”

“Evidence of the impact of monetary madness on assets prices is all around if we care to look. I read that a parking spot in Hong Kong was just sold for record HK$5.18 million ($664,200). What about the 3.5x oversubscribed 100 year Argentine government bond? Sure, everything has a market clearing price, even one of the most regular defaulters in history. But what concerned me most about the story was it was demand from investors (“reverse enquires”) that prompted the issue. Is it just me or can I hear echoes of the mechanics of the CDO crisis? But no one cares when the party is still raging and investors, drunk with the liquor of loose money, are blind to the inevitable catastrophe that lies ahead. There is a lot of anger out on the streets, as demonstrated most visibly in recent elections.

Even in France where investors feel comforted that a “moderate” has gained (absolute?) power, it is salutary to remember that the two establishment parties have just been decimated by a man who had never before stood for public office! This is perhaps even more radical than Trump’s anti-establishment victory under the Republican umbrella. The global political situation is incredibly fluid and unpredictable. While a furious electorate has turned its pent up anger on the establishment political parties, the target for their rage is misguided. I am not completely alone in thinking it is the unelected and virtually unaccountable central bankers who are primarily responsible for the poverty of working people and who will be ultimately held to account in the next crisis.

Read more …

In other news: ” Government-funded new social housing has fallen 97% since 2010″.

UK Homelessness Surges 34% Under Tories Since 2010 (Ind.)

The number of families being declared homeless has rocketed by more a third since the Conservatives took power in 2010, analysis of new official statistics by The Independent has revealed. Between April 2016 and March 2017, 59,100 families were declared homeless by local authorities in England – a rise of 34% on the same period in 2010-11. The statistics paint a bleak picture of the UK housing crisis and the impact a lack of decent, affordable homes is having on thousands of families. There has been a 60% increase in the number of families being housed in insecure temporary accommodation. In particular, bed and breakfast-type hotels are increasingly being used to house families for long periods of time as local councils struggle to find them proper homes to live in.

There are now 77,240 families in England currently living in temporary accommodation – up from 48,240 just six years ago. Of these, almost fourth-fifths (78%) are families with children, meaning there are currently 120,500 children living in insecure, temporary homes. Of those being housed temporarily, 6,590 households are living in B&Bs, including 3,010 families with children. Almost half have been living in this type of accommodation, which often sees families crammed into one room and forced to share limited bathroom and cooking facilities with strangers, for more than six weeks. This is illegal under the Homelessness (Suitability of Accommodation) Order 2003, which banned local authorities from housing families with children in B&Bs for more than a six-week period.

Read more …

The Tories are done. Someone should tell them.

UK High Court Judges Tory Policy Causes ‘Real Misery For No Purpose’ (Ind.)

Today, the High Court ruled that the benefits cap, one of the Tories’ flagship welfare policies, is unlawful, because it amounts to illegal discrimination against single parents with small children. It’s likely that the Government will be forced to alter or completely scrap their benefits cap, a policy that limits the total amount a household can receive in benefits to £23,000 in London and £20,000 elsewhere in the UK. High Court judge Justice Collins described the benefit cap as causing “real damage” to single parent families and said “real misery is being caused to no good purpose”. This is the fundamental truth at the heart of Tory welfare policy – misery without progress or reason.

Welfare reform as part of the coalition government’s austerity measures has driven thousands more people into poverty and in many tragic cases, some deaths occurred after individuals were declared fit to work. Austerity was not inevitable. It was an ideologically-motivated programme designed to force the poorest and most vulnerable in our society to shoulder the burden of a financial crisis that they had less than nothing to do with creating. Four claimants brought this case to court. Two of them had been made homeless as a result of domestic violence, and were trying to work as many hours as possible while taking care of children under the age of two. Imagine fleeing an abusive partner, seeking support from a domestic violence service that’s had its funding brutally slashed by the Tory government, trying to work and look after a small child, then having your benefits cut, again by the Tory government.

The claimants are not alone. The benefits cap has inflicted a massive amount of suffering, with 200,000 children from the very lowest income families affected, as their parents’ income has fallen drastically. In real terms, this means that these children’s lives have become even more difficult, and they weren’t easy to begin with. This means a colder house, less food to eat, more shame at school due to unwashed clothes, uniforms that are too small, worn-through shoes. It means stressed, unhappy and increasingly desperate parents, and in family, children can’t fail to pick up on this mood of misery. [..] In this wealthy, highly developed country, poverty is the single biggest threat to the wellbeing of children and families. Poverty affects a quarter of all children in Britain, a massive, disgraceful, inexcusable proportion. one in five parents are struggling to feed their children, and 50% of all parents living in food poverty have gone without meals in order to give their children more to eat.

Read more …

There goes the bubble. Look out below.

Buy-to-Let Uk Property Sales Fall By Almost 50% In A Year (G.)

The number of properties bought by landlords has almost halved in a year after a tax and regulatory clampdown, prompting a leading banking body to downgrade its forecasts for buy-to-let lending in 2017 and 2018. The Council of Mortgage Lenders said buy to let had had a weak start to 2017, with lending falling faster than expected as landlords withdrew from the market in response to major tax changes and tighter lending rules. The data follows a series of recent surveys and indices suggesting the housing market is running out of steam. However, the crackdown on buy to let may have helped young people trying to get a foot on the property ladder. CML said house purchase activity was being driven predominantly by first-time buyers, with their numbers up 8% in the 12 months to April.

Buy-to-let homebuying activity was “nearly half what it was a year ago” and had averaged around 6,000 purchases a month over the last 12 months, said the body, which represents banks and building societies. The number of landlord purchases involving a mortgage was 5,300 in April this year. This compared with 10,300 in February 2016 and 11,800 in July 2015. As a result, the CML has cut its forecast for buy-to-let lending from £38bn being lent in both 2017 and 2018 to £35bn in 2017 and £33bn in 2018. The organisation warned against hitting landlords with any further changes to taxation and lending rules, saying the figures “re-emphasise the case for avoiding further changes to the tax and regulatory framework until the effect of these already in train have been properly assessed”.

Read more …

Download report here: Addicted to Debt – Tracking Canada’s rapid accumulation of private sector debt .

Canada’s Private Sector Debt Growing Faster Than Any Advanced Economy (PA)

For the first time ever, Canada’s private sector is racking up debt faster than any other of the world’s 22 advanced economies, putting the country at risk of serious economic consequences, according to new research by the Canadian Centre for Policy Alternatives. A new report authored by CCPA Senior Economist David Macdonald reveals that Canada added $1 trillion in private sector debt over the past five years ($2016), with the corporate sector responsible for the majority of it. Economies can become dependent on debt in order to fuel economic and asset price growth. With both rapid private debt accumulation and a high private debt-to-GDP ratio, even a small change in debt growth rates, brought on by changes in interest rates for instance, could have a devastating impact on the larger economy.

“Private sector debt growth is one of the best predictors of economic crisis, and Canada is now the only advanced economy squarely in the debt ‘danger zone’ of having high private sector debt that continues to rise rapidly,” Macdonald says. The report identifies several areas of concern:
• Canada has never before led the advanced economies in private debt growth;
• The last time Canada was close to leading the world in private debt growth was the early 1990s, just as housing prices plummeted and then stagnated for a decade;
• The country’s private debt-to-GDP ratio has risen by a fifth since 2011, from 182% to 218%. The US ratio currently stands at 152%;
• The $315 billion increase in household debt since 2011 ($2016) is almost entirely attributable to the rise in mortgage debt related to rapid home prices increases;
• Corporate debt is less well studied, and rose $671 billion since 2011 ($2016), accounting for two thirds of private debt accumulation over that time;
• Corporate debt was largely spent on mergers and acquisitions as well as real estate purchases, neither of which make the country more productive.

“Canada’s economy has become addicted to binging on ever more private sector debt, and weaning us off it should be our primary public policy concern,” adds Macdonald, who recommends further study of corporate debt and consideration of a housing speculators’ tax to further reign in mortgage debt increases.

Read more …

Well, it can’t be because Buffett see a bright future in Canada’s housing market. So draw your own conclusion.

Warren Buffett Becomes Lender Of Last Resort For Canada’s Home Capital (BBG)

Warren Buffett has become the lender of last resort for Home Capital. The billionaire investor agreed to buy shares at a deep discount and provide a fresh credit line for the Canadian mortgage company, tapping a formula he used to prop up lenders from Goldman Sachs to Bank of America. Buffett’s Berkshire Hathaway Inc. will buy a 38% stake for about C$400 million ($300 million) and provide a C$2 billion credit line with an interest rate of 9% to backstop the embattled Toronto-based lender, Home Capital said late Wednesday in a statement. The interest on the one-year loan would net Berkshire at least C$180 million if it’s fully tapped.

“While the terms of the new credit line with Berkshire Hathaway remain harsh, we believe the purpose of this loan is to motivate Home Capital’s management to bolster their own funding sources,” said Hugo Chan at Kingsferry Capital in Shanghai, which owns shares in Home Capital. “This again shows Mr. Buffett’s masterful capital allocation skills,” said Chan, citing his investment motto: “be greedy when others are fearful.” The financial backing from Buffett sent the stock higher Thursday, though it comes at a cost, in keeping with his past bailouts of financial firms. Buffett has buoyed some of the biggest U.S. corporations in times of trouble, including a combined $8 billion injection to prop up Goldman Sachs and General Electric when credit markets froze during the 2008 financial crisis.

In the Home Capital deal, Buffett’s firm agreed to pay an average price of C$10 a share, a 33% discount to Wednesday’s closing price of C$14.94. Berkshire would become the largest shareholder in Home Capital, which has a market value of about C$1 billion. Home Capital surged 27% to C$19 in Toronto on Thursday. That gives Buffett a 90% return on paper for the equity investment, assuming the deal goes through.

Read more …

They always have, it’s an MO.

