Aug 312017
 
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Prohibition sale June 24 1920

 

Hurricane Harvey the Costliest Natural Disaster in US History (H.)
“No Way To Prevent Imminent Explosion” At Texas Chemical Plant (ZH)
Texans To Be Hit With New Insurance Law (Ind.)
A Decade of G7 Central Bank Collusion – And Counting… (Nomi Prins)
It’s Time For Your Reminder That Most Commodities Are Priced In US Dollars (BI)
A Universal Basic Income Would Grow The Economy (Vox)
The Promise of Fiscal Money (Varoufakis)
America and China’s Codependency Trap (Stephen Roach)
Financial Firms Fear Turmoil Over Fraught US Debt Ceiling Talks (R.)
Weird Things Are Happening With Gold (Rickards)
‘More Europe’ Won’t Solve Europe’s Fiscal Quandary (BBG)
Victory For Assad Increasingly Likely As World Loses Interest In Syria (G.)
‘Our Society Is Broken’: Canada’s First Nations Suicide Epidemic (G.)

 

 

$160 billion and counting.

Hurricane Harvey the Costliest Natural Disaster in US History (H.)

Hurricane Harvey is predicted to be the costliest natural disaster in the history of the U.S., with a damage cost exceeding Hurricanes Sandy and Katrina. AccuWeather predicts that the damage cost will hit $160 billion. AccuWeather, a private weather firm, notes that the storm’s cost represents 0.8% of the national GDP, which is now at $19 trillion. “Business leaders and the Federal Reserve, major banks, insurance companies, etc. should begin to factor in the negative impact this catastrophe will have on business, corporate earnings and employment. The disaster is just beginning in certain areas,” AccuWeather founder Dr. Joel N. Myers said in a statement.

“Parts of Houston, the United States’ fourth largest city will be uninhabitable for weeks and possibly months due to water damage, mold, disease-ridden water and all that will follow this 1,000-year flood.” Before Harvey, the costliest hurricane to hit the U.S. was Hurricane Katrina, which caused $108 billion in damage along the Gulf Coast in 2005. The second-costliest was Hurricane Sandy, which caused $75 billion in damage in 2012. Hurricane Ike, the last storm to make landfall in Texas before Harvey, caused $37.5 billion in damage in 2008. [..] The Associated Press reports that 80% of Harvey’s victims do not have flood insurance. Thousands of families will have to take on more debt or spend much more to fix their homes. Others will sell their property to move out.

Robert Hunter, director of insurance at the Consumer Federation of America, estimated that flood damage alone cost at least $35 billion. Hunter explained to the AP that if you don’t have flood insurance, you can apply for federal disaster benefits. However, these are low interest loans that will add more debt. Homeowners insurance covers water damage caused by wind damage, but not if the water comes through the floor or walls, the AP explains. “Homeowners with water damage can get paid through their homeowners insurance but only if wind blows out a window or sends a roof aloft first, allowing the water in,” the AP notes. “If the water rushes through the floorboard or walls, you’re not covered.”

Read more …

There have been scores of chemicals released into the air already in the area.

“No Way To Prevent Imminent Explosion” At Texas Chemical Plant (ZH)

[..] in a potentially disastrous outcome from the Harvey flooding, a chemical plant in Crosby, Texas belonging to French industrial giant Arkema, has announced it is evacuating workers due to the risk of an explosion, after primary power was knocked out and flooding swamped its backup generators. The French company said the situation at the plant “has become serious” and said that it is working with the Department of Homeland Security and the State of Texas to set up a command post in a suitable location near our site. The plant, which produces explosive organic peroxides and ammonia, was hit by more than 40 inches of rain and has been heavily flooded, running without electricity since Sunday. The plant was closed since Friday but has had a skeleton staff of about a dozen in place.

Following the flood surge, the plant’s back-up generators also failed. The threat emerged once the company could no longer maintain refrigeration for chemicals located on site, which have to be stored at low temperatures. The plant lost cooling when backup generators were flooded and then workers transferred products from the warehouses into diesel-powered refrigerated containers. On Tuesday afternoon, the company released a statement which admitted that “refrigeration on some of our back-up product storage containers has been compromised due to extremely high water, which is unprecedented in the Crosby area. We are monitoring the temperature of each refrigeration container remotely.” It then warned that “while we do not believe there is any imminent danger, the potential for a chemical reaction leading to a fire and/or explosion within the site confines is real.”

One day later, and with the torrential rains finally over, has the situation at the giant peroxide chemical plant stabilized? Unfortunately, according to Reuters, the answer is no. Speaking to reporters on Wednesday afternoon, Richard Rowe, the chief executive of Arkema’s American operations said that “the company has no way of preventing chemicals from catching fire or exploding at its heavily flooded plant.” Rowe added that the company now expects chemicals on site to catch fire or explode within the next six days. Since the plant remains flooded by about six feet of water, “the company has no way to prevent” this worst-case outcome. Anticipating the worst, the company earlier evacuated all remaining workers, while Harris County ordered the evacuation of residents in a 1.5-mile radius of the plant that makes organic chemicals.

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Insult. Injury.

Texans To Be Hit With New Insurance Law (Ind.)

The embattled populations of southeastern Texas, may soon encounter a new obstacle in their quests to rebuild their lives after Harvey when a new state insurance law that makes it harder for consumers to receive full claims goes into effect Friday. The new law decreases the chances that an insurance company will be forced to pay claim delay penalties and plaintiff attorneys’ fees related to weather-involved claims — a protection that may discourage struggling households from pursuing legal action even if they think the insurance companies are offering less of a payout than they should. Under the new regulations, insurance companies will enjoy greater freedoms to push back on insurance claims, and the first wave of such claimants are likely to be coming from areas impacted by Harvey.

Residents reeling from Harvey now have until just Friday to assess the damages to their homes that may still be under water, and to notify their insurance company of nay damages if they want to avoid navigating that new law. After Friday, new legal restrictions will be in place that make things more difficult for consumers, and interest rates imposed on insurance companies to deter late payments will be cut nearly in half. “Without this law, and as the law currently is until Friday, I think insurance companies would be more responsive to claims,” Kir Pittard, a Dallas attorney, wrote on Facebook of the new law. “After Friday, there won’t be the incentive because the penalty for delays have been reduced.” To put it bluntly, a lot of residents in the impact area of Harvey may face a long battle ahead to replace the roofs torn off their homes from high winds, activists say.

“Insurance companies already had a lot of power, and the bill gives them a lot more power. As we know, too often insurance companies wrongfully withhold payments, they delay payments, they deny claims,” Ware Wendell, the executive director of consumer watchdog group Texas Watch, told The Independent. “So, we’re very concerned that people are going to have blue tarps on their homes instead of roofs.”

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Nomi sees central banks the same way I do.

A Decade of G7 Central Bank Collusion – And Counting… (Nomi Prins)

Since late 2007, the Federal Reserve has embarked on grand-scale collusion with other G-7 central banks to manufacture a massive amount of money. The scope and degree of this collusion are historically unprecedented and by admission of the perpetrators, unconventional in approach, and – depending on the speech – ineffective. Central bank efforts to provide liquidity to the private banking system have been delivered amidst a plethora of grandiose phrases like “unlimited” and “by all means necessary.” Central bankers have played a game with no defined goalposts, no clock rundown, no max scores, and no true end in sight. At the Fed’s instigation, central bankers built policy on the fly. Their science experiment morphed into something even Dr. Frankenstein couldn’t have imagined.

Confidence in the Fed and the U.S. dollar (as well as in other major central banks globally) has dropped considerably, even as this exercise remains in motion, and even though central bankers have tactiltly admitted that their money creation scheme was largely a bust, though not in any one official statement. On July 31, 2017, Stanley Fischer, vice chairman of the Fed, delivered a speech in Rio de Janeiro, Brazil. There, he addressed the phenomenon of low interest rates worldwide. Fischer admitted that “the effects of quantitative easing in the United States and abroad” are suppressing rates. He also said there was “a heightened demand for safe assets affecting yields on advanced-economy government securities.” (Actually, there’s been heighted demand for junky assets, as well, which has manifested in a bi-polarity of saver vs. speculator preference.)

What Fischer meant was that investors are realizing that low rates since 2008 haven’t fueled real growth, just asset bubbles. Remember, Fischer is the Fed’s No. 2 man. He was also a professor to former Fed Chair Ben Bernanke and current European Central Bank President Mario Draghi. Both have considered him to be a major influence in their economic outlook. The “Big Three” central banks – the Fed, the European Central Bank and the Bank of Japan – have collectively held rates at a zero% on average since the global financial crisis began. For nearly a decade, central banks have been batting about tens of trillions of dollars to do so. They have fueled bubbles. They have amassed assets on their books worth nearly $14 trillion. That’s money not serving any productive, real-economy purpose – because it happens to be in lock-down.

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When the reserve currency sinks, strange things can happen.

It’s Time For Your Reminder That Most Commodities Are Priced In US Dollars (BI)

The commodity rally since June has been impressive, and it could be tied to weakness in the US dollar. Those sharp increases — ranging between 15-40% — have had Morgan Stanley strategists slightly puzzled. On one hand, bulk commodities such as iron ore and coal have benefited from steady increases in demand. “Similarly, restocking in zinc and nickel markets have helped lift prices of those trades,” the analysts said. However, they added that fundamentals alone can’t explain the rise in the prices of copper, aluminium and lead. That suggests some of the price action is being driven by an external factor: the recent weakness in the US dollar. The analysts noted that this is the second commodity rally within the last year that’s been directly connected to the US dollar.

But the first one was the other way round — commodities staged a 4-week rally in the wake of the US election last November, when the US dollar was also rising. So why the difference? According to Price and Bates, it’s because the outlook for inflation has now largely reversed. “Post-election, markets positioned for new inflation risk, on the promise of a US infra-build story,” they said. But infrastructure reform is yet to get off the ground amid political gridlock in Washington, and US inflation remains stuck below the Federal Reserve’s target rate of 2-3%. Currency markets have reacted by driving the US dollar lower throughout most of 2017. So it follows that commodities priced in US dollars have benefited from a fall in the greenback while overall commodity-demand remains unchanged.

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Try it in a smaller country first?!

A Universal Basic Income Would Grow The Economy (Vox)

A universal basic income could make the US economy trillions of dollars larger, permanently, according to a new study by the left-leaning Roosevelt Institute. Basic income, a proposal in which every American would be given a basic stipend from the government no strings attached, is often brought up as a potential solution to widespread automation reducing demand for labor in the future. But in the meantime, its critics typically allege that it is far too expensive to be practical, or else that it would spur millions of Americans to drop out of the labor force, wrecking the economy and depriving the government of a tax base for funding the plan. The Roosevelt study, written by Roosevelt research director Marshall Steinbaum, Michalis Nikiforos at Bard College’s Levy Institute, and Gennaro Zezza at the University of Cassino and Southern Lazio in Italy, comes to a dramatically different conclusion.

And it does so using some notably rosy assumptions about the effects of large-scale increases to government spending, taxes, and deficits, assumptions that other analysts would dispute vociferously. Their paper analyzes three different models for a universal basic income: • A full universal basic income, in which every adult gets $1,000 a month ($12,000 a year) • A partial basic income, in which every adult gets $500 a month ($6,000 a year) • A child allowance, in which every child gets $250 a month ($3,000 a year) They find that enacting any of these policies by growing the federal debt — that is, without raising taxes to pay for it — would substantially grow the economy. The effect fades away within eight years, but GDP is left permanently higher. The big, $12,000 per year per adult policy, they find, would permanently grow the economy by 12.56 to 13.10% — or about $2.5 trillion come 2025.

It would also, they find, increase the%age of Americans with jobs by about 2%, and expand the labor force to the tune of 4.5 to 4.7 million people. They also model the impact of the plan if it’s paid for with taxes. That amounts to large-scale income redistribution, which, the authors argue, would stimulate the economy, because lower-income people are likelier to spend their money in the near-term than rich people are. Thus, they find that a full $12,000 a year per adult basic income, paid for with progressive income taxes, would grow the economy by about 2.62% ($515 billion) and expand the labor force by about 1.1 million people.

These are extremely contentious estimates, borne of controversial assumptions about the way the economy works and the effects that a basic income would have on it. Many, if not most, economic modelers would come to very different conclusions: that a basic income discourages work, that raising taxes to pay for it could have profound negative economic impacts, and that not paying for it and exploding the deficit is a recipe for fiscal and economic ruin. But the authors argue that the economic model they’re using, run by the Bard College Levy Economics Institute, uses more realistic assumptions than alternative models, and is particularly well-suited for predicting a UBI’s impact.

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Part of Yanis’ plans for Greece. A parallel system.

The Promise of Fiscal Money (Varoufakis)

any attempt to bring treasuries and central banks back under one roof would expose politicians to accusations of trying to get their grubby hands on the levers of monetary policy. But another response to the new reality is available: Leave central banks alone, but give governments a greater say in domestic money creation – and, indeed, greater independence from the central bank – by establishing a parallel payments system based on fiscal money or, more precisely, money backed by future taxes. How would fiscal money work? For starters, it would “live” on the tax authority’s digital platform, using the existing tax file numbers of individuals and companies. Anyone with a tax file number (TFN) in some country receives a free account linked to their TFN.

Individuals and firms will then be able to add credit to their TFN-linked account by transferring money from their normal bank account, in the same way that they do today to pay their taxes. And they will do so well in advance of tax payments because the state guarantees to extinguish in, say, a year €1,080 of the tax owed for every €1,000 transferred today – an effective annual interest rate of 8% payable to those willing to pay their taxes a year early. In practice, once, say, €1,000 has been transferred to one’s TFN-linked account, a personal identification number (the familiar PIN) is issued, which can be used either to transfer the €1,000 credit to someone else’s TFN-linked account or to pay taxes in the future. These time-stamped future tax euros, or fiscal euros, can be held for a year until maturity or be used to make payments to other taxpayers.

Smartphone apps and even government-issued cards (doubling as, say, social security ID) will make the transactions easy, fast, and virtually indistinguishable from other transactions involving central bank money. In this closed payments system, as fiscal money approaches maturity, taxpayers not in possession of that vintage will fuel rising demand for it. To ensure the system’s viability, the Treasury would control the total supply of fiscal money, using the effective interest rate to guarantee that the nominal value of the total supply never exceeds a%age of national income, or of aggregate taxes, agreed by the legislature. To ensure full transparency, and thus trust, a blockchain algorithm, designed and supervised by an independent national authority, could settle transactions in fiscal money.

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Is it low savings or high debt levels?

America and China’s Codependency Trap (Stephen Roach)

Caught up in the bluster of the US accusations being leveled at China, little attention is being paid to the potential consequences of Chinese retaliation. Three economic consequences stand out. First, imposing tariffs on imports of Chinese goods and services would be the functional equivalent of a tax hike on American consumers. Chinese producers’ unit labor costs are less than one fifth those of America’s other major foreign suppliers. By diverting US demand away from Chinese trade, the costs of imported goods would undoubtedly rise sharply. The possibility of higher import prices and potential spillover effects on underlying inflation would hit middle-class US workers, who have faced more than three decades of real wage stagnation, especially hard.

Second, trade actions against China could lead to higher US interest rates. Foreigners currently own about 30% of all US Treasury securities, with the latest official data putting Chinese ownership at $1.15 trillion in June 2017 – fully 19% of total foreign holdings and slightly higher than Japan’s $1.09 trillion. In the event of new US tariffs, it seems reasonable to expect China to respond by reducing such purchases, reinforcing a strategy of asset diversification away from US dollar-based assets that has been under way for the past three years. In an era of still-large US budget deficits – likely to go even higher in the aftermath of Trump administration tax cuts and spending initiatives – the lack of demand for Treasuries by the largest foreign owner could well put upward pressure on borrowing costs.

Third, with growth in US domestic demand still depressed, American companies need to rely more on external demand. Yet the Trump administration seems all but oblivious to this component of the growth calculus. It is threatening trade sanctions not only against China – America’s third-largest and fastest-growing major export market – but also against NAFTA partners Canada and Mexico (America’s largest and second-largest export markets, respectively). As the reactive pathology of codependency would suggest, none of these countries can be expected to acquiesce to such measures without curtailing US access to their markets – a counter-response that could severely undermine the manufacturing revival that seems so central to the Trump presidency’s promise to “Make America Great Again.”

In the end, China’s economic leverage over America is largely the result of low US domestic saving. In the first quarter of 2017, the so-called net national saving rate – the combined depreciation-adjusted saving of businesses, households, and the government sector – stood at just 1.9% of national income, well below the longer-term average of 6.3% that prevailed over the final three decades of the twentieth century. Lacking in saving and wanting to consume and grow, the US must import surplus saving from abroad to close the gap, forcing it to run massive current-account and trade deficits with countries like China to attract the foreign capital.

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“..the now-notorious 2011 standoff led S&P Global Ratings to downgrade U.S. sovereign debt for the first time. The episode wiped $2.4 trillion off U.S. stocks.”

Financial Firms Fear Turmoil Over Fraught US Debt Ceiling Talks (R.)

Financial firms are sounding alarm bells and dusting off contingency plans over fears an increasingly dysfunctional U.S. Congress may fail to reach a deal to raise the country’s debt limit. Several lobbyists, representing dozens of bankers, investors and credit rating agencies, told Reuters they are worried that dynamics at play in Washington – a bitterly divided Republican party and unpredictable President Donald Trump – could rule out a deal before an October deadline. Policymakers have vowed to provide disaster relief to areas affected by Hurricane Harvey, boosting hopes the debt limit battle could be included in an agreement on a legislative package.

But the acrimonious atmosphere following Trump’s remarks about the Charlottesville protests this month, which cost him key backers in the business community and raised worries about his ability to broker a deal, still lingers. The debt ceiling is a legal cap on how much money the government can borrow to fund its budget deficits and meet debt obligations. Failure to raise it from the current $19.8 trillion could lead to default, sending shockwaves across global markets. “The stakes here are incredibly high. The economic impact associated with debt default is so immense,” said Rob Nichols, president and CEO of the American Bankers Association (ABA), one of the country’s key financial lobby groups. “We’re monitoring this extremely closely and we will mobilize as needed throughout September.”

While leading lawmakers and the administration have pledged it will get done, some corners of financial markets are already on edge. After all, Goldman Sachs estimated that failure to lift the cap would force a government spending cut equal to between 3 and 4% of U.S. gross domestic product, which would have crippling economic consequences. Moreover, previous debt limit negotiations went down to the wire, and the now-notorious 2011 standoff led S&P Global Ratings to downgrade U.S. sovereign debt for the first time. The episode wiped $2.4 trillion off U.S. stocks.

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“U.S. gold is currently officially valued at $42.22 per ounce on the Treasury’s books versus a market price of $1,285 per ounce”

Weird Things Are Happening With Gold (Rickards)

The first strange gold story involves Germany… The Deutsche Bundesbank, the central bank of Germany, announced that it had completed the repatriation of gold to Frankfurt from foreign vaults. The German story is the completion of a process that began in 2013. That’s when the Deutsche Bundesbank first requested a return of some of the German gold from vaults in Paris, in London and at the Federal Reserve Bank of New York. Those gold transfers have now been completed. This is a topic I first raised in the introduction to Currency Wars in 2011. I suggested that in extremis, the U.S. might freeze or confiscate foreign gold stored on U.S. soil using powers under the International Emergency Economic Powers Act, the Trading With the Enemy Act or the USA Patriot Act.

This then became a political issue in Europe with agitation for repatriation in the Netherlands, Germany and Austria. Europeans wanted to get gold out of the U.S. and safely back to their own national vaults. The German transfer was completed ahead of schedule; the original completion date was 2020. But the German central bank does not actually want the gold back because there is no well-developed gold-leasing market in Frankfurt and no experience leasing gold under German law. German gold in New York or London was available for leasing under New York or U.K. law as part of global price-manipulation schemes. Moving gold to Frankfurt reduces the floating supply available for leasing, making it more difficult to keep the manipulation going.

Why did Germany do it? The driving force both in 2013 (date of announcement) and 2017 (date of completion) is that both years are election years in Germany. Angela Merkel’s position as chancellor of Germany is up for a vote on Sept. 24, 2017. She may need a coalition to stay in power, and there’s a small nationalist party in Germany that agitates for gold repatriation. Merkel stage-managed this gold repatriation with the Deutsche Bundesbank both in 2013 and this week to appease that small nationalist party and keep them in the coalition. That’s why the repatriation was completed three years early. She needs the votes now.

The truly weird gold story comes from the United States… Secretary of the Treasury Steve Mnuchin and Senate Majority Leader Mitch McConnell just paid a visit to Fort Knox to see the U.S. gold supply. Mnuchin is only the third Treasury secretary in history ever to visit Fort Knox and this was the first official visit from Washington since 1974. The U.S. government likes to ignore gold and not draw attention to it. Official visits to Fort Knox give gold some monetary credence that central banks would prefer it does not have. Why an impromptu visit by Mnuchin and McConnell? Why now? The answer may lie in the fact that the Treasury is running out of cash and could be broke by Sept. 29 if Congress does not increase the debt ceiling by then. But the Treasury could get $355 billion in cash from thin air without increasing the debt simply by revaluing U.S. gold to a market price. (U.S. gold is currently officially valued at $42.22 per ounce on the Treasury’s books versus a market price of $1,285 per ounce.)

Read more …

Naked power plays.

‘More Europe’ Won’t Solve Europe’s Fiscal Quandary (BBG)

To a certain cast of people, the solution to every problem in Europe is “more Europe” – even, or especially, those problems that have been caused by Europe. The economic crisis that began a decade ago has exposed many flaws in the European economic model. The solution? Some are calling for a euro-zone budget and a euro-zone finance minister. France’s new president, Emmanuel Macron, is dedicated to the idea. Berlin has signaled conditional support. And Brussels is always happy to accrue more power. The idea makes superficial sense: Monetary union, most people now accept, doesn’t really work without fiscal union. The European Central Bank is constantly under pressure to loosen monetary policy to help the weakest euro members, and to keep it tight to help the strongest. But currency is a blunt instrument.

The “more Europe” thinking is that if the EU had a large budget, it could redistribute wealth to more directly help struggling members. (This is what happens in the U.S.) A powerful finance minister would oversee member countries to keep deficits and debts down and prevent debt crises. Except that that doesn’t make much sense: As Martin Sandbu points out, the U.S. federal budget, hovering at around 20% of GDP, isn’t enough to act as much of a macro-economic stabilizer, and nobody contemplates an EU budget of even that scale in the foreseeable future. Regardless, the so-called debt crises in the euro zone were not ultimately caused by deficits and debts as such, but by monetary phenomena. The euro made Mediterranean countries uncompetitive, leading to slow growth and debt and deficits, and the interest on those debts spiked only when the implicit euro-zone-wide guarantee on those debts was called into question by Germany.

What of Germany, which is essential to any EU reform effort? Germany historically, and Angela Merkel especially, has always been keen on more European integration – but also doesn’t want to pay for it. German Finance Minister Wolfgang Schaeuble has favored the idea of an EU budget – with a little-noticed but all-important asterisk. EU countries’ access to a European macroeconomic stabilization fund would be conditioned on “the bailout fund having more say over national debt and budgets,” he told the German Bild newspaper. In other words, Germany would be happy to pay a little something toward a macro-economic stabilization fund in exchange for having practical control over the budgets of all the euro-zone countries.

The commitment to pay into the fund is probably not daunting, because the budgetary orthodoxy rules Germany would come up with would be unattainable, and the money would probably never be spent. In other words, Macron and the “more Europe” camp are willing to hand Germany control over the euro zone’s finances, in exchange for … well, perhaps nothing. It’s an offer that Merkel can’t refuse.

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No, it’s not ideal. But at least all-out chaos like in Libya has been prevented.

Victory For Assad Increasingly Likely As World Loses Interest In Syria (G.)

In recent months, as supplies of aid, money and weapons to Syria’s opposition have dwindled, it had clung to the hope that ongoing international political support would prevent an outright victory for Bashar al-Assad and his backers. Not any more. An announcement earlier this week by Jordan – one of the opposition’s most robust supporters – that “bilateral ties with Damascus are going in the right direction” has, for many, marked a death knell for the opposition cause. Within the ranks of the political opposition, and regional allies, the statement was the opening act of something that all had dreaded: normalisation with a bitter foe. And without anything much to show for it.

Emphasising his words, Jordanian government spokesman Mohammad al-Momani said: “This is a very important message that everyone should hear.” And indeed, the about-face in Amman was quickly noted in Ankara, Doha, and Riyadh, where – after seven and a-half years of war – states that were committed to toppling the Syrian leader are now resigned to him staying. Returning from a summit in the Saudi capital last week, opposition leaders say they were told directly by the foreign minister, Adel al-Jubeir, that Riyadh was disengaging. “The Saudis don’t care about Syria anymore,” said a senior western diplomat. “It’s all Qatar for them. Syria is lost.”

In Britain too, rhetoric that had demanded Assad leave the Presidential Palace, as a first step towards peace, has been replaced by what Whitehall calls “pragmatic realism”. The foreign secretary, Boris Johnson, last week couched Assad’s departure as “not a precondition. But part of a transition.” Rex Tillerson, the US secretary of state, has openly delegated finding a solution to Syria to Russia. Donald Trump, meanwhile, has pledged to close a CIA-run programme, which had sent weapons from Jordan and Turkey to vetted Syrian rebel groups for much of the past four years. Washington has adopted a secondary role in twin, ailing, peace processes in Geneva and Astana and has focused its energies on fighting Isis, not Assad.

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How long ago is it that Justin vowed to fix this? “.. more than 100 reserves still lack housing, electricity or running water “

‘Our Society Is Broken’: Canada’s First Nations Suicide Epidemic (G.)

The suicide epidemic affecting First Nations communities across Canada has been a national crisis for decades, but it attracted international headlines after three indigenous communities were moved to declare a state of emergency in response to a series of deaths. In the spring of 2016, Attawapiskat First Nation reserve in Ontario declared a state of emergency after 11 young people tried to commit suicide in one night – adding to the estimated 100 attempts made over 10 months among this community of 2,000 people. Not long after, it was revealed that six people, including a 14-year-old girl, had killed themselves over a period of three months in the Pimicikamak Cree Nation community of northern Manitoba. In the aftermath, more than 150 youths in this remote community of 6,000 were put on suicide watch.

Then in June this year, another First Nations reserve in Ontario lost three 12-year-old girls who had reportedly agreed a suicide pact. This string of tragic events has seen media and government turn the spotlight on an issue too often ignored in Canada. Across the country, suicide and self-inflicted injury is the leading cause of death for First Nations people below the age of 44. Studies show young indigenous males are 10 times more likely to kill themselves than their non-indigenous male counterparts, while young indigenous females are 21 times more likely than young non-indigenous females. [..] The government has been criticised for its lack of support and funding for First Nations communities, which total 1.4 million people – just under 4.3% of Canada’s population. “We call that injustice,” says Roderick McCormick, an expert in indigenous health and suicide at Thompson Rivers University in Kamloops BC.

