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What Would Make Us Safe?

Jul 312016

July 31, 2016 Posted by Raúl Ilargi Meijer at 10:13 pm Finance Tagged with: Afghanistan, bombing, France, hate, Iraq, Libya, rebuild, safe, Syria, terrorism, UK, US 4 Responses »

Vincent van Gogh Branches Of An Almond Tree In Blossom in Red 1890

Think about it for a second: If America -and UK, France- were to announce today that they would immediately cease bombing Syria, Iraq, Libya, Afghanistan, would the US be any less safe? Would Europe?

How about if we’d promise to spend all the billions saved by not throwing bombs on them, to help rebuild these countries? Would that make us less safe, from terrorists, from anyone at all? Do you think ‘they’ would ‘hate’ us for that?

It becomes a pretty stupid non-discussion pretty fast, doesn’t it?

The Only Thing That Grows Is Debt

Jun 082016

June 8, 2016 Posted by Raúl Ilargi Meijer at 2:18 pm Finance Tagged with: centralization, collapse, cycle, democracy, elite, EU, Growth, referendum, US 10 Responses »

Fred Stein Evening, Paris 1934

Two months ago, there was a referendum in Holland about an association agreement between the EU and Ukraine. A relatively new Dutch law states that with an X amount of signatures a referendum can be ‘forced’ by anyone. Before, during and -especially- after the vote, its importance was -and is actively being- pooh-poohed by both the Dutch government and the EU. That in itself paints the issue better than anything else. Both the call and the subsequent support for the referendum stem from resistance against exactly that attitude.

The Dutch voted No to the EU/Ukraine agreement. It was with a turnout not much above the validity threshold, but a large majority of those who did vote agreed they want no part of the deal. This puts Dutch PM Rutte in an awkward position, he can’t be seen ignoring the population. Well, at least not openly. The EU can’t validate the agreement, and with Holland still holding the chair of the Union until July 1, a meeting on the topic has been pushed forward until the last weekend of June. With Rutte still in charge, but only just, and with the June 23 UK Brexit vote decided.

Brussels is frantically looking for a way to push through the agreement despite the Dutch vote, and likely some sort of bland compromise will be presented, which Rutte’s spin doctors will put into words that he can -with a straight face- claim honor the vote while at the same time executing what that same vote specifically spoke out against.

The EU will claim that since 27 other nations did ‘ratify’ the agreement, the 67% of the 32% of Dutch voters who bothered to show up should not be able to block it. As they conveniently fail to mention that nobody in the other 27 countries had a chance to vote on the issue. Just imagine a Brexit-like vote in all 28 EU nations on June 23. Brussels knows very well what that would mean. There’s nothing it finds scarier than people having an active say in their lives.

All this is a mere introduction for what is a ‘western world wide’ trend that hardly anybody is able to interpret correctly. It what seems to many to be a sudden development, votes like the Dutch one are ‘events’ where people vote down incumbents and elites. But these are not political occurrences, or at least politics doesn’t explain them.

In the US, there’s Trump and Bernie Sanders. In Britain, the Brexit referendum shows a people that are inclined not to vote FOR something, but AGAINST current political powers. In Italy, a Five-Star candidate is set to become mayor of Rome, something two Podemos affiliated -former- activists have already achieved in Barcelona and Madrid.

All across Europe, ‘traditional’ parties are at record lows in the polls. As is evident when it comes to Brexit, but what when you look closer is a common theme, anything incumbents say can and will be used against them. (A major part of this is that the ’propaganda power’ of traditional media is fast coming undone.)

The collapse of the system doesn’t mean people swing to the right, as is often claimed, though that is one option. It means people swing outside of the established channels, and whoever can credibly claim to be on that outside has a shot at sympathy, votes, power, be they left or right. Whatever else it is they may have in common, first and foremost they’re anti-establishment.

To understand the reason all this is happening, we must turn our heads and face economics. Or rather, the collapse of the economy. Especially in the western world – the formerly rich world-, there is no such thing as separate political and economic systems anymore (if there ever were). There is more truth in Hazel Henderson’s quote than we should like: “economics [..] has always been nothing more than politics in disguise”.

What we have is a politico-economic system, with the former media establishment clinging to (or inside?!) its body like some sort of embedded parasite. A diseased triumvirate.

With the economy in irreversible collapse, the politico part of the Siamese twin/triplet can no longer hold. That is what is happening. That is why all traditional political parties are either already out or soon will be. Because they, more than anything else, stand for the economic system that people see crumbling before their eyes. They represent that system, they are it, they can’t survive without it.

Of course the triumvirate tries as hard as it can to keep the illusion alive that sometime soon growth will return, but in reality this is not just another recession in some cycle of recessions. Or, at the very minimum this is a very long term cycle, Kondratieff style, . And even that sounds optimistic. The system is broken, irreparably. A new system will have to appear, eventually. But…

‘Associations’ like the EU, and perhaps even the US, with all the supranational and global entities they have given birth to, NATO, IMF, World Bank, you name them, depend for their existence on an economy that grows. The entire drive towards globalization does, as do any and all drives toward centralization. But the economy has collapsed. So all this will of necessity go into reverse, even if there are very powerful forces that will resist such a development.

Despite what the media try to tell you, as do the close to 100% manipulated economic data emanating from various -tightly controlled- sources, the economy is not growing, and it hasn’t for years; the only thing that grows is debt. And you can’t borrow growth.

You can argue in fascinating philosophical debates about when this started, arguments can be made for Nixon’s 1971 abolishment of the -last vestiges of- the gold standard anywhere up to Clinton’s 1998 repeal of Glass-Steagall, or anything in between -or even after.

It doesn’t matter much anymore, the specifics are already gathering dust as research material for historians. The single best thing to do for all of us not in positions of politico/economic power is to recognize the irreversible collapse of the system. Since we all grew up in it and have never known anything else, that is hard enough in itself. But we don’t have all that much time to lose anymore.

The whole shebang is broke. This can easily be displayed in a US nominal debt vs nominal GDP graph:

That’s really all you need to know. That’s what broke the shebang. It is easy. And even if a bit more of the ‘surplus’ debt had been allowed to go towards the common man, it wouldn’t have made much difference. We’ve replaced growth with debt, because that is the only way to keep the -illusion of- the politico-economic system going, and thereby the only way for the incumbent powers to cling on to that power.

And that is where the danger lies. It’s not just that the vast majority of westerners will become much poorer than they are now, they will be forced to face powers-that-be that face the threat of seeing their powers -both political and economic- slip sliding away and themselves heading towards some sort of Marie-Antoinette model.

The elites-that-be are not going to take that lying down. They will cling to their statuses for -literally- dear life. That right there is the biggest threat we all face (including them). It would be wise to recognize all these things for what they really are, not for what all these people try to make you believe they are. Dead seriously: playtime is over. The elites-that-be are ready and willing to ritually sacrifice you and your children. Because it’s the only way they can cling on to their positions. And their own very lives.

It may take a long time still for people to understand the above, but it’s also possible that markets crash tomorrow morning and bring the facades of Jericho down with them. Waiting for that to happen is not your best option.

The FX Mexican Standoff

Feb 272016

February 27, 2016 Posted by Raúl Ilargi Meijer at 1:56 pm Finance Tagged with: China, currency war, G20, Germany, Japan, Plaza Accord, Shanghai, US, yuan 8 Responses »

Theodor Horydczak Lincoln Memorial 1925

There has been quite a bit of talk lately over the need for a new Plaza Accord, something several parties saw happening during this weekend’s G20 summit in Shanghai -hence the term ‘Shanghai Accord’-. (On September 22, 1985 at the Plaza Hotel in New York City, France, West Germany, Japan, the US, and the UK signed an accord to depreciate the US dollar vs the Japanese yen and German Deutschmark by intervening in currency markets).

Unless all the G20 finance ministers and central bankers gathered in China are in close and secretive cahoots, though, it doesn’t look like it is going to happen. And that seems to both make sense and not. What those advocating such an accord are calling for is a -large- devaluation of the Chinese yuan (RMB) vs the USD and yen -perhaps even the euro-, but the climate simply doesn’t look ripe for it.

Still, the problem is, if they don’t do it, they open the doors to a whole lot more volatility, unpredictability and losses in the markets. All things that those markets do not want. Because, like it or not, the yuan is overvalued, China’s fabricated trade numbers are increasingly under scrutiny, and a large devaluation could settle things at least for a while.

However, Beijing looks too full of hubris and pride -and inclusion in the IMF basket of currencies is an issue too- to do what seems natural. Lest we forget, no matter how much China seeks to obfuscate the numbers, everybody already knows that numbers like producer prices and exports, and most importantly imports, have seen steep falls, and for a long time too.

China’s oil tanks look as close to overflowing as the American ones, and without those oil imports, who knows who bad import numbers would have looked? So from a Chinese point of view, a cheaper yuan would mean much cheaper Chinese exports for global buyers, whereas the negative effect of more expensive imports would be relatively small.

But there’s the other side of the equation as well: other nations’ exports would see a potentially enormous effect of cheaper Chinese imports on their domestic manufacturing base. For countries like Germany, the US and Japan, any such devaluation may therefore be an absolute non-starter at this point.

That, however, leaves the fact that there is that large imbalance in currency (FX) markets, and that those markets, along with hedge funders like Kyle Bass, have already made it known that they will seek to exploit that imbalance to go after the yuan for profit. That finance ministers seem unable to ‘soften’ the imbalance will only make them more determined. It’s like the central bankers and finance ministers make their case for them.

A few news snippets from the past week. First, Tyler Durden’s take on BofA’s Michael Hartnett a week ago, who’s quite clear on why there should be a devaluation.

BofA: ‘Shanghai Accord’, Massive Central Bank Intervention Imminent

Any time the relative performance of global financials to US Treasuries has stumbled as far as it has, as shown in the chart below, it has meant one thing – a major central bank intervention was imminent. At least that’s the interpretation of BofA’s Michael Hartnett, who shows that in order to provide the kick for the bounce in this all too important “deflationary leading indicator”, central banks engaged in major unorthodox easing episodes, whether QE1-3, or the ECB’s QE.

Why intervene now? Here are the problems according to Hartnett:
• Problem 1: US economy in “bad Goldilocks”, i.e. US economy not hot/strong enough to lift global GDP & EPS; but not cold/bad enough to induce global coordinated response
• Problem 2: global policy-maker rhetoric in recent days shows “coordinated innocence” not stimulus, all blaming global economy for weak domestic economies (“Overseas factors are to blame”…Japan PM Abe; “drag on U.S. economy from greater-than-expected-slowdown in China & other EM economies“…FOMC minutes; “increasing concerns about the prospects for the global economy”…ECB Draghi; “the change in China’s growth rate can be attributed in part to weak performance of the global economy”…PBoC)

Problem 2 is static, meant for media propaganda and jawboning; it can easily be removed once the global economy takes the next leg lower. Which incidentally would also resolve the gating factor of Problem 1 – as we have said for months, the Fed and its central bank peers need the political cover to launch more stimulus.