EU Political Class Rides Roughshod over Citizens’ Concerns & Frustrations (DQ)

Merkel has expressed a willingness to go along with two central French demands — the appointment of a Eurozone finance minister and the creation of a common budget — as long as certain conditions are met. “We can of course think about a Eurozone budget as long as it’s clear that this is really strengthening structures and achieving sensible results,” she said. [..] Back on the table is a proposal to upgrade the grossly unaccountable Luxembourg-based European Stability Mechanism (ESM) into a full-fledged European Monetary Fund. As we’ve noted before, creating a European Monetary Fund (EMF) would be an important statement of intent. If Europe’s core countries are truly set on taking the EU project to a whole new level, such as by pursuing the creation of an EU army, an EU border force (with full powers), fiscal union, and ultimately political union, some form of burden sharing will ultimately be necessary.

The establishment of a fully operational EMF could be an important move in that direction. The EMF would essentially act as a fiscal backdrop to the banking system, something the Eurozone has desperately needed ever since its creation. As Bruegel proposes, it would serve as a fiscal counterpart of the ECB to guarantee the financial stability of the euro area in the event of a sovereign or banking crisis, or a threat thereof — of which there are plenty these days, in particular emanating from Italy’s broken banking system. Naturally, the creation of an EMF would deal a further blow to the fading remnants of national sovereignty in Europe. But that’s a price that many (but certainly not all) of Europe’s elite is more than happy to pay; some would say that destroying national sovereignty was the ultimate goal of the EU all along.

In a survey of more than 10,000 EU citizens and 1,800 EU elites carried out by Chatham House, of the elites, 37% believe the EU should get more powers, 28% want to keep the status quo and 31% would prefer to return more powers to individual member countries. This enthusiasm for a more centralized, more powerful EU is not shared with equal enthusiasm by European citizens: 48% want powers returned to the individual member countries. Citizens, overall, do not feel they have benefited from European integration in the same way Europe’s elite does. Whereas 71% of elites report feeling they have gained something from the EU, the figure among the public is only 34%. Even more worrisome for national leaders, a clear majority of the public — 54% — feel that their country was a better place to live 20 years ago, before the euro existed.

Read more …

I’ve seen a few parts. Liked them quite a bit.

Dear Oliver: About Those Putin Interviews (RM)

Dear Mr. Stone: I have just finished watching all four episodes of The Putin Interviews. May I give you my critique? Overall, I felt that the series is Very Good but felt just short of Great. I will explain below what I feel could have made it Great. First, I want to tell you what I really loved about it. 1. You have an easy style. I felt as if Mr. Putin was at ease with you, and you with him. You have a warm command of the English language and can transmit your ideas into language in a very personable way — an art that is missing among so many American media people these days. I felt that you drew out a candid side of Putin, well, that is, as far as a man of his intellectual prowess and disciplined self-control will allow. 2. Best moment of the show: Sitting next to Vlad and watching Dr. Strangelove! Oh my goodness, most people would not even dream of adding such a thing to their bucket list.

3. I loved the walking tour of the President’s offices and the general background of the Kremlin architecture and decor. I pay attention to the daily, tweeted photos from the Kremlin’s official account. I have seen those desks and tables a million times in the photos. But now I have them all within a mental frame, thanks to your film. Question: I was burning to know why Vlad had a pair of scissors and multi-colored construction paper in the middle of his desk, did you happen to ask him, off-camera?

Where It Fell Short Mr. Stone, I hated that so much time was wasted talking about the contrived “Russia hacked the election” meme. Hillary might not know why she lost the election, but the rest of the nation does. When my father would get on a roll with his bad jokes, Mom would tell us kids: “Don’t encourage him.” Well, you too need to stop encouraging the MSM to keep breathing life into a dead meme.

You also wasted time re-hashing Crimea. “Read My Lips,” Vlad said, “the Crimeans ASKED, BEGGED, AND VOTED to rejoin Russia.” Good grief, when McCain’s and Nuland’s beloved neo-Nazi Svoboda party took illegal control of Ukraine, their first move was to try and make it illegal to speak Russian. Geez, half the people in Ukraine ARE Russian! Mr. Putin has exercised considerable restraint towards Ukraine.

Mr. Stone, I have been following the development of BRICS, the “Silk Road Project,” and the EEU (European Economic Union) for a half-decade now. I can’t have a conversation with my neighbors and friends about all of that here in America because not one of them has heard anything about it! You had a great opportunity to ask Mr. Putin to school us on the Sino-Russian version of a multi-polar world without war, but you totally blew it. I don’t think you ever asked Vlad about China, did you?

 

Read more …

Saudi Arabia accuses Qatar of supporting terrorism. Rich.

Arab States Send Qatar 13 Demands To End Crisis (R.)

Four Arab states boycotting Qatar over alleged support for terrorism have sent Doha a list of 13 demands including closing Al Jazeera television and reducing ties to their regional adversary Iran, an official of one of the four countries said. The demands aimed at ending the worst Gulf Arab crisis in years appear designed to quash a two decade-old foreign policy in which Qatar has punched well above its weight, striding the stage as a peace broker, often in conflicts in Muslim lands. Doha’s independent-minded approach, including a dovish line on Iran and support for Islamist groups, in particular the Muslim Brotherhood, has incensed some of its neighbors who see political Islamism as a threat to their dynastic rule.

The list, compiled by Saudi Arabia, the United Arab Emirates (UAE), Egypt and Bahrain, which cut economic, diplomatic and travel ties to Doha on June 5, also demands the closing of a Turkish military base in Qatar, the official told Reuters. Qatar must also announce it is severing ties with terrorist, ideological and sectarian organizations including the Muslim Brotherhood, Islamic State, al Qaeda, Hezbollah, and Jabhat Fateh al Sham, formerly al Qaeda’s branch in Syria, he said, and surrender all designated terrorists on its territory, The four Arab countries accuse Qatar of funding terrorism, fomenting regional instability and cozying up to revolutionary theocracy Iran. Qatar has denied the accusations.

[..] on Monday, Foreign Minister Sheikh Mohammed bin Abdulrahman al-Thani said Qatar would not negotiate with the four states unless they lifted their measures against Doha. The countries give Doha 10 days to comply, failing which the list becomes “void”, the official said without elaborating, suggesting the offer to end the dispute in return for the 13 steps would no longer be on the table.

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Bunch of sicko’s.

Edward Snowden on Twitter: “Biggest @AP scoop in a long time: US government behind UAE torture in Yemen, with some reportedly grilled alive.

In Yemen’s Secret Prisons, UAE Tortures and US Interrogates

Hundreds of men swept up in the hunt for al-Qaida militants have disappeared into a secret network of prisons in southern Yemen where abuse is routine and torture extreme — including the “grill,” in which the victim is tied to a spit like a roast and spun in a circle of fire, an Associated Press investigation has found. Senior American defense officials acknowledged Wednesday that U.S. forces have been involved in interrogations of detainees in Yemen but denied any participation in or knowledge of human rights abuses. Interrogating detainees who have been abused could violate international law, which prohibits complicity in torture. The AP documented at least 18 clandestine lockups across southern Yemen run by the United Arab Emirates or by Yemeni forces created and trained by the Gulf nation, drawing on accounts from former detainees, families of prisoners, civil rights lawyers and Yemeni military officials.

All are either hidden or off limits to Yemen’s government, which has been getting Emirati help in its civil war with rebels over the last two years. The secret prisons are inside military bases, ports, an airport, private villas and even a nightclub. Some detainees have been flown to an Emirati base across the Red Sea in Eritrea, according to Yemen Interior Minister Hussein Arab and others. Several U.S. defense officials, speaking on condition of anonymity to discuss the topic, told AP that American forces do participate in interrogations of detainees at locations in Yemen, provide questions for others to ask, and receive transcripts of interrogations from Emirati allies. They said U.S. senior military leaders were aware of allegations of torture at the prisons in Yemen, looked into them, but were satisfied that there had not been any abuse when U.S. forces were present.

“We always adhere to the highest standards of personal and professional conduct,” said chief Defense Department spokeswoman Dana White when presented with AP’s findings. “We would not turn a blind eye, because we are obligated to report any violations of human rights.” In a statement to the AP, the UAE’s government denied the allegations. “There are no secret detention centers and no torture of prisoners is done during interrogations.” Inside war-torn Yemen, however, lawyers and families say nearly 2,000 men have disappeared into the clandestine prisons, a number so high that it has triggered near-weekly protests among families seeking information about missing sons, brothers and fathers.

None of the dozens of people interviewed by AP contended that American interrogators were involved in the actual abuses. Nevertheless, obtaining intelligence that may have been extracted by torture inflicted by another party would violate the International Convention Against Torture and could qualify as war crimes, said Ryan Goodman, a law professor at New York University who served as special counsel to the Defense Department until last year

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Feb 282015
 
 February 28, 2015  Posted by at 11:38 am Finance Tagged with: , , , , , , ,  4 Responses »
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DPC Yard of tenement, Manhattan, New York City 1900

Greece Seeks Negotiations On ECB Bond Repayment (Reuters)
Fed Won’t Be Predictable After Lifting Rates, Fischer Says (MarketWatch)
“Monetary Policy Is Bankrupt” Dr. Lacy Hunt Warns (Tavares via Zero Hedge)
Greek PM Alexis Tsipras Rules Out Third Bailout (BBC)
A Fierce Battle Looms (Alexis Papachelas via Kathimerini)
The Tortured Relationship between Schäuble and Varoufakis (Spiegel)
Homeland Security Shutdown Looms After House Fails To Approve Funding (Guardian)
Congress Avoids Homeland Security Shutdown With Stopgap Measure
Q4 Obliterates The Case For QE And ZIRP (David Stockman)
Should the US Make Billions From Student Loans? (Bloomberg)
China Tells West To Consider Russia’s Security Concerns Over Ukraine (Reuters)
UAE Denies Deal To Sell Military Equipment To Ukraine (RT)
Spain Arrests Eight Nationals For Fighting With Rebels In Ukraine (Guardian)
Nemtsov Was No Threat To Russian Government – Kremlin (RT)

Yanis gets creative. 2 days ago it was a payment to the IMF, which he said the ECB could make with money they themselves say belongs to Athens anyway. This one is even smarter: “I see it as a mistake – but the ECB did this with the aim of keeping us in the markets in 2010. They failed.”