He suggests a complex web of severe poverty plus lack of education and basic necessities underpins the rise in suicides among indigenous youths. “In terms of educational opportunities, healthcare and child welfare, the government is doing an injustice by not adequately funding our communities,” McCormick says. “When these remote reserves compare themselves to other communities across Canada, there is a huge gap that has become really evident.” Recent research has found more than 100 reserves still lack housing, electricity or running water – with almost 90 of them being advised to boil their drinking water. Another study by the Canadian Centre for Policy Alternatives found that 60% of children on these reserves are living in poverty. “The communities I represent are living in abject poverty,” Wilson says. “My people are the poorest in this country, and that’s not right.”

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Aug 302017
 
 August 30, 2017  Posted by at 8:39 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Elliott Erwitt Crowd at Armistice Day Parade, Pittsburgh 1950

 

The Economy Minus Houston (Slate)
Harvey Didn’t Come Out Of The Blue (Naomi Klein)
The US Cities with the Biggest Housing Bubbles (WS)
“Crazy” House Prices Are Firing Up New Zealand’s Voters (BBG)
China’s $2 Trillion of Shadow Lending Throws Focus on Rust Belt (BBG)
Homeowner’s Lawsuit Says Wells Fargo Charged Improper Mortgage Fees (R.)
The Battle for India’s $45 Billion Gold Industry Has Begun (BBG)
US Defense Boost May Unravel Into a $65 Billion Cut (BBG)
England’s Fire Services Suffer 25% Cut To Safety Officers Numbers (G.)
UK’s Leading Companies’ Pension Deficit Rises To 70% Of Their Profits (G.)
We Need To Nationalise Google, Facebook and Amazon (G.)
As Poverty Surges in Italy, Five Star Propose a ‘Citizens’ Income’ (BBG)
Why Every European Country Has A Trump Or Sanders Candidate (Drake)

 

 

A huge number of people will not be able to rebuild, because they lack insurance. And in many cases, rebuilding on the same -flood prone- spot wouldn’t be a good idea to begin with. But where will the people go?

Time to stop talking about the damage to the economy, and focus on the people.

The Economy Minus Houston (Slate)

Houston, America’s fourth-largest city, has a massive, diversified economy. Sure, New Orleans sits near the mouth of the mighty Mississippi River and is an important entrepôt and site for export of raw materials, agricultural commodities chemicals, and petroleum products. But Houston is a larger, busier, and far more important node in the networked economy. Economies derive their power and influence from their connections to other cities, countries, and markets. And Houston is one of the more connected. It is one of the global capitals of the energy and energy services industries. Yes, there’s a degree to which consumption and other economic activity that is forestalled or foregone during a flood is consumption and economic activity deferred. And cleanup efforts tend to be additive to local economies. But in today’s economy, a lot of value can easily be destroyed very quickly.

With only a small portion of the housing stock carrying flood insurance, billions of dollars in property will simply be destroyed and not immediately replaced. People who get paid by the hour, or who work for themselves, won’t be able to make up for the income they’re losing a few weeks from now. Hotel rooms and airplane seats are perishable goods—once canceled, they can’t simply be rescheduled. Refineries won’t be able to make up all the time offline—they can’t run more than 24 hours per day. And given that supply chains rely on a huge number of shipments making their connections with precision, the disruption to the region’s shipping, trucking, and rail infrastructure will have far-reaching effects. If you’re a business in Oklahoma or New Mexico, there’s a pretty good chance the goods you are importing or exporting pass through the Port of Houston.

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Sorry, Naomi, but you can’t take individual events and blame them on cllmate change. The system is far too complex for that. We must stick to science, not lose ourselves in assumptions.

Harvey Didn’t Come Out Of The Blue (Naomi Klein)

Now is exactly the time to talk about climate change, and all the other systemic injustices — from racial profiling to economic austerity — that turn disasters like Harvey into human catastrophes. Turn on the coverage of the Hurricane Harvey and the Houston flooding and you’ll hear lots of talk about how unprecedented this kind of rainfall is. How no one saw it coming, so no one could adequately prepare. What you will hear very little about is why these kind of unprecedented, record-breaking weather events are happening with such regularity that “record-breaking” has become a meteorological cliche. In other words, you won’t hear much, if any, talk about climate change.

This, we are told, is out of a desire not to “politicize” a still unfolding human tragedy, which is an understandable impulse. But here’s the thing: every time we act as if an unprecedented weather event is hitting us out of the blue, as some sort of Act of God that no one foresaw, reporters are making a highly political decision. It’s a decision to spare feelings and avoid controversy at the expense of telling the truth, however difficult. Because the truth is that these events have long been predicted by climate scientists. Warmer oceans throw up more powerful storms. Higher sea levels mean those storms surge into places they never reached before. Hotter weather leads to extremes of precipitation: long dry periods interrupted by massive snow or rain dumps, rather than the steadier predictable patterns most of us grew up with.

The records being broken year after year — whether for drought, storm surges, wildfires, or just heat — are happening because the planet is markedly warmer than it has been since record-keeping began. Covering events like Harvey while ignoring those facts, failing to provide a platform to climate scientists who can make them plain, all while never mentioning President Donald Trump’s decision to withdraw from the Paris climate accords, fails in the most basic duty of journalism: to provide important facts and relevant context. It leaves the public with the false impression that these are disasters without root causes, which also means that nothing could have been done to prevent them (and that nothing can be done now to prevent them from getting much worse in the future).

It’s also worth noting that the Harvey coverage has been highly political since well before the storm made landfall. There has been endless talk about whether Trump was taking the storm seriously enough, endless speculation about whether this hurricane will be his “Katrina moment” and a great deal of (fair) point-scoring about how many Republicans voted against Sandy relief but have their hands out for Texas now. That’s politics being made out of a disaster — it’s just the kind of partisan politics that is fully inside the comfort zone of conventional media, politics that conveniently skirts the reality that placing the interests of fossil fuel companies ahead of the need for decisive pollution control has been a deeply bipartisan affair.

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Wolf Richter with a whole series of US cities, all with record new highs. How people can keep saying there is no bubble in the US, I don’t know.

The US Cities with the Biggest Housing Bubbles (WS)

For the good folks who hope fervently that the Fed doesn’t have reasons to raise rates or unwind QE because there isn’t enough inflation, here is an update on one aspect of inflation – asset price inflation, and particularly house price inflation – where the value of your hard-earned dollars has collapsed over a given number of years to where it takes a whole lot more dollars to pay for the same house. So here are some visuals of amazing house price bubbles, city by city. Bubbles really aren’t hard to recognize, if you want to recognize them. What’s hard to predict accurately is when they will burst. Normally the Fed doesn’t want to acknowledge them. But now it has its eyes focused on them.

The S&P CoreLogic Case-Shiller National Home Price Index for June was released today. It jumped 5.8% year-over-year, not seasonally adjusted, once again outpacing growth in household incomes, as it has done for years. At 192.6, the index has surpassed by 5% the peak in May 2006 of crazy Housing Bubble 1, which everyone called “housing bubble” after it imploded (data via FRED, St. Louis Fed). The Case-Shiller Index is based on a rolling-three month average; today’s release was for April, May, and June data. Instead of median prices, it uses “home price sales pairs,” for example, a house sold in 2011 and then again in 2017. Algorithms adjust this price movement and add other factors. The index was set at 100 for January 2000. An index value of 200 means prices have doubled in the past 17 years, which is what most of the metros in this series have accomplished, or are close to accomplishing.

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There is no easy way out for New Zealand.

“Crazy” House Prices Are Firing Up New Zealand’s Voters (BBG)

As ownership falls to the lowest since 1951, housing affordability is firing up voters ahead of New Zealand’s general election on Sept. 23. The government is under attack for failing to respond to price surges that have forced many to ditch their property dreams. New Labour leader Jacinda Ardern has made housing a key issue, helping restore the main opposition party in opinion polls and leaving the election too close to call. “The government’s response has been too slow and inadequate for many because they’ve seen house prices rising very fast,” said Raymond Miller, professor of politics at Auckland University. “Some voters might well have a feeling of being let down by what they see as indifference to their plight. It’s the government’s Achilles’ heel.” Prices across New Zealand have risen 34% the past three years, fanned by record immigration, historically low interest rates and a supply shortage.

That’s seen the portion of owner-occupied properties slump to 63% of the nation’s 1.8 million homes in the second quarter, down from a peak of 74% in the early 1990s. In response, the ruling National Party has made more land available for development and increased deposit grants to first-home buyers. But it’s done little to curb immigration that’s added 201,000 to the population the past three years, while a policy of taxing profits on investment properties sold within two years of purchase has been criticized as too mild. Labour is pledging a more aggressive solution. It’s promising to ban property sales to non-resident foreigners who it says have fanned price pressures, and will extend the period in which investors will be subject to tax to five years. It wants to curb immigration, and plans to build 100,000 homes over 10 years and sell them at affordable prices.

“We’re going to get the government back into the business of building large numbers of affordable homes for first-home buyers like governments used to in this country,” Labour’s housing spokesman Phil Twyford said in a Television New Zealand interview. “The government has had nine years and they’ve just tinkered around the edges.” Many New Zealanders are motivated to save for a home where they can bring up a family just as their parents and grandparents did. National will be wary that disillusioned home-buyers may turn their back on the party, thwarting its efforts to win a rare fourth term. No party has won an outright majority since the South Pacific nation introduced proportional representation in 1996. National had 44% support in a poll published Aug. 17. Labour had 37% but could get across the line with the additional support of ally the Green Party, which had 4%, and New Zealand First, which got 10%.

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I think the estimates are still low.

China’s $2 Trillion of Shadow Lending Throws Focus on Rust Belt (BBG)

Regional banks in China’s rust-belt provinces are driving the rapid expansion of shadow banking in the country, fueling a web of informal lending that poses wider risks to the financial system, according to a study by UBS. Smaller rust-belt banks like Bank of Tangshan Co. and Baoshang Bank have been using products such as trust beneficiary rights and directional asset-management plans to hide the true state of their bad loans and circumvent lending restrictions, the study by analyst Jason Bedford said. Others have been using the shadow loan instruments to diversify away from lending in their struggling home provinces, exposing themselves to a much wider spectrum of Chinese corporate risk in the event of a default, according to the report. By analyzing 237 Chinese banks, many of them small and unlisted regional lenders, Bedford casts a new spotlight on underground financing and the risks it poses to the nation’s $35 trillion banking industry.

Shadow loans grew almost 15% to 14.1 trillion yuan ($2.3 trillion) by December from a year earlier, equal to about 19% of economic output, he estimates. “This is a sleeper issue,” Bedford wrote. “The remarkable level of concentration in regional banks in rust-belt region banks, combined with evidence that these assets are increasingly being used to roll over loans to existing borrowers as well as being swapped between banks without a clear transfer of risk are alarming.” Accounting for this financing, Chinese banks’ nonperforming loans could be three times higher than the official published level, he said. By recording such lending under “investment receivables” rather than “loans” on their financial statements, banks were able to disguise what is in effect lending, to get around regulatory lending curbs or heavy reliance on wholesale funding.

Such financial engineering also enabled some lenders to overstate their capital adequacy ratios, understate nonperforming loans and reduce provision charges. [..] Bank of Tangshan is an unlisted lender in the struggling northeast city of the same name, which produces more steel than any other city around the world. The firm’s shadow loans grew 86% last year to a size equal to 308% of its formal book, the highest of any bank in China, according to Bedford’s report. Still, the bank reported a bad-loan ratio of just 0.05% last year, the lowest of any bank in UBS’ analysis, exemplifying the “distortion” shadow loan books create in assessing asset quality, Bedford said.

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How is this NOT criminal intent? Where are the indictments?

Homeowner’s Lawsuit Says Wells Fargo Charged Improper Mortgage Fees (R.)

A homeowner has filed a lawsuit accusing Wells Fargo of improperly charging thousands of customers nationwide to lock in interest rates when their mortgage applications were delayed. Filed on Monday in San Francisco federal court, the lawsuit said Wells Fargo managers pressured employees to blame homeowners for the delays, sometimes by falsely stating that paperwork was missing, so homeowners could be stuck with extra fees. Wells Fargo Spokesman Tom Goyda said the bank is reviewing past practices on rate lock extensions and will take steps for customers as appropriate. The lawsuit, which will request the court grant class action status, comes as Wells Fargo is trying to recover from a scandal last year when the bank was fined for opening accounts for customers without their authorization in order to boost sales figures.

Last month, a new lawsuit accused it of charging several hundred thousand borrowers for auto insurance they did not request. Monday’s lawsuit accuses the bank of violating state and federal consumer protection laws, including the U.S. Real Estate Settlement Procedures Act and the U.S. Truth in Lending Act. Earlier this month, Wells Fargo disclosed that the Consumer Financial Protection Bureau was investigating the fees the company charged to lock in interest rates for delayed mortgage loans. In a securities filing, the bank said it was working with regulators to see if customers had been harmed by the fees. Interest rate locks are guarantees by a lender to lock in a set interest rate, usually for several weeks, while a loan is processed. If the rate lock expires before a loan closes, lenders often cover the cost of extending the lock if the delay was their fault.

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Modi taking people’s incomes away. Reforms. Here’s thinking India is nowhere near ready for this.

The Battle for India’s $45 Billion Gold Industry Has Begun (BBG)

India’s past and future are colliding in Anand Ghugre’s family jewelry shop in Mumbai. “We still operate the way my father did for 50 years,” said Ghugre, 52, explaining that transactions were typically in cash and were not always recorded. “For small jewelers and the unorganized sector, most of our sales happen through personal connections. Sometimes they don’t want bills, but the jewelers can’t say no to them.” That way of doing business is under threat as the world’s second-largest gold market faces Prime Minister Narendra Modi’s campaign to bring India’s informal economy to book. About three quarters of the estimated $45 billion of the precious metal that is traded in the country each year makes its way through thousands of family-run jewelry shops that have catered for centuries to the nation’s love of gold.

Modi’s financial reforms, including demonetization and a new goods and services tax, combined with a younger generation that shops online, may usher in a wave of takeovers and mergers by big state-wide and national chains as small shops are swallowed up or close. “The one story that we hear is that the business is becoming problematic for smaller jewelers,” said Chirag Sheth at London-based precious metals consultancy Metals Focus. “The bigger jewelers have deeper pockets, they have larger shops, better designs and better margins. It is very difficult for a smaller guy to compete.” Modi in November banned higher denomination notes to bring unaccounted cash back into the system and introduced tougher proof of identity for purchases, capped the amount of cash used in transactions and topped it off with the uniform goods and services tax last month.

An overhaul of the fragmented industry is also on the cards with the government said to be planning a new policy on gold that will bolster confidence among consumers, where the gifting of gold at weddings and festivals or its purchase as a store of value are deeply held traditions. Fixing quality standards and allowing supply chains to be easily tracked are ways to enhance trust.

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Well, we can’t have that, can we?

US Defense Boost May Unravel Into a $65 Billion Cut (BBG)

U.S. national security funding may be slashed by about $65 billion in January as lawmakers forge ahead with a spending plan that collides with a budget ceiling under a six-year-old law. A $614 billion bill passed by the U.S. House in H.R. 3219 is caught in a political vise: President Donald Trump and most lawmakers want to see increases in Pentagon spending, yet that intention isn’t backed up by an agreement to undo the 2011 Budget Control Act. Without another budget agreement in place, the Defense Department faces automatic across-the-board cuts of 9% to 10% starting in mid-January, according to Chris Sherwood, a Pentagon spokesman. That’s about $65 billion, the Congressional Budget Office estimates.

Enforcement of the act’s caps are returning for the coming fiscal year that begins Oct. 1 after they were adjusted in fiscal 2016 and 2017 for discretionary domestic and national security spending. That was the third time since the act passed that the limits were adjusted, in those cases for both defense and domestic discretionary spending. Trump wants to cut domestic spending while adding to defense, a proposal opposed by Democrats and many Republicans. If the mandatory cuts go ahead, they would be leveled across thousands of Pentagon programs. The White House would have the option of exempting military personnel funds from the automatic cuts, known as sequestration. Such cuts are likely because all of the pending congressional defense bills so far propose busting the cap of $549 billion in national security spending for fiscal year 2018, or $522 billion for the Pentagon alone.

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Cameron and Osborne and May have gutted the entire country.

England’s Fire Services Suffer 25% Cut To Safety Officers Numbers (G.)

Fire services in England have lost more than a quarter of their specialist fire safety staff since 2011, a Guardian investigation has found. Fire safety officers carry out inspections of high-risk buildings to ensure they comply with safety legislation and take action against landlords where buildings are found to be unsafe. Figures released to the Guardian under the Freedom of Information Act showed the number of specialist staff in 26 fire services had fallen from 924 to 680, a loss of 244 officers between 2011 and 2017. Between 2011 and 2016, the government reduced its funding for fire services by between 26% and 39%, according to the National Audit Office, which in turn resulted in a 17% average real-terms reduction in spending power.

Warren Spencer, a fire safety lawyer, said the figures showed a “clear culture of complacency” about fire safety. “The government has tended to take the view that fewer people are dying in fires, fires occur less frequently, and therefore there’s no need to invest in fire prevention. So there’s been a total brain drain in fire safety knowledge and many experienced specialist officers have left the force,” he said. “But fire safety officers have been saying to me for years that one day, there would be a big fire in a multiple occupancy building, which would make everyone sit up and take notice of the lack of fire safety provision. Tragically, that’s what happened at Grenfell Tower.”

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As dividends keep being paid out.

UK’s Leading Companies’ Pension Deficit Rises To 70% Of Their Profits (G.)

The combined pension deficit of FTSE 350 companies has risen to £62bn, accounting for 70% of their profits. The deficit as a proportion of profits recorded for 2016 is higher than at any time since the financial crisis, following a £12bn rise since 2015. The 25% increase came in a second year of comparatively low profit for UK publicly listed companies. The deficit is the gap between the expected liabilities of pension commitments and the funds that companies hold to pay for pensions. While many have set aside billions in recent years, a trend towards rising life expectancy, combined with lower expectations for returns on investment, has put more pressure on pension schemes and seen the deficit grow. Actuaries have warned that even a slight fall in bond yields would see the pension deficit of the plcs outstrip their aggregate profits by 2019.

The figures, in a report from the actuarial consultancy Barnett Waddingham, show the deficit has risen sharply as a proportion of profits in the past five years, from 25% of the £214bn pre-tax profits of the FTSE 350 in 2011. Even in the aftermath of the financial crisis in 2009, the deficit was lower at 60%. For 21 plcs, the pensions shortfall is more than 10% of their value, which Barnett Waddingham described as alarming. However, the actuaries said recent data suggesting years of austerity had seen gains in UK life expectancy grind to a halt could provide “welcome respite for companies”. It showed that after a century in which the rate of increase in life expectancy had accelerated, the average age of death was levelling off at 79 for men and 83 for women.

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A discussion that must take place. But the political climate doesn’t lean towards nationalization. Besides, how do you nationalize companies that operate in many dozens of countries?

We Need To Nationalise Google, Facebook and Amazon (G.)

At the heart of platform capitalism is a drive to extract more data in order to survive. One way is to get people to stay on your platform longer. Facebook is a master at using all sorts of behavioural techniques to foster addictions to its service: how many of us scroll absentmindedly through Facebook, barely aware of it? Another way is to expand the apparatus of extraction. This helps to explain why Google, ostensibly a search engine company, is moving into the consumer internet of things (Home/Nest), self-driving cars (Waymo), virtual reality (Daydream/Cardboard), and all sorts of other personal services. Each of these is another rich source of data for the company, and another point of leverage over their competitors.

Others have simply bought up smaller companies: Facebook has swallowed Instagram ($1bn), WhatsApp ($19bn), and Oculus ($2bn), while investing in drone-based internet, e-commerce and payment services. It has even developed a tool that warns when a start-up is becoming popular and a possible threat. Google itself is among the most prolific acquirers of new companies, at some stages purchasing a new venture every week. The picture that emerges is of increasingly sprawling empires designed to vacuum up as much data as possible. But here we get to the real endgame: artificial intelligence (or, less glamorously, machine learning). Some enjoy speculating about wild futures involving a Terminator-style Skynet, but the more realistic challenges of AI are far closer.

In the past few years, every major platform company has turned its focus to investing in this field. As the head of corporate development at Google recently said, “We’re definitely AI first.” All the dynamics of platforms are amplified once AI enters the equation: the insatiable appetite for data, and the winner-takes-all momentum of network effects. And there is a virtuous cycle here: more data means better machine learning, which means better services and more users, which means more data. Currently Google is using AI to improve its targeted advertising, and Amazon is using AI to improve its highly profitable cloud computing business. As one AI company takes a significant lead over competitors, these dynamics are likely to propel it to an increasingly powerful position.

What’s the answer? We’ve only begun to grasp the problem, but in the past, natural monopolies like utilities and railways that enjoy huge economies of scale and serve the common good have been prime candidates for public ownership. The solution to our newfangled monopoly problem lies in this sort of age-old fix, updated for our digital age. It would mean taking back control over the internet and our digital infrastructure, instead of allowing them to be run in the pursuit of profit and power. Tinkering with minor regulations while AI firms amass power won’t do. If we don’t take over today’s platform monopolies, we risk letting them own and control the basic infrastructure of 21st-century society.

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Of course the headline said “populists”… Fixed that.

As Poverty Surges in Italy, Five Star Propose a ‘Citizens’ Income’ (BBG)

“Poverty will be center stage in the campaign,” says Giorgio Freddi, professor emeritus of political science at the University of Bologna. The populist Five Star Movement “has imposed the issue on national politics. The mainstream parties are being forced to play catch-up.” Five Star is a fast-growing group fueled by anger at the old political class. Three years ago the movement rode economic concerns to power in Livorno, ending 70 years of rule by the Communists and other left-leaning parties. The new mayor, a former engineer named Filippo Nogarin, introduced a €500 ($590) monthly subsidy to the disadvantaged. That idea is a key plank in Five Star’s national platform, and the group’s leaders have promised to quickly implement such a program if they take power. Beppe Grillo, the former television comedian who co-founded the party, says fighting poverty should be a top priority.

A basic income can “give people back their dignity,” Grillo’s blog declared in April. “The current government is ignoring millions of families in difficulty.” The Five Star program echoes universal basic income schemes being considered around the world. Finland in January started an experiment in which 2,000 unemployed people receive a stipend of €560 per month. And the Canadian province of Ontario this summer began trials in three cities in which individuals can get almost C$17,000 ($13,600) per year. Five Star’s version would give Italians below the poverty line as much as €780 a month. Recipients must perform several hours of community service each week and actively seek work, and they’d be cut off after rejecting three job offers. Five Star says the plan would cost €17 billion a year, funded in part by spending cuts as well as tax hikes on banks, insurance companies, and gambling.

Opinion polls show Five Star neck and neck with the Democratic Party, led by ex-Premier Matteo Renzi, and a center-right bloc including Forza Italia, the party of former Premier Silvio Berlusconi. To keep Five Star from dominating the debate, Prime Minister Paolo Gentiloni, a Renzi ally, has approved a less ambitious plan he calls “the first universal tool against poverty.” The scheme, dubbed “inclusion income,” would give 1.7 million people as much as €485 a month as long as they’re actively seeking work, at a cost of about €2 billion a year. With industrial output down by about 25% from 2008 to 2013 in Italy’s worst postwar recession, either plan could be helpful, says Giuseppe Di Taranto, a professor of economic history at Rome’s Luiss University. “We lost lots of jobs, and poverty has risen so much that we’ve got to experiment.”

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More of the same. But the anti-EU, anti-globalization mood is obvious: “77% of the people questioned in a recent poll could see no advantage to them at all from the country’s membership in the European Union.” While Macron and Merkel are planning a lot more EU. And claiming that the EU is doing fine.

Why Every European Country Has A Trump Or Sanders Candidate (Drake)

As a result of the methods used to promote globalization, the consequences for the West have been tragic. Work is becoming increasingly uncertain and insecure, or it is in the process of disappearing altogether. It would take Veblen’s talents for social satire, which are unsurpassed in all of American literature, to depict with the essential exactitude of artistic synthesis how far the United States has fallen away from democratic grace, the country’s dramatically widening gap between the haves and the have-nots being what it is. Clearly, we are on the wrong course. What the robotics revolution, now at an incipient stage, will do to further diminish opportunities for Western peoples to work can be easily imagined, if the economic imperative of corporate capitalism is the rule to go by.

The same desolating trends can be seen in Europe, where people increasingly regard the European Union as a Trojan horse. The economic elites and their political front-men responsible for this image-challenged contraption lose public support with each new poll. The people by and large blame the European Union and the other accessories of globalization for their worsening standard of living. When informed by the establishment media that thanks to globalization Europe has never been more prosperous and peaceful, Europeans in historic numbers are reacting with disbelief. Their deepening sense of betrayal propels the surge of populism that defines the politics of Europe today. Arguments long-settled in favor of deregulation, liberalization, open borders, and other globalization watchwords have been reopened.

The constituency is growing for a politics that puts the well-being of Europeans first. Political measures calling for the protection of European jobs and cultures have gained a following unforeseen prior to 2008. In Italy, for example, 77% of the people questioned in a recent poll could see no advantage to them at all from the country’s membership in the European Union. 64% of them expressed hostility toward it. Eight Italian businesses out of 10 can find nothing positive to say about the European Union. It is seen to be a creature of the banks and the big financial houses. As public relations disasters go, this one has unfolded on an epic scale as the underlying populations, long left out of consideration by the economic elites, have begun to sense the fate their masters have in store for them.

Leaving underlying populations out of consideration was a special feature of the planning that went into globalization. They have been voiceless. In America, Trump gave them a voice, and they responded to him with their political support. It did not matter that he came before them without a plan for their deliverance. That he came to them at all mattered. He understood the depth of the anger and alienation in America against a status quo personified by his opponent, Hillary Clinton, whose repeated and munificently rewarded speeches before the captains of finance on Wall Street effectively branded her as the safe candidate for all who wanted to leave existing economic arrangements fundamentally undisturbed.

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May 042017
 
 May 4, 2017  Posted by at 9:32 am Finance Tagged with: , , , , , , , , , , ,  7 Responses »
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Fred Stein Americans All 1943

 

“We Have Enough Votes”: House To Vote Thursday To Repeal Obamacare (ZH)
Democrats, Not Trump, Are Driving Policy (BBG)
Corporate Insiders Are Unloading Their Stocks Like There’s No Tomorrow (Lang)
The Coming Collapse In US Auto Sales (F.)
Fed to Markets: June Rate Hike Coming Your Way (CNBC)
Rickards Says Fed Raising Into Weakness, Recession Due By Summer (BBG)
57% Of Australians Couldn’t Handle $100 A Month Rise In Mortgage Payments (G.)
Kyle Bass Warns “All Hell Is About To Break Loose” In China (ZH)
PIMCO Warns “Brace For Lower Growth” From A Less ‘Impulsive’ China (ZH)
Do Tax Cuts Pay For Themselves? (MW)
The Economics of the Future (Michael Hudson)
UK PM May Accuses EU of Brexit Threats and Election Interference (CNBC)
Le Pen Tirade Meets Logic of Macron in Brutal French TV Duel
Universal Basic Income is Not “Free Money” (Santens)
The Brothers Fighting For Indebted Greek Homeowners (AP)

 

 

The whole thing oozes cynicism.