And in a reflexive world, where the “economy is the market”, this means just one thing – a big leg lower in stocks is the necessary and sufficient condition to once again push stocks higher, as policy failure is internalized, and global risk reprises from square 1. This is Bank of America’s summary, warning that unless a major policy intervention is enacted, the market will then sell off to the next support level, below the 1,812 which has proven so stable since August. Stabilization of “4C’s” (China, Commodities, Credit, Consumer) allowed SPX 1800 to hold/bounce to 1950-2000; weak policy stimulus in coming weeks could end rally/risk fresh declines to induce growth-boosting policy accord.

Next up, Bloomberg:

Barclays Says Sharp Yuan Devaluation Needed

A sharp, one-off devaluation of the yuan is among options China’s central bank might consider to stem capital outflows and shift market psychology to appreciation from depreciation, according to Barclays. The risk of such a move, which Barclays says would need to be in the region of 25% to alter perceptions, is rising as China’s foreign-exchange reserves plunge, analysts Ajay Rajadhyaksha and Jian Chang wrote in a report. Based on the current pace of decline in those holdings, there’s a six- to 12-month window before they drop to uncomfortable levels and measures such as capital controls or monetary tightening may also have to be looked at to curb the exodus of money, they said. All those options carry elements of danger.

Another rapid yuan depreciation could spook investors just as concern about the state of the global economy is growing and other central banks would likely follow, countering the beneficial impact on Chinese exports, the analysts said. Strict capital controls won’t work in an export-driven economy, while a move to policy tightening could slow growth and cause credit defaults, they said. “A devaluation of this magnitude seems impossible to ‘sell’ to the rest of the world,” according to the analysts at Barclays, the world’s third-biggest currency trader.

And then this from the FT, which confirms the huge question mark over the option:

Scepticism Rife Over G20 Move To Calm FX

Scepticism is rife that the G20 gathering of finance ministers will agree to co-ordinate currency policy but there is some belief it could provide a short-term boost to risk appetite. Japan has led calls for the two-day meeting in Shanghai to bring calmness to an unstable market with a broad-based FX strategy, seen by some market commentators as a reprise of the 1985 Plaza Accord that succeeded in weakening a rampant dollar. But those hopes have been knocked back by China and the US, and market expectations have been subdued in the run-up to the G20 meeting that ends with a communique on Saturday. “A grand solution like the Plaza Accord feels far-fetched”, said Peter Rosenstrich at the online bank Swissquote.

Then, the South China Morning Post a few days back on how Beijing apparently seeks to hide capital outflows data.

Sensitive Financial Data ‘Missing’ From PBOC Report On Capital Outflows

Sensitive data is missing from a regular Chinese central bank report amid concerns about capital outflow as the economy slows and the yuan weakens. Financial analysts say the sudden lack of clear information makes it hard for markets to assess the scale of capital flows out of China as well as the central bank s foreign exchange operations in the banking system. Figures on the “position for forex purchase” are regularly published in the People’s Bank of China’s monthly report on the “Sources and Uses of Credit Funds of Financial Institutions”. The December reading in foreign currencies was US$250 billion. But the data was missing in the central bank’s latest report. It seemed the information had been merged into the “other items” category, whose January figure was US$243.9 billion -a surge from US$20.4 billion the previous month.

Combine that with new world trade numbers as reported by the FT, and you can’t help but wonder 1) what is going on with trade (though this is in USD, and that tweeks things somewhat), and 2) how much the yuan would have to drop to make up for the difference.

World Trade Falls 13.8% In Dollar Terms (FT)

Weaker demand from emerging markets made 2015 the worst year for world trade since the aftermath of the global financial crisis, highlighting rising fears about the health of the global economy. The value of goods that crossed international borders last year fell 13.8% in dollar terms — the first contraction since 2009 — according to the Netherlands Bureau of Economic Policy Analysis’s World Trade Monitor. Much of the slump was due to a slowdown in China and other emerging economies. The new data released on Thursday represent the first snapshot of global trade for 2015.

Next, Christopher Balding, an associate professor at Peking University HSBC Business School, who does them all one better by questioning even what may be the most widely accepted idea about the Chinese economy.

China Does Not Have a Trade Surplus

Whereas Chinese Customs reports $1.68 trillion and SAFE report $1.57 in goods imports into China, banks report paying $2.55 trillion for imports. In other words, funds paid for imported goods and services was $870-980 billion or 52-62% higher than official Customs and SAFE trade data. This level of discrepancy is extreme in both absolute and relative terms and cannot simply be called a rounding error but is nothing less than systemic fraud. If we adjust the official trade in goods and services balance to reflect cash flows rather than official headline trade data as reported by both Customs and SAFE, the differences are even worse.

According to official Customs and SAFE data, China ran a goods trade surplus of $593 or $576 billion but according to bank payment and receipt data, China ran a goods trade surplus of only $128 billion. If we include service trade, the picture worsens considerably. China via SAFE trade data reports a $207 billion trade deficit in services trade. Payment data reported via SAFE actually reports about $42 billion smaller deficit of $165 billion. In other words, the supposed trade surplus of $600 billion has become a trade in goods and services deficit of $36 billion. Expand to the current, through a significant primary income deficit, and the total current account deficit is now $124 billion.

That doesn’t leave much in one piece of what we’ve been told about the China growth miracle. No wonder the PBoC is ‘airbrushing’, as the NYT says. The problem with this is that analysts are already scrutinizing the data up -very- close, and they’re not going to be easily fooled anymore. For instance, in the case of the missing capital outflows data mentioned earlier, analysts say they can find them out through other channels anyway, and they will be that much more eager to do just that. Trying to bully them is senseless.

As China’s Economic Picture Turns Uglier, Beijing Applies Airbrush

This month, Chinese banking officials omitted currency data from closely watched economic reports. Weeks earlier, Chinese regulators fined a journalist $23,000 for reposting a message that said a big securities firm had told elite clients to sell stock. Before that, officials pressed two companies to stop releasing early results from a survey of Chinese factories that often moved markets. Chinese leaders are taking increasingly bold steps to stop rising pessimism about turbulent markets and the slowing of the country’s growth. As financial and economic troubles threaten to undermine confidence in the Communist Party, Beijing is tightening the flow of economic information and even criminalizing commentary that officials believe could hurt stocks or the currency.

The effort to control the economic narrative plays into a wide-reaching strategy by President Xi Jinping to solidify support at a time when doubts are swirling about his ability to manage the tumult. The persistence of that tumult was underscored on Thursday by a 6.4% drop in Chinese stocks, which are now down more than a fifth since the beginning of this year alone. The government moved to bolster confidence on Saturday by ousting its top securities regulator, who had been widely accused of contributing to the stock market turmoil. Mr. Xi is also putting pressure on the Chinese media to focus on positive news that reflects well on the party. But the tightly scripted story makes it ever more difficult to get information needed to gauge the extent of the country’s slowdown, analysts say. “Data disappears when it becomes negative,” said Anne Stevenson-Yang, co-founder of J Capital Research, which analyzes the Chinese economy.

A bit more of that through CNBC:

Chinese Accounting Is ‘Highly Questionable’

Financial reporting in China was back in the spotlight again Friday, with one strategist claiming Chinese businesses were using “accounting trickery” to mask underlying credit problems. China looks like it’s heading towards a credit bust, Chris Watling, CEO and chief market strategist at Longview Economics told CNBC on Friday, explaining that cash borrowed by mainland firms is primarily being used to service debts. “We’ve been looking a lot at Chinese accounting recently and it is highly questionable,” he said. The corporate sector is increasing borrowing to pay interest, while instances of fraud and default are on the rise, he added in a note published Thursday. He said there were many examples where operating profit has been high, while cash flow has been negative — a “classic sign” that firms aren’t generating a profit, he added.

Watling highlighted that the balance sheets of commercial banks were particularly worrying. “In an economy which has undergone a credit boom, all of the lending is not necessarily readily apparent from the top level data,” he said. “Accounting trickery is often at work..”

A good example of where the data fit with reality is this graph from ZH, which has a strong correlation with Balding’s claim that there is no Chinese trade surplus. What there is, is a lot of fake invoices.

And that inevitably leads to this kind of Bloomberg piece. Beijing is dying to get investments flowing in from abroad, but investors have no idea what potential profits will be worth in yuan, or, given capital controls, whether or when they can take them out of the country.

Yuan Uncertainty Scares Funds Away From China Bond Market

Yield versus yuan. That’s the crux of the investment decision now facing the global funds given more access to China’s bond market. While it offers the highest yields among the world’s major economies, PIMCO and Schroder Investment say exchange-rate risk is damping global demand for Chinese assets. Barclays said this week there’s a growing chance China will announce a sharp, one-time devaluation to change sentiment toward the currency and suggested such a move would need to be in the region of 25% to be effective. “Uncertainty around currency policy remains one of the larger hurdles for foreign investors,” said Rajeev De Mello at Schroder Investment in Singapore. “This should be resolved as the year progresses and would then be a signal to increase investments in Chinese government bonds.”

Of course the Chinese claim that this particular uncertainty is just a temporary thing, and it will all be fine soon, but that doesn’t look to be true. Or at least, it will remain an issue, and probably THE issue, as long as the yuan is seen as substantially overvalued. The PBoC and politburo thus far have apparently thought they could solve this by hiding data, uttering soothing words and/or bullying, but that’s not going to work. They need to devalue, and not by a few percent either.

Barclays says a devaluation “would need to be in the region of 25% to alter perceptions”, while Kyle Bass earlier mentioned a 30% to 50% move. Central bankers and politicians can try and stand still in the Mexican standoff until they’re blue in the face, but the markets will not stand still, and only get more nervous as time passes.

It doesn’t need to be done in Shanghai over the weekend, though one may wonder what will happen in the Chinese equity markets next week if nothing is done while there are great expectations now. From whatever angle we look at the issue, the outcome seems crystal clear: better get it done soon.

The US and Germany may not like it initially, but the uncertainty will hit them too, because the anticipation of a -strong- yuan devaluation affects their export markets, bonds, equities and currencies as well.

One problem we should not overlook may be that in the 1985 Plaza Accord, the strongest party -the US- wanted to get something done and got their devaluation wish. This time around, it’s not the strongest party that needs a devaluation, and the party that does need it doesn’t want it.

It is a very different set-up.

