Mar 022015
 
 March 2, 2015  Posted by at 10:01 am Finance Tagged with: , , , , , , , , , ,  


Christopher Helin Flint auto, Ghirardelli Square, San Francisco 1924

Austria On Track to Bail in Heta Creditors After Aid Stop (Bloomberg)
‘What Is Desirable For The Eurozone May Not Be Feasible’ (Reuters)
David Stockman Warns ‘It’s One Of The Scariest Moments In History’ (Zero Hedge)
Are Central Banks Creating Deflation? (Zero Hedge)
Negative Yields: What Could Go Wrong? (CNBC)
Greek Debt Becoming Less Sustainable (Kathimerini)
German Finance Chief Schaeuble Softens Tough Tone Against Greece (Telegraph)
Greece Is Being Forced Into Purgatory To Save The Euro (Telegraph)
How Jeroen Dijsselbloem Did The Deal To Extend The Greece Bailout (FT)
Alexis Tsipras Comes Under Fire From Spanish Prime Minister (Guardian)
Catalonia Prepares To Set Up Own Foreign Missions, Tax System (RT)
ECB Braces For QE As Others Shift Rates (Reuters)
Merkel’s Bavarian Allies Criticise EU Exception For French Deficit (Reuters)
Bells Toll For Europe’s Largest Gas Field (Reuters)
Ukrainian Economy Starts to Buckle Behind Cloak of Calm in Kiev (Bloomberg)
Ex-Guerrilla, Champion Of The Poor: Uruguay President Steps Down (RT)
Documentary on Air Pollution Grips Over 30 Million Chinese in 1 Day (NY Times)

Once this gets started, it’ll be hard to stop it from spreading.

Austria On Track to Bail in Heta Creditors After Aid Stop (Bloomberg)

Austria won’t give fresh capital to Heta Asset Resolution making the “bad bank” of failed Hypo Alpe-Adria-Bank the first case under new European Union rules imposing losses on bank bondholders. Austria cut off support for Heta, which has already cost Austrian taxpayers about €5.5 billion in aid, after Heta notified the government it may need as much as €7.6 billion euros on top of that, the Finance Ministry said in a statement on Sunday. The Finanzmarktaufsicht regulator put Heta into resolution and ordered an immediate debt moratorium. “The decision was triggered by information from Heta’s management about the first results of an asset review,” the ministry said.

“Because of that dramatic change of the asset evaluation, the ministry together with the entire government decided not to invest any more tax money into Heta.” Heta’s predecessor Hypo Alpe was nationalized in 2009 after it was close to collapse because of bad loans in the western Balkans and shareholders led by Bayerische Landesbank walked away from the bank. Its rescue and wind-down has been complicated by a string of court cases and by the fact that a large part of its debt is guaranteed by the Carinthia province, a former owner of the bank. The FMA is taking over the wind-down of Heta, which kept around €18 billion of Hypo’s assets when it was set up last year.

While it works out a resolution plan it won’t repay Heta’s liabilities under an Austrian law that came into force Jan. 1 to implement the EU Bank Recovery and Resolution Directive, the authority said in a statement. The immediate debt moratorium means €950 million of bonds due March 6 and March 20 won’t be repaid. It affects €9.8 billion in outstanding bonds, supplementary capital and Schuldschein loans, €1.24 billion debt to Pfandbriefbank, a bank that handles bond issues for Austrian provinvial banks, as well as loans from BayernLB, according to the FMA’s decree published on its website.

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“Austerity has fueled radical forces of political protest and may be running out of democratic road..”

‘What Is Desirable For The Eurozone May Not Be Feasible’ (Reuters)

The latest episode of Greece’s debt crisis has revived doubts about the long-term survival of the euro, nowhere more so than in London, Europe’s main financial center and a hotbed of Euroskepticism. The heightened risk of a Greek default and/or exit comes just as there are signs that the euro zone is turning the corner after seven years of financial and economic crisis and that its perilous internal imbalances may be starting to diminish. To skeptics, the election of a radical leftist-led government in Athens committed to tearing up Greece’s bailout looks like the start of an unraveling of the 19-nation currency area, with southern countries rebelling against austerity while EU paymaster Germany rebels against further aid.

A last-ditch deal to extend Greece’s bailout for four months after much kicking and screaming between Athens and Berlin did little to ease fears that the euro zone’s weakest link may end up defaulting on its official European creditors. U.S. economist Milton Friedman’s aphorism – “What is unsustainable will not be sustained” – is cited frequently by those who believe market forces will eventually overwhelm the political will that holds the euro together. Countries that share a single currency cannot devalue when their economies lose competitiveness, as occurred in southern Europe in the first decade of the euro’s existence. There is no mechanism for large fiscal transfers between member states.

So the only option has been a wrenching “internal devaluation” by countries on the periphery of the euro area, involving real wage, pension and public spending cuts and mass unemployment that has caused deep social distress. Austerity has fueled radical forces of political protest and may be running out of democratic road – not just in Greece – but none of the alternative ways out of the euro zone’s economic divergence dilemma looks remotely plausible. “The history of the gold standard tells us that an asymmetric adjustment process involving internal devaluation in debtor countries, with no corresponding inflation in the core, is unlikely to be economically or politically sustainable,” economic historians Kevin O’Rourke and Alan Taylor wrote in the Journal of Economic Perspectives in 2013. “What is desirable for the euro zone may not be feasible.”

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Can’t say it enough: “Zero interest rates for 70 months have basically destroyed the pricing function in the financial markets.”

David Stockman Warns ‘It’s One Of The Scariest Moments In History’ (Zero Hedge)

“The Fed is out of control,” exclaims David Stockman – perhaps best known for architecting Reagan’s economic turnaround known as ‘Morning in America’ – adding that “people don’t want to hear the reality and the truth that we’re facing.” The following discussion, with Harry Dent, outlines their perspectives on the looming collapse of free market prosperity and the desctruction of American wealth as policymakers “take our economy in a direction that is dangerous, that is not sustainable, and is likely to fully undermine everything that’s been built up and created by the American people over decades and decades.” The Fed, Stockman concludes, “is a rogue institution,” and their actions have led us to “one of the scariest moments in our history… it’s a festering time-bomb and we’re not sure when it will explode.”[..]

David Stockman: People don’t want to hear the reality and the truth that we’re facing. But I think there is an enormous appetite out in the country to get a different perspective than what you have from the media day in and day out, so I say the fed is out of control. Its balance sheet is exploded. It’s printing money like never before. Zero interest rates for 70 months have basically destroyed the pricing function in the financial markets. I said that as a result of this, Wall Street has become a huge casino which basically rewards gamblers, but it is not functioning as a capital raising, capital allocating instrument, which really is what the financial markets should do in a free market system. I warned about the size of the federal debt.

I’m an old budget director from the Reagan days. We had a trillion dollar national debt, a 3 trillion economy when I started. Today, it’s 18 trillion. Eighteen fold gain in the last 35 years versus maybe a fourfold gain in the economy. So all of these trends are taking our economy in a direction that is dangerous, that is not sustainable, and is likely to fully undermine everything that’s been built up and created by the American people over decades and decades. So people don’t want to hear the warning. They don’t want to hear the truth in the establishment, in Wall Street, in Washington, but I think out in the country they must.

(Click link for video)

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That would be a yes: “David Stockman: … massive money printing by central banks on a worldwide basis is inherently deflationary..”

Are Central Banks Creating Deflation? (Zero Hedge)

Last week we noted that with the start of Q€ just around the corner, the ECB finds itself in a rather absurd situation. In what we called the ultimate easy money paradox (or the ultimate Keynesian boondoggle), Mario Draghi and crew are doomed to trip over their own policies as they (literally) attempt to monetize twice the net supply of eurozone fixed income this year. The problem is two-fold: 1) the central bank’s adventures in NIRP-dom mean anyone willing to sell their EGBs would face the truly silly prospect of sending the proceeds right back where they came from, except at a cost of 20 bps (negative deposit facility rate), and 2) because the central bank’s easy money policies have compressed credit spreads, sellers who wanted to reinvest the cash they would theoretically receive for their EGBs would have to do so at ridiculously low rates, a scenario that would compound QE’s already negative effect on NIM for banks and would be absolutely untenable for insurers.

So what we have “is one deflation-fighting policy stymying another [and] the central bank’s previous efforts to drive down rates thwarting its current plans to … drive down rates.” Now, courtesy of Citi’s Matt King, it’s our distinct pleasure to present yet another wonderfully ridiculous paradox inadvertently created by central banks who apparently aren’t capable of understanding when they’re just pushing on a string: manufactured deflation or, more poignantly, just what the doctor did not order. Here’s Citi:

It’s that linkage between investment (or the lack of it) and all the stimulus which we find so disturbing. If the first $5tn of global QE, which saw corporate bond yields in both $ and € fall to all-time lows, didn’t prompt a wave of investment, what do we think a sixth trillion is going to do? Another client put it more strongly still. “By lowering the cost of borrowing, QE has lowered the risk of default. This has led to overcapacity (see highly leveraged shale companies). Overcapacity leads to deflation. With QE, are central banks manufacturing what they are trying to defeat?”

Ultimately, the question is whether the ceaseless printing of money is actually creating any demand, and for King, the answer is pretty clearly “no”: “QE, and stimulus generally, is supposed to create new demand, improving capacity utilization, not reducing it. But … it feels ever more as though central bank easing is just shifting demand from one place to another, not augmenting it.”

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A lot.

Negative Yields: What Could Go Wrong? (CNBC)

Some central banks have cut interest rates into negative territory in an effort to eke out some economic growth, but the step could spur unintended, counterproductive outcomes. “Negative rates could backfire,” Francesco Garzarelli, co-head of macro markets research at Goldman Sachs, said in a note Friday. “At least some segments of the population could feel poorer, and less secure,” he said. “Rather than lifting consumption and borrowing, ultra-loose monetary policy could perversely lead to an increase in precautionary savings and a slower economic recovery.” In an effort to ward off potential deflation and bolster nearly flat-lined economic growth, some central banks – including the ECB, the Swiss National Bank and central banks in Sweden and Denmark – have cut rates into negative territory.

A big chunk of the government bond market has gone negative: JPMorgan estimated that in January, around $3.6 trillion worth of developed market government bonds—or 16% of its Global Bond Index—was at a negative yield. That’s something that can spur new problems, Goldman said, noting concerns that pension funds and insurance companies may struggle to meet guaranteed payouts. “Today’s very low or even negative fixed income yields often are not large enough to match future liabilities,” Goldman said, noting insurance companies are generally assuming forward rates will be positive and above current rates. If low or negative yields persist, making guaranteed products work will become increasingly difficult, it said. In addition, if banks’ profitability takes a hit from negative rates, it could actually discourage bank lending, hurting efforts to revive economic activity, Goldman said.

There’s also the risk of asset bubbles forming, Garzarelli said, adding the risk is especially high for “high duration” assets such as technology stocks and high-dividend-paying stocks, which already have “eye-watering” valuations. Others also believe ZYNY, or zero-yield to negative-yield, may not follow the theoretical playbook in the real economy. “Traditional economic theory suggests that low interest rates will encourage households to borrow more, both to acquire housing and also to favor present consumption over future consumption,” Michala Marcussen at SocGen said in a note dated Sunday. But in practice, it may not work as households are already relatively highly indebted, labor markets remain fragile and regulations have become more demanding, she said. “Indeed, households may even opt to save more to compensate for low yields, and all the more so in ageing populations,” Marcussen said.

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Ironically, Ukrainians are spending like crazy just so they have things, and not a rapidly falling currency, in their hands. The Greeks do the opposite: they spend even less.

Greek Debt Becoming Less Sustainable (Kathimerini)

The agreement between the Greek government and its lenders, which was sanctioned by the Eurogroup last Tuesday, appears to be more of a respite and less of a sea change in the relationship between the two sides. The apparent confidence gap is bound to aggravate economic conditions and undermine talks on debt relief unless it is bridged fast. Refraining from adversarial statements is the least they can do at this point, especially some ministers. According to the latest revision of gross domestic product data, based on seasonally adjusted figures, the Greek economy shrank by a revised 0.4% in the last quarter of 2014 compared to the previous quarter as opposed to a 0.2% drop in the flash estimate. This brought the real GDP growth rate to 0.75% for the whole year, still better than earlier forecasts, ranging between 0.4 and 0.6%.

Political uncertainty appears to have taken its toll as households and businesses cut back on spending. Unfortunately, businessmen and others think this trend has continued in the first months of 2015. If they are right, real GDP will dip again in the first quarter of this year, compared to the last one in 2014. This will make it unlikely to reach the budget goal of 2.9% annual growth in 2015. Moreover, international investment banks and others are downgrading this year’s economic growth forecasts, ranging between 0.6 and 2%. With the consumer price index continuing to decline, the prospects for an end to deflation do not look promising at this point. In the 12-month period from February 2014 to January 2015, average prices as measured by the CPI decreased by 1.4% year-on-year.

Even if deflation settles closer to a 1% average decline, nominal GDP is likely to be little changed and may even shrink, assuming real economic activity disappoints. This is not a good omen for the sustainability of the Greek public debt, bankers and others point out. This is even more the case if one thinks the country’s official creditors will accept the government’s arguments and economic reality, lowering the target of the primary budget surplus to 1.5% of GDP for 2015. Readers are reminded that the surplus target has been set at 3% of GDP in the program for this year and 4.5% next year. The country is projected to pay about 6 billion euros, or more than 3% of GDP, in interest payments to its creditors in 2015. In other words, interest payments will exceed the likely primary budget surplus, adding to the public debt stock.

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Merkel told him to.

German Finance Chief Schaeuble Softens Tough Tone Against Greece (Telegraph)

German finance minister Wolfgang Schaeuble has softened his hard-line attitude towards Greece, saying its new Left-wing Syriza government needs “a bit of time” but appears to be able to work towards resolving its debt crisis. “The new Greek government has strong public support,” Mr Schaeuble told German newspaper Bild am Sonntag. “I am confident that it will put in place the necessary measures, set up a more efficient tax system and in the end honour its commitments. You have to give a little bit of time to a newly elected government,” he told the Sunday paper. “To govern is to face reality.” Mr Schaeuble added that his Greek counterpart, Yanis Varoufakis, despite their policy clashes, had “behaved most properly with me” and had “the right to as much respect as everyone else”.

It was an abrupt change in tone for Mr Schaeuble, who has repeatedly exchanged jibes with Mr Varoufakis since the Greek election in January brought in an anti-austerity government. Ahead of Friday’s crucial parliamentary vote in Germany, where MPs voted overwhelmingly to extend Greece’s existing financial aid programme until June, Mr Schaeuble had warned that Greece would not receive “a single euro” until it meets the pledges of its existing €240bn bail-out programme. “If the Greeks violate the agreements, then they have become obsolete,” a visibly angry Mr Schaeuble said at a meeting on Friday to persuade German MPs to support the deal ahead of the parliamentary vote. “Mr Varoufakis had not done anything to make our lives easier,” he added. After German MPs voted for the four-month bail-out extension, which Mr Schaeuble insisted was not a new finance deal for the troubled country, Greece pledged to implement reforms and savings.

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Nothing can save the euro.

Greece Is Being Forced Into Purgatory To Save The Euro (Telegraph)

The nickname for the IMF in the markets is “It’s mostly fiscal”, reflecting the IMF’s view that when a country gets into trouble, the manifestation is a huge government budget deficit. And the cure involves spending cuts and higher taxes. That is exactly what happened in Greece. But there was a difference. In most cases, the traditional IMF medicine counter-balances fiscal tightening with a devaluation of the exchange rate. The idea is that as the fiscal tightening squeezes domestic demand and threatens to cause higher unemployment, then a more competitive currency encourages net exports. Essentially, exports fill the hole left by the retreating government But this was not possible in the Greek case because the country does not have its own currency – because it joined the euro.