“We Have Enough Votes”: House To Vote Thursday To Repeal Obamacare (ZH)

The Republicans are giving Obamacare repeal another try, and this time they may succeed. Just a few hours after we reported that “Obamacare repeal suddenly looks possible” when two key Republicans – Fred Upton and Billy Long – flipped and decided to support the GOP healthcare bill, leading to immediate speculation the bill has enough support, the WSJ reported that House Majority Leader Kevin McCarthy told reporters Wednesday evening the House will vote on Thursday on the Republican bill to replace most of Obamacare: “we will be voting on the health-care bill tomorrow because we have enough votes.” When asked by a reporter about whether the bill would have to be pulled from the floor again for lack of support, McCarthy replied: “Would you have confidence? We’re going to pass it. We’re going to pass it. Let’s be optimistic about life.”

McCarthy also cited an insurer pulling out of the ObamaCare exchanges in Iowa Wednesday as a reason the law needs to be quickly repealed. “That’s why we have to make sure this passes. To save these people from ObamaCare, which continues to collapse.” And so just like at the end of March, when the GOP was confident it had whipped enough names, only to pull the vote in the last moment, the announcement once again sets up a high-stakes vote that is expected to come down to the wire. The House GOP bill, if passed, would roll back much of the 2010 health-care law, replacing its subsidies with a system of tax credits largely tied to age. Until Wednesday, Republican leaders had struggled to secure the 216 votes they need to pass the bill, which is expected to receive no Democratic support.

They pulled the bill from the floor in late March, when conservatives and centrists defected and it became clear the legislation didn’t have the support to pass. Last week, GOP leaders also opted not to vote on the bill ahead of Trump’s first 100 days in office. [..] in pulling yet another page from the Democrats’ playbook, the House will pass the vote first before finding out what’s in it: the vote will take place without waiting for a new Congressional Budget Office analysis of Upton’s changes or the amendment from Rep. Tom MacArthur that won over the House Freedom Caucus. That analysis will eventually provide the details of the bill’s effects on coverage and its cost. For now however, Republicans are just scrambling to take advantage of this rare moment of agreement and get something finally done.

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What’s so cynical: trying to break Democrats’ power by pushing through a half-baked bill.

Democrats, Not Trump, Are Driving Policy (BBG)

Enough about Donald Trump’s first 100 days. On the 101st day, Congress came to a rare bipartisan agreement funding the federal government through September. This showed who really holds power in the Trump era: Democrats. After last November’s election, when Republicans had consolidated power and held both chambers of Congress as well as the White House, the question was who would be driving policy. Would it be the Trump administration, perhaps led by populist mastermind Steve Bannon? Would it be House Speaker Paul Ryan, a man with a reputation as a policy wonk with a vision for government? Would it be the ideological House Freedom Caucus, demanding that the new Republican-led government live up to the promises the party made to its base during the Obama years? All have tried to lead at some point this year, but the recently agreed-upon budget deal shows that instead, it’s Democrats who appear to be in charge.

Democrats have the leverage in Washington now because Republicans haven’t figured out how to govern on their own. The first Republican attempt at legislation was Paul Ryan’s American Health Care Act. That failed in part because it didn’t repeal Obamacare as the House Freedom Caucus insisted. The Trump administration tried to influence the legislative agenda by putting forth its budget blueprint in mid-March, which included draconian cuts to various departments. Yet the only parts of that budget that made it into the final agreement were modest spending increases for defense spending and border security, without any of the corresponding cuts. This happened because Republicans couldn’t come to an agreement on the budget on their own, meaning Democratic votes were needed for passage, and Democrats wouldn’t sign on to anything with big spending cuts.

[..]The emerging view may be that Trump just wants to sign legislation that he can take credit for, regardless of the substance of the bills. After all, he’s on the verge of signing a government funding bill that’s more in line with Democratic priorities than his own. Since he hasn’t been willing to stand up for any of his or his party’s policy priorities so far, should Democrats retake the House in 2018, there’s no reason to think he wouldn’t sign legislation passed by Democrats in the House if it makes it to his desk. On policy, the author of “The Art of the Deal” doesn’t seem to have any policy deal-breakers. A president without any fixed policy vision or breaking points is no authoritarian. He makes the legislature more powerful than it’s been in decades. If Republicans can’t come to internal agreement on major legislation, and Democrats are the ones with leverage, then complete inaction might become a best-case scenario for the GOP.

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“The people who would stand to lose the most if the markets crashed [..] are all jumping ship and selling their stocks.”

Corporate Insiders Are Unloading Their Stocks Like There’s No Tomorrow (Lang)

There aren’t any surefire ways to tell if the stock market, and perhaps the rest of the economy, is about to take a nosedive. That’s because millions of people with millions of ideas are involved, so it’s an inherently unpredictable system. However, there are certain players in our economy that have a lot more influence and insider knowledge than the rest of us. So when they make a move in unison, you know there’s a good chance that something is about to go down. And that’s exactly what’s going on with the stock market right now. The people who would stand to lose the most if the markets crashed; the corporate executives and insiders, are all jumping ship and selling their stocks.

“As the investing public has continued to devour stocks, sending all three major indexes to record highs in the last few months, corporate insiders have been offloading shares to an extent not seen in seven years.”Selling totaled $10 billion in March, according to data compiled by Trim Tabs. It’s a troubling trend facing an equity market that’s already grappling with its loftiest valuations since the 2000 tech bubble. If the people with the deepest knowledge of a company are cashing out, why should investors keep buying at current prices? The groundswell of insider selling has the attention of Brad Lamensdorf, portfolio manager at Ranger Alternative Management, and he doesn’t like what he sees. “This is definitely a negative sign,” Lamensdorf wrote in his April newsletter. “They do not see value in their own companies!”

And this isn’t a recent trend. While ordinary investors were optimistically diving into the stock market after Trump was elected, these people were dumping their stocks as far back as February. “Chief executives and other corporate insiders are selling stock hand over fist now that the quarterly earnings season is over, a report from Vickers Weekly Insider shows. Transactions by insiders are restricted around a company’s report. “Insider selling has jumped again, and this time to levels rarely seen,” analyst David Coleman wrote in Monday’s note.”

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A useful term: “Pent Down Demand”

The Coming Collapse In US Auto Sales (F.)

Automobiles are not moving off the parking lot. That’s according to an industry report that showed a sharp decline in auto sales across all auto makers—see table. Meanwhile industry inventories have been climbing up from an average of 55 days back in April of 2015 to 70 days last month. Coming after months of sluggish sales and generous incentives, the big drop in April sales could be a sign of an impending collapse which could parallel that of 2008-9. There’s a compelling reason for that: pent down demand, which for years has been “stealing” sales from the future. Now the future has arrived and pent down demand is bad for auto makers, their investors and the economy as a whole.

To get an idea how “pent down demand” (my own term) works, a good place to begin with is the more familiar concept of pent up demand, the lack of current demand for discretionary items like automobiles, home appliances, etc., which depresses sales of these items in the short run. Pent up demand usually appears before a period of consumer euphoria, when consumers choose to push spending on discretionary items to a future date, due to lower price expectations, depressed consumer confidence, or a credit crunch. And it disappears together with these conditions when that future day comes, and consumers rush to buy the items they put off in the past.

In contrast, pent down demand appears after a period of consumer euphoria when consumers choose to move spending on discretionary items from a future date into the present day, due to low cost of financing — which blurs the distinction between present and future. Why wait to buy a new car or a new home appliance next year when you can have it this year, paying a small penalty for this privilege? Simply put, ultra-low interest rates help “steal” sales from the future, creating market saturation, and eventually depress spending on “high ticket” items when the future becomes present. That’s what happened in the six years that preceded the 2008-9 collapse in US auto sales. Consumers rushed to take advantage of “zero percent” financing to purchase cars they would normally buy years later.

That’s how automobile sales grew from an average of 15 million in the 1980s and the 1990s to 17 million in the first six years of 2000s, before they tumbled during the Great Recession. Nonetheless, the Federal Reserve and other central bankers around the world didn’t take notice of the impact of pent down demand on future growth. They upped their ultra-low interest rate policies, refueling pent down demand again (automobile sales are above the pre-Great Recession levels). Compounding the problem, pent down demand is exacerbated by debt – a lot of debt – amassed on top of the old debt, which fueled the bubble that preceded the Great Recession. This was documented by a McKinsey report—US auto loans have crossed $1 trillion lately.

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Locked in to their own fantasies.

Fed to Markets: June Rate Hike Coming Your Way (CNBC)

As expected, the Fed gave a nod to a temporary weakness in the economy and signaled it is still moving ahead with policy tightening. “They’re looking past the first-quarter weakness. They are laying the groundwork for a June rate hike, in my opinion,” said Peter Boockvar, chief market analyst at Lindsey Group. Fed funds futures indicated just about a 75% chance of a June interest-rate hike, up about 5 percentage points after the announcement, according to Michael Schumacher, head of rates strategy at Wells Fargo Securities. “It seems pretty optimistic. … There’s no big difference between this statement and the last one. The comment that they are ignoring weak first-quarter growth is the big thing. There’s nothing really changed in their path,” Schumacher said.

First-quarter growth grew at a weak 0.7%, but economists expect a bounce back and some see growth over 3%. The Fed acknowledged the softness in its statement. “The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2% over the medium term,” they wrote. [..] The statement did not mention changes to the Fed’s balance sheet, which officials were expected to have discussed at length during the two-day meeting. That discussion should be revealed in the minutes of the meeting, expected to be released May 24.

Instead, the Fed noted in its statement that it was maintaining its strategy of balance sheet reinvestment, meaning it replaces securities as they roll down. The Fed has forecast two more rate hikes this year, and many strategists expect it to tackle its balance sheet after those moves. The Fed has said it would like to begin shrinking its balance sheet as early as this year. Many market pros expect some action on the balance sheet around the December meeting or in early 2018, after it raises interest rates in June and September.

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Rickards’ been saying for a while that the Fed wouldn’t be able to help itself.

Rickards Says Fed Raising Into Weakness, Recession Due By Summer (BBG)

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A quarter are in mortgage stress already.

57% Of Australians Couldn’t Handle $100 A Month Rise In Mortgage Payments (G.)

The burden of housing costs is biting even in Australia’s wealthiest suburbs as an unprecedented one in four households nationally face mortgage stress, according to the latest in a 15-year series of analyses. Households in Toorak and Bondi, prestigious pockets of affluence in Australia’s biggest cities, have made the list of those struggling to meet repayments amid rising costs and stagnating wages, research firm Digital Finance Analytics has found. The firm’s principal, Martin North, said it was surprising new evidence showed that financial distress from property price surges reached beyond “the battlers and the mortgage belt” and was a “much broader and much more significant problem”. The survey, which analyses real cash flows against mortgage repayments, finds more than 767,000 households or 23.4% are now in mortgage stress, which means they have little or no spare cash after covering costs.

This includes 32,000 that are in severe stress, meaning they cannot cover repayments from current income. The firm predicts that almost 52,000 households will probably default on mortgages over the next year. Risk hotspots include Meadow Springs and Canning Vale in Western Australia, Derrimut and Cranbourne in Victoria, and Mackay and Pacific Pines in Queensland. Overall, New South Wales and Victoria, whose capital cities have seen a recent surge in home prices, accounted for more than half the probable defaults (270,000) and households in mortgage distress (420,000). North said the numbers were “an early indicator of risk in the system”. The underlying drivers were “flat or falling wage growth”, much faster rising living costs and the likelihood mortgage interest payments would only go up.

Widespread mortgage burdens were limiting spending elsewhere and “sucking the life out of the economy”, and the problem should be addressed to head off a housing crash and its repercussions, North said. North is not alone in highlighting household vulnerability. The Reserve Bank of Australia’s financial stability review last month observed one-third of Australian borrowers had little or no mortgage “buffer”, which North said was “the first time they’ve ever admitted it”. Finder.com last week found 57% of mortgagees could not handle a rise of $100 or more in monthly repayments. “The surprising thing is that people in Bondi in NSW, for example, or even young affluents who have bought down in Toorak in Victoria are actually on the list [of mortgage stressed],” North said.

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“As soon as liabilities have problems – meaning the depositors decide to not roll their holdings – all hell breaks loose..”

Kyle Bass Warns “All Hell Is About To Break Loose” In China (ZH)

China's credit system expanded "too recklessly and too quickly," and "it's beginning to unravel," warns Hayman Capital's Kyle Bass. Crucially, Bass notes that ballooning assets in Chinese wealth management products are another sign of a looming credit crisis in the nation.

"Some of the longer-term assets aren't doing very well," Bass said on Bloomberg TV from the annual Milken Institute Global Conference in Beverly Hills, California. "As soon as liabilities have problems – meaning the depositors decide to not roll their holdings – all hell breaks loose."

The wealth management products, or WMPs, have swelled to $4 trillion in assets in the last few years, he said., on a $34 trillion banking system…

"think about this – in the US, our asset-liability mismatch at the peak of our subprime greatness was around 2%! … China's mismatch is more than 10% of the system."

Must Watch simplification of the next stage of the credit cycle in China…

Timing the drop is hard, Bass notes, reminding Bloomberg's Erik Schatzker that "in the US, the first bumps in the road hit in early 2007, and we didn't start to really accelerate until mid 2008… even a large unraveling takes a while."Bass has been sounding the alarm for some time that debt-burdened Chinese banks need to be restructured…

"What you see when the liquidity dries up is people start going down… and this is the beginning of the Chinese credit crisis."

And judging by the collapse in both Chinese stocks and bonds, the deleveraging is accelerating…

 

And liquidity is getting desperate again…

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China=Debt.

PIMCO Warns “Brace For Lower Growth” From A Less ‘Impulsive’ China (ZH)

In the company’s blog, PIMCO’s Gene Fried echoes everything we have said and write that following the defeat of the new U.S. healthcare bill, investors have begun to rethink the likely time frame and extent of the Trump administration’s other top priorities, such as fiscal stimulus. Equity markets stalled and bonds rallied as investors toned down their expectations for global reflation recently. None of this is horribly surprising, but by focusing so intensely on U.S. political developments, investors risk missing a silent shift in what has arguably been the strongest driver of global reflation in the last five years: Chinese credit. This driver is now moving sharply in reverse. China’s “credit impulse,” the change in the growth rate of aggregate credit to GDP, bears close watching: It has tended to lead the Chinese manufacturing Purchasing Managers’ Index (PMI) by a year (see Figure 1) and the U.S. Institute for Supply Management’s (ISM) manufacturing index by 14 months.

The relevance of the Chinese credit impulse to global reflation cannot be overstated (see Figure 2). China’s massive credit stimulus starting in 2014 initially put a floor under commodity prices and emerging market (EM) growth. Then, the unexpected acceleration in Chinese real estate investment drove both commodity prices and volume demand higher. EM growth subsequently bounced, and with it, global trade volumes. The key driver of realized global reflation, then, has been China – not the promise of fiscal stimulus and deregulation that has helped boost confidence and other soft data in the U.S.

When will China’s credit drop affect growth? The sharp downturn in the Chinese credit impulse starting in 2016 portends a material drag on Chinese growth in the year ahead. Looking back on the past three years, the Chinese credit impulse turned positive sometime between late 2014 and mid-2015. Given China’s exchange rate volatility in August 2015, it took longer than normal for credit to gain traction. The Chinese credit impulse peaked in March 2016 and slowed sharply after the second quarter. It is only now that the impact of that reduced stimulus should be felt. PIMCO has already factored credit-related drag into its Chinese growth outlook, but the decline in the credit impulse has been sharper and more extreme than many expected.

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Unanswerable question.

Do Tax Cuts Pay For Themselves? (MW)

Forty-three years after economist Arthur Laffer sketched a pictorial representation of individuals’ response to changes in income tax rates, economists still can’t agree if tax cuts pay for themselves: entirely, in part, or not at all. In a capitalist system, a tax rate of 0% or a tax rate of 100% will yield no revenue for the government: in the first instance, because there is no tax levied on labor income; in the second, because there is no labor income to tax because most of us would refuse to work without compensation. The Laffer Curve is an attempt to describe the optimal tax rate, or the rate that maximizes revenue. As with most economic theories nowadays, the idea that tax cuts pay for themselves has been politicized. Many conservatives take an oath of fealty to supply-side economics, an offshoot of the Laffer Curve: the idea that lower tax rates act as an incentive to work and produce, lifting economic growth and tax revenue.

Supply-siders don’t differentiate between the potential effect of large reductions in the top marginal tax rate — from 91% (1950s) to 70% (1960s) to 28% (1980s) — and that of President Donald Trump’s proposed modest cut from 39.6% to 35% for top earners. Liberals, on the other hand, love to quote George H.W. Bush’s assessment of supply-side theory — at least until he became Ronald Reagan’s running mate — as “voodoo economics.” “Tax cuts for the rich” is another favorite derogatory moniker, which is an accurate description but one that is taboo for believers. The basic premise underlying supply-side economics is sound: Tax something less, and you will get more of it. Tax something more, and you will get less of it. Think hefty cigarette taxes, designed to deter cancer-causing tobacco use. It’s the application that goes astray.

The income tax is a tax on labor. According to supply-siders, if you raise marginal tax rates, individuals will work less. And if you cut rates, they will work more. Who except the rich is in a position to forgo take-home pay, even if it is taxed at a higher rate? Households with both parents working, struggling to make ends meet, can’t sacrifice one salary. That’s the dirty little secret of supply-side economics that its advocates never mention. It’s the rich who are able respond to changes in marginal tax rates. And yes, they are the ones likely to start a new business and create jobs. Theory aside, why don’t we know what the effect of tax cuts is on economic output and federal revenue? Economists of both political persuasions are eager to tout their findings, both in support of and as a challenge to supply-side economics.

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Hopefully I should be getting Steve’s book today. Everyone should read it.

The Economics of the Future (Michael Hudson)

At first glance Steve Keen’s new book Can We Avoid Another Financial Crisis? seems too small-sized at 147 pages. But like a well-made atom-bomb, it is compactly designed for maximum reverberation to blow up its intended target. Explaining why today’s debt residue has turned the United States, Britain and southern Europe into zombie economies, Steve Keen shows how ignoring debt is the blind spot of neoliberal economics – basically the old neoclassical just-pretend view of the world. Its glib mathiness is a gloss for its unscientific “don’t worry about debt” message. Blame for today’s U.S., British and southern European inability to achieve economic recovery thus rests on the economic mainstream and its refusal to recognize that debt matters.

Mainstream models are unable to forecast or explain a depression. That is because depressions are essentially financial in character. The business cycle itself is a financial cycle – that is, a cycle of the buildup and collapse of debt. Keen’s “Minsky” model traces this to what he has called “endogenous money creation,” that is, bank credit mainly to buyers of real estate, companies and other assets. He recently suggested a more catchy moniker: “Bank Originated Money and Debt” (BOMD). That seems easier to remember. The concept is more accessible than the dry academic terminology usually coined. It is simple enough to show that the mathematics of compound interest lead the volume of debt to exceed the rate of GDP growth, thereby diverting more and more income to the financial sector as debt service.

Keen traces this view back to Irving Fisher’s famous 1933 article on debt deflation – the residue from unpaid debt. Such payments to creditors leave less available to spend on goods and services. In explaining the mathematical dynamics underlying his “Minsky” model, Keen links financial dynamics to employment. If private debt grows faster than GDP, the debt/GDP ratio will rise. This stifles markets, and hence employment. Wages fall as a share of GDP. This is precisely what is happening. But mainstream models ignore the overgrowth of debt, as if the economy operates on a barter basis. Keen calls this “the barter illusion,” and reviews his wonderful exchange with Paul Krugman (who plays the role of an intellectual Bambi to Keen’s Godzilla), who insists that banks do not create credit but merely recycle savings – as if they are savings banks, not commercial banks. It is the old logic that debt doesn’t matter because “we” owe the debt to “ourselves.”

[..] By being so compact, this book is able to concentrate attention on the easy-to-understand mathematical principles that underlie the “junk economics” mainstream. Keen explains why, mathematically, the Great Moderation leading up to the 2008 crash was not an anomaly, but is inherent in a basic principle: Economies can prolong the debt-financed boom and delay a crash simply by providing more and more credit, Australia-style. The effect is to make the ensuing crash worse, more long-lasting and more difficult to extricate. For this, he blames mainly Margaret Thatcher and Alan Greenspan as, in effect, bank lobbyists. But behind them is the whole edifice of neoliberal economic brainwashing.

Keen attacks this “neoclassical” methodology by pointing at the logical fallacy of trying to explain society by looking only at “the individual.” That approach and its related “series of plausible but false propositions” blinds economics graduates from seeing the obvious. Their discipline is the product of ideological desire not to blame banks or creditors, wrapped in a libertarian antagonism toward government’s role as economic regulator, money creator, and financer of basic infrastructure.

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The EU really cares.

UK PM May Accuses EU of Brexit Threats and Election Interference (CNBC)

U.K. Prime Minister Theresa May has accused the EU of not wanting Brexit negotiations to be a success, as tensions between both sides escalate ahead of official talks. “The events of the last few days have shown that – whatever our wishes, and however reasonable the positions of Europe’s other leaders – there are some in Brussels who do not want these talks to succeed,” May said Wednesday afternoon outside Downing Street. Her comments follow media reports that the EU’s Commission President Jean-Claude Juncker left London “10 times more skeptical” than he was before after a dinner with Prime Minister May last week. Their meeting has been described in the press as a disaster with both leaders clashing over key negotiating issues.

Earlier on Wednesday, Juncker described May as a “tough woman”. May has said that she will be a “bloody difficult woman” during Brexit talks. Speaking outside Downing Street, the head of the Conservative party went further and accused the European Union of wanting to interfere in the upcoming general election. “Britain’s negotiating position in Europe has been misrepresented in the continental press. The European Commission’s negotiating stance has hardened.Threats against Britain have been issued by European politicians and officials. All of these acts have been deliberately timed to affect the result of the general election that will take place on 8 June,” the prime minister said.

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I watched parts of the debate, nothing brutal about it, just politics. Le Pen’s logic seems pretty solid: “France will be run by a woman whatever happens,” Le Pen said. “Either by me or by Mrs. Merkel.”

Le Pen Tirade Meets Logic of Macron in Brutal French TV Duel

Marine Le Pen unleashed a barrage of attacks on her presidential rival Emmanuel Macron as she tried to close a gap of some 20 percentage points in the only head-to-head debate of the French election campaign. Le Pen, 48, said her centrist opponent was the candidate of the capitalist elite, and a friend to terrorists, who planned to shut down factories, schools and hospitals. Macron said Le Pen’s broadsides against state bodies meant she was unfit to lead the country as she struggled to defend her plans to leave the euro. “You have threatened public employees,” Macron, 39, said as his opponent chuckled on the other side of the table during the almost three-hour debate Wednesday night. “Your words show that you are not worthy to be the defender of our institutions.”

A snap survey of 1,314 likely voters by polling firm Elabe showed that 63 percent of respondents rated Macron as the winner and 34 percent picked Le Pen. With just three days to go before French voters settle the most turbulent election in the country’s modern history, Le Pen argued for new border restrictions to protect the French people from foreign competition and terrorism, and an exit from euro, reversing 60 years of European integration. The clash was brutal from the get-go, and the general consensus from commentators was that it wasn’t a particularly dignified debate. “It was like a schoolyard brawl,” said Emmanuel Riviere, managing director of pollster Kantar Public France. “The candidates went straight for the jugular. Le Pen started it. But Macron also played his part.”

Both candidates justified the nasty tone on Thursday. “It was severe, but that’s because for the first time ever the French have a real choice,” Le Pen said on RMC Radio. “Before, the candidates agreed on everything. I want to wake up the French people.” [..] She told him he’d traveled to Berlin to get the blessing of German Chancellor Angela Merkel for his policy plans, playing on French concerns that their country plays second fiddle within the European Union. “France will be run by a woman whatever happens,” Le Pen said. “Either by me or by Mrs. Merkel.”

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“..your just and due compensation as part of this interdependent system we call society. We are all stakeholders in it.”

Universal Basic Income is Not “Free Money” (Santens)

Let’s say the cost to produce a widget is $1. What’s the cost to produce 1 million widgets? This may sound like an extremely simple word problem that even some preschoolers could solve. However, if you think the answer is $1 million, you would be entirely wrong. The cost to produce 1 million widgets is far below $1 million thanks to the savings inherent in mass production. It’s a lot cheaper per something to make a lot of something, than it is to create one of it, or even a few. A couple secondary understandings extend themselves as a result of this primary understanding. First, it’s wrong to assume that providing people with more money will necessitate rising prices. Increased demand can lead to greatly increased production, which then leads to lower prices. Just how much production can be ramped up in response to increased demand is a key factor in price determination.

Where supply cannot be increased, and therefore more money is chasing the same amount of goods, price increases can be expected. Where supply can be greatly or even infinitely increased, lower prices can be expected, especially where true competition exists. Second, and I find this point extremely compelling and the real point of this post, is a recognition of our interdependence, and the collective debt we owe each other. Take whatever device you’re reading these words on as a prime example. Whatever its cost to you, it only cost that because millions of others like you expressed their demand for the same device. Without everyone else, that device would have cost you ten times, a hundred times, or even a thousand times more than it would have to create just one, just for you. In other words, we all subsidize each other.

[..] In Alaska, Alaskans are paid on average about $1000 per year for being an Alaskan. Why? Because the oil companies didn’t make the oil in Alaska. They’re merely bringing it up out of the ground and processing it. The oil is considered owned by all Alaskans, and so they should as owners see some of the revenue generated by its sale. Now apply this logic to the rest of what was not created by humankind. Apply it to what is not created by any one human individually, but everyone together, like for example land value. Take a million dollar mansion and swap it with an empty lot in the middle of the desert. The mansion becomes worth only the sum total of what its parts can sell for. The empty lot shoots up in value. Why? Because the unimproved value of land is socially created. That value exists because YOU exist.

Do you see now that basic income is not “free money” or “money for nothing?” You are owed it. It is your just and due compensation as part of this interdependent system we call society. We are all stakeholders in it. We are all owed a dividend as investors. No investor in Apple would ever be okay with being told that in return for their investment in Apple, they merely get the privilege of purchasing Apple products. Their reward is a return on their investment in the form of cash dividends. That’s fair and just. What is true for corporate stockholders should also be true for you. Don’t accept anything less than a cash dividend for your investments in this grand organization called human civilization. Claim what you are owed and demand unconditional basic income.

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Key: “There is an effort by a coalition of interests: banks, financial funds, pro-bailout governments, and the international creditors. They want to grab people’s property by using the public debt as a lever..”