Why This Slump Has Legs

Jan 182016

January 18, 2016 Posted by Raúl Ilargi Meijer at 10:39 pm Finance Tagged with: bubble, central banks, China, debt, deleveraging, Eccles, Growth, Ponzi, slump, US 8 Responses »

Berenice Abbott Columbus Circle, Manhattan 1936

We’ve only really been in two weeks of trading in the new year, things are looking pretty bad to say the least, so predictably the press are asking -and often answering- questions about when the slump will be over. Rebound, recovery, the usual terminology. When will we get back to growth?

For me personally, but that’s just me, that last question sounds a bit more stupid every single time I hear and read it. Just a bit, but there’s been a lot of those bits, more than I care to remember. Luckily, the answer is easy. The slump will not be over for a very long time, there will be no rebound or recovery, and please stop talking about a return to growth unless you can explain what you want to grow into.

I’m sorry, I know that’s not what you want to hear, but life’s a bitch and so’s the economy. You’ve lived on pink fumes for a long time, most of you for their whole lives, but reality dictates that real ‘growth’ stopped decades ago, and you never figured that out because, and I quote here (see below), you and the world you’re part of became “addicted to borrowing money, spending it, and passing this off as ‘growth'”.

That you believed this was actual growth, however, is on you. You fell for a scam and you’re going to have to pay the price. If there’s one single thing people are good at, it’s lying. It’s as old as human history, and it happens every day, so you’re no exception to any rule. You’re perhaps just not particularly clever.

How do we know a ‘recovery’ is so far off it’s really no use to even talk about it? As I said, it’s easy. Let me lead this in with a graph I saw just today, which deals with a topic the Automatic Earth has covered a lot: marginal debt, or more precisely, the productivity/growth gained from each additional dollar of debt.

Please note, this particular graph deals with private non-financial debt only, we’ll get to other kinds of added debt, but that restriction is actually quite illuminating.

Now of course, you have to wonder about the parameters the St. Louis Fed uses for its data and graphs, and whether ‘growth’ was all that solid in the run up to 2008. There’s plenty of very valid arguments that would say growth in the 1960’s was a whole lot more solid than that in the naughties, after the Glass-Steagall repeal, and after the dot.com blubber.

However, that’s not what I want to take away from this, I use this to show what has happened since 2008, more than before, when it comes to “passing debt off as ‘growth'”.

But it’s another thing that has happened since 2008, or rather not happened, that points out to us why this slump will have legs. That is, in 2008 a behemoth bubble started bursting, and it was by no means just US housing market. That bubble should have been allowed to fully deflate, because that is the only way to allow an economy to do a viable restart.

Instead, all that has been done since 2008, QE, ZIRP, the works, has been aimed at keeping a facade ‘alive’, and aimed at protecting the interests of the bankers and other rich parties. That facade, expressed most of all in rising stock markets, has allowed for societies to be gutted while people were busy watching the S&P rise to 2,100 and the Kardashians bare 2,100 body parts.

It was all paid for, apart from western QE, with $28 trillion and change of newfangled Chinese debt. The problem with this is that if you find yourself in a bubble and you don’t go through the inevitable deleveraging process that follows said bubble in a proper fashion, you’re not only going to kill economies, you’ll destroy entire societies.

And that is not just morally repugnant, it also works as much against the rich as it does against the poor. It’s just that that is a step too far for most people to understand. That even the rich need a functioning society, and that inequality as we see it today is a real threat to everyone.

Recognizing this simple fact, and the consequences that follow from it, is nothing new. It’s why in days of old, there were debt jubilees. It’s also why we still quote the following from Marriner Eccles, chairman of the Federal Reserve under FDR and Truman from 1934-1948, in his testimony to the Senate Committee on the Investigation of Economic Problems in 1933, which prompted FDR to make him chairman in the first place.

It is utterly impossible, as this country has demonstrated again and again, for the rich to save as much as they have been trying to save, and save anything that is worth saving. They can save idle factories and useless railroad coaches; they can save empty office buildings and closed banks; they can save paper evidences of foreign loans; but as a class they cannot save anything that is worth saving, above and beyond the amount that is made profitable by the increase of consumer buying.

It is for the interests of the well to do – to protect them from the results of their own folly – that we should take from them a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit. This is not “soaking the rich”; it is saving the rich. Incidentally, it is the only way to assure them the serenity and security which they do not have at the present moment.

Everything would all be so much simpler if only more people understood this, that you need a – fleeting, ever-changing equilibrium- to prosper.

Instead, we’re falling into that same trap again. Or, more precisely, we already have. We have been fighting debt with more debt and built the facade put up by the Fed, the BoJ and the ECB, central banks that all face the same problems and all take the same approach: save the rich at the cost of the poor. Something Eccles said way back when could not possibly work.

Anyway, so here are the graphs that prove to us why the slump has legs. There’s been no deleveraging, the no. 1 requirement after a bubble bursts. There’s only been more leveraging, more debt has been issued, and while households have perhaps deleveraged a little bit, though that is likely strongly influenced by losses on homes etc. plus the fact that people were simply maxed out.

First, global debt and the opposite of deleveraging:

And global debt from a longer, 65 year, more historical perspective:

It’s a global debt graph, but it’s perhaps striking to note that big ‘growth’ spurts happened in the days when Reagan, Clinton and Obama were the respective US presidents. Not so much in the Bush era.

Next, China. What we’re looking at is what allowed the post 2008 global economic facade to have -fake- credibility, an insane rise in debt, largely spent on non-productive overinvestment, overcapacity highways to nowhere and many millions of empty apartments, in what could have been a cool story had not Beijing gone all-out on performance enhancing financial narcotics.

Today, the China Ponzi is on its last legs, and so is the global one, because China was the last ‘not-yet-conquered’ market large enough to provide the facade with -fleeting- credibility. Unless Elon Musk gets us to Mars very soon, there are no more such markets.

So US debt will have to come down too, belatedly, with China, and it will have to do that now. because there are no continents to conquer and hide the debt behind. We’re all going to regret engaging in the debt game, and not letting the bubble deflate in an orderly fashion when we still could, but all those thoughts are too late now.

What the facade has wrought is not just the idea that deleveraging was not needed (though it always is, after every single bubble), but that net US household worth rose by 55% in the 6-7 years since the bottom of the crisis, an artificial bottom fabricated with…more debt, with QE, and ZIRP.

Meanwhile, in today’s world, as stock markets go down at a rapid clip, China, having lost control of a market system it never had the control over that Politburos are ever willing to acknowledge they don’t have, plays a game of Ponzi whack-a-mole, with erratic ‘policies’ such as circuit breakers and CIA-style renditions of fund managers and the like.

And all the west can do is watch them fumble the ball, and another one, and another. And this whole thing is nowhere near the end.

China bad loans have now become a theme, but the theme doesn’t mean a thing without including the shadow banking system, which in China has been given the opportunity to grow like a tumor, on which Beijing’s grip is limited, and which has huge claims on local party officials forced by the Politburo to show overblown growth numbers. If you want to address bad loans, that’s where they are.

Chinese credit/debt graphs paint only a part of the picture if and when they don’t include shadow banks, but keeping their role hidden is one of Xi’s main goals, lest the people find out how bad things really are and start revolting. But they will anyway. That makes China a very unpredictable entity. And unpredictable means volatile, and that means even more money flowing out of, and being lost in, markets.

The ‘least worst’ place to be for what money will be left is US dollars, US treasuries and perhaps metals. But there’ll be a whole lot less left than just about anyone thinks. That’s the price of deleveraging.

The price of not deleveraging, on the other hand, is what we see in the markets today. And there is no cure. It must be done. The price for keeping up the facade rises sharply with each passing day, and the effort will in the end be futile. All bubbles have limited lifespans.

I’ll close this with a few recent words from Tim Morgan, who puts it so well I don’t feel the need to try and do it better.

The Ponzi Economy, Part 1

In order to set the Ponzi economy into some context, let’s put some figures on it. In the United States, total “real economy” debt (which excludes inter-bank borrowing) increased by $19.4 trillion – in real, inflation-adjusted terms – between 2000 and 2014, whilst real GDP expanded by only $3.7 trillion. Britain, meanwhile, added £1.9 trillion of new debt for less than £400bn on “growth” over the same period. I spent part of the holiday period unearthing quite how much debt countries added for each dollar of “growth” over a period starting at the end of 2000 and ending in mid-2015.

Unsurprisingly, the league is topped by Portugal ($5.65 for each $1 of growth), Ireland ($5.42) and Greece ($5.39). Britain’s ratio ($3.46) is somewhat flattering, in that the UK has used asset sales as well as borrowing to sustain its consumption. The average for the Eurozone ($3.54) covers ratios as diverse as Germany (just $1.87) and France ($4.22).

China’s $2.56 looks unexceptional until you note that the more recent (post-2007) number is much worse. Economies which seem to have been growing without too much borrowing (such as Brazil and Russia) are now experiencing dramatic worsening in their ratios, generally in the wake of tumbling commodity prices.

In the proverbial nutshell, then, the world has become addicted to borrowing money, spending it, and passing this off as “growth”. This is a copybook example of a pyramid scheme, which in turn means that the world’s most influential economic mentor is neither Keynes nor Hayek, but Charles Ponzi.

[..] How, in the absence of growth, can inflated capital values be sustained? The answer, of course, is that they can’t. Like all Ponzi schemes, this ends with a bang, not a whimper. This is why I find forecasts of a ‘big fall’ or ‘sharp correction’ in markets hard to swallow. Ponzi schemes don’t end gradually, any more than someone can fall off a cliff gradually, or be “slightly pregnant”.

The Ponzi economy simply continues for as long as irrationality prevails, and then implodes. Capital markets, though, are the symptom, not the cause. The fundamental problem is an inability to escape from an addictive practice of manufacturing supposed “growth” on the basis of borrowed money.

There may be shallow lulls in the asset markets, nothing ever only falls down in a straight line in the real world, but that debt I’ve described here will and must come down and be deleveraged.

The process will in all likelihood lead to warfare, and to refugee movements the likes of which the world has never seen just because of the sheer numbers of people added in the past 50 years.

When your children reach your age, they will not live in a world that you ever thought was possible. But they will still have to live in it, and deal with it. They will no longer have the facade you’ve been staring at for so long now, to lull them into a complacent sleep. And the Kardashians will no longer be looking so attractive either.

(Re-)Covering Oil and War

Jan 152016

January 15, 2016 Posted by Raúl Ilargi Meijer at 8:03 am Finance Tagged with: China, inventory, oil, OPEC, recovery, Saudi, storage, tankers, US, wagers, war 11 Responses »

Russell Lee Tracy, California. Tank truck delivering gasoline to a filling station 1942

The first thing that popped into our minds on Tuesday when WTI oil briefly broached $30 for its first $20 handle in many years, was that this should be triggering a Gawdawful amount of bets, $30 being such an obvious number. Which in turn would of necessity lead to a -brief- rise in prices.