Greece Seeks Negotiations On ECB Bond Repayment (Reuters)

Greece called into question on Saturday a major debt repayment it must make to the European Central Bank this summer, after acknowledging it faces problems in meeting its obligations to international creditors. Finance Minister Yanis Varoufakis said Athens should negotiate with the ECB on €6.7 billion in Greek government bonds held by the Frankfurt-based bank that mature in July and August. Varoufakis did not say what he hoped to achieve in any talks, but he accused the ECB of making a mistake in buying the bonds around the time Greece had to take an EU/IMF bailout in 2010. “Shouldn’t we negotiate this? We will fight it,” he said in an interview with Skai television. “If we had the money we would pay … They know we don’t have it.”

The government of leftist Prime Minister Alexis Tsipras promised to honor all its debt obligations when it struck a deal with the euro zone last week that extended Greece’s bailout program for four months. But Athens will get no more money until the EC, ECB and IMF have approved in detail its economic plans during the four-month period. With tax revenue falling far short of target last month and an economic recovery faltering, the state must repay an IMF loan of around €1.6 billion in March and find €800 million in interest payments in April. It then needs about €7.5 billion in July and August to repay the bonds held by the ECB and make other interest payments.

The ECB bought the bonds on the secondary market under its Securities Markets Programme (SMP) which aimed to reduce borrowing costs for troubled southern European governments during the euro zone debt crisis. However, Greece was frozen out of international debt markets, and more than four years later is still unable to fund itself commercially apart from limited issues of short-term treasury bills. Varoufakis, who has staged a media blitz in recent days to sell the euro zone deal to the Greek people, singled out former ECB President Jean-Claude Trichet for criticism. “One part of the negotiations will be on what will happen to these bonds which unfortunately and wrongly Mr Trichet bought,” he said.

“I see it as a mistake – but the ECB did this with the aim of keeping us in the markets in 2010. They failed.” Varoufakis argued that if the bonds had remained in investors’ hands, their value would have been cut by 90% under a restructuring of Greece’s privately held debt in 2012, reducing the burden on the state. The ECB bought the bonds at a deep discount and made large profits because their value rose as the euro zone debt crisis eased. Under Greece’s second bailout deal, these profits were due to be returned to Athens to help it repay debt. Athens received a partial payment in 2013 but eurozone countries are withholding a further €1.9 billion pending the review of Greece’s economic plans. Varoufakis wants this money sent directly to the IMF to meet the March payment.

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The Fed will stop being predictable, period. There’s no other way to raise rates and let Wall Street banks profit as much as possible.

Fed Won’t Be Predictable After Lifting Rates, Fischer Says (MarketWatch)

The era of the Federal Reserve giving forward guidance to financial markets about its next steps on monetary policy is coming to an end, a top U.S. central banker said Friday. Fed Vice Chair Stanley Fischer said the Fed would feel too constrained if it “pre-committed” to a steady path for interest rates and so the central bank would not “telegraph every action.” “I know of no plans of following a deterministic path to raise rates, I don’t believe it will happen,” Fischer said at a conference sponsored by the University of Chicago Booth School of Business. Instead, the Fed will take into account the behavior of the economy and “shocks we have to deal with.”

At the same time, he said the Fed “doesn’t want to take the markets by surprise on a regular basis” and would explain to investors a general sense of the Fed’s goals. In other comments, Fischer said the Federal Reserve’s bond buying programs, although completed, are is still currently depressing 10-year Treasury yields by about 110 basis points, a top U.S. central banker said Friday. Fischer said the estimate was based on a Fed staff study of the effect on the term premium on 10-year Treasury securities from the combination of all of the Fed’s asset purchase programs. With the Fed’s balance sheet near $4.5 trillion, the programs will continue to apply downward pressure on rates “for some time,” Fischer said. The effects will likely wane over the next few years as the balance sheet begins to normalize, Fischer said.

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All you need to know: “The velocity of money has fallen to a six-decade low in the US.”

“Monetary Policy Is Bankrupt” Dr. Lacy Hunt Warns (Tavares via Zero Hedge)

ET: Keynesian theory has pretty much dominated macroeconomic thinking over the last thirty years. Its “consume now, pay later” policies provide a short-term boost and fit well with politicians’ desire to prop up the economy on their watch. A large number of economists in government, private sector and academia, believe that adding more debt to a debt-inspired crisis is the only solution, and that at some point the economy will reach escape velocity and help pay down those debts. Do you subscribe to this view, especially at these very high debt levels in the economy?

LH: I think that monetary policy at this stage of the game is largely bankrupt. There is certainly nothing that they can do. Monetary policy works through price effects, quantity effects, the potential wealth effect and the currency depreciation effect. None of those mechanisms are operative. The price effects don’t work because the short-term interest rates are at the zero bounds, so that’s out of the picture. The US central bank, the ECB and the Bank of Japan have greatly expanded their balance sheets, but that’s not printing money. Money is an increase in deposits that are available to households and businesses. US monetary growth today is under 6% in the last 12 months, which is lower than when quantitative easing started. The Bank of Japan has doubled the monetary base in the last two years and yet M2 growth is 3% and a little bit more. The same is true in Europe.

Moreover, money alone does not determine economic activity. The velocity of money has fallen to a six-decade low in the US. It has been falling substantially in Europe, as in Japan. When you look at money growth and velocity it’s hard to see where nominal growth can be much better than 1% in Europe and Japan and no better than 2-2.5% in the US. Monetary policy does not benefit from quantitative effects when economies are extremely over indebted. The velocity of money falls and the banks are undercapitalized – banks don’t make loans based on excess reserves, but rather based on capital.

The currency depreciation option by excessive monetary liquidity does provide a transitory benefit. We saw this one when QE1 was started in the US, but that’s a transitory benefit: other countries eventually retaliate making everyone worse off. And the final option is the wealth effect but there is no empirical support for it. So there’s really nothing that monetary policy can do and the fact that inflation in the US is substantially lower than when all of these quantitative easing efforts started is an indication that such policies are a bankrupt effort.

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“Europe has now recognised that Greece has turned a new page..”

Greek PM Alexis Tsipras Rules Out Third Bailout (BBC)

Greece will not need a third international debt bailout when its current programme ends in four months, the country’s prime minister has said. Alexis Tsipras vowed his government would “start working hard” to change the country, which is saddled with a debt 175% of its GDP. Greece has already received two bailouts since 2010, totalling €240bn euros. Germany’s parliament ratified a four-month extension on Friday. While some MPs had expressed doubts about the deal and there was substantial public scepticism in the EU’s leading economic power, the vote passed easily. Parliaments in all 19 eurozone states must approve the extension for it to be granted, but Germany’s vote is seen as significant because of its key role as a creditor nation.

Reacting to the Bundestag vote, Mr Tsipras told the Euronews TV channel: “The German parliament gave Europe a vote of confidence today. “Europe has now recognised that Greece has turned a new page… We start working hard, in order to change Greece within a Europe that changes direction.” Greece remains frozen out of international debt markets, prompting speculation about a new bailout request. However, in a televised speech to his cabinet, Mr Tsipras said Greece’s bailout agreements were “over both in form and in essence”. “Some people are betting on a third bailout in July… but we will disappoint them,” he said.

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“And let’s not forget that it’s a lonely battle.”

A Fierce Battle Looms (Alexis Papachelas via Kathimerini)

There has been plenty of talk regarding cracking down on corruption and vested interests in this country. From Costas Karamanlis’s “pimps” we have arrived at Finance Minister Yanis Varoufakis’s e-mail. If you read it carefully, you realize that a large portion of the new program deals with this crucial issue. Besides, it’s common knowledge that the reason why the troika, and the IMF in particular, pulled the rug from underneath the government in the fall was because they felt that Antonis Samaras’s administration would not have dared to stand up to vested interests. SYRIZA’s rhetoric on this particular issue coincided to a large extent with the lenders’ conclusions.

Let’s assume that New Democracy and PASOK indeed failed to go up against “pimps” preying on certain crucial sectors of the economy, especially those tied to the state. But will the current administration succeed? Varoufakis appears rather obsessed with this matter and firmly believes that the country’s growth has been curbed because of these vested interests and corruption. This battle will be hard to win, however, even if the necessary political will is in place. To begin with, as strange as it may sound, a prime minister is particularly powerless in this case. In order to fight corruption you need institutions which are operating properly, as in other European countries, whether it’s the justice system or the ministries themselves.

And let’s not forget that it’s a lonely battle. Any PM wishing to fight vested interests – in other words to go after those bleeding the rest of society dry – will face a very tough front. Essentially, Alexis Tsipras is set to confront two very different groups. One the one hand are the romantics who had hoped for a rift with the eurozone as they believe that it’s legitimate for Greece to follow a non-European, Latin American growth model. They will fight Tsipras because he betrayed them.

Then there are also the cynics who hid behind the holy anti-bailout struggle out of fear they would be deprived of the kind of privileges and protection that allowed them to get unjustifiably rich without contributing anything to production. These people wanted the country to remain in the eurozone while they operated in a drachma-style environment – in other words without having to undergo any kind of checks – or to return to the drachma so that they could act as kings in a super-cheap banana republic. If Tsipras and Varoufakis mean what was written in the latter’s e-mail to the eurozone, the battle is bound to be ferocious. There is a lot of money involved and the profit margins are huge..