The Brothers Fighting For Indebted Greek Homeowners (AP)

Leonidas Papadopoulos is a doctor, his brother Ilias an economist, and once a week they take a break from ordinary life to fight the government. They go to court every Wednesday, the day homeowners in default on mortgages lose their properties at auctions – the final step of foreclosure in a country where the government and its citizens are overwhelmed by debt. Auctions are supervised by a notary public, who faces a weekly hour of crowd harassment. At a lower court in Athens one Wednesday, the Papadopoulos brothers and about 30 protesters gather menacingly around the notary’s desk, shouting insults and chanting “Vultures out!” When the atmosphere gets heated, protesters clamber onto the empty judges’ benches. In the court halls outside the chamber, demonstrators unfurl large banners and set up loudspeakers to blast music normally associated with protest movements from the 1970s.

Police look on without intervening, and another auction is cancelled. The crowd celebrates with chants of “No Homes in Bankers’ Hands!” – and goes home. “We create a list of all the auctions that are due to take place and decide which cases require our intervention. When the notary enters the chamber, we eject them with our presence, and by shouting,” the 35-year-old Leonidas Papadopoulos says. Each postponement typically delays an auction by about two months. The bearded brothers have created a nationwide protest network of several hundred volunteers to disrupt the auctions across Greece and to help illegally reconnect homes of unemployed people who have had their electricity cut off. In its fourth year, the campaign is intensifying as the country faces pressure from its international bailout creditors to deal with a mountain of bad bank loans.

Greece owes a staggering 325 billion euros ($354 billion), most of it to bailout lenders, while annual economic output – hammered by austerity, political upheaval and years of recession – has withered to below 180 billion euros ($196 billion). The country’s key assets are locked up for 99 years under the control of a fund created by the creditors. The picture for the country’s 10 million citizens is equally grim: Some 4 million are in arrears on tax payments, while 2 million households and businesses are behind on their electricity bills. Nearly half of loans given by banks for businesses and property purchases are now officially listed as soured. Ilias Papadopoulos, 33, sees the problem differently, arguing that people’s property are being seized at fire-sale prices after tax collection has been exhausted, in a desperate effort to maintain bailout debt commitments.

“There is an effort by a coalition of interests: banks, financial funds, pro-bailout governments, and the international creditors. They want to grab people’s property by using the public debt as a lever,” he said. “That includes homes, small businesses, farm land, and industry. It’s wealth that was acquired with such great effort by the Greek people. It cannot be surrendered without a fight.” Ilias says he’s never been arrested or detained by police due to his activism, and predicts the fight against foreclosures will intensify after Greece and it’s bailout creditors reached a new austerity deal this week. “This will only make things worse for poor people. So we’ll have to step things up.”

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Apr 252017
 
 April 25, 2017  Posted by at 7:59 am Finance Tagged with: , , , , , , , , , ,  4 Responses »
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Pablo Picasso Self portrait 1972

 

Trump Slaps 20% Duty on Canada Lumber, Intensifying Trade Fight (BBG)
Trump Summons Entire Senate To White House Briefing On North Korea (G.)
Trump Advisers To Lay Out Tax Plan For Top Republicans Tuesday (BBG)
The Oil Market Has One Big Problem: People Aren’t Buying Enough Gas (CNBC)
Canadians’ Confidence In Housing Hits Record High (HPoC)
Housing’s Echo Bubble Now Exceeds the 2006-07 Bubble Peak (CHSmith)
Bubble, Bubble, Toil And Trouble: Ultra-Low Mortgage Rates Are Dangerous (G.)
Rising Defaults In China Reveal Hidden Debt (BBG)
China Markets Reel as $1.7 Trillion in Shadow Funds Unwinds (BBG)
Naked Selfies Used As Collateral For Chinese Loans (AFP)
Italy Is the Euro-Area’s Swaps Loser Facing $9 Billion Bill (BBG)
Ontario To Pay Guaranteed Incomes To The Poor (AFP)
Kim Dotcom Wants FBI Director Comey Questioned By New Zealand Police (IBT)
At Least 16 Refugees Drown as Boat Sinks off Greece’s Lesbos (R.)

 

 

They’ve been doing this forever: “..the fight is the “longest-running battle since the Trojan War.”

Trump Slaps 20% Duty on Canada Lumber, Intensifying Trade Fight (BBG)

U.S. President Donald Trump intensified a trade dispute with Canada, slapping tariffs of up to 24% on imported softwood lumber in a move that drew swift criticism from the Canadian government, which vowed to sue if needed. Trump announced the new tariff at a White House gathering of conservative journalists, shortly before the Commerce Department said it would impose countervailing duties ranging from 3% to 24.1% on Canadian lumber producers including West Fraser Timber. “We’re going to be putting a 20% tax on softwood lumber coming in – tariff on softwood coming into the United States from Canada,” Trump said Monday, according to a tweet by Charlie Spiering at Breitbart News. A White House official confirmed the comment.

The step escalates an economic battle among neighboring countries that normally have one of the friendliest international relationships in the world. U.S. Commerce Secretary Wilbur Ross amplified Trump’s remarks in a statement afterward that also referenced a fight over a new Canadian milk policy that U.S. producers say violates Nafta. “It has been a bad week for U.S.-Canada trade relations,” Ross said, adding “it became apparent that Canada intends to effectively cut off the last dairy products being exported from the United States.” He said the Commerce Department “determined a need” because of unfair Canadian subsidies to the lumber industry to impose “countervailing duties of roughly one billion dollars.” In a dig at NAFTA, which Trump has said he wants to renegotiate, Ross added, “This is not our idea of a properly functioning Free Trade Agreement.”

[..] The so-called countervailing duties, which counter what the U.S. considers Canadian subsidies, came in below some analyst expectations. CIBC analyst Hamir Patel forecast the initial combined countervailing and anti-dumping duties could reach 45 to 55%, he said in an April 23 note. The U.S. may also apply anti-dumping duties if it determines Canadian firms are selling for below costs. That decision is expected in June. “It definitely could’ve been a heck of a lot worse,” Kevin Mason at ERA Forest Products Research said by phone. “I think a lot of people were bracing for a higher duty.”

[..] Most of the softwood in Canada is owned by provincial governments, which set prices to cut trees on their land, while in the U.S. it’s generally harvested from private property. The fees charged by Canadian governments are below market rates, creating an unfair advantage, U.S. producers say. Canada disputes that. Robert Lighthizer, Trump’s nominee to be the next U.S. Trade Representative, said at his confirmation hearing last month that he views the lumber dispute as the top trade issue between the U.S. and Canada. Oregon Democratic Senator Ron Wyden told Lighthizer the fight is the “longest-running battle since the Trojan War.”

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Huffin’-and-a-puffin’.

Trump Summons Entire Senate To White House Briefing On North Korea (G.)

The entire US Senate will go to the White House on Wednesday to be briefed by senior administration officials about the brewing confrontation with North Korea. The unusual briefing underlines the urgency with which the Trump administration is treating the threat posed by Pyongyang’s continuing development of nuclear weapons and missile technology. It follows a lunch meeting Trump held with ambassadors from UN member states on the security council on Monday where he emphasised US resolve to stop North Korea’s progress. “The status quo in North Korea is unacceptable and the council must be prepared to impose additional and stronger sanctions on North Korean nuclear and ballistic missile programs,” Trump said at the meeting. “North Korea is a big world problem, and it’s a problem we have to finally solve.”

On Friday the US secretary of state, Rex Tillerson, is due to chair a security council foreign ministers’ meeting on the issue in New York, at which the state department said he would call once more for the full implementation of existing UN sanctions or new measures in the event of further nuclear or missile tests. “This meeting will give the security council the opportunity to discuss ways to maximise the impact of existing security council measures and to show their resolve to response further provocations with appropriate new measures,” said Mark Toner, state department spokesman. Senators are to be briefed by the defence secretary, James Mattis, and Tillerson on Wednesday. Such briefings for the entire senate are not unprecedented but it is very rare for them to take place in the White House, which does not have large secure facilities for such classified sessions as Congress.

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Not going to be easy. Trump’s too desperate to get a deal done.

Trump Advisers To Lay Out Tax Plan For Top Republicans Tuesday (BBG)

President Donald Trump will call for cutting taxes for individuals and lowering the corporate rate to 15% to fulfill a promise he made during his campaign, according to a White House official. The president on Wednesday plans to make public the broad outlines of what he wants to change in the tax code, though the details likely will be left until later negotiations among congressional leaders and officials from Treasury. Trump’s top economic adviser Gary Cohn and Treasury Secretary Steven Mnuchin will brief House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell and the leaders of congressional tax-writing committees – House Ways and Means Committee Chairman Kevin Brady and Senate Finance Committee Chairman Orrin Hatch.

While Trump and Ryan broadly agree on sharply cutting individual income and corporate taxes, there are areas of disagreement between the two. On the campaign, Trump called for a corporate tax rate of 15%; Ryan wants 20%, and he has warned that cutting it an additional 5 percentage points could prevent the ultimate tax plan from being revenue neutral. Without Democratic support, a plan would have to be revenue neutral to meet the criteria set by lawmakers to make tax changes permanent. “I’m not sure he’s going to be able to get away with that,” Hatch told reporters Monday. “You can’t very well balance the budget that way.”

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Demand goes down because people have less money to spend. All the rest is humbug.

The Oil Market Has One Big Problem: People Aren’t Buying Enough Gas (CNBC)

Lackluster gasoline demand is once again raising concerns that the oil market won’t be able to escape the doldrums. Demand for U.S. gasoline has recovered since January, but remained below 2016 levels throughout much of this year. Now, analysts are worried weak consumption will cause gasoline stockpiles to keep building and eventually result in weaker crude oil demand and pricing. U.S. gasoline futures were down more than 1% on Monday, reflecting demand concerns as refiners emerge from the winter maintenance season and prepare to turn out more fuel. Meanwhile, U.S. crude settled 39 cents lower at $49.23, extending last week’s deep losses. “As gas prices drop, that creates an undertow for the entire crude oil market,” said Tom Kloza, global head of energy analysis at Oil Price Information Service.

Part of the problem is a tough comparison with extraordinarily low gasoline prices last year. The national average gasoline price on Monday was nearly 28 cents above last year’s level, according to GasBuddy.com. “I’m in the camp that says last year was a little bit of the anomaly,” Kloza said. “Gas was so cheap that we drove a little bit more almost capriciously. This year, I just don’t think it’s going to happen.” In a troubling sign, the nation’s gasoline station operators have reported at industry conferences that their sales are down 1.5 to 2% this year, according to Andy Lipow, president of Lipow Oil Associates. “When you hear retailers telling you that their demand is down you’ve got to be a believer,” he told CNBC. Lipow said he fears that trend will carry through for the balance of 2017. Demand is certain to rise as the summer driving season ramps up, but Lipow sees stockpiles remaining relatively high.

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Stark raving madness. A housing market that is rising at ‘only’ 9.5% per year is labeled ‘rational’.

Canadians’ Confidence In Housing Hits Record High (HPoC)

The experts are getting louder in their warnings that a housing bubble has formed in some parts of Canada, but Canadians don’t seem worried. In fact, confidence in the housing market hit a record high in the latest weekly Bloomberg-Nanos index — even as respondents turned negative on their own personal finances. The survey found 48.5% of Canadians expect house prices to rise in the next six months, the highest level recorded in the survey since 2008. Fewer than 11% expect to see house prices decrease. “Bullish sentiment on real estate in Canada continues to drive consumer confidence,” pollster Nik Nanos said in a statement. “Household expectations have improved by roughly 10% since the start of the year as the effects of the oil price shock have stabilized and the focus has moved toward rising property values,” Bloomberg economist Robert Lawrie said.

“In recent weeks, however, consumer sentiment regarding personal finances began drifting lower, with extended household balance sheets perhaps the next focus of concern for policymakers.” High debt levels are precisely why many market observers are growing concerned about Canada’s priciest housing markets, namely the Toronto and Vancouver regions. House prices in Toronto jumped 33% in March from a year earlier, to an average of $916,567. While Vancouver’s house prices have moderated over the past six months, they remain elevated, with the benchmark price at $919,300 in March.

National Bank of Canada, which co-publishes the Teranet house price index, warned recently that “irrational exuberance” may be setting into some Canadian housing markets, noting that more than half of Canada’s regional markets are seeing price growth above 10% annually. With mortgages ballooning, Canadian household debt has repeatedly hit record highs in recent years, and now stands at $1.67 of debt for every dollar of disposable income. Those elevated debt levels are the main reason one why the Bank for International Settlements (BIS), a Geneva-based “central bank of central banks,” warned recently that Canada has the second-highest risk of a financial crisis, behind only China.

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Essential and repeated here a 1000 times: “Bubbles have a habit of overshooting on the downside when they finally burst.”

Housing’s Echo Bubble Now Exceeds the 2006-07 Bubble Peak (CHSmith)

A funny thing often occurs after a mania-fueled asset bubble pops: an echo-bubble inflates a few years later, as monetary authorities and all the institutions that depend on rising asset valuations go all-in to reflate the crushed asset class. Take a quick look at the Case-Shiller Home Price Index charts for San Francisco, Seattle and Portland, OR. Each now exceeds its previous Housing Bubble #1 peak:

It seems housing bubbles take about 5 to 6 years to reach their bubble peaks, and about half that time to retrace much or all of the gains. Bubbles have a habit of overshooting on the downside when they finally burst. The Federal Reserve acted quickly in 2009-10 to re-inflate the housing bubble by lowering interest rates to near-zero and buying over $1 trillion of mortgage-backed securities. When bubbles are followed by echo-bubbles, the bursting of the second bubble tends to signal the end of the speculative cycle in that asset class. There is no fundamental reason why housing could not round-trip to levels below the 2011 post-bubble #1 trough.

Consider the fundamentals of China’s remarkable housing bubble. The consensus view is: sure, China’s housing prices could fall modestly, but since Chinese households buy homes with cash or large down payments, this decline won’t trigger a banking crisis like America’s housing bubble did in 2008. The problem isn’t a banking crisis; it’s a loss of household wealth, the reversal of the wealth effect and the decimation of local government budgets and the construction sector. China is uniquely dependent on housing and real estate development. This makes it uniquely vulnerable to any slowdown in construction and sales of new housing. About 15% of China’s GDP is housing-related. This is extraordinarily high. In the 2003-08 housing bubble, housing’s share of U.S. GDP barely cracked 5%. Of even greater concern, local governments in China depend on land development sales for roughly 2/3 of their revenues.

If you need some evidence that the echo-bubble in housing is global, take a look at this chart of Sweden’s housing bubble. Oops, did I say bubble? I meant “normal market in action.”

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“..we may be in the latter stages of a bubble. As prices rise further and further out of reach, lenders need to find more and more ingenious tricks to keep rich people pumping their cash into an overheated market. The punch bowl has to keep going round, or the party stops.”

Bubble, Bubble, Toil And Trouble: Ultra-Low Mortgage Rates Are Dangerous (G.)

Between autumn 1977 and Christmas 1979, interest rates rose from 5% to 17%. If you were a young boomer whose biggest cost was a variable rate mortgage, that would have hurt. In 2009, by contrast, interest rates were cut to a record low of 0.5%, and stayed there for the better part of a decade. When eventually they did move again, it was down. You don’t know you’re born. Except, of course, you do – because, if you’re reading this and you’re under 40, there’s a pretty good chance you’re still stuck paying rent. Yes, interest rates are low; no, this is not particularly helpful. Even if you do have a mortgage, it’s probably a fixed rate one because, let’s be honest, those rates are going up again one day. But not, it seems, today. The Yorkshire Building Society has just launched a new mortgage that charges an interest rate of just 0.89%. “We are very pleased to offer borrowers the lowest mortgage rate ever available,” said a spokesman.

“The cost of funding has fallen in recent weeks and, as a financially strong building society with no external shareholders to satisfy, we have the ability to pass this on to borrowers.” (“We used to dream of mortgages at under 1%,” say the boomers.) So does that means that owning a home is now cheaper than it’s ever been? Well, no, of course not. For one thing, this isn’t a fixed rate deal. It’s actually a (bear with me on this) two-year-long discount of 3.85% to the standard variable rate (SVR) of 4.74%. That means it’s very, very unfixed indeed: a normal tracker mortgage moves in response to Bank of England rates; an SVR one moves in response to the lender’s whims. Accepting this mortgage means placing a bet that the Yorkshire Building Society will be nice to you. It also comes with an unusually high arrangement fee of £1,495, but this shouldn’t bother you, because you probably can’t get that rate anyway. To even be considered, you need a deposit worth 35% of the value of your home.

[..] But there’s another, more sinister, reading of the recent rash of ultra-low mortgage rates: it suggests we may be in the latter stages of a bubble. As prices rise further and further out of reach, lenders need to find more and more ingenious tricks to keep rich people pumping their cash into an overheated market. The punch bowl has to keep going round, or the party stops. But bubbles tend to burst. Prices can’t rise forever: one day, interest rates must surely rise. When the inevitable happens, there is a danger that those who took advantage of this deal may find their equity wiped out – and the rate they’re paying will shoot through the roof.

That would obviously be very sad for those who are affected; for those shut out of home ownership, though, it may be no bad thing. That’s because nine years of record-low interest rates have probably contributed to the fact that house prices have soared out of reach; and higher prices have meant increasingly unattainable deposits. A rise in interest rates could, paradoxically, make housing more affordable.

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Companies guaranteeing each other’s crappy debt. What could go wrong? Problem is, Beijing had let them do it for years.

Rising Defaults In China Reveal Hidden Debt (BBG)

Rising defaults in China are unearthing hidden debt at companies across the country. Small firms that can’t get loans by themselves have been winning banks over by getting other companies to guarantee their borrowings. The companies making those pledges exclude them from their balance sheets, leaving creditors in the dark. Borrowers often extend the guarantees for each other, raising the risk that failures could ricochet, at a time when increasing borrowing costs have already added to strains. China’s banking regulator has ordered checks of such cross-guaranteed loans, Caixin reported Friday. Scrutiny is mounting after a corn oil producer in the eastern province of Shandong said last month it had guaranteed debt of a neighboring aluminum product manufacturer which is now stuck in a cash crunch.

Just days before that, a local government financing vehicle in China’s southwest had to repay an auto parts maker’s loans it had guaranteed after the latter defaulted. “Disclosure of such guarantees isn’t timely,” said Qiu Xinhong at Shenzhen-based First State Cinda. “Sometimes, it’s like a buried mine and you don’t know when the risks will explode.” This debt minefield could be big. The amount of loan guarantees at privately held firms in China is equivalent to 11% of their equity, and at LGFVs is 18%, according to Citic Securities. The load is even heavier at weaker borrowers. About 44% of issuers rated lower than AA- have a ratio of more than 30%, according to Everbright Securities. The phenomenon is less common in the U.S. because banks don’t require such guarantees to offer loans, according to Fitch Ratings.

“If companies in the same region offer a huge amount of guarantees for each other’s debt, it would form a guarantee web and deepen interconnections among the companies,” said Gang Meng, director of rating at Golden Credit Rating International Co. in Beijing. “If one company has to repay debt for its guaranteed company, risks would quickly ripple to other companies in the web, which will result in a butterfly effect.” [..] Guarantors don’t mark the pledges on their balance sheets and often disclose them only on an annual basis. Such shadow debts pose rising risks after central bank tightening pushed up onshore corporate bond yields to two-year highs and defaults on local notes surged to a record.

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The distinction between state banks and shadows has become very murky.

China Markets Reel as $1.7 Trillion in Shadow Funds Unwinds (BBG)

A $1.7 trillion source of inflows into Chinese markets has suddenly switched into reverse, roiling the nation’s money management industry and sending local bonds and stocks to their biggest losses of the year. The turbulence has centered on so-called entrusted investments – funds that Chinese banks farm out to external asset managers. After years of funneling money into such investments, banks are now pulling back in response to a series of regulatory guidelines over the past three weeks that put a spotlight on the risks. Critics have blamed entrusted managers for adding leverage to China’s financial system and reducing transparency.

The banks’ withdrawals helped erase $315 billion of stock market value over the past six days and sent bond yields to the highest level in nearly two years, highlighting the challenge for Chinese authorities as they try to rein in shadow banking activity without destabilizing financial markets. While the government has plenty of firepower to prop up asset prices if it wants to, forecasters at Australia & New Zealand Banking predict the selloff will deepen this year. “We are seeing an exodus of funds,” said He Qian at HFT Investment Management, which oversaw about 189 billion yuan ($27.5 billion) as of last year. He was one of about half-a-dozen asset managers and analysts who said banks have started scaling back their entrusted investments.

The arrangements have become an important part of China’s shadow finance system. When banks sell wealth-management products – the ubiquitous savings vehicles that offer higher yields than deposits – the firms sometimes farm out client money to entrusted managers such as hedge funds and mutual funds. The managers invest the cash in bonds, stocks and other securities, hoping to generate enough income to cover the banks’ promised returns to WMP clients – plus some extra for themselves.

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You better look good than feel good.

Naked Selfies Used As Collateral For Chinese Loans (AFP)

Hundreds of photos and videos of naked women used as collateral for loans on a Chinese online lending service have leaked onto the web, highlighting regulatory problems in the fast-growing peer-to-peer marketplace. A 10-gigabyte file posted on the internet exposed the personal details of more than 160 young women who were asked to provide the explicit material to secure money through online lending platform Jiedaibao. Launched by JD Capital in 2015, Jiedaibao allows lenders to operate anonymously but requires borrowers to reveal their real names when making transactions. Loan amounts and interest rates can be customised to meet the needs of users – often people who have a hard time accessing loans through more traditional financial institutions, like banks.

Interest on the “nude loans” reached an astonishing 30% a week, according to the Global Times newspaper. Lenders told female borrowers that if they failed to repay the loans, their nude photos would be sent to their families and friends, whose information was also required for some transactions, the article said. Material in the file put on the web last Wednesday showed some borrowers also promised to repay loans with sexual favours, according to screen captures posted on social media websites. In a statement on its official Twitter-like Weibo account, Jiedaibao said it had tracked down the accounts of several borrowers through photos and ID information circulated online and had frozen the suspected lenders’ accounts. “The ‘nude loans’ deals were mainly initiated and completed offline, and Jiedaibao only played the role of a money transfer platform in the deals,” the statement said.

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Derivatives used this way are instruments of massive wealth destruction. Why use different rates for each side of the deal? “..the Italian Treasury “usually pays a flow anchored to a fixed rate, while receiving one indexed to the 6-month Euribor rate..”

Italy Is the Euro-Area’s Swaps Loser Facing $9 Billion Bill (BBG)

Derivatives burdened Italy’s public debt again last year for a record amount of €8.3 billion ($9 billion), making the country the biggest swaps loser in the euro region. Losses related to swaps held by the nation added €4.25 billion to the country’s debt while net liabilities’ burden totaled €4.07 billion, based on data released Monday by EU statistics office Eurostat. In the 2012-2016 period, the burden totaled €29.6 billion, also a euro-area record. Italy’s derivative-related losses and net liabilities were higher than those for the whole euro region combined both in 2016 and in the five-year period as some countries actually saw the swaps helping to alleviate their debts. Governments across the euro region have used derivatives to manage their debt-financing costs and to hedge against sudden changes in rates and excessive exchange-rate volatility.

Those deals have sometimes backfired with the effect of pushing nations’ debts even higher. In the existing interest-rate swaps the Italian Treasury “usually pays a flow anchored to a fixed rate, while receiving one indexed to the 6-month Euribor rate,” the government said earlier this month in an annex to its annual Economic and Financial Document. Since starting from November 2015, the Euribor stayed negative and the impact on the flow indexed to that rate was that the Treasury had to pay money to its counterparts, instead of being paid by them, the document also said. Italy’s public debt rose last year to €2.2 trillion, or 132.6% of the country’s GDP, Eurostat said in a separate report on Monday.

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it’s important to get it right.

Ontario To Pay Guaranteed Incomes To The Poor (AFP)

Ontario has launched a pilot program to provide a guaranteed basic income to a few thousand people to test its effects on recipients and public finances, the Canadian province announced on Monday. Provincial premier Kathleen Wynne said the program would provide a “basic income” for three years to 4,000 people living under the poverty line. “We want to find out whether a basic income makes a positive impact in people’s lives,” Ms Wynne said, adding that “everyone should benefit from Ontario’s economic growth.” Income support payments will be as high as Can$16,989 (£9,800) a year for an individual, or Can$24,027 for a couple, plus an additional Can$6,000 for the disabled.

The figures will be reduced for those holding part-time jobs – they will receive 50 cents less for each dollar earned. As a concrete example, a single person with a yearly salary of Can$10,000 will receive an additional payment of Can$11,989. The 4,000 participants, aged 18 to 65, have been chosen at random in three cities: Hamilton and Lindsay in the Toronto suburbs and Thunder Bay in the province’s west. The province estimates the cost of the program at Can$50 million a year. Ontario is the most heavily populated Canadian province, with 38% of the country’s 36.5 million inhabitants. 13% of Ontario residents live below the poverty line, according to Statistics Canada.

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What the FBI did has already been declared illegal in New Zealand courts.

Kim Dotcom Wants FBI Director Comey Questioned By New Zealand Police (IBT)

FBI Director James Comey is currently in New Zealand and if Kim Dotcom has his way, Comey could find himself being questioned by the New Zealand police. The internet entrepreneur, who is wanted by the United States on multiple charges including fraud and copyright infringement, filed a complaint with the police Tuesday against the FBI director for what Dotcom called theft of his data by the agency. The alleged theft happened when the police raided Dotcom’s home Jan. 20, 2012, as part of investigations instigated by the U.S. The charges against him are based on the now-defunct website Megaupload that he operated, where users could share content with each other.

Some of that content was illegal to share, but according to New Zealand laws, internet service providers are not held responsible for the actions of their users. In his complaint Tuesday, Dotcom’s lawyer urged the police to urgently question Comey, who is in New Zealand for a conference. The grounds for the complaint are that the FBI received copies of data that was taken from Dotcom’s home during the 2012 raid, an act which courts in the country have held to be illegal, according to the complaint.

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The value you put on someone else’s life inevitably becomes the value of your own life.

At Least 16 Refugees Drown as Boat Sinks off Greece’s Lesbos (R.)

At least 16 people, including two children, drowned after an inflatable boat carrying refugees and migrants sank off Greece’s Lesbos island, authorities said on Monday. They are believed to be the first confirmed deaths in Greek waters this year of migrants or refugees making the short but dangerous crossing from Turkey on overcrowded rubber dinghies. Nine bodies were recovered in Greek territory and another seven in Turkish waters, Greek and Turkish coastguard officials said. Two survivors have been rescued. The two women, one of whom is pregnant, told the United Nations refugee agency UNHCR that 20 to 25 people were on board when the dinghy capsized around 1900 GMT on Sunday. The women are from Cameroon and the Democratic Republic of Congo.

Though fewer than 10 nautical miles separate Lesbos from Turkish shores, hundreds of people have drowned trying to make the crossing since Europe’s refugee crisis began in 2015. In that year, Lesbos was the main gateway into the European Union for nearly a million Syrians, Iraqis and Afghans. But a deal in March 2016 between the EU and Ankara has largely closed that route. Just over 4,800 people have crossed to Greece from Turkey this year, according to UNHCR data. An average of 20 arrive on Greek islands each day. “The number of people crossing the Aegean to Greece has dropped drastically over the past year, but this tragic incident shows that the dangers and the risk of losing one’s life remains very real,” said Philippe Leclerc, UNHCR Greece representative.