Apparently even that is not so easy to see, since when prices did indeed go up after, some 3% at the ‘top’, ‘analysts’ fell over each other talking up ‘bottom’, ‘rebound’ and even ‘recovery’. We’re really addicted to that recovery idea, aren’t we? Well, sorry, but this is not about recovering, it’s about covering (wagers).

Same thing happened on Thursday after Brent hit that $20 handle, with prices up 2.5% at noon. That too, predictably, shall pass. Covering. On this early Friday morning, both WTI and Brent have resumed their fall, threatening $30 again. And those are just ‘official’ numbers, spot prices.

If as a producer you’re really squeezed by your overproduction and your credit lines and your overflowing storage, you’ll have to settle for less. And you will. Which is going to put downward pressure on oil prices for a while to come. Inventories are more than full all over the world. With oil that was largely purchased, somewhat ironically, because prices were perceived as being low.

Interestingly, people are finally waking up to the reality that this is a development that first started with falling demand. China. Told ya. And only afterwards did it turn into a supply issue as well, when every producer began pumping for their lives because demand was shrinking.

All the talk about Saudi Arabia’s ‘tactics’ being aimed at strangling US frackers never sounded very bright. By November 2014, the notorious OPEC meeting, the Saudi’s, well before most others including ‘analysts’, knew to what extent demand was plunging. They had first-hand knowledge. And they had ideas, too, about where that could lead prices. Alarm bells in the desert.

There are alarm bells ringing in many capitals, there’s not a single oil producer sitting comfy right now. And that’s why ‘official’ prices need to be taken with a bag of salt. Bloomberg puts the real price today at $26:

The Real Price of Oil Is Far Lower Than You Realize

While oil prices flashing across traders’ terminals are at the lowest in a decade, in real terms the collapse is even deeper. West Texas Intermediate futures, the U.S. benchmark, sank below $30 a barrel on Tuesday for the first time since 2003. Actual barrels of Saudi Arabian crude shipped to Asia are even cheaper, at $26 – the lowest since early 2002 once inflation is factored in and near levels seen before the turn of the millennium. Slumping oil prices are a critical signal that the boom in lending in China is “unwinding,” according to Adair Turner, chairman of the Institute for New Economic Thinking.

Slowing investment and construction in China, the world’s biggest energy user, is “sending an enormous deflationary impetus through to the world, and that is a significant part of what’s happening in this oil-price collapse,” Turner, former chairman of the U.K. Financial Services Authority, said. The nation’s economic expansion faltered last year to the slowest pace in a quarter of a century. “You see a big destruction in the income of the oil and commodity producers,” Turner said. “That is having a major effect on their expenditure across the world.”

Zero Hedge does one better and looks at 1998 dollars:

The ‘Real’ Price Of Oil Is Below $17

“You see a big destruction in the income of the oil and commodity producers,” exclaims an analyst but, as Bloomberg notes, while oil prices flashing across traders’ terminals are at the lowest in a decade, in real terms the collapse is considerably deeper. Adjusted for inflation, WTI is its lowest since 2002 and worse still Saudi Light Crude is trading at below $17 (in 1998 dollar terms) – the lowest since the 1980s… Slumping prices are a critical signal that the boom in lending in China is “unwinding,” according to Adair Turner, chairman of the Institute for New Economic Thinking.

In fact, while sub-$30 per barrel oil sounds very scary, Saudi prices would be less than $17 a barrel when converted into dollar levels for 1998, the year oil sank to its lowest since the 1980s. Slowing investment and construction in China, the world’s biggest energy user, is “sending an enormous deflationary impetus through to the world, and that is a significant part of what’s happening in this oil-price collapse,” Turner, former chairman of the U.K. Financial Services Authority, said.

But this still covers only light sweet crude. Heavier versions are already way below even those levels. Question: what does tar sands oil go for in 1998 dollars? $5 perhaps? A barrel’s worth of it fetched $8.35 in 2016 US dollars on Tuesday. And that does not stop production, because investment (sunk cost) has been spent so there’s no reason to cut, quite the contrary.

Crude At $10 Is Already A Reality For Canadian Oil-Sands Miners

Think oil in the $20s is bad? In Canada they’d be happy to sell it for $10. Canadian oil sands producers are feeling pain as bitumen – the thick, sticky substance at the center of the heated debate over TransCanada’s Keystone XL pipeline – hit a low of $8.35 on Tuesday, down from as much as $80 less than two years ago. Producers are all losing money at current prices, First Energy Capital’s Martin King said Tuesday at a conference in Calgary. Which doesn’t mean they’ll stop. Since most of the spending for bitumen extraction comes upfront, and thus is a sunk cost, production will continue and grow.

Another interesting question is where the price of oil would be right now if the perception of low prices had not made 2015 such a banner year for filling up storage space across the globe, including huge amounts of tankers that are left floating at sea, awaiting a ‘recovery’. But that is so last year:

Tanker Rates Tumble As Last Pillar Of Strength In Oil Market Crashes

If there was one silver-lining in the oil complex, it was the demand for VLCCs (as huge floating storage facilities or as China scooped up ‘cheap’ oil to refill their reserves) which drove tanker rates to record highs. Now, as Bloomberg notes so eloquently, it appears the party is over! Daily rates for benchmark Saudi Arabia-Japan VLCC cargoes have crashed 53% year-to-date to $50,955 (as it appears China’s record crude imports have ceased). In fact the rate crashed 12% today for the 12th straight daily decline from over $100,000 just a month ago…

China imported a record amount of crude last year as oil’s lowest annual average price in more than a decade spurred stockpiling and boosted demand from independent refiners. China’s crude imports last month was equivalent to 7.85 million barrels a day, 6% higher than the previous record of 7.4 million in April, Bloomberg calculations show.

China has exploited a plunge in crude prices by easing rules to allow private refiners, known as teapots, to import crude and by boosting shipments to fill emergency stockpiles. The nation’s overseas purchases may rise to 370 million metric tons this year, surpassing estimated U.S. imports of about 363 million tons, according to Li Li, a research director with ICIS China, an industry researcher. But given the crash in tanker rates – and implicitly demand – that “boom” appears to be over.

The consequences of all this will be felt all over the world, and for a long time to come. All of our economic systems run on oil, so many jobs are related to it, so many ‘fields’ in the economy, and no, things won’t get easier when oil is at $20 or $10, it’ll be a disaster of biblical proportions, like a swarm of locusts that leaves precious little behind. Squeeze oil and you squeeze the entire economic system. That’s what all the ‘low oil prices are great for the economy’ analysts missed (many still do).

Entire nations will undergo drastic changes in leadership and prosperity. Norway, Canada, North Dakota, Russia. But more than that, Middle East nations that rely entirely on oil, a dependency that won’t allow for many of their rulers to remain in office. Same goes for all OPEC nations, and many non-OPEC producers.

We can argue that a war of some kind or another can be the black swan that sets prices ‘straight’, but black swans are supposed to be the things you can’t see coming, and Middle East warfare for obvious reasons doesn’t even qualify for that definition.

The world is full of nations and rulers that are fighting for bare survival. And things like that don’t play out on a short term basis. For that reason alone, though there are many others as well, oil prices will remain under pressure for now.

Even a war will be hard put to turn that trend around at this point. Unless production facilities are destroyed on a large scale, war may just lead to even more production as demand keeps falling. The fact that Iran is preparing to ‘come back online’, promising an even steeper glut in world markets, is putting the Saudi’s on edge. Rumors of Libya wanting to return for a piece of the pie won’t exactly soothe emotions either.

And when, in a few years’ time, all the production cuts due to shut wells become our new reality, and eventually they must, then no, there will still not be an oil shortage. Because the economy will be doing so much worse by then that demand will have fallen more than supply.

Barring large scale warfare in the Middle East there is nothing that can solve the low oil price conundrum. But think about it, which Gulf nation can even afford such warfare in present times? For that matter, which nation in the world can?

The US may try and ignite a proxy war with Russia, but that would lead to an(other) endless and unwinnable war theater. Which would carry the threat of dragging in China as well. The US and its -soon even officially- shrinking economy can’t afford that. Which of course by no means guarantees it won’t try.

Merkel Must Call Highest Level UN Emergency Summit Over Refugees

Nov 092015

November 9, 2015 Posted by Raúl Ilargi Meijer at 1:33 pm Finance Tagged with: Balkans, Greece, Merkel, military, refugees, Syria, UN, US, war 7 Responses »

Giles Duley Afghan boy lands on Lesvos Nov 2015

German Chancellor Angela Merkel needs to do something, urgently, that should have been done months- if not more- ago. There has to be a UN emergency summit on the European refugee crisis, it has to involve leaders at the very highest levels, and it has to take place within weeks at the latest. Or else.

Of course any leader could call for the summit, and if Merkel waits too long -as she is wont to do- someone else should. But she is the best person for the job. No-one else who leads an entire continent looks ready to take this on, and moreover it’s her own country that quite possibly faces the gravest consequences of the crisis.

That is to say, for now Germany still comes in way after Greece in that regard, but if Alexis Tsipras would attempt to call such a summit, his appeal would fall on deaf ears, and at best lead to lots of international Merkel-style diddling (or ‘Merkeln’, as the Germans put it). And there’s already been far too much of that.

The renewed urgency comes from a number of directions. First, the continuing drownings of refugees in the Aegean sea. The lack of urgency with which those drownings have been met has become a huge and immediate threat to Merkel, if only because the entire European project has already died with the babies washing up on the shores of Greece.

Even if it will take a long time for people to recognize that, given the ideological ‘union’ blindness that pervades Brussels and European capitals. Angela’s legacy risks being not only her responsibility for thousands of deaths, but also the very demise of the EU. And that’s just for starters.

Secondly, It was Merkel herself last week who warned of renewed military conflicts in the Balkans if the approach to the refugee crisis wouldn’t change, and rapidly.

According to Merkel, if Balkan countries -continue to- build fences and razor wire barriers at their borders, one after the other, some countries risk ‘getting stuck’ with huge numbers of refugees on their territories that they are not in the least prepared for. Which makes Friday’s German announcement, mere days after Merkel’s warning, all the more ominous:

Germany Imposes Surprise Curbs On Syrian Refugees

Angela Merkel has performed an abrupt U-turn on her open-door policy towards people fleeing Syria’s civil war, with Berlin announcing that the hundreds of thousands of Syrians entering Germany would not be granted asylum or refugee status. Syrians would still be allowed to enter Germany, but only for one year and with “subsidiary protection” which limits their rights as refugees. Family members would be barred from joining them.

[..] the interior minister, Thomas de Maiziere, announced that Berlin was starting to fall into line with governments elsewhere in the EU, who were either erecting barriers to the newcomers or acting as transit countries and limiting their own intake of refugees.

