Jan 072018
 
 January 7, 2018  Posted by at 10:43 am Finance Tagged with: , , , , , , , , ,  


Edward Hopper Gloucester Beach, Bass Rocks 1924

 

UPDATE: There still seems to be a problem with our Paypal widget/account that makes donating -both for our fund for homless and refugees in Greece, and for the Automatic Earth itself- hard for some people. What happens is that for some a message pops up that says “This recipient does not accept payments denominated in USD”. This is nonsense, we do. We notified Paypal weeks ago.

We have no idea how many people have simply given up on donating, but we can suggest a workaround (works like a charm):

Through Paypal.com, you can simply donate to an email address. In our case that is recedinghorizons *at* gmail *com*. Use that, and your donations will arrive where they belong. Sorry for the inconvenience.

 

 

 

Everyone Knows Pensions Are Screwed (Felder)
Shares Have Gone Through The Roof: Could They Possibly Go Even Higher? (G.)
States Threaten “Economic Civil War” On Washington (ZH)
UK Companies Will Face Huge New VAT Burden After Brexit (G.)
China To Move Millions Of People From Homes In Anti-Poverty Drive (G.)
Trump Takes Credit For Olympics Talks Between North and South Korea (G.)
11 Saudi Princes Sent to Maximum-Security Prison After Protesting Utility Bills
Scientists Lament The Likely Loss Of ‘Most Of The World’s Coral Reefs’ (Grist)

 

 

So Why Are They Investing In The Exact Same Fashion?

Everyone Knows Pensions Are Screwed (Felder)

The average pension fund assumes it can achieve a 7.6% rate of return on its assets in the future. As noted in Monday’s Wall Street Journal, the majority of these assets are invested in the stock market. The rest are invested in bonds, real estate and alternatives. An aggregate bond index fund yields 2.5% today. Real estate investment trusts, as a group, yield nearly 4%. Alternatives are a mixed bag but the point is that, in order for pensions to meet this 7.6% rate of return they require that stocks (and, to a much lesser degree, alternatives) do far better than even that optimistic assumption because the balance of the portfolio is nearly guaranteed to fall short of that mark. The trouble is that for stocks to return anywhere near 8% they would need to fall more than 50% first.

Warren Buffett famously said, “the price you pay determines your rate of return.” John Hussman puts an even finer point on it this week showing that if you want an 8% rate of return over the coming 12 years you should not be willing to pay more than 1,281 for the S&P 500 today. Currently, the index trades at roughly 2,690 thus it would take a major stock market crash for investors to have the opportunity to invest at a level that would enable them to achieve anything close to what pensions now require. But if stocks were to crash again, as they did after the last two times valuations reached current extremes, that would obviously create other problems for pensions that are now fully invested in risk assets and already underfunded to the tune of several trillion dollars.

Even if they don’t crash, however, it is now almost inevitable that pensions will face a massive crisis sometime over the next decade or so. Still, it’s fascinating to note that even though this issue is common knowledge today, investors as a group have decided to ensure they will come to the very same fate. Passive investing, which has exploded in popularity in recent years, is essentially a way for individual investors to model pension investing, typically with an even greater exposure to equities.

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Of course they could. But Jeremy Grantham’s ‘Melt-Up’ is being criticized by quite a few voices. The question is not ‘could they rise’, but ‘how long until they will plunge’?

Shares Have Gone Through The Roof: Could They Possibly Go Even Higher? (G.)

Shares are expensive – keep buying them. That appears to be investors’ consensus view. The storming run for stock markets in 2017 seemed almost too good to be trusted, but 2018 has started in similar style. In the US, the Dow Jones industrial average soared past 25,000 last week, almost exactly 12 months after 20,000 was achieved. In the UK, the FTSE 100 index stands at a record high. Even the Japanese market, for years an international laggard, is back at a 26-year high. Last year the MSCI World index – a proxy for a global stock market – delivered a return of 20.1%. Optimists expect more of the same. The other camp warns that a dangerous bubble is about to burst. Both sides could probably agree that the recent run in stock markets has been astonishing.

Or, rather, the truly remarkable feature has been the steady and unbroken pace of the march upwards. Stock markets, we used to think, offered thrills, spills and rollercoaster rides. Individual shares still provide such excitement, of course, but the overall market seems bizarrely free of stress. Andrew Lapthorne, who crunches the market numbers for French bank Société Générale, called 2017 “the year volatility died” in his end-of-year round-up. He wrote: “Those of us expecting greater market turbulence in 2017 could not have been more wrong. Not only did global equity markets perform well, but they did so with such low volatility and consistency that, if this were a fund, it would perhaps merit a visit from the authorities to check exactly what you were up to.”

What happened? First, investors seem to have decided that rising interest rates in the US, a big worry a year ago, are not the bogeyman they seemed. The US Federal Reserve has been a protective nurse. Rate rises have been gradual, and ultra-cheap money has been followed by very cheap. A US rate of 1.5% ain’t so bad. Second, President Donald Trump’s administration, amid its chaos and crises, has delivered the policy investors in companies cared about most: corporate tax cuts. Maybe a growth-generating splurge on infrastructure, the second part of his economic agenda, will follow.

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More of a partisan thing.

States Threaten “Economic Civil War” On Washington (ZH)

The new year has only just begun, but already Democratic politicians in the country’s largest high-tax states are threatening lawsuits and publicly touting proposed workarounds to help compensate tax payers for the elimination of the state and local tax (SALT) deductions which were dramatically rolled back, along with deductions for mortgage interest, as part of the White House’s tax reform plan. During his state of the state address earlier this week, New York Mayor Andrew Cuomo threatened to sue the federal government over the tax bill, claiming that the plan is unconstitutional and overly burdensome to New Yorkers. Cuomo said that the new law could raise some families’ taxes by as much as 25% and said the plan amounted to “double taxation.”

He later accused President Donald Trump of waging “economic civil war” on states that didn’t back him during the election, and promised to consider workarounds that would help lower residents’ federal tax bills, according to Bloomberg. Then, on Thursday, California Senate President Pro Tempore Kevin de Leon introduced a bill that the Washington Post said could become a model for how blue states push back against the Trump tax plan. According to the Trump tax plan, which took effect in January, taxpayers can only deduct up to $10,000 in state and local taxes when they file their federal return.

“De Leon’s bill, if it became law, would essentially allow Americans to deduct much more than the $10,000 limit by redirecting state tax payments into a type of charitable contribution that would be later redirected to the state. The new federal tax law, which was supported only by Republicans, went into effect in January and does not include any caps on charitable deductions. “The Republican tax plan gives corporations and hedge-fund managers a trillion-dollar tax cut and expects California taxpayers to foot the bill,” de León said in a statement. “We won’t allow California residents to be the casualty of this disastrous tax scheme.” Several states have said they are looking for ways to challenge or work around the law, particularly states such as California and New York where residents pay a higher level of local taxes that they have traditionally been able to deduct without any limits. New York Gov. Andrew M. Cuomo (D) has said he is looking at a way of challenging the new law in court.”

Then on Friday, incoming New Jersey Gov. Democrat Phil Murphy said he’s working on a plan similar to California’s that would allow taxpayers to pay a percentage of their state income taxes as if they were a charitable donation. The money will eventually be redirected to the state. And there’s nothing in the Republican tax plan that limits charitable deductions. Predictably, the White House has threatened to push back against these strategies. During a televised interview this week, Gary Cohn said the administration would be looking into ways to stop states from implementing these work-arounds.

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Seems easy to avoid.

UK Companies Will Face Huge New VAT Burden After Brexit (G.)

More than 130,000 UK firms will be forced to pay VAT upfront for the first time on all goods imported from the European Union after Brexit, under controversial legislation to be considered by MPs on Monday. The VAT changes spelled out in the taxation (cross-border trade) bill – one of a string of Brexit laws passing through parliament – are causing uproar among UK business groups, which say that they will create acute cashflow problems and huge additional bureaucracy. Labour and Tory MPs and peers said that the only way to avoid the VAT Brexit penalty would be to stay in the customs union or negotiate to remain in the EU-VAT area. On Sunday night the Tory chair of the all-party Treasury select committee, Nicky Morgan, said the committee would launch an urgent investigation.

She also said she would be writing to the head of HM Revenue and Customs to see what contingency plans were being made to avoid hitting UK firms. The bill, which has its second reading in the Commons on Monday, spells out clearly how VAT would have to be paid upfront by companies. The government’s own explanatory notes on the bill say the existing regime will end “so that import VAT is charged on all imports from outside the UK”. The Labour MP and former minister Chris Leslie said that the VAT hit to firms was “yet another aspect of Brexit that the Leave campaign failed to inform the public about”. He added that he would be tabling urgent amendments to ensure the UK remained in the EU VAT area – a move that would enrage pro-Brexit MPs.

UK companies that import machine parts or goods ready for sale from the EU can currently register with HMRC to bring them into the UK free of VAT. They register the VAT charge and reclaim it later, all as a paper exercise. VAT is added to the price of the product whenever it is sold to the final customer. Without a VAT deal with Brussels, importers will have to pay the VAT upfront in cash and then recover the money later, creating a huge outflow of funds before they can be recouped.

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“Once made, a promise is as weighty as a thousand ounces of gold..”

China To Move Millions Of People From Homes In Anti-Poverty Drive (G.)

Over the next three years Xi Jinping’s anti-poverty crusade – which the Communist party leader has declared one of the key themes of his second five-year term – will see millions of marginalised rural dwellers resettled in new, government-subsidised homes. Some are being moved to distant urban housing estates, others just to slightly less remote or unforgiving rural locations. Other poverty-fighting tactics – including loans, promoting tourism and “pairing” impoverished families with local officials whose careers are tied to their plight – are also being used. By 2020, Beijing hopes to have helped 30 million people rise above its official poverty line of about 70p a day while simultaneously reinforcing the already considerable authority of Xi, now seen as China’s most powerful ruler since Mao Zedong.

China’s breathtaking economic ascent has helped hundreds of millions lift themselves from poverty since the 1980s but in 2016 at least 5.7% of its rural population still lived in poverty, according to a recent UN report, with that number rising to as much as 10% in some western regions and 12% among some ethnic minorities. A recent propaganda report claimed hitting the 2020 target would represent “a step against poverty unprecedented in human history”. In his annual New Year address to the nation last week Xi made a “solemn pledge” to win his war on want. “Once made, a promise is as weighty as a thousand ounces of gold,” he said. The current wave of anti-poverty relocations – a total 9.81 million people are set to be moved between 2016 and 2020 – are taking place across virtually the whole country, in 22 provinces.

[..] Mark Wang, a University of Melbourne scholar who studies Beijing’s use of resettlements to fight poverty, attributed Xi’s focus on the issue partly to the seven years he spent in the countryside during Mao’s Cultural Revolution. Xi was born into China’s “red aristocracy” – the son of the revolutionary elder Xi Zhongxun – but was exiled to the parched village of Liangjiahe in the 1960s after his father strayed to the wrong side of Mao. Wang claimed those years of rural hardship continued to shape Xi’s political priorities: “From the bottom of his heart he knows the Chinese farmers … He understands what they want … He even knows the dirty language the people use in the fields when they are farming.”

But hard-nosed political calculations also explained Xi’s bid to paint himself as a champion of the poor – an effort undermined by a recent crackdown on migrants in Beijing which has reportedly seen tens of thousands of poor workers forced from the capital. “How can you make sure a billion people trust you and say: ‘This is our strong leader?’” asked Wang, who argued one answer was waging war on poverty.

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Dunk.

Trump Takes Credit For Olympics Talks Between North and South Korea (G.)

Donald Trump said on Saturday he was open to talking to Kim Jong-un and hoped good could come from negotiations between North and South Korea over this year’s Winter Olympics in Pyeongchang. The US president also took credit for those talks, saying: “If I weren’t involved they wouldn’t be talking about Olympics right now. They’d be doing no talking or it would be much more serious.” North and South Korea have agreed to discuss cooperation on the games as well as other issues in rare meetings set to begin on Tuesday in Panmunjom, a village that straddles the demilitarised zone between the two countries. Amid international concern over Pyongyang’s ballistic missile and nuclear programmes, the talks will be the first staged since December 2015. The discussions will be held at the Peace House on the South Korean side of Panmunjom.

[..] Speaking to reporters at Camp David in Maryland on Saturday, at the end of a week marked by the publication of an explosive book about his administration and his mental capacity for his job, the president was asked if he would speak to Kim on the telephone. “Sure, I believe in talking,” he said. “… Absolutely I would do that, no problem with that at all.” Asked if that meant there would be no prerequisites for such talk, the president said: “That’s not what I said at all.” Trump added: “[Kim] knows I’m not messing around, not even a little bit, not even 1%. He understands that. “At the same time, if we can come up with a very peaceful and very good solution, we’re working on it with [secretary of state] Rex [Tillerson], we’re working on it with a lot of people. “If something good can happen and come out of those talks it would be a great thing for all of humanity. That would be a great thing for the world. Very important.”

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Prines have been arrested, tortured, forced to sign away their fortunes. But now they protest over water bills? And think they’ll win that one?

11 Saudi Princes Sent to Maximum-Security Prison After Protesting Utility Bills

Saudi authorities made a fresh round of arrests of royal-family members as a group of princes staged a palace protest in the capital over the non-payment of their electricity and water bills. Security services on Thursday arrested the 11 princes after they refused to leave Qasr Al-Hokm in Riyadh, Saudi Arabia’s Attorney General, Sheikh Saud Al Mojeb, said in an emailed statement. The princes, who objected to a decree that ordered the state to stop paying their utility bills, will be held at al-Ha’er prison pending their trial, Al Mojeb said. “No one is above the law in Saudi Arabia, everyone is equal and is treated the same as others,” Al Mojeb said. “Any person, regardless of their status or position, will be held accountable should they decide not to follow the rules and regulations of the state.”

In November, authorities swept up dozens of Saudi Arabia’s richest and most influential people, including princes and government ministers, and detained them at the Ritz-Carlton in Riyadh. The arrests were ordered by a newly established anti-corruption committee, headed by Crown Prince Mohammed bin Salman. The prince’s anti-graft drive appeared designed to tap into a popular vein among young Saudis who are bearing the brunt of low oil prices and complaining, privately and on social media, that the kingdom’s elite were above the rule of law. King Salman on Saturday ordered extra pay for Saudi government workers and soldiers this year after the implementation of value-added taxation and a surge in fuel prices stirred grumbling among citizens, highlighting the kingdom’s struggle to overhaul its economy without risking a public backlash.

The handouts will cost the state more than 50 billion riyals ($13.3 billion), Saud Al-Qahtani, an adviser to the royal court, said on his Twitter account. The princes arrested at the palace were also seeking compensation for a death sentence that was issued against one of their cousins, who had been convicted of killing another man and executed in 2016, according to Al Mojeb’s statement. Earlier Saturday, the Jeddah-based newspaper Okaz reported the princes had been arrested. The Al-Ha’er facility south of Riyadh is one of Saudi Arabia’s maximum-security prisons. Many of Saudi Arabia’s Islamic militants who have fought abroad are held there.

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That’s where the life is.

Scientists Lament The Likely Loss Of ‘Most Of The World’s Coral Reefs’ (Grist)

“Before the 1980s, mass bleaching of corals was unheard of,” Terry Hughes, a coral scientist at Australia’s James Cook University and lead author of the new study, said in a statement. Hughes personally surveyed thousands of miles of the Great Barrier Reef during the 2015 and 2016 bleaching. “It broke my heart,” he told the Guardian last year. The new study finds that 94% of surveyed coral reefs have experienced a severe bleaching event since the 1980s. Only six sites surveyed were unaffected. They are scattered around the world, meaning no ocean basin on Earth has been entirely spared. The implications of these data in a warming world, taken together with other ongoing marine stressors like overfishing and pollution, are damning.

“It is clear already that we’re going to lose most of the world’s coral reefs,” says study coauthor Mark Eakin, coordinator of the National Oceanic and Atmospheric Administration’s Coral Reef Watch program. He adds that by 2050, ocean temperatures will be warm enough to cause annual bleaching of 90% of the world’s reefs. For conservation biologists like Josh Drew, whose work focuses on coral reefs near Fiji, that loss of recovery time amounts to a “death warrant for coral reefs as we know them.” “I’m not saying we’re not going to have reefs at all, but those reefs that survive are going to be fundamentally different,” says Drew, who is not affiliated with the new study. “We are selecting for corals that are effectively weedy, for things that can grow back in two to three years, for things that are accustomed to having hot water.”