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Apr 202017
 
 April 20, 2017  Posted by at 9:04 am Finance Tagged with: , , , , , , , ,  5 Responses »
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Fra Filippo Lippi 1406-1469 The Virgin Mary

 

The IMF Says Austerity Is Over (Tel.)
Reflation Trades of 2016 Deflate With Remarkable Speed (R.)
IMF Warns High US Corporate Leverage Could Threaten Financial Stability (WSJ)
Securities-Based Loans Are Scaring Fiscal Experts (NYP)
Telling the Truth: (P + G) – M = I (MarkGB)
You’re Hired! A Guaranteed Job For Anyone Who Wants One (DJ)
Japan’s Middle-Aged ‘Parasite Singles’ Face Uncertain Future (R.)
The EU’s Collapse Is Now “Imminent” (Doug Casey)
Greece Needs To Start Having Babies Again or Face Financial Oblivion (Ind.)
40% of Spanish Children Live in Poverty (EurA)
Ontario Set to Unveil Its Plan to Cool Toronto Housing (BBG)
Feds Knew of 700 Wells Fargo Whistleblower Cases in 2010 (CNN)
So It Goes (Oliver Stone)
A Melting Arctic Changes Everything (BBG)

 

 

Yeah, sure, just come look in Greece. Where the IMF itself demands ever more austerity. While claiming austerity is over.

The IMF Says Austerity Is Over (Tel.)

Austerity is over as governments across the rich world increased spending last year and plan to keep their wallets open for the foreseeable future. After five years of belt tightening, the IMF says the era of spending cuts that followed the financial crisis is now at an end. “Advanced economies eased their fiscal stance by one-fifth of 1pc of GDP in 2016, breaking a five-year trend of gradual fiscal consolidation,” said the IMF in its fiscal monitor. “Their aggregate fiscal stance is expected to remain broadly neutral in 2017 as well as in the following years.” The British Government is still trying to reduce the deficit but at a slower pace, as Philip Hammond, the Chancellor, wanted to ease spending cuts following the vote for Brexit last year.

Although extra spending may be welcomed by those who want funds for specific projects or public services, the IMF is worried that governments are still heavily indebted and need to be careful with their budgets. The US government, for instance, should use the current economic growth spurt as a chance to get its finances under control. “In the United States, where the economy is close to full employment, fiscal consolidation could start next year to put debt firmly on a downward path,” the IMF said. That contrasts heavily with President Donald Trump’s plans to spend more on infrastructure and defence while cutting taxes, a combination that risks ramping up the budget deficit. “These policies are expected to generate rising deficits over the medium term.

As a result, the US debt ratio is projected to increase continuously over the five-year forecast horizon,” the IMF warned. Overall the IMF believes government debts “should stabilise in the medium term, averaging more than 100pc of GDP, rather than decline as previously expected.” With debts that high, governments have to walk a fine line to use fiscal policy to support sustainable economic growth, but avoid dangerous over-indebtedness. “Fiscal policy is generally seen as a powerful tool for promoting inclusive growth and can contribute to stabilising the economy, particularly during deep recessions and when monetary policy has become less effective,” said the IMF.

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How can anyone get this right if they can’t even properly define inflation?

Reflation Trades of 2016 Deflate With Remarkable Speed (R.)

Stocks, bond yields and the dollar are all falling, yield curves are flattening and sterling is marching higher. The “reflation” trades of 2016 that were supposed to mark a turning point in global markets are fading. Fast. The question for investors is whether this is the play book for the rest of the year, or whether the trends of 2016 will resume in the second half of the year. What is clear is that much of the conviction with which investors went into 2017 has been lost. This week, Goldman Sachs ditched its long-standing bullish call on the U.S. dollar, and Deutsche Bank did likewise with their gloomy sterling outlook. Following the developed world’s two most seismic events last year – the U.S. presidential election and Brexit – investors around the world had positioned for a broad-based reflation trade.

Trump’s surprise election victory was supposed to unleash a wave of tax cuts, banking deregulation and fiscal largesse that would lift U.S. – and global – growth. Meanwhile, sterling’s 20% plunge after the Brexit vote was supposed to pave the way for a surge in UK equities and inflation. This, indeed, is how it played out as 2017 got underway. The Federal Reserve raised interest rates twice, the dollar reached a 14-year peak, Wall Street hit record highs, and government bond yield curves around the world steepened to the benefit of banks and financial stocks. But it is now unraveling, in large part due to a clear slowdown in U.S. growth and signs that global inflation is leveling off. Flatter yield curves where short- and long-term bond yields are close to each other suggest economic uncertainty.

[..] Citi’s economic surprises indexes for most of the world’s major economies have been heading south for the past month. The U.S. index has suddenly tumbled to lows not seen since November, and is below all its peers apart from Japan’s. And inflation expectations are showing signs of peaking too. The dollar is now down 2.5% year-to-date (but still up 2% since the U.S. election; U.S. bank stocks are down 10% from their February peak (but still up 20% from the election); and sterling is down 13% against the dollar since the Brexit vote last June (but it has been down as much as 20%). Estimates of first quarter U.S. growth have been slashed in recent weeks, with the Atlanta Fed’s closely-watched GDPNow model pointing to just 0.5% compared with around 2.5% less than two months ago.

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All it takes is a few rate hikes.

IMF Warns High US Corporate Leverage Could Threaten Financial Stability (WSJ)

U.S. corporate debt has ballooned on cheap credit to levels exceeding those prevailing just before the 2008 financial crisis, a potential threat to financial stability, the IMF warned in its latest review of the top threats to markets and banks. High corporate leverage could become problematic as the Federal Reserve raises short-term interest rates, the IMF warned, since higher borrowing costs could hinder the ability of firms to service debts. While borrowing costs remain low, debt servicing as a proportion of income has risen to its highest level since 2010, raising questions over firms’ ability to service their debts, according to the IMF’s study of nearly 4,000 U.S. firms accounting for about half of the economywide corporate sector balance sheet.

Companies have added $7.8 trillion of debt and other liabilities since 2010, while issuing $3 trillion of equity, net of buybacks, according to the IMF. The IMF’s message stands in contrast to the one being sent by the corporate bond market, which has been rallying for more than a year now. In early March, the average spread between junk-rated corporate bond yields and U.S. Treasury yields reached 3.44 percentage points, its lowest point since July 2014, according to Bloomberg Barclays data. It was most recently at 3.92 percentage points, still a very low level by historical standards, indicating that investors don’t see the debt as very risky.

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So you buy mortgage backed securities, and then use them as collateral for a loan that lets you buy more securities. The serpent and the tail.

Securities-Based Loans Are Scaring Fiscal Experts (NYP)

Forget subprime mortgages – one of Wall Street’s biggest risks doesn’t even show up on most banks’ balance sheets. Financial insiders are getting increasingly worried over the popularity of securities-based loans, or SBLs – a risky form of debt marketed to wealthy investors who typically use it to buy big assets like houses. The loans, which are taken against pools of stocks and bonds, offer borrowers cheap money fast without having to sell their underlying securities – an attractive option when the Dow is rising. But if markets crash, brokers can unload their clients’ holdings at fire-sale prices – and go after the house to cover the the vig. Fears of such ugly scenarios are growing as the Fed hikes interest rates, stocks are hitting all-time highs, and high-net-worth individuals are using this form of “shadow margin” to borrow more against stocks and bonds in their portfolios than ever before.

It’s not clear how much debt has been taken out in the form of SBLs, and a lack of regulatory oversight is partly to blame. Finra, the brokerage regulator, doesn’t track it, nor does the Securities and Exchange Commission — even though both have warned investors about the risks. However, several advisers surveyed by The Post estimated there is between $100 billion and $250 billion in outstanding SBLs among all brokerages. At least one concerned financial executive is in talks with lawyers to file a whistleblower case over the issue against a major bank with the Securities and Exchange Commission, The Post has learned. “When the market does turn, and it will at some point, it will be a major disaster,” said the exec, who requested confidentiality in exchange for speaking on the issue with The Post.

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Here’s what I think will lead to UBI: poor old people. I skipped all the examples and links provided here. Do read them. “Where ‘P’ is pensions, ‘G’ is ‘government intervention’, ‘M’ is media oversight, and ‘I’ is insolvency.”

Telling the truth: (P + G) – M = I (MarkGB)

Telling the truth has never been popular with politicians. They believe that it would prevent them from getting elected. Making new promises that will never be kept, and covering up the unaffordability of old promises…is how politicians get elected. The pattern is well worn and predictable: they use promises to ‘bribe’ people to vote for them, then they fail to deliver, then they blame someone else, then they change the subject…rinse and repeat…meanwhile the really important stuff get’s brushed under the carpet or kicked down the road…choose your own metaphor. There are few greater examples of this than the approaching crisis in pensions: A tale that has been decades in the telling, the climax will be a calamity that the corporate media doesn’t want to look at, and politicians never mention or acknowledge. Short of being strapped to a metal chair and entertained with an electrical massage they never will…which is a nice thought but regrettably still illegal, at least on the mainland.

[..] Despite the dark pleasure it would give me to label our political and economic elites: ‘as thick as two short planks’…the truth is that many of them are not. It’s far worse than that I’m afraid. They are ‘liars’. The politicians, central bankers, economists and journalists who understand the situation we face, but do nothing to address it, are discrediting the positions of responsibility that they hold…by lying through omission, by obfuscation, through denial, by issuing false and/or misleading information, and via the good old fashioned ‘art’ of bull$hitting straight to camera. Finally, and on a slightly lighter note, for anyone reading this who has been brainwashed with the idea that any theory or observation that can’t be reduced to an equation, is not real ‘economics’…here is an equation for you (but don’t expect your professor to like it):

(P + G) – M = I

Where ‘P’ is pensions, ‘G’ is ‘government intervention’, ‘M’ is media oversight, and ‘I’ is insolvency. Throughout recorded history, this equation has never failed to balance eventually…ask any legionnaire.

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Another -more palatable?!- way of phrasing UBI.

You’re Hired! A Guaranteed Job For Anyone Who Wants One (DJ)

Democrats have begun the presidency of Donald Trump exiled to the political wilderness. They’ve lost the White House, both houses of Congress, a shocking number of state governments, while the “blue state” vote has turned out to be really just the “blue city” vote. The party has cast about for solutions, battling it out over identity politics, the proper opposition strategy, and more. But Democrats might consider taking a cue from Trump himself. Namely, his relentless promises to bring back good-paying American jobs. “It’s the first and most consistent thing he discusses,” observed Mike Konczal, a fellow at the Roosevelt Institute, after reviewing Trump’s speeches. The President understands, as The New York Times’s Josh Barro noted, that most Americans think the purpose of private business is to provide good jobs, not merely turn a profit.

Even Trump’s xenophobia and white nationalism are not totally separate from this: Kicking out all the immigrants and rolling foreign competitors are critical components of how he would restore jobs. Democrats tend to treat jobs as the happy by-product of other goals like infrastructure revitalization or green energy projects. Or they treat deindustrialization and job dislocation as regrettable inevitabilities, offering training, unemployment insurance, health care, and so on to ameliorate their effects. All these policies are worthy. But a job is not merely a delivery mechanism for income that can be replaced by an alternative source. It’s a fundamental way that people assert their dignity, stake their claim in society, and understand their mutual obligations to one another. There’s pretty clear evidence that losing this social identity matters as much as the loss of financial security.

The damage done by long-term joblessness to mental and physical health is rivaled only by the death of a spouse. It wreaks havoc on marriages, families, mortality rates, alcoholism rates, and more. The 2008 crisis drove long-term unemployment into the stratosphere, and today it remains near a historic high. Trump went right at this problem, telling Michigan in October of 2016: “I am going to bring back your jobs.” Period. Democrats should consider making the same moon shot promise. But unlike Trump, they should back it up with a policy plan. And there’s an idea that could do the trick. It emerges naturally from progressive values. It’s big, bold, and could fit on a bumper sticker. It’s generally called the “job guarantee” or the “employer of last resort.” In a nutshell: Have the federal government guarantee employment, with benefits and a living wage, to every American willing and able to work.

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More pension troubles. Today Japan, tomorrow your neck of the woods.

Japan’s Middle-Aged ‘Parasite Singles’ Face Uncertain Future (R.)

Their youth long gone, members of Japan’s generation of “parasite singles” face a precarious future, wondering how to survive once the parents many depended on for years pass away. Some 4.5 million Japanese aged between 35 and 54 were living with their parents in 2016, according to a researcher at the Statistical Research and Training Institute on a demographic phenomena that emerged two decades ago, when youthful singles made headlines for mooching off parents to lead carefree lives. Now, without pensions or savings of their own, these middle-aged stay-at-homes threaten to place an extra burden on a social welfare system that is already creaking under pressure from Japan’s aging population and shrinking workforce.

Hiromi Tanaka once sang backup for pop groups, and epitomized the optimism of youth. “I got used to living in an unstable situation and figured somehow it would work out,” Tanaka told Reuters as she sat at the piano in a small parlor of an old house connected to her elderly mother’s next door. Now aged 54, Tanaka relies on income from giving private singing lessons to a dwindling number of students, and her mother’s pension to make ends meet. She has no pension plan of her own, and has used up most of her savings. “My father died last year so pension income was halved,” she said. “If things go on like this, my mother and I will fall together.” Tanaka is one of the growing ranks of “life-time singles,” whose numbers hit a record in 2015, according to data released this month that showed that among 50-year-olds, 1 in 4 men and 1 in 7 women were unmarried.

“During the ‘bubble economy’ until the mid-1990s, the 20-somethings were happily amusing themselves. They thought by the time they were in their 30s, they’d be married,” said Masahiro Yamada, a Chuo University sociologist who coined the term “parasite singles” in 1997. “But one-third never married and are now around age 50,” Yamada said. The trend is not only a factor behind Japan’s low birthrate and shrinking population. It also puts an extra damper on consumption since new household formation is a key driver of private spending. And since about 20% of the middle-aged stay-at-home singles rely on parents for support, they also threaten to weigh on social safety nets. “Once they use up inherited assets and savings, when nothing is left, they will go on the dole,” Yamada said.

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Casey gets lots of things spectacularly wrong. The EU did need trade pacts etc., to enhance, guarantee quality control. The EU did a lot of good things. But it got taken over by the shit that floats to the top: “The European Union in Brussels is composed of a class of bureaucrats that are extremely well paid, have tremendous benefits, and have their own self-referencing little culture. They’re exactly the same kind of people that live within the Washington, D.C. beltway.”

The EU’s Collapse Is Now “Imminent” (Doug Casey)

A free trade pact between different governments is unnecessary for free trade. An individual country interested in prosperity and freedom only needs to eliminate all import and export duties, and all import and export quotas. When a country has duties or quotas, it’s essentially putting itself under embargo, shooting its economy in the foot. Businesses should trade with whomever they want for their own advantage. But that wasn’t the way the Europeans did it. The Eurocrats, instead, created a treaty the size of a New York telephone book, regulating everything. This is the problem with the EU. They say it is about free trade, but really it’s about somebody’s arbitrary idea of “fair trade,” which amounts to regulating everything. In addition to its disastrous economic consequences, it creates misunderstandings and confusion in the mind of the average person.

Brussels has become another layer of bureaucracy on top of all the national layers and local layers for the average European to deal with. The European Union in Brussels is composed of a class of bureaucrats that are extremely well paid, have tremendous benefits, and have their own self-referencing little culture. They’re exactly the same kind of people that live within the Washington, D.C. beltway. The EU was built upon a foundation of sand, doomed to failure from the very start. The idea was ill-fated because the Swedes and the Sicilians are as different from each other as the Poles and the Irish. There are linguistic, religious, and cultural differences, and big differences in the standard of living. Artificial political constructs never last. The EU is great for the “elites” in Brussels; not so much for the average citizen.

Meanwhile, there’s a centrifugal force even within these European countries. In Spain, the Basques and the Catalans want to split off, and in the UK, the Scots want to make the United Kingdom quite a bit less united. You’ve got to remember that before Garibaldi, Italy was scores of little dukedoms and principalities that all spoke their own variations of the Italian language. And the same was true in what’s now Germany before Bismarck in 1871. In Italy 89% of the Venetians voted to separate a couple of years ago. The Italian South Tyrol region, where 70% of the people speak German, has a strong independence movement. There are movements in Corsica and a half dozen other departments in France. Even in Belgium, the home of the EU, the chances are excellent that Flanders will separate at some point.

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Another feature brought to you by the Troika.

Greece Needs To Start Having Babies Again or Face Financial Oblivion (Ind.)

People in Greece can’t afford to have more than one child, and many are opting to have none at all. Fertility doctor Minas Mastrominas tells the New York Times that some women have decided not to conceive, and single-child parents have been asking him to destroy their remaining embryos. He said: “After eight years of economic stagnation, they’re giving up on their dreams.” It isn’t just Greece suffering low birth rates. In fact the trend spreads to most of Europe, with Spain, Portugal and Italy also reporting dangerously low rates. Unemployment continues to be a serious issue in Greece. Rates are slightly lower than in 2016 when they were 23.9%, but are still very high at 23.5%. The slump has affected women more, with unemployment rates at 27% compared to 20% of men.

Child tax breaks and subsidies for large families have decreased, and the country stands at having to lowest budget in the EU for family and child benefits. During the height of the crisis, women postponed childbirth in favour of working. As the years dragged on, the rate of fertility decreased, making it biologically more difficult to conceive. Additionally, gender equality came to a standstill, and many women of ‘childbearing age’ were denied employment, or had their contract changed to part time involuntarily, as soon as they got pregnant. One of the most prominent areas that will be detrimentally affected is pensions and the welfare system. Additionally, according to Eurostat, such low birth rates – under 2.1 – could create a demographic disaster. This will have a knock-on effect on pensions, with fewer young people working.

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And the children we do have, we treat like this. No wonder there are fewer of them.

40% of Spanish Children Live in Poverty (EurA)

Spain has the EU’s third highest rate of child poverty, after Romania and Greece. EURACTIV Spain reports. After the economic crisis and years of austerity, child poverty is on the rise in wealthy countries, according to Unicef. In Spain, the proportion of children living below the poverty line increased by 9 percentage points between 2008 and 2014, to reach almost 40%. While child poverty in general rose significantly, the sharpest increase (56%) was among households of four people (two adults and two children) living on less than €700 per month, or €8,400 per year. Spain has the third widest gap in the EU, behind Latvia and Cyprus, between the levels of social protection offered to children and people over 65. During the crisis, Spain’s oldest citizens were much better protected than its youngest.

According to the Spanish Statistical Office, cited by Unicef, investment in the social protection of families fell by €11.5 billion between 2009 and 2015. Unicef also highlighted that families with children, large families, single-parent families and teenagers suffered the most from the effects of poverty. As for Madrid’s response to the crisis, the UN’s agency for children criticised its failure to contain child poverty. “Social protection policies are very fragmented and very unequal, with little focus on children,” Unicef said. For the organisation, this is due, among other causes, to the strong link between social security and workers’ contributions, and the fact that many of the state’s family aid programmes take the form of tax credits, which have little impact on low earners.

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They’ll get it awfully wrong. It’s too late in the game.

Ontario Set to Unveil Its Plan to Cool Toronto Housing (BBG)

Ontario is expected to impose a tax on “non-resident speculators” when it announces new measures Thursday to cool the red-hot housing market in Toronto, according to people familiar with the plans. The measures are intended to improve housing affordability, and address both supply and demand, the people said, speaking on condition of anonymity because the plans are not yet public. The measures are also said to include a new tax aimed at curbing purchases from non-resident speculators. [..] Home prices in the Toronto area climbed 6.2% last month, the biggest one-month gain on record, according to a benchmark price index by the Canadian Real Estate Association, and are up almost 30% in the past 12 months. Bank of Canada Governor Stephen Poloz said last week the price gains are “divorced” from the typical measures of demand, such as income growth and demographics, and said they are unsustainable.

“The focus has to be on runaway prices, more so than affordability per se,” Robert Hogue, a senior economist at Royal Bank of Canada, said in a phone interview. “The risk now is about expectations in the market, or market psychology, as you have both sellers and buyers expecting much higher prices.” The Toronto Star reported earlier, without saying where it got the information, that Sousa will announce some 10 measures ranging from rent controls to a new tax on speculators. The move comes a week before the province tables its budget on April 27, and two days after Sousa said the government recognizes that “now” is the time to address runaway home prices. Sousa on Tuesday met Canadian Finance Minister Bill Morneau and Toronto Mayor John Tory, who said that possible steps include taxing homes left empty for speculative purposes. Rent increases on newer buildings may be limited to about 1.5% above the inflation rate, which was at 2% in February, the Star reported.

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Daddy, please tell the story again of why we have regulators!

Feds Knew of 700 Wells Fargo Whistleblower Cases in 2010 (CNN)

America’s chief federal banking regulator admits it failed to act on numerous “red flags” at Wells Fargo that could have stopped the fake account scandal years earlier. One particularly alarming red flag that went unheeded: In January 2010, the regulator was aware of “700 cases of whistleblower complaints” about Wells Fargo’s sales tactics. An internal review published on Wednesday by the Office of the Comptroller of the Currency found that the regulator didn’t live up to its responsibilities. The report found that oversight of Wells Fargo was “untimely and ineffective” and federal examiners overseeing the bank “missed” several opportunities to uncover the problems that led to the creation of millions of fake accounts. The review painted a damning picture of the OCC’s ability to spot what in retrospect should have been obvious problems at one of the nation’s biggest banks.

The OCC did confront Carrie Tolstedt, then head of Wells Fargo’s community bank, about the stunning number of whistleblower claims. However, there are no records that show that federal inspectors “investigated the root cause,” or force Wells Fargo to probe it. It’s now clear that root cause of Wells Fargo’s problems – both the creation of fake accounts and the related 5,300 firings – was the notoriously aggressive sales goals targets set by senior management. At one point, rank and file bankers were asked to open as many as eight accounts per customer. That’s why the bank has eliminated them. From top management to Wells Fargo’s board of directors, everyone turned a blind eye to these issues. There’s evidence now that some of this was flagged as early as 2004 to management.

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Stone states the obvious.

So It Goes (Oliver Stone)

I confess I really had hopes for some conscience from Trump about America’s wars, but I was wrong – fooled again! – as I had been by the early Reagan, and less so by Bush 43. Reagan found his mantra with the “evil empire” rhetoric against Russia, which almost kicked off a nuclear war in 1983 – and Bush found his ‘us against the world’ crusade at 9/11, in which of course we’re still mired. It seems that Trump really has no ‘there’ there, far less a conscience, as he’s taken off the handcuffs on our war machine and turned it over to his glorified Generals – and he’s being praised for it by our ‘liberal’ media who continue to play at war so recklessly. What a tortured bind we’re in. There are intelligent people in Washington/New York, but they’ve lost their minds as they’ve been stampeded into a Syrian-Russian groupthink, a consensus without asking – ‘Who benefits from this latest gas attack?’

Certainly neither Assad nor Putin. The only benefits go to the terrorists who initiated the action to stave off their military defeat. It was a desperate gamble, but it worked because the Western media immediately got behind it with crude propagandizing about murdered babies, etc. No real investigation or time for a UN chemical unit to establish what happened, much less find a motive. Why would Assad do something so stupid when he’s clearly winning the civil war? No, I believe America has decided somewhere, in the crises of the Trump administration, that we will get into this war at any cost, under any circumstances – to, once again, change the secular regime in Syria, which has been, from the Bush era on, one of the top goals – next to Iran – of the neoconservatives. At the very least, we will cut out a chunk of northeastern Syria and call it a State.

Abetted by the Clintonites, they’ve done a wonderful job throwing America into chaos with probes into Russia’s alleged hacking of our election and Trump being their proxy candidate (now clearly disproved by his bombing attack) – and sadly, worst of all in some ways, admitting no memory of the same false flag incident in 2013, for which again Assad was blamed (see Seymour Hersh’s fascinating deconstruction of this US propaganda, ‘London Review of Books’ December 19, 2013, “Whose sarin?”). No memory, no history, no rules – or rather ‘American rules.’ No, this isn’t an accident or a one-off affair. This is the State deliberately misinforming the public through its corporate media and leads us to believe, as Mike Whitney points out in his brilliant analyses, “Will Washington Risk WW3” and “Syria: Where the Rubber Meets the Road,” that something far more sinister waits in the background.

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BBG can’t even run a story on climate anymore without adding “..the emerging risk of an emboldened and growing Russian empire..”, and more of such useful hints.

A Melting Arctic Changes Everything (BBG)

The story of the Arctic begins with temperature but it’s so much more—this is a tale about oil and economics, about humanity and science, about politics and borders and the emerging risk of an emboldened and growing Russian empire. The world as a whole has warmed about 0.9 degrees Celsius (1.7 degrees Fahrenheit) since 1880. Arctic temperatures have risen twice that amount during the same time period. The most recent year analyzed, October 2015 to September 2016, was 3.5C warmer than the early 1900s, according to the 2016 Arctic Report Card. Northern Canada, Svalbard, Norway and Russia’s Kara Sea reached an astounding 14C (25F) higher than normal last fall. Scientists refer to these dramatic physical changes as “Arctic amplification,” or positive feedback loops. It’s a little bit like compound interest.

A small change snowballs, and Arctic conditions become much less Arctic, much more quickly. “After studying the Arctic and its climate for three-and-a-half decades,” Mark Serreze, director of the National Snow and Ice Data center, wrote recently. “I have concluded that what has happened over the last year goes beyond even the extreme.” The heat is making quick work of its natural prey: ice. Scientists track the number of “freezing-degree days,” a running seasonal tally of the amount of time it’s been cold enough for water to freeze. The 2016-2017 winter season has seen a dramatic shortfall in coldness—more than 20% below the average, a record. Sea ice has diminished much faster than scientists and climate models anticipated. Last month set a new low for March, out-melting 2015 by 23,000 square miles.

Compared with the 1981-2010 baseline, the average September sea-ice minimum has been dropping by more than 13% per decade. A recent study in Nature Climate Change estimated that from 30-50% of sea ice loss is due to climate variability, while the rest occurs because of human activity. Receding ice decreases the Earth’s overall reflectivity, making the Arctic darker and therefore absorbing even more heat. The ice is not all the same age or thickness, although it has become somewhat more uniform. In 1985, about 45% of Arctic sea ice was made up of older and thicker multi-year ice. By 2016, that number shrank to 22%.