[..] the suddenness of the move by the country that has been pivotal in the EU’s biggest ever immigration crisis will ripple across the region with unknown consequences, particularly in the transit countries of the Balkans and central Europe through which hundreds of thousands have been trekking towards Germany.

The German curbs will encourage these countries to establish barriers of their own to the refugee wave. Merkel is also pressing countries such as Croatia, Slovenia, and Serbia to establish “reception centres” or camps where refugees can be processed and screened before they reach Germany. The countries are resisting because no one knows what to do with those who are screened and do not pass muster for passage to Germany.

Around the same time that Germany pressures Balkan countries to establish ‘reception centers’, it votes down plans for ‘transit zones’ on its own territory. Some are more equal than others? Berlin had better beware.

The third ‘urgency’, curiously downplayed by media and politics, comes in the shape of a warning by the EU itself, albeit “buried in a 204-page report on the future of the European economy”.

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

The European Union predicted Thursday that up to 3 million additional asylum seekers could enter the 28-member bloc by the end of next year, suggesting the staggering pace of new arrivals in recent months shows no sign of abating. The forecast, buried in a 204-page report on the future of the European economy..

The EU expects 3 million refugees in 2016. This year, there will be ‘only’ 1 million. Of which resettlement deals have been made for 160,000, and at last count 116 have actually been resettled. Somebody better start taking this serious, or it will get very terribly out of hand. And that’s not to say it hasn’t already, with well over 3000 refugees having drowned in the Mediterranean, hundreds of them children.

This is a humanitarian disaster that nobody’s willing to recognize as one, and that is exactly what has to stop. The reason why this prediction is hushed up across the board is of course obvious: the 1 million refugees in 2015 have already strained resources, international relationships and indeed entire governments to such an extent, wars could start just because of that.

Add another 3 million, and the chances of a peaceful 2016 in Europe grow terribly slim. But not talking about it will of course slim down those chances further. And even if the total of 4 million refugees expected by the end of next year will be less than 1% of the EU’s 500 million population, someone better do something fast, or else.

The fact that Europe risks being strained to the point of military conflict, and there’s precious little reason to doubt Angela Merkel’s assessment of the situation, means that what needs to be done is to make the entire world aware that this is a global issue, not a regional one. And that’s where the UN emergency summit comes in.

Obviously, Germany is overwhelmed right now. But doing a U-turn on the open-door policy is not going to solve that problem. It will merely shift it, either within Germany itself, or towards the Balkan countries the refugees travel through to come to the Bundesrepublik.

Decision making by the EU Brussels has failed shamefully. And not only on the refugee crisis. But since Merkel is the no. 1 voice of power in Europe, that puts the shame on her as well. As we’ve said before, the only way to handle an issue such as this, is to put the people first.

You can’t let the people, the children, drown at random and expect to come away with your positions intact. And just because international politics these days focuses a lot on trying to deflect responsibilities by pointing to others, and to international bodies, blood on one’s hands doesn’t wash off easily, and in the end not at all.

Blaming the refugees themselves, as the head of EU border agency Frontex attempted once again by labeling them , is as useless as it is disgraceful. People fleeing war zones to save their lives are not ‘illegals’.

Blaming the ‘smugglers’, an even more popular EU pastime, makes no sense either. If the smugglers were Europe’s biggest concern, it would grant safe passage to refugees. That would stop ‘smuggling’ in one fell swoop. But it would demand a level of political courage that nobody, not Merkel either, possesses.

What drives policies across the board still comes down to the prevailing wish, fed to European populations by media and politics, to keep things as they are. To maybe invite the token refugee, but to prevent sudden or large changes in the society people happen to live in.

And while that may be understandable, it doesn’t mean it’s always realistic. Sometimes change is inevitable. We may find it easier to accept that when it comes to earthquakes and hurricanes than in the case of mass migrations, but all of these are regular occurrences throughout history. In the end, all we can do is make the best of it, in the most humane way we know of, or descend into mayhem.

One more thing that needs repeating time and again though politicians won’t like it: Europe’s leadership knew the refugee problem was coming. Angela Merkel was warned by her Bundespolizei at least eight months ago, but there were warnings even way before that. Everyone just chose to ignore them.

Refugee Crisis Was Not Unexpected, Top UN Official Says

Director-General of the United Nations office in Geneva, Denmark’s Michael Moller: [..] “The crisis we have today, we knew it was going to happen. The leaders of Europe were told it was going to happen at least two years ago.”

[..] there will be even greater problems, unless we sit down globally and figure out structures and ways to deal with this in the future. Not to reinvent the wheel every time that happens, but to rethink completely and strengthen the humanitarian system, because I guarantee you that it will happen again.

Moller say the same thing I do: “we need to sit down globally”. He doesn’t provide a timeframe, but between the lines it’s clear he doesn’t think either that there’s time to waste. A UN emergency summit may be all that stands between us and ‘anarchy’, in one way and shape or the other.

This summit must include the presidents and prime ministers of all major nations (and please leave out the EU). Obama, Putin, Xi Jinping and Merkel, but also the leaders of Greece, Turkey, Jordan, Lebanon (where the majority of Syrian refugees are) and all Balkan countries. Countries like Canada, Brazil and Australia can and must be called upon to grant asylum to many more refugees than they do now.

In this week’s issue of the New Yorker, George Packer describes how America took in more than a million refugees from South East Asia in one year 35 years ago, and how it can and should make such an effort once more:

America’s Apathy About The Syrian Refugees

[..].. the U.S. has accepted fewer than two thousand Syrians. In September, President Obama announced an increase in the quota for the coming year to ten thousand. That figure represents just half the monthly total of Indochinese refugees brought here in 1980. One refugee advocate called it “an embarrassingly low number.” And yet even this humble goal is unlikely to be reached.

The world has a narrow window left to prevent an already grave humanitarian disaster into something much worse, to prevent antagonism and military action that will set loose the evil genies of the Pandora’s box that is Europe’s past, once again, and genies of surrounding regions too. There is no need for that. Not yet.

The world, united in such a summit, must also look beyond the refugee crisis, and, as the UN’s Moller says, “rethink completely and strengthen the humanitarian system”. Because there are other dangers on the horizon, potentially much worse. Climate refugees are an obvious one, but even more, there’s the economic downturn nobody seems to be willing to acknowledge (at their own peril).

As I wrote a week ago, in an article quoted by Zero Hedge on Wednesday in their piece on German opposition parties warning of a domestic civil war:

Europe Will Never Be The Same; Neither Will The World

Ignorance and denial threatens to lead to a needless increase in nationalism, fascism, violence, misery, death and warfare. If we were to acknowledge that the change is inevitable, and prepare ourselves accordingly, much of this could be avoided.

There are two main engines of change that have started to transform the Europe we think we know. First, a mass migration spearheaded by the flight of refugees from regions in the world which Europeans have actively helped descend into lethal chaos. Second, an economic downturn the likes of which hasn’t been seen in 80 years or so (think Kondratieff cycle).

Negative ideas about refugees are already shaping everyday opinion and politics in many places, and this will be greatly exacerbated by the enormous economic depression that for now remains largely hidden behind desperate sleight-of-hands enacted by central bankers, politicians and media.

There are fine theories around coming from fine people, on how refugees can benefit a host country’s economic systems. But they are the kind of people who are perpetually looking at economic growth. And no such growth is guaranteed – to put it awfully mildly.

Therefore, it doesn’t really matter to the issue if refugees do or do not contribute ‘positively’ to a country’s economics, because all countries are facing a giant slowdown and depression caused by an inevitable debt deflation. And that makes it all the more urgent for people, and societies, to be prepared for all possible outcomes, including worst case scenarios.

The depression is guaranteed, and so are millions more people fleeing the ruins that were ones their homes, and their hopes for a decent future for their children.

Every day that Merkel loses in calling this highest-level, highest-urgency, UN summit, is a day that more people will drown. And that means one more day that we all will lose more of our own humanity, and of our claims for others to show us theirs.

In our own way, we’re all already drowning and washing up devoid of life, and of human values, somewhere on a cold and lonely distant beach.

Europe’s Refugees Are A Global Crisis

Sep 232015

September 23, 2015 Posted by Raúl Ilargi Meijer at 2:24 pm Finance Tagged with: blood, EU, Europe, humanity, Merkel, pope, refugees, UN, US 19 Responses »

Dorothea Lange Depression refugee family from Tulsa, Oklahoma 1936

At the moment I start writing this, leaders of European nations are in a meeting in which they talk about refugees that, though it was announced over a week ago, was nevertheless labeled an ’emergency’ meeting. The only thing that truly tells you is that Europe still refuses to see the refugee situation as an emergency. And that’s not just semantics.

Of course there’ll be all sorts of bickering about the difference between migrants and refugees, and tons of words about how “we” should separate the two, and send people back, and strengthen European borders, and fight the human smugglers. None of which addresses reality, or at least at best a tiny sliver of it.

“Smugglers” are not the problem, it’s the people they “smuggle” that are. Or perhaps we should turn that around and admit that in fact it’s the European leaders who are the problem. It’s they who lack any courage or vision, or even a basic understanding of what is going on.

Angela Merkel has gotten a lot of accolades when she opened Germany’s borders to Syrians, even though that only lasted a few days. But people seem to forget that she is Europe’s most powerful politician, and that makes her responsible for a lot of the drowned children who lose their lives on a daily basis in a small stretch of the Mediterranean between Turkey and Greece.

Merkel should have acted much faster. She’s just as culpable as all the other jokers in Brussels and various EU capitals. They all were, and still are, hoping this issue would go away by itself. Instead, the issue has only just started, and the whole continent is woefully unprepared to this day.

German paper Die Welt ran a story this weekend (in German) that detailed how Merkel and her government were warned in Q1 by the German federal police (Bundespolizei) that a million refugees would be coming to Germany in 2015. And did nothing. The paper didn’t provide a precise date, but Q1 ended close to 6 months ago, so we know Merkel et al could have acted on this information -and prepared- at least half a year ago.

Have they? Given the chaos that developed within a few days of allowing refugees to enter the country, our money’s on a resounding NO. So those portraits we’ve seen with Angela dressed up as Mother Teresa can now be filed away as ludicrous.

The outcome of today’s meeting is very easy to predict. There will be promises of millions of dollars, and of saddling Greece and Italy with huge camps to house refugees in, far away from whoever is either too comfortable or too right-wing to deal with Europe’s new reality.

There will be nothing in writing that comes even close to what is needed, neither financially nor in practical terms. All politicians will feel free to pander to, and hide behind, their bigoted populations.