The only way of compensating for this absence was to allow domestic deflation of prices to produce an “internal devaluation”. What a laugh! We learned in the 1930s that this does not work. Deflation is extremely slow and painful and, even if it succeeded in improving competitiveness, it would worsen the debt ratio because it reduces the money value of GDP (the denominator of the ratio). The result is that Greece is on the road to misery, with no obvious escape. Why don’t the Germans understand the logic of this argument? They tend to look at matters with regard to debt – and economic policy more generally – moralistically. The Greek public sector has been wasteful in the extreme and Greek taxpayers have treated paying tax as near-voluntary. Accordingly, they have had it coming to them.

When they reform themselves, then the economy will bounce back. I am speechless at this attitude. Yes, the Greek public sector has been appallingly wasteful and making it less so is an important part of boosting Greece’s sustainable growth rate. But the current priority is not that, but boosting Greece’s actual growth rate now – and that is all about demand. There is no such thing as a free spending cut. Even tax evaders and under-employed public servants go shopping. Why do the IMF and the other lenders persevere with this destructive path? The answer is IMP: “It’s mostly political.” That is to say, it is driven by the overriding will to keep the euro on the road. By now you should know my answer. Greece should come out of the euro and allow its new currency to depreciate sharply, perhaps by 30pc to 40pc.

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Curious how several parts of the ‘EU’ act independently from each other.

How Jeroen Dijsselbloem Did The Deal To Extend The Greece Bailout (FT)

A first eurogroup meeting to start the process broke up in acrimony. Mr Dijsselbloem tried again five days later but the ensuing bust-up proved even more spectacular: Mr Varoufakis marched out of the session accusing the Dutchman of reneging on a deal Athens had struck with Pierre Moscovici, the European Commission s economic chief. Mr Dijsselbloem blames the commission, which has typically been more lenient towards Greece than its other creditors, saying its intervention had short-circuited proper procedure and that he had been kept in the dark. The Greeks then thought they had an agreement, Mr Dijsselbloem said. I was not involved in that, and that s not very smart.

If you want to get an agreement with the eurogoup, it would help to inform me of what you re trying to do. Instead, Mr Dijsselbloem issued his own, far tougher proposal, which quickly leaked to the press. He put his head in his hands to mimic his reaction upon learning of the leak, presumably orchestrated by Mr Varoufakis. I know in politics it’s all about the frame and who gets to frame first, he said. But if you’re in such a delicate process, trying to rebuild trust, trying to get a process going, to then .. walk into the press room and say: Oh, these guys can’t be trusted, look what they re trying to push down our throats. That was just not very helpful.

A third and final eurogroup session was held the day after Athens finally sent its request for an extension, and Mr Dijsselbloem changed strategy. The key players in the debate were all present: the three institutions that monitor Greece s bailout (the commission, the European Central Bank and the International Monetary Fund) along with the Greeks and the Germans, to put it quite bluntly , Mr Dijsselbloem said. Each was brought in for pre-meeting negotiations. But instead of dealing with Mr Varoufakis, Mr Dijsselbloem spoke only to Mr Tsipras over the phone. I didn’t see Varoufakis at all that morning, he said. I didn’t speak to him. I said to Tsipras, this had to be it. And I think after 15 minutes he called me back, and there was one more word we managed to change. And that was it.

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Nice scuffle…

Alexis Tsipras Comes Under Fire From Spanish Prime Minister (Guardian)

Greece’s anti-austerity government has denied that it sees Europe through the prism of “hostile and friendly countries” as the Spanish prime minister Mariano Rajoy hit back at accusations that Spain and Portugal had deliberately tried to topple the new leftist-led administration. The war of words erupted when Greek premier Alexis Tsipras attacked the sabotage tactics that had, he said, been employed by Lisbon and Madrid in an effort to scupper the chances of a successful end to the negotiations over the eurozone’s extension of the Greek bailout programme. He accused the Iberian partners of deliberately taking a hard line in the talks because they feared the rise of radical forces in their own countries.

“We found opposing us an axis of powers … led by the governments of Spain and Portugal which, for obvious political reasons, attempted to lead the entire negotiations to the brink,” Tsipras told party members on Saturday. “Their plan was, and is, to wear down, topple or bring our government to unconditional surrender before our work begins to bear fruit and before the Greek example affects other countries… And mainly before the elections in Spain.” Rajoy responded angrily on Sunday, saying that Spain had stood by Greece in solidarity by contributing to the debt-stricken country’s €240bn bailout. “We are not responsible for the frustration generated by the radical Greek left that promised the Greeks something it couldn’t deliver on,” he said.

Aides close to Tsipras insisted that Athens had little desire to “seek enemies abroad,” but the leftist leader had a duty to disclose the details of last month’s dramatic negotiations with creditors to keep the bankrupt country afloat. “Prime minister Alexis Tsipras was obliged to relate in detail to the Greek people the hard negotiations at the crucial eurogroup that led to the agreement,” said the insiders. “The attitude [shown by] governments towards the deal isn’t a secret – after all such views had become publicly known from the first moment, which is only right.”

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More threats for Rajoy. Beware, the Spanish army stands ready to occupy Barcelona.

Catalonia Prepares To Set Up Own Foreign Missions, Tax System (RT)

Catalonia is preparing its own tax system, and creating a network of foreign missions as it prepares for a snap regional vote on independence. Recently Spain’s top court ruled that the region’s symbolic referendum vote in November was unconstitutional. Nationalist leaders in the northeastern region have urged a snap local vote on the issue of independence on September 27, AFP reported. Catalan president Artur Mas and his government are reportedly working on tax, diplomacy, and social security restructuring in case Catalonia becomes an independent state. The focus is on taxation as the Catalan authorities now collect only 5% of the taxes raised in the region.

Last November, Catalan president Artur Mas organized a symbolic vote on independence, with 80% voting in favor. However, the turnout was only 40%. Catalonia has 7.5 million residents (16% of Spain’s population), and represents some 20% of the country’s GDP. Alone, the region could collect €100 billion in taxes yearly, much more than Catalonia would need if it becomes independent, said Joan Iglesias, a former Spanish tax inspector, who is now behind the Catalan tax reform. “Everyone knows that Catalonia would be viable economically. It is the most economically productive territory in Spain,” Iglesias told AFP. Apart from the tax reform, Catalonia would need to establish its own central bank, upgrade computer systems and employ more civil servants.

Also, the region says it needs to open more foreign offices. Currently, Catalonia is represented in the UK, France, Germany, the US, Belgium and has recently set up missions in Austria and Italy. In February, Mas set up a commission responsible for carrying out the tasks essential for an independent state. Plus, he ordered a study into the steps Catalonia needs to take to make sure the services like telecommunications would function in case of secession. However, “work is advancing too slowly,” Catalan lawmaker with the separatist Esquerra Republicana de Catalunya (ERC) party, Lluis Salvador, told AFP. “We need to streamline our efforts so we arrive at the elections in September at a much more advanced state.”

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The ECB QE will be the worst central bank failure in a long time.

ECB Braces For QE As Others Shift Rates (Reuters)

Greek funding and quantitative easing in Europe, an expected rate cut in Australia and the buoyant U.S. labor market are set to be the focus of an economic week dominated by a host of central bank meetings. Greece may have secured an extension of its bailout last week, but it remains reliant on emergency funding.The European Central Bank’s Governing Council convenes in Cyprus on Thursday and may take a decision on whether to accept Greek government bonds as collateral for its direct ECB funding, which it stopped doing at the start of February.If the ECB does not – and it most likely will not – it could be forced to prolong the provision of Emergency Liquidity Assistance (ELA) to the Greek central bank.

“The Greek question will be a hot topic,” said ING Chief Eurozone Economist Peter Vanden Houte. “(Greek Finance Minister Yanis) Varoufakis has been saying the country is counting on the ECB for finances over the next few months.”ECB President Mario Draghi is also expected to provide further details on the bank’s €1 trillion government bond buying program, which begins in March. He may face questions about the program’s ability to reach its target, such as how the ECB intends to convince domestic banks to sell their government debt, with the prospect of then parking the money with the ECB at a negative interest rate. The ECB will also release new economic forecasts. Chief Economist Peter Praet said last week that it was likely to revise upward its expectations for growth in the euro zone, with low oil prices and a weak euro helping.

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Yeah! Let’s go after France.

Merkel’s Bavarian Allies Criticise EU Exception For French Deficit (Reuters)

A leading member of German Chancellor Angela Merkel’s conservative allies in Bavaria has criticised the European Commission’s decision to give France two extra years to cut its deficit, a letter seen by Reuters shows. On Wednesday Brussels said it would give France until 2017 to bring its deficit below the EU limit of 3% of GDP, sparing Paris a fine and giving it a new grace period after it missed a second deadline to put its finances in order. The decision has been condemned by some euro zone policymakers, who said it undermines the credibility of EU budget rules which were tightened in recent years to prevent overspending and a future sovereign debt crisis. Gerda Hasselfeldt, head of the Christian Social Union (CSU) parliamentary group, wrote to European Commission President Jean-Claude Juncker in a letter dated Feb. 27 to say that the timing of Brussels’ decision left a “bad aftertaste”.

Hasselfeldt wrote: “Right now, at a time when we’re facing big challenges in our responsibility for the European Union and the euro zone and when we’re working on the principle of solidarity in return for solidity, it’s extremely important not to allow any exceptions.” She said the euro zone was vehemently urging Athens to stick to rules set by the Eurogroup of euro zone finance ministers despite significant domestic resistance, and that while she did not want to compare Greece with France, “stringent action” was the only way to ensure Europe and the euro zone remain credible. “We should not create the dangerous impression that we want to apply double standards,” Hasselfeldt said, adding that the same rules needed to apply to all countries whatever their size.

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Scary story. Since I spent the better part of the past two years in Holland, I’ve heard a lot about it.

Bells Toll For Europe’s Largest Gas Field (Reuters)

Dutch church bells that for centuries have tolled to warn of floods across the low-lying countryside are sounding the alarm for a new threat: earthquakes linked to Europe’s largest natural gas field. “Money can buy a lot of things, but a building like this cannot be replaced,” said Jur Bekooy, a civil engineer with the Groningen Old Churches Association, pointing to cracks in the ceiling and walls of the 13th-century Maria Church in the village of Westerwijtwerd. Long ignored, voices like Bekooy’s are being heard as elections loom this month and following a damning report from the independent Dutch Safety Board. It accused the government and the field’s operators, Shell and Exxon Mobil, of ignoring the threat of earthquakes linked to the massive Groningen gas field for years.

There are now questions about the future exploitation of the field that lies under the northern province of Groningen, with implications that reach well beyond its significance for Dutch state coffers. Lessons from Groningen, which lies far from any natural fault line, feed into a debate over the threat posed by hydraulic fracturing in the United States, China, Britain and elsewhere. The world’s 10th largest gas field, Groningen is expected to supply the bulk of the Netherlands’ annual gas needs of 20-30 billion cubic meters (bcm) until the mid-2020s. The Dutch also have contracts to sell 40-60 bcm annually to buyers in Germany, Britain, Italy, Belgium and France. In all, Groningen and a few smaller Dutch fields supply 15% of Europe’s gas consumption, providing one alternative to Russian supply. When Economic Affairs Minister Henk Kamp recently ordered production at Groningen cut by 16%, gas prices jumped across Western Europe.

Groningen has been in continuous production since 1963. As far back as 1993 small quakes were definitively linked to its output. But in the late 2000s, they suddenly became more frequent and stronger. With government finances under pressure from the 2008 financial crisis, production at Groningen had been ramped up from around 30 bcm in 2007 to more than 50 bcm by 2010. The money generated helped the Dutch cushion the blow of austerity policies championed by the Cabinet. As Prime Minister Mark Rutte publicly pressed southern European governments to bring their spending under control, Dutch government gas revenues of €15 billion by 2013 were about the size of the national deficit.

Without gas, the deficit that year would have doubled from 2.5% to 5%, violating eurozone budget rules. But on Aug. 16, 2012, an earthquake with its epicenter under the town of Huizinge marked the beginning of the end for aggressive output from Groningen. It registered 3.6 on the Richter scale, larger than any predicted by engineers at NAM, the joint venture field operator between Shell and Exxon. “Until the Huizinge earthquake, we had 1,100 damage claims in 20 years,” said NAM spokesman Sander van Rootselaar. “After the quake we had more than 30,000.” Earthquakes caused by gas production are usually small, unless they happen near a fault line and can trigger a larger natural quake. But in Groningen they occur close to the surface, damaging stone and brick buildings never designed to withstand shaking. Of the 50 churches located above the field, some 40 have been affected, said Bekooy.

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Getting worse fast.

Ukrainian Economy Starts to Buckle Behind Cloak of Calm in Kiev (Bloomberg)

Ukrainians are seeing signs the economy is cracking under the weight of war and the risk of default. While restaurants and cafes are bustling and shelves are full in Kiev, a city of 3 million, a recession stretching into a second year is igniting angst about the return of the disarray unleashed by the Soviet Union’s collapse in 1991. Especially outside the capital, that era of food shortages, hyperinflation and mass unemployment doesn’t seem so far away.= “My business is about to close and there are many more like it,” said Valentyna Lozova, a 65-year-old accountant in Kiev. “Salaries aren’t rising, inflation is galloping and the hryvnia’s in freefall. I’m afraid of the future.”

It’s becoming harder for Ukrainians, mindful of the thousands who’ve died in a 11-month insurgency near the nation’s border with Russia, to put a brave face on their economic woes. With much of the country’s industrial base in ruins and a looming debt restructuring, the effect may be felt for years. The economy is set to plunge 12% in 2014-15 and the inflation rate jumped to 28.5% in January, the world’s second-highest behind Venezuela. As the economy deteriorated, the hryvnia has sunk 70% in the past year, the most in the world, sparking panic in some towns. “I see people every day in supermarkets buying sacks of flour and cereals as prices grow,” said Iryna Lebiga, a 31-year-old mother of three who’s struggling to find a buyer for her unprofitable sheep farm in Poltava, a 350-kilometer (220-mile) drive east of Kiev. “People don’t have money. Someone approached us last year but my husband thought he offered too little. Now, nobody offers even half of that.”

Even in Kiev, some people were spooked into stocking up on staples after the central bank banned foreign-currency trading for one day last week and the hryvnia’s street price plunged. The Silpo supermarket chain rearranged delivery to its outlets to keep up with growing demand, its press office said in an e-mail. While the recession isn’t yet as deep as the last one in 2009, this contraction is longer-lasting and Ukraine entered it after two years of almost zero-growth. The scale of the malaise risks triggering disquiet among some Ukrainians who helped unseat their Russian-backed leader last year with the hope of rebuilding the nation, according to Citibank in Moscow.

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More on this great man.

Ex-Guerrilla, Champion Of The Poor: Uruguay President Steps Down (RT)

Uruguay’s president, Jose “Pepe” Mujica, a former guerrilla who lives on a farm and gives most of his salary to charity, is stepping down after five years in office, ending his term as one of the world’s most popular leaders ever. Mujica, 79, is leaving office with a 65% approval rating. He is constitutionally prohibited from serving consecutive terms. “I became president filled with idealism, but then reality hit,” Mujica said in an interview with a local newspaper earlier this week, according to AFP. Some call him “the world’s poorest president.” Others the “president every other country would like to have.” But Mujica says “there’s still so much to do” and hopes that the next government, led by Tabare Vazquez (who was elected president for a second time last November) will be “better than mine and will have greater success.”

Mujica said he succeeded in putting Uruguay on the world map. He managed to turn the cattle-ranching country, home to 3,4 million people, into an energy-exporting nation, Brazil being Uruguay’s top export market (followed by China, Argentina, Venezuela and the US.) Uruguay’s $55 billion economy has grown an average 5.7% annually since 2005, according to the World Bank. Uruguay has maintained its decreasing trend in public debt-to-GDP ratio – from 100% in 2003 to 60% by 2014. It has also managed to decrease the cost of its debt, and reduce dollarization – from 80% in 2002 to 50% in 2014. “We’ve had positive years for equality. Ten years ago, about 39% of Uruguayans lived below the poverty line; we’ve brought that down to under 11% and we’ve reduced extreme poverty from 5% to only 0.5%,” Mujica told the Guardian in November.