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Mar 062017
 
 March 6, 2017  Posted by at 10:03 am Finance Tagged with: , , , , , , , , , ,  8 Responses »
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Dorothea Lange Negro woman who has never been out of Mississippi July 1936

 

The Government Doesn’t Actually Want Housing To Be More Affordable (SMH)
In Praise Of Cash (Aeon)
Basic Income Isn’t Just A Nice Idea. It’s A Birthright (G.)
Oil Falls On Lower China Growth Targets, Doubts On Russian Output Curbs (R.)
China’s Credit Target Implies Adding Entire German GDP This Year (BBG)
Record-Breaking Stocks A Bad Reason For The Fed To Raise Interest Rates (BI)
Leaving The EU Is The Start Of A Liberal Insurgency (Carswell)
Deutsche Bank CEO Cryan Has A New Strategy: Reverse His Old Strategy (BBG)
Renzi’s Return Clouded By Probe Into Father, Government Minister (BBG)
The Iraq War Stench Lingers Behind Today’s Preoccupation With Fake News (G.)
Saudi Arabia Stealing 65% of Yemen’s Oil in Collaboration with US, Total (AHT)
Turkey’s Erdogan Compares German Behavior With Nazi Period (R.)
US Asks Ankara For Steps To Ease Aegean Tension (K.)
Greece Desperate For Growth Strategy As Public Mood Darkens (G.)
Polluted Environments Kill 1.7 Million Children A Year (R.)

 

 

From Australia, but applicable worldwide. Mortgages in housing bubbles are the main engine of money (credit) creation in our economies. Boith governments and banks depend on them for profit, taxes and ultimately survival. Imagine if housing prices halved, the entire construct would collapse. They’ll do anything to keep the game going. And then they will fail.

The Government Doesn’t Actually Want Housing To Be More Affordable (SMH)

The federal government’s problem with making housing more affordable is that it becomes, by definition, cheaper. And that’s not something that the federal government wants to see happen for some very understandable reasons. Back in the Howard era Australians were encouraged to invest in housing as a form of wealth creation, partially as a way of addressing rental strain and mainly as a way to ensure people had assets and therefore didn’t go selfishly claiming pensions later on. That’s when the negative gearing and capital gains exemptions were introduced that made buying property such a sweet deal. So now there are a lot of Australians who have put their retirement eggs in the basket marked “leveraging the hell out of my mortgage to buy more investment properties” for the last couple of decades and who will be therefore disadvantaged if the value of housing drops.

And then there’s pure self interest at work too, since between a third and half of all our representatives have investment properties – the PM himself owns seven properties, for example. How keen would you say that our parliamentary representatives are to make their portfolios drop in value, especially for something as stupid as the greater good? Also, as well we know thanks to the efforts of the NSW Independent Commission Against Corruption, the NSW Liberals are so beloved by property developers that the party went to some effort to find a way of accepting donations from them despite those donations being completely illegal. If they suddenly become the party that makes property less lucrative, there’d be no donations to justify the creation of opaque entities like the Free Enterprise Foundation.

[..] Will housing become more affordable in Australia? Absolutely! And it could happen one of two ways. This complex web of legislation can be gently and strategically unpicked via careful bipartisan cooperation across our different spheres of government in concert with the private sector in an effort to create a sane, universally beneficial housing system at all levels. Alternatively, we can choose to leave things be until the housing bubble bursts and plunges Australia into a crippling recession. And since this is politics in 2017, we can assume that Plan A is already off the table.

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Using cash is fast becoming a revilutionary act.

In Praise Of Cash (Aeon)

The cashless society – which more accurately should be called the bank-payments society – is often presented as an inevitability, an outcome of ‘natural progress’. This claim is either naïve or disingenuous. Any future cashless bank-payments society will be the outcome of a deliberate war on cash waged by an alliance of three elite groups with deep interests in seeing it emerge. The first is the banking industry, which controls the core digital fiat money system that our public system of cash currently competes with. It irritates banks that people do indeed act upon their right to convert their bank deposits into state money. It forces them to keep the ATM network running. The cashless society, in their eyes, is a utopia where money cannot leave – or even exist – outside the banking system, but can only be transferred from bank to bank.

The second is the private payments industry – the likes of Mastercard – that profits from running the infrastructure that services that bank system, streamlining the process via which we transfer digital money between bank accounts. They have self-serving reasons to push for the removal of the cash option. Cash transactions are peer-to-peer, requiring no intermediary, and are thus transactions that Visa cannot skim a cut off. The third – perhaps ironically – is the state, and quasi-state entities such as central banks. They are united with the financial industry in forcing everyone to buy into this privatised bank-payments society for reasons of monitoring and control. The bank-money system forms a panopticon that enables – in theory – all transactions to be recorded, watched and analysed, good or bad. Furthermore, cash’s ‘offline’ nature means it cannot be remotely altered or frozen.

This hampers central banks in implementing ‘innovative’ monetary policies, such as setting negative interest rates that slowly edit away bank deposits in order to coerce people into spending. Governments don’t really mention that monetary policy agenda. It isn’t catchy enough. Rather, the key weapons used by the alliance are more classic shock-and-awe scare tactics. Cash is used by criminals! People buy drugs with cash! It’s the black economy! It supports tax evasion! The ability to present control as protection relies on constant calls to imagine an external enemy, the terrorist or Mafiosi. These cries of moral panic are set in contrast to the glossy smiling adverts about digital payment. The emerging cashless society looms like a futuristic sunrise, cleansing us of these dangerous filthy notes with rays of hygienic, convenient, digital salvation.

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From Thomas Paine to Henry George, the reason for UBI has long been known. Call it ‘ground rent’ or ‘land value tax’. Tax the ownership class, not the workers. ‘Birthright’ may sound strange today, but is it really?

Basic Income Isn’t Just A Nice Idea. It’s A Birthright (G.)

Every student learns about Magna Carta, the ancient scroll that enshrined the rights of barons against the arbitrary authority of England’s monarchs. But most have never heard of its arguably more important twin, the Charter of the Forest, issued two years later in 1217. This short but powerful document guaranteed the rights of commoners to common lands, which they could use for farming, grazing, water and wood. It gave official recognition to a right that humans nearly everywhere had long just presupposed: that no one should be debarred from the resources necessary for livelihood. But this right – the right of habitation – came under brutal attack beginning in the 15th century, when wealthy nobles began fencing off common lands for their own profit.

[..] the success of basic income – in both the north and south – all depends on how we frame it. Will it be cast as a form of charity by the rich? Or will it be cast as a right for all? Thomas Paine was among the first to argue that a basic income should be introduced as a kind of compensation for dispossession. In his brilliant 1797 pamphlet Agrarian Justice, he pointed out that “the earth, in its natural, uncultivated state was, and ever would have continued to be, the common property of the human race”. It was unfair that a few should enclose it for their own benefit, leaving the vast majority without their rightful inheritance. As far as Paine was concerned, this violated the most basic principles of justice.

Knowing that land reform would be politically impossible (for it would “derange any present possessors”), Paine proposed that those with property should pay a “ground rent” – a small tax on the yields of their land – into a fund that would then be distributed to everyone as an unconditional basic income. For Paine, this would be a right: “justice, not charity”. It was a powerful idea, and it gained traction in the 19th century when American philosopher Henry George proposed a “land value tax” that would fund an annual dividend for every citizen. The beauty of this approach is that it functions as a kind of de-enclosure. It’s like bringing back the ancient Charter of the Forest and the right of access to the commons. It restores the right to livelihood – the right of habitation.

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Yeah, output cuts. Sure.

Oil Falls On Lower China Growth Targets, Doubts On Russian Output Curbs (R.)

Oil prices fell in Asian trade on Monday, wiping out some of the gains of the previous session amid worries lower growth targets in China could cut oil demand and ongoing concern over Russia’s compliance with a global deal to cut oil output. But worries over escalating violence in the Middle East put a floor under prices. Brent crude futures dropped 29 cents, or 0.5%, to $55.61 a barrel as of 0638 GMT after settling 1.5% higher in the previous session. U.S. West Texas Intermediate (WTI) crude futures fell 30 cents, or 0.6%, to $53.03 a barrel after closing the previous session up 1.4%. “The main drag affecting markets today is the lowering of growth targets by China and tighter regulatory controls which implies less demand for oil and commodities in general,” said Jeffrey Halley at Oanda brokerage in Singapore.

China aims to expand its economy by around 6.5% this year, Premier Li Keqiang said in his work report at the opening of the annual meeting of parliament on Sunday. That is lower than the 6.7% growth achieved last year. China also plans to cut steel and coal output this year in an effort to tackle pollution, its top economic planner said on Sunday, while China’s newly appointed banking regulator vowed on to strengthen supervision of the lending sector. Meanwhile, figures by Russia’s energy ministry released last week showed February oil output was unchanged from January at 11.11 million barrels per day (bpd), casting doubt on Russia’s moves to rein in output as part of a pact with oil producers last year. That came as oil prices rose on Friday as the dollar weakened modestly after a speech by Fed Chair Janet Yellen, which suggested a rate increase would come at the end of its two-day meeting on March 15.

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“China’s great ball of money.”

China’s Credit Target Implies Adding Entire German GDP This Year (BBG)

China’s credit engine will keep humming this year, adding the rough equivalent of Germany’s annual economic output to its already massive stock of total social financing (TSF), according to estimates derived from the nation’s 2017 targets. Adding higher equity market financing and about 5 trillion yuan ($725 billion) worth of local government bond swaps to the official credit growth target of 12%, analysts at UBS see TSF expansion of 14.8% this year. They calculate that’s equal to a whopping 23 trillion yuan, or $3.3 trillion, addition to the amount of total credit already swishing around the world’s second-largest economy. “China’s pace of leverage increase will be slowing, albeit not by that much,” economists led by Hong Kong-based Wang Tao wrote in a report.

“The government’s intention for a still strong pace of credit growth and recent notable tightening in China’s money market and bond market attest to the difficulties facing the PBC in balancing monetary policy.” China’s great ball of money creates a constant headache for policy makers as money flows from asset class to asset class, creating bubbles along the way. It’s a particular dilemma for the People’s Bank of China because it needs new credit to generate the kind of growth its leaders desire – around 6.5% or higher if possible this year. The M2 money supply target was cut to 12% this year from 13% in 2016, while still higher than the 11.3% actual expansion last year.

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So wrong so many times, and still taken serious. You’d almost admire them for it.

Record-Breaking Stocks A Bad Reason For The Fed To Raise Interest Rates (BI)

Federal Reserve officials say their decisions on interest rate policy hinge on the ebb and flow of economic data, not the whims of financial markets. They have repeatedly downplayed the effect of short-term market fluctuations in their policy moves, aimed at maintaining a strong labor market and 2% inflation over the medium term. But the thing about markets is, they don’t really matter until they suddenly do. That may be the case at the moment, with Fed officials suddenly signaling in unison, without major changes in the economic data, that an increase in interest rates is coming this month. Investors accordingly shifted from considering a March hike as rather a long shot to seeing it as a near sure possibility in just two weeks. What changed? The stock market continued to set new records without much underlying economic impetus.

When the Fed released minutes from its end of January meeting, they showed members “expressed concern that the low level of implied volatility in equity markets appeared inconsistent with the considerable uncertainty attending the outlook.” The Fed comments on the broad health of the financial markets all the time, but that kind of focus on stock volatility is less common. Fed Chair Janet Yellen and her Vice Chair Stanley Fischer, both speaking on March 3, appeared to seal the deal for a rate increase at the Fed’s upcoming March 14-15 meeting — with Yellen indicating that a hike is coming barring a drastic disappointment in next week’s February jobs report. Fischer was also was fairly unequivocal. “If there has been a conscious effort to move up our hike expectations I am going to join it,” he told a monetary policy conference in New York, sponsored by the University of Chicago’s Booth School of Business.

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Carswell is the only MP for Ukip. Farage hates him now. But he has some points: “Trump – or Geert Wilders in the Netherlands – is where you end up when you ignore legitimate public concerns and there isn’t a safety valve. “

Leaving The EU Is The Start Of A Liberal Insurgency (Carswell)

What is Nigel Farage so cross about? We won the EU referendum, for goodness sake. Since 23 June, I’ve been walking on sunshine. My mood has been a state of Zen-like bliss. Alongside Boris Johnson, David Owen, Gisela Stuart and all of those involved in the official Vote Leave campaign, I spent the referendum arguing that leaving the EU would be an opportunity to make Britain more open, outward-looking and globally competitive. It is becoming increasingly clear to me that this is where Brexit is going to take us. [..] Brexit is often bracketed alongside the election of Donald Trump and the rise of the new radical populist movements in many western countries. But to me the EU referendum result was a safety valve. Trump – or Geert Wilders in the Netherlands – is where you end up when you ignore legitimate public concerns and there isn’t a safety valve.

Throughout history oligarchy has emerged in societies in which power was previously dispersed: in the late Roman republic, and in early modern times in the Venetian and then the Dutch republics. Each time, the emergence of oligarchy was always accompanied by an anti-oligarch insurgent reaction.Many of today’s new radical movements aren’t oligarchs, but an anti-oligarchy insurgency. Trump is no American Caesar about to cross some constitutional Rubicon. Yet such insurgents often ended up unwittingly assisting the oligarchs. In Rome the Gracchi brothers, with their Trump-like concern about cheap migrant labour, caused so much civil strife that an all-powerful emperor seemed a better bet. In Venice, the anti-oligarch rebel Bajamonte launched an unsuccessful coup – and in doing so gave the elite a pretext to create a new, superpowerful executive arm of government, the Council of Ten.

Created to respond to the crisis for six weeks, it ran the republic for the next 600 years. The Dutch anti-oligarch De Witt was so inept, he paved the way for the return of a strong stadtholder, or king. So, too, today. If chaotic, angry insurgents such as France’s Marine Le Pen and the rightwing populist Alternative for Germany party are the alternative, then being governed by remote, unaccountable elites sitting in central banks and Brussels doesn’t seem so unattractive after all. But Brexit isn’t anything like that. It is the beginning of a liberal insurgency. Brexit means that we take back control from the supranational elite. Power can be dispersed outward and downwards. Those who make public policy might once more answer to the public. Cheer up – it might even mean that there is less space for anger in our politics too.

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“Even after a recent rally, the stock is 29% lower than when Cryan took the helm in 2015…”

Deutsche Bank CEO Cryan Has A New Strategy: Reverse His Old Strategy (BBG)

Deutsche Bank CEO John Cryan tore up his own turnaround plan in an admission that the 17-month-old effort flopped. Germany’s largest bank late Sunday approved measures – most crucially, plans to raise about $8.5 billion in a share sale – that effectively restart what has already been the most turbulent transformation in its recent history. Among the moves: naming two deputy CEOs who may now be positioned to succeed Cryan; selling a piece of the asset-management business and abandoning the sale of the consumer-banking unit, which was the linchpin of the blueprint he scrapped. Speaking on Monday, Cryan said the deputies were installed at his request as the company will focus more on the German market with the reintegration of Postbank, which he said reflects a strong performance by the unit and a changed environment for banks.

Yet the developments underscore how, almost two years after he took over, Deutsche Bank has been unable to plot a course to a more profitable future while seeking to eliminate 9,000 jobs. “We want to move back into modest growth mode, controlled growth,” Cryan said in the interview. “The operating environment in the U.S. but also increasingly in the euro zone and especially in Germany looks strong. And so I’m reasonably confident about the future.” Deutsche Bank fell 5.4% at 9:16 a.m. in Frankfurt trading, the biggest drop more than four weeks. Before today, the shares had rallied 44% in the past six months. Even though they’re being tapped for a capital infusion for the fourth time since 2010, some investors welcomed the developments as a way to end questions about the firm’s financial strength. S

elling a minority stake in the asset-management unit within the next two years and unloading some assets at the investment bank will help raise another 2 billion euros ($2.1 billion) of capital. Deutsche Bank’s last three capital increases raised about €21.7 billion – compared to the current market value of €26.4 billion. Even after a recent rally, the stock is 29% lower than when Cryan took the helm in 2015. “The shareholder dilution is enormous,” said Michael Huenseler, an investor at Assenagon Asset Management, which holds a stake in Deutsche Bank. “But at the same time, this package should end what has been hurting Deutsche Bank for so long: the discussion about the capital situation. Now the bank has to prove that it can be profitable.”

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A boiling cauldron that will keep festering a for a while longer. Italy has a long-standing ownership class that won’t give up easily. Corruption, the mob, the church, secret lodges.

Renzi’s Return Clouded By Probe Into Father, Government Minister (BBG)

Matteo Renzi’s comeback risks being undermined by a judicial investigation into the father of the Italian former prime minister and a government minister. Rome prosecutors on Friday were due to question Tiziano Renzi, 65, over an accusation of influence-peddling, his lawyer said. The elder Renzi is alleged to have obtained promises of monthly sums of money from Alfredo Romeo, a Naples entrepreneur, in return for mediating on his behalf for public works contracts, Italian news agency Ansa reported. The ex-premier’s father has denied any wrongdoing. [..] “If the investigation goes ahead, it will surely hurt Matteo Renzi’s prospects even if he has nothing to do with it,” said Sergio Fabbrini, director of the school of government at Luiss University in Rome. “This is the most critical moment of his political career, he has to find a new strategy.”

Tiziano Renzi’s lawyer Federico Bagattini said in a telephone interview that his client had done nothing illicit. “We deny that he ever asked for anything, that he ever promised he would intervene, and that he ever received any money or any other benefit,” Bagattini said. Tiziano Renzi said Thursday he had nothing to hide. “I have never asked for money. I never took any. Never,” he said in a statement reported by Ansa. [..] The anti-establishment Five Star Movement, which has made denunciations of political corruption one of its main platforms, has seized on the case. It submitted on Thursday a parliamentary vote of no confidence against Sports Minister Luca Lotti, a close ally of Matteo Renzi, which will test the government’s majority.

Lotti is also under investigation in the case for allegedly revealing confidential information, according to Italian news media, a charge he denied in a post on Facebook on Thursday. Five Star “talks of kick-backs, arrests, contracts – all things which I have nothing to do with,” Lotti wrote. The office of Franco Coppi, Lotti’s lawyer, did not respond to an emailed request for comment on Friday. The case is “an atomic bomb on Italian politics,” Five Star co-founder Beppe Grillo, who wants a referendum on Italy’s membership of the euro, wrote on his blog. “When it explodes, no one will be able to find shelter. Today more than ever we need honesty in institutions.”

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It didn’t start yesterday. Western media have been killing off their own credibility for propaganda reasons, for many years.

The Iraq War Stench Lingers Behind Today’s Preoccupation With Fake News (G.)

[..] with trust in the establishment at an all time low, the institutional heft of traditional media companies becomes a liability rather than an asset, enabling Trump to successfully turn the “fake news” label onto his opponents. Much of that goes back to Iraq. “The period of time between 9/11 and the invasion of Iraq represents one of the greatest collapses in the history of the American media,” says Gary Kamiya. “Every branch of the media failed, from daily newspapers, magazines and websites to television networks, cable channels and radio. “Bush administration lies and distortions went unchallenged, or were actively promoted. Fundamental and problematic assumptions about terrorism and the ‘war on terror’ were rarely debated or even discussed. Vital historical context was almost never provided. And it wasn’t just a failure of analysis. With some honourable exceptions, good old-fashioned reporting was also absent.”

Let’s look at the most famous example of how the media was used to make the Iraq war happen. On September 8 2002, the New York Times published a major story by Michael R Gordon and Judith Miller asserting that Iraq had “stepped up its quest for nuclear weapons and … embarked on a worldwide hunt for materials to make an atomic bomb”. The piece cited no named sources whatsoever. Rather, it attributed all its significant claims simply to anonymous US officials – and, by so doing, it helped launder the Bush administration’s talking points, lending a liberal imprimatur to unverified (and totally untrue) claims. When the key members of the Bush administration launched a publicity blitz to make the war happen, they were able to quote the New York Times as evidence: in effect, reacting to newspaper revelations for which they themselves were responsible.

For instance, during a CNN appearance, Condoleeza Rice urged the public to support an invasion on the basis that “we don’t want the smoking gun to be a mushroom cloud”. She’d lifted the phrase directly from Gordon and Miller – who’d taken it from the administration. Elsewhere, Gordon and Miller referred to Iraq’s supposed interest in acquiring high-strength aluminium tubes as an illustration of its nuclear ambitions. Again, the claims came from Bush officials. But when, at the UN General Assembly, Bush told the story, he sounded as if he were repeating a New York Times scoop. A similar circularity defined the propaganda campaign conducted in other countries.

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In case you were still wondering why an entire country and its people are being obliterated.

Saudi Arabia Stealing 65% of Yemen’s Oil in Collaboration with US, Total (AHT)

“63% of Yemen’s crude production is being stolen by Saudi Arabia in cooperation with Mansour Hadi, the fugitive Yemeni president, and his mercenaries,” Mohammad Abdolrahman Sharafeddin told FNA on Tuesday. “Saudi Arabia has set up an oil base in collaboration with the French Total company in the Southern parts of Kharkhir region near the Saudi border province of Najran and is exploiting oil from the wells in the region,” he added. Sharafeddin said that Riyadh is purchasing arms and weapons with the petro dollars stolen from the Yemeni people and supplies them to its mercenaries to kill the Yemenis. Late in last year, another economic expert said Washington and Riyadh had bribed the former Yemeni government to refrain from oil drilling and exploration activities, adding that Yemen has more oil reserves than the entire Persian Gulf region.

“Saudi Arabia has signed a secret agreement with the US to prevent Yemen from utilizing its oil reserves over the past 30 years,” Hassan Ali al-Sanaeri told FNA. “The scientific research and assessments conducted by international drilling companies show that Yemen’s oil reserves are more than the combined reserves of all the Persian Gulf states,” he added. Al-Sanaeri added that Yemen has abundant oil reserves in Ma’rib, al-Jawf, Shabwah and Hadhramaut regions. He noted that a series of secret documents by Wikileaks disclosed that the Riyadh government had set up a committee presided by former Saudi Defense Minister Crown Prince Sultan bin Abdel Aziz. “Former Saudi Foreign Minister Saud al-Faisal and the kingdom’s intelligence chief were also the committee’s members.”

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“If I want to come to Germany, I will, and if you don’t let me in through your doors, if you don’t let me speak, then I will make the world rise to its feet..”

Turkey’s Erdogan Compares German Behavior With Nazi Period (R.)

Turkish President Tayyip Erdogan accused Germany on Sunday of “fascist actions” reminiscent of Nazi times in a growing row over the cancellation of political rallies aimed at drumming up support for him among 1.5 million Turkish citizens in Germany. German politicians reacted with shock and anger. German Justice Minister Heiko Maas told broadcaster ARD that Erdogan’s comments were “absurd, disgraceful and outlandish” and designed to provoke a reaction from Berlin. But he cautioned against banning Erdogan from visiting Germany or breaking off diplomatic ties, saying that such moves would push Ankara “straight into the arms of (Russian President Vladmir) Putin, which no one wants”.

The deputy leader of Chancellor Angela Merkel’s Christian Democratic Union (CDU) party said the Turkish president was “reacting like a wilful child that cannot have his way”, while a top leader of the CDU’s Bavarian sister party described Erdogan as the “despot of the Bosphorus” and demanded an apology. German authorities withdrew permission last week for two rallies by Turkish citizens in German cities at which Turkish ministers were to urge a “Yes” vote in a referendum next month on granting Erdogan sweeping new presidential powers. Berlin says the rallies were canceled on security grounds. However, Turkish Economy Minister Nihat Zeybekci spoke at large events in Leverkusen and Cologne on Sunday while protesters stood outside.

The row has further soured relations between the two NATO members amid mounting public outrage in Germany over the arrest in Turkey of a Turkish-German journalist. It has also spurred growing demands for Merkel to produce a more forceful response to Erdogan’s words and actions. A poll conducted for the Bild am Sonntag newspaper showed that 81% of Germans believe that Merkel’s government has been too accommodating with Ankara. Germany, under an agreement signed last year, relies on Turkey to prevent a further flood of migrants from pouring into Europe. The lead article in German news magazine Der Spiegel on Sunday urged Merkel to free herself from the “handcuffs of the migrant deal”.

[..] A defiant Erdogan said he could travel to Germany himself to rally support for the constitutional changes to grant him greater power. “Germany, you have no relation whatsoever to democracy and you should know that your current actions are no different to those of the Nazi period,” Erdogan said at a rally in Istanbul. “If I want to come to Germany, I will, and if you don’t let me in through your doors, if you don’t let me speak, then I will make the world rise to its feet,” he told a separate event.

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And Erdogan will want something in return.

US Asks Ankara For Steps To Ease Aegean Tension (K.)

American officials have urged Ankara to refrain from action that would further escalate tension with fellow NATO member Greece in the Aegean Sea, Kathimerini understands, adding that the issue was raised during the Munich Security Conference last month, as well as during private contacts in Ankara. Sources told Kathimerini that US Secretary of State Rex Tillerson raised the topic with Turkish Foreign Minister Mevlut Cavusoglu on the sidelines of the Munich gathering last month. Assistant Secretary of State John Heffern reportedly asked Turkish officials for steps that will help reduce the recent spike in tensions with Greece.

A few days later, the same sources said, US Ambassador to Ankara John Bass met with Turkey’s Foreign Ministry Undersecretary Umit Yalcin to put pressure in the same direction. Yalcin is said to have attributed the standoffish behavior of the Turkish military to the army’s damaged morale by developments following July’s failed coup attempt. Analysts however say that any autonomy of the Turkish armed forces has been heavily compromised in the wake of the coup. Greek Foreign Minister Nikos Kotzias is expected to travel to Washington for a meeting with Tillerson in the coming days. Talks are to be followed by a telephone conversation between Prime Minister Alexis Tsipras and US President Donald Trump.

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Growth is not possible in Greece today. The entire austerity edifice would have to be reversed.

Greece Desperate For Growth Strategy As Public Mood Darkens (G.)

In navigating the country’s economic collapse, every one of Athens’ post-crisis governments has at some point attempted to change the narrative by diverting attention to development and growth. But the latest shift comes amid evidence that prime minister Alexis Tsipras’s two-party administration has gone a step further, approaching the World Bank for a €3bn loan to finance employment policies and programmes.

The move would highlight the desperation of a government tackling ever-growing poverty rates. Last week, the Cologne Institute for Economic Research said poverty in thrice-bailed out Greece had jumped 40% between 2008 and 2015, by far the biggest leap of any European country. Tsipras has been told he will have to enforce labour market reforms and further pension and income tax cuts if Greece is to realistically achieve a primary surplus of 3.5% – before interest payments are taken into account – once its current rescue programme expires in August 2018. The country faces debt repayments of over €7bn in July and with its coffers near empty would be unable to avert default – and inevitable euro exit – if additional loans weren’t forthcoming.

The prospect of more cuts, when pensions have already been slashed 12 times and some retirees are surviving on little more than €300 a month, has exacerbated the sense of gloom in the eurozone’s weakest member state. “We will have to compromise,” Dragasakis admitted. “Even if such demands are totally irrational,” he said, adding that Greece’s real problem was that it was primarily caught up in an ugly dispute between its lenders over what to do with a debt load close to 180% of GDP. The IMF has projected the pile will reach an “explosive” 275% of output if not relieved – a move that Germany, the biggest provider of bailout funds, refuses steadfastly to agree to. “It is why we have not completed the review,” said Dragasakis of the progress report Athens must conclude to secure further assistance.