These talks should have taken place at least half a year ago. That might have saved children’s – and adults’- lives both in the meantime and in the future. That nothing of true value happened between the moment Merkel got her warning and last week’s announcement of this week’s “emergency” meeting not only tells you all you need to know about Merkel and her peers, it also is certain to both have made matters worse and to continue doing so going forward.

There is precious little to be expected from Europe’s leadership, because there is so little of it. They all like the power but skirt the responsibility. The EU apparently seeks to charge 14 nations with 19 cases of violating EU asylum treaties, but countries like Croatia and Hungary were so unprepared for what happened to them, this could only have led to panic and fences and police dogs. It’s a miracle nobody shot a whole bunch of refugees. Yet.

It could all have been prevented if Merkel had decided not to shelve that warning from her federal police force, and instead had called a high level summit then and there. But she was too busy whipping Greece into submission, and hoping, as all other did, that one morning it would all prove to have been a bad dream.

One would suspect that French secret services also had information on what was to come, but François Hollande is a dunce who spends his time counting votes and reading polls. David Cameron would probably prefer to drown and/or shoot that ‘swarm’, and the other heads of state either don’t count for much in terms of population numbers or elect to keep their mouths shut lest they risk the next election.

If Europe’s leaders don’t tackle the issue now, and in an effective way, we risk, with a likelihood bordering on certainty, much worse than we have seen so far. The refugees will not stop coming to Europe. But with autumn now on the doorstep, their journeys will become much more perilous, and deadly.

Europe is set to change, and in very sweeping ways. That cannot be altered. What can be done is to treat refugees like they are human beings, whose lives matter the way German and French lives matter.

Moreover, if Merkel had called that EU meeting in early spring, she would rapidly have concluded that it was not enough. That this is not a European problem. Very few of the refugees, after all, are European. It is, therefore, a global problem. And there is a political body to deal with those, the UN. Merkel would have called a UN meeting long ago if only she had called that EU meeting first.

Why the UN itself hasn’t even opened its mouth, other than to chide Europe, is a mystery. It’s on a fast track to becoming redundant.

The US has announced it will accept 10,000 Syrian refugees – who may take two years to be processed. For perspective: in the space of just three hours this morning, 2,500 arrived on the island of Lesbos alone. The US cannot deny its share of the blame for causing the crisis. It can still, however, start acting in a humane fashion.

Not like Hollande and Cameron whose main target today is increased bombing of the very places the refugees are fleeing from, not providing them with asylum away from those places.

The refugee question should be the top priority in the talks Obama has with the Pope in America in the next few days. As it should be in the meeting(s) with Chinese president Xi Jinping, who’s also in the country. But it doesn’t look as if that’s going to happen. It’ll be a sidenote at best.

Merkel has a narrow window to right her wrongs, and it’s closing fast. If she doesn’t act now, we’ll see Europe’s lack of humanity and abundance of disgrace bared even more, and increasingly so.

There will be blood.

Deleveraging as a Biblical Plague

Aug 132015

August 13, 2015 Posted by Raúl Ilargi Meijer at 9:28 pm Finance Tagged with: central bank, China, deflation, deleveraging, devaluation, Europe, Japan, US 28 Responses »

Gustave Doré The Ninth Circle of Hell (Treachery) 1857

Eventful days in the middle of summer. Just as the Greek Pandora’s box appears to be closing for the holidays (but we know what happens once it’s open), and Europe’s ultra-slim remnants of democracy erode into the sunset, China moves in with a one-off but then super-cubed renminbi devaluation. And 100,000 divergent opinions get published, by experts, pundits and just about everyone else under the illusion they still know what is going on.

We’ve been watching from the sidelines for a few days, letting the first storm subside. But here’s what we think is happening. It helps to understand, and repeat, a few things:

• There have been no functioning financial markets in the richer parts of the world for 7 years (at the very least). Various stimulus measures, in particular QE, have made sure of that.

A market cannot be said to function if and when central banks buy up stocks and bonds with impunity. One main reason is that this makes price discovery impossible, and without price discovery there is, per definition, no market. There may be something that looks like it, but that’s not the same. If you want to go full-frontal philosophical, you may even ponder whether a country like the US still has a functioning economy, for that matter.

• There are therefore no investors anymore either (they would need functioning markets). There are people who insist on calling themselves investors, but that’s not the same either. Definitions matter, lest we confuse them.

Today’s so-called ‘investors’ put to shame both the definition and the profession; I’ve called them grifters before, and we could go with gamblers, but that’s not really it: they’re sucking central bank’s udders. WHatever we would settle on, investors they’re not.

• The stimulus measures, QE, were never designed to induce economic recovery. They were meant to transfer private losses to public purses. In that, they have been wildly successful.

• China is the end of the line. It was the only economy left that until recently could boast actual growth on a scale that mattered to the global economy. Growth stopped when China, too, introduced stimulus measures. To the tune of some $25 trillion or more, no less.

The perhaps most pivotal importance of China is that it was the world’s latest financial hope. The yuan devaluation shatters that hope once and for all. The global economy looks a lot more bleak for it, even if many people already didn’t believe official growth numbers anymore.

Because we’ve reached the end of the line, the game changes. Of course there will be additional attempts at stimulus, but China’s central bank has de facto conceded that its measures have failed. The yuan devaluations, three days in a row now, mean the central People’s Bank of China has, openly though reluctantly, acknowledged its QE has failed, and quite dramatically at that. They just hope you won’t notice, and try to bring it on with a positive spin.

Central banks are not “beginning” to lose control, they lost control a long time ago. The age of central bank omnipotence has “left and gone away” like Joltin’ Joe. Omnipotence has been replaced by impotence.

This admission will reverberate across the globe. China is simply that big. It may take a while longer for other central bankers to admit to their own failures (though ‘failures’, in view of the wealth transfer, is a relative term here), but it won’t really matter much. One is enough.

What will happen from here on in will be decided by how, where and in what amounts deleveraging will take place. This will of necessity be a chaotic process.

Debt deleveraging leads to, or can even be seen as equal to, debt deflation. This is a process that has already started in various places and parts of economies (real estate), but was kept at bay by QE programs. It will now accelerate to wash over our societies like a biblical plague.

The Automatic Earth started warning about this upcoming deflation wave many years ago. I am wondering if I should rerun some of the articles we posted over the past 8 years or so. I might just do that soon.

It is fine for people to say that since it hasn’t happened yet, we were wrong about this, but for us it was never, and is not now, about timing. If you think like an investor -or at least you think you do- timing may seem to be the most important thing in the world. But that’s just another narrow point of view.

When deflation takes its inevitable place center stage, it will wipe away so much wealth, be it real or virtual or plain zombie, that the timing issue will be irrelevant even retroactively. Whether the total sum of global QE measures is $22 trillion or $42 trillion, its deflation-driven demise will wipe out individuals, companies and nations alike at such a pace, people will wonder why they ever bothered with trying to get the timing right.

This may be hard to understand in today’s world where so many eyes are still focused on central banks and asset- and equity markets, on commodities and precious metals, on housing markets. In that regard, again, it is important to note that there have been no functioning markets for many years. Those eyes are focused on something that merely poses as a market.

For us this was clear years ago. It was never about the timing, it was always about the inevitability. Back in the day there were still lots of voices clamoring for – near-term or imminent – hyperinflation. Not so much now. We always left open the hyperinflation option, but far into the future, only after deflation was done wreaking its havoc. A havoc that will be so devastating you’ll feel silly for ever even thinking about hyperinflation.

Deflation will obliterate our economies as we know them. Imagine an economy for instance where next to no-one sells cars, or houses, or college educations, simply because next to no-one can afford any of it.

Where everything that today is bought on credit will no longer be bought, because the credit will be gone. Where homes are not worth more than the cardboard they’re made of, and still don’t sell.

Where ships won’t sail because letters of credit won’t be issued, where stores won’t open in the morning because they can’t afford their inventory even if it arrives in a nearby port.

As for today’s reality, the Chinese leadership has been eclipsed by its own ignorance about economic systems, the limits of their control over them, and the overall hubris they live in on a daily basis. These people were educated in the 1960s and 70s China of Mao and Deng Xiaoping. In the same air of omnipotence that today betrays all central bankers. Why try to understand the world if you’re the one who shapes it?!

It was obvious this moment would arrive in Beijing as soon as the one millionth empty apartment was counted. There are some 60 million ’empties’ now, a number equal to half the total US housing contingent.

Beijing then heavily promoted the stock market for its citizens, as a way to hide the real estate slump. All the while, it kept the dollar peg going. And now all this is gone. And all that’s left is devaluation. As Bill Pesek put it: “China Adds a Chainsaw to Its Juggling Act”.

Ostensibly to improve the country’s trade position, for lack of a better word. Whether that will work is a huge question. For one thing, the potential increase in capital flight may turn out to be a bigger problem than the devaluation is a solution.

Moreover, one of the main reasons to devalue one’s currency is the idea that then people will start buying your stuff again. But in today’s deflationary predicament, one of the main failures of mainstream economics pops up its ugly head: the refusal to see that many people have little or nothing left to spend.

This as opposed to economists’ theories that people must be sitting on huge savings whenever they don’t spend “what they should”. Ignoring the importance of personal debt levels plays a major part in this. Any which way you define it, the result is a drag on the velocity of money in either a particular economy, or, as we are increasingly witnessing, a major spending slowdown in the entire global economy.

Seen in that light, what good could a 1.9% devaluation (or even a, what is it, super-cubed 5% one, now?!) possibly do when China producer prices fell for the 40th straight month, exports were down 8.3% in July, and cars sell at 30% discounts? Those numbers indicate a fast and furious reduction in spending.

Which in turn lowers the velocity of money in an economy. If money doesn’t move, an economy can’t keep going. If money velocity slows down considerably, so does the entire economy, its GDP, job creation, everything.

This of course is the moment to, once again, point out that we at the Automatic Earth define deflation differently from most. Inflation/deflation is not rising/falling prices, but money and credit supply relative to available good and services, and that, multiplied by the velocity of money.

When this whole debate took off, even before Lehman, there were only a few people I can remember who emphasized the role of deflation the way we did: Steve Keen, Mike Mish Shedlock and Bob Prechter.

And Mish doesn’t even seem think the velocity of money is a big factor, if only because it is hard to quantify. We do though. Steve is a good friend, he’s the very future of economics, and a much smarter man than I am, but still, last time I looked, stumbling over the inflation equals rising prices issue (note to self: bring that up next time we meet). Prechter gets it, but believes in abiotic oil, as Nicole just pointed out from across the other room.

So yeah, we’re sticking out our necks on this one, but after 8+ years of thinking about it, we’re more sure than ever that we must insist. Rising prices are not the same as inflation, and falling prices are but a lagging effect of deflation.

Spending stops when people are maxed out and dead broke. And then prices drop, because no-one can afford anything anymore.