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“Varoufakis quickly realized that he was alone, that the other 18 finance ministers were against him. But he took it as validation for his approach.”

The Tortured Relationship between Schäuble and Varoufakis (Spiegel)

Varoufakis is the newest finance minister in the Euro Group; Schäuble has served the longest. Varoufakis is a professor of economics, a man always good for a clever turn of phrase and a beaming smile. Schäuble is better known for being caustic and irritable. He is a lawyer by training and prefers practice to theory; he is matter-of-fact and deeply skeptical of those who seek to grab the spotlight. And he doesn’t hold university professors in high regard. Since Schäuble has gotten to know his new colleague from Athens, his appreciation for economy professors has dropped even further. He is suspicious of those who believe in their own theories and who think that the world is predictable. For Wolfgang Schäuble, societal behavior cannot be easily explained, not even by social scientists. That is why, he believes, negotiated rules – and adherence to those rules – is the best policy.

For Yanis Varoufakis, the euro is a defective currency. For Schäuble, it is his legacy. The German minister is unconcerned with formalities. He doesn’t care if his Greek counterpart tucks in his shirt or not, nor would he be bothered if Varoufakis were to wrap it around his head like a turban. Former Swedish Finance Minister Anders Borg, after all, used to come to Euro Group meetings with his hair in a ponytail. But Borg possessed competence, authority and political gravitas, qualities that, from Schäuble’s perspective, the new Greek finance minister has not yet demonstrated. Schäuble was annoyed by Varoufakis’ insistence during his initial visit to Berlin that he could save not just his country, but the entire euro zone, from the clutches of austerity and install a new financial architecture. And he found the Greek finance minister’s presentation during his first Euro Group meeting, full of well-prepared and well-meaning proposals, to be confused and muddled.

Indeed, by the time Schäuble arrived in Brussels for last Friday’s meeting of euro-zone finance ministers, EU diplomats were finding it difficult to bring the two together in a single room. And tensions were high among others in the group as well. Jeroen Dijsselbloem, head of the Euro Group, had even planned to hold telephone conferences and individual meetings rather than bring everyone together. His concern was the consequence of vigorous disagreement during the previous meeting – a conflict which almost descended into blows. That, at least, is what the long-time Brussels correspondent Jean Quatremer reported, citing sources in the French delegation. Varoufakis, his report said, shouted “liar!” at Dijsselbloem over and over again until the meeting ended inconclusively. Varoufakis denies that version of events. He says the disagreement had to do with different versions of the compromise paper.

Varoufakis says he wasn’t aware that, according to Brussels custom, only the version on Dijsselbloem’s desk was official. The result was that last Friday’s Euro Group meeting was atomized, with small groups of two to four people meeting individually with Schäuble, with IMF head Christine Lagarde, with ECB head Mario Draghi and with Dijsselbloem. Varoufakis quickly realized that he was alone, that the other 18 finance ministers were against him. But he took it as validation for his approach. Late that night, he forwarded an article from Foreign Policy to his Twitter followers headlined “Greece Should Not Give In to Germany’s Bullying.” The piece speaks of the “dead hand of Merkelism” and argues that economic logic lies with the Greek finance minister.

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Kids in the sandbox.

Homeland Security Shutdown Looms After House Fails To Approve Funding (Guardian)

John Boehner’s first attempt to keep the Department of Homeland Security from running out of money at midnight failed in the House of Representatives after more than 50 Republicans baulked at his plan to fund it for just three more weeks. The House speaker had been hoping to prevent a shutdown by buying time to negotiate with conservatives in his caucus over their demands that the bill include a measure to prevent Barack Obama from deferring deportation of undocumented immigrants. But even this three-week stop gap was rejected by 52 Republican congressman who defied their party leadership and joined with Democrats to voted against the bill by 224 to 203 just after 5pm. The department runs out of funds at midnight.

Majority leader Kevin McCarthy concluded by saying: “Members are advised that additional votes are possible later this evening and may be this weekend.” Democrats resisted Boehner’s proposal in the hope of forcing House Republicans to follow their colleagues in the Senate and agree a one-year funding bill. But the impasse now sets up a dangerous game of chicken between the parties as each tries to see who will blink first before current funding for the department expires at midnight. Without funding, the department will be unable to pay tens of thousands of border guards, coast guards and other DHS staff, who will nevertheless have to turn up to work as they are deemed “essential workers”.

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Ooff… they just ordered more sand… nick of time…..

Congress Avoids Homeland Security Shutdown With Stopgap Measure

Congress averted a partial shutdown of the U.S. Department of Homeland Security with only two hours to spare by passing a stopgap funding bill that punts a fight over immigration into next week. The House of Representatives, with support from Democrats, voted 357-60 to send the measure to President Barack Obama for his signature. The Senate passed the measure by a voice vote. Hours earlier, the House failed to pass a three-week spending measure because 52 of Speaker John Boehner’s majority Republicans refused to support it. “It’s no way to govern the nation and the American people deserve better,” House Appropriations Chairman Hal Rogers said to boos from some lawmakers before the late-night vote. Nevertheless, the Kentucky Republican said, “It’s the 11th hour and we must act.”

Funding for Homeland Security operations was set to expire at midnight. Without new spending, thousands of employees would have been furloughed or required to work without pay. The House wants to use the Homeland Security funding bill to block Obama’s November orders that shielded about 5 million undocumented immigrants from deportation. The one-week extension ensures that the immigration issue will continue to dominate a congressional calendar that Republican leaders wanted to fill with debate over policy priorities including job creation, health care policy and curbing business regulations. Instead, Republicans are mired in an immigration debate that risks alienating Latino voters ahead of the 2016 presidential and congressional elections.

It’s a policy confrontation the party can’t win while Obama is in the White House. He has threatened to veto any reversal of his orders. The one-week bill, H.R. 33, carries the shutdown fight into next week when Israeli Prime Minister Benjamin Netanyahu will address Congress on security issues. The measure, which extends funding only through March 6, was backed by 183 Republicans and 174 Democrats. Voting no were 55 Republicans and five Democrats. Among the Republicans opposing the bill was Representative Mick Mulvaney of South Carolina, who accused Boehner of “unwillingness to challenge” Senate Minority Leader Harry Reid, a Nevada Democrat.

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“The 5X gain in the Fed’s balance sheet since 2009 has not been harmless——even though it has not stimulated the main street economy. What is has done, obviously, is reflate a massive financial bubble.”

Q4 Obliterates The Case For QE And ZIRP (David Stockman)

[..]..the case for the Fed’s massive money printing campaign has now been flat-out obliterated. As I documented in the Great Deformation, the short but deep recession of 2008-2009 represented a sharp liquidation of excess inventories and labor that had built up in the main street economy during the Greenspan-Bernanke housing and subprime credit bubble. But that one-time liquidation was over by June 2009; the economy was not sinking into a black hole. Moreover, by the time the US economy began to rebound in mid 2009, the real cause was the natural regenerative power of the capitalist market—not the massive money printing campaign that Bernanke had launched at the time of the Lehman failure in September 2008.

All of the massive liquidity – which took the Fed’s balance sheet from $900 billion to $2.5 trillion in less than a year – worked its magic in the canyons of Wall Street, not in the household and business sectors of the main street economy. The fact is, the only channel through which the Fed can impact the main street economy is through credit expansion. Yet business and household credit outstanding was still shrinking long after the recession ended. The 2% slog that began thereafter had nothing to do with the machinations of the Fed; its represented the return of a steady, modest increment of labor hours and productivity growth to the market economy. But here’s the thing. The 5X gain in the Fed’s balance sheet since 2009 has not been harmless——even though it has not stimulated the main street economy.

What is has done, obviously, is reflate a massive financial bubble. The latter will splatter eventually, sending the main street economy into a new tailspin of short-term labor and inventory liquidation and another financial crisis for no reason whatsoever. Indeed, the monetary politburo is stuck in a dangerous time warp. Not recognizing that the credit channel of monetary transmission is broken and done, they keep money market rates pinned to the zero bound because they claim to detect no acceleration of consumer price inflation on the immediate horizon. So what! Do not these clueless Keynesian apparatchiks recognize that the money market rate and the yield curve are the most important prices in all of capitalism, and that their policy of massive and continuous financial repression generates blatantly false prices in the financial markets and therefore rampant speculation and asset price inflation?

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How America sees educating its children: “The federal aid program .. lends money to students at below-market interest rates, regardless of credit history, with no money down, to purchase an asset that can’t be repossessed in the event of default.”

Should the US Make Billions From Student Loans? (Bloomberg)

A group of Senate Democrats, led by Elizabeth Warren of Massachusetts, urged the government to offer relief to distressed borrowers this week, even if that dampens the profit it makes from collecting on people with outstanding loans. In a letter to Education Secretary Arne Duncan dated Wednesday, the six senators wrote, “It is not the job of the Department of Education to maximize profits for the government at the cost of squeezing students.” The letter noted that a recent Congressional Budget Office estimate indicates the federal government will bring in $110 billion from these loans in the next decade. Denise Horn, a spokeswoman for the Education Department, said in an e-mail that the department is reviewing the letter. “[We] look forward to responding,” she wrote.

The department should make it easier for people to use the few tools available for demanding a refund on their student debt, the senators wrote. Borrowers who believe that their college committed fraud or lied to them—about job prospects or graduation rates, for example—can file what’s known as a “defense to repayment” claim against the school, according to federal law. But Warren and other senators have railed against the department for not making it clear enough to students how they could make such a claim. More broadly, the senators noted in the letter, the government has not used its power to cancel federal debts outright when the money went to a school that has been accused of abusing students.