Reefs are incalculably important not only as a harbor for life — they shelter about one-quarter of all marine species in just a half-percent of the ocean’s surface area — but also for human nutrition and many nation’s economies.

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Jul 212015
 
 July 21, 2015  Posted by at 10:05 am Finance Tagged with: , , , , , , , , ,  


Harris&Ewing The White House kitchen, Washington DC 1909

Greek Banks Face Full Nationalisation (BBC)
Greek Banks Face Stress Tests At The Worst Time (Guardian)
National Bank of Greece Creditors Offer Funds to Prevent Losses (Bloomberg)
Greece: Plea For Unity As Banks Reopen (Guardian)
How Bad Things Were for Greek Banks When Capital Controls Were Introduced (BBG)
Syriza Inherited A Non-State (Fouskas and Dimoulas)
Commodity Rout Worsens as Prices Tumble to Lowest Since 2002 (Bloomberg)
Gold, Silver Near Five-Year Lows in Asia Trade (WSJ)
Why Gold Is Falling And Won’t Get Up Again (MarketWatch)
Greek VAT Rise Hurts As Bailout Terms Start To Bite (Reuters)
Yanis Varoufakis: Greece ‘Made Mistakes, There’s No Doubt’ (CNN)
In Greek Crisis, One Big Unhappy EU Family (Reuters)
“Athens Streets Will Fill With Tanks”: Kathimerini Reveals Grexit Shocker (ZH)
German Government Divided Over Greece (Handelsblatt)
How Can Greece Take Charge? (New Yorker)
Hollande Calls For Vanguard Of States To Lead Strengthened Eurozone (EUOberver)
Fed Tells Big Banks to Shrink (WSJ)
US Banks Prepare For Oil And Gas Company Loans To Worsen (Reuters)
BRICS Countries Launch New Development Bank In Shanghai (BBC)
Pope Francis Leading The New American (Socialist) Revolution (Paul B. Farrell)
Earth’s Most Famous Climate Scientist Issues Bombshell Sea Level Warning (Slate)

The Greeks better be fast then, or there’ll be nothing left to nationalize. The banks are part of the €50 billion asset sales plan.

Greek Banks Face Full Nationalisation (BBC)

Just because the doors of Greek banks are open today, don’t be fooled into thinking they and the Greek economy are anywhere near back to recovery. There are still major restrictions on the ability of their customers to obtain their cash or move it around: a) withdrawals per week are capped at €420; b) there is a ban on using deposits to repay loans early (because many Greeks would rather repay debts than risk seeing their savings wiped out in a bank crash or in a so-called bail-in which would see savings converted to bank shares of dubious value); c) it is still incredibly difficult for small and medium size businesses to purchase vital raw materials or other goods from abroad, because banks won’t make new loans and there are severe restrictions on foreign payments.

The symbolic importance of the ECB turning on the emergency lending tap again was important, but it has only been turned on a fraction. It has given enough additional Emergency Liquidity Assistance, €900m, to keep the banks alive in a technical sense. There is no possibility of them thriving for months and even possibly years. To put it in a Hellenic nutshell, the banks and the Greek economy remain in intensive care. The transmission of money is being facilitated in the most basic way, but there is no creation of new credit; and this credit freeze is a major impediment to consumer spending, and – perhaps more importantly – will lead to many businesses going bust in the coming weeks and months.

Which gives a certain frisson to a statement made only in May by Europe’s top banking supervisor, Daniele Nouy, chair of the so-called Single Supervisory Mechanism, the bank supervisory arm of the ECB. She said of Greek banks, in an interview with the Wall Street Journal, that “these banks have gone through important restructuring, important recapitalisations and a redefinition of their business models. They have never been better equipped to go through this kind of stressful situation”. Really? Just a few days ago, eurozone leaders and the IMF more or less pronounced the entire Greek banking system kaput, with their declaration that the banks need additional capital of €25bn euros – which, relative to the size of the Greek economy, represents one of the biggest banking black holes in the history of capitalism.

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“The Greek banks, stripped of many of their assets by the ECB, will need the ECB to make a reappearance in Athens to aid their recovery.”

Greek Banks Face Stress Tests At The Worst Time (Guardian)

Plenty of dangers lie in wait for Greek banks. Already short of cash, they may need lots more when stress tests of their solvency are carried out in a month or two. And unable to access the international money markets, they will be in a similar position to the Greek god Telephus, who was wounded by Achilles and yet needed Achilles to return as a doctor before he could be healed. The Greek banks, stripped of many of their assets by the ECB, will need the ECB to make a reappearance in Athens to aid their recovery. On a day when the Greek banks opened their doors for the first time in three weeks, the debate about future funding needs seemed far away.

Allowing access to the unknown treasures found in countless deposit boxes triggered a cheer, especially among the better off over-60s, if a quick glance at the queues outside branches was anything to go by. A couple of months from now, the story could take a grim turn. Not only will hundreds of millions of deposits have been withdrawn in that time, the weakening effects of a broader economic slowdown will have taken their toll. For one thing, the economy is likely to be another 5% smaller by the autumn than when the banks were stress-tested last time. Many businesses and personal customers will have acquired bigger debts with their banks. Others will have declared themselves bankrupt.

And this deterioration in loan quality will be reflected in a lower credit rating and a bigger need for replacement funding. The big four – Piraeus, Alpha Bank, Eurobank and National Bank of Greece – are already underpinned by €130bn of ECB funds. As their liquidity squeeze intensifies, that figure could soar. Swiss investment bank UBS warned that the stress tests may reveal a situation that is so bad the government will be forced to follow Cyprus and impose a haircut on all deposit accounts containing more than €100,000 . Even the hint of such a move will cause more panic. No doubt the ECB is working hard to limit any further harm.

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“As sophisticated investors in financial institutions, our clients would consider increasing their financial commitments to NBG under appropriate circumstances..” Appropriate meaning “All Your Base Are Belong To Us”

National Bank of Greece Creditors Offer Funds to Prevent Losses (Bloomberg)

A group of senior creditors to National Bank of Greece said they’ll consider recapitalizing the troubled lender to avoid incurring losses on their bonds. “As sophisticated investors in financial institutions, our clients would consider increasing their financial commitments to NBG under appropriate circumstances,” Shearman & Sterling LLP, the law firm representing the group, wrote in a July 17 letter to international creditors including the ECB and obtained by Bloomberg. “Our clients intend to ensure that their rights under all applicable laws are fully respected.” Greece’s tentative bailout deal puts senior bank bondholders explicitly in line for losses because it requires the country to adopt the EU’s Bank Resolution and Recovery Directive as a condition for aid.

Greece’s existing insolvency law excludes a bail-in of the debt, according to Fitch Ratings. The bondholders are seeking to ensure that Greece explores private-sector solutions before resorting to a bank resolution and that senior creditors are protected should it come to that, according to the letter, which was also addressed to the European Stability Mechanism, the vehicle set up to finance loans to distressed euro area countries, the president of the Eurogroup and the governor of the Bank of Greece. The group holds about 25% of NBG’s €750 million of senior bonds due April 2019, according to a person familiar with the matter who asked not to be identified because the information is private.

The bonds rose to 37 cents on the euro today after dropping by more than 70% since the start of the year to a record 21 cents on July 8, according to data compiled by Bloomberg. The notes represent about 40% of the €1.9 billion of privately-held senior debt issued by Greece’s four major banks, according to data compiled by Bloomberg. “The recent crisis arose entirely from decisions made by Greek and European political and monetary authorities that were wholly outside of NBG’s control,” the letter said. “Before additional capital and liquidity can be made available to Greek banks such as NBG, investors such as our clients, must have confidence in the Greek and European supervisory and resolution frameworks, and be assured of fair treatment.”

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“What worries me is that some people still think that there would be no austerity if we were out of the euro. This argument is absolutely false,” said state minister Nikos Pappas.”

Greece: Plea For Unity As Banks Reopen (Guardian)

The reopening of banks and repayment of debts returned Greece to a semblance of normality on Monday but the ruling Syriza party admitted it faced considerable political challenges in pushing through reforms. After a drama-filled month that saw the country come close to being ejected from the eurozone, the government, led by the prime minister, Alexis Tsipras, appealed for unity as it faced another make-or-break vote in Athens on Wednesday. As customers queued outside banks – after lenders opened their doors for the first time in three weeks – officials warned that the left-led coalition could fall if dissidents failed to endorse reforms set by international creditors as the price of further aid.

“What worries me is that some people still think that there would be no austerity if we were out of the euro. This argument is absolutely false,” said state minister Nikos Pappas, one of Tsipras’s closest aides. Addressing reporters, the foreign minister Nikos Kotzias said he believed fresh elections were “inevitable” in September or October because the government could not continue depending on the political opposition for support. The first package of reforms voted through by the Greek parliament last week was passed with the backing of three opposition parties, which have argued that Greece must be kept in the eurozone at any cost. But government officials have said elections could be held as early as 13 September amid fears that such an arrangement cannot last in the long term.

Amid mounting talk of early elections, Nikos Filis, the ruling Syriza party’s chief parliamentary representative, highlighted the dangers that lay ahead, saying the government would collapse if rebels rejected the measures. “When a government does not have [the support of] 120 MPs, legally there is no issue but politically there is,” he said. Last week, Syriza saw its support being whittled down from 149 to 123 MPs as lawmakers broke ranks over the controversial terms of an aid package worth as much as €86bn (£60bn) to keep the insolvent country afloat. The reforms included changes to the Greek pension system and VAT regime. The loss of support has meant that Tsipras now has a two-pronged battle on his hands: to meet the exacting terms of creditors while convincing increasingly hostile members of his own party to back them.

By Wednesday, the Greek parliament must, as requested by creditors, pass a law to overhaul its civil justice system, with the aim of speeding up processes and reducing costs. The government must also transpose the EU’s bank recovery and resolution directive into law. This law was part of Europe’s response to the 2008 banking crisis and should have been put into national law months ago.

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Excuse me? “Savers formed long queues in front of ATMs..”? Huh? How stupid does that sound?

How Bad Things Were for Greek Banks When Capital Controls Were Introduced (BBG)

Today the Greek central bank released its monthly balance sheet for June 2015. The balance sheet is dated to June 30—the day after capital controls were introduced in Greece. The seven-month jog on Greek lenders was about to turn into a full blown bank run during that last weekend of June, after Prime Minister Alexis Tsipras broke talks with creditors and called a referendum over the terms attached to the country’s bailout. Savers formed long queues in front of ATMs as doubts over the country’s place in the euro area spurred them to withdraw their cash from banks. The new data from the central bank shows that the total value of banknotes in circulation in Greece reached an all time high of €50.5 billion. That’s an increase of more than €5 billion in the month of June alone.

Tsipras was forced to impose a limit on withdrawals on June 28, after the ECB capped Emergency Liquidity Assistance (ELA) for Greek lenders, refusing to plug the hole from continuing deposit outflows. Much of the damage had been done already as Greek bank reliance on ECB operations, including ELA, meant that Greek Target2 liabilities with the rest of the eurosystem reached an all-time high at the end of the month. With the ECB limit on ELA, nobody, not even ordinary depositors, wanted to be exposed to Greek banks. Capital controls were the only option. That Tsipras and his then-finance minister were willing to allow things to get this serious before introducing capital controls underscores the high-risk strategy they were engaged in at the time.

Greek banks reopened this Monday, following a three-week forced holiday and only after Tsipras capitulated to creditors’ demands and committed to more austerity measures and structural economic overhauls. Still, draconian capital controls, including restrictions on withdrawals and transfers of money abroad, remain in place, and Greeks queued outside branches to get only basic services from their lenders.

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Syriza inherited a non-state, a completely dilapidated administrative apparatus with civil servants shivering in fear over who will be next to lose his/her job..”

Syriza Inherited A Non-State (Fouskas and Dimoulas)

Obviously, without Keynesian instruments at the national level and without a European federal state at the European level you cannot have any form of Keynesian policies. Too much reliance on the ECB – which, first and foremost, is a bank – and the “good will of European partners”, coupled with lack of institutional preparation to return to a national currency, has brought Syriza’s negotiating team to a standstill. Others, quite rightly, have argued that there has been no real negotiation since Syriza assumed office back in January 2015. The Germans, this argument goes, wanted regime change as they could not agree with the Greek Finance Minister’s reasonable demands – which included restructuring of the debt, ie debt relief.

In fact, this insight is correct: after the referendum of 5 July, the Greek PM sacked Finance Minister, Yanis Veroufakis, in order to keep his cabinet in place and avoid being pushed out by the creditors (mainly via financial and media warfare and permanently blocking liquidity to the Greek banks). Yet, what we have not seen being tackled is the following really dramatic issue. The creditors seem to be of the opinion that there is a Greek state in place that can implement and a Greek society that can accept the new austerity measures. This is reminiscent of the gruelling rationale behind America’s various wars post-9/11, but also before: we go to Afghanistan, Iraq and elsewhere to bring about the lights of liberal democracy, human rights and free market freedom capitalism.

This indicates total ignorance of the concrete societies and states they supposedly want to change and improve. In fact, wherever American power went, it only made things worse. Greece and the European periphery should be seen in the same light. Greek political elites, mixed with big comprador and corrupt interests, as well as the institutional materiality of the state as such, have always been fragmented, deeply inefficient and in the service of clientelist, corrupt and nepotistic deals and practices. But Syriza did not inherit just this. Syriza inherited a non-state, a completely dilapidated administrative apparatus with civil servants shivering in fear over who will be next to lose his/her job. Society itself, with 27% unemployment and 57% youth unemployment and unpaid salaries for months, swims in this strange mixed mood of anger, radicalization and demoralisation.

Recent administrative reforms in municipalities (the “Kapodistrias” and “Kallikratis” plans) caused havoc, further distancing the citizen from the state. Add to this the factional warfare within Syriza and the government and you will have one of the most inefficient ‘ruling’ machines in the west. In other words, Syriza’s state cannot reach the 1% primary surplus fiscal target; it will be unable to effect privatizations and other neo-liberal reforms required by the creditors in order to receive bail-out funds. The new anti-austerity package will fail. Even Syriza MPs who voted for it in the parliament may well boycott it. The PM himself said publicly that he does not believe it is a good deal.

Equally and arguably, for the same reason, a debtor-led default and exit from the Euro-zone will fail. A transition to the national currency requires a strong and well-organised state apparatus to lead an impoverished society through hardship to eventually achieve renewal and something positive at the end of a long and arduous journey. We argue that there is not enough state capacity in place to hold sway over the implementation of a new austerity package or indeed to buttress and deliver Grexit. So what is to be done now and in order to avoid a new election in Greece that is bound to achieve nothing of substance?

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Zombie money going “Poof”… Or, if you will, liquidity is drying up fast.

Commodity Rout Worsens as Prices Tumble to Lowest Since 2002 (Bloomberg)

The rout in commodities deepened with prices touching the lowest since 2002 as the prospect of higher U.S. interest rates sent gold tumbling. Raw materials are losing favor with investors as the dollar gains amid signals from Federal Reserve Chair Janet Yellen that the central bank may raise rates this year on the back of an improving U.S. economy. Higher borrowing costs curb the attractiveness of commodities such as gold, which doesn’t pay interest or give returns like assets including bonds and equities. The Bloomberg Commodity Index dropped as much as 1.4%, falling for a fifth day in the longest stretch of declines since March.

Gold futures sank to the weakest in more than five years while industrial metals, grains, Brent crude and U.S. natural gas also slid as a measure of the dollar climbed to the highest since April 13. “Any increase in U.S. interest rates should further strengthen the dollar, prompting more fund outflows from commodities, metals and emerging-market assets,” Vattana Vongseenin, the chief executive officer of Phillip Asset Management in Bangkok, said by phone. The Bloomberg Commodity Index slid 1.3% to 96.2949 at 10:10 a.m. New York time, after touching 96.1913, the lowest since June 2002. With raw materials fetching lower prices, shares of commodity producers are tumbling. The 15-member Bloomberg Intelligence Global Senior Gold Valuation Peers Index, which includes AngloGold Ashanti Ltd. and Newcrest Mining Ltd., dropped as much as 8.4%.

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Not a lot of objective opinions about why this is happening.