The Greek government has been accused of deliberately delaying implementation of reforms. “This government won’t deliver reforms because it doesn’t believe in them,” said the centre-right main opposition leader Kyriakos Mitsotakis at the Delphi forum. As in antiquity, when kings, warriors and philosophers descended on Delphi at times of uncertainty to consult the Pythia, or prophetess, about their future, politicians, policy gurus, economists and academics gather annually at the place once regarded as the centre of the world to debate Greece’s plight. “What we need is a masterplan and a vision to get out of this crisis,” said Nikos Xydakis, the former European affairs minister who is now parliamentary spokesman for the ruling Syriza party. “A masterplan in financial terms but also a vision for a new identity of Greeks once this crisis ends.”

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How mankind gets rid of itself, and can’t help doing it.

Polluted Environments Kill 1.7 Million Children A Year (R.)

A quarter of all global deaths of children under five are due to unhealthy or polluted environments including dirty water and air, second-hand smoke and a lack or adequate hygiene, the World Health Organization (WHO) said on Monday. Such unsanitary and polluted environments can lead to fatal cases of diarrhea, malaria and pneumonia, the WHO said in a report, and kill 1.7 million children a year. “A polluted environment is a deadly one – particularly for young children,” WHO Director-General Margaret Chan said in a statement. “Their developing organs and immune systems, and smaller bodies and airways, make them especially vulnerable to dirty air and water.” In the report – “Inheriting a sustainable world: Atlas on children’s health and the environment” – the WHO said harmful exposure can start in the womb, and then continue if infants and toddlers are exposed to indoor and outdoor air pollution and second-hand smoke.

This increases their childhood risk of pneumonia as well as their lifelong risk of chronic respiratory diseases such as asthma. Air pollution also increases the lifelong risk of heart disease, stroke and cancer, the report said. The report also noted that in households without access to safe water and sanitation, or that are polluted with smoke from unclean fuels such as coal or dung for cooking and heating, children are at higher risk of diarrhea and pneumonia. Children are also exposed to harmful chemicals through food, water, air and products around them, it said. Maria Neira, a WHO expert on public health, said this was a heavy toll, both in terms of deaths and long-term illness and disease rates. She urged governments to do more to make all places safe for children. “Investing in the removal of environmental risks to health, such as improving water quality or using cleaner fuels, will result in massive health benefits,” she said.

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Mar 052017
 
 March 5, 2017  Posted by at 10:40 am Finance Tagged with: , , , , , , , , ,  8 Responses »
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Near The Hermitage, SaintPetersburg, Russia 1930

 

The Rich Already Have a UBI (Jacobin)
The Next Market To Break *Should* Be Stocks (MA)
America’s Miserable 21st Century (CM)
China Cuts GDP Growth Target to 6.5%, Targets Reforms, De-Leveraging (CNBC)
China Signals Slower Increase In Defense Spending (BBG)
The Priced-In Risk of Marine Le Pen’s Victory (BBG)
Self-Fulfilling Pessimism (Vox)
Only The Rich Are Poisoned (Taleb)
Austrian Chancellor Calls For EU-Wide Ban On Turkish Campaigning (R.)
Greece, Getting Smaller (Maria Katsounaki)
Canada: No Plans To Clamp Down At Border To Deter Migrants (R.)
America’s Millions Of Undocumented Mexicans Live In Fear Of Deportation (G.)
Mexico Opens Legal Aid Centers At US Consulates To Defend Migrants (R.)
Stranded Refugees Denied UK Asylum Face ‘Life In Limbo (O.)

 

 

Time to overhaul taxation. Away from income tax. Inevitable.

The Rich Already Have a UBI (Jacobin)

The universal basic income -a cash payment made to every individual in the country- has been critiqued recently by some commentators. Among other things, these writers dislike the fact that a UBI would deliver individuals income in a way that is divorced from working. Such an income arrangement would, it is argued, lead to meaninglessness, social dysfunction, and resentment. One obvious problem with this analysis is that passive income -income divorced from work- already exists. It is called capital income. It flows out to various individuals in society in the form of interest, rents, and dividends. According to Piketty, Saez, and Zucman (PSZ), around 30% of all the income produced in the nation is paid out as capital income. If passive income is so destructive, then you would think that centuries of dedicating one-third of national income to it would have burned society to the ground by now.

In 2015, according to PSZ, the richest 1% of people in America received 20.2% of all the income in the nation. Ten points of that 20.2% came from equity income, net interest, housing rents, and the capital component of mixed income. Which is to say, 10% of all national income is paid out to the 1% as capital income. Let me reiterate: one in ten dollars of income produced in this country is paid out to the richest 1% without them having to work for it. Even if you exclude the capital component of mixed income (since it is connected to work even if the income is not from labor) and housing rents (since these are imputed to homeowners rather than paid to them as cash), that still means that, from equity income and interest alone, the top 1% receives 7.5% of the national income without having to work for it. Put another way: the average person in the top 1% receives a UBI equal to 7.5 times the average income in the country.

If passive income is so destructive, then the income situation of the 1% surely is a national emergency! Where does the 1% get its meaning with all of that free cash flowing in? The fact is that capitalist societies already dedicate a large portion of their economic outputs to paying out money to people who have not worked for it. The UBI does not invent passive income. It merely doles it out evenly to everyone in society, rather than in very concentrated amounts to the richest people in society. The idea of capturing the 30% of national income that flows passively to capital every year and handing it out to everyone in society in equal chunks has been around since at least Oskar Lange wrote about it in the early parts of the last century. This is, to me, the best way to do a UBI, both practically and ideologically. Don’t tax labor to give money out to UBI “loafers.” Instead, snag society’s capital income, which is already paid out to people without regard to whether they work, and pay it out to everyone.

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Looks scary.

The Next Market To Break *Should* Be Stocks (MA)

From an intermarket perspective – and in the wake of the major breakdown in Treasuries that manifested last summer akin to 87′, we would argue that the move in equities is likely much more mature than the echo of the record January 1987 sounding that some have recently pointed to for more bullish intermediate bearings. Their reasonings being, that although the markets may be near-term extended, like in January 1987, they still gained another 30% over the following 8 months. The old market adage applied – overbought can still become more overbought. That said, what the data mining ignores here is similar to the benevolent rotation out of bonds and into equities that supported the reflationary blowoff that began after Treasuries broke down in the Spring of 1987, stocks have been under this same strong reflationary momentum since last summer.

What’s happened this week of note, and which has helped firm our own near-term expectations, is that several Fed presidents have more than candidly implied that the March meeting is very much in play for another rate hike. And although we had recently suspected that more hawkish posturing would adversely impact precious metals over the short-term, long-term Treasuries now again look vulnerable as well, which would closer resemble the final leg lower in Treasuries in 1987 and the curtain call for equities that fall.

In 1987, the initial breakdown leg in the 30-year Treasury bond registered a decline of ~14%. After remaining in a trading range for another 3 months, bond prices fell roughly another 10%, before finding a low as the equity markets broke down. Through the end of last year, the 30-year Treasury bond had fallen ~16% from its highs last summer. Although we still believe long-term Treasuries offer good relative value to investors as the limits of the US’s mature economic expansion become increasingly visible this year, the more than 2 month trading range now appears susceptible to further near-term weakness, akin to the final leg lower in 1987.

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Nice find from Tyler.

America’s Miserable 21st Century (CM)

Yes, things are very different indeed these days in the “real America” outside the bubble. In fact, things have been going badly wrong in America since the beginning of the 21st century. It turns out that the year 2000 marks a grim historical milestone of sorts for our nation. For whatever reasons, the Great American Escalator, which had lifted successive generations of Americans to ever higher standards of living and levels of social well-being, broke down around then—and broke down very badly. The warning lights have been flashing, and the klaxons sounding, for more than a decade and a half. But our pundits and prognosticators and professors and policymakers, ensconced as they generally are deep within the bubble, were for the most part too distant from the distress of the general population to see or hear it.

[..] In some circles people still widely believe, as one recent New York Times business-section article cluelessly insisted before the inauguration, that “Mr. Trump will inherit an economy that is fundamentally solid.” But this is patent nonsense. By now it should be painfully obvious that the U.S. economy has been in the grip of deep dysfunction since the dawn of the new century. And in retrospect, it should also be apparent that America’s strange new economic maladies were almost perfectly designed to set the stage for a populist storm. Ever since 2000, basic indicators have offered oddly inconsistent readings on America’s economic performance and prospects. It is curious and highly uncharacteristic to find such measures so very far out of alignment with one another.

We are witnessing an ominous and growing divergence between three trends that should ordinarily move in tandem: wealth, output, and employment. Depending upon which of these three indicators you choose, America looks to be heading up, down, or more or less nowhere. From the standpoint of wealth creation, the 21st century is off to a roaring start. By this yardstick, it looks as if Americans have never had it so good and as if the future is full of promise. Between early 2000 and late 2016, the estimated net worth of American households and nonprofit institutions more than doubled, from $44 trillion to $90 trillion. (SEE FIGURE 1.)

Although that wealth is not evenly distributed, it is still a fantastic sum of money—an average of over a million dollars for every notional family of four. This upsurge of wealth took place despite the crash of 2008—indeed, private wealth holdings are over $20 trillion higher now than they were at their pre-crash apogee. The value of American real-estate assets is near or at all-time highs, and America’s businesses appear to be thriving. Even before the “Trump rally” of late 2016 and early 2017, U.S. equities markets were hitting new highs—and since stock prices are strongly shaped by expectations of future profits, investors evidently are counting on the continuation of the current happy days for U.S. asset holders for some time to come.

A rather less cheering picture, though, emerges if we look instead at real trends for the macro-economy. Here, performance since the start of the century might charitably be described as mediocre, and prospects today are no better than guarded. The recovery from the crash of 2008—which unleashed the worst recession since the Great Depression—has been singularly slow and weak. According to the Bureau of Economic Analysis (BEA), it took nearly four years for America’s GDP to re-attain its late 2007 level. As of late 2016, total value added to the U.S. economy was just 12% higher than in 2007. (SEE FIGURE 2.) The situation is even more sobering if we consider per capita growth. It took America six and a half years—until mid-2014—to get back to its late 2007 per capita production levels. And in late 2016, per capita output was just 4% higher than in late 2007—nine years earlier. By this reckoning, the American economy looks to have suffered something close to a lost decade.

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It all means very little without new debt data. Are they still trying to borrow growth? You bet.

China Cuts GDP Growth Target to 6.5%, Targets Reforms, De-Leveraging (CNBC)

China is aiming to expand its economy by around 6.5% in 2017 as it continues to implement a proactive fiscal policy and maintain a prudent monetary policy, Premier Li Keqiang said on Sunday. Top leaders at the National People’s Congress are tolerating slightly slower economic growth this year to give them more room to push through reforms to deal with a build-up in debt. A lending binge and increased government spending last year have fueled worries about high debt levels and an overheating housing market. GDP officially grew 6.7% in 2016, the slowest in 26 years, but within the government’s target range of 6.5 to 7%. That 6.5% growth target is “needed to achieve the employment objective,” Li said in his prepared remarks.

The government announced ambitious jobs plans, including to ensure that every family has at least one breadwinner, which is key as jobs are cut in major state-owned enterprises. As the government moves away from manufacturing-led growth, Beijing is tasked with quickly finding new employment for millions of workers, or risk the possibility of social unrest as unemployment looms China says it expects 11 million new urban jobs will be created this year, but that still wont keep pace with the 15 million new workers the government estimates will enter the market, according to prepared remarks. The government will continue to focus on the coal and steel sectors, with plans in place to cut steel production capacity. But experts were skeptical of the idea that certain economic growth levels would be “needed” for employment reasons.

“There is not now nor has there ever been any magical connection between GDP and jobs. You can have capital-intensive 6.5% GDP growth and not create enough jobs and you can have 3.5% labor-intensive GDP growth and create more than enough jobs,” said Derek Scissors, a resident scholar at the American Enterprise Institute and chief economist of the China Beige Book. “The Chinese government’s position for the past 20 years has been that the nutrition content of food doesn’t matter at all, only the number of calories.” This doesn’t make any sense economically, but it’s perfectly clearly politically,” he said, noting that China had said it needed greater GDP growth when its labor force was actually expanding, as opposed to its current contraction.

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Becoming unaffordable?

China Signals Slower Increase In Defense Spending (BBG)

China indicated a continued slowdown in defense spending growth this year, as President Xi Jinping presses ahead with a sweeping military overhaul. The defense budget will rise “about 7%,” National People’s Congress spokeswoman Fu Ying told a briefing ahead of China’s annual legislative session in Beijing. An actual spending target wasn’t expected until Sunday, when the Ministry of Finance releases its 2017 budget at the start of the 11-day legislative gathering. Last year, the country budgeted a 7.6% uptick in military spending to 954.4 billion yuan (equal to $147 billion at the time), the slowest increase since a 7.3% rise in 2010. Seven% would be the slowest expansion in more than a decade, tracking the broader trend in the country’s economy.

The increase consolidates China’s lead as the world’s second-largest military spender, accounting for more than 10% of the global arms total, said Siemon Wezeman, a senior researcher with the Stockholm International Peace Research Institute. More than two decades of expansion have helped China build a modern military capable of projecting force further from its coasts, while spurring anxious neighbors to upgrade their own defenses. Fu said China was committed to peace and described tensions in the South China Sea, where the country’s land reclamation campaign has been criticized by the U.S. and rival claimants, as “easing.” “We advocate dialogue and peaceful solutions to disputes of sovereignty and maritime rights,” said Fu, a former vice foreign minister and ex-ambassador to the U.K. “Meanwhile, we should possess the capacity to protect our sovereignty and interests.”

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Don’t count her out.

The Priced-In Risk of Marine Le Pen’s Victory (BBG)

Markets trade in the probability of certain events happening. In case an event has high risk, a “tail” is priced in. Those tail risks typically show up in certain corners of the markets. Today, tail risks are priced in for a potential unexpected outcome in the French elections. That tail risk is on the rise now that polls of the second round of voting indicate a tight race between center candidate Emmanuel Macron and the far-right candidate Marine Le Pen. Tail risks can be viewed in a linear way. For example, the German 2-year bond (“Schatze”) reached an all-time negative yield of -92 basis points when Le Pen recently gained in the polls.

As a result, the German 2-year yield became negatively correlated with the price of French bonds and stocks. A generic view is that German bonds are a reflection of the “tail risk” that Le Pen is victorious. However, there are technical reasons to explain the fall of German 2-year bonds. Those technicalities are a scarcity of German bond collateral in the repurchase market and the ECB’s purchase of German bonds yielding less than the deposit rate. This is what makes the 2-year German bond “overvalued” and therefore not as accurate a reflection of the true tail risk in France. There are other areas in markets that provide a better idea of how much of a Le Pen win is priced in.

Tail risks can be seen in currency options. The options market use a measure called “skew.” This is the difference between the implied volatility of puts and calls. A negative skew means currency markets price euro puts with higher implied volatility than the currency’s calls. In the case of negative skew, the currency market thinks the risk for depreciation of a currency is large. The skew of the euro currency has been on a steady decline since President Donald Trump was elected in November, as seen in Fig. 1. On the other hand, the French bond market has seen a surge in yields discounted to the second round of the presidential election, on May 7. Rising yields are a sign of uncertainty about the outcome of the election. Fig. 1 shows how markets are pricing a “tail risk” of an adverse election outcome. And this tail risk seems to be increasing by the day.

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I like Blanchard’s notion that “the reason unemployment is decreasing is productivity growth is so low.” But I don’t get that he overlooks, when saying “why is demand growth not stronger?”, that so many people have simply lost the means to spend. That seems to be a curious blind spot for an IMF economist. it’s not about pessimism, it’s about not having any money.

Self-Fulfilling Pessimism (Vox)

Why is it that demand growth is not stronger? In this video, Olivier Blanchard discusses his research on long-run forecasts and unexpected decreases in consumption. This video was recorded at the American Economic Association in Chicago in January 2017.

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“..one is more likely to be drinking poison in a golden cup than an ordinary one.”

Only The Rich Are Poisoned (Taleb)

When people get rich, they shed their skin-in-the game driven experiential mechanism. They lose control of their preferences, substituting constructed preferences to their own, complicating their lives unnecessarily, triggering their own misery. And these are of course the preferences of those who want to sell them something. This is a skin-in-the-game problem as the choices of the rich are dictated by others who have something to gain, and no side effects, from the sale. And given that they are rich, and their exploiters not often so, nobody would shout victim. I once had dinner in a Michelin-starred restaurant with a fellow who insisted on eating there instead of my selection of a casual Greek taverna with a friendly owner operator, his second cousin as a manager and his third cousin once removed as a receptionist.

The other customers seemed, as we say in Mediterranean languages, to have a cork plugged in their behind obstructing proper ventilation, causing the vapors to build on the inside of the gastrointestinal walls, leading to the irritable type of decorum you only notice in the educated upper classes. I note that, in addition to the plugged corks, all men wore ties. Dinner consisted in a succession of complicated small things, with microscopic ingredients and contrasting tastes that forced you to concentrate as if you were taking some type of exam. You were not eating, rather visiting some type of museum with an affected English major lecturing you on some artistic dimension you would have never considered on your own. There was so little that was familiar and so little that fit my taste buds: once something on the occasion tasted like something real, there was no chance to have more as we moved on to the next dish.

Trudging through the dishes and listening to some b***t by the sommelier about the paired wine, I was afraid of losing concentration. I costs a lot of energy to fake that I was not bored. In fact I discovered an optimization in the wrong place: the only thing I cared about, bread, was not warm. It appears that this is not a Michelin requirement. I left the place starving. Now if I had a choice I would have had some time-tested recipe (say a pizza with very fresh ingredients, or a juicy hamburger) in a lively place –for a twentieth of the price. But because the fellow dinner partner could afford the expensive restaurant, we ended up the victims of some complicated experiments by a chef judged by some Michelin bureaucrat. It would fail the Lindy effect: food does better through minute variations from Sicilian grandmother to Sicilian grandmother. It hit me that the rich people were natural targets; as the eponymous Thyestes shouts in Seneca’s tragedy, thieves do not enter impecunious homes, and one is more likely to be drinking poison in a golden cup than an ordinary one.

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The Turkish foreign minister claims the right to campaign among Turkish residents in Germany and Holland. Nobody wants that. Imagine if Mexico would take its political campaigns to US streets.

Austrian Chancellor Calls For EU-Wide Ban On Turkish Campaigning (R.)

Austrian Chancellor Christian Kern on Sunday called for a European Union-wide ban on campaign appearances by Turkish politicians to avoid having individual member countries like Germany come under pressure from Ankara. Turkey said on Saturday it would defy opposition from authorities in Germany and the Netherlands and continue holding rallies in both countries to urge Turks living there to back an April 16 referendum to boost President Tayyip Erdogan’s powers. Turkish Foreign Minister Mevlut Cavusoglu criticized German and Dutch restrictions on such gatherings as undemocratic, and said Turkey would press on with them in the run-up to the vote. Kern, in an interview published in the Welt am Sonntag newspaper, said the measure would weaken the rule of law in Turkey, limit the separation of powers, and violate the values of the EU.

He also called for the EU to end discussions with Turkey about membership in the bloc and scrap or restrict €4.5 billion in aid planned for Turkey through 2020. “We should reorient relations with Turkey without the illusion of EU membership,” Kern told the newspaper. “Turkey has moved further and further away from Europe in the past few years. Human rights and democratic values are being trampled. Press freedom is a foreign word,” he said. Kern criticized Ankara’s arrest of German-Turkish journalist Deniz Yucel, a correspondent for Die Welt newspaper, and many other journalists, academics and civil servants, and called for Yucel’s immediate release. At the same time, he said, Turkey remained an important partner in issues of security, migration and economic cooperation, and said Ankara had lived up to its obligations under the migrant deal struck with the EU.

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The demise of a nation.

Greece, Getting Smaller (Maria Katsounaki)

“Instead of ‘Little Greece’ we need a serious Greece,” former Prime Minister Costas Simitis told the Delphi Economic Forum on Friday. As he spoke, Athens was suffocating again because of a mass transit strike, “unknown persons” were destroying ticket validating machines on buses, Eurostat’s figures showed that Greece is the consistent champion in unemployment, at 23% (with the next country, Spain, at 18.2% and the eurozone average at 9.6%), while a report from the Cologne Institute for Economic Research (IW) named Greece the leader in the percentage rise of poverty. The talks between the Greek government and its creditors show more differences than convergence, while Politico reported that the government has asked the World Bank for technical and financial assistance…

Each of the issues we mentioned has a past, present and future. They are not the same – some are tied to the economic crisis, other are not. One could argue that putting them together is aimed at making an impression. But let’s ask ourselves how the destruction of ticket validating machines was allowed to become a hobby. How have illegality and criminality become normal? How will unemployment and poverty be reduced when every investment crashes against denial, suspicion and compulsive behavior? When the only thing that grows is the amount of taxes and social security fees that we must pay? Let us ask ourselves this: When did the discussion that for a strike to be held “50% plus 1” of employees must agree, so as to put an end to the impunity of minorities?

Why has union leadership that is allied to political parties become “the right to strike” whereas any effort at reform serves the interests of the “economic oligarchy”? How can anyone trust a government that, while “negotiating hard” at the same time declares “the crisis is over,” while behaving as if this were a Third World country? Every day we are further gone in our illness and further from recovery. Little Greece is neither honest nor serious. It is not size that makes her lack credibility, but the ever-deeper national autism, the constant repetition of the performance “we are fighting for solutions” while caring nothing for solutions.

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Got to keep that border open.

Canada: No Plans To Clamp Down At Border To Deter Migrants (R.)

Canada will not tighten its border to deter migrants crossing illegally from the United States in the wake of a U.S. immigration crackdown because the numbers are not big enough to cause alarm, a government minister said on Saturday. Public Safety Minister Ralph Goodale said the issue had not risen to a scale that required hindering the flow of goods and people moving across the world’s longest undefended border. Hundreds of people, mainly from Africa and the Middle East, have defied winter conditions and walked across the border, seeking asylum. They are fleeing President Donald Trump’s immigration crackdown, migrants and refugee agencies say.

It is not common to have so many asylum seekers in the United States looking for refuge in Canada over such a short period. The influx poses a political risk for Prime Minister Justin Trudeau, who faces pressure from the left, which wants more let in, and from the right, which fears an increased security risk. “We are concerned and we will deal properly with the extra hundreds (crossing illegally),” Goodale told reporters at a televised news conference in Emerson, Manitoba. “But the full border deals with 400,000 people moving in both directions every day. It also handles C$2.5 billion in trade every day. “It is critically important for us to make sure that it is strong and secure. At the same time, it needs to be efficient and expeditious.”

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Since it’s impossible to deport millions of people, clearer heads are called for.

America’s Millions Of Undocumented Mexicans Live In Fear Of Deportation (G.)

The queue starts outside the consulate gate soon after dawn and stretches up Park View street. The visitors speak in low murmurs, exchanging the latest rumours. A dragnet in Glendale. Checkpoints in Highland Park. People deported for jaywalking. For speaking Spanish. Some visitors say they have sold their furniture to create an emergency fund. Others wonder if they should stop going to work and pull their kids from school. Overreactions? Wise precautions? No one knows. They’ve come here for answers. Inside the gate hulks a nondescript, cream-coloured office block. Lights flicker into life on a pale winter day and by 7am all is aglow: the consulate general of Mexico in Los Angeles is open for business. It is a lighthouse, of sorts, for undocumented Mexicans caught in the political maelstrom that is Hurricane Trump.

“I’m here to make a plan,” said Juana Sanchez, 53, a seamstress who has stitched and sewed in LA’s fashion district for 29 years. A plan for what? She managed a tight smile. “Deportation.” The immigration policies gusting out of the White House have chilled the US’s estimated 11 million undocumented people, half of whom are Mexican. The new president has vastly widened the numbers deemed priorities for expulsion. “As we speak tonight we are removing gang members, drug dealers that threaten our communities and prey on our very innocent citizens,” he told a joint session of Congress last week. “Bad ones are going out as I speak and as I promised throughout the campaign.”

The Mexicans who flock to the LA consulate say that in reality Immigration and Customs Enforcement (ICE) is sweeping up caretakers, students, mothers – anyone who entered the US illegally, and is thus a law-breaker. “Trump is the world’s worst terrorist. He has the Latino community terrorised,” said Rosa Palacios, a careworker with a nine-year-old granddaughter who weeps in fear at losing relatives. The hostility outdid previous anti-immigrant crackdowns, she said. “It is worse than when they thought we were infected.”

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Mexico may well come out of this a stronger country.

Mexico Opens Legal Aid Centers At US Consulates To Defend Migrants (R.)

Mexico opened legal aid centers at its 50 consulates across the United States on Saturday to defend its citizens, the Mexican government said, amid worries of a crackdown on illegal immigration under U.S. President Donald Trump. Foreign Minister Luis Videgaray exhorted the U.S. government to respect the rights of Mexicans and called for the United States to allow a path to legality for undocumented migrants. “We are not promoting illegality,” Videgaray said, according to a video of an event at the Mexican consulate in New York provided by the foreign ministry, saying that Mexico supported following the law, but that means respecting human rights. Trump has issued orders to initiate tougher deportation procedures during his first month in office, following up on campaign vows to fight illegal immigration and to build a wall on the U.S.-Mexico border.

“Today we are facing a situation that can paradoxically represent an opportunity, when suddenly a government wants to apply the law more severely,” Videgaray said. “It is becoming more than evident that to apply the law, which is the obligation of any state, would also imply a real economic damage to this country which highlights the need for immigration reform, an immigration reform that resolves once and for all the legal status of the people,” Videgaray said. The Pew Research Center estimates there are nearly 6 million undocumented Mexicans living in the United States. Late last month, Videgaray expressed “worry and irritation” about Trump’s new policies to U.S. Secretary of State Rex Tillerson and Homeland Security chief John Kelly when they visited Mexico for talks on immigration and security.

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There is so much international law concerning the rights of refugees, written especially after wars, but none of it seems to matter much.

Stranded Refugees Denied UK Asylum Face ‘Life In Limbo (O.)

Almost half of the refused asylum seekers who are unable to leave the UK have considered committing suicide, according to new research that criticises government rules for forcing individuals into destitution and a life in limbo. Interviews with asylum seekers refused permission to remain, in the UK but who cannot go home because they lack a passport, their nationality is disputed or there is no viable route back to their country, also found that half have considered or are applying for statelessness. The British Red Cross charity said such individuals should be allowed temporary leave to remain and work if they meet Home Office requirements, sparing people from years living in penury.

The charity said it knew of cases where women trapped in this situation had resorted to paying for a place to sleep with sex. It cited one Algerian who has been in the UK for 17 years who wassleeping on the streets and warned that those stuck in such limbo frequently suffer periods of homelessness alongside debilitating mental health issues, and that survival depended on the goodwill of friends and charities. Analysis by the Guardian last week revealed that Britain is one of the worst destinations in western Europe for people seeking asylum. Based on in-depth interviews with 15 people, the British Red Cross report found chronic stress, insomnia, anxiety and depression, with one refused asylum seeker from Sudan, a victim of torture, describing that he self-harms by banging his head against the wall.