After Latin America’s anti-drug war proved a failure, the South American country became the first in the world to fully legalize marijuana, with Mujica arguing that drug trafficking is in fact more dangerous than marijuana itself. One of the most progressive leaders in Latin America. Muijica also legalized abortion and same-sex marriage and agreed to take in detainees once held at the notorious Guantanamo Bay. Six former US detainees, who were never charged with a crime, came to Uruguay in December as refugees. The six included four Syrians, a Palestinian and a Tunisian. Although they were cleared for release back in 2009, the US was not able to discharge them until the Uruguayan President offered to receive them. Mujica, a former leftist Tupamaro guerrilla leader, spent 13 years in jail during the years of Uruguay’s military dictatorship. He survived torture and endless months of solitary confinement. Majica said he never regretted his time in jail, which he believes helped shape his character.

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“But when you carry a life in you, what she breathes, eats and drinks are all your responsibility, and then you feel the fear.”

Documentary on Air Pollution Grips Over 30 Million Chinese in 1 Day (NY Times)

Millions of Chinese, riveted and outraged, watched a 104-minute documentary video over the weekend that begins with a slight woman in jeans and a white blouse walking on to a stage dimly lit in blue. As an audience looks on somberly, the woman, Chai Jing, displays a graph of brown-red peaks with occasional troughs. “This was the PM 2.5 curve for Beijing in January 2013, when there were 25 days of smog in that one month,” explains Ms. Chai, a former Chinese television reporter, referring to a widely used gauge of air pollution. Back then, she says, she paid little attention to the smog engulfing much of China and affecting 600 million people, even as her work took her to places where the air was acrid with fumes and dust.

“But,” Ms. Chai says with a pause, “when I returned to Beijing, I learned that I was pregnant.” She has said her concerns about what the filthy air would mean for her infant daughter’s health prompted her to produce the documentary, “Under the Dome.” It was published online Saturday, and swiftly inspired an unusually passionate eruption of public and mass media discussion. The newly appointed minister of environmental protection even likened the documentary to “Silent Spring,” Rachel Carson’s landmark exposé of chemical pollution. “I’d never felt afraid of pollution before, and never wore a mask no matter where,” Ms. Chai, 39, says in the video. “But when you carry a life in you, what she breathes, eats and drinks are all your responsibility, and then you feel the fear.”

By early Monday morning, “Under the Dome” had been played more than 20 million times on Youku, a popular video-sharing site, and it was also being viewed widely on other sites. Tens of thousands of viewers posted comments about the video, many of them parents who identified with Ms. Chai’s concern for her daughter. Some praised her for forthrightly condemning the industrial interests, energy conglomerates and bureaucratic hurdles that she says have obstructed stronger action against pollution. Others lamented that she was able to do so only after leaving her job with the state-run China Central Television.

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Mar 012015
 
 March 1, 2015  Posted by at 12:58 pm Finance Tagged with: , , , , , , ,  


NPC K & W Tire Co. Rainier truck, Washington, DC 1919

Forget All Our Other Troubles – The Russians Are Coming! (Neil Clark)
What Is Money And How Is It Created? (Steve Keen)
Humiliated Greece Eyes Byzantine Pivot As Crisis Deepens (AEP)
Poll Surge For Alexis Tsipras’ Syriza As Greeks Learn To Smile Again (Guardian)
Greece’s Lenders Skeptical On New Bills But Focus On Funding Needs (Kathimerini)
Greece To Prioritize IMF Repayments But Wants Talks On ECB-held Bonds (AP)
Schäuble Softens Tone On Greece and Varoufakis (AFP)
Greek PM Accuses Spain, Portugal of Anti-Athens ‘Axis’ (Reuters)
Eurozone Negative-Yield Bond Universe Expands to $1.9 Trillion (Bloomberg)
US Cuts Off Student-Loan Collectors for Misleading Debtors (Bloomberg)
Shadow Banking Shrinks to Least Since 2000 as Liquidity Declines (Bloomberg)
Fed Independence Is A Joke, So Why Not Audit? (Freedomworks)
China Factory Sector Still Shrinking, Official PMI Shows (Reuters)
Crude Price Shock Sends Canadian Oil Service Companies Into Whirlwind (RT)
Ukraine Pays Gazprom $15 Million For 24 Hours Worth Of Gas (RT)
Mass Anti-Immigration Rally In Rome (BBC)
Uruguay Bids Farewell To Jose Mujica, Its Pauper President (BBC)
Why Iceland Banned Beer 100 Years Ago (BBC)

“..the BBC News website ran an article entitled “How to spot a Russian bomber.” I printed the guide out and thanks to it I was able to rule out the possibility that the plane flying over my local playing fields was a Tupolev Tu-22M3 and was able to sleep easily in my bed that night..”

Forget All Our Other Troubles – The Russians Are Coming! (Neil Clark)

The gap between the rich and the poor continues to grow. Train and bus fares continue to rise. Twice as many people are living in poverty than 30 years ago. And our National Health Service is being privatized before our very eyes. But hey – we Brits must forget about all those things – because there’s something far more important to worry about. The Russians are coming! That “sinister tyrant” Vladimir Putin, doesn’t’ just threaten the whole of Ukraine – and the Baltic States – but even poses a “threat” to Britain too! This simply must be true (says author, tongue firmly in cheek), because the claims are being made by prominent members of the British political and media establishment – you know the same bunch who in 2003 told us Iraq had WMDs, who in 2011 told us that toppling Gaddafi was a great idea, and who in 2013 wanted us to bomb Syria and topple a secular government that was fighting ISIS.

UK Defense Secretary Michael Fallon (who voted for the Iraq war in 2003), raised the specter last week of Putin targeting the Baltic States. “I’m worried about Putin. I’m worried about his pressure on the Baltics, the way he is testing NATO,” Fallon said. “It’s a very real and present danger,” the Minister went on, just in case we still didn’t appreciate the Russian ‘threat’. “He (Putin) flew two Russian bombers down the English Channel two weeks ago. We had to scramble jets very quickly to see them off. It’s the first time since the height of the Cold War; it’s the first time that’s happened.” Sir Adrian Bradshaw, the NATO Deputy Supreme Commander in Europe, went even further than Fallon, saying that “the threat from Russia” represented “an existential threat to our whole being.”

Meanwhile, the former Air Chief Marshall Lord Jock Stirrup raised the horrifying prospect that civilian planes containing holidaymakers could be brought down by Russian jets. In case these warnings weren’t enough to give us palpitations the so-called Russophobic hack pack – the group of mutually-adoring propagandists who obsess about Russia – weighed in to reinforce the message that we all ought to be jolly scared about Putin. [One] commenter provided useful advice on “How to stop Putin nuking us all” (which includes blocking RT). While ordinary people in Britain struggle to make ends meet, for theelite, the big burning question of the day is not “What can we do to reduce bus and train fares?” but “How can we can deal with the Russian ‘threat?’”.

“Can the UK handle the Bear threat from Russia? “asked the Independent. “With bad guys about, you can’t ignore defense” was the title of one comment piece in Rupert Murdoch’s Times. “Putin’s war on the West” was the cover story of the Economist. “As Ukraine suffers, it is time to recognize the gravity of the Russian threat – and to counter it.. The EU and NATO are Mr. Putin’s ultimate targets.” Very helpfully, amid all these concerns, the BBC News website ran an article entitled “How to spot a Russian bomber.” I printed the guide out and thanks to it I was able to rule out the possibility that the plane flying over my local playing fields was a Tupolev Tu-22M3 and was able to sleep easily in my bed that night.

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And now you know!

What Is Money And How Is It Created? (Steve Keen)

[..] Only one person ever really did work out what money really is.—and no, it wasn’t Ayn Rand. It was Augusto Graziani, an Italian Professor of Economics, who died early last year. He understood what money is because he posed and correctly answered a simple question: how does a monetary economy differ from one in which trade occurs by barter? This ruled out gold being money, since gold is a commodity that anyone can produce for themselves with a bit of mining (and a lot of luck). So even though gold is really special and incredibly rare, it is in the end, a commodity: an economy using gold for trade is really a barter economy, not a monetary one. As Graziani put it:

a true monetary economy is inconsistent with the presence of a commodity money. A commodity money is by definition a kind of money that any producer can produce for himself. But an economy using as money a commodity coming out of a regular process of production, cannot be distinguished from a barter economy. A true monetary economy must therefore be using a token money, which is nowadays a paper currency. [He wrote this in 1989, before our modern electronic money system had developed]

That doesn’t rule out a world in which gold is used as the basis for commerce of course: it just says that that’s not a monetary economy. Those who say we’d be better off “going back to gold” are really saying that they don’t like a monetary economy, and reckon we would be better off in a barter economy instead. Identifying money as a paper token wasn’t enough, however, since there are some paper tokens—such as a “bill of exchange”—which are used in transactions, but leave a debt obligation between the buyer and the seller. An economy using bills of exchange was not a monetary economy, Graziani argued, but a credit economy:

If in a credit economy at the end of the period some agents still owe money to other ones, a final payment is needed, which means that no money has been used.

So to be money, the token given in exchange for a good must be accepted as a final payment—but this carried the danger that whoever produced the token might be able to “get something for nothing”. In an ideal system, this had to be ruled out as well.

This gave Graziani three basic conditions that had to be met for something to be called “money”:

a) money has to be a token currency (otherwise it would give rise to barter and not to monetary exchanges);

b) money has to be accepted as a means of final settlement of the transaction (otherwise it would be credit and not money);

c) money must not grant privileges of seignorage to any agent making a payment.

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“The euro is more than just money. It is talismatic for the Greeks. It was only when we joined the euro that we felt truly European. There was always a nagging doubt before.. ”

Humiliated Greece Eyes Byzantine Pivot As Crisis Deepens (AEP)

Greece’s new currency designs are ready. The green 50 drachma note features Cornelius Castoriadis, the Marxisant philosopher and sworn enemy of privatisation. The Nobel poet Odysseus Elytis – voice of Eastward-looking Hellenism – honours the 200 note. The bills rise to 10,000 drachma, a wise precaution lest there is a hyperinflationary shock as Greece breaks out of its debt-deflation trap at high velocity. The amateur blueprints are a minor sensation in Greek artistic circles. They are only half in jest. Greece’s Syriza radicals have signed a fragile ceasefire with the eurozone’s creditor powers. Few think this can last as escalating deadlines reach their kairotic moment in June. Each side has agreed to a deception with equal cynicism, knowing that the interim deal evades the true nature of Greece’s crisis and cannot bridge the immense political divide.

They have bought time, but not much. “I am the finance minister of a bankrupt country,” says Yanis Varoufakis, the rap-artist Keynesian with a mission to correct all of Europe’s economic ills. First he has to deal with his own liquidity crisis. Tax arrears have reached €74bn, rising by €1.1bn a month. “This isn’t tax evasion. These are normal people who can’t pay because they are in distress,” he told the Telegraph. The Greek Orthodox Church is struggling to pick up the pieces. “The local councils can’t cope, so people come to us for food,” said Father Nicolaos of St Panourios parish in a working-class district of West Athens. “We’re feeding 270 people and it is getting worse every day. Today we discovered three young children going through rubbish bins for food. They are living in a derelict building and we have no idea who they are,” he said, sitting in a cramped office packed with bags of bread and supplies.

“We rely on donations from the local bakery. If we run out of beans or lentils, I put out a call, and everybody brings in what they can. There is this spirit of solidarity because nobody feels immune,” he said. His poor parish in Drapetsova was built by refugees from Smyrna and Pontus, victims of the “Catastrophe” in 1922, when ethnic cleansing extinguished the ancient Greek communities of Asia Minor. He lovingly showed me the historic icons and prayer books they hauled with them in wagons, now in the church basement. The utility companies have been cutting off the electricity as arrears rise – and sometimes the water too – leaving 300,000 Greeks in the dark. “They come and ask for candles. They can’t use their fridge. They can’t cook. Their children can’t do their homework,” he said. It is almost a description of a failed state.

Restoring electricity is the first order of business in Syriza’s “Thessaloniki programme”, along with food stamps, a halt to property foreclosures, and a month’s extra pension for the less affluent. Father Nicolaos urged Syriza to stand its ground. “Yes, we Greeks played our own part in our downfall, but Europe played its part too. We must not sell out at any cost, or sell our monuments to pay our debts. We must fight,” he said. Syriza has a peculiar mandate. The Greeks voted for defiance, and also to stay in the euro, two objectives that are hard to reconcile. Views are divided over which emotion runs deeper, therefore which way the inscrutable Alexis Tsipras will pivot. The boyish prime minister has yet to show his hand. “When it comes to the choice, I fear Tsipras will abandon our programme rather than give up the euro,” said one Syriza MP, glancing cautiously around in case anybody was listening as we drank coffee in the “conspiracy” canteen of the Greek parliament.

“The euro is more than just money. It is talismatic for the Greeks. It was only when we joined the euro that we felt truly European. There was always a nagging doubt before,” he said. “But you can’t fight austerity without confronting the eurozone directly. You have to be willing to leave. It is going to take a long time for the party to accept this bitter reality. I think the euro was a tremendous historic mistake, and the sooner they get rid of it, the better for all the peoples of Europe, but that is not the party view,” he said.

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“They’ve given us our voice back,” “For the first time there’s a feeling that we have a government that is defending our interests.”

Poll Surge For Alexis Tsipras’ Syriza As Greeks Learn To Smile Again (Guardian)

Alexis Tsipras’ left-led government may be the bane of Europe’s political establishment, but in Greece support is soaring as Athens’ new political class negotiates the country’s economic plight. One month and three days after the tough-talking firebrand assumed power, Greeks of all political persuasions appear to like what they see. A Metron Analysis poll published on Saturday showed popularity ratings for the prime minister’s radical left Syriza party at an all-time high: from the almost 36% it won in snap polls on 25 January, support for Syriza has jumped to 47.6%, a record for a movement that only three years ago was on margins of Greek politics. In a triumphant address Tsipras attributed the surge to restored pride after five rollercoaster years of being humbled and humiliated by the debt-stricken nation’s worst economic crisis in modern times.

“The Greek people feels it is regaining the dignity that it has been doubted and denied,” the leader told Syriza’s central committee at the weekend. “From the very first day of the new [coalition] government, Greece stopped being a pariah, executing orders and enforcing memorandums,” he said, referring to the EU- and IMF-sponsored bailout accords Athens signed to keep afloat. On the street, optimism has returned. People worn down by gruelling austerity, on the back of unprecedented recession, are smiling. Government officials have taken to walking through central Athens, instead of ducking into chauffeur-driven cars to avoid protesters. Last week, finance minister Yanis Varoufakis – a maverick to many of his counterparts – was mobbed by appreciative voters as he ambled across Syntagma square.

“They’ve given us our voice back,” said Dimitris Stathokostopoulos, a prominent entrepreneur. “For the first time there’s a feeling that we have a government that is defending our interests. Germany needs to calm down. Austerity hasn’t worked. Wherever it has been applied it has spawned poverty, unemployment, absolute catastrophe.” The approval is all the more extraordinary, given the policy U-turns the anti-austerity government has been forced to make – concessions that have sparked fierce opposition within the ranks of Syriza. Faced with the reality of governing, Tsipras has dropped demands for a reduction of the country’s monumental debt; agreed to continued supervision by auditors at the EU, ECB and IMF (now named “the institutions” rather than the maligned “troika”); and abandoned pre-election pledges by promising not to take “unilateral” steps that might throw the budget off-balance.

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“We have not discussed anything with the Greek side,” a European official told Sunday’s Kathimerini..”

Greece’s Lenders Skeptical On New Bills But Focus On Funding Needs (Kathimerini)

European officials have expressed concern that the Greek government has not consulted with its partners over its plans to bring new legislation to Parliament this week but the greatest focus appears to be on how Athens will cover its immediate funding needs. “We have not discussed anything with the Greek side,” a European official told Sunday’s Kathimerini after Prime Minister Alexis Tsipras announced on Friday night that four bills would be tabled in the House this week. In a televised address to his cabinet, Tsipras said that four draft laws would be unveiled this week in order to tackle the social impact of the crisis, to introduce a new payment scheme for overdue debts to the state, to protect primary residences from foreclosures and to reopen public broadcaster ERT.