Gold, Silver Near Five-Year Lows in Asia Trade (WSJ)

Gold and silver prices continued to trade close to their lowest level in five years in Asia trade Tuesday amid rising expectations the U.S. Federal Reserve will raise interest rates later this year. Gold dipped below the psychological mark of $1,100 an ounce in early Asia hours, but quickly nudged above that level on bargain hunting. It was recently trading at $1,104.08/oz. “I think there is still going to be a little bit of pressure,” said Victor Thianpiriya, a commodity strategist at ANZ Bank. “Prices could head lower.” Mr. Thianpiriya said the yellow metal could test $1,000/oz in the near term, a level at which several mining companies might find it difficult to profit from extracting the commodity.

The gold market has turned bearish, with hedge funds that invest huge sums in gold futures reducing their long positions to nine-year lows. At the same time, speculators’ short positions—bets that gold could be bought cheaper in the future—have jumped in recent days. Analysts say a sustained rebound in gold prices is unlikely any time before the U.S. raises interest rates, a decision that is expected later this year after comments from U.S. Federal Reserve Chairwoman Janet Yellen last week. A rising dollar makes raw materials less affordable to overseas investors, while higher interest rates tend to draw money into yield-bearing assets and away from commodities, which pay their holders nothing and often carry storage costs.

Gold gained investors’ favor because of its safe-haven appeal after the 2008 financial crisis, but investors’ risk appetite seems to have increased with a modest economic recovery under way in the U.S. Moreover, the cost of holding gold looks set to increase because of an expected rise in U.S. interest rates. Other precious metals such as silver, platinum and palladium have fallen in gold’s slipstream. Silver prices nudged up from the opening price of $14.63 a troy ounce to $14.76 Tuesday, close to levels seen in early 2010. Platinum prices are at $974.70 a troy ounce, close to a six-and-half-year low, while palladium is near its lowest level since November 2012 at $605/oz.

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This is just one opinion. We are far more neutral.

Why Gold Is Falling And Won’t Get Up Again (MarketWatch)

Do you remember gold? It was kind of an analog bitcoin. It was a universal legal tender. Governments held it in forts. Your bank kept it in a safe. It was the most precious of precious metals. And investors bought gold GCQ5, -0.11% for safety’s sake when markets and economies crashed and the value of paper currency was in doubt. But that was a long time ago. Gold is down 40% from its financial-crisis peak in 2011. As Jeff Reeves notes in his column Monday: “The long-term trend remains decidedly against gold.” Reeves honorably calls himself a gold “agnostic” because he doesn’t want to get into conspiracy theories and some of the nonsense that surrounds the gold market. He wants to talk about the investment. I want to talk about the investors.

Because I don’t think it’s possible to separate the two. Gold has always been the favorite commodity of a fringe crowd that doesn’t trust governments, central banks, politicians and the financial system. This part of the gold market drives a lot of the buying and selling; it whips up a lot of frenzy. I don’t have any hard evidence, but I’d argue that gold’s value is inflated by people who aren’t investing in a commodity but in a belief system that may or may not include black helicopters and a U.S. invasion of Texas. The sad part is that gold always has been a sucker’s bet. It’s supposed to protect against inflation. It doesn’t. It’s supposed to retain its value. It doesn’t. For those reasons, gold is supposed to be the ultimate currency. It’s not. As fund manager and blogger Barry Ritholtz said of gold’s fundamentals: “It has none.”

Wall Street, of course, welcomes the business. Gold, after all, is hardly a useful commodity. If it had significant real purpose, it wouldn’t be sitting in vaults around the world. But, hey, we’ll trade it. We’ll trade anything. By and large, these special breed of gold bugs have ignored history. In the past century, gold has bubbled and popped at least a half dozen times, with crashes coming in 1915-20, 1941, 1947, 1951-66, 1974-76, 1981, 1983-85, 1987-2000 and 2008. If many of those dates seem to have a common thread, it’s because they do. They were, for the most part, periods of economic expansion. Who wants gold, when the stock market is booming or housing prices are soaring? Fundamentally, today’s gold market is no different. Stocks are holding near all-time highs. Interest rates could rise before the end of the year. Gold, on the other hand, is slip-sliding away.

What is different is how deep and long this gold bottom could go. As we move into an ever-techier world, gold has more competition: namely cryptocurrencies such as bitcoin that cater to the new generation of skeptics. The bitcoin market touts itself as an alternative to the currency markets and a hedge against inflation. Bitcoin’s value, like gold, is based on the confidence of the buyer, nothing more. Cryptocurrencies may also even prove to be useful (at which point they most likely will be unattractive to bitbugs).

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“When everything costs me 10% more, isn’t my pension’s buying power much weaker? It’s like a pension cut..”

Greek VAT Rise Hurts As Bailout Terms Start To Bite (Reuters)

To tourists wandering the narrow streets of central Athens, 20 cents on the price of souvlaki – a Greek favourite of grilled meat on a skewer – may not seem much. But for waiter Stavros Giokas, Monday’s jump in value-added tax is a big worry. The VAT rise, demanded by Greece’s lenders in return for a rescue deal, forced the restaurant where Giokas works to push up the price of souvlaki – wrapped in flatbread with salad and drizzled in tzatziki garlic yogurt – to €2.40 from €2.20. While a bargain for well-to-do northern European visitors, for Greeks worn down by years of austerity, the price increase is one more reason not to eat out. “People are counting every cent, not just for souvlakis,” Giokas said as he waited for customers, surrounded by empty tables decked in yellow and green tablecloths.

Some big, foreign-owned firms will absorb the rise in VAT on processed food and public transport from 13 to 23% without passing it on to customers. Other businesses may simply try to dodge paying the tax on some of their sales, a widespread practice that has contributed to Greece’s economic problems. But for many of those that do pay, there may be no other option than to pass on the rise to clients. “We can’t absorb the cost. Everything is getting more expensive: tomatoes, onions, tzatziki,” Giokas said. The tax hike will affect not only the cost of restaurant meals, processed food in shops and even salt, but also taxi fares and private school fees.

VAT jumped less than a week after the rise was approved in parliament as the leftist government of Prime Minister Alexis Tsipras tries to show other euro zone countries he is serious about reforms required to start talks on an 86 billion euro bailout deal that Greece needs to stay afloat. But across the country, workers, pensioners and economists alike worried about the impact of the increase on a population suffering from unemployment of over 25% and on an economy that was already forecast to contract this year. “When everything costs me 10% more, isn’t my pension’s buying power much weaker? It’s like a pension cut,” 65-year-old Nikos Koulopoulos said.

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“It’s not true we did not have a Plan B. We had a Plan B.” “We, in the Ministry of Finance, developed it. Under the egis of the Prime Minister, who ordered us to do this, even before we came in the Ministry of Finance.”

Yanis Varoufakis: Greece ‘Made Mistakes, There’s No Doubt’ (CNN)

Greece’s divisive former finance minister, Yanis Varoufakis, admitted on Monday that Greece made mistakes over its bailout negotiations, but he continued to lay the preponderance of blame for the Greek woes on the country’s creditors. “We made mistakes, there’s no doubt about that,” he told CNN’s Christiane Amanpour in his first international TV interview since stepping down earlier this month. “And I hold myself responsible for a number of them.” “But the truth of the matter, Christiane, is that the very powerful troika of creditors were not interested in coming a sensible, honorable, mutually beneficial agreement,” he said, referring to the IMF, the ECB, and the EC.

“I think that close inspection is going to reveal the truth of what I am saying: They were far more interested in humiliating this government and overthrowing it, or at least making sure that it overthrows itself in terms of its policies, than they were interested in an agreement that would for instance ensure that they would get most of their money back.” “It’s very hard for me, however much I would like to, to take responsibility for a policy over which I resigned.” Greece last week accepted terms for a third bailout that many say was on harsher terms than the potential deal that was on the table earlier this year. Varoufakis’ casual style, leather jackets, and motorcycle riding won him newspaper covers, but his negotiating style grated on his counterparts. He made sure to emphasize that he “resigned,” and was not “dismissed.”

He stepped down on the night of a controversial referendum, introduced by Prime Minister Alexis Tsipras, in which the majority of Greeks rejected the harsh austerity the government would later accept. “The people voted ‘no’ to this extending and pretending, but it became abundantly clear to me on the night of the referendum that the government’s position was going to be to say yes to it.” Despite his resignation of conscience, Varoufakis said he had sympathy for his former boss. “He was faced with a choice: Commit suicide or be executed.” “Alexis Tsipras decided that it [would] be best for the Greek people for this government to stay put and to implement a program which the very same government disagrees with.” “People like me thought that it would be more honorable, and in the long term more appropriate, for us to resign. This is why I resigned. But I recognize his arguments as being equally powerful as mine.”

[..] “It’s not true we did not have a Plan B. We had a Plan B.” “We, in the Ministry of Finance, developed it. Under the egis of the Prime Minister, who ordered us to do this, even before we came in the Ministry of Finance.” “Of course, you realize that these plans – Plan Bs – are always, by definition, highly imperfect, because they have to be kept within a very small circle of people, otherwise if they leak, a self-fulfilling prophecy emerges.” That plan, he said, was not for Greece to leave the Eurozone, a Grexit, but rather for the government to create “euro-denominated currency” – in other words, for the government to print its own, temporary currency, pegged to the value of the euro. “The fact of the matter is that that Plan B was not energized — I didn’t get the green light to effect it, to push the button, if you want.” That, he said, was one of the “main reasons why I resigned.”

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I love the absurdity embedded in the term “predictable chaos”.

In Greek Crisis, One Big Unhappy EU Family (Reuters)

The latest paroxysm of Greece’s debt crisis has exposed growing rifts in the euro zone which, unless addressed soon, could lead to the break-up of European monetary union, the EU’s most ambitious project. The most worrying sign for European leaders is that public opinion and domestic politics are pulling them increasingly in opposing directions – not just between Greece and Germany, the biggest debtor and the biggest creditor, but almost everywhere. Germans, Finns, Dutch, Balts and Slovaks no longer want taxpayers’ money to go to bail out Greeks, while the French, Italians and Greeks feel the euro zone is all about austerity and punishment and lacks solidarity and economic stimulus.

With central and east European states growing more assertive and the Dutch and Finns facing mounting domestic constraints, a compromise between euro zone leaders Germany and France, increasingly hard to find over Greece, is no longer sufficient to settle the problems. There are so many stakeholders with divergent views that crisis management is becoming ever more difficult. A far-reaching reform of the 19-nation currency area’s flawed structure seems a remote prospect. After weeks of late-night emergency meetings of leaders and finance ministers, culminating in a tense all-night summit, the euro zone produced a fragile deal to keep Greece afloat by making it a virtual protectorate under intrusive supervision. Few, if any, of the main protagonists think it will work.

Greek Prime Minister Alexis Tsipras said it was a bad deal that would make life worse for Greece but he had swallowed it because the alternative was worse. German Finance Minister Wolfgang Schaeuble said Athens would have done better to leave the euro zone – “temporarily” – to get a debt write-off. Chancellor Angela Merkel, Europe’s dominant leader, made clear the main virtue of the deal was to avoid something worse. “The alternative to this agreement would not be a ‘time-out’ from the euro … but rather predictable chaos,” she said. A senior EU official involved in brokering the compromise, who spoke on condition of anonymity, said there was now a “20, maybe 30% chance of success”. “When I look at the next two to three years, the next three months, I see only black clouds,” the official said. “All we succeeded in doing was to avoid a chaotic Grexit.”

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“..if implemented this plan, the streets of Athens will sound tracks of tanks.”

“Athens Streets Will Fill With Tanks”: Kathimerini Reveals Grexit Shocker (ZH)

And it wasn’t just outside observers drawing up Grexit plans. Despite the fact that EU officials denied the existence of a “Plan B” right up until German FinMin Wolfgang Schaeuble’s “swift time-out” alternative was “leaked” last weekend, no one outside of polite eurocrat circles pretends that a Greek exit wasn’t contemplated all along and indeed Yanis Varoufakis contends that Athens was threatened with capital controls as early as February if it did not acquiesce to creditor demands. Now, in what is perhaps the most shocking revelation yet about what EU officials really thought may happen in the event Greece crashed out of the EMU and unceremoniously reintroduced the drachma, Kathimerini is out with a description of what the Greek daily calls the “Grexit Black Book,” which purportedly contained the suggestion that civil war would breakout in Greece in the event the country was forced out of the currency bloc. Here’s more (Google translated):

“On the 13th floor of the building Verlaymont in Brussels, a few meters from the office of the European Commission President, Jean-Claude Juncker, stored in a special security room and in a safe Greece’s exit plan from the Eurozone. There, in a multi-page volume, written in less than a month from 15-member team of the European Commission, answered questions on how to tackle such an outflow, including, as shocking as it may sound, even the possibility of the country out of the Schengen Treaty, and not only being driven outside the euro, but also outside the EU.

According to European official, in that the European Commission Summit already had a bound volume, a multi-page document, which described the Greek prime minister, before the start of the session, by the same Mr. Juncker with all the details of a Grexit , giving him to understand the legal and political context of such a decision. In multipage document in accordance with European official who has the ability to know its contents, there are detailed answers to 200 questions that would arise in case Grexit. These questions, as he explains official, are interrelated, as an exit from the euro would create a cascade of events, which would evolve in a relatively short time. From the drachmopoiisi economy to foreign exchange controls that would take place at the country’s borders and which will ultimately lead at the exit of Greece from the Schengen Treaty.

The authors of the draft, according to European official, conducted under conditions of absolute secrecy. A special group of 15 people of the European Commission, by direct contact with Greece started to prepare, and was also in direct contact with a number of senior officials and DGs in the European Commission who had expertise in specific areas. The writing of the project started when the expiry date of the program (end of June) was approaching, so it is the Commission prepared for every eventuality, and by the time the referendum was announced, Friday, June 26, the relevant procedures were accelerated. The weekend of the work referendum intensified, so now two days later, Tuesday of that Synod, the project has been finalized.

According to well-informed source, involved in creating the plan worked “suffer the pain” as typically describe the “K” and “overwhelmed” because they could not believe that things had reached this point, and most of them had direct involvement with the Greek rescue programs. The European Commission also was hoped that even until the last minute solution would be found as members of this group knew better than anyone the consequences exit of Greece from the Eurozone and understand the cost of such a decision. One of those involved with direct knowledge of Greek reality in the critical phase of the training, he said the rest of the group that “if implemented this plan, the streets of Athens will sound tracks of tanks.”

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Merkel equals spineless.

German Government Divided Over Greece (Handelsblatt)

Angela Merkel was understandably cautious in her response: “Nobody came to me and asked for any kind of dismissal,” the German chancellor said in an interview with public broadcaster ARD on Sunday. The question was about Wolfgang Schäuble, her finance minister and fellow Christian Democratic Party (CDU) member, who in an interview with Germany’s Der Spiegel magazine on Sunday said he was prepared to resign if ever forced to take a position on Greece that he didn’t agree with. “We have a joint result, and the finance minister will now lead these negotiations just as I will,” Ms. Merkel said. She added, firmly: “We will now work together in this coalition and of course together in the [Christian Democratic] Union.”

These words were aimed as much at her fiercely independent finance minister as anyone else, and were designed to smooth over the massive gulf of opinion within her own party over Greece. The issue of Greece, and whether or not the troubled country deserves its third bailout in five years to stave off bankruptcy, has opened up a chasm in Ms. Merkel’s governing coalition. On the one side is Mr. Schäuble and the right wing of the CDU party. While Ms. Merkel says a “Grexit” has been off the table since euro zone leaders agreed to give Greece a third, final bailout last week, her finance minister believes it remains very much in the cards. On the other side is Ms. Merkel’s junior coalition partner, the Social Democrats, led by deputy chancellor and economics minister Sigmar Gabriel.

Sources in Berlin say that the relationship between Mr. Schäuble and Mr. Gabriel has been irreparably damaged by the Greece crisis. For now, Ms. Merkel’s coalition is holding. The German parliament, the Bundestag, voted overwhelmingly on Friday in favor of the E.U. starting talks with Greece over a third bailout aimed at keeping Greece inside the 19-nation currency bloc. The vote removed a final stumbling block, allowing E.U. negotiators to this week get down to the business of ironing out the details of the bailout package. But, like Mr. Schäuble, many parliamentarians remain hugely skeptical that the negotiations will really bear fruit. Significantly 65 members of the CDU did not back the government on Friday in the Greek vote.

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More of the “Greece should be like Germany” meme.

How Can Greece Take Charge? (New Yorker)

Even if Greece gets the debt relief that the IMF is recommending, the next few years will be grim. As James Galbraith, an economist at the University of Texas at Austin, who assisted the former Greek finance minister during this year’s negotiations, told me, “What’s going to happen in Greece is going to be very sad.” So what can Greece do? It really has only one option—to make the economy more productive and, above all, to export more. It’s easy to focus on Greece’s huge pile of debt, but, according to Yannis Ioannides, an economist at Tufts University, “debt is ultimately the lesser problem. Productivity and the lack of competitive exports are the much more important ones.”