“Instead, the Department continues to gouge borrowers who struggle to meet their payments, subjecting them to debt collection, wage and benefit withholding,” the senators wrote. Some point out, however, that there are risks inherent in handing money to people who might just get a degree in basket weaving, without checking their credit score. Lenders typically expect to be compensated for such risks. The federal aid program, education expert Kevin Carey wrote in the New York Times this month, “lends money to students at below-market interest rates, regardless of credit history, with no money down, to purchase an asset that can’t be repossessed in the event of default.”

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Better pay attention!

China Tells West To Consider Russia’s Security Concerns Over Ukraine (Reuters)

Western powers should take into consideration Russia’s legitimate security concerns over Ukraine, a top Chinese diplomat has said in an unusually frank and open display of support for Moscow’s position in the crisis. Qu Xing, China’s ambassador to Belgium, was quoted by state news agency Xinhua late on Thursday as blaming competition between Russia and the West for the Ukraine crisis, urging Western powers to “abandon the zero-sum mentality” with Russia. He said the “nature and root cause” of the crisis was the “game” between Russia and Western powers, including the US and the EU. He said external intervention by different powers accelerated the crisis and warned that Moscow would feel it was being treated unfairly if the West did not change its approach.

“The West should abandon the zero-sum mentality, and take the real security concerns of Russia into consideration,” Qu was quoted as saying. His comments were an unusually public show of understanding from China for the Russian position. China and Russia see eye-to-eye on many international diplomatic issues but Beijing has generally not been so willing to back Russia over Ukraine. China has also been cautious not to be drawn into the struggle between Russia and the West over Ukraine’s future, not wanting to alienate a key ally. It has said it would like to continue to develop “friendly cooperation” with Ukraine, and respects the ex-Soviet state’s independence, sovereignty and territorial integrity.

Qu’s comments coincide with talks between the United States and its European allies over harsher sanctions against Moscow. On Monday, Russian Foreign Minister Sergei Lavrov accused Western powers of trying to dominate and impose their ideology on the rest of world. The United States and European delegations slammed Moscow for supporting rebels in eastern Ukraine. Qu said Washington’s involvement in Ukraine could “become a distraction in its foreign policy”. “The United States is unwilling to see its presence in any part of the world being weakened, but the fact is its resources are limited, and it will be to some extent hard work to sustain its influence in external affairs, ” Qu was quoted as saying.

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Forgive us for believing, even for a moment, one single thing that came out of Kiev. What were we thinking? They’re building an amazing record.

UAE Denies Deal To Sell Military Equipment To Ukraine (RT)

The United Arab Emirates is not selling military equipment to Ukraine, despite earlier statements by Kiev officials, the UAE Foreign Ministry said. “An agreement on cooperation in defense technologies the UAE and Ukraine signed recently does not stipulate any contracts for deliveries of weaponry to the Ukrainian side,” said Faraj Faris al-Mazrouei, adviser to UAE Foreign Minister Abdullah bin Zayed Al Nahyan. The deal was only one element in a future system of cooperation between the two countries in the field of defense technologies, RIA Novosti reported al-Mazrouei as saying, citing the Emarat Al-Yawm news portal.

The UAE and Ukraine signed a memorandum of understanding on military-technical cooperation during the IDEX-2015 defense exhibition in Abu Dhabi earlier this week. After the signing, an advisor to Ukrainian Interior Minister Arsen Avakov, Anton Gerashchenko, wrote on social networks that this cooperation would include “the supply of certain types of arms and military equipment to Ukraine” by the UAE. “The types and volumes of supplies, as you can imagine, are not for disclosure on Facebook,” Gerashchenko said. The advisor stressed that “unlike Europeans and Americans, the Arabs aren’t afraid of Putin’s threats of a third world war starting in case of arms and ammunition supplies to Ukraine.”

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Who fought Franco, and how many of them were arrested? How ’bout Hemingway?

Spain Arrests Eight Nationals For Fighting With Rebels In Ukraine (Guardian)

Police have arrested eight Spanish men who returned from fighting alongside pro-Russia forces in eastern Ukraine, in what they said was the first operation of its kind in Europe. Officers detained the suspects in six regions across Spain after they returned from predominantly Russian-speaking eastern Ukraine, the interior ministry said in a statement. They had gone to Ukraine last year where they joined pro-Russia groups fighting for independence in the Luhansk and Donetsk regions, the statement added. The Spaniards belonged to the far left and were inspired by the International Brigades, the multinational volunteer forces that fought against Francisco Franco’s uprising during the Spanish civil war in the 1930s.

They are suspected of being accomplices in killings allegedly carried out by pro-Russia groups, and of possessing arms. “Their activities can be considered offences that compromise Spain’s peace or independence, as Spaniards who, while taking part in an armed conflict, violate the neutrality Spain must keep in relation to the international community,” the statement said. The interior ministry said it was the first operation in Europe directed against foreign fighters in Ukraine. Pro-Russia forces in eastern Ukraine are battling those of the Ukrainian government, which is backed by the west.

Over 30,000 foreign fighters are taking part in the conflict, according to the Ukrainian armed forces. A large number come from Russia and former Soviet states, but many have come from Israel, Serbia, Spain, Italy and Brazil. “These arrests sadden me,” a leader of Ukraine’s pro-Russian separatist rebels, in Donetsk, Denis Pouchiline, told AFP. “I think we are going to demand explanations from Spain over this incident. There are many volunteers in our ranks, the greatest number come from Russia, but there are representatives from Spain, Italy, France … it is the first time that they have these types of problems.”

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The western press will play it for all they can, as will the political field. But Putin had no reason to kill the guy, and wouldn’t have done it this way if he had.

Nemtsov Was No Threat To Russian Government – Kremlin (RT)

Boris Nemtsov did not pose a threat to the Russian government, according to presidential press secretary Dmitry Peskov. The murder of the Russian opposition figure has been called a “provocation” by a number of politicians and public figures. Boris Nemtsov was killed Friday evening in the center of Moscow. A veteran of Russian politics, he was an influential figure in the 1990s and held the post of deputy prime minister under former President Boris Yeltsin. Though he had been more involved in business than politics since 2003, he was a critic of the Russian government.

“With all due respect to the memory of Boris Nemtsov, in political terms he did not pose any threat to the current Russian leadership or Vladimir Putin. If we compare popularity levels, Putin’s and the government’s ratings and so on, in general Boris Nemtsov was just a little bit more than an average citizen,” Peskov said on Saturday. Russian President Vladimir Putin has condemned the assassination and expressed his condolences to the family, Peskov added. “Putin has stressed that this brutal murder has all [the] signs of a contract murder and is extremely provocative.”

Irina Khakamada, an opposition figure who was Nemtsov’s ally in the SPS party (Union of Right Forces), called the murder a “provocation” aimed at destabilizing Russia. “It is definitely not beneficial to Putin and it is aimed at destabilizing everything to tatters,” she said.

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 December 21, 2014  Posted by at 1:13 pm Finance Tagged with: , , , , , , ,  2 Responses »
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Frances Benjamin Johnston “Courtyard at 1133-1135 Chartres Street, New Orleans” 1937

Saudi Arabia and UAE Blame Non-OPEC Producers For Oil Price Slide (FT)
Calculating The Breakeven Price For The Median Bakken Shale Well (Zero Hedge)
How Oil Price Fall Will Affect Crude Exporters – And The Rest Of Us (Observer)
UAE Urges All World’s Oil Producers Not To Raise Output In 2015 (Reuters)
Goldman Sees Little Systemic Risk For Banks From Oil Price Drop (MarketWatch)
Russian Crisis Kills Big German Gas Deal (CNNMoney)
ECB’s Constancio Sees Negative Inflation Rate In Months Ahead (Reuters)
For Rome, All Roads Seem To Lead Away From A Single Currency (Observer)
Poll Shows Majority Of Brits Want To Quit EU (RT)
Retirement Index Shows Many Still At Risk (MarketWatch)
Despite Job Growth, Native US Employment Still Below 2007 (HA)
Go West, Young Han (Asia Times)
The Fed’s Too Clever By Half (Guy Haselmann, Scotiabank)
Women To Take Brunt Of UK Welfare Cuts (RT)
Derivatives And Mass Financial Destruction (Alasdair Macleod)
How To Get Ahead At Goldman Sachs (Jim Armitage)
David Stockman Interview: The Case For Super Glass-Steagall (Gordon T. Long)
There Is Hope In Understanding A Great Economic Collapse Is Coming (Snyder)

The dog ate my homework?!

Saudi Arabia and UAE Blame Non-OPEC Producers For Oil Price Slide (FT)

The oil ministers of Saudi Arabia and the United Arab Emirates have blamed the oil price rout on producers outside of OPEC and reaffirmed their stance to keep output at current levels. Ali al-Naimi, Saudi Arabia’s oil minister, said a lack of co-operation from countries outside the cartel was a key contributor to the near 50% slide in crude oil prices since the middle of June. “The kingdom of Saudi Arabia and other countries sought to bring back balance to the market, but the lack of co-operation from other producers outside OPEC and the spread of misleading information and speculation led to the continuation of the drop in prices,” he said at an energy conference in Abu Dhabi on Sunday, according to Reuters. “Let the most efficient producers produce,” he added.

Speaking at the same gathering, Suhail bin Mohammed al-Mazroui, the UAE energy minister, said one of the principal reasons for the price falls was “the irresponsible production of some producers from outside OPEC”. The comments from the two Gulf producers underline their commitment to production targets that stand at 30m barrels day, despite calls from some poorer OPEC members to reduce output to bolster prices. OPEC’s production policy and concerns about a supply glut have seen the price of Brent crude — the international oil benchmark — fall below $60 a barrel, hitting its lowest level in more than five years last week. At the conference, Mr Al-Mazrouei echoed a previous statement, saying “OPEC is not a swing producer” and “it’s not fair that we correct the market for everyone else”.