No conclusive figures exist on the numbers of people who cannot leave the UK, although a freedom of information response from the Home Office reveals that 1,096 people lodged an application for statelessness in the UK after being refused asylum, following the introduction of new guidance in April 2013.

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

 

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

 

 

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

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

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

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

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

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

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

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

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

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

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Sorry, but fearmongering no longer works.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Slaves.

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

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

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

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TO learned nothing from Vancouver.

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

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

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

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

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

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

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

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

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

Tech CEOs Back Call For Basic Income (CNBC)

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

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

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The dark side of the man.

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

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

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

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

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Canada continues to set the standard. But protests begin.

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

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

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

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

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

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

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

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And don’t you forget it.

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

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

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

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

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

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

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

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

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Feb 112017
 
 February 11, 2017  Posted by at 10:26 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle February 11 2017
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Dorothea Lange Play street for children. Sixth Street and Avenue C, NYC 1936

 

Trump ‘May’ Not Appeal Travel Ban Ruling To Supreme Court (ZH)
What’s Really Behind Trump’s Bungling Of The Immigration-Ban Order? (MW)
White House: Cohn-Led Tax Plan Is Real and It’s Phenomenal
Daniel Tarullo, Federal Reserve Regulatory Point Man, to Resign (WSJ)
Foreigners Dump Debt, Offering Up a Test for Rates (WSJ)
Russia’s Exile From World Markets May Soon Be Over (BBG)
EU Foreign Policy Chief Tells Trump Not To Interfere In Europe’s Politics (G.)
EU In Disintegration Mode (Martin Armstrong)
Eurozone, IMF Agree On A Common Stance On Greece (R.)
Greek Bailout Talks Set to Drag Past February Amid Standoff (BBG)
Universal Basic Income ‘Useless’, Says Finland’s Biggest Union (Ind.)
Snowden Claims Report Russia May ‘Gift’ Him To Trump Proves He’s No Spy (G.)
‘We Are Silently Dying’: Refugees In Greek Camp Slip Into Despair (MEE)

 

 

Keep ’em guessing.

Trump ‘May’ Not Appeal Travel Ban Ruling To Supreme Court (ZH)

Update: In the latest moment of confusion for the new administration, chief of staff Reince Priebus said the administration was still considering an appeal to the Supreme Court after a lower court soundly rejected its request to reinstate the order. Priebus’s statement came one hour after a White House official said it was not planning to challenge the Ninth Circuit Court of Appeals ruling upholding a temporary restraining order (TRO) blocking the ban, while Trump himself has said a new order on security could come next week. Priebus told The Washington Post that “every single court option is on the table, including an appeal of the Ninth Circuit decision on the TRO to the Supreme Court. In short, the situation remains fluid.

What a difference a day makes. Less than 24 hours after an angry Trump tweeted “SEE YOU IN COURT, THE SECURITY OF OUR NATION IS AT STAKE!” in the aftermath of yesterday’s adverse Appeals Court ruling… … the President has changed his mind and has decided not to see anyone in court – if only for the time being – because according to Reuters, his administration is not currently planning to appeal the temporary hold on his travel ban to the Supreme Court, a White House official said Friday according to multiple media sources. The official noted, however, that the White House said it will forge ahead on the broader battle against a lawsuit challenging the executive order, if out of court. Which means, that as per the steps we laid out last night, the administration will now prepare a brand new immigration order.

Trump hinted as much earlier in the day when during his press conference with Abe, he said: “We’ll be doing something very rapidly having to do with additional security for our country; you’ll be seeing that sometime next week,” Trump said with Abe by his side. He offered no specifics. He then added “we are going to keep our country safe,” he said on Friday. “We are going to do whatever’s necessary to keep our country safe.” He added he would continue to fight for the travel ban in courts, and that “ultimately, I have no doubt we will win that particular case.” Trump later told reporters aboard Air Force One that he would likely wait until next week to respond with legal action. “Perhaps Monday or Tuesday,” he said.

Trump earlier Friday hinted a new order could be in the works, but he declined to detail what it would look like. And so, while his travel ban is held up in court, Trump said he is considering ordering his staff to draft a new executive order that will have an easier time clearing legal hurdles. “We also have a lot of other options, including just filing a brand new order,” he told reporters on the presidential aircraft.

Read more …

“The justices were very unlikely to second-guess a president’s national security intelligence. They don’t consider that to be their job, they don’t want to do it, and they know how dangerous that could be – for the country and, indeed, for the standing of the courts. Legal precedent strongly suggests that they’d support the president so long as he could reassure them he had a rational basis for his action. But that’s not what Trump’s lawyer did.”

What’s Really Behind Trump’s Bungling Of The Immigration-Ban Order? (MW)

What on Earth is wrong with Donald Trump? Did he actually set out to lose his immigration ban in the appeals court deliberately, so that he could whip up his base into ever more fury at the “elites”? Contrary to what you may hear, the U.S. Court of Appeals for the 9th Circuit on Thursday did not — repeat: did not — repudiate Trump’s legal right to suspend selective immigration. It just repudiated the bungling incompetence with which his administration made the case. Yes, the three justices ruled: “Courts owe substantial deference to the immigration and national security policy determinations” of the president and Congress. That is “an uncontroversial principle that is well-grounded in our jurisprudence.” Indeed, as I pointed out earlier this week, it is well established that the president has very broad discretion to suspend immigration where he deems it necessary.

But that was not what the Trump administration claimed. Instead, they argued that they were actually above the law, the Constitution or legal review. “The Government has taken the position that the President’s decisions about immigration policy, particularly when motivated by national security concerns, are unreviewable, even if those actions potentially contravene constitutional rights and protections,” the justices wrote with disbelief. They added: “There is no precedent to support this claimed unreviewability, which runs contrary to the fundamental structure of our constitutional democracy.” You couldn’t make this up. Trump is now raging at the judges. But the blame for this fiasco lies entirely with him, and no one else. All the administration had to tell the appeals court was that it had rational reasons for suspending immigration from the seven specific countries.

Even with national security details “redacted,” the president’s lawyer could have laid out a simple case. Call it Iraq War II. “Intelligence sources say .. intelligence sources warn .. We have received intelligence ..” And so on. He could have kept it vague and menacing. He could have made it up. So long as he offered something. All the courts needed was an excuse. Cue our old friend “Curveball.” The justices were very unlikely to second-guess a president’s national security intelligence. They don’t consider that to be their job, they don’t want to do it, and they know how dangerous that could be – for the country and, indeed, for the standing of the courts. Legal precedent strongly suggests that they’d support the president so long as he could reassure them he had a rational basis for his action. But that’s not what Trump’s lawyer did.

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Having Goldman do your tax policies can backfire in seconds.

White House: Cohn-Led Tax Plan Is Real and It’s Phenomenal

Former Goldman Sachs president Gary Cohn is leading the effort to craft President Donald Trump’s plan to overhaul taxes that will be released within weeks, a White House official said. Unnamed congressional leaders have been consulted on the blueprint, the official said. It’s separate from Trump’s proposed budget, the official said, requesting anonymity because the plan is still under development. During a meeting at the White House with U.S. airline executives Thursday, Trump said he had a “phenomenal” plan to revamp business taxes that would be revealed within the next two or three weeks, without offering details. White House Press Secretary Sean Spicer told reporters later that day that specifics would emerge only in the coming weeks.

Still, he said the White House is at work on an outline of the most comprehensive business and individual tax overhaul since 1986. Cohn, 56, stepped down as Goldman’s president and COO in December after agreeing to lead Trump’s National Economic Council, an influential panel that helps coordinate and develop the president’s economic program. He was long seen as the heir apparent to the bank’s CEO Lloyd Blankfein. During a news conference Friday with Japanese Prime Minister Shinzo Abe, Trump said he was working with House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell on the tax measure, which would be guided by an “incentive-based policy” and released “over the next short period of time.”

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3 seats now, Yellen’s in a year. Politicians deciding where a by law independent central bank will turn.

Daniel Tarullo, Federal Reserve Regulatory Point Man, to Resign (WSJ)

The Federal Reserve’s lead architect of postcrisis financial regulations plans to resign this spring, giving President Donald Trump more freedom to remake the central bank and to accelerate a deregulatory agenda by putting his own appointees in charge of overseeing Wall Street. Daniel Tarullo, a 64-year-old Fed governor and the government’s most influential overseer of the American banking system, wrote to Mr. Trump on Friday saying he would resign “on or about” April 5. The move had been expected, and will remove from the policy-making debate one of the strongest voices for imposing safeguards on big banks and nonbanks to protect against another meltdown. Mr. Trump and many of his advisers have criticized those rules as hampering economic growth, and have suggested they will fill vacancies with officials who will handle banking policy with a lighter touch.

Stock prices for megabanks jumped on the news of Mr. Tarullo’s imminent departure, with shares in Bank of America and Citigroup rising almost 1% in the half-hour following the announcement. Mr. Tarullo’s resignation will also give the Trump administration broad discretion to put its own stamp on the central bank at a time when critics—including top Republicans in Congress—have accused the institution of lacking transparency and accountability. The departure could leave vacant three of the seven slots on the Fed’s board of governors. In addition, Janet Yellen’s term as chairwoman expires early next year. Filling those vacancies would also give the new president the chance to redirect the course of monetary policy, though it is unclear whether he would seek officials who would alter Ms. Yellen’s current course of cautious rate increases.

Mr. Tarullo’s announcement came exactly a week after Mr. Trump signed an executive order instructing regulators to review the rules implemented since the 2010 Dodd-Frank financial overhaul, and as Republican lawmakers intensify their plans to rewrite that landmark law. But partisan gridlock on Capitol Hill makes it unlikely Congress can make big changes, leaving it to the regulators Mr. Trump nominates to change the way rules are written, implemented and enforced.

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I’m going with Tim Duy’s tweet on this one: “I would say “Foreigners back away from US Treasury, proving they aren’t necessary to finance deficits.”

Foreigners Dump Debt, Offering Up a Test for Rates (WSJ)

Foreign buyers, led by China, are taking a smaller slice of the debt issued by the U.S. and other major economies, a change that may test the long-held belief that overseas money has kept interest rates low in the developed world. For much of this century, the world’s money increasingly sought the harbors of the bond markets of big, Western nations, principally the U.S. but also Germany and Britain. During that period those countries, and their citizens and companies, borrowed money at remarkably low interest rates. The receding foreign tide comes amid other momentous changes for the global economy and interest rates, including a turn in many political corners away from the free-trading ethos that has defined modern capitalism and glimmers of inflation that are encouraging major central banks to pare back their unprecedented economic stimulus measures.

Foreigners are steadily pulling back: As of November, for the first time since 2009, less than 30% of the $20 trillion market for U.S. government debt was held overseas, according to the latest official data, released in January, from the Treasury Department and Federal Reserve. In the U.K., it is now 27%, compared with a record of 36% in 2008. In Germany, it is 49%, down from a peak of 57% in 2014. The consequences from this shift are uncertain. Strong demand helps push up prices, and lower yields, of government bonds, at least in the short term. And buyers such as the Chinese state have been ravenous sources of demand.

Between 2000 and 2014, Chinese authorities built up a $4 trillion currency reserve, mainly through buying Treasurys to keep the yuan weak and help the country’s exporters. In January, its reserves fell below $3 trillion, the lowest level in almost six years. China is now trying to boost its currency, and its Treasury holdings fell by about $200 billion between May and November. “You create an environment where yields are manipulated lower by captive investors,” said Paul Donovan, chief economist at UBS Wealth Management. “There is now a shift going on here, which is most significant for the U.S.”

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Russia did so well under the sanctions, perhaps it’s better for them to keep doing what they were.

Russia’s Exile From World Markets May Soon Be Over (BBG)

As Donald Trump edges the U.S. closer to a thaw in relations with Vladimir Putin’s Russia, commodity investors are already jumping in. A plan by United Co. Rusal, the biggest Russian aluminum maker, for a London sale of shares valued at about $1.7 billion is the latest sign that Russia’s exile from world markets is over for the nation’s metal and mining giants. It’s a turnaround from years in which slumping raw-materials prices, a weak economy and sanctions imposed by then-U.S. President Barack Obama over the annexation of Crimea punished valuations and drove away foreign investors. Share sales by Russian mining companies have been rare since 2010. Until two months ago, PhosAgro’s offering in April 2013 was the last major sale by a non-state Russian mining company.

The fertilizer miner and processor is among those that have returned since December. Offerings from Novolipetsk Steel and TMK bring the total raised by mining and metals producers since then to about $575 million. Others weighing offers include En+ Group and Polyus. Magnitogorsk Iron & Steel, also known as MMK, is also considering selling a small stake to the market, people familiar said on Friday. Billionaire Mikhail Prokhorov’s Onexim may offer up to 5% of Rusal to investors soon, people said late Thursday. It’s not just plain equities. In a sign of investor appetite, steelmaker Severstal sold $250 million of convertible bonds on Thursday paying a zero coupon. “Investors see less risk in Russian companies now as the geopolitical situation has eased,” Rusal Deputy Chief Executive Officer Oleg Mukhamedshin said in an interview in Moscow last week following a company sale of eurobonds. “That affects demand for both bonds and equities.”

Read more …

Brussels trembles ahead of multiple national elections. But faking your great achievements and position of strength doesn’t actually make you look strong.

EU Foreign Policy Chief Tells Trump Not To Interfere In Europe’s Politics (G.)

The EU foreign policy chief, Federica Mogherini, has warned the Trump administration not to interfere in European politics, advising it to “deal with America first”. Speaking during a two-day visit to Washington, Mogherini did not make specific accusations but said that she sometimes heard voices in the new administration “saying the European Union is not necessarily a good idea. Inviting us to dismantle what we have managed to build and which has brought us not only peace, but also economic strength.” “It’s not for me or another European to speak about domestic political choices or decisions in the US. The same goes with Europe – no interference,” Mogherini said, speaking at the Atlantic Council thinktank. “Maybe America first means also that you have to deal with America first.”

Mogherini’s tone echoed the increasing alarm in Brussels over the new administration’s attitudes. Donald Tusk, the head of the European Council, has listed the new US administration and its “worrying declarations” as one of the leading global threats to the EU. Trump has not missed a chance to deride the EU, going out of his way to praise Brexit, and in an interview just before taking office, he depicted the continent as being dominated by Germany and on the brink of collapse. “President Trump believes that dealing bilaterally with different European countries is in US interests, that we could have a stronger relationship with the countries individually,” said Ted Malloch, the man tipped to be Donald Trump’s nominee as ambassador to the EU. He also accused Europe of “blatant anti-Americanism”.

She also took the opportunity to remind the administration, which hosted the UK prime minister, Theresa May, as the president’s first foreign guest, and promised her a favourable trade deal, that Britain did not have the right to negotiate independently until it was outside the EU, which was two years away at least. “The strength of the EU and the unity of the EU I believe is more evident today than it was a few months ago. This has to be clearly understood here,” Mogherini said. “This also means respect for the EU not simply as an institution. It is a union of 28 member states.”

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“..the Trump Administration [..] fail to grasp that talking the dollar down will just not work if the political structure of the EU is breaking up.”

EU In Disintegration Mode (Martin Armstrong)

The EU leadership is really trying to make Great Britain pay dearly for voting to exit the Community. Like the socialists in America, it’s our way or no way. The left may call the right the “deplorables” but the left are the “intolerables” who refuse to ever consider they might be wrong. The EU thinks that if they can make it so bad for Britain, nobody else will leave. They refuse to examine why there is rising discontent within Europe. They refuse to let go of this dream of a federalized Europe to eradicate national identities along with sovereign rights. [..] Britain is not willing to surrender all domestic law to that of the EU. Indeed, EU law is no longer to be applied in Britain. Here we have the EU demanding Ireland retroactively charge Apple taxes simply because their tax rate is less that the highest EU member.

That is surrendering everything sovereign to Brussels. Laws are only to be decided by the British parliament – not Brussels. Jurisprudence is a matter for the British courts not the European Court. Britain is to leave the EU internal market and the EU Customs Union and seeks a free trade agreement to be concluded between the EU and Great Britain. The EU seeks to punish Britain for rejecting its dream. The EU forgets that Trump is now in and a trade deal with Britain will no longer be at the back of the queue as was the case under Obama. Free movement of people, together with the free movement of goods, free movement of services and the free movement of capital, are the four fundamental freedoms which are regarded as the foundation of the EU. The free movement of persons justifies the right of all EU citizens to settle in the Union and to accept work. However, this has not worked as smoothly as presumed.

The cost of living is significantly different throughout the EU. Eastern Europeans, mainly from Poland, have infiltrated Britain working for less money creating competition for domestic workers while foreign companies use cheaper labor in the East to undercut domestic companies on their home-turf. As the economy turns down and deflation prevails, the threat of foreign jobs is being addressed throughout Europe. Add to this the refugee crisis and you have a powder keg throughout Europe waiting to go off. In view of the high unemployment in almost all countries, domestic citizens have ALWAYS turned against foreign workers as the easy scapegoats for the economic decline. This only merges with the high taxes reducing disposable income.

The EU leaders [..] have no clear statement to challenge what is going on. The regulatory nightmare and outright rage that is rising among the people is simply ignored by Brussels. The legal uncertainty with the British exit on the banking system is something nobody even wants to speculate about. How do bail-ins work in Europe if abandoned in Britain? So while the EU thinks by punishing Britain they will discourage others from leaving, they are seriously mistaken. The dream of the EU is dead. It should have remained just a trade union – that was it. What the Trump Administration is clueless about is the ability of the EU to hold it together, they fail to grasp that talking the dollar down will just not work if the political structure of the EU is breaking up.

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All that’s left is emptiness.

Eurozone, IMF Agree On A Common Stance On Greece (R.)

Euro zone lenders and the International Monetary Fund have reached agreed between themselves to present a common stance to Greece later on Friday in talks on reforms and the fiscal path Athens must take, euro zone officials said. Such a united stance would be a breakthrough because the two groups have differed for months on the size of the primary surplus Greece should reach in 2018 and maintain for years later as well as the issue of debt relief. Those differences have hindered efforts to unlock further funding for Greece under its latest euro zone bailout program. “There is agreement to present a united front to the Greeks,” a senior euro zone official said, adding that the outcome of Friday’s meeting with the Greeks was still unclear and it was unclear if Athens would accept the proposals. “What comes out of it, we will see,” the official said. Financial markets took heart from the news, however.

Greece’s two-year bond yield fell almost 50 basis points to 9.55%. It hit the 10% mark on Thursday as worries about the bailout drove away buyers. The chairman of euro zone finance ministers, Jeroen Dijsselbloem, said in The Hague that Friday’s meeting, in which Greek Finance Minister Euclid Tsakalotos will take part, was to discuss the size of Greece’s primary surplus. The euro zone wants Greece to reach a primary surplus – which excludes interest repayments on debt – of 3.5% of GDP and keep it there for many years. But the IMF believes that with reforms in place now Greece will reach only 1.5% next year and in the following years and has therefore been pushing for Athens to legislate new measures that would safeguard the agreed euro zone targets. Officials said the lenders would ask Greece to take €1.8 billion worth of new measures until 2018 and another €1.8 billion after 2018, focused on broadening the tax base and on pension cutbacks.

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What a surprise.

Greek Bailout Talks Set to Drag Past February Amid Standoff (BBG)

Greece probably won’t complete its bailout review by the time the euro area’s finance ministers next meet, on Feb. 20, setting the stage for potentially thorny negotiations in the midst of next month’s bitter electoral campaign in the Netherlands. “We will take stock of the further progress of the second review during the next Eurogroup,” Dutch Finance Minister Jeroen Dijsselbloem said in a statement after a meeting with his Greek counterpart, Euclid Tsakalotos, in Brussels on Friday. “There is a clear understanding that a timely finalization of the second review is in everybody’s interest,” Dijsselbloem said after the meeting, in which representatives of creditor institutions also participated.

Greece is locked in talks with the European Commission, the ECB, the European Stability Mechanism and the IMF over the conditions attached to its latest bailout. During Friday’s meeting, bailout auditors asked the government to legislate additional fiscal cuts equal to about 2% of GDP if the country fails to meet certain budget targets, a person familiar with the matter said after the talks. These contingent measures are the basis for further discussions, the person said, asking not to be named as the matter is sensitive. While progress was made in the meeting, unreasonable demands from the IMF make a resumption of staff-level talks difficult, a Greek government official said in a text message, asking not to be named in line with policy.

The Greek government has been resisting calls to preemptively legislate contingent belt-tightening for 2018 and beyond, arguing that measures already in place should suffice to meet an agreed goal for a budget surplus – before interest payments – equal to 3.5% of GDP. Among the measures the IMF is demanding is pension cuts and a lowering of the threshold at which income tax is paid. Both are red lines the government says it’s not willing to cross. “Although we expect that the Greek government will implement the required measures, the risk of early elections is increasing given the rising political cost to the government and its slim majority in the parliament,” Moody’s analyst Kathrin Muehlbronner said. “Early elections might bring a new and more reform-minded conservative government, but Greece’s economy would be hit again by prolonged uncertainty, after having just started to record positive growth.”

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This must be the dumbest thing I’ve heard in a long time. And that’s saying something these days. The UBI trial started just weeks ago, and they already know it will fail?

Universal Basic Income ‘Useless’, Says Finland’s Biggest Union (Ind.)

Finland’s basic income experiment is unworkable, uneconomical and ultimately useless. Plus, it will only encourage some people to work less. That’s not the view of a hard core Thatcherite, but of the country’s biggest trade union. The labour group says the results of the two-year pilot program will fail to sway its opposition to a welfare-policy idea that’s gaining traction among those looking for an alternative in the post-industrial age. “We think it takes social policy in the wrong direction,” said Ilkka Kaukoranta, chief economist of the Central Organisation of Finnish Trade Unions (SAK), which has nearly 1 million members. Since January, a group of unemployed Finns aged between 25 and 58 have been receiving a stipend of €560 per month. The amount isn’t means-tested and is paid regardless of whether the recipient finds a job, starts a business or returns to school.

Popular in the 1960s, the idea of a guaranteed minimum income for everyone is gaining more proponents again amid resurgent populism. French Socialist candidate Benoit Hamon has made it a policy platform in his presidential campaign. A universal — or unconditional — basic income (UBI), which would replace means-tested welfare payments, has its share of supporters on both the left and the right of the political spectrum. Advocates say it eliminates poverty traps and redistributes income while empowering the individual and reducing paperwork. In Finland, which like other Nordic nations is seen as a trendsetter when it comes to the welfare state, the idea is being explored by a center-right government headed by a former businessman and self-made millionaire.

While limited in scope (it’s conditional on the beneficiary having received some form of unemployment support in November 2016) and size (it’s based on a randomly-selected sample of 2,000 jobless people), the Finnish trial may help answer questions like: “Does it work”? “Is it worth it”? And the most fundamental of all: “Does it incite laboriousness or laziness?”

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“Speak not because it is safe, but because it is right.”

Snowden Claims Report Russia May ‘Gift’ Him To Trump Proves He’s No Spy (G.)

Whistleblower Edward Snowden has seized on a report that Russia is considering sending him back to the US as a “gift” to Donald Trump, saying that the story vindicates him of charges that he is a spy. “Finally: irrefutable evidence that I never cooperated with Russian intel,” he said on Twitter. “No country trades away spies, as the rest would fear they’re next.” Snowden was responding to a report by NBC which stated that US intelligence had collected information that Russia wanted to hand Snowden over in order to “curry favor” with Trump, who has said that the former NSA contractor is a “traitor” and a “spy” who deserves to be executed. The report – based on two sources in the intelligence community – said the intelligence had been gathered since Trump’s inauguration.

Snowden’s ACLU lawyer, Ben Wizner, told NBC News he was unaware of any plan to return his client to the US. “Team Snowden has received no such signals and has no new reason for concern,” Wizner said. Russia granted Snowden asylum in 2013 and a three-year residency in 2014. Snowden has been living in exile in Moscow, facing charges in the US including violations of the US Espionage Act for leaking documents about secret mass surveillance programs. Speaking at a GOP candidate debate in March 2016, Trump said of Snowden: “I said he was a spy and we should get him back. And if Russia respected our country, they would have sent him back immediately, but he was a spy. It didn’t take me a long time to figure that one out.” The Kremlin publicly dismissed these claims.

Snowden offered a longer explanation of his feelings of vindication when he was interviewed by Katie Couric in December 2016, when rumours of a Russian handover first started circulating. He described the suggestion as vindication that he was“independent”. He added: “The fact that I’ve always worked on behalf of the United States and the fact that Russia doesn’t own me. In fact the Russian government may see me as a sort of liability.” Snowden suggested that a reason why Russia might want to return him was his recent criticism of the Kremlin’s human rights record and his suggestions that its officials had hacked US security networks. Previously Snowden has said that Moscow had “gone very far, in ways that are completely unnecessary, costly and corrosive to individual and collective rights” in monitoring citizens online.

When Couric asked if Snowden would mind being extradited, he replied: “That would obviously be something that would be a threat to my liberty and to my life. “But what I’m saying here is you can’t have it both ways. You can’t say this guy’s a bad guy – a Russian tool or something like that – at the same time you say he’s going to be traded away.” After reiterating his sense of vindication on Friday, Snowden posted again to Twitter: “Speak not because it is safe, but because it is right.”

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Incredible.

‘We Are Silently Dying’: Refugees In Greek Camp Slip Into Despair (MEE)

Poor living conditions, a sudden spate of deaths and a “complete loss of hope” are exacerbating mental health issues and leading to suicide attempts and self-harm in the Moria refugee camp on the Greek island of Lesvos, NGOs and refugees have warned. “More and more what we are seeing is people with severe depression linked to the conditions in which they are in and to the complete loss of hope,” said Louise Roland-Gosselin, an advocacy manager for the medical NGO, Doctors Without Borders (MSF). “[Refugees] in Moria are absolutely crushed and we hear more and more about how people are self-mutilating, how they want to commit suicide and we are aware of cases of suicide and attempted suicide, not only on Lesbos but also on other islands,” she added.

[..] For many of the camp’s residents the long and backlogged process of applying for asylum and the lack of activities in the camp has heightened their despair. “It’s still quite a depressing sight,” explained Roland-Gosselin. “You still have hundreds of people who are sleeping in tents, there is little access to water, hygiene conditions are not acceptable, there’s still hundreds of people without heating and they have absolutely no activity, they have nothing to do all day. So it’s an incredibly depressing place.” Some are turning to self-harm as a result of the situation. Cutting is common in the camp according to refugees MEE spoke to. “People here die inside, so when they die inside they either hurt someone else or they hurt themselves, that’s why they do it, to get the pain out. So they cut themselves. I’ve seen it happen to my friend. He’d cut himself, we’d bandage his arm and then he’d do it again the second day,” explained al-Anny.

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

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

 

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Amen to that.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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And this is before Trump.

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

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

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

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

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

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

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

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

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

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

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

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

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Get out while you can.

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

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

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

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Odd that this reaches the press.

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

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

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

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

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

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

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

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

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

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

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

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

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

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