There are structural issues that make this challenging. Greece is never going to be a manufacturing powerhouse: almost half of all Greek manufacturers have fewer than fifty employees, which limits productivity and efficiency, since they don’t enjoy economies of scale. Greece also has a legal and business environment that discourages investment, particularly from abroad. Contractual disputes take more than twice as long to resolve as in the average E.U. country. Greece has been among the most difficult European countries in which to start and run a business, and it has myriad regulations designed to protect existing players from competition. All countries have rules like this, but Greece is an extreme case. Bakeries, for instance, can sell bread only in a few standardized weights.

Recently, Alexis Tsipras, the Greek Prime Minister, had to promise that he would “liberalize the market for gyms.” The scale of these problems makes Greece’s task sound hopeless, but simple reforms could have a big impact. Contrary to its image in Europe, Greece has already made moves in this direction: between 2013 and 2014, it jumped a hundred and eleven places in the World Bank’s “ease of starting a business” index. And reform doesn’t mean Greece needs to abandon the things that make it distinctive. In fact, in the case of exports, the country has important assets that it hasn’t taken full advantage of. Greek olive oil is often described as the best in the world. Yet 60% of Greek oil is sold in bulk to Italy, which then resells it at a hefty markup.

Greece should be processing and selling that oil itself, and similar stories could be told about feta cheese and yogurt; a 2012 McKinsey study suggested that food products could add billions to Greece’s G.D.P. Similarly, tourism, though it already accounts for 18% of G.D.P., has a lot more potential. Most tourists in Greece are Greek themselves, a sign that the country could do a much better job of tapping the booming global tourism market. Doing so would require major investments in improving ports and airports, and in marketing. But the upside could be huge. Greece also needs to stem its current brain drain. It produces a large number of scientists and engineers, but it spends little on research and development, so talent migrates abroad. And there are other ways that Greece could capitalize on its climate and its educated workforce; as Galbraith suggests, it’s an ideal location for research centers and branches of foreign universities.

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“People turn away because they have been bypassed..” So you just bypass them some more?

Hollande Calls For Vanguard Of States To Lead Strengthened Eurozone (EUOberver)

French president Francois Hollande has called for a stronger more harmonised eurozone following a politically turbulent few weeks in which crisis with Greece has exposed the fault-lines in how the single currency is managed. “What threatens us is not too much Europe, but too little Europe,” he said in a letter published in the Journal du Dimanche. He called for a vanguard of countries that would lead the eurozone, which should have its own government, a “specific budget” and its own parliament. “Sharing a currency is much more than wanting convergence. It is a choice that 19 countries have made because it is in their interest,” he wrote adding that this “choice” requires a “strengthened” organisation.

French prime minister Manuel Valls Sunday said the vanguard should include the six founding countries of the EU: France, Germany, Italy, Belgium, Luxembourg and the Netherlands. He said France would prepare “concrete proposals” in the coming weeks. “We must learn the lessons and go much further,” he added, referring to the Greek crisis. “Europe has let its institutions weaken and the 28 governments struggle to agree to move forward. Parliaments are too far from decisions. People turn away because they have been bypassed,” said Hollande. He added that “populists” have seized upon this “disenchantment” with Europe. Hollande’s calls come as the eurozone is locked in recriminations over its handling of Greece.

The country is set to get a third bailout following eleventh hour negotiations last week however neither the Athens government nor Berlin, the main architect of the bailout programme, believe it will be a success. It exposed divisions between a camp of hardliners led by Germany, whose finance minister advocated a eurozone exit for Greece, and a camp led by France and Italy, which argued that the EU as a whole would be damaged if Greece left the euro.

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” The Fed “clearly intends the very largest U.S. banks to buckle under this new capital regime, restructuring quickly and dramatically..”

Fed Tells Big Banks to Shrink (WSJ)

Federal Reserve sent a message to the largest U.S. financial firms: Staying big is going to cost you. The Fed’s warning, articulated in a pair of rules it finalized Monday, is among the central bank’s starkest postcrisis regulatory moves pressing Wall Street banks to reconsider their size and appetite for risk. The Fed completed one rule stating that the eight largest banks in the country should maintain an additional layer of capital to protect against losses, its plainest effort yet to encourage them to shrink. At the same time, it offered a reprieve to General Electric’s finance unit from more-intensive regulation, after the company promised to cut its assets by more than half. The moves reinforce the central mandate of the Dodd-Frank financial overhaul law signed by President Barack Obama five years ago.

Regulators have pushed big banks to expand their capital buffers to better absorb losses, reduce their reliance on volatile forms of funding, improve their risk management and cut back on risky assets. So-called stress tests measure banks’ resilience each year and can restrict shareholder payouts at firms that don’t pass. For Wall Street banks and their investors, the emerging regime presents a series of choices: specifically whether to pay the cost of new regulation, which will fall to the bottom line, or change their business models by shedding businesses or withdrawing from certain markets, such as owning commodities. The Fed “clearly intends the very largest U.S. banks to buckle under this new capital regime, restructuring quickly and dramatically,” said Karen Petrou at Federal Financial Analytics.

J.P. Morgan Chase, the largest U.S. bank with assets worth $2.449 trillion, will have to maintain more capital than any of its peers, with its minimum capital requirement raised by 4.5% of assets under management as a result of the new rule. J.P. Morgan has resisted calls from lawmakers and others to break up its operations, and instead has jettisoned or adjusted businesses to comply with the new mandates. “Everything’s doable—it just costs money,” said Glenn Schorr, a banking-industry analyst with Evercore ISI. Mr. Schorr said banks could hold less capital but would have to cut parts of their business.

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You’d be forgiven for presuming they already did that.

US Banks Prepare For Oil And Gas Company Loans To Worsen (Reuters)

U.S. banks are setting aside more money to cover bad loans to energy companies after oil prices plunged over the last year, raising the possibility that deteriorating loans could start to weigh on their earnings, some analysts said. Loan credit quality for U.S. banks has been improving since the financial crisis. In the first quarter, 2.49% of loans on banks’ books were delinquent, the lowest level since the fourth quarter of 2007, according to the Federal Reserve, which hasn’t released second quarter data. The rate peaked at 7.4% in the first quarter of 2010. Weakness among energy company loans could be a sign that overall credit quality among U.S. banks has little room to improve, analysts said.

Executives from both JPMorgan Chase and Wells Fargo told investors last week, when posting earnings, that they were increasingly concerned about loans to oil and gas companies. Texas bank Comerica on Friday set aside about three times as much money to cover bad loans as analysts had expected, sending the regional bank’s shares lower by more than 6% after the bank reported earnings Friday. Setting aside more money, known as “provisioning,” hurts earnings. “The banks really have very low credit costs and those can go higher,” said Fred Cannon, who heads research at Keefe Bruyette & Woods. While “energy overall is not a life threatening issue for the banks, it is earnings threatening,” he said.

JPMorgan said on Tuesday it provisioned another $252 million to cover potentially bad wholesale business loans in the quarter, with $140 million of that related to oil and gas lending. Oil prices rallied in March and April, but in recent weeks have fallen again on expectations that loosened sanctions against Iran create the potential for greater supplies. U.S. crude oil prices fell below $50 a barrel on Monday for the first time since April.

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This could come back to hurt the west a lot.

BRICS Countries Launch New Development Bank In Shanghai (BBC)

The Brics group of emerging economies on Tuesday launched its New Development Bank (NDB) in Shanghai. The bank is backed by Brazil, Russia, India, China and South Africa – collectively known as Brics countries. The NDB will lend money to developing countries to help finance infrastructure projects. The bank is seen as an alternative to the World Bank and the IMF, although the group says it is not a rival. “Our objective is not to challenge the existing system as it is but to improve and complement the system in our own way,” NDB President Kundapur Vaman Kamath said. The Brics nations have criticised the World Bank and the IMF for not giving developing nations enough voting rights. The bank is expected to issue its first loans early next year.

The opening comes two weeks after the last Brics summit in the Russian city Ufa, where the final details were discussed. At the time, Russian Foreign Minister Sergei Lavrov said that the five countries “illustrate a new polycentric system of international relations”.
The bank is to start out with a capital of $50bn though the amount is to be doubled in the coming years. The biggest contributor will be the world’s second largest economy China, which also led the establishment of another new international bank, the Beijing-based Asian Infrastructure Development Bank. The NDB is to be headed by a rotating leadership with the first president, Mr Kamath, coming from India. It was first proposed in 2012 but protracted negotiations over headquarters, management and funding have long delayed the actual launch.

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Farrell keeps at it.

Pope Francis Leading The New American (Socialist) Revolution (Paul B. Farrell)

Yes, Pope Francis is encouraging civil disobedience, leading a rebellion. Listen closely, Francis knows he’s inciting political rebellion, an uprising of the masses against the world’s superrich capitalists. And yet, right-wing conservatives remain in denial, tuning out the pope’s message, hoping he’ll just go away like the “Occupy Wall Street” movement did. Never. America’s narcissistic addiction to presidential politics is dumbing down our collective brain. Warning: Forget Bernie vs. Hillary. Forget the circus-clown-car distractions created by Trump vs. the GOP’s Fab 15. Pope Francis is only real political leader that matters this year. Forget the rest. Here’s why:

Pope Francis is not just leading a “Second American Revolution,” he is rallying people across the Earth, middle class as well as poor, inciting billions to rise up in a global economic revolution, one that could suddenly sweep the planet, like the 1789 French storming the Bastille. Unfortunately, conservative capitalists — Big Oil, Koch billionaires, our GOP Congress and all fossil-fuel climate-science deniers — are blind to the fact their ideology is on the wrong side of history, that by fighting a no-win battle they are committing suicide, self-destructing their own ideology. The fact is: The era of capitalism is rapidly dying, a victim of its own success, sabotaged by greed and a loss of a moral code. In 1776 Adam Smith’s capitalism became America’s core economic principle.

We enshrined his ideal of capitalism in our constitutional freedoms. We prospered. America became the greatest economic superpower in world history. But along the way, America forgot Smith’s original foundation was in morals, values, doing what’s right for the common good. Instead we drifted into Ayn Rand’s narcissistic “mutant capitalism,” as Vanguard’s founder Jack Bogle called the distortion of Adam Smith’s principles in his classic, “The Battle for the Soul of Capitalism.” The battle is lost. In the generation since the Reagan Revolution, America’s self-centered, consumer-driven, mutant capitalism lost its moral compass, drifting: Inequality explodes, income growth stagnates, the poor keep getting poorer. Yet across the world, billionaires have explode from 322 in 2000 to 1,826 in 2015, with 11 trillionaire capitalist families predicted to control the planet by 2100.

But not for much longer, as Pope Francis’ revolution accelerates, as his relentless socialist message of sacred rights for all people makes clear. Why? Our mutating capitalist elite have triggered a massive backlash, a “profound human crisis, the denial of the primacy of the human person. The worship of the ancient golden calf has returned in a new and ruthless guise in the idolatry of money.”

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“..sea level rise of at least 10 feet in as little as 50 years.”

Earth’s Most Famous Climate Scientist Issues Bombshell Sea Level Warning (Slate)

In what may prove to be a turning point for political action on climate change, a breathtaking new study casts extreme doubt about the near-term stability of global sea levels. The study—written by James Hansen, NASA’s former lead climate scientist, and 16 co-authors, many of whom are considered among the top in their fields—concludes that glaciers in Greenland and Antarctica will melt 10 times faster than previous consensus estimates, resulting in sea level rise of at least 10 feet in as little as 50 years. The study, which has not yet been peer reviewed, brings new importance to a feedback loop in the ocean near Antarctica that results in cooler freshwater from melting glaciers forcing warmer, saltier water underneath the ice sheets, speeding up the melting rate.

Hansen, who is known for being alarmist and also right, acknowledges that his study implies change far beyond previous consensus estimates. In a conference call with reporters, he said he hoped the new findings would be “substantially more persuasive than anything previously published.” I certainly find them to be. To come to their findings, the authors used a mixture of paleoclimate records, computer models, and observations of current rates of sea level rise, but “the real world is moving somewhat faster than the model,” Hansen says. Hansen’s study does not attempt to predict the precise timing of the feedback loop, only that it is “likely” to occur this century. The implications are mindboggling: In the study’s likely scenario, New York City—and every other coastal city on the planet—may only have a few more decades of habitability left.

That dire prediction, in Hansen’s view, requires “emergency cooperation among nations.”We conclude that continued high emissions will make multi-meter sea level rise practically unavoidable and likely to occur this century. Social disruption and economic consequences of such large sea level rise could be devastating. It is not difficult to imagine that conflicts arising from forced migrations and economic collapse might make the planet ungovernable, threatening the fabric of civilization.”

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Jun 082015
 
 June 8, 2015  Posted by at 11:10 am Finance Tagged with: , , , , , , , , , , ,  


Unknown Army of the James, James River, Virginia. 1865

The Troika Is Supposed To Build Greece Up, Not Blow It Apart (Guardian)
Greece Updating Proposals It Sent To Lenders (Kathimerini)
Young Greek Radicals Don’t Just Want Power – They Want To Remake The World (PM)
VAT Rate Hikes Always Reduce State Revenues (Thanos Tsiros)
Juncker Vents Fury Over Greek Bailout Talks At G7 Summit (Guardian)
If You Think Greece’s Crisis Will End Any Time Soon, Think Again (Bloomberg)
103 Years Later, Wall Street Turned Out Just As One Man Predicted (Zero Hedge)
Obama Sidelines Kerry On Ukraine Policy (Eric Zuesse)
Masked Attackers Break Up Tent Camp On Kiev’s Maidan (RT)
Literally, Your ATM Won’t Work… (Bill Bonner)
Banks’ Post-Crisis Legal Costs Hit $300 Billion (FT)
Will China’s Stock Market Explode On Wednesday? (MarketWatch)
China Imports Fall 17.6%, Exports Decline 2.5% (AFP)
Deutsche Bank CEO’s Forced to Resign Over Imminent Derivatives Melt-Down? (Doc)
The Bristol Pound Is Giving Sterling A Run For Its Money (Guardian)
Max Keiser’s Bitcoin Capital Continues to Attract Investors (NBTC)
Canada to Train Ukrainian Police as Russia Conflict Worsens (Bloomberg)
Greek Island Gateway To EU As Thousands Flee Homelands (Irish Times)

A voice of reason, but the troika is not about reason.

The Troika Is Supposed To Build Greece Up, Not Blow It Apart (Guardian)

The phrase “trench warfare” comes to mind. On Friday evening the Greek prime minister, Alexis Tsipras, lobbed some choice words at his foes in Brussels, calling their proposed debt deal “absurd”. Days earlier, the IMF had joined its allies in Brussels to fire a volley of criticism at Athens. The Greeks already had “significant flexibility” to get out of their budget mess, IMF boss Christine Lagarde said, as she urged Athens to repay the €300m instalment of its bailout loan due on Friday. This could go on for several more weeks: Greece told the IMF it will have to wait until the end of the month to get its money, when it will “bundle” four payments together. And should the sides become more entrenched, this long-running war could still end in the disaster of Greek default.

In Washington, where the IMF is hunkered down, and in Europe’s finance ministries, the Greek stance is considered wilfully unreasonable. The Syriza government’s demand for the return of national pay bargaining, a relaxed timetable for pension reform and a lower budget surplus than that demanded by the EU, the IMF and the European Central Bank are all but ridiculed in Berlin, Helsinki and Riga. As Greece’s chief creditors, the EU and the IMF want Greece to adopt flexible labour markets, immediate restrictions on early retirement and a budget surplus big enough to accommodate some debt repayments.

While much of what the radical leftists want seems unreasonable – especially the slow pace of pension reform, which in effect would allow tens of thousands of people in their late 50s to grab early retirement – it is the demands being made by Brussels and the IMF that are unconvincing and, worse, untenable. Running a larger budget surplus is only going to destroy Greece, not build it up. As US economist Joseph Stiglitz and many others, including former IMF staffers, have pointed out, the troika of creditors badly misjudged the economic effects of the programme they imposed in 2010 and 2012. “They believed that by cutting wages and accepting other austerity measures, Greek exports would increase and the economy would quickly return to growth,” Stiglitz said last week.