We’ve had a great deal of inflation in the past decade or two, like in US housing. We still have some, for instance in global stock markets and Canada and Australia housing. But these things are nothing but small pockets, where spending persists for a while longer.

Problem is, those pockets pale in comparison to diving -consumer- spending in the US, China, Europe, Japan. Spending that wouldn’t even exist anymore if not for QE, ZIRP and cheap credit.

The yuan devaluation tells us the era of cheap credit is now over. The first major central bank in the world has conceded defeat and acknowledged the limits to its alleged omnipotence.

It always only took one. And then nothing would stand in the way of the biblical plague. It was never a question. Only the timing was. And the timing was always irrelevant.

Power and Compassion

Aug 012015

August 1, 2015 Posted by Raúl Ilargi Meijer at 9:54 am Finance Tagged with: Calais, compassion, EU, Greece, moral values, power, refugees, social fabric, sociopaths, US 9 Responses »

Harris&Ewing “Slaves reunion DC. Ages: 100, 104, 103; Rev. Simon P. Drew, born free.” 1921

Time to tackle a topic that’s very hard to get right, and that will get me quite a few pairs of rolling eyes. I want to argue that societies need a social fabric, a social contract, and that without those they must and will fail, descend into chaos. Five months ago, I wrote the following about Europe:

Europe, The Morally Bankrupt Union

The European Union is busy accomplishing something truly extraordinary: it is fast becoming such a spectacular failure that people don’t even recognize it as one.[..] the Grand European Failure is bound to lead to real life consequences soon, and they’ll be devastating. The union that was supposed to put an end to all fighting across the continent, is about to be the fuse that sets off a range of battles. [..]

The carefully re-crafted relationship with Russia, which took 25 years to build, was destroyed again in hardly over a year, something for which Angela Merkel deserves so much blame it may well end up being her main political legacy.

To its south, the EU faces perhaps its most shameful -or should that be ‘shameless’? – problem, because it doesn’t do anything about it: the thousands of migrants who try to cross the Mediterranean to get to Europe but far too often perish in the process. [..]

But the biggest failure is not even in politics outside of its own territory. The union rots from within. Which starts with its moral bankruptcy, obviously. If you allow yourself to be an active accomplice in the death of over 6000 East Ukrainians, and you simply look away as thousands of migrants die in the seas off your shores, it should not be surprising that you just as easily allow for a humanitarian crisis, like the one in Greece, to develop within your own borders. It comes with the territory, so to speak.

And make no mistake: this absence of moral values is something Europe in its present form will never be able to claim back. Never. The EU has shown itself to be a gross moral failure, and that’s it: the experiment is over. They can’t come back in 10 or 20 years and say: now we want it back, we’re different now. You’d need to have a whole new union, new rules and principles, and new leadership. [..]

What will undo Europe from within is its economic policies. Which are strongly linked to the same moral values issue: inside a union, you cannot let thousands of people go without food and health care while others, a few hundred miles away, drive new Mercs and Beamers over a brand new Autobahn. That’s not a union. That’s a feudal society.

Though it may look out of far left field for those of us -and there are many- who think in economic and political terms only, we cannot do without a conscious definition of a social contract. We need to address the role of compassion, morals, even love, in our societies. If Jesus meant anything, it was that.

There have been times through history when this subject would have been much easier to breach, but we today almost seem to think they are irrelevant, that we can do without them. We can’t. But in the US, people get killed at traffic stops every day, and in Europe, they die of sheer negligence. Developments like these will lead to ‘centers that cannot hold’.

In that part of the media whirlwind that we at the Automatic Earth expose ourselves to, virtually all discussions about our modern world, and what goes wrong with it, which is obviously a whole lot, are conducted in rational terms, in financial and political terminology.

But that’s exactly what we should not be doing. Because it’s never going to get us anywhere. In the end, let alone in the beginning too, we are not rational creatures. And if and when we resort to only rational terms to define ourselves, as well as our world and the societies we create in that world, we can only fail.

For a society to succeed, before and beyond any economic and political features are defined, it must be based solidly on moral values, a moral compass, compassion, humanity and simple decency among its members. And those should never be defined by economists or lawyers or politicians, but by the people themselves. A social contract needs to be set up by everyone involved, and with everyone’s consent. Or it won’t last.

How and why that most basic principle got lost should tell us a lot about where we are today, and about how we got here. Morals seem to have become optional. The 40-hour death struggle of Cecil the lion exemplifies that pretty well. And no, his is not some rare case. The lack of morals involved in killing Cecil is our new normal.

In the US, these values seem to have long since disappeared from very substantial segments of society. A closer look would seem to teach us that this is largely because of the top down approach that comes with an oversized government apparatus that seeks to rule over what are today some 320 million people.

There are multiple reasons why such a government can’t work to make a society successful. First, there are far too many people to rule over; the human brain can’t conceive, other than in completely abstract terms, of meaningful human contact, in whatever shape or form, let alone of compassion, between such numbers of people.

The Catholic church, for all its failures, did succeed in binding a society together, and repeating that across many societies, but it never endeavored to gain control of every single political and economic system. Washington does.

Making morals optional necessarily means they will vanish. All strong societies through history had strong and binding social contracts. Less successful ones did not. We, however, have only financial and legal contracts left, no social ones other than those that are almost entirely optional. We ourselves cannot kill people at will, but our governments can. We -apparently- can still kill lions, though.

The second most important reason why the US, and now the EU with it, are destined to fail, is that their structures, which with the numbers of people involved must of necessity become less democratic with time, inevitably slide into selecting for the exact wrong kind of people, as I’ve often argued before.

Societies this size inevitably select for power hungry sociopaths; there is no other option. It’s a process we even see also in smaller scale societies today. With the advent of serious attempts to utilize Freud’s theories for penetrating people’s unconscious minds, picked up by Goebbels and since perfected by secret services, spin doctors and ad agencies, the world has become a whole other place. Even if most haven’t noticed.

The curious thing is that many separate EU nations for many years did have such compassion and humanity. Which these days are often mistaken for socialism. Which in turn, if we may believe the majority of pundits, is about the worst principle a country can pick to build its society on.

In reality, though, most of it has always simply been a matter of precisely that by which we can, should, judge a society’s success and viability: the extent to which it cares for its weakest and most vulnerable.

That in some cases this has perhaps been taken too far, doesn’t change the fact: we still can’t call a society successful that leaves its weakest to starve by the curb. And it doesn’t matter how much distorted Darwinism and Ayn Randism and neo- or ordo-liberalism one may wish to throw at it. A successful society must take care of all of its members to the extent that it can. Simply because man is a social animal.

Still, the principle of compassion seems to have all but vanished with the development of the European Union. And if there’s one main reason why that Union is doomed to fail, it’s that. It’s not the failed economic policies, it’s not even the increasing power politics that doom it: it’s the relentless drive towards a group of individuals seeking the power to manipulate millions of people they never met, with impunity.

The divergence between individual European nations and the Union seated in Brussels is also the source of much of the division between both. Greece doesn’t want to let its people slide into further misery. Brussels couldn’t care less: Athens has to stick to rules and regulations no matter how many of its children go hungry or how many of its elderly pass away from entirely preventable afflictions.

It’s right there, in that division, that the EU is blowing up itself. You can’t have a viable political or economic union if you don’t take care of the weakest. Thing is, once you got the sociopaths in charge, the inevitability of the process of losing and eroding a social contract gets ignored. Unless and until the people in the streets pick it up again.

No, the biggest issue in Europe is not whether the Union moves toward even closer ties. The biggest issue is that the Union is morally deficient in its core.

Ironically, it’s the Greek people who understand much better than the Dutch and Germans that “without love, it ain’t much”. And they are labeled a less developed society for it. While the less fortunate in Berlin, Paris and Amsterdam continue to receive relatively generous welfare and other benefits, certainly compared to their Greek peers. A two-tier union is not some future concept, it’s here.

And it’s not just Greece. The embarrassing situation with the refugees at Calais is due to the exact same moral quicksand. David Cameron is going to send “dogs and fences”. He’s going to send in dogs to ‘fight’ against people! We’ve seen that kind of thing before. And the military can’t be far behind.

It’s the only answer a certain class of people manage to come up with. After they’ve ignored and tried to wish away an issue they should long have tackled. It’s only when British tourists and truck drivers start complaining that Cameron ‘acts’. The refugees have been at Calais for a long time, during which no. 10 did nothing at all.

Just as disgraceful is the influx of African and Asian refugees on Greek islands that Brussels refuses to do anything about. The Greek population try to do what they can, as do the Italians. But their budgets are all in EU hands now, and Brussels doesn’t care. The EU’s only response is force, not compassion or moral values.

There are mass migrations going on in many parts of the world. They are the inevitable result of the means of mass transportation and mass communication we developed. We have two options: either we facilitate for the inclusion of the refugees in our societies, or we actively help develop their homelands. If we don’t, they will still keep coming, and things will get ugly.

Whichever choice we make, we need to do it in a spirit of humanity. We can’t turn our back on these people, not the Greeks, not the refugees, that can only come back to haunt us. And besides, we don’t have the -moral- right. In the meantime, don’t let’s forget that the number of refugees in Calais pales in comparison to the numbers that land in Greece on a daily basis.

The governments that represent us put us to shame as human beings. But in the end it’s us, ourselves, who allow them to do it.

It may be strange to see a finance site argue that letting finance set society’s values is a dead end, but at the same time we all know what’s involved, we just choose to be blind to it. Man cannot live by money alone, just as he cannot live by bread alone. We are not Christian, but we do remember this:

Matthew 4-4: “But he answered and said, “It is written: ‘A man does not live by bread alone, but by every word that proceeds from the mouth of God.’ “

Again, this is not optional. We can either get this right, or we’ll descend into chaos. Something many of our ‘leaders’ would not only welcome, but are actively instigating. It’s up to us, and that means you too, to keep them from doing it.

Take a look at the black kids getting killed in the US, look at the Greek children and grandmas who don’t have medicine or food, look at the refugees that are part of today’s mass migration, and who get dogs send in against them, look at all the areas in the world where our -western- interference has caused mass misery for profit, and if you still don’t get it, take a look at Cecil, and what his death symbolizes about our societies and values.

Societies which we are all part of, and values we should share in order to maintain our societies as going concerns. We may well have just one last chance to get it right. But that chance is fading as fast as our penchant for compassion. The lunatics have truly taken over.

Snowden, Putin, Greece: It’s All The Same Story

Jun 142015

June 14, 2015 Posted by Raúl Ilargi Meijer at 7:09 pm Finance Tagged with: EU, Greece, Greenwald, IMF, narrative, NATO, propaganda, Putin, Snowden, spin, US 13 Responses »

Milton Greene “Actress Marilyn Monroe in bed” 1955

Through the last decades, as we have been getting ever more occupied trying to be what society tells us is defined as successful, we all missed out on a lot of changes in our world. Or perhaps we should be gentle to ourselves and say we’re simply slow to catch up.