At the Eurogroup on February 20, Greece and its lenders agreed that the government would not adopt any measures unilaterally that “would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions.” It is not clear if Greece’s creditors believe that the bills due to be submitted to Parliament this week fall into this category but sources suggested that there is concern about the lack of of communication between Athens and its partners. However, the immediate problem that must be overcome is ensuring that the government can meet its funding needs over the next few months, starting with a €1.6 billion payment to the IMF in March.

On Saturday, Finance Minister Yanis Varoufakis went as far saying that Athens would try to negotiate the summer payment of €6.7 billion worth of Greek bonds held by the ECB. “Shouldn’t we negotiate this? We will fight it,” he told Skai TV. “If we had the money we would pay… They know we don’t have it.” Greece’s lenders, however, believe that they may be able to use this inability to pay to their advantage and pressure the government to carry out reforms before the country’s funding needs become less significant. “Now is the time that we can exercise pressure on the Greek government,” a European official told Kathimerini.

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“.. the ECB repayments are in a different league and we shall have to determine this in association with our partners and the institutions.”

Greece To Prioritize IMF Repayments But Wants Talks On ECB-held Bonds (AP)

Greece will prioritize debt repayments to the International Monetary Fund, some of which come due in March, but repayments to the European Central Bank are «in a different league» and will need discussion with Greece’s creditors, the country’s finance minister said Saturday. In an interview with The Associated Press, Yanis Varoufakis also said Athens intends to start discussions with its creditors on debt rescheduling in order to make the country’s massive debt sustainable, at the same time as working on reform measures that need to be cemented by April, the finance minister said Saturday.

“The IMF repayments of course we are going to prioritize, we are not going to be the first country not to meet our obligations to the IMF,» the 53-year-old said, speaking in his office in the finance ministry overlooking Athens’ central square and the country’s parliament. “We shall squeeze blood out of stone if we need to do this on our own, and we shall do it.” However, “the ECB repayments are in a different league and we shall have to determine this in association with our partners and the institutions.” The ECB has always insisted on full repayment and it’s not clear they would accept a rescheduling.

Greece faces IMF repayments in March of about €1.5 billion, and about €6.7 billion to the ECB in the summer. But it is facing a cash crunch and will struggle with scheduled repayment of its debts. Athens wouldn’t ask for a delay in repayment in its ECB obligations, the minister noted, but rather something that would make the repayments easier to achieve. “I do not believe the ECB would accept a delay, but what we can do is we can package a deal that makes these repayments palatable and reasonably doable as part of our overall negotiation regarding the Greek debt, and the next … contract for growth for the Greek economy between us and the partners.”

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Almost kissed him.

Schäuble Softens Tone On Greece and Varoufakis (AFP)

German Finance Minister Wolfgang Schaeuble said Sunday Greece’s new government needs «a bit of time» but is committed to implementing necessary reforms to resolve its debt crisis. “The new Greek government has strong public support,» Schaeuble said in an interview with German newspaper Bild am Sonntag. “I am confident that it will put in place the necessary measures, set up a more efficient tax system and in the end honour its commitments. “You have to give a little bit of time to a newly elected government,» he told the Sunday paper. «To govern is to face reality.”

Schaeuble also insisted that his Greek counterpart Yanis Varoufakis, despite their policy differences, had «behaved most properly with me» and had «the right to as much respect as everyone else». mIt was a marked change in tone for the strait-laced Schaeuble, who has repeatedly exchanged barbs with Varoufakis, his virtual opposite in both style and politics, since January’s watershed Greek elections brought in an anti-austerity government. Schaeuble last week sternly warned that Greece would not receive «a single euro» until it meets the pledges of its existing €240 billion bailout programme.

But he put his weight behind a four-month extension, to the end of June, approved overwhelmingly by the German parliament on Friday after a complex compromise reached between eurozone finance ministers and Athens. In exchange, Greece has pledged to implement reforms and savings. Schaeuble reiterated the ground rules for the aid programme extension, stressing that «Greece must meet its commitments. Only then will it receive the promised aid payments.” Asked about repeated comments from the new Greek government against austerity measures and for a debt haircut, Schaeuble said that «contracts are more important than statements».

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Technocrats are sore losers.

Greek PM Accuses Spain, Portugal of Anti-Athens ‘Axis’ (Reuters)

Greece’s leftist Prime Minister Alexis Tsipras accused Spain and Portugal on Saturday of leading a conservative conspiracy to topple his anti-austerity government, saying they feared their own radical forces before elections this year. Tsipras also rejected criticism that Athens had staged a climbdown to secure an extension of its financial lifeline from the euro zone, saying anger among German conservatives showed that his government had won concessions. Greeks have directed much of their fury about years of austerity dictated by international creditors at Germany, the biggest contributor to their country’s €240 billion bailout.

But in a speech to his Syriza party, Tsipras turned on Madrid and Lisbon, accusing them of taking a hard line in negotiations which led to the euro zone extending the bailout program last week for four months. “We found opposing us an axis of powers … led by the governments of Spain and Portugal which for obvious political reasons attempted to lead the entire negotiations to the brink,” said Tsipras, who won an election on Jan. 25. “Their plan was and is to wear down, topple or bring our government to unconditional surrender before our work begins to bear fruit and before the Greek example affects other countries,” he said, adding: “And mainly before the elections in Spain.”

Spain’s new anti-establishment Podemos movement has topped some opinion polls, making it a serious threat to the conservative People’s Party of Prime Minister Mariano Rajoy in an election which must be held by the end of this year. Rajoy went to Athens less than a fortnight before the Greek election to warn voters against believing the “impossible” promises of Syriza. His appeal fell on deaf ears and voters swept the previous conservative premier from power. Portugal will also have elections after the summer but no anti-austerity force as potent as Syriza or Podemos has so far emerged there.

In an interview published before Tsipras made his speech, Prime Minister Pedro Passos Coelho denied that Portugal had taken a hard line in negotiations on the Greek deal at the Eurogroup of euro zone finance ministers. “There may have been a political intention to create this idea, but it is not true,” he told the Expresso weekly newspaper. Passos Coelho aligned himself with euro zone governments which have called for policies to promote economic growth but without trying to walk away from austerity as in Greece. “We were on the same side as the French government, with the Italian and Irish governments. I think it’s bad to stigmatize southern European countries,” he said.

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“It sounds very awkward in a sense, but if you look at it more, the central bank has a deposit rate in negative territory, and there’s a huge bond-buying program coming.”

Eurozone Negative-Yield Bond Universe Expands to $1.9 Trillion (Bloomberg)

The European Central Bank’s imminent bond-buying plan has left $1.9 trillion of the euro region’s government securities with negative yields. Germany sold five-year notes at an average yield of minus 0.08% on Wednesday, a euro-area record, meaning investors buying the securities will get less back than they paid when the debt matures in April 2020. By the next day, German notes with a maturity out to seven years had sub-zero yields, while rates on seven other euro-area nations’ debt were also negative. While some bonds had such yields as far back as 2012, the phenomenon has gathered pace since the ECB’s decision to cut its deposit rate to below zero last year. Even when investors extend maturities, and move away from the region’s core markets, returns are becoming increasingly meager.

Ireland’s 10-year yield slid below 1% for the first time this week, Portugal’s dropped below 2%, while Spanish and Italian rates also tumbled to records. “It is something that many would not have pictured a year ago,” said Jan von Gerich at Nordea Bank in Helsinki. “It sounds very awkward in a sense, but if you look at it more, the central bank has a deposit rate in negative territory, and there’s a huge bond-buying program coming. People are holding on to these bonds and so you don’t have many willing sellers.” 88 of the 346 securities in the Bloomberg Eurozone Sovereign Bond Index have negative yields, data compiled by Bloomberg show. Euro-area bonds make up about 80% of the $2.35 trillion of negative-yielding assets in the Bloomberg Global Developed Sovereign Bond Index, the data show.

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Huge disgrace. But since when would the US government take that as an insult?

US Cuts Off Student-Loan Collectors for Misleading Debtors (Bloomberg)

The U.S. Education Department, citing “inaccurate representations” to student-loan borrowers, will end debt-collection contracts with Navient and four other companies. Representatives of these companies, which pursue students who default on their loans, made misleading statements about programs that help borrowers get back on track, the agency said in a statement late Friday. The companies include Pioneer Credit Recovery, a unit of Navient, which was split off last year from SLM, commonly known as Sallie Mae, the largest U.S. education finance company. “Federal Student Aid borrowers are entitled to accurate information as they make critical choices to manage their debt,” Under Secretary Ted Mitchell said in a statement. “Every company that works for the Department must keep consumers’ best interests at the heart of their business practices by giving borrowers clear and accurate guidance.”

The government turns to 22 debt-collection companies to put the squeeze on borrowers who are defaulting on their loans. In 2012, Bloomberg News reported that the private contractors chasing these debts collected about $1 billion annually in commissions and faced growing complaints that they were insisting on stiff payments, even when borrowers’ incomes make them eligible for leniency. Pioneer said in a statement that the Education Department has conducted 17 exams since the beginning of 2014, listening to 600 phone calls, and had not raised concerns about the company’s rates of inaccurate or misleading information to borrowers. In April, it received written confirmation from the agency that its policies complied with regulation.

“We were blindsided by the Department of Education’s actions,” Pioneer said. Navient’s revenue from collecting for the Education Department totaled $65 million last year. The agency said it will “wind down” its contracts with the five companies and transfer their business to other agencies with contracts. The four other companies losing contracts are Coast Professional, Enterprise Recovery Systems, National Recoveries and West Asset Management, according to the statement. Those companies couldn’t be reached for comment after business hours. “This is a huge step forward for student loan borrowers who are too often the victims of dishonest debt-collection practices,” Maggie Thompson, campaign manager for Higher Ed, Not Debt, said in a statement. “We are happy the Department of Education protected borrowers by ending the contracts of some of the most abusive debt collectors in the business.”

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End of the Ponzi.

Shadow Banking Shrinks to Least Since 2000 as Liquidity Declines (Bloomberg)

The financing markets that grease the wheels of most debt trading have contracted to the smallest in 15 years as liquidity declines, adding to concern U.S. economic stability is at risk. The amount, known as shadow banking, was $4.13 trillion last month, down from a peak of $7.61 trillion in March 2008, according to data compiled by the Center for Financial Stability, a nonpartisan research group. The CFS measure, which includes money-market funds, repurchase agreements and commercial paper, all adjusted for the impact of inflation, is at the lowest since January 2000.

“Market finance is suffering, and it has been inextricably linked to growth in the economy and financial stability,” Lawrence Goodman, president of CFS and author of the report, said. “The fact that we are seeing bumps in varying asset classes suggests that cracks are evident in the financial system. In part, this is a direct function of limited liquidity.” Global regulators have focused on reducing the footprint of shadow banking, which was viewed as a catalyst for the collapse of Lehman Brothers Holdings Inc. in 2008 that shook markets worldwide, accelerating the financial crisis. In the process, market finance has contracted to an “excessively steep” degree that “starves financial markets from needed liquidity and is detrimental to future growth,” according to a Feb. 25 report from the CFS.

Repurchase agreements, or repos, are a source of short-term finance for banks, allowing them to use securities as collateral for short-term loans from investors such as other banks or money-market mutual funds. The amount of securities financed through a part of the market known as tri-party repo fell to an average $1.58 trillion as of Jan. 12, from $1.96 trillion in December 2012, according to data compiled by the Federal Reserve. Tighter market liquidity and a resulting surge in volatility were both on display Oct. 15, when Treasuries suddenly careened through the biggest yield fluctuations in a quarter-century without being spurred by any concrete news. While that extreme loss of liquidity in Treasuries has faded, the day-to-day dealings in 10-year Treasuries have worsened this year, according to analysis by Deutsche Bank.

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“The people – those plain people who think economics is about supply and demand rather than complicated math formulas – deserve some level of sway over the Fed’s operations..”

Fed Independence Is A Joke, So Why Not Audit? (Freedomworks)

If Janet Yellen didn’t resemble a bookwormish teetotaler, perhaps she’d join her colleagues in a toast to suppressing democratic accountability. For now, she’ll order a club soda while working vigorously to keep Congress, and thus the people, out of her business of running the country’s central bank. Yellen has only been Chair of the Federal Reserve for one year, but she’s already facing pressure to open the books from the new Congress. Leading the charge are two statesmen from Kentucky: Representative Thomas Massie and Senator Rand Paul. Both have introduced audit the Fed legislation in their respective chambers. Wall Street’s cadre of financial oligarchs are predictably up in arms over an audit of their free money machine.

Think tankers are antagonizing the campaign, with Jim Pethokoukis of the American Enterprise Institute asserting that Sen. Paul has “a poor understanding of what’s actually on the Fed balance sheet and how the bank operates.” It’s expected President Obama would veto an audit the Fed bill. Even local bankers are scaremongering over the prospect of the Fed losing autonomy. Yellen, for her part, isn’t about to let the nosy wolves in her henhouse. In a recent interview, she said she would stand “forcefully” against any audit measures. She justified her intransigence by citing the importance of “central bank independence” and being able to act without interference. Nothing says limited government and separation of powers like a bureaucracy unaccountable to the voice of the people! Then again, Yellen doesn’t care much for democratic oversight.

She’s a caricature of Randian libertarianism: someone who wants to do whatever, whenever, without rulers. The problem is Yellen isn’t operating a private railroad company. She’s the figurehead for a government institution created by Congress. If democracy means anything, it’s that voters have some measure of control over political bureaucracies. So apologies Janet, you don’t operate in a bubble (insert Fed pun here). The people – those plain people who think economics is about supply and demand rather than complicated math formulas – deserve some level of sway over the Fed’s operations. So why not an audit by the Government Accountability Office? Last I heard, President Obama was all about accountability. Yellen and company aren’t buying it. They don’t want anyone butting in on their micromanagement of the money supply. Outside observers would interfere with the Fed’s independence, which is a sacrament of the central bank.

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Bub. Ble.

China Factory Sector Still Shrinking, Official PMI Shows (Reuters)

Activity in China’s factory sector contracted for a second straight month in February on unsteady exports and slowing investment, an official survey showed on Sunday, reinforcing bets that more policy loosening is needed to lift the economy. The official Purchasing Managers’ Index (PMI) inched up to 49.9 in February from January’s 49.8, a whisker below the 50-point level that separates growth from contraction on a monthly basis. Analysts polled by Reuters had forecast a weaker reading of 49.7. A separate official services PMI, also released on Sunday, showed growth in the sector accelerated to 53.9, up from 53.7 in January. Accounting for 48% of China’s $10.2 trillion economy last year, the services sector has weathered the growth downturn better than factories, partly because it depends less on foreign demand.

The official PMIs were released shortly after China’s central bank cut interest rates late on Saturday, the latest effort to support the world’s second-largest economy as its momentum slows and deflation risks rise. The PMIs are the last official Chinese data to come out before the opening this week of the annual session of China’s legislature, where leaders will announce a growth target for 2015. The final February reading for the HSBC manufacturing PMI survey will be announced on Monday. The flash estimate showed factory growth edged up to a four-month high in February, but export orders shrank at their fastest rate in 20 months. To boost a sagging economy, China’s central bank lowered the reserve requirement – the ratio of cash that banks must set aside as reserves – in February for the first time in over two years.

That was after it had cut interest rates in November, also for the first time in more than two years. Despite the raft of stimulus moves, a newspaper owned by the central bank warned on Wednesday that China is dangerously close to slipping into deflation, highlighting the nervousness among policymakers about a sputtering economy that is not gaining speed. A housing slump, erratic growth in exports and a state-led slowdown in investment to help restructure China’s economy dragged growth to 7.4% last year – a level not seen since 1990. Reflecting China’s “new normal” of slower but better-quality growth, economists at state think-tanks with knowledge of policy discussions said the government is likely to lower its 2015 economic growth target to around 7%, from last year’s 7.5%.

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Ha. Ha.: “Customers are taking a cautious approach until there is more certainty as to when oil prices will recover..”