“They also believed that the first restructuring would lead to debt sustainability. The troika’s forecasts have been wrong.” The current proposals repeat the same mistake. Seven years after the crash, the Greek economy is still 25% smaller than it was at its previous peak, 10% of households have no electricity and youth unemployment is running at more than 50%. Tsipras and his finance minister, Yanis Varoufakis, may specialise in needling their creditors, but the troika also need to take into account the fact that Syriza has formed a legitimate, democratically elected government and cannot be told that its electoral programme is irrelevant.

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826th edition.

Greece Updating Proposals It Sent To Lenders (Kathimerini)

The Greek government is redrafting the 47-page proposal it sent to lenders last week with the aim of securing an agreement that would allow the disbursal of €7.2 billion in bailout funding. Kathimerini understands that Athens is focussing its attention on adjusting the fiscal measures it proposed with the aim of getting closer to the revenue target set by lenders. However, the coalition is reluctant to adjust its VAT proposal, which sees three brackets (6, 11 and 23%) rather than the two proposed by lenders (11 and 23). Greece also seems prepared to raise slightly its primary surplus proposals from 0.6% of GDP this year and 1.5% next year. The institutions proposed 1% for 2015 and 2% for 2016.

The updated suggestion from the Greek side is not expected to reach these targets. While Athens is prepared to change the law regarding early retirement, saving 100 million euros, it does not seem willing to go as far as lenders are demanding in terms of pension reform. There are also substantial differences between Greece and its creditors on the issue of labour market regulations. The updated proposals are expected to be discussed between Greek officials and representatives of the institutions over the next few days, ahead of a meeting between Prime Minister Alexis Tsipras, German Chancellor Angela Merkel and French President Francois Hollande in the Belgian capital on Wednesday.

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They want to make sure this sort of crisis will not happen again.

Young Greek Radicals Don’t Just Want Power – They Want To Remake The World (PM)

At some point, as the Greek crisis lurches to its crescendo, Syriza – the radical left party – will call a meeting of something called a central committee. The term sounds quaint to 21st-century ears: the committee is so big that it has to meet in a cinema. You will not be surprised to learn that the predominant hair colour is grey. These are people who were underground activists in a military dictatorship; some served jail time, and in 1973 many were among the students who defied tanks and destroyed a junta. But they think, speak and act in a way shaped by the hierarchies and power concepts of 50 years ago.

The contrast with the left’s mass support base, and membership, is stark. In the average Greek riot, you are surrounded by concert pianists, interior designers, web developers, waitresses and actors in experimental theatre. It is usually 50:50 male and female, and drawn from a demographic as handy with a smartphone as the older generation are with Lenin’s selected works. Like young radicals across Europe and the US, they have been schooled in the ways of the modern middle classes: launching startup businesses, working two or three casual jobs; entrepreneurship, loose living and wild partying are the default way of life. Of course, every generation of radicals looks different from the last one, but the economic and behavioural contrasts that are obvious in Greece are also present in most other countries.

And this prompts the question: what do the radicals of this generation want when they win power? The success of Syriza, of Podemos in Spain and even the flood of radicalised young people into the SNP in Scotland makes this no longer an idle question. The most obvious change is that, for the rising generation, identity has replaced ideology. I don’t just mean as in “identity politics”. There is a deeper process going on, whereby a credible identity – a life lived according to a believed truth – has become a more significant badge in politics than a coherent set of ideas.

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Just ask Abe and Kuroda.

VAT Rate Hikes Always Reduce State Revenues (Thanos Tsiros)

Greece’s value-added tax rates have been raised three times since 2010, all within the space of one year: in March and July 2010 and then in January 2011. The hike that the government is negotiating with the country’s creditors will be the fourth in five years. Already the low and very low VAT rates have gone up by 44% since early 2010 – i.e. from 4.5 to 6.5% and from 9 to 13% respectively – while the main rate has grown 22%, from 19 to 23% nowadays. Those hikes, intended to increase the state’s income takings, in fact reduced revenues by 20%: In 2014 VAT revenues dropped below €14 billion, to €13.6 billion.

For this year, the budget had provided for VAT revenues of €14.4 billion, but in the first five months there has already been a shortfall of 350 million compared with the target for that point of the year. In comparison with 2008, the year that the recession started, VAT revenues shrank by €5 billion in 2014 in spite of the major hike in the rates. Modern Greek economic history has shown that any indirect tax rate increase leads to a reduction in consumption and an increase in tax evasion, meaning that revenues go down instead of up.

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A rehearsed ploy.

Juncker Vents Fury Over Greek Bailout Talks At G7 Summit (Guardian)

European Union officials delivered a blistering attack on the Greek government at the G7 summit in Bavaria, and world leaders including Barack Obama sought to avoid a transatlantic split over Ukraine by agreeing to maintain sanctions against Russia. In a day of secluded talks in the Alpine resort of Schloss Elmau, the biggest drama was provided by a verbal attack on the Greek prime minister, Alexis Tsipras, by the European commission president, Jean-Claude Juncker. The summit’s host, Angela Merkel, had hoped to solve the Greek bailout crisis before the summit, but instead Juncker felt forced to open proceedings by staging a press conference accusing Tsipras of undermining negotiations over new terms for a bailout and of effectively lying to the Greek parliament.

A visibly angry Juncker said he had told Tsipras during a meeting last Wednesday evening that there was room to negotiate but said the Greeks had been unwilling to take part in in-depth discussions at the meeting. Instead, he said, Tsipras had promised to send him his proposals the following day, but he was still waiting for them on Sunday. “Alexis Tsipras promised that by Thursday evening he would present a second proposal. Then he said he would present it on Friday. And then he said he would call on Saturday. But I have never received that proposal, so I hope I will receive it soon. I would like to have that Greek proposal,” he said. He told reporters he had said to Tsipras that he continued to exclude the idea of a Grexit – “because I don’t want to see it” – but that he could not “pull a rabbit out of a hat”.[..]

Juncker, perceived until now as an honest broker in the crisis – taking a softer approach than the Germans, who are viewed in Greece as the architects of austerity – has rarely been seen in such an irate state, sources close to the EU in Garmisch-Partenkirchen said. They warned that Greece might have lost its closest ally in its long fight to secure a rosier deal. Juncker said he had been disappointed by a speech Tsipras had given to the Athens parliament on Friday. “He was presenting the offer of the three institutions as a leave-or-take offer. That was not the case … He knows perfectly well that is not the case.” Juncker said Tsipras had failed to mention to parliament his (Juncker’s) willingness to negotiate over Greek pensions. [..]

In Athens Mega TV reported that relations between Berlin and Washington over Greece had become increasingly frosty – despite the exhortation from Barack Obama at the G7 for a quick solution to the European debt crisis. The Greek television channel, citing a senior German official, described the US treasury secretary, Jack Lew, imploring his German counterpart Wolfgang Schäuble to “support Greece” only to be told: “Give €50bn euro yourself to save Greece.” Mega’s Berlin-based correspondent told the stationthat the US official then said nothing “because, as is always the case according to German officials when it comes to the issue of money, the Americans never say anything”.

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We have at least 3 weeks left. But after that, of course, Greece will have to plod on for many years.

If You Think Greece’s Crisis Will End Any Time Soon, Think Again (Bloomberg)

Frustrated by Greece’s cat and mouse game with its creditors? Get used to it. Even if PM Alexis Tsipras clinches the €7.2 billion that creditors are withholding, he’s going to need another cash infusion shortly thereafter. What will ensue is a renewed battle after almost five months of trench warfare. The beleaguered country requires a third bailout of about €30 billion, according to Nomura analysts Lefteris Farmakis and Dimitris Drakopoulos. Tsipras says any aid must be on his terms rather than those of governments whose taxpayers have forked out billions in the past five years to keep Greece in the euro. “Any plausible deal at this stage is unlikely to do enough and it’s unlikely to be the end of the matter,” said Simon Tilford, deputy director of the Centre for European Reform in London.

“This could just play out again and again.” The latest episode in the five-year saga has focused on releasing the final tranche of Greece’s second bailout, which expires at the end of June. The amount at stake roughly equates to the bond repayments that Greece needs to make to the ECB in July and August. Here’s the problem for the policy makers struggling to avoid a default in Athens: Even if Greece muddles through until August, it faces a financing shortfall of at least €25 billion euros through the end of 2016. That’s likely to worsen as the economy slides deeper into recession and tax revenue shrivels. [..] “The dependence on our creditors will remain for two years in the best-case scenario,” said Aristides Hatzis, associate professor of law and economics at the University of Athens. “Greece is going to need cheap loans for the next two years.”

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It was all there right from the start.

103 Years Later, Wall Street Turned Out Just As One Man Predicted (Zero Hedge)

In 1910, three years before the US Federal Reserve was founded, Senator Nelson Aldrich, Frank Vanderlip of National City (Citibank), Henry Davison of Morgan Bank, and Paul Warburg of the Kuhn, Loeb Investment House met secretly at Jekyll Island in Georgia to formulate a plan for a US central bank just years ahead of World War I. The result of their work was the so-called Aldrich Plan which called for a system of fifteen regional central banks, i.e., National Reserve Associations, whose actions would be coordinated by a national board of commercial bankers. The Reserve Association would make emergency loans to member banks, and would create money to provide an elastic currency that could be exchanged equally for demand deposits, and would act as a fiscal agent for the federal government.

In other words, the Aldrich Plan proposed a “central bank” that would be openly and directly controlled by Wall Street commercial banks on whose behalf it would solely operate, instead of doing so indirectly, behind closed doors and the need for criminal probe of Yellen’s Fed seeking to find who leaked what to whom. The Aldrich Plan was defeated in the House in 1912 but its outline became the model for the bill that eventually was adopted as the Federal Reserve Act of 1913 whose passage not only unleashed the Fed as we know it now, but the entire shape of modern finance.

In 1912, one person who warned against the passage of the Aldrich Plan, was Alfred Owen Crozier: a man who saw how it would all play out, and even wrote a book titled “U.S. Money vs Corporation Currency” (costing 25 cents) explaining and predicting everything that would ultimately happen, even adding some 30 illustrations for those readers who were visual learners. The book, which is attached at the end of this post, is a must read, but even those pressed for time are urged to skim the following illustrations all of which were created in 1912, and all of which predicted just what the current financial system would look like. Or, in the words of Overstock’s CEO Patrick Byrne, “that’s uncanny”

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“..she also famously said “F—k the EU!” Obama is now seconding that statement of hers.”

Obama Sidelines Kerry On Ukraine Policy (Eric Zuesse)

On May 21st, I headlined “Secretary of State John Kerry v. His Subordinate Victoria Nuland, Regarding Ukraine,” and quoted John Kerry’s May 12th warning to Ukrainian President Petro Poroshenko to cease his repeated threats to invade Crimea and re-invade Donbass, two former regions of Ukraine, which had refused to accept the legitimacy of the new regime that was imposed on Ukraine in violent clashes during February 2014. (These were regions that had voted overwhelmingly for the Ukrainian President who had just been overthrown. They didn’t like him being violently tossed out and replaced by his enemies.) Kerry said then that, regarding Poroshenko, “we would strongly urge him to think twice not to engage in that kind of activity, that that would put Minsk in serious jeopardy.

And we would be very, very concerned about what the consequences of that kind of action at this time may be.” Also quoted there was Kerry’s subordinate, Victoria Nuland, three days later, saying the exact opposite, that we “reiterate our deep commitment to a single Ukrainian nation, including Crimea, and all the other regions of Ukraine.” I noted, then that, “The only person with the power to fire Nuland is actually U.S. President Barack Obama.” However, Obama instead has sided with Nuland on this. Radio Free Europe, Radio Liberty, bannered, on June 5th, “Poroshenko: Ukraine Will ‘Do Everything’ To Retake Crimea’,” and reported that, “President Petro Poroshenko has vowed to seek Crimea’s return to Ukrainian rule. … Speaking at a news conference on June 5, … Poroshenko said that ‘every day and every moment, we will do everything to return Crimea to Ukraine.’”

Poroshenko was also quoted there as saying, “It is important not to give Russia a chance to break the world’s pro-Ukrainian coalition,” which indirectly insulted Kerry for his having criticized Poroshenko’s warnings that he intended to invade Crimea and Donbass. Right now, the Minsk II ceasefire has broken down and there are accusations on both sides that the other is to blame. What cannot be denied is that at least three times, on April 30th, then on May 11th, and then on June 5th, Poroshenko has repeatedly promised to invade Crimea, which wasn’t even mentioned in the Minsk II agreement; and that he was also promising to re-invade Donbass, something that is explicitly prohibited in this agreement. Furthermore, America’s President, Barack Obama, did not fire Kerry’s subordinate, Nuland, for her contradicting her boss on this important matter.

How will that be taken in European capitals? Kerry was reaffirming the position of Merkel and Hollande, the key shapers of the Minsk II agreement; and Nuland was nullifying them. Obama now has sided with Nuland on this; it’s a slap in the face to the EU: Poroshenko can continue ignoring Kerry and can blatantly ignore the Minsk II agreement; and Obama tacitly sides with Poroshenko and Nuland, against Kerry. The personalities here are important: On 4 February 2014, in the very same phone-conversation with Geoffrey Pyatt, America’s Ambassador in Ukraine, in which Nuland had instructed Pyatt to get “Yats” Yatsenyuk appointed to lead Ukraine after the coup (which then occured 18 days later), she also famously said “F—k the EU!” Obama is now seconding that statement of hers.

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Absolutely in chracter.

Masked Attackers Break Up Tent Camp On Kiev’s Maidan (RT)

Unidentified assailants wearing balaclavas assaulted and destroyed a tent camp set up on Sunday by protesters on Kiev’s landmark Maidan Square. Activists at the camp had been calling on the Ukrainian President to report on progress since taking office. The attack happened late Sunday evening, when a gang stormed the activist camp, forcefully removing tents and dispersing protesters. Police officers were reportedly stationed right next to the site and did nothing to stop the violent group. The organizer of the action, Rustam Tashbaev, was arrested, RIA Novosti reported. There were also blasts heard on Institutskaya Street near the Maidan. In Ruptly’s video, assailants are seen ripping through the camp, tearing everything apart, and dragging protesters out of the tents, while they can be heard screaming in the background.

“They took me and dragged me like I was in a sleigh. I screamed, thinking they would beat me up, but they quickly dispersed. It looked like a theater production because the police were nearby and did nothing,” one of the demonstrators told Ruptly video news agency. Earlier on Sunday, about 100 protesters set up several tents on Maidan, demanding President Petro Poroshenko and his cabinet report on what progress has been made in implementing the reforms which were promised last year. “We have launched this campaign, set up tents, and called this protest Maidan 3,” one of the organizers, Rustam Tashbaev, told Ruptly. “We demand these people perform the duties which they are obliged to perform.” Placards at the protest read “Out with [PM Arseny] Yatsenuk and his reforms” and “I’m on hunger strike against administrative dereliction.”

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“..it costs the banks almost nothing to create new credit. That’s why we have so much of it.”

Literally, Your ATM Won’t Work… (Bill Bonner)

While we were thinking about what was really going on with today’s strange new money system, a startling thought occurred to us. Our financial system could take a surprising and catastrophic twist that almost nobody imagines, let alone anticipates. Do you remember when a lethal tsunami hit the beaches of Southeast Asia, killing thousands of people and causing billions of dollars of damage? Well, just before the 80-foot wall of water slammed into the coast an odd thing happened: The water disappeared. The tide went out farther than anyone had ever seen before. Local fishermen headed for high ground immediately. They knew what it meant. But the tourists went out onto the beach looking for shells! The same thing could happen to the money supply…

Here’s how.. and why: It’s almost seems impossible. Hard to imagine. Difficult to understand. But if you look at M2 money supply – which measures coins and notes in circulation as well as bank deposits and money market accounts – America’s money stock amounted to $11.7 trillion as of last month. But there was just $1.3 trillion of physical currency in circulation – about only half of which is in the US. (Nobody knows for sure.) What we use as money today is mostly credit. It exists as zeros and ones in electronic bank accounts. We never see it. Touch it. Feel it. Count it out. Or lose it behind seat cushions. Banks profit – handsomely – by creating this credit. And as long as banks have sufficient capital, they are happy to create as much credit as we are willing to pay for.

After all, it costs the banks almost nothing to create new credit. That’s why we have so much of it. A monetary system like this has never before existed. And this one has existed only during a time when credit was undergoing an epic expansion. So our monetary system has never been thoroughly tested. How will it hold up in a deep or prolonged credit contraction? Can it survive an extended bear market in bonds or stocks? What would happen if consumer prices were out of control?