The UAE is thought to have the closest views to Saudi Arabia, a Gulf ally as well as the cartel’s largest producer and de facto leader. Ahead of last month’s OPEC meeting in Vienna, Mr Al-Mazrouei told the Financial Times: “Yes, there is an oversupply but that oversupply is not an OPEC problem.” He also said that non-OPEC countries and high-cost production – such as oil from US shale fields – should play a role in balancing the market. He says lower prices would help cut excess supplies from more expensive oilfields while preserving the share of lower-cost OPEC producers. The “market will fix it”, he said in November.

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Too optimistic. To do this kind of calculation, you have to look at where financing came from, and how it’s leveraged and hedged.

Calculating The Breakeven Price For The Median Bakken Shale Well (Zero Hedge)

A lot of data has been thrown around recently concerning the Bakken shale wells of North Dakota in an attempt to figure out the necessary oil price required to break even on the investment. In order to get a clearer picture of the financial situation in Bakken, it is necessary to develop a financial model of the median Bakken well. With a discount rate of 15%, the median well has a profitability index of 1.02 (after federal income tax) if $66 per barrel is used. (A profitability index of 1.0 indicates a break even situation at the discount rate that was used in the model). This means that at $66 per barrel, half the wells are uneconomic. If oil prices settle out at this price it can be expected that the number of wells drilled should be reduced by about half. The median Bakken well has the following attributes:

If the current oil price of $55 per barrel is used, the initial production rate has to be increased to 800 BPD in order to break even. According to the J.D. Hughes data, 25% of the wells have an initial production rate of 1000 BPD or more. Accordingly, if oil prices settle out at the current price, the number of wells drilled will be about a quarter of the present number. Some people have stated that this shale industry exists only due to abnormally low interest rates. If we use $100 per barrel and increase the discount rate to 20%, the median well has a profitability index of 1.6, which is profitable. The well is still making over 200 BPD after payout. My conclusion is that the shale development would still be profitable in a normal interest rate environment. The production data used in this model are from only 4 counties, Dunn, McKenzie, Mountrail, and Williams. Very few wells have been economic outside of these 4 counties. Therefore, when these 4 counties become saturated with wells, the Bakken play is over.

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Not an overly impressive sum-up.

How Oil Price Fall Will Affect Crude Exporters – And The Rest Of Us (Observer)

John Paul Getty’s formula for success was to rise early, work hard and strike oil. But a dependence on the black stuff can create its own problems, especially when the price tumbles as it has over the last few months. The price of a barrel of Brent crude has almost halved from $115 in the summer to stabilise around $60 last week. Most forecasters expect the cost of oil to remain low well into next year. Getty became a billionaire oil magnate after four years of speculative drilling in the Saudi Arabian desert proved to be worth the risk. Now the house of Saud appears willing to wait almost as long for its own victory. The plan, agreed with OPEC, maintains output, ignoring demands for cuts to push the price back up again.

As the dominant OPEC member, and keen to protect its own market share, the Saudis have forced the others to take the long view with a strategy that aims to put out of business all those producers that have flooded the market in the last few years and dragged the price lower. US fracking firms, where production costs are high, should be the first to feel the financial pain. But there will be collateral damage to others too. Iran may find itself running out of cash. And then there is Russia, which is heading for a deep recession next year as gas prices follow oil to lows not seen in 10 years. There will be winners too. The UK, now a net importer of oil, has already benefited by an estimated £3m-a-day reduction in fuel costs. Businesses will gain from cheaper energy, and cheaper petrol in effect puts more cash in consumers’ pockets. Taken in the round, global GDP could rise by 0.2% to 0.5% as the wheels of trade are lubricated a little more.

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If you yourself can’t hike your ourput, it’s easy to tell others not to do it either.

UAE Urges All World’s Oil Producers Not To Raise Output In 2015 (Reuters)

The United Arab Emirates oil minister urged all of the world’s producers on Sunday not to raise their oil output next year, saying this would quickly stabilize prices. “We invite everyone to do what OPEC did and take a step to balance the market through not offering additional products in 2015, and if everyone abides by (the) OPEC decision, the market will stabilize and it will stabilize quickly,” Suhail Bin Mohammed al-Mazroui said. He was speaking to reporters on the sidelines of a meeting of ministers of the Organisation of Arab Petroleum Exporting Countries (OAPEC) in Abu Dhabi. OPEC’s decision late last month to leave its output ceiling unchanged,rather than cutting it, was followed by a fresh plunge of oil prices. Iranian Oil Minister Bijan Zangeneh said last week that the continuing price slide was a “political conspiracy”; Iran needs a high oil price to ease pressure on its state finances. But Mazroui said on Sunday: “There is no conspiracy, there is no targeting of anyone. This is a market and it goes up and down.”

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Hey, well, if Goldman says it …

Goldman Sees Little Systemic Risk For Banks From Oil Price Drop (MarketWatch)

A larger share of lending to the energy sector came from high-yield debt rather than through traditional bank loans and as a result there is little scope for systemic risk to the U.S. banking system from a drop in oil prices, according to a research note from Goldman Sachs economist team. Government data puts energy-related loans on commercial banks at a bit more than $200 billion, the team said Friday in a note, a modest share of the sector’s $14.3 trillion in assets. However, regional banks have a disproportionate exposure to energy-related loans could find the recent drop in prices more challenging, the report said.

Fed Chairwoman Janet Yellen said last week that oil’s nearly 50% drop from its summers highs remains a net positive for the economy. She played down risk to the U.S. banking sector. Robert Brusca, chief economist at FAO Economics, said hedge fund players have already taken some big hits since energy was such a prevalent theme in the sector. “If the oil price continues to weaken and stays low for an extended period we could see problems emerge,” Brusca said in a note to clients. He noted a separate study by Goldman’s investment research unit that shows that $1 trillion in oil investment projects planned for the next year globally are no longer profitable with Brent crude below $70 a barrel. The analysis excluded U.S. shale.

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Germany’s industry will not take much more of this.

Russian Crisis Kills Big German Gas Deal (CNNMoney)

Fallout from the Russian crisis continues to spread with the cancellation of a big gas deal with Germany. BASF said it had dropped plans to hand full control of its gas storage and trading business to Russia’s Gazprom in exchange for stakes in two Siberian gas fields. State-controlled Gazprom is the leading supplier of natural gas to western Europe and has been looking to develop its marketing and distribution activities in the region. The chill in relations between Germany and Russia killed the asset swap deal, which covered BASF businesses with €12 billion ($14.6 billion) in sales. Sanctions imposed on Russia over its behavior in Ukraine place restrictions on new energy projects and equipment, and also prevent Russian companies borrowing in Western financial markets.

The cancellation has forced the German chemicals company to restate its accounts for last year, and to mark down profits in 2014, at a combined cost of €324 million ($395 million). BASF and Gazprom have worked together for more than 20 years, and will continue to operate the gas trading business as a joint venture. Other big energy deals have already fallen victim to the deterioration in relations with the West. President Vladimir Putin announced earlier this month that Gazprom had scrapped plans to build a new $40 billion gas pipeline to southern Europe, bypassing Ukraine. With Russia unable to raise new finance from European and U.S. investors, Gazprom may have struggled to fund construction of the pipeline. Some EU states were also nervous that the project would make them even more dependent on Russian gas at a time when they’re looking to diversify their energy supplies.

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But no, that’s not deflation … After all, it’s all about semantics.

ECB’s Constancio Sees Negative Inflation Rate In Months Ahead (Reuters)

European Central Bank Vice President Vitor Constancio said in a magazine interview he expected the euro zone inflation rate to turn negative in the coming months but that if this was just a temporary phenomenon, he did not see a risk of deflation. Annual inflation in the euro zone slowed to 0.3% in November as energy prices fell, putting it well below the ECB’s target for inflation close to but just below 2%. In early December the ECB had forecast 0.7% inflation for 2015 but Constancio told Germany’s WirtschaftsWoche oil prices had fallen by an extra 15% since then and that, while this should support growth and so drive up inflation in the longer term, it created a tricky situation in the short-term.

“We now expect a negative inflation rate in the coming months and that is something that every central bank has to look at very closely,” Constancio was quoted as saying in an interview due to be published on Monday. But he said that several months of negative inflation would not translate into deflation: “You’d need negative inflation rates over a longer period for that. If it’s just a temporary phenomenon, I don’t see a danger.” Constancio said the euro zone was not in deflation and there was also not a risk of this for every country in the single currency bloc. He added that rising productivity in countries like Ireland and Spain could, for example, create scope for wage rises, which would counter deflation dangers.

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“.. while the social democrats think big, Italy’s rightwing parties are declaring the whole thing unaffordable. Not just the Olympics, but the foreign wars, what’s left of the foreign aid budget and, most pressingly, the euro.”

For Rome, All Roads Seem To Lead Away From A Single Currency (Observer)

When Italian prime minister Matteo Renzi confirmed last week that Rome would enter a bid to host the 2024 summer Olympic Games, it was a moment that divided the nation. How could the country afford the £10bn, or even £20bn-plus bill to stage the Olympics when the Italian economy has failed to grow in every quarter since 2011 and the national income is the same as it was in 1997? Renzi dismissed his critics, saying: “Our country too often seems hesitant. It’s unacceptable not to try… or to renounce playing the game.” What he meant was that Italy is a premiership team and should therefore be prepared to compete with the best. Yet while the social democrats think big, Italy’s rightwing parties are declaring the whole thing unaffordable. Not just the Olympics, but the foreign wars, what’s left of the foreign aid budget and, most pressingly, the euro. Silvio Berlusconi’s Forza Italia, Beppe Grillo’s Five Star Movement and the Northern League all agree that Italy cannot hope to compete with northern European rivals inside the same currency zone.