Crude Price Shock Sends Canadian Oil Service Companies Into Whirlwind (RT)

The crude oil price collapse has forced some Canadian oil service companies to cut their workforces, budgets, and salaries, as their energy-producing customers have been struggling with their own budget cuts and market uncertainty. Calfrac Well Services and Trican Well Service, both based out of Calgary, are two of the most recent examples of companies showing signs of a struggle amid a slowdown in drilling activity across North America. Oilfield services and hydraulic fracturing company Calfrac announced on Wednesday that it will cut over $25 million from its general and administrative costs, as it released its fourth quarter revenue report. The firm will be slashing executive salaries by around 10% and directors’ pay by 20% starting in April. Calfrac was also forced to shut down its operations in Colombia.

“As a result of the decline in crude oil prices, the company’s customers in Canada and the United States have lowered their 2015 capital budgets in the order of 20 to 40 per cent from 2014,” Calfrac’s president and chief executive, Fernando Aguilar, told analysts. The biggest concern is how cheaper crude will impact equipment utilization and pricing in 2015. “Customers are taking a cautious approach until there is more certainty as to when oil prices will recover,” Aguilar added. One of Calfrac’s biggest competitors, Trican, announced similar cuts – including slashing salaries and costs – after cutting 600 positions. All Canadian and US employees will receive a 10% cut in average compensation, according to the firm’s press release.

Oil prices have plummeted by at least 50% since the summer. The situation was made worse when OPEC opted not to cut its daily output levels in November. In reaction to new oil price projections, the Bank of Canada (BoC) unexpectedly cut its interest rate to 0.75% in January, with markets pricing in another rate cut in March. The central bank also lowered its economic growth and inflation forecasts, warning of widespread negative effects of lower oil prices on the Canadian economy. Just last week, BoC Deputy Governor Agathe Cote stressed the significance of the oil-price shock. “This shock will delay the economy’s return to full capacity by undermining both investment in the oil sector and gross domestic income,” she said, noting that personal wealth is likely to be reduced and interprovincial trade affected.

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And counting.

Ukraine Pays Gazprom $15 Million For 24 Hours Worth Of Gas (RT)

Ukraine’s Naftogaz has paid Gazprom $15 million for gas delivery. At current levels, the prepayment covers one day’s gas consumption and will be spent by Tuesday, Gazprom spokesperson Sergey Kupriyanov said. “Today at 9:20am MSK Gazprom received a payment from Ukraine’s Naftogaz in the amount of $15 million. At the current level of supply this sum will be enough roughly for one day,” he said. “If Naftogaz paid for another 24 hours, it means the resources would last through Monday till Tuesday,” he said. The relatively small prepayment suggests Kiev is buying time before trilateral talks in Brussels on march 2nd. Russian energy minister Alexander Novak had warned Kiev’s failure to pre-pay would mean a cut-off.

In a letter sent to Gazprom late Wednesday, Naftogaz said it had a total of 206 million cubic meters of Russian gas pre-paid. “The concerns and worries are caused first of all by the fact that not much prepaid gas is left. If there is no money the supplies will stop starting from Tuesday,” Russian Energy Minister Alexander Novak said. “The payment should be completed Friday so that the gas is supplied starting from Tuesday,” Novak said. “If there is no payment there will be a break in gas supplies to Ukraine. The European consumers will fully receive gas.” “We are worried about the situation with the problem of prepayment for the gas delivery. On Friday morning, the rest of the gas, prepaid by Ukraine, accounted for 123.8 mln cubic meters.

Taking into consideration the fact that on the average we supply [Ukraine] with 42 mln cubic meters, without DPR and LPR [Donetsk People’s Republic and Lugansk People’s Republic], in fact, the remains of the gas will be enough only for Friday, Saturday, and Sunday,” Novak said, according to RIA-Novosti. In a new gas standoff, deliveries to the conflict-plagued Donbass region have become a new bone of contention between Russian and Ukraine. Last week Kiev suspended deliveries to the area, citing damage to the pipeline. Russia then launched a separate gas supply to Donbass, with President Vladimir Putin saying that cutting the war zone off gas “smells like genocide.” Gazprom said Thursday it was ready to separate gas supplies to Ukraine and Donbass.

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Europe better watch out.

Mass Anti-Immigration Rally In Rome (BBC)

Thousands of supporters of Italy’s Northern League have poured into one of Rome’s biggest squares for a rally against immigration, the EU and Prime Minister Matteo Renzi’s government. League leader Matteo Salvini accused Mr Renzi of substituting the country’s interests to those of the EU. He also criticised the government’s record in dealing with Romanian truck drivers, tax, banks and big business. A large counter-demonstration against Mr Salvini was also held in Rome. Opinion polls suggest that Mr Salvini is rapidly gaining in popularity. They show him as being second only to Mr Renzi, prompting some to dub him as “the other Matteo”.

The Northern League was once a strong ally of former Prime Minister Silvio Berlusconi, but it has sought to find new allies as he struggles to shake off a tax fraud conviction that forced him out of parliament. Mr Salvini’s fiery rhetoric against the European Union, immigration and austerity politics had led to comparisons being drawn between him and French National Front leader Marine Le Pen. The counter-demonstration staged by an alliance of leftist parties, anti-racism campaigners and gay rights groups was held only a few hundred metres from the Northern League rally. Many protested under the banner “Never with Salvini”.

“The problem isn’t Renzi, Renzi is a pawn, Renzi is a dumb slave, at the disposal of some nameless person who wants to control all our lives from Brussels,” Mr Salvini told the rally at the Piazza del Popolo. He told his supporters that the prime minister was the “foolish servant” of Brussels. Mr Salvini spoke of a “different Europe, where banks count for less, and citizens and small businessmen count for more”. “I want to change Italy. I want the Italian economy to be able to move forward again, something that is obstructed by Brussels and mad European policies,” he said, describing the government’s immigration policies as “a disaster”.

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A fine man.

Uruguay Bids Farewell To Jose Mujica, Its Pauper President (BBC)

Whatever your own particular “shade” of politics, it’s impossible not to be impressed or beguiled by Jose “Pepe” Mujica. There are idealistic, hard-working and honest politicians the world over – although cynics might argue they’re a small minority – but none of them surely comes anywhere close to the outgoing Uruguayan president when it comes to living by one’s principles. It’s not just for show. Mujica’s beat-up old VW Beetle is probably one of the most famous cars in the world and his decision to forego the luxury of the Presidential Palace is not unique – his successor, Tabare Vasquez, will also probably elect to live at home. But when you visit “Pepe” at his tiny, one-storey home on the outskirts of Montevideo you realise that the man is as good as his word.

Wearing what could best be described as “casual” clothes – I don’t think he’s ever been seen wearing a tie – Mujica seats himself down on a simple wooden stool in front of a bookshelf that seems on the verge of collapsing under the weight of biographies and mementoes from his political adversaries and allies. Books are important to the former guerrilla fighter who spent a total of 13 years in jail, two of them lying at the bottom of an old horse trough. It was an experience that almost broke him mentally and which shaped his transformation from fighter to politician. “I was imprisoned in solitary [confinement] so the day they put me on a sofa I felt comfortable!” Mujica jokes. “I’ve no doubt that had I not lived through that I would not be who I am today. Prison, solitary confinement had a huge influence on me. I had to find an inner strength. I couldn’t even read a book for seven, eight years – imagine that!”

Given his past, it’s perhaps understandable why Mujica gives away about 90% of his salary to charity, simply because he “has no need for it”. A little bit grumpy to begin with, Mujcia warms to his task as he describes being perplexed by those who question his lifestyle. “This world is crazy, crazy! People are amazed by normal things and that obsession worries me!” Not afraid to take a swipe at his fellow leaders, he adds: “All I do is live like the majority of my people, not the minority. I’m living a normal life and Italian, Spanish leaders should also live as their people do. They shouldn’t be aspiring to or copying a rich minority.”

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If only Al Capone had known.

Why Iceland Banned Beer 100 Years Ago (BBC)

.. for much of the 20th Century it was unpatriotic – and illegal – to drink beer. When full prohibition became law 100 years ago, alcohol in general was frowned upon, and beer was especially out of favour – for political reasons. Iceland was engaged in a struggle for independence from Denmark at the time, and Icelanders strongly associated beer with Danish lifestyles. “The Danes were drinking eight times as much alcohol per person on a yearly basis at the time,” says historian Stefan Palsson, author of Beer: Around the World in 120 Pints. As a result, beer was “not the patriotic drink of choice”. The independence and temperance movements reinforced each other, and in 1908, four years after gaining home rule, Iceland held a referendum on a proposal to outlaw all alcohol from 1915. About 60% voted in favour. Women, who still didn’t have the vote, were vocal in their support.

“Prohibition was seen as progressive, like smoking [bans] today,” says Palsson. It didn’t take long for Prohibition to be undermined. Smuggling, home-brew and ambassadors lobbying for alcohol to oil the wheels of diplomacy all played a part. “Doctors started prescribed alcohol as medicine and they did so in huge quantities, for more or less everything. Wine if you had bad nerves, and for the heart, cognac,” says Palsson. But beer was never “what the doctor ordered”, despite the argument some put forward that it was a good treatment for malnourishment. “The head doctor put his foot down and said beer did not qualify as a medicine under any circumstances,” Palsson says.

There were other leaks in the Prohibition armour too. “Prohibition supporters complained that painters who never used to use spirits to clean their brushes were now getting litres and litres each year,” says Palsson. “So alcohol was flowing in from all directions.” Then the Spanish threatened to stop importing salted cod – Iceland’s most profitable export at the time – if Iceland did not buy its wine. Politicians bowed to the pressure and legalised red and rose wines from Spain and Portugal in 1921. Over time, support for prohibition dwindled. It had already been repealed by all the other European nations that had experimented with it (apart from the Faroe Islands) when in 1933 Icelanders voted to reverse course.

But even then the ban remained in force for beer containing more than 2.25% alcohol (about half the strength of an average-strength beer). As beer was cheaper than wines or spirits, the fear was that legalising it would lead to a big rise in alcohol abuse. The association of beer with Denmark also continued to tarnish its image in a country that only achieved full independence in 1944. However, beer remained accessible, just about, to those who really wanted it. “If you knew a fisherman, he may have had a few cases stashed in his garage – usually the cheapest and strongest beer available, often stored too long,” says Palsson Also popular, according to Ingvarsson, was tipping brennivin (burning wine), a potato-based vodka, into non-alcoholic beer – which tasted, as he puts it, “interesting and totally disgusting”.

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 January 11, 2015  Posted by at 9:22 pm Finance Tagged with: , , , , , ,  


Ann Rosener Reconditioning spark plugs, Melrose Park Buick plant, Chicago 1942

We need to do a lot more thinking, and take a far more critical look at ourselves, than we do at present. We’re not even playing it safe, we’re only playing it easy. And that’s just not enough. The marches in Paris and numerous other cities today were attended by people who mean well, but who should ask themselves if they want to be part of what was predictably turned into a propaganda event by ‘world leaders’. One thing is for sure; the murdered Charlie Hebdo staff would not have approved of it.

The leaders hark back to usual suspect slogans like we defend ‘Liberty’, ‘Freedom of Expression’ and ‘Our Values’. But we can’t turn our backs on the fact that ‘our values’ these days include torture and other fine ‘tactics’ that make people in other parts of the world turn their backs on us. We might want – need – to march to express our feelings about torture executed in our name, as much as to express our horror at cartoonists we never heard of being the target of automatic weapons.

There are major armed conflicts going on in 6 different Arab countries, and ‘we’ play a part in all of them. We get up in the morning and prepare to march against violence in our own streets, but we should perhaps – also – protest the violence committed in our name on other people’s streets just as much. We may feel innocent as we’re marching, but that’s simply because we refuse to look at ourselves in the mirror. And we must be able to do better than that. Both to be the best we can be (which is still a valid goal), and to prevent future attacks.

And that’s not nearly the entire story. Our governments play ‘divide and rule’ both domestically and abroad. They play nations against each other in far away parts of the globe, and poor vs rich and generation vs generation at home. If you want a better world, don’t look at your leaders to make that happen. They like the world the way it is; it got them where they are. Moreover, they’re all beholden to numerous supra-national organizations that are the real power behind the throne across the globe; NATO, IMF, EU, World Bank et al.

If you want a better world, and one in which the risk of attacks like the one this week goes down, you’ll have to look at yourself first, and take it from there. Marching in a mostly self-righteous parade in which the wrong people form the first line is not going to do it. You’re not going to solve this sitting on your couch. Our world is not just financially bankrupt, and in deep debt to boot, it’s also about as morally broke as can be.

We therefore have to rethink our world just about from scratch. Or else. We’ve lived chasing the recovery carrot for years now, but the economy won’t recover; it can’t. There hasn’t been any real growth since at least the 1980s, the only thing there’s been is increasing debt levels that we mistook for growth.

A great first example of how to do this rethinking was provided late last year, and I referred to it before, by UofM Amherst economics professor James K. Boyce:

Protecting Money or People?

Imagine that without major new investments in adaptation, climate change will cause world incomes to fall in the next two decades by 25% across the board, with everyone’s income going down, from the poorest farmworker in Bangladesh to the wealthiest real estate baron in Manhattan. Adaptation can cushion some but not all of these losses. What should be our priority: reduce losses for the farmworker or the baron? For the farmworker, and a billion others in the world who live on about $1 a day, this 25% income loss will be a disaster, perhaps the difference between life and death.

Yet in dollars, the loss is just 25 cents a day. For the land baron and other “one-percenters” in the U.S. with average incomes of about $2,000 a day, the 25% income loss would be a matter of regret, not survival. He’ll find a way to get by on $1,500 a day. In human terms, the baron’s loss pales compared with that of the farmworker. But in dollar terms, it’s 2,000 times larger. Conventional economic models would prescribe spending more to protect the barons than the farmworkers of the world.

It’s how we think. Boyce describes it perfectly. We chase money, no questions asked, and even call it no. 1. And unless we change the way we think, one Manhattan land baron will be saved, and 1000 Bangla Deshi farmers and their entire families will either drown or be forced higher inland, where there are already too many people just like them. A dollar or a person. Our present economic models know which one to choose. But we should have more than mere economic models guide us.

Michael Lewis – yes, him – provides another wonderful example in the New Republic. I tried to make the quote as short as I could, but, hey, Lewis is .. Lewis. The original title was ‘Extreme Wealth Is Bad for Everyone – Especially the Wealthy’ (Getting rich won’t make you happy. But it will make you more selfish and dishonest). The Week turned in into this:

What Wealth Does To Your Soul

When I was 14, I met a man with a talent for restoring a sense of fairness to a society with vast and growing inequalities in wealth. His name was Jack Kenney, and he’d created a tennis camp, called Tamarack, in the mountains of northern New Hampshire. The kids who went to the Tamarack Tennis Camp mostly came from well-to-do East Coast families, but the camp itself didn’t feel like a rich person’s place: It wasn’t unusual for the local health inspectors to warn the camp about its conditions, or for the mother of some Boston Brahmin dropping her child off, and seeing where he would sleep and eat for the next month, to burst into tears.

Kenney himself had enjoyed a brief, exotic career as a professional tennis player — he’d even played a doubles match on ice with Fred Perry – but he was pushing 60 and had long since abandoned whatever interest he’d had in fame and fortune. He ran his tennis camp less as a factory for future champions than as an antidote to American materialism – and also to the idea that a person could be at once successful and selfish.

Jack Kenney’s assault on teenaged American inequality began at breakfast the first morning. The bell clanged early, and the kids all rolled out of their old stained bunk beds, scratched their fresh mosquito bites, and crawled to the dining hall. On each table were small boxes of cereal, enough for each kid to have one box, but not enough that everyone could have the brand of cereal he wanted. There were Froot Loops and Cheerios, but also more than a few boxes of the deadly dark bran stuff consumed willingly only by old people suffering from constipation.

On the second morning, when the breakfast bell clanged, a mad footrace ensued. Kids sprung from their bunks and shot from cabins in the New Hampshire woods to the dining hall. The winners got the Froot Loops, the losers a laxative. By the third morning, it was clear that, in the race to the Froot Loops, some kids had a natural advantage. They were bigger and faster; or their cabins were closer to the dining hall; or they just had that special knack some people have for getting whatever they want. Some kids would always get the Froot Loops, and others would always get the laxative. Life was now officially unfair.