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Jailing them would be better for shareholders value. And who in their right mind can claim it’s time to go easy on the banks?

Banks’ Post-Crisis Legal Costs Hit $300 Billion (FT)

The total cost of litigation aimed at a group of the biggest global banks since 2010 has broken the £200bn ($306bn) barrier, according to a new study that challenges assumptions that banks are through the worst of post-crisis reparations. The annual study, carried out by the UK-based CCP Research Foundation, uses regulatory notices, annual reports and other public disclosures to tally the cost of fighting claims of misconduct over rolling five-year periods. In the latest report, which runs until the end of last year, the total for 16 banks stands at £205.6bn of fines, settlements and provisions — up almost a fifth from the previous year.

Despite that trend, many bank executives continue to act as if these are irregular charges from “legacy” issues, said Chris Steares, research director at the foundation. He noted that a recent flurry of settlements for currency manipulation cited abuses continuing until 2013. “If you ask the banks if their reputational risk is going to change, they’d have to say yes,” he said. “[But] with conduct costs continuing to be incurred, year after year, it does beg the question whether behaviours are being changed for the better.”

Some politicians in the US and UK have tried to draw a line under years of heavy lawmaking, taxes and fines, arguing that regulators should now go easier on the banks. Executives, too, have signalled that expenses have begun to fall, particularly after the resolution of cases linked to the mis-selling of residential mortgage-backed securities. Presenting earnings in April, for example, Bruce Thompson, Bank of America’s finance chief, noted two “much lighter” quarters of legal expenses which he hoped would allow the bank to hold less capital under international standards on operational risk.

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Not unlikely.

Will China’s Stock Market Explode On Wednesday? (MarketWatch)

Wednesday could be huge for Chinese stocks. On that day, about four hours before Shanghai opens for trade, MSCI will announce whether it will welcome China’s top yuan-denominated stocks into its extremely influential Emerging Markets Index, tracked by a mountain of roughly $1.7 trillion in assets worldwide. Such a move would be expected to ignite a significant rally in Shanghai blue chips, and a recent Wall Street Journal report cited major funds such as those of Vanguard Group Inc. planning to purchase Chinese equities ahead of the MSCI decision, which is due to be revealed Tuesday at about 5:30 p.m. EDT (Wednesday 5:30 a.m. in Shanghai) on the financial company’s website.

Hong Kong-listed shares of Chinese companies – known as “H-shares” – are already a sizeable presence in the MSCI EM Index. Rival FTSE Group (owned by the London Stock Exchange) recently added the mainland-listed stocks – known as “A-shares” – into transitional global indexes, and may add them to its benchmark EM index this September, according to HSBC. The possible MSCI move has been making big headlines in China’s news media, but that said, many analysts are not so sure the index compiler will take the plunge into Chinese equities this week, suggesting it will wait a little longer for the country’s financial reforms to solidify further.

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Ironically, this means a huge increase in the trade surplus…

China Imports Fall 17.6%, Exports Decline 2.5% (AFP)

Chinese imports fell for a seventh straight month in May while exports also sank, according to official data, as the world’s second-biggest economy shows protracted weakness even in the face of government measures to stimulate growth. The disappointing figures, out on Monday, also come as leaders try to transform the economy to one where growth is driven by consumer spending rather than government investment and exports. Imports slumped 17.6% year on year to $131.26bn, the Chinese customs department said in a statement. The decline was much sharper than the median forecast of a 10% fall in a Bloomberg News poll of economists, and followed April’s 16.2% drop.

“The May trade data … suggest both external and domestic demand remain weak,” said Julian Evans-Pritchard, an analyst with the research firm Capital Economics. Exports dropped for the third consecutive month, falling 2.5% to $190.75bn, customs said, although that was better than the median estimate of a 4% fall in the Bloomberg survey. The sharp decrease in imports meant the trade surplus expanded 65.6% year on year to $59.49bn, according to the data. In yuan terms, imports fell 18.1%, exports decreased 2.8% and the trade surplus expanded 65%. The figures provided further evidence that frailty in the Chinese economy, a key driver of world growth, has extended into the current quarter despite intensified government stimulus measures.

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“Deutsche Bank is sitting on a powderkeg of derivatives dynamite..”

Deutsche Bank CEO’s Forced to Resign Over Imminent Derivatives Melt-Down? (Doc)

The co-CEOs of Deutsche Bank unexpectedly stepped down. Recall that Deutsche Bank is now the largest holder of derivatives in the world. The ONLY reason these resignations would have been unexpectedly coerced like this is if Deutsche Bank was having a potentially uncontrollable problem in its OTC derivatives holdings. Because of accounting rules, we have no possible way of knowing what DB’s OTC derivatives book looks like. Although Jain oversaw the build-up of the book, it’s likely that not only does he not know where all the bodies are buried, he has lied to the board of directors and shareholders about the riskiness of the bank’s holdings. I know Jain from personal experience with him right after Deutsche Bank acquired Bankers Trust for BT’s derivatives capabilities.

It instantly put Deutsche Bank in the forefront of the fraud-based OTC derivatives business. Jain has lost money wherever he worked. He was brought over to DB from Merrill when Edson Mitchell assumed the reigns at Deutsche Bank’s US unit. I just remember thinking Jain was about as sleazy as they come. His sole charge was to build Deutsche’s derivatives book of business into the biggest in the world. From there he sleazed his way into the CEO position, a few years after Mitchell went down in plane accident. He then proceeded to climb to the top of Deutsche Bank by conspiring to “shoot” then-CEO Josef Ackerman in the back. Deutsche Bank is sitting on a powderkeg of derivatives dynamite. DB is also the entity that has leased out most of Germany’s sovereign gold.

From a good friend of mine who worked at DB and still keeps in touch with former colleagues: “Deutsche Bank is sitting on a lethal amount of derivatives and everyone at the bank knows it.” [..] “Like I said many times over the past 6 months…the derivatives in Europe have gone SIDEWAYS and there is blood in the back rooms of the world’s biggest derivative traders! News yesterday that $6B in derivatives were being “internally investigated” at the world’s largest derivative holder, Deutsche Bank, is followed today by the resignation of BOTH of it’s CEO’s!! Anshu Jain has thus overseen the world’s largest arsenal of deadly financial derivatives. When Deutsche Bank goes down in flames, the Jain’s bank account should be the first source of funding the losses. May whatever Higher Power there may be up above help us all when the derivatives financial nuclear daisy-chain starts to blow…

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Moany spent locally is worth many times what is spent into box stores. Shopping at Wal-Mart impoverishes your economy, and ultimately you yourself.

The Bristol Pound Is Giving Sterling A Run For Its Money (Guardian)

When his firm was going up against national companies for contracts to manage waste, Jon Free needed an edge to win the pitches. The answer he found was in the sense of community that existed among small businesses like his. By using his local currency, the Bristol pound, he saw companies were more willing to give their business to him and keep money flowing in the area. Launched almost three years ago, the community currency aims to keep money circulating among independent retailers and firms by encouraging people to use the local ‘cash’ instead of sterling, an idea that has inspired other towns and cities to take up similar schemes in the UK and abroad. “To be able to drop in and create a link to make [the money] a circular thing is a big part of it,” the managing director of Waste Source said.

“To say that we are registered with the Bristol pound shows that we are more community based.” In use since 2012, the system operates as both notes and in electronic form with each Bristol pound equal to one pound sterling. Some 800 businesses in the Bristol area now use the community currency, with coffees, meals, council tax and even pole-dancing lessons paid for with it. “The practical vision was to get something which would connect local communities with their businesses in a way which kept money building up in their local communities,” the currency’s co-founder, Ciaran Mundy, said. “What happens is that if you spend it at a large supermarket chain, 80% of that will exit the economy very quickly.”

While community currencies have a history going back to Victorian times, there has been a resurgence in recent years, with Bristol emerging as the standard-bearer in the UK. The system works by people exchanging their sterling for paper Bristol pounds – in single, five, 10 and 20 denominations – or by opening an account at the Bristol Credit Union. The currency can then be spent in participating businesses, or between businesses, in return for goods or services. So far, some £1m has been issued in the community currency, according to Mundy, of which about £700,000 is still in circulation. As it is a voluntary scheme, the currency can switch between sterling and Bristol pounds, he said.

The thinking behind the creation of the new currency, said Mundy, was to make a minor change to allow for more money to be spent in local areas. “I was looking for a technological and cultural innovation which allows people to conduct themselves in a way which is more sustainable. A big part of that is being aware of the impact of your economic activity,” he said.

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Just did an interview with Max. Airs tomorrow on RT.

Max Keiser’s Bitcoin Capital Continues to Attract Investors (NBTC)

Bitcoin Capital, a venture capital fund initiated by the celebrated finance journalist Max Keiser, is hinting to close on a very optimistic note. According to the details available at BnkToTheFuture.com, the VC fund has already generated a little over $1 million upon receiving support from 580 backers (at press time), especially when there are still three days left to the curtain call. The reports also claim that each investor has injected over $1,000 into the Bitcoin Capital, for which they are offered a 50% equity in the fund. A third part of the generated funds are promised to be invested in Bitcoin Capital’s Bitcoin mining rig in Iceland, a place which will also make sure that investors get to receive daily dividends in the form of newly-minted Bitcoins.

This step is planned to ensure speedy investment returns for the investors, something that puts Bitcoin Capital’s plan in an altogether different category, as it seems. But more than its promises, the VC fund is riding high on its backer’s reputation in the market. Max Keiser is known to be one of the most celebrated faces in the finance sector, for his previous professional collaborations with BBC News, Al Jazeera, Resonance FM and Huffington Post. He currently works for the last two, and also hosts a self-branded financial program on RT, titled Keiser Report. His activism for the cryptocurrency sector however was something that earned him a reputation inside the Bitcoin sector. He supported the idea of decentralization when every government and bank was rubbishing it right away.

“I have been critical of the traditional financial system for many years on my show” Keiser said. “I was the first global news outlet to cover bitcoin when it was trading at $3, recognizing its potential to change the world. Many startups in the bitcoin space credit Keiser Report for getting them started in the business. Bitcoin Capital allows the founders and investors to experiment with new crypto financial business models and currencies to transform global finance.”

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Canada was once a nice country. Harper changed all that.

Canada to Train Ukrainian Police as Russia Conflict Worsens (Bloomberg)

Canada will send officers and provide funding to bolster the Ukrainian police force, Prime Minister Stephen Harper said in his latest show of support for Ukraine on the eve of a Group of Seven nations summit. Canada will never accept the Russian occupation of Crimea or parts of eastern Ukraine, Harper said after meeting Ukraine President Petro Poroshenko on Saturday in Kiev. Work continues between the countries on trade talks and visa restrictions. “I’m proud to be here with you again to demonstrate our continued resolve in the face of the enormous challenge you and all Ukrainians are confronted with,” Harper said after earlier announcing the funding to help train Ukrainian police.

The conflict with Russia is “very high on Canada’s agenda” heading into the G7 summit in Germany, which begins Sunday, Harper said. He called on Russian President Vladimir Putin to withdraw all troops, equipment and support for separatists in Ukraine. “Canada will not, and the world must not, turn a blind eye to the near-daily attacks that are killing and wounding Ukrainians here on their own soil, soldiers and civilians alike,” Harper said. Poroshenko thanked Canada, and said he spoke Saturday with the leaders of the U.S., Japan and Germany. “The support by Canada in this very difficult and decisive time is very important for every Ukrainian,” Poroshenko said. “The relentless violation of international norms will not stand without punishment.”

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Brussels lets others do its job and washes its hands.

Greek Island Gateway To EU As Thousands Flee Homelands (Irish Times)

“Excuse me. Is this Greece?” asked a 24-year-old Pakistani man, whose suit was soaked to his waist. Behind him, a group of young Somali men struggled to lift the sole woman passenger from the boat to her wheelchair, the only possession she managed to bring from the other side. Later, Riyan (30), would explain that she had been shot in the back 15 years previously. She said she was making the journey on her own, and her aim was to reach Germany where she hoped she could have an operation. This migrant vessel was one of four to land last Tuesday morning near the beautiful town of Molyvos, with its medieval hilltop fortress that can be seen from miles around.

Tourism is the lifeblood of the place and the permanent population of about 1,500 relies almost exclusively on the money they make during the summer to keep them going during the difficult winter months after the tourists have gone. For weeks, Kempson, a British painter and sculptor who made his home in Molyvos 16 years ago, and his wife Philippa have been daily witnesses to the rapid increase in the numbers of refugees and migrants arriving from Turkey. “It’s been a nightmare for the last few weeks. We really need some help. Only a few of us have been trying to help. This story needs to get out there and Europe really needs to send some help,” he says.

About 70% of those arriving on the boats are Syrian refugees, including many families with young children. They are fleeing the four-year civil war that has devastated their country and, according to the United Nations, triggered the largest humanitarian crisis since the second World War. An estimated 7.6 million people are now displaced within Syria, while almost four million have fled to neighbouring countries, mostly to Turkey, Lebanon and Jordan, where the vast majority have remained, often in appalling conditions. Syrians in Molyvos say only Europe – by which they usually mean Germany or Sweden – can offer them and their families the safety and opportunities they desperately seek.

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May 202015
 
 May 20, 2015  Posted by at 10:24 am Finance Tagged with: , , , , , , , , , , , ,  


NPC District National Bank, Dupont branch, Washington, DC 1924

The Low Velocity Economy – US Money Velocity At All-Time Low (CI)
Euro Plunges As ECB Official Pledges To Speed Up Bond Purchases (Bloomberg)
5 Bubbles Draghi’s QE Is Already Blowing (MarketWatch)
Is The UK In The Early Stages Of Deflation? (Guardian)
Bernie Sanders Wants Wall Street To Pay For Your College Tuition (Vox)
The Economy for Young Americans Is Still Terrible (Atlantic)
Theft Of Greek Bank Deposits To Send Shockwaves Around The World (KWN)
Greek Deception, Greek Tragedy, German Farce, German Myth (Steve Keen)
Athens Proposes Bank Transaction Levy, Creditors Reject VAT Plan (Kathimerini)
Varoufakis’ Overhaul Of VAT System May Skyrocket Food & Utility Prices (KTG)
Europe’s Moment Of Truth (Tassos Koronakis, Central Committee of Syriza)
China Slowdown Deepens Provincial Economic Divide (FT)
John Kerry Admits Defeat Over Ukraine, And That’s A Good Thing (Salon)
It Begins: Ukraine Takes First Real Steps To Default (Mercouris)
Angela Merkel Has Been Abandoned By Kerry, Nuland And Putin (Helmer)
No, You Can’t Go Back To The USSR! (Dmitry Orlov)
Dead Nation Walking (Jim Kunstler)
Air Bag Defect Triggers Largest Auto Recall In US History (Guardian)
I’ve Read Obama’s Secret Trade Deal. Warren’s Right to Be Concerned (Politico)
Italian Coastguards: Military Action Will Not Solve Migrant Crisis (Guardian)
Anti-Euro Far Right Set To Enter Government Coalition In Finland (Guardian)
The Best Show This Summer: Pope’s ‘Morality Vs. Capitalism’ (Paul B. Farrell)
That’s Billion, With A Bee: The Massive Cost Of Hive Collapse (Reuters)

This spells deflation.

The Low Velocity Economy – US Money Velocity At All-Time Low (CI)

The velocity of money is a measure of the economic activity. It looks at how many times a unit of currency ($1 in the case of the United States) flows through the economy and is used by the various members of the economy. In the case of M2 velocity (includes cash and checking deposits (M1) as well as savings deposits, money market mutual funds and other time deposits), it is at an all-time low after peaking in 1998.

An alternative measure of velocity is MZM. MZM represents all money in M2 less the time deposits, plus all money market funds. Like M2 velocity, MZM velocity is at an all-time low.

Here is a chart of MZM velocity against the 10 year constant maturity Treasury rate.

What this chart says is that the economy is not catching fire despite the massive amount of money in circulation. And wage growth is terrible as well, despite Fed intervention.

Here’s to our policy makers in Washington DC!

1972GratefulDeadEurope72

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Back on the road to parity and beyond.