Between them they represent almost 45% of the Italian electorate, rising to almost 50% once Eurosceptic parties are included. These three parties hate each other almost as much as they loathe Renzi’s Democrats. But, still, this discontent with the euro, and the almost intuitive understanding of the single currency’s ability to set Italian workers against German and Austrian rivals with only one obvious loser – Rome – illustrates how the euro project is crumbling. Only a couple of years ago, Italy would have stood aside from all the hand-wringing about the euro. Middle-income Italians were solidly in favour of a project of which they saw themselves as founding members. And more importantly, their vast savings and property values were in euros. Any attempt to withdraw would almost certainly entail a devaluation of 50% or more and the destruction of 50 years of scrimping.

Roberto D’Alimonte, professor of politics at Rome’s Luiss university, says growing discontent with the euro is still an emotional response to domestic austerity cuts and could not be translated into an outright vote against the euro. He says a referendum calling for a withdrawal would be lost. So for the time being, a splintered rightwing opposition and an incoherent response to the euro allow Renzi to forge ahead. But D’Alimonte warns that the resurgence of the Northern League is a sign of growing discontent. An opinion poll earlier this month gave the 41-year-old party leader, Matteo Salvini, a personal popularity of 26% and his party 10%. D’Alimonte says these polls underestimate the powerful surge enjoyed over recent months by the Northern League, which has also reached out to discontented southerners. Salvini calls the euro a “criminal currency” and wants to demolish a Brussels consensus he says is strangling European politics.

The successor to party founder Umberto Bossi, who was brought down by a financial scandal, Salvini is also an admirer of Vladimir Putin and friend of French National Front leader Marine Le Pen. To the shock of many on the left, he has overtaken Grillo as the cheerleader for an Italy that accepts demotion to the second division. “The Europe of today cannot be reformed, in my opinion,” he told the Foreign Press Association in Rome. “There’s nothing to be reformed in Brussels. It’s run by a group of people who hate the Italian people and economy in particular.” When asked whether he worried about spooking the financial markets with his radical plans to withdraw from the euro, impose a single flat tax rate of 15% and deport illegal immigrants, he said: “I don’t want to reassure anyone at all.”

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Those numbers should be much higher.

Poll Shows Majority Of Brits Want To Quit EU (RT)

Among the six European states participating in the poll questioning EU membership, the British appeared most certain of all that they want to leave the union with only 37% against breaking ties. The French OpinionWay poll showed that 42% of British respondents want to leave the EU, while 37% are for staying in the union and the rest 21% are not sure of the answer, Le Figaro reported on Friday. Britain’s PM Davis Cameron promised last year to hold a vote on Europe in a referendum by the end of 2017 if the Conservatives win the next general election. Cameron has been under domestic pressure from politicians to quit the EU sooner. The second place among the six European states surveyed was taken by the Netherlands with 39% for breaking the relationship with EU and 41% of responders against leaving European partnership. The least eager ones to say goodbye were the Spanish with 67% against the notion and only 17% for EU exit.

Among the 3,500 respondents, the French were 22% for and 55 against, while the Germans were 22% and 64 respectively. Most of Italy’s respondents said they would stay in the union – 58%, only 30 were against. Amid the ongoing Eurozone crisis that started in 2009, the member states have cut government spending to try and reduce their budget deficits. EU member countries pushed by austerity policing Germany have been struggling to come out of the crisis. Last week German Chancellor Angela Merkel criticized France and Italy for taking insufficient reforms to curb spending. “The European Commission has drawn up a calendar according to which France and Italy are due to present additional measures” Merkel said to newspaper Die Welt adding that she agrees with the commission. In November the EU commission approved two countries’ budgets which guaranteed that they would impose more austerity measures in 2015.

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And many more than MarketWatch lets on.

Retirement Index Shows Many Still At Risk (MarketWatch)

Every three years, with the release of the Federal Reserve’s Survey of Consumer Finances (SCF), we update our National Retirement Risk Index (NRRI). The NRRI shows the share of working-age households who are “at risk” of being unable to maintain their pre-retirement standard of living in retirement. Constructing the NRRI involves three steps: 1) projecting a replacement rate—retirement income as a share of pre-retirement income—for each member of the SCF’s nationally representative sample of U.S. households; 2) constructing a target replacement rate that would allow each household to maintain its pre-retirement standard of living in retirement; and 3) comparing the projected and target replacement rates to find the percentage of households “at risk.” The NRRI was originally created using the 2004 SCF and has been updated with the release of each subsequent survey.

Our expectation was that the NRRI would improve sharply in 2013; it certainly felt like a better year than 2010. The stock market was up, and housing values were beginning to recover. But the ratio of wealth to income had not bounced back from the financial crisis, more households would face a higher Social Security Full Retirement Age, and the government had tightened up on the percentage of housing equity that borrowers could extract through a reverse mortgage. On balance, then, the Index level for 2013 was 52%, only slightly better than the 53% reported for 2010. This result means that more than half of today’s households will not have enough retirement income to maintain their pre-retirement standard of living, even if they work to age 65—which is above the current average retirement age—and annuitize all their financial assets, including the receipts from a reverse mortgage on their homes. The NRRI clearly indicates that many Americans need to save more and/or work longer.

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Strange use of the word ‘native’.

Despite Job Growth, Native US Employment Still Below 2007 (HA)

Additional findings:
• The BLS reports that 23.1 million adult (16-plus) immigrants (legal and illegal) were working in November 2007 and 25.1 million were working in November of this year — a two million increase. For natives, 124.01 million were working in November 2007 compared to 122.56 million in November 2014 — a 1.46 million decrease.
• Thus BLS data indicates that what employment growth there has been since 2007 has all gone to immigrants, even though natives accounted for 69% of the growth in the +16 population.
• The number of immigrants working returned to pre-recession levels by the middle of 2012, and has continued to climb. But the number of natives working remains almost 1.5 million below the November 2007 level.
• However, even as job growth has increased in the last two years ( November 2012 to November 2014), 45% of employment growth has still gone to immigrants, though they comprise only 17% of the labor force.
• The number of natives officially unemployed (looking for work in the prior four weeks) has declined in recent years. But the number of natives not in the labor force (neither working nor looking for work) continues to grow.
• The number of adult natives 16-plus not in the labor force actually increased by 693,000 over the last year, November 2013 to November of 2014.
• Compared to November 2007, the number of adult natives not in the labor force is 11.1 million larger in November of this year.
• In total, there were 79.1 million adult natives and 13.5 million adult immigrants not in the labor force in November 2014. There were an additional 8.6 million immigrant and native adults officially unemployed.
• The percentage of adult natives in the labor force (the participation rate) did not improve at all in the last year.
• All of the information in BLS Table A-7 indicates there is no labor shortage in the United States, even as many members of Congress and the president continue to support efforts to increase the level of immigration, such as Senate bill S.744 that passed in the Senate last year. This bill would have roughly doubled the number of immigrants allowed into the country from one million annually to two million.
• It will take many years of sustained job growth just to absorb the enormous number of people, primarily native-born, who are currently not working and return the country to the labor force participation rate of 2007. If we continue to allow in new immigration at the current pace or choose to increase the immigration level, it will be even more difficult for the native-born to make back the ground lost in the labor market.

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Problem is: who’s going to buy all that stuff?

Go West, Young Han (Asia Times)

November 18, 2014: it’s a day that should live forever in history. On that day, in the city of Yiwu in China’s Zhejiang province, 300 kilometers south of Shanghai, the first train carrying 82 containers of export goods weighing more than 1,000 tons left a massive warehouse complex heading for Madrid. It arrived on December 9. Welcome to the new trans-Eurasia choo-choo train. At over 13,000 kilometers, it will regularly traverse the longest freight train route in the world, 40% farther than the legendary Trans-Siberian Railway. Its cargo will cross China from East to West, then Kazakhstan, Russia, Belarus, Poland, Germany, France, and finally Spain. You may not have the faintest idea where Yiwu is, but businessmen plying their trades across Eurasia, especially from the Arab world, are already hooked on the city “where amazing happens!” We’re talking about the largest wholesale center for small-sized consumer goods – from clothes to toys – possibly anywhere on Earth.

The Yiwu-Madrid route across Eurasia represents the beginning of a set of game-changing developments. It will be an efficient logistics channel of incredible length. It will represent geopolitics with a human touch, knitting together small traders and huge markets across a vast landmass. It’s already a graphic example of Eurasian integration on the go. And most of all, it’s the first building block on China’s “New Silk Road”, conceivably the project of the new century and undoubtedly the greatest trade story in the world for the next decade. Go west, young Han. One day, if everything happens according to plan (and according to the dreams of China’s leaders), all this will be yours – via high-speed rail, no less. The trip from China to Europe will be a two-day affair, not the 21 days of the present moment. In fact, as that freight train left Yiwu, the D8602 bullet train was leaving Urumqi in Xinjiang Province, heading for Hami in China’s far west.

That’s the first high-speed railway built in Xinjiang, and more like it will be coming soon across China at what is likely to prove dizzying speed. Today, 90% of the global container trade still travels by ocean, and that’s what Beijing plans to change. Its embryonic, still relatively slow New Silk Road represents its first breakthrough in what is bound to be an overland trans-continental container trade revolution. And with it will go a basket of future “win-win” deals, including lower transportation costs, the expansion of Chinese construction companies ever further into the Central Asian “stans”, as well as into Europe, an easier and faster way to move uranium and rare metals from Central Asia elsewhere, and the opening of myriad new markets harboring hundreds of millions of people. So if Washington is intent on “pivoting to Asia,” China has its own plan in mind. Think of it as a pirouette to Europe across Eurasia.

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What did it say, exactly?

The Fed’s Too Clever By Half (Guy Haselmann, Scotiabank)

Yesterday I received an email from a well-known hedge fund manager which in its entirety read as follows: “At the end of the day, the Fed is confused and confusing, so if you spend too much time addressing their comments you end up confusing as well”. In this light, I will detail one observation in this note that leaves me to conclude that the post-FOMC market reaction is farcical. Bear with me while I explain. The FOMC meeting was slightly hawkish for two simple reasons.