After that third breakfast, Kenney called an assembly on a hill overlooking a tennis court. He was unkempt and a bit odd; wisps of gray hair crossed his forehead, and he looked as if he hadn’t bathed in a week. He was also kind and gentle and funny, and kids instantly sensed that he was worth listening to and wanted to hear what he had to say.

“You all live in important places surrounded by important people,” he’d begin. “When I’m in the big city, I never understand the faces of the people, especially the people who want to be successful. They look so worried! So unsatisfied!” Here his eyes closed shut and his hands became lobster claws, pinching and grasping the air in front of him. “In the city you see people grasping, grasping, grasping. Taking, taking, taking. And it must be so hard! To be always grasping-grasping, and taking-taking. But no matter how much they have, they never have enough. They’re still worried. About what they don’t have. They’re always empty.”

“You have a choice. You don’t realize it, but you have a choice. You can be a giver or you can be a taker. You can get filled up or empty. You make that choice every day. You make that choice at breakfast when you rush to grab the cereal you want so others can’t have what they want.”

On the fourth morning, no one ate the Froot Loops. Kids were thrusting the colorful boxes at each other and leaping on the constipation cereal like war heroes jumping on hand grenades. In a stroke, the texture of life in this tennis camp had changed, from a chapter out of Lord of the Flies to the feeling between the lines of Walden. Even the most fantastically selfish kids did what they could to contribute to the general welfare of the place, and there was not a shred of doubt that everyone felt happier for it. The distinction between haves and have-nots, winners and losers, wasn’t entirely gone, of course. But it became less important than this other distinction, between the givers and the takers.

So far for the Jack Kenney story. Michael Lewis continues:

What is clear about rich people and their money — and becoming ever clearer — is how it changes them. A body of quirky but persuasive research has sought to understand the effects of wealth and privilege on human behavior — and any future book about the nature of billionaires would do well to consult it.

One especially fertile source is the University of California at Berkeley psychology department lab overseen by a professor named Dacher Keltner. In one study, Keltner and his colleague Paul Piff installed note takers and cameras at city street intersections with four-way Stop signs. The people driving expensive cars were four times more likely to cut in front of other drivers than drivers of cheap cars.

The researchers then followed the drivers to the city’s crosswalks and positioned themselves as pedestrians, waiting to cross the street. The drivers in the cheap cars all respected the pedestrians’ right of way. The drivers in the expensive cars ignored the pedestrians 46.2% of the time – a finding that was replicated in spirit by another team of researchers in Manhattan, who found drivers of expensive cars were far more likely to double-park.

In yet another study, the Berkeley researchers invited a cross section of the population into their lab and marched them through a series of tasks. Upon leaving the laboratory testing room, the subjects passed a big jar of candy. The richer the person, the more likely he was to reach in and take candy from the jar — and ignore the big sign on the jar that said the candy was for the children who passed through the department.

Maybe my favorite study done by the Berkeley team rigged a game with cash prizes in favor of one of the players, and then showed how that person, as he grows richer, becomes more likely to cheat. In his forthcoming book on power, Keltner contemplates his findings:

If I have $100,000 in my bank account, winning $50 alters my personal wealth in trivial fashion. It just isn’t that big of a deal. If I have $84 in my bank account, winning $50 not only changes my personal wealth significantly, it matters in terms of the quality of my life — the extra $50 changes what bill I might be able to pay, what I might put in my refrigerator at the end of the month, the kind of date I would go out on, or whether or not I could buy a beer for a friend. The value of winning $50 is greater for the poor, and, by implication, the incentive for lying in our study greater. Yet it was our wealthy participants who were far more likely to lie for the chance of winning fifty bucks.

There is plenty more like this to be found, if you look for it. A team of researchers at the New York State Psychiatric Institute surveyed 43,000 Americans and found that, by some wide margin, the rich were more likely to shoplift than the poor. Another study, by a coalition of nonprofits called the Independent Sector, revealed that people with incomes below 25 grand give away, on average, 4.2% of their income, while those earning more than 150 grand a year give away only 2.7%. A UCLA neuroscientist named Keely Muscatell has published an interesting paper showing that wealth quiets the nerves in the brain associated with empathy.

If you show rich people and poor people pictures of kids with cancer, the poor people’s brains exhibit a great deal more activity than the rich people’s. “As you move up the class ladder,” says Keltner, “you are more likely to violate the rules of the road, to lie, to cheat, to take candy from kids, to shoplift, and to be tightfisted in giving to others. Straightforward economic analyses have trouble making sense of this pattern of results.”

But that wouldn’t work, you think? Not for you, not in today’s world, and certainly not for the political class? Well, we happen to have the example of a real life president of a nation who questions all we tend to think is ‘normal’. Back in October, HuffPo had this portrait of Uruguayan President José Mujica. And please see this against the backdrop of US presidential candidates raising hundreds of millions of dollars even just for their preliminary campaigns.

Mujica says what I often have, that money should be kept out of a political system, because if it isn’t it will end up buying and eating that system whole. Too late for the US and Europe, but perhaps not for Uruguay.

‘World’s Poorest President’ Explains Why We Should Kick Rich People Out Of Politics

People who like money too much ought to be kicked out of politics, Uruguayan President José Mujica told CNN en Español [..] “We invented this thing called representative democracy, where we say the majority is who decides,” Mujica said in the interview. “So it seems to me that we [heads of state] should live like the majority and not like the minority.” Dubbed the “World’s Poorest President” in a widely circulated BBC piece from 2012, Mujica reportedly donates 90% of his salary to charity.

Mujica’s example offers a strong contrast to the United States, where in politics the median member of Congress is worth more than $1 million and corporations have many of the same rights as individuals when it comes to donating to political campaigns. “The red carpet, people who play – those things,” Mujica said, mimicking a person playing a cornet. “All those things are feudal leftovers. And the staff that surrounds the president are like the old court.”

“I’m not against people who have money, who like money, who go crazy for money,” Mujica said. “But in politics we have to separate them. We have to run people who love money too much out of politics, they’re a danger in politics… People who love money should dedicate themselves to industry, to commerce, to multiply wealth. But politics is the struggle for the happiness of all.”

Asked why rich people make bad representatives of poor people, Mujica said: “They tend to view the world through their perspective, which is the perspective of money. Even when operating with good intentions, the perspective they have of the world, of life, of their decisions, is informed by wealth. If we live in a world where the majority is supposed to govern, we have to try to root our perspective in that of the majority, not the minority.”

“I’m an enemy of consumerism. Because of this hyperconsumerism, we’re forgetting about fundamental things and wasting human strength on frivolities that have little to do with human happiness.”

He lives on a small farm on the outskirts of the capital of Montevideo with his wife, Uruguayan Sen. Lucia Topolansky and their three-legged dog Manuela. He says he rejects materialism because it would rob him of the time he uses to enjoy his passions, like tending to his flower farm and working outside. “I don’t have the hands of a president,” Mujica told CNN. “They’re kind of mangled.”

Mujica is the kind of man, make that human being, who should be in charge of all countries. Money and politics don’t mix, or at least not in a democracy. And I don’t see any exceptions to that rule. Mujica is right: if and when the majority of people in a country are poor, which is true just about everywhere, and certainly in the Anglo world and most EU countries, then their president should be poor too.

And inevitably, if you would follow the example of your president, so should his people. Not dirt poor, not starving, just being content with basic necessities for you and your family. And then tend to your flower farm, or your vegetable farm, your kids.

Sounds stupid. I know. But we haven’t had any real growth in decades, and the wizard’s curtain is being lifted on the fake growth we did have since too. So maybe the economy’s not all that cyclical after all, or maybe the cycles are longer than we would like, Kondratieff 70 year like. Or even longer.

Ask anyone if they would like to have $1000, or $10,000 or $1 million or more, and you know that the answer would be. But Michael Lewis shows that none of it would make you any happier, if you already have – or make – enough to survive on. Still, it’s generally accepted that more is always good.

And then you have the president of Uruguay, admittedly a small country and in South America to boot, who says that only poor people can truly represent poor people, who will always be in the majority in whichever country you may live in, and that that is the core of democracy.

Here’s thinking we are absolutely clueless when it comes to the value of wealth, and that we keep chasing more of it because we’re not smart enough to recognize that value. And that that’s why we have torture and wars and all the other things that make us so ugly. We have absolutely no clue what the value of wealth is. And as long as we don’t, we shouldn’t have any.

Dec 182014
 
 December 18, 2014  Posted by at 11:43 am Finance Tagged with: , , , , , , , ,  


Lewis Wickes Hine News of the Titanic and possible survivors 1912

Fed Calls Time On $5.7 Trillion Of Emerging Market Dollar Debt (AEP)
Bankers See $1 Trillion of Investments Stranded in the Oil Fields (Bloomberg)
Oil Could Fall To $30 A Barrel: Emirates Boss (CNBC)
Oil-Led Slump Spurring Fastest Investor Exit Since 2008 (Bloomberg)
The Fracturing Energy Bubble Is the New Housing Crash (David Stockman)
Yellen Makes It Clear That Fed’s Patience on Rates Has Limits (Bloomberg)
Putin Says Russia Mustn’t Waste Reserves on Ruble as Economy Sinks (Bloomberg)
Putin Predicts Economy Will Recover In Two Years (WaPo)
Western Nations Want To Chain The Russian Bear And Have It Stuffed: Putin (RT)
Can Anybody Find Me … A Central Banker To Love? (Dmitry Orlov)
Traders Betting Russia’s Next Move Will Be to Sell Gold (Bloomberg)
Greece Faces Crisis On Rising Prospect Of Snap Election (CNBC)
EU’s Greek Drama Needs A Final Act (Bloomberg ed.)
$1.3 Trillion In Secret Cash Sneaked Out Of China In The Last 10 Years (Quartz)
Dark Pools in Spotlight as EU Moves to Bolster Markets (Bloomberg)
Uruguay Takes on London Bankers, Marlboro Mad Men and the TPP (Truthout)
Swiss National Bank Imposes Negative Interest Rate (Bloomberg)
The Fed Is Sitting On a $191 TRILLION Time Bomb (Phoenix)
2014 Warmest Year In Europe Since 1500s (FT)
‘Vast Stores’ Of World’s Oldest Water (BBC)

“World finance is rotating on its axis. The stronger the US boom, the worse it will be for those countries on the wrong side of the dollar”. [..] “Pimco’s Emerging Market Corporate Bond Fund bled $237m in November, and the pain is unlikely to stop as clients discover that 24% of its portfolio is in Russia.”

Fed Calls Time On $5.7 Trillion Of Emerging Market Dollar Debt (AEP)

The US Federal Reserve has pulled the trigger. Emerging markets must now brace for their ordeal by fire. They have collectively borrowed $5.7 trillion in US dollars, a currency they cannot print and do not control. This hard-currency debt has tripled in a decade, split between $3.1 trillion in bank loans and $2.6 trillion in bonds. It is comparable in scale and ratio-terms to any of the biggest cross-border lending sprees of the past two centuries. Much of the debt was taken out at real interest rates of 1% on the implicit assumption that the Fed would continue to flood the world with liquidity for years to come. The borrowers are “short dollars”, in trading parlance. They now face the margin call from Hell as the global monetary hegemon pivots. The Fed dashed all lingering hopes for leniency on Wednesday. The pledge to keep uber-stimulus for a “considerable time” has gone, and so has the market’s security blanket, or the Fed Put as it is called. Such tweaks of language have multiplied potency in a world of zero rates.

Officials from the Bank for International Settlements say privately that developing countries may be just as vulnerable to a dollar shock as they were in the Fed tightening cycle of the late 1990s, which culminated in Russia’s default and the East Asia Crisis. The difference this time is that emerging markets have grown to be half the world economy. Their aggregate debt levels have reached a record 175% of GDP, up 30percentage points since 2009. Most have already picked the low-hanging fruit of catch-up growth, and hit structural buffers. The second assumption was that China would continue to drive a commodity supercycle even after Premier Li Keqiang vowed to overthrow his country’s obsolete, 30-year model of industrial hyper-growth, and wean the economy off $26 trillion of credit leverage before it is too late.

These two false assumptions have blown up simultaneously, the effects threatening to feed on each other with wicked force. Russia’s Vladimir Putin could hardly have chosen a worse moment to compound his woes by tearing up the international rulebook and seizing chunks of territory from Ukraine, a country that gave up its nuclear weapons after a pledge by Russia in 1994 to uphold its sovereign borders. Stress is spreading beyond Russia, Nigeria, Venezuela and other petro-states to the rest of the emerging market nexus, as might be expected since this is a story of evaporating dollar liquidity as well as a US shale supply-glut. Turkey relies on imports for almost all its energy and should be a beneficiary of lower crude prices. Yet the Turkish lira has fallen 12% since the end of November. The Borsa Istanbul 100 index is down 20% in dollar terms. Indonesia had to intervene on Wednesday to defend the rupiah. Brazil’s real has fallen to a 10-year low against the dollar, as has the index of emerging market currencies. Sao Paolo’s Bovespa index is down 23% in dollars in three weeks.

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Hey!, that’s my line!

Bankers See $1 Trillion of Investments Stranded in the Oil Fields (Bloomberg)

There are zombies in the oil fields. After crude prices dropped 49% in six months, oil projects planned for next year are the undead – still standing upright, but with little hope of a productive future. These zombie projects proliferate in expensive Arctic oil, deepwater-drilling regions and tar sands from Canada to Venezuela. In a stunning analysis this week, Goldman Sachs found almost $1 trillion in investments in future oil projects at risk. They looked at 400 of the world’s largest new oil and gas fields — excluding U.S. shale – and found projects representing $930 billion of future investment that are no longer profitable with Brent crude at $70. In the U.S., the shale-oil party isn’t over yet, but zombies are beginning to crash it. The chart below shows the break-even points for the top 400 new fields and how much future oil production they represent. Less than a third of projects are still profitable with oil at $70. If the unprofitable projects were scuttled, it would mean a loss of 7.5 million barrels per day of production in 2025, equivalent to 8% of current global demand.

Making matters worse, Brent prices this week dipped further, below $60 a barrel for the first time in more than five years. Why? The U.S. shale-oil boom has flooded the market with new supply, global demand led by China has softened, and the Saudis have so far refused to curb production to prop up prices. It’s not clear yet how far OPEC is willing to let prices slide. The U.A.E.’s energy minister said on Dec. 14 that OPEC wouldn’t trim production even if prices fall to $40 a barrel. An all-out price war could take up to 18 months to play out, said Kevin Book, managing director at ClearView Energy, a financial research group in Washington. If cheap oil continues, it could be a major setback for the U.S. oil boom. In the chart below, ClearView shows projected oil production at four major U.S. shale formations: Bakken, Eagle Ford, Permian and Niobrara. The dark blue line shows where oil production levels were headed before the price drop. The light blue line shows a new reality, with production growth dropping 40%.

Even $75 Oil Crashes the Shale-Oil Party

The Goldman tally takes the long view of project finance as it plays out over the next decade or more. But the initial impact of low prices may be swift. Next year alone, oil and gas companies will make final investment decisions on 800 projects worth $500 billion, said Lars Eirik Nicolaisen, a partner at Oslo-based Rystad Energy. If the price of oil averages $70 in 2015, he wrote in an email, $150 billion will be pulled from oil and gas exploration around the world. An oil price of $65 dollars a barrel next year would trigger the biggest drop in project finance in decades, according to a Sanford C. Bernstein analysis last week.

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Yeah, that strong dollar again …

Oil Could Fall To $30 A Barrel: Emirates Boss (CNBC)

The airline industry is set to reap the benefits of lower oil prices, which could fall to as low as $30 a barrel, according to the chief executive of Emirates Airline. “I’ve always thought personally it go well down to 30 again, but we’ll see,” Tim Clark, president and CEO of Emirates Airline, told CNBC in an exclusive interview. “I’ve always said the realistic price for out-of-ground: $70. Should never, ever have been above that.” Although there may be significant volatility across asset classes in the short term, Clark said that a lower oil price would bring back confidence and investment for the aviation industry in the long term. “At the moment we’ve got all sorts of issues. This gives the global economy a fighting chance in the next 18 months to 2 years to get back on a reasonable footing,” he told CNBC.