Euro Plunges As ECB Official Pledges To Speed Up Bond Purchases (Bloomberg)

The euro tumbled the most in two months against the dollar after a European Central Bank official said the bank will speed up its bond-buying program before an anticipated mid-year lull. The single currency extended Monday’s decline after Executive Board member Benoit Coeure said the ECB will increase purchases under its quantitative-easing program from €60 billion in May and June, ahead of an anticipated drop-off in market liquidity. The euro was already weighed down by speculation Greece’s banking system is weeks away from insolvency, and fell versus all 16 of its major peers. Coeure’s remarks “provided an acute reminder of how fragile and volatile the markets have been in 2015,” said Lee McDarby at Nomura Holdings Inc. in London. “The euro weakened by over 1% almost instantly in response.”

The euro dropped as much as 1.4% to $1.1160, the lowest level in a week. A decline through $1.10 would reignite calls for a drop to parity with the dollar, McDarby said. Coeure’s comments about injecting money more quickly into the euro-zone economy emerged Tuesday morning as the text of a speech delivered in London the day before. ECB Governing Council member Christian Noyer said separately in Paris on Tuesday that the central bank is ready to extend QE if needed. The euro stayed lower after reports Tuesday showed regional consumer-price growth flatlined in April and German investor confidence declined this month by more than forecast in a Bloomberg economist survey.

Greece’s travails were already hurting Europe’s single currency, undoing a 4.6% rally in April that snapped nine months of losses. That rebound came amid signs of improvement in the 19-nation economy. Greek Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis said Monday they were optimistic a deal to unlock bailout funds was within reach, even as creditors warned the country has yet to comply with the terms of its emergency loans. “We’re coming closer to the endgame for Greece,” said Lee Hardman at Bank of Tokyo-Mitsubishi. “The expectation is still an agreement will be reached between Greece and its creditors, but there’s a risk that they fail to reach one,” which may send the euro lower, he said.

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Just a start.

5 Bubbles Draghi’s QE Is Already Blowing (MarketWatch)

Sixty billion euros here. A hundred billion there. To paraphrase Everett Dirksen’s apocryphal quote about the U.S. budget, pretty soon you are talking about real money. Earlier this year, the European Central Bank launched its quantitative easing program with €60 billion a month of asset purchases by the central bank. Now, in response to some mild turbulence in the bond market, it is talking about front-loading QE, taking the total of fresh cash minted in Frankfurt every month up to 100 billion or even more. In short, real money. Academics will no doubt be discussing the effectiveness of QE in lifting the real economy for a couple of generations at least, and probably not reaching any definitive conclusions.

Perhaps it pulls countries out of a recession, or perhaps they would have eventually started to grow again anyway? One thing we can say for sure, however, is that it boosts asset prices. In fact, it is already happening. A series of Mario Draghi bubbles are already inflating across the eurozone. Where exactly? Well, Spanish construction is booming, Dublin house prices are soaring, German wages are accelerating, Malta is riding a wave of hot money, and Portuguese equities are among the best performers in the world. For a lucky few investors, QE is already working its magic.

The ECB president probably had no choice but to finally bite the bullet and launch the ECB’s own version of QE earlier this year. The continent was sliding rapidly into deflation, with prices dropping in countries such as Spain. The economy was slipping into a depression, and unemployment was rising relentlessly even as the rest of the global economy was recovering. The only real surprise was that it took so long. That doesn’t mean, however, that the money created won’t blow up asset prices. Indeed, it is already happening.

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“Deflation is where prices fall across the board for a sustained period.” No, it is not. And how can you solve a problem you don’t understand?

Is The UK In The Early Stages Of Deflation? (Guardian)

Blink and you ll miss it. That sums up what the experts think about inflation turning negative in the UK for the first time since 1960, a time when Dwight Eisenhower was the US president and before the pre-fame Beatles had played a single note in Hamburg. That year, the period when the annual cost of living was falling proved to be brief, and the expectation is that it will be this time too. Why? Because the reason inflation has dipped below zero is largely due to the halving of oil prices in the second half of last year. Unless those falls in the cost of crude are repeated this year and it s almost certain they won t inflation will start to pick up again. The timing of Easter, which has an impact on the cost of air and sea travel, was also a factor. So, for now, it is a mistake to say the UK is in the early stages of Japanese-style deflation.

Deflation is where prices fall across the board for a sustained period. It is an environment in which consumers put off making major purchases because they assume that the TV, car or freezer they want will be cheaper in the future than it is today. With consumer confidence high and unemployment falling, there seems no immediate prospect of this happening. Indeed, the opposite may well happen, with consumers tempted to increase their spending because their monthly pay cheques stretch further. Earnings growing at around 2% a year in conjunction with inflation 0.1% lower than a year ago equals a modest increase in real incomes that are likely to keep shop tills jangling in the months ahead.

A cut in average earnings growth from 2% to 1% would suggest the economy was in a downward wage-price spiral All that said, a wary eye needs to be kept on the inflation numbers. Core inflation the cost of living excluding volatile items such as energy and food fell to 0.8% in April, the lowest since 2001. If it fell further, the risk of deflation proper would increase. he unknown factor that could push core inflation lower is wages. Despite two and a half years of steady growth and shortening dole queues, earnings are still only growing at around their pre-crisis levels of 4%. The Bank of England believes they will start to pick up because firms will struggle to find workers from a shrinking pool of labour. But if the supply of labour continues to increase, employers could respond to falling inflation by making their pay offers less generous.

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Good plan. No chance.

Bernie Sanders Wants Wall Street To Pay For Your College Tuition (Vox)

The big banks got bailed out, and presidential contender Bernie Sanders says they should pay it forward. The independent senator from Vermont introduced his plan on Tuesday, which would use a tax on stock trades to help pay students’ tuition. The price of attending a public college has been climbing since the 1980s. Sanders’s plan would shift the burden to pay for college away from students and families and back onto the government. Sanders’s bill, which he says would cost $47 billion in the first year, doesn’t stand a chance in the Senate. But it highlights an important question for higher education policy: can the federal government force states to make college more affordable?

Public college tuition has risen 30% in the past decade. Since 2004, published tuition rates have jumped from $6,448 in 2004 to $9,139 in 2014. Net tuition at public colleges — the amount students actually pay after financial aid is taken into account — has, meanwhile, nearly doubled since 2000. Part of this is a story about rising tuition costs, as the price to attend both public and private colleges has grown rapidly in recent years. But there is a second story here, one about states’ funding for higher education not keeping pace with all the students who want to attend — and leaving students to pay a bigger chunk of their bill.

In the late 1980s, only about a quarter of public college revenue came from tuition. The rest came from the state or other sources. Now students cover about half the cost of their education — and may soon provide the majority of public college revenues. In general, public colleges spend about the same amount per student that they did in 1987. States are spending more on higher education than they did in the past. But more people go to college than used to, and state budgets haven’t been able to keep up with enrollment increases and inflation. Students at public universities are now increasingly likely to borrow, and more likely to graduate with debt: 59% of students at public colleges took out loans in 2012, and students who borrowed graduated with an average of $25,600 in debt.

Sanders’s plan would set up a grant program to cover the share of tuition that students currently pay. The federal government would pay for two-thirds of the grant program’s budget, using a new tax on stock trades to raise an estimated $47 billion in revenue. States would be required to chip in the additional one-third of funding, as well as keep up their current spending levels on higher education. While Sanders’s proposal is far to the left of many Democrats, the type of grant program he proposed isn’t totally different from other proposals floated on Capitol Hill. Requiring states to fund higher education has been tried before, and it worked.

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Screwed by boomers.

The Economy for Young Americans Is Still Terrible (Atlantic)

I’ve been doing a lot of thinking recently about the labor market for a longer forthcoming piece, and one of the mysteries I’ve been grappling with is: How do you describe how this economy is treating young people? Let’s start by singing the necessary praises. Last year was was the best for job-creation this century. We’re in the middle of the longest uninterrupted stretch of private-sector job creation on record. After creating mostly low-paying service jobs for the first few years of the recovery, the labor market is finally churning out more high-skill jobs. All of these things should be great news for young people. Should. But a deeper look at the Young-American Economy today suggests that, in contrast to the overall labor market, it is still sort of terrible.

To start with the camera lens zoomed all the way out: The majority of young people aren’t graduating from a four-year university. Rather they are dropping out of high school, graduating from high school and not going to college, or dropping out of college. Millennial is often used, in the media, as a synonym for “bachelor-degree-holding young person,” but about 60% of this generation doesn’t have a bachelor’s degree. And how are they doing, as a group? Young people don’t seem to have a jobs problem—their jobless rate is a bit elevated, but not alarmingly so. Rather they have a money problem. The jobs they’re getting don’t pay much and their wages aren’t growing. A recent analysis of the Current Population Survey last year found that the median income for people between 25 and 34 has fallen in every major industry but healthcare since the Great Recession began.

Zoom in on recent college graduates, and the picture gets more complicated. In The Washington Post, Ylan Q. Mui says “the era of the overeducated barista is coming to a close.” That would be nice, indeed. But the data suggests that the era is hardly over: Overeducated baristas, once totally ubiquitous, are now merely super-abundant. Under-employment (the share of college grads in jobs that historically don’t require a college degree) is high. The quality of jobs that underemployed young people are getting is getting worse. And for these reasons, wages are growing incredibly slowly, if at all.

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The EU, ECB and IMF have their eyes on Greek bank deposits.

Theft Of Greek Bank Deposits To Send Shockwaves Around The World (KWN)

The troika of the EU, ECB and IMF have not yet pulled the plug on the Greek banks, but the following quote in the Financial Times from this weekend should be a warning to anyone who still has money on deposit in that country: “The idea of a ‘Cyprus-like’ presentation to Greek authorities has gained traction among some eurozone finance ministers, according to one official involved in the talks.” The ECB is up to its eyeballs swimming in unpayable Greek debt that it holds. The ECB is not going to take a loss on this Greek paper on its books. Because Greece does not have the financial capacity to repay what is now about €112 billion of credit exposure on the ECB’s books, the ECB has only two alternatives.

It can push the €112 billion of Greek debt it holds to the national central banks of the Eurozone and on to the backs of the taxpayers in those countries, which is politically untenable. Or it can confiscate depositor money in Greek banks, like it did in Cyprus and as the FT has now reported. The difference is that Greece presents a problem that is an order of magnitude bigger than Cyprus because of the huge debt it has outstanding. That means the shockwaves from a ‘Cyprus-like’ confiscation of bank deposits will reverberate throughout the Eurozone and far beyond because bank depositors in other countries will start asking, which country is next to confiscate bank deposits?”

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Steve’s excellent takedown of austerity.

Greek Deception, Greek Tragedy, German Farce, German Myth (Steve Keen)

There is no prospect of Schäuble’s program working without a substantial write-down of Greek government debt—yet this is something the Troika refuses to countenance. In this sense the Troika’s program is the essence of farce, since it is persisting with a ludicrously improbable program. Schäuble’s assertion that the program imposed on Greece is “not blind “austerity”” also cannot be reconciled with the fact that the Troika’s program has had a far worse impact on Greece than the Troika expected. A European Parliament study pointed out that the Troika predicted that unemployment in Greece would peak at 15% in 2012, and fall thereafter. Instead, it rose to over 25%, and remains above this level today. Who else but the blind—or those acting in a farce—could ignore such a huge disparity between the ambitions of the Troika’s program and its actual results?

This failure is not because the Greeks haven’t tried hard enough—far from it. The cutbacks that were imposed at the direction of the Troika were extreme. They included, for example, a reduction in the minimum wage of more than 20%, and a 25% cut to hospital funding. How can this last measure be reconciled with Schäuble’s description of the Troika’s policies as “preparing aging societies for the future”? The Troika’s program has failed on its own terms because it had a far more drastic negative impact on the Greek economy than the Troika’s economic models predicted. The economy has contracted by 6% a year in nominal terms for several years—and by as much as 10% in inflation-adjusted terms. What was expected to be a “short, sharp shock” followed by a return to sustained growth has instead become a Greek Great Depression.

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Tell the creditors to go take a hike.

Athens Proposes Bank Transaction Levy, Creditors Reject VAT Plan (Kathimerini)

Athens is promoting the idea of a special levy on banking transactions at a rate of 0.1-0.2%, while the government’s proposal for a two-tier value-added tax – depending on whether the payment is in cash or by card – has met with strong opposition from the country’s creditors. A senior government official told Kathimerini that among the proposals discussed with the eurozone and the International Monetary Fund is the imposition of a levy on bank transactions, whose exact rate will depend on the exemptions that would apply. The aim is to collect €300-600 million on a yearly basis.

Available data show that the annual level of bank transactions comes to over €660 billion but the government will likely exempt debit card transactions, such as cash machine withdrawals, given that the Finance Ministry is eager to promote the use of debit cards as part of its efforts to combat tax evasion. The precise terms of the levy have not yet been addressed but the idea is being discussed in principle, as it is seen to have considerable fiscal benefits and a low impact on ordinary household budgets. As for the proposal for shaving three percentage points from the VAT rate when a transaction is not made in cash, Greece’s creditors are opposed to the scheme, arguing that it would bring annual losses of 6.5 billion euros for state coffers.

Instead, they propose the main rate to be set at 18-20% and the low one (applying to food, drugs and books) to stand at 8%. At the same time, they want the discounted rate that applies on Aegean islands to be scrapped. Athens proposed a top VAT rate of 18%, dropping to 15% for cash-free transactions, and a 9.5% rate for food, drugs and books, falling to 6.5% for card transactions. Following the rejection of this idea from the country’s lenders, the Finance Ministry sent a new proposal that includes three VAT rates. According to sources, these are 7.5%, 15 and 21 or 22. It is estimated that this scheme would bring in an additional €800 million in revenues. However, €200 million of this would be returned to the Aegean islands to compensate for the increase in their VAT rates.

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The creditors want even higher rates.

Varoufakis’ Overhaul Of VAT System May Skyrocket Food & Utility Prices (KTG)

Greek Finance Minister Yanis Varoufakis said it clearly Monday night on political program on private STAR TV. There will be a flat Value Added Tax of 18% for cash-transactions and a 3% discount – ie. 15% V.A.T. – for payments with credit or debit card. He assured that “the low V.A.T. of 6.5% will still be valid for food items, medicines, books, newspapers and other print material” provided the payments will be done via non-cash transactions. Otherwise,the VAT for these items will be 9.5%. With the current state of V.A.T. there is hardly any basic food item with 6.5% V.A.T. except bread and pasta. Varoufakis’ proposal for a rather complicated V.A.T. system will be submitted to the creditors with the aim to tackle Value Added Tax evasion, which is estimated to be €9.5 billion per year.

At the same time, the new system will allow tax authorities to follow step by step all purchases done by taxpayers due the online access of tax offices to bank accounts. It will not only give incentives of 3% V.A.T. discount to consumers for the purchase of products and services and force entrepreneurs to accept the “new deal and sell innovation”, it will also enable the tax authorities to check each newspaper, each shampoo and each carrot you buy, then sum the purchases up and check if taxpayers’ tax declaration and income matches to the expenses he/she has done. This however has not so much to do with people’s tax evasion or not.

It has to do with the unfair tax system of “deemed and fictitious income and taxation” imposed by the Troika in 2012 (or 2011) and according to which the tax office considers that each person needs €3,000 per year to cover his basic needs (food, cleaning material etc.). The person is then been taxed accordingly independently of whether it has an income or not. In fact, this measure is been implemented to people without income, that is Greece’s famous 25% jobless labor craft. If the person happens to live in own or rented apartment, another €2,000-3,000 are being added and the jobless has to be tax for the €5,000-6,000 income he does not have. Furthermore, with this measure it will be time for the Greeks to say Goodbye to privacy of their purchases and dirty little habits.

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From the Syriza desks.

Europe’s Moment Of Truth (Tassos Koronakis, Central Committee of Syriza)

Dear friends, After almost four months of intensive negotiations, we have reached a moment of truth for our common European project. The Syriza-led government does its best to reach an honorable agreement with its European and international partners that respects both the obligations of Greece as a European member-state, but also the Greek peoples’ electoral mandate. The Syriza-led government has already started a series of reforms that tackle corruption and widespread tax-evasion. Spending is reined in and collected tax revenue exceeds expectations, reaching a primary budget surplus of 2.16 bn (January-April 2015), far above the initial estimation for a 287m deficit. Meanwhile, Greece has honored all debt obligations by its own resources, a unique case among European nations since any disbursement of funds has been cut off since August 2014.

Four months of exhausting negotiations have passed, where Greece’s creditors systematically insist on forcing on the SYRIZA-led government the exact austerity program that was rejected by the Greek people in the January 25 elections. Liquidity asphyxiation, orchestrated by the Institutions, has led to a critical situation for our country’s finances, making it unbearable to serve upcoming debt obligations. The Greek government has done its best to reach an agreement, but red lines -having to do with sustainable and not unrealistic primary surpluses, the restoration of collective contracts and the minimum wage, workers protection from massive lay-offs, the protection of wages, pensions and the social security system from further cuts, stopping fire-sale privatizations etc- are to be respected.