Which is somewhat curious since we’ve also been getting bombarded with fast increasing amounts of what we’re told is information, so you’d think it might have become easier to keep up. It was not.

While we were busy being busy we for instance were largely oblivious to the fact the US is no longer a beneficial force in the world, and that it doesn’t spread democracy or freedom. Now you may argue to what extent that has ever been true, and you should, but the perception was arguably much closer to the truth 70 years ago, at the end of WWII, then it is today.

Another change we really can’t get our heads around is how the media have turned from a source of information to a source of – pre-fabricated – narratives. We’ll all say to some extent or another that we know our press feeds us propaganda, but, again arguably, few of us are capable of pinpointing to what extent that is true. Perhaps no big surprise given the overdose of what passes for information, but duly noted.

So far so good, you’re not as smart as you think. Bummer. But still an easy one to deny in the private space of your own head. If you get undressed and stand in front of the mirror, though, maybe not as easy.

What ails us is, I was going to say perfectly human, but let’s stick with just human, and leave perfection alone. What makes us human is that it feels good to be protected, safe, and prosperous. Protected from evil and from hard times, by a military force, by a monetary fund, by a monetary union. It feels so good in fact that we don’t notice when what’s supposed to keep us safe turns against us.

But it is what happens, time and again, and, once again arguably, ever more so. What we think the world looks like is increasingly shaped by fiction. Perhaps that means we live in dreamtime. Or nightmare time. Whatever you call it, it’s not real. Pinching yourself is not going to help. Reading Orwell might.

The Sunday Times ran a story today -which the entire world press parroted quasi verbatim- that claimed MI6 had felt compelled to call back some of its operatives from the ‘field’ because Russia and China had allegedly hacked into the encrypted files Edward Snowden allegedly carried with him to Russia (something Snowden denied on multiple occasions).

Glenn Greenwald’s take down of the whole thing is – for good reasons- far better than I could provide, and it’s blistering, it leaves not a single shred of the article. Problem is, the die’s been cast, and many more people read the Times and all the media who’ve reprinted its fiction, than do read Greenwald:

The Sunday Times’ Snowden Story Is Journalism At Its Worst

Western journalists claim that the big lesson they learned from their key role in selling the Iraq War to the public is that it’s hideous, corrupt and often dangerous journalism to give anonymity to government officials to let them propagandize the public, then uncritically accept those anonymously voiced claims as Truth. But they’ve learned no such lesson. That tactic continues to be the staple of how major US and British media outlets “report,” especially in the national security area. And journalists who read such reports continue to treat self-serving decrees by unnamed, unseen officials – laundered through their media – as gospel, no matter how dubious are the claims or factually false is the reporting.

We now have one of the purest examples of this dynamic. Last night, the Murdoch-owned Sunday Times published their lead front-page Sunday article, headlined “British Spies Betrayed to Russians and Chinese.” Just as the conventional media narrative was shifting to pro-Snowden sentiment in the wake of a key court ruling and a new surveillance law, the article claims in the first paragraph that these two adversaries “have cracked the top-secret cache of files stolen by the fugitive US whistleblower Edward Snowden, forcing MI6 to pull agents out of live operations in hostile countries, according to senior officials in Downing Street, the Home Office and the security services.”

Please read Greenwald’s piece. It’s excellent. Turns out the Times made it all up. At the same time, it’s just one example of something much more expansive: the entire world view of the vast majority of Americans and Europeans, and that means you too, is weaved together from a smorgasbord of made-up stories, narratives concocted to make you see what someone else wants you to see.

Last week, the Pew Research Center did a survey that was centered around the question what ‘we’ should do if a NATO ally were attacked by Russia. How Pew dare hold such a survey is for most people not even a valid question anymore, since the Putin as bogeyman tale, after a year and change, has taken root in 99% of western brains.

And so the Pew question, devoid of reality as it may be, appears more legit than the question about why the question is asked in the first place. NATO didn’t really like the results of the survey, but enough to thump some more chests. Here’s from an otherwise wholly forgettable NY Times piece:

Poles were most alarmed by Moscow’s muscle flexing, with 70% saying that Russia was a major military threat. Germany, a critical American ally in the effort to forge a Ukraine peace settlement, was at the other end of the spectrum. Only 38% of Germans said that Russia was a danger to neighboring countries aside from Ukraine, and only 29% blamed Russia for the violence in Ukraine. Consequently, 58% of Germans do not believe that their country should use force to defend another NATO ally. Just 19% of Germans say NATO weapons should be sent to the Ukrainian government to help it better contend with Russian and separatist attacks.

Do we need to repeat that Russia didn’t attack Ukraine? That if after all this time there is still zero proof for that, perhaps it’s time to let go of that idea?

Over the past week, there have been numerous reports of NATO ‘strengthening’ its presence in Eastern Europe and the Baltics. Supposedly to deter Russian aggression in the region. For which there is no evidence. But if you ask people if NATO should act if one of its allies were attacked, you put the idea in people’s heads that such an attack is a real risk. And that’s the whole idea.

This crazy piece from the Guardian provides a very good example of how the mood is manipulated:

US And Poland In Talks Over Weapons Deployment In Eastern Europe

The US and Poland are discussing the deployment of American heavy weapons in eastern Europe in response to Russian expansionism and sabre-rattling in the region in what represents a radical break with post-cold war military planning. The Polish defence ministry said on Sunday that Washington and Warsaw were in negotiations about the permanent stationing of US battle tanks and other heavy weaponry in Poland and other countries in the region as part of NATO’s plans to develop rapid deployment “Spearhead” forces aimed at deterring Kremlin attempts to destabilise former Soviet bloc countries now entrenched inside NATO and the EU.

Warsaw said that a decision whether to station heavy US equipment at warehouses in Poland would be taken soon. NATO’s former supreme commander in Europe, American admiral James Stavridis, said the decision marked “a very meaningful policy shift”, amid eastern European complaints that western Europe and the US were lukewarm about security guarantees for countries on the frontline with Russia following Vladimir Putin’s seizure of parts of Ukraine. “It provides a reasonable level of reassurance to jittery allies, although nothing is as good as troops stationed full time on the ground, of course,” the retired admiral told the New York Times.

NATO has been accused of complacency in recent years. The Russian president’s surprise attacks on Ukraine have shocked western military planners into action. An alliance summit in Wales last year agreed quick deployments of NATO forces in Poland and the Baltic states. German mechanised infantry crossed into Poland at the weekend after thousands of NATO forces inaugurated exercises as part of the new buildup in the east. Wary of antagonising Moscow’s fears of western “encirclement” and feeding its well-oiled propaganda effort, which regularly asserts that NATO agreed at the end of the cold war not to station forces in the former Warsaw Pact countries, NATO has declined to establish permanent bases in the east.

It’s downright borderline criminally tragic that NATO claims it’s building up its presence in the region as a response to Russian actions. What actions? Nothing was going on until ‘we’ supported a coup in Kiev, installed a puppet government and let them wage war on their own citizens. That war killed a lot of people. And if Kiev has any say in the matter, it ain’t over by a long shot. Poroshenko and Yats still want it all back. So does NATO.

When signing a post-cold war strategic cooperation pact with Russia in 1997, Nato pledged not to station ground forces permanently in eastern Europe “in the current and foreseeable security environment”. But that environment has been transformed by Putin’s decision to invade and annex parts of Ukraine and the 1997 agreement is now seen as obsolete.

Meanwhile, Russia re-took Crimea without a single shot being fired. But that is still what the western press calls aggression. Russia doesn’t even deem to respond to ‘our’ innuendo, they feel there’s nothing to be gained from that because ‘our’ stories have been pre-cooked and pre-chewed anyway. Something that we are going to greatly regret.

There are all these alphabet soup organizations that were once set up with, one last time, arguably, good intentions, and that now invent narratives because A) they can and B) they need a reason to continue to exist. That is true for NATO, which should have been dismantled 25 years ago.

It’s true for the IMF, which was always only a tool for US domination. It’s true for the CIA and FBI, which might keep you safe if that was their intent, but which really only function to keep themselves and their narrow group of paymasters safe.

It’s also true for political unions, like the US and EU. Let’s leave the former alone for now, though much could be said and written about the gaping distance between what the Founding Fathers once envisioned for the nation and what it has since descended into.

Still, that is a story for another day. When we can find our way through the web of narratives that holds it upright. Like the threat from Russia, the threat from China, the threat from all the factions in the Middle East the US itself (helped) set up.

The EU is much younger, though its bureaucrats seem eager to catch up with America in fictitious web weaving. We humans stink at anything supra-national. We can have our societies cooperate, but as soon as we invent ‘greater’ units to incorporate that cooperation, things run off the rails, the wrong people grab power, and the weaker among us get sacrificed. And that is what’s happening once again, entirely predictably, in Greece.

That Spain’s two largest cities, Barcelona and Madrid, have now sworn in far-left female mayors this week will only serve to make things harder for Athens. Brussels is under siege, and it will defend its territory as ‘best’ it can.

What might influence matters, and not a little bit, is that Syriza’s Audit Commission is poised to make public its findings on June 18, and that they yesterday revealed they have in their possession a 2010 IMF document that allegedly proves that the Fund knew back then, before the first bail-out, that the Memorandum would result in an increase in Greek debt.

That’s potentially incendiary information, because the Memorandum -and the bailout- were aimed specifically at decreasing the debt. That -again, allegedly- none of the EU nations have seen the document at the time -let’s see how the spin machine makes that look- doesn’t exactly make it any more acceptable.

Nor of course does the fact that Greece’s debt could and should have been restructured, according to the IMF’s own people and ‘standards’, but wasn’t until 2012, when the main European banks had been bailed out with what was subsequently shoved onto the shoulders of the Greek population, and had withdrawn their ‘assets’ from the country, a move that made Greece’s position that much harder.

The narrative being sold through the media in other eurozone nations is that Greece is to blame, that for instance German taxpayers are on the hook for Greek debts, while they’re really on the hook for German banks’ losing wagers (here’s looking at you, Deutsche!). And that is, no matter how you twist it, not the same story. It’s again just a narrative.

Once more, and we’ve said it many times before, Brussels is toxic -and so is the IMF- and Greece should leave as soon as possible, as should Italy, Spain, Portugal. And we should all resist the spin-induced attempts to demonize Putin, Athens and China any further, and instead focus on the rotten apples in our own basket(s).

In short, the propaganda we should be worried about is not Russia’s, it’s our own. And it comes from just about every news article we’re fed. We’re much less than six degrees removed from Orwell.

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