However Clark argued the gains for Emirates Airlines in particular was currently limited by the strength of the dollar, which was having an impact on the firm’s ability to realize profits in countries like Russia and Australia. In November, the Dubai-based carrier reported a net profit of $514 million, up 8% from the same period last year. Of the $12 billion in revenues, fuel prices accounted for 38% of operating costs. “But if fuel falls to 50 or goes below – then of course the business will pick up. Much will depend how long it lasts,” he said. The International Air Transport Association this month revised its outlook for 2015, forecasting the industry to post global net profit of $25 billion, up from $19.9 billion this year.

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Everything must fall.

Oil-Led Slump Spurring Fastest Investor Exit Since 2008 (Bloomberg)

Investors are exiting commodities at the fastest pace in six years, betting a slump in prices isn’t over as corn, oil and gold drop close to their cost of production. Open interest in raw-material futures and options is down 5.9% since June, heading for the biggest second-half slump since 2008, exchange data show. U.S. exchange-traded products tracking metals, energy and agriculture saw net withdrawals of $563.9 million in 2014, marking the first two-year slump since the funds were created a decade ago. Commodities are under pressure from many sides. Collapsing oil prices are driving bearish sentiment because energy is used to produce or deliver almost everything, according to SocGen. Low inflation and higher interest rates create an “ugly scenario” for gold, says Bank of America. And weaker currencies in countries that produce everything from soybeans to iron ore mean supplies will continue to climb, Goldman Sachs predicts.

“Now is not a time to be overweighting commodities,” Sameer Samana, a senior international strategist at Wells Fargo Advisors LLC in St. Louis, which oversees $1.4 trillion, said in a Dec. 17 telephone interview. “For now, the outlook is still negative. It wouldn’t surprise us to see prices go down even further. We wouldn’t be taking any tactical positions.” The Bloomberg Commodity Index of 22 products slumped 13% this year, heading for a fourth straight annual drop that will be the longest since the gauge’s inception in 1991. Brent crude tumbled 45%, the biggest loss among the raw materials, after trading below $60 a barrel this week for the first time in five years. Crude, gasoline and heating oil led this year’s declines as an increase in U.S. drilling sparked a surge in output and a price war with producers in OPEC. About 65% of the $20 billion withdrawn from passive-commodities investment this year was driven by energy losses, Aakash Doshi, a Citigroup vice president, said in a Dec. 15 report.

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Not exactly a new comparison, but a thorough analysis, especially of the housing crash.

The Fracturing Energy Bubble Is the New Housing Crash (David Stockman)

Let’s see. Between July 2007 and January 2009, the median US residential housing price plunged from $230k to $165k or by 30%. That must have been some kind of super “tax cut”. In fact, that brutal housing price plunge amounted to a $400 billion per year “savings” at the $1.5 trillion per year run-rate of residential housing turnover. So with all that extra money in their pockets consumers were positioned to spend-up a storm on shoes, shirts and dinners at the Red Lobster. Except they didn’t. And, no, it wasn’t because housing is a purported “capital good” or that transactions are largely “financed” at upwards of 85% leverage ratios. None of those truisms changed consumer incomes or spending power per se. Instead, what happened was the mortgage credit boom came to a thundering halt as the subprime default rates became visible. This abrupt halt to mortgage credit expansion, in turn, caused the whole chain of artificial economic activity that it had funded to rapidly evaporate.

And it was some kind of debt boom. The graph below is for all types of mortgage credit including commercial mortgages, and appropriately so. After all, the out-of-control strip mall construction during that period, for example, was owing to the unsustainable boom in home construction – especially the opening of “new communities” in the sand states by the publicly traded homebuilders trying to prove to Wall Street they were “growth machines”. Soon Scottsdale AZ and Ft Myers FL were sprouting cookie cutter strip malls to host “new openings” for all the publicly traded specialty retail chains and restaurant concepts – along with those lined-up in a bulging IPO pipeline. These step-children of the mortgage bubble were also held to be mighty engines of “growth”. Jim Cramer himself said so – he just forgot to mention what happens when the music stops.

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“The second half of the year we are getting higher rates and the market has to price that in.”

Yellen Makes It Clear That Fed’s Patience on Rates Has Limits (Bloomberg)

Federal Reserve Chair Janet Yellen restored clarity to the central bank’s monetary policy plans, saying it was on course to raise interest rates, though not right away, after officials issued a statement that some Fed-watchers found confusing. Yellen told reporters following a two-day meeting that the Fed is likely to hold rates near zero at least through the first quarter. She also laid out the economic parameters that would need to be met for liftoff to begin later in the year and said that rates probably would be raised gradually thereafter. They may not return to more normal levels until 2017, she added. “The statement was a bit clumsy, while I thought Yellen was very clear,” said Eric Green, head of U.S. rates and economic research at TD Securities USA in New York, who formerly worked at the New York Fed. “The second half of the year we are getting higher rates and the market has to price that in.”

The dollar and yields on Treasury securities rose in response, as investors in those markets processed the likelihood of rate increases by the Fed. The greenback gained against most currencies, with the Bloomberg Dollar Spot Index increasing to almost a five-year high. Yellen’s comments came after a Federal Open Market Committee statement that former Fed official Robert Eisenbeis also called “clumsy.” With investors focused on whether policy makers would retain their stated intention to hold rates near zero for a “considerable time,” the FOMC instead tried to straddle keeping the phrase in and taking it out. The Fed said it can be “patient” in its approach to raising the benchmark lending rate from a range of zero to 0.25%, where it has been since December 2008. At the same time, policy makers said that language was “consistent” with their prior guidance that rates would be held near zero for a “considerable time” after they ended their asset purchases in October.

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He doesn’t even seem fazed.

Putin Says Russia Mustn’t Waste Reserves on Ruble as Economy Sinks (Bloomberg)

President Vladimir Putin said Russia shouldn’t waste currency reserves protecting the ruble as the country braces for a recession brought on by the collapse of the oil price and sanctions over the Ukraine conflict. “Under the most negative external economic scenario, this situation can last two years,” Putin said today at his annual press conference in Moscow. “If the situation is very bad, we will have to change our plans, cut some things.” The president criticized the central bank for not acting faster to support the ruble, which has dropped more than 40% since June as oil trades near a five-year low and sanctions over the Ukraine conflict hit the economy. Putin – who in his wide-ranging news conference with hundreds of reporters sparred with a Ukrainian journalist, reeled off statistics on the fall harvest and spoke about guiding gifted children – vowed to guide the country through the current crisis in the same way he steered Russia through the 2008 financial crisis.

The country’s reserves have declined by a fifth to $416 billion over the past year as the central bank tried in vain to defend the currency. Russia won’t force exporters to exchange revenue earned in foreign currency to prop up the ruble, he said. Putin, who has enjoyed near-record approval ratings since Russia annexed Ukraine’s Crimea peninsula in March, today accused the U.S. and European Union of using the Ukraine conflict as way to contain Russia as they have done since the end of the Cold War through the expansion of NATO, comparing the current situation to a new division akin to the Berlin Wall. “Our partners didn’t stop, they saw themselves as victors, an empire, and all others are vassals and have to be subdued,” Putin said. “The crisis in Ukraine should make our partners understand that it’s time to stop building walls.”

After an emergency meeting, the central bank announced the largest interest rate increase since Russia’s 1998 default in the early hours of Dec. 16, increasing the key rate by 6.5 percentage points to 17%. That failed to halt the slide in the ruble, which at one point during the day fell to a record of 80 per dollar, from 34 half a year ago. It rebounded 12% yesterday after the Finance Ministry pledged to use as much as $7 billion to support the currency. The Russian currency lost about 3% today to 62 rubles to the dollar. The central bank also announced steps yesterday to stabilize the banking system, including allowing lenders to use a third-quarter exchange rate – before the acceleration in the ruble’s decline – to value risk-weighted assets.

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“I believe about two years is the worst case scenario. After that, I believe growth is imminent.”

Putin Predicts Economy Will Recover In Two Years (WaPo)

Russian President Vladimir Putin, under pressure to show how to pull Russia out of its economic crisis, predicted Thursday the country will recover in two years at the most, despite a looming recession, a severely weakened ruble and growing fears about the country’s financial instability. Speaking at his annual year-end news conference, during which he took questions directly from the national and foreign press, Putin said the Russian central bank and the government were taking adequate measures to support the ruble. Putin’s news conference came as Russia suffers through its worst economic challenges since Putin came to power 15 years ago.

“Rates of growth may be slowing down, but the economy will still grow and our economy will overcome the current situation,” Putin said at the televised news conference. “I believe about two years is the worst case scenario. After that, I believe growth is imminent.” A steady depreciation of the ruble has been underway for the last several months, fueled by falling oil prices and Western economic sanctions over Russia’s involvement in Ukraine. But it turned into wild swings in the exchange rate over the past few days, with rates peaking at almost 80 rubles to the dollar Tuesday after the central bank dramatically raised interest rates. The ruble lost more ground against the dollar Thursday, more than 2% weaker on the day, despite central bank action to shore up the currency, which is around 45% down against the dollar this year.

Putin had been silent as the currency collapsed this week before recovering some ground. He acknowledged partly that Russia had helped to lay the groundwork for the current crisis, by having an economy that was not as diverse as it could have been. But in general, he blamed “external factors, first and foremost” for creating Russia’s situation – and continued to be defiant, blaming the West for intentionally trying to weaken Russia and foment problems, economic and otherwise, in the country. “No matter what we do they are always against us,” Putin said, one of a series of observations directed at how he said the West has been treating Russia.

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“.. even if “the Russian bear” started “sitting tight… and eating berries and honey,” this would not stop pressure being applied against the country.”

Western Nations Want To Chain The Russian Bear And Have It Stuffed: Putin (RT)

Western nations want to chain “the Russian bear,” pull out its teeth and ultimately have it stuffed, Russian President Vladimir Putin warned. He said anti-Russian sanctions are the cost of being an independent nation. Putin used the vivid metaphor of a “chained bear” during his annual Q&A session with the media in Moscow in response to a question about whether he believed that the troubles of the Russian economy were payback for the reunification with Crimea. “It’s not payback for Crimea. It’s the cost of our natural desire to preserve Russia as a nation, a civilization and a state,” Putin said. The president said that even if “the Russian bear” started “sitting tight… and eating berries and honey,” this would not stop pressure being applied against the country. “They won’t leave us alone. They will always seek to chain us. And once we are chain, they’ll rip out our teeth and claws. Our nuclear deterrence, speaking in present-day terms,” Putin said.

“As soon as this [chaining the bear] happens, nobody will need it anymore. They’ll stuff it. And start to put their hands on his Taiga [Siberian forest belt] after it. We’ve heard statements from Western officials that Russia’s owning Siberia was not fair,” he exclaimed. “Stealing Texas from Mexico – was that fair? And us having control over our own land is not fair. We should hand it out!” The West had an anti-Russian stance long before the current crisis started, Putin said. The evidence is there, he said, ranging from“direct support of terrorism in the North Caucasus,” to the expansion of NATO and the creation of its anti-ballistic missile system in Eastern Europe, and the way the western media covered the Olympic Games in Sochi, Putin said.

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“Putin said he knows who they are. I hope that they are wearing adult diapers. I wouldn’t be at all surprised if they get Khodorkovskied before too long.”

Can Anybody Find Me … A Central Banker To Love? (Dmitry Orlov)

Some people are starting to loudly criticize Putin for his inaction; but what can he do? Ideologically, he is a statist, and has done a good job of shoring up Russian sovereignty, clawing back control of natural resources from foreign interests and curtailing foreign manipulation of Russian politics. But he is also an economic liberal who believes in market mechanisms and the free flow of capital. He can’t go after the bankers on the basis of ideology alone, because what ideological differences are there? And so, once again, he is being patient, letting the bankers burn the old “wooden” ruble all the way to the ground, and their own career prospects in the process. And then he will step in and solve the ensuing political problem, as a political problem rather than as a financial one.

This strategy carries a very substantial opportunity cost. After all, if the central bank acted on behalf of regular Russians and their employers, it could take some very impressive and effective steps. For instance, it could buy out western-held Russian debt and declare force majeur on its repayment until financial sanctions against Russia are lifted. It could drop its interest rate for specifically targeted domestic industries—those involved in import replacement. And, most obviously, it could very effectively curtail the activities of well-connected financial insiders aimed at destroying the value of the ruble. Putin said he knows who they are. I hope that they are wearing adult diapers. I wouldn’t be at all surprised if they get Khodorkovskied before too long.

This conversion of an insoluble financial problem into a mundane political problem may take a bit of time, but once it has run its course the longer-term prognosis is still reasonably good. Russia has very low government debt, huge gold reserves, and in spite of the much lower price of oil its energy exports are still profitable. You see, at the wellhead Russian oil costs much less than shale oil in the US, or Canadian tar sands, or Norwegian off-shore oil, and so the Russian oil industry can survive a period of low oil prices, whereas these other producers may no longer be around by the time the price of oil recovers.

Because the ruble has dropped even more than oil, the Russian treasury is going to be flush with tax receipts, and won’t have to try to finance a budget deficit. The 18% or so of revenue that the Russian treasury gets from energy exports is significant, but even more significant are the remaining 82%, much of which come from payroll taxes (some of the lowest in Europe, by the way). And therein lies a bigger danger: that because of loss of access to western sources of financing due to the sanctions, coupled with central bank shenanigans with hiking rates instead of dropping them, Russia’s domestic economy will experience a severe downturn.

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Not impressed by the experts here. Russia’s access to dollars has been cut, and they need something to trade in. Moreover, they’ve seen this coming, hence the tripling of reserves over the past decade.

Traders Betting Russia’s Next Move Will Be to Sell Gold (Bloomberg)

Russia’s surprise interest-rate increase failed to stop the plummeting ruble. Another tool available to repair economic havoc caused by sanctions and falling oil prices: selling gold. Russia holds about 1,169.5 metric tons of the precious metal, the central bank said last month. That’s about 10% of its foreign reserves, according to the London-based World Gold Council. The country added 150 tons this year through Nov. 18, central bank Governor Elvira Nabiullina told lawmakers. The Bank of Russia declined to comment on its gold reserves. Russia’s cash pile has dropped to a five-year low as its central bank spent more than $80 billion trying to slow the ruble’s retreat. The currency’s collapse combined with more than a 40% tumble in oil prices this year is robbing Russia of the hard currency it needs in the face of sanctions imposed after President Vladimir Putin’s annexation of Crimea. A fall in gold prices signals that traders are betting that the country will tap its reserves, according to Kevin Mahn at Hennion & Walsh Asset Management.

“Russia is at a critical juncture and given the sanctions placed upon them and the rapid decline in oil prices, they may be forced to dip into their gold reserves,” Mahn said. “If it happens it will push gold lower.” “There are a number of ways that they could use their gold,” Robin Bhar, an analyst at SocGen in London, said today by phone. “They could use it as collateral for bank loans, or for loans from multi-lateral agencies. They could sell it directly in the market if they want to raise foreign-exchange” reserves, including to get more dollars, he said. If Russia decides to sell, the figures to confirm the move wouldn’t be available for a few months, Bhar said. Selling gold is usually “one of the last weapons” for central banks because some use the metal to help back their currencies, George Gero at RBC Capital Markets in New York, said in a telephone interview.

“They are probably still accumulating gold and keeping it for a bigger crisis,” he said. Russia has tripled its gold reserves since 2005, according to data compiled by Bloomberg. Its holdings compare with about 70% for the U.S. and Germany, the biggest bullion holders, the World Gold Council data show. “Russia has been adding to their gold through the turmoil, and it’s their reserve asset, so they would utilize it ultimately,” Michael Widmer, metals strategist at Bank of America Corp. in London, said in a phone interview. “Utilizing can mean a whole range of things. They could use it to raise cash, or use it as swap, or use it as collateral.”

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Time to hike up the fear campaign.