1) The Fed slightly moved forward its time frame for the first rate hike to the April-June time frame when Yellen stated, “It is unlikely the Federal Open Market Committee will raise rates for at least the next couple of meetings”. This statement is indeed wishy-washy enough as to allow the Fed flexibility around the comment; nonetheless, the center point for ‘lift-off’ was moved forward.

2) Yellen said the drop in the price of oil would have a transitory effect on inflation and was seen as “tax cut” for the consumer and businesses.

These were the only new pieces of information that emerged from the meeting. How would a day-trader have reacted in normal markets? The US dollar would have risen. Oil would have fallen despite the rise in the dollar. The front end of the Treasury market would have dropped (i.e. higher yields). And, equities would have gone down. All of these occurred except for equities which exploded higher in wild grab-fest fashion. Why? The explanation centers around the fact that the Fed left the words “considerable period” in the statement, even though the Fed changed how it used those words. Many headlines read, “Fed kept considerable period”. This is misleading. The FED did NOT say that it “expects to maintain the target range for the federal funds rate for a consider time”. Rather, the Fed kept the original language that it expects to maintain the target…..for a considerable time following the end of its asset purchase program in October. There is a big difference between the two.

Why make it backward looking? Using the statement in this manner is no different than saying, ‘we still believe what we said at the last meeting’. The markets already knew the Fed expected rates to be maintained after the end of QE, but what about its assessment from today forward? They actually even changed how the words “considerable time” were used to make them completely meaningless. They wanted to emphasize the word “patient” (even though the market already knew it would be patient). In order to keep the “considerable time” words, the FOMC said its patience is consistent with that earlier statement of “consider time”. If they did not do this in order to purposefully make sure those exact words were in the statement, then the entire sentence is completely meaningless.

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Women and children first, Cameron’s favorite victims.

Women To Take Brunt Of UK Welfare Cuts (RT)

New analysis has shown that women will suffer the most from a freeze in tax credits and benefits that the Chancellor, George Osborne, has said will be introduced if the Tories win the general election. Labour commissioned the research from the House of Commons Library after Osborne announced in September that he would save £3 billion a year by freezing working age benefits, which Labour say would hit 10 million households. Labour has consistently said that freezes and cuts to working age benefits hit women the hardest as large numbers of women are in part time work and because of child care they have to rely more on tax credits.

The analysis showed that Osborne’s plan would save up to £3.2 billion by 2018 and that £2.4 billion of these savings will be provided by women compared to just £800 million by men. “These figures show how, once again, women will bear the brunt of David Cameron’s and George Osborne’s choices. This follows four years of budgets, which have taken six times more from women than men – even though women earn less than men,” said the Labour shadow chancellor, Ed Balls. Balls said that 3 million working people will be worse off because of the proposed cut in tax credits; in reality the freeze will cost a one-breadwinner family £500 a year. Labour is pushing hard to convince voters that their way of dealing with the deficit is fairer and less damaging than the Tories.

They have said consistently that the deficit must be tackled but not in a way that hits the working poor. They have also said that the wealthy must do more and have said the 50p higher rate of income tax would be restored if they win the election. Labour’s announcement comes after a report compiled in September that called on the government to produce a “plan F” to tackle the deficit after it found that women were bearing a disproportionate amount of the burden. The Women’s Budget Group (WBG) found that single parents and single pensioners had lost the most from cuts that were being made to benefits and public services.

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Be an asshole.

How To Get Ahead At Goldman Sachs (Jim Armitage)

The Christmas break approaches but a select handful of Goldman Sachs rainmakers are counting down the clock to New Year’s Day – and a life of prosperity of which they only dared to dream. For these are the Goldmanites who have just been told they have made the grade as partners – a near-Olympian status that they take on from 1 January. There are 78 of them this year – 78 of the brightest, most ambitious and most driven men and women in the financial world. Goldman’s partnership-selection process is the stuff of legend in the City and on Wall Street. Once every two years, a pool of potentials is selected, then the candidates are evaluated by every partner with whom they have worked around the world in a process known as “crossruffing” – named after a cunning cardplayer’s move in bridge. The evaluations are, of course, completely confidential. Partnership selection is one of the secret ingredients that give Goldman its edge – that and paying the biggest bonuses on the block, of course.

As far as I’m aware, details of the testimonials from partners about their candidates have never been seen outside the firm. So it was quite a rarity to unearth an internal note of one the other week. It’s from a few years back – the 2008 partnership selection to be precise – but the process has remained the same for decades. So thrusting young Goldman executives aspiring to make the grade like CEO Lloyd Blankfein did all those years ago, read on. The bank stresses that selections are made according to candidates’ leadership qualities, teamwork, appreciation of “the significance of clients” – the usual stuff. But the testimonial memo makes the core message clear: this guy is great because he has an unnerving ability to make money for Goldman Sachs. Big money. And he makes this cash off the backs of the pension funds of the likes of you and me.

The banker, who is a well-known figure in his niche of the City, joined Goldman in the late 1990s, going on to be promoted to work in various divisions along the way. “Notable transactions”, the testimonial memo says, included making a killing (my words, not theirs) in helping to reorganise the pension-fund investments of WH Smith and Rolls-Royce not long before the global financial crisis hit. In the case of WH Smith, the memo says, he helped switch its pension pot from being invested in “cash equity and bonds” to “almost 100% synthetics” – derivatives contracts mainly of the type known as swaps. The trade was aimed at making the pension fund’s value less prone to being boosted or slashed by the vagaries of the financial markets. At the time, the deal was pretty famous – “innovative” was how pension fund trustees put it. It was certainly an innovation in the amount of money our banker helped Goldman make arranging the trade: “a total P&L [profit] exceeding $70m”, the memo says.

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The Citi-written legislation passed this week.

Derivatives And Mass Financial Destruction (Alasdair Macleod)

Globally systemically important banks (G-SIBs in the language of the Financial Stability Board) are to be bailed-in if they fail, moving the cost from governments to the depositors, bondholders and shareholders. There are exceptions to this rule, principally, small depositors who are protected by government schemes, and also derivatives, so the bail-in is partial and bail-out in these respects still applies. With oil prices having halved in the last six months, together with the attendant currency destabilisation, there have been significant transfers of value through derivative positions, so large that financial instability may result. Derivatives are important, because their gross nominal value amounted to $691 trillion at the end of last June, about nine times the global GDP. Furthermore, the vast bulk of them have G-SIBs as counterparties.

The concentration of derivative business in the G-SIBs is readily apparent in the US, where the top 25 holding companies (banks and their affiliated businesses) held a notional $305.2 trillion of derivatives, of which just five banks held 95% between them. In the event of just one of these G-SIBs failing, the dominoes of counterparty risk would probably all topple, wiping out the financial system because of this ownership concentration. To prevent this happening two important amendments have been introduced. Firstly ISDA, the body that standardises over-the-counter (OTC) derivative contracts, recently inserted an amendment so that if a counterparty to an OTC derivative contract fails, a time delay of 48 hours is introduced to enable the regulators to intervene with a solution. And secondly, derivatives, along with insured deposits, are to be classified as “excluded liabilities” by the regulators in the event of a bail-in.

This means a government that is responsible for a G-SIB’s banking license has no alternative but to take on the liability through its central bank. If it is only one G-SIB in trouble, for example due to the activities of a rogue trader, one could see the G-SIB being returned to the market in due course, recapitalised but with contractual relationships in the OTC markets intact. If, on the other hand, there is a wider systemic problem, such as instability in a major commodity market like energy, and if this instability is transmitted to other sectors via currency, credit and stock markets, a number of G-SIBs could be threatened with insolvency, both through their lending business and also through derivative exposure. In this case you can forget bail-ins: there would have to be a coordinated approach between central banks in multiple jurisdictions to contain systemic problems. But either way, governments will have to stand as counterparty of last resort.

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Stockman on that same legislation.

David Stockman Interview: The Case For Super Glass-Steagall (Gordon T. Long)

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This should resound with many of you.

There Is Hope In Understanding A Great Economic Collapse Is Coming (Snyder)

If you were about to take a final exam, would you have more hope or more fear if you didn’t understand any of the questions and you had not prepared for the test at all? I think that virtually all of us have had dreams where we show up for an exam that we have not studied for. Those dreams can be pretty terrifying. And of course if you were ever in such a situation in real life, you probably did very, very poorly on that test. The reason I have brought up this hypothetical is to make a point. My point is that there is hope in understanding what is ahead of us, and there is hope in getting prepared. Since I started The Economic Collapse Blog back in 2009, there have always been a few people that have accused me of spreading fear.

That frustrates me, because what I am actually doing is the exact opposite of that. When a hurricane is approaching, is it “spreading fear” to tell people to board up their windows? Of course not. In fact, you just might save someone’s life. Or if you were walking down the street one day and you saw someone that wasn’t looking and was about to step out into the road in front of a bus, what would the rational thing to do be? Anyone that has any sense of compassion would yell out and warn that other person to stay back. Yes, that other individual may be startled for a moment, but in the end you will be thanked warmly for saving that person from major injury or worse. Well, as a nation we are about to be slammed by the hardest times that any of us have ever experienced.

If we care about those around us, we should be sounding the alarm. Since 2009, I have published 1,211 articles on the coming economic collapse on my website. Some people assume that I must be filled with worry, bitterness and fear because I am constantly dealing with such deeply disturbing issues. But that is not the case at all. There is nothing that I lose sleep over, and I don’t spend my time worrying about anything. Yes, my analysis of the global financial system has completely convinced me that an absolutely horrific economic collapse is in our future. But understanding what is happening helps me to calmly make plans for the years ahead, and working hard to prepare for what is coming gives me hope that my family and I will be able to weather the storm.

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