Greece Faces Crisis On Rising Prospect Of Snap Election (CNBC)

An early general election in Greece is looking more likely than ever after the first round of a snap presidential election failed to win the government support on Wednesday. Prime Minister Antonis Samaras’s preferred candidate for president – Stavros Dimas – failed to gain the required 200 votes in the first round of a snap presidential election, gaining only 160 votes. The result raises the chance of a general election, and there is a distinct possibility that the left-wing, anti-austerity party Syriza could win such a vote – potentially putting the country’s international bailout into jeopardy. Syriza currently holds a 3.6-percentage-point lead over the ruling conservatives, a poll published after the first round of a presidential vote on Wednesday showed, Reuters reported. “There’s no doubt that Syriza has had all the momentum politically in the last year to 18 months in Greece and the unpopularity of the bailout is something that is very (prevalent) with Greeks,” David Lea, senior analyst at Control Risks, told CNBC’s “Capital Connection” on Wednesday.

The party has always said it would scrap Greece’s tough austerity policies which were a condition of its two 240 billion euro ($296 billion) bailouts implemented by the International Monetary Fund, European Central Bank and European Commission. Greece is approaching the end of its bailout program, but still needs to implement further austerity measures in order to receive a last tranche of aid from lenders. There will be two further rounds of voting on December 23 and December 29, and if the Greek parliament fails to elect a new president in those votes, a general election will automatically be called. The number of votes a candidate needs drops to 180 in the final round on December 29, but with Greece’s political system as fractious as ever, it looks unlikely that Dimas will gain the support that he needs, analysts said. Lea said it was not “realistic” to expect that Dimas could gain enough votes in the presidential election.

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A load of baloney from Bloomberg’s editorial staff. That new editor in chief certainly hasn’t raised quality so far. Calling Syriza ‘neo-marxist’ is simply emptily leading and insinuating. There’s a lot of that at Bloomberg.

EU’s Greek Drama Needs A Final Act (Bloomberg ed.)

Judging from Wednesday’s vote in the Greek parliament, Prime Minister Antonis Samaras may not get the mandate he wants to keep economic austerity measures in place and avoid defaulting on the country’s debt. His would be the responsible path, but it’s easy enough to see why Greeks wouldn’t want to follow it. The dispute is haunting international investors again because the European Union in general, and Germany in particular, refuses to write off any part of Greece’s sovereign debt. Yet, as most economists acknowledge, the country can never emerge from under its current debt pile -now close to 180% of gross domestic product. And the prospect of endless years of austerity spent in the attempt is political poison. Samaras brought forward Wednesday’s vote for a new president, the first of three, as a vote of confidence. He is essentially daring members of parliament to reject his candidate, Stavros Dimas, because that would force new parliamentary elections – elections that the anti-austerity, neo-Marxist Syriza coalition might win.

Judging by this first vote, in which Dimas secured just 160 votes, it’s going to be an uphill struggle. To win in the third round later this month, Dimas will need 180 votes. Greece, Europe and the bond markets have been on this brink before. Yet each time the circumstances are a little different. For one thing, after six years of austerity policies mandated by the bailout agreement – which have shrunk output and real wages by 20% – the country is now exhausted. The Greek economy may be growing again, but 1 in 4 Greeks are still out of work, and more than 70% of them are long-term unemployed. Those are just numbers, of course, and Greece had certainly been living beyond its means. But what has austerity meant for ordinary Greeks? For one thing, they have gone without adequate health care. Budget cuts have slashed state spending on health by 25%, and on mental health, in particular, by half. Suicides have risen by 45%. HIV infections have increased 10-fold (as needle and condom programs have been reduced). And malaria has returned after 40 years.

With mainstream political parties offering more of the same austerity – even now that the government is running a primary budget surplus – many Greeks are looking to Syriza. It promises to boost spending, reverse the budget cuts, provide free electricity, and yet somehow avoid a formal default or a return to the drachma from the euro. The party says it will persuade international creditors to restructure Greece’s debt and fund Syriza’s spending spree. That’s nuts, of course, except for the restructuring part, which is exactly what Greece’s creditors should do. The country has already secured some debt relief, from private creditors, not to mention €240 billion in bailout loans from the EU and the IMF. Yet the bailout also rescued the German and French banks that loaned Greece money. So restructuring would not only be good for the euro area, but it would also fairly share more of the pain.

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“.. the government’s June 2013 crackdown on fake trade invoicing caused a seize-up in liquidity, pushing banks close to a meltdown.”

$1.3 Trillion In Secret Cash Sneaked Out Of China In The Last 10 Years (Quartz)

China’s capital account might be closed—but it’s not that closed. Between 2003 and 2012, $1.3 trillion slipped out of mainland China – more than any other developing country – says a report by Global Financial Integrity (GFI), a financial transparency group. The trends illuminate China’s tricky balancing act of controlling the economy and keeping it liquid. GFI says the most common way money leaks out in the developing world is through fake trade invoices. The other big culprit is “hot money,” likely due to corruption – which GFI gleans from inconsistencies in balance of payments data. In China, both activities have picked up since 2009. In fact, $725 billion – more than half of the outflows from the last decade – has left since 2009, just after the Chinese government launched its 4 trillion yuan ($586 billion) stimulus package.

Even after that wound down, the government encouraged investment to boost the economy, prodding its state-run banks to lend. Since loan officers dish out credit to the safest companies—those with political backing—this overwhelmingly benefited government officials and their cronies. That’s left small private companies so starved for capital that they’ll pay exorbitant rates for shadow-market loans, which a lot of China’s sketchy trade invoicing outflows likely sneaked back in to speculate on shadow finance and profit from the appreciating yuan. Corrupt officials, meanwhile, shifted their ill-gotten gains into overseas real estate and garages full of Bentleys. Those re-inflows inflate risky debt and had driven up the yuan’s value, threatening export competitiveness.

China’s leaders were not exactly happy about this, and in March its central bank drove down the value of the currency in order to discourage hot money speculation on the yuan’s appreciation. China’s policies leave it with few other options. To avoid the economic nosedive that likely would follow if the bad debt got written down, China’s leaders have the banks extending and re-extending loans, hoping to deleverage gradually. That requires an ever-ballooning supply of money, though. The slowing of China’s trade surplus and foreign direct investment inflows leaves the financial system dependent on new sources of money—like speculative inflows from fake trade invoicing. The danger of this is apparent already. For example, the government’s June 2013 crackdown on fake trade invoicing caused a seize-up in liquidity, pushing banks close to a meltdown.

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“If you play poker with all your cards showing, you can’t bluff.” Told you it was a casino …

Dark Pools in Spotlight as EU Moves to Bolster Markets (Bloomberg)

If you play poker with all your cards showing, you can’t bluff. Traders accustomed to operating in Europe’s dark pools, where buy and sell orders are hidden, say a transparency drive by regulators may similarly deprive them of the secrecy they need to shield their trades from competitors. That could drain the liquidity, and the life, from some of the region’s biggest markets, they say. The European Securities and Markets Authority plans to release draft standards as early as tomorrow that flesh out European Union law. Regulators say the rules, which seek to cap equity trading in dark pools and push more swaps trades on to regulated platforms, will make markets more resilient during crises and less prone to abuse. Some brokers counter that the move will backfire by making trading too expensive.

“The new transparency requirements in the non-equity markets have the capacity to introduce fundamental change to the way dealers do business,” said Peter Bevan, a financial regulation partner at law firm Linklaters LLP in London. “Pre-trade transparency is not such a novelty in the equity markets, but nevertheless there are important changes such as the availability of waivers for the so-called dark pools.” The push to shine light into dark pools is part of a broader overhaul of financial-market rules that takes effect in 2017. While the updated Markets in Financial Instruments Directive, known as MiFID II, has been approved, a host of technical details are still needed for its implementation.

The law expands market disclosure on multiple fronts. For equities, it seeks to cap dark-pool trading by forcing transactions on to recognized platforms and curbing an existing system of waivers from pre-trade transparency rules. These plans include a “double volume cap” that restricts how much traders can rely on two of the waivers. For over-the-counter derivatives, the EU rules will force trading in standard types of contacts on to regulated platforms and require traders to make public some price information before and after the trade. A system of waivers will apply to limit the scope of the disclosure rules, including exemptions for less often traded – known as illiquid – instruments and bulk orders.

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Uruguay has become an interesting nation.

Uruguay Takes on London Bankers, Marlboro Mad Men and the TPP (Truthout)

What the hell is happening in tiny Uruguay? South America’s second smallest country, with a population of just 3.4 million, has generated international headlines out of proportion to its size over the past year by becoming the first nation to legalize marijuana in December 2013, by welcoming Syrian refugees into the country in October 2014 and by accepting the first six US prisoners resettled to South America from the Guantánamo Bay prison on December 6, 2014. Outgoing President Jose Mujica, a colorful former Tupamaros rebel who was imprisoned and brutally tortured by the military during the era of the disappeared in the 1970s under US-supported Operation Condor in Uruguay, Chile, Argentina and other nations of the Southern Cone, is a favorite media subject and has been at the center of these actions.

Yet an even larger story with deeper historical roots and global implications is unfolding simultaneously in Uruguay with minimal media attention. Uruguay has spent the last decade quietly defying the new transnational order of global banks, multinational corporations and supranational trade tribunals and is now in a fight for its survival as an independent nation. It is a rich and important story that needs to be told. For the past 10 years, Uruguayans have been conducting a left-leaning experiment in economic and social democracy, turning themselves into a Latin American version of Switzerland in the process. Under the leadership of the left-leaning Broad Front party, the International Monetary Fund (IMF) reports that Uruguay has enjoyed annual economic growth of 5.6% since 2004, compared to 1.2% annual growth over the last five years in Switzerland.

The Swiss have decriminalized marijuana and gay marriage. Uruguay has legalized both. Prostitution is legal in both countries, and each provides universal health care. According to the Happy Planet Index, Uruguay has the same low per capita environmental footprint as Switzerland, with a similarly widespread sense of well-being among its people in spite of significantly lower per capita GDP. Yet unlike Switzerland, with its highly developed financial services sector and, until recently, safe haven tax policies for global capital, Uruguay has become a prime target for the wrath of multinational corporations and the London bankers who fund them.

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Switzerland feels quite cramped these days.

Swiss National Bank Imposes Negative Interest Rate (Bloomberg)

The Swiss National Bank imposed the country’s first negative deposit rate since the 1970s as the Russian financial crisis and the threat of further euro-zone stimulus heaped pressure on the franc. A charge of 0.25% on sight deposits, the cash-like holdings of commercial banks at the central bank, will be introduced as of Jan. 22, the Zurich-based institution said in a statement today. That’s the same day as the European Central Bank’s next decision. The SNB move follows Russia’s surprise interest-rate increase earlier this week and hints at the investment pressures that resulted after that decision failed to stem a run on the ruble. Combined with the imminent threat of quantitative easing from the ECB, Swiss officials acted at a time when the franc was stuck too close for comfort near its 1.20 per euro ceiling. [..]

“This is not the magic bullet, but will buy them time,” said Peter Rosenstreich, head of market strategy at Swissquote in Gland, Switzerland. “This will relieve pressure from the floor in the short term, but not in the long term.” “Over the past few days, a number of factors have prompted increased demand for safe investments,” the SNB said. “The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate.”

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But I still think a rate hike is exactly what’s coming.

The Fed Is Sitting On a $191 TRILLION Time Bomb (Phoenix)

Stocks are bouncing today because the Fed will wrap up its monthly FOMC meeting and make a public statement this afternoon. Stocks have been rallying into FOMC meetings for the last three years, so traders are now conditioned to buy stocks in anticipation of this. The prime focus for the markets is whether the Fed continues to state that it will raise rates after “a considerable time.” The reality is that the Fed cannot and will not raise rates anywhere near normal levels at any point because doing so would blow up the financial system. Let’s walk through this together. Currently, the US has over $17 trillion in debt. The US can never pay this off. That is not some idle statement… we issued over $1 trillion in NEW debt in the last eight weeks simply because we don’t have the money to pay off the debt that is coming due from the past.

Since we don’t have that kind of money, the US is now simply issuing NEW debt to raise the money to pay back the OLD debt. This is why the Fed NEEDS interest rates to be as low as possible… any slight jump in rates means that the US will rapidly spiral towards bankruptcy. Indeed, every 1% increase in interest rates means between $150-$175 billion more in interest payments on US debt per year. So the Fed wants interest rates low because it makes the US’s debt load much more serviceable. This is why the Fed keeps screwing around with language like “after a considerable time” despite the fact that rates should already be markedly higher based on the Taylor Rule as well as the state of the US economy: it’s all a ruse to pretend the Fed has a real choice in the matter.

However, there’s an even bigger story here. Currently US banks are sitting on over $236 trillion in derivatives trades. Of this, 81% ($191 TRILLION) are based on interest rates. Put another way, currently US banks have bet an amount equal to over 1,100% of the US GDP on interest rates. Guess which banks did this? The BIG FIVE: JP Morgan, CitiGroup, Goldman Sachs, and Bank of America. In other words… the Too Big To Fails… the very banks that the Fed has bailed out, and done everything it can to prop up. What are the odds that the Fed is going to raise rates significantly and risk blowing up these firms? Next to ZERO. Forget about the Fed’s language and its FOMC meeting. The real story is the $100 trillion bond bubble (more like the $200 trillion interest rate bubble based on bonds). When it breaks, it doesn’t matter what the Fed says or does.

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And globally.

2014 Warmest Year In Europe Since 1500s (FT)

Climate change is very likely to have helped make 2014 Europe’s warmest year since the 1500s, scientists have found. In a move that could eventually pave the way for law suits against companies burning fossil fuels, researchers at Oxford university found global warming had increased the risk of such a record being set by at least a factor of 10. Other teams working independently in The Netherlands and Australia said the odds had been boosted by 35 to 80 times. Though there are still two weeks of the year left, temperatures have already been so high in so many countries that 2014 is expected to be the hottest on record in Europe and globally. Climate scientists have said for decades the carbon dioxide emissions produced by burning coal, oil and gas are warming global temperatures. But until recently they have been reluctant to blame global warming for specific weather extremes.

This is starting to change as researchers deploy increasingly sophisticated computer models to compare the chances of such anomalies occurring with and without the influence of humans on the climate. Environmental lawyers are already watching developments in this emerging field of so-called climate attribution science closely, to see if it opens the way for legal action against large fossil fuel companies. “In the early 1900s, before global warming played a significant role in our climate, the chances of getting a year as warm as 2014 were less than 1-in-10,000. In fact, the number is so low that we could not compute it with confidence,” said Geert Jan van Oldenborgh, a climate scientist at KNMI, the Royal Netherlands Meteorological Institute. The institute calculated global warming made this year’s high temperatures in Europe at least 80 times more likely.

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Fascinating story.

‘Vast Stores’ Of World’s Oldest Water (BBC)

The world’s oldest water, which is locked deep within the Earth’s crust, is present at a far greater volume than was thought, scientists report. The liquid, some of which is billions of years old, is found many kilometres beneath the ground. Researchers estimate there is about 11m cubic kilometres (2.5m cu miles) of it – more water than all the world’s rivers, swamps and lakes put together. The study was presented at the American Geophysical Union Fall Meeting. It has also been published in the journal Nature. The team found that the water was reacting with the rock to release hydrogen: a potential food source. It means that great swathes of the deep crust could be harbouring life. Prof Barbara Sherwood Lollar, from the University of Toronto, in Canada, said: “This is a vast quantity of rock that we’ve sometimes overlooked both in terms of its ability to tell us about past processes – the rocks are so ancient they contain records of fluid and the atmosphere from the earliest parts of Earth’s history.

“But simultaneously, they also provide us with information about the chemistry that can support life. “And that’s why we refer to it as ‘the sleeping giant’ that has been rumbling away but hasn’t really been characterised until this point.” The crust that forms the continents contains some of the oldest rocks on our planet. But as scientists probe ever deeper – through boreholes and mines – they’re discovering water that is almost as ancient. The oldest water, discovered 2.4km down in a deep mine in Canada, has been dated to between one billion and 2.5bn years old. Prof Chris Ballentine, from the University of Oxford, UK, said: “The biggest surprise for me was how old this water is. The water reacts with the rocks to create hydrogen – a potential food source for life. “That water is down there is no surprise – water will percolate down into the rock porosity. “But for it to be preserved and kept there for so long is a surprise. “So when you think about what’s down beneath your feet, it’s more exciting than just some rock.”

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