Popular sovereignty and democratic mandates are to be respected. Greek people’s patience and goodwill is not to be mistaken as willingness to succumb to unprecedented blackmail. European democracy is not to be asphyxiated. Times are crucial; political will from our European partners is needed to overcome the current stalemate. This call is not just a call for solidarity, it is a call for due respect of the foremost of European values. In this framework, SYRIZA appeals to all progressive and democratic social and political actors who acknowledge that Greece’s fight is not limited within its national borders, but constitutes a fight for democracy and social justice in Europe.

In these critical moments, we are calling for acts of social and political solidarity, ranging from the organization of rallies and awareness campaigns across Europe, to institutional initiatives in local, regional and national parliaments and personal or collective statements of support to the efforts of Greece to swift the European paradigm from disastrous austerity to a new model for sustainable growth. Your support is of utmost importance, not only for the people of Greece, but for the fate of the European idea.

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“Our economy here has relied almost entirely on building housing but everyone who can afford an apartment already has one..”

China Slowdown Deepens Provincial Economic Divide (FT)

Last month more than 30 provincial taxi drivers drank poison and collapsed together on the busiest shopping street in Beijing in a dramatic protest against economic and working conditions in their home town. The drivers, who the police say all survived, were from Suifenhe, a city on the Russian border in the northeastern province of Heilongjiang. Such lurid acts of protest are an ancient tradition in China but the extremity of their action highlights one of the biggest problems facing Beijing as it tries to manage the worst economic slowdown in nearly three decades: a deepening provincial economic divide. An examination of regional growth rates across the country shows the slowdown has affected some areas far worse than others. Perhaps predictably, the worst-hit places are those that can least afford it.

Heilongjiang is among the poorest performers. While national nominal growth slipped to 5.8% in the first quarter compared with a year earlier — its lowest level since the global financial crisis — the province’s nominal GDP actually contracted, by 3.2%. In the provincial capital of Harbin, signs of economic malaise are everywhere. A large upscale mall in the centre of town with half a dozen boarded-up shopfronts is abandoned inside apart from a luxury home furnishing shop and a Bentley dealership with three salespeople asleep on couches in the corner. A short drive from the city centre and the primary reason for the region’s economic woes becomes clear. As far as the eye can see there are empty or half-built residential tower communities boasting names such as “Jade Lake World”, “River Chateau”, “Polyup Town” and Intime City”.

Each tower holds roughly 400 units and each community has between 20 and 50 towers. In the new Qunli district alone there are more than 30 completed or half-built communities. Without much industry, Harbin’s economy has traditionally relied on agriculture, tourism and trade with Russia but in the past five years it has been boosted by the enormous residential property construction binge seen all over China. “In the past few years a decent-sized cement company could sell 1m cubic metres of cement annually but now they are lucky to sell 100 cu m a day and they are all losing money,” says Chen Liyong, a 31-year-old taxi driver who lost his job at a cement company late last year. “Our economy here has relied almost entirely on building housing but everyone who can afford an apartment already has one and we don’t have anyone moving here from other places.”

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As I said: a kow-tow.

John Kerry Admits Defeat Over Ukraine, And That’s A Good Thing (Salon)

It is just as well Secretary of State John Kerry’s momentous meetings with Russian leaders last week took place in Sochi, the Black Sea resort where President Putin keeps a holiday home. When you have to acknowledge that two years’ worth of pointless hostility in the bilateral relationship has proven none other than pointless, it is best to do so in a far-away place. Arriving in the morning and leaving in the afternoon, Kerry spent three hours with Sergei Lavrov, Russia’s very competent foreign minister, and then four with Putin. After struggling with the math, these look to me like the most significant seven hours the former senator will spend as this nation’s face abroad.

Who cannot be surprised that the Obama administration, having turned the Ukraine question into the most dangerous showdown since the Cold War’s worst, now declares cordiality, cooperation and common goals the heart of the matter? The question is not quite as simple as one may think. On the one hand, the policy cliques’ long swoon into demonization has been scandalously juvenile, and there has been no sign until now of sense to come. Grown men and women advancing the Putin-is-Hitler bit with straight faces. Getting the Poles, paranoids for understandable reasons on all questions to with Russia, to stage ostentatious displays of teenagers in after-school military exercises. American soldiers in those silly berets they affect drilling Ukrainian Beetle Baileys in “war-making functions,” as the officer in charge put it.

When the last of these theatrics got under way in mid-April, it was time for paying-attention people to sit up. As noted in this space, it seemed to indicate that we Americans were prepared to go to war with another nuclear power to rip Ukraine from its past and replant it in the neoliberals’ hothouse of client states—doomed to weakness precisely because corrupt leaders were enticed with baubles to sever their people from history. On the other hand, it took no genius to see what would eventually come. This column predicted long back—within weeks of the American-cultivated coup that deposed President Yanukovych in February of last year—that the Obama administration would one day be forced to retreat before it all came to resolution.

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Trying to stiff Russia. Not a good idea.

It Begins: Ukraine Takes First Real Steps To Default (Mercouris)

The Ukrainian government is on the brink of declaring default. The Ukrainian government has proposed a bill allowing the government to impose a “moratorium” on payment of the country’s external debts. Such a moratorium is just another word for a default. It is the same device the Russian government used when it defaulted on its external debt in 1998. This is not quite the end of Ukraine’s debt saga. Ukraine will only be formally in default when it misses a payment. It is possible Ukraine has taken this step as a negotiating tactic to put more pressure on its Western creditors. It is also possible Ukraine is hoping to preserve some financial credibility by picking and choosing which creditors it will pay. As we have discussed previously, it might try to go on paying its Western creditors while defaulting on the debts it owes to Russia.

Frankly, this all looks unlikely and it seems that what we are looking at is an across-the-board default. In truth, as has been pointed out by several people — notably by Eric Kraus — the numbers of the various IMF plans have never added up, and a default looked increasingly inevitable from the moment the Maidan coup happened, when it became clear the Ukrainian government was heading into a confrontation with its economically critically important eastern regions and with its biggest trade partner Russia. The accelerating collapse of Ukraine’s economy (with GDP contracting by 17% in the first quarter by comparison with last year) and the deadlock in the negotiations with the Western creditors, appears to have made today’s default announcement unavoidable.

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“../the word Merkel said, “verbrecherische” has rarely been used by her before; it carries the connotation in colloquial German of gangsterism — and of Nazism.”

Angela Merkel Has Been Abandoned By Kerry, Nuland And Putin (Helmer)

Angela Merkel, the German Chancellor, would do almost anything to get and keep power. That, in the opinion of powerful German bankers, includes making herself look ready for war with Russia in order to make her political rival, Frank-Walter Steinmeier, the coalition Foreign Minister and opposition leader in Berlin, look too weak to be electable when the German poll must be called by 2017. So, sources close to the Chancellery say, Merkel insulted President Vladimir Putin and all Russians to their faces last week. This week Victoria Nuland, the junior State Department official who told the chancellor to get fucked a year ago, was in Moscow, replacing Merkel with a settlement of the Ukraine conflict the Kremlin prefers.

“We are ready for this,” Foreign Minister Sergei Lavrov said last Thursday after meeting Secretary of State John Kerry. Referring to Nuland, Lavrov added: “we were not those who had suspended relations. Those, who had done it, should reconsider their stance….But, as usual, the devil is in the details.” Lavrov meant not one, but two devils, who have sabotaged every move towards a settlement of the Ukraine conflict since the start of 2014 – Nuland and Merkel. Merkel’s Kaput! moment came on May 10, when she went to Moscow to lay a wreath at the Tomb of the Unknown Soldier. Deutsche Welle, the state German press agency, called it Merkel’s “compromise after she stayed away from a Russian military parade the day before.”

At the following press conference with Putin, Merkel said: “We have sought more and more cooperation in recent years. The criminal and illegal annexation of Crimea and the military hostilities in eastern Ukraine has led to a serious setback for this cooperation.” German sources say the word Merkel said, “verbrecherische” has rarely been used by her before; it carries the connotation in colloquial German of gangsterism — and of Nazism. “Merkel doesn’t seem to care what she says any longer,” a high-level German source says. “She exhibits more and more emotion these days, more irritation, and less care for what she says, and where. Putin understood exactly what she meant, and on the occasion she said it. He acted with unusual generosity not to react.”

The Kremlin transcript omitted Merkel’s remarks altogether. The Moscow newspapers ignored Merkel’s word and emphasized the positive Putin ones. “Our country fought not against Germany,” Putin replied to Merkel, “but against Nazi Germany. We never fought Germany, which itself became the Nazi regime’s first victim. We always had many friends and supporters there.

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“He who doesn’t regret the collapse of the USSR doesn’t have a heart; he who wants to see it reborn doesn’t have a brain.” (Putin)

No, You Can’t Go Back To The USSR! (Dmitry Orlov)

One of the fake stories kept alive by certain American politicians, with the help of western media, is that Vladimir Putin (who, they vacuously claim, is a dictator and a tyrant) wants to reconstitute the USSR, with the annexation of Crimea as the first step. Instead of listening to their gossip, let’s lay out the facts. The USSR was officially dissolved on December 26, 1991 by declaration 142-H of the Supreme Soviet. It acknowledged the independence of the 15 Soviet republics, and in the place of the USSR created a Commonwealth of Independent States, which hasn’t amounted to much. In the west, there was much rejoicing, and everyone assumed that in the east everyone was rejoicing as well.

Well, that’s a funny thing, actually, because a union-wide referendum held on March 17, 1991, produced a stunning result: with over 80% turnout, of the 185,647,355 people who voted 113,512,812 voted to preserve the USSR. That’s 77.85% not exactly a slim majority. Their wishes were disregarded. Was this public sentiment temporary, borne of fear in the face of uncertainty? And if it were to persist, it would surely be a purely Russian thing, because the populations of all these other Independent States, having tasted freedom, would never consider rejoining Russia. Well, that’s another funny thing: in September of 2011, fully two decades after the referendum, Ukrainian sociologists found out that 30% of the people there wished for a return to a Soviet-style planned economy (stunningly, 17% of these were young people with no experience of life in the USSR) and only 22% wished for some sort of European-style democracy.

The wish for a return to Soviet-style central planning is telling: it shows just how miserable a failure the Ukraine’s experiment with instituting a western-style market economy had become. But, again, their wishes were disregarded. This would seem to indicate that Putin’s presumptuously postulated project of reconstituting the USSR would have plenty of popular support, would it not? What he said on the subject, when asked directly (in December of 2010) is this: He who doesn’t regret the collapse of the USSR doesn’t have a heart; he who wants to see it reborn doesn’t have a brain. Last I checked, Putin does have a brain; ergo, no USSR 2.0 is forthcoming.

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Third world.

Dead Nation Walking (Jim Kunstler)

Many people seem to think that America has lost its sense of purpose. They overlook the obvious: that we are striving to become the Bulgaria of the western hemisphere. At least we already have enough vampires to qualify. You don’t have to seek further than the USA’s sub-soviet-quality passenger railroad system, which produced the spectacular Philadelphia derailment last week that killed eight people and injured dozens more. Six days later, we’re still waiting for some explanation as to why the train was going 100 miles-per-hour on a historically dangerous curve within the city limits.

The otherwise excellent David Stockman posted a misguided blog last week that contained all the boilerplate arguments denouncing passenger rail: that it’s addicted to government subsidies and that a “free market” would put it out of its misery because Americans prefer to drive and fly from one place to another. One reason Americans prefer to drive — say, from Albany, NY, to Boston — is that there is only one train a day, it never leaves on time or arrives on time, and it takes twice as long as a car trip for no reason that makes any sense. Of course, this is exactly the kind of journey (slightly less than 200 miles) that doesn’t make sense to fly, either, given all the dreary business of getting to-and-from the airports, not to mention the expense of a short-hop plane ticket.

I take the popular (and gorgeous!) Hudson River Amtrak train between Albany and New York several times a year because bringing a car into Manhattan is an enormous pain in the ass. This train may have the highest ridership in the country, but it’s still a Third World experience. The heat or the AC is often out of whack, you can’t buy so much as a bottle of water on the train, the windows are gunked-over, and the seats are often broken. They put wifi on trains a couple of years ago but it cuts out every ten minutes.

Anyway, even if Americans seem to prefer for the present moment to drive or fly, it may not always be the case that they will be able to. Several surprising forces are gathering to take down the Happy Motoring matrix. Peak oil is actually not playing out in the form of too-high gasoline prices, but rather a race between a bankrupt middle class unable to pay the total costs of motoring and an oil industry that can’t make a profit drilling for hard-to-get oil. That scenario is plain to see in the rapid rise and now fall of shale oil.

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Are there any cars left that have not been recalled?

Air Bag Defect Triggers Largest Auto Recall In US History (Guardian)

Japanese air bag manufacturer Takata is expected to declare about 33.8m vehicles defective on Tuesday, a move that is expected to lead to the largest auto recall in US history, the Detroit News reported, citing three officials briefed on the announcement. The company is expected to announce that it has filed a series of four defect information reports with the US National Highway Traffic Safety Administration (NHTSA), declaring both driver and passenger air bag inflators defective in the vehicles, the report said. The US Department of Transportation and the NHTSA said earlier that they would make a “major” announcement related to the air bag recall.

The number of vehicles with potentially defective Takata air bags recalled globally since 2008 has risen to about 36m following recalls over the past week by Japan’s Toyota, Nissan and Honda. The automakers have said that they decided to proceed with the recalls after finding some Takata air bag inflators were not sealed properly, allowing moisture to seep into the propellant casing. Moisture damages the propellant and can lead to an inflator exploding with too much force, shooting shrapnel inside the vehicle. Six deaths have been linked to the defective air bags, all in cars made by Honda, which has borne the brunt of the Takata recalls to date and which gave a disappointing profit forecast last month due to higher costs related to quality fixes.

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Great piece from a ‘cleared advisor’ to the government.

I’ve Read Obama’s Secret Trade Deal. Warren’s Right to Be Concerned (Politico)

“You need to tell me what’s wrong with this trade agreement, not one that was passed 25 years ago,” a frustrated President Barack Obama recently complained about criticisms of the Trans Pacific Partnership (TPP). He’s right. The public criticisms of the TPP have been vague. That’s by design—anyone who has read the text of the agreement could be jailed for disclosing its contents. I’ve actually read the TPP text provided to the government’s own advisors, and I’ve given the president an earful about how this trade deal will damage this nation. But I can’t share my criticisms with you. I can tell you that Elizabeth Warren is right about her criticism of the trade deal.

We should be very concerned about what’s hidden in this trade deal—and particularly how the Obama administration is keeping information secret even from those of us who are supposed to provide advice. So-called “cleared advisors” like me are prohibited from sharing publicly the criticisms we’ve lodged about specific proposals and approaches. The government has created a perfect Catch 22: The law prohibits us from talking about the specifics of what we’ve seen, allowing the president to criticize us for not being specific. Instead of simply admitting that he disagrees with me—and with many other cleared advisors—about the merits of the TPP, the president instead pretends that our specific, pointed criticisms don’t exist.

What I can tell you is that the administration is being unfair to those who are raising proper questions about the harms the TPP would do. To the administration, everyone who questions their approach is branded as a protectionist—or worse—dishonest. They broadly criticize organized labor, despite the fact that unions have been the primary force in America pushing for strong rules to promote opportunity and jobs. And they dismiss individuals like me who believe that, first and foremost, a trade agreement should promote the interests of domestic producers and their employees.

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Of course it won’t. It will kill people.

Italian Coastguards: Military Action Will Not Solve Migrant Crisis (Guardian)

The Italian coastguards leading migrant rescue missions in the southern Mediterranean have voiced concern about the EU’s migration strategy, arguing that military operations will not stop migration to Europe and calling instead for European navies to prioritise search-and-rescue missions. Speaking on Monday before EU defence and foreign ministers agreed to launch military operations against Libyan smugglers, coastguard captain Paolo Cafaro said a military campaign would not eradicate the root causes of the Mediterranean crisis. His colleagues Admiral Giovanni Pettorino and Capt Leopoldo Manna called for an increased focus on saving migrants’ lives, with Manna urging European navies, including that of Britain, to give him more control over their boats in order to streamline Mediterranean search-and-rescue activities.

All three are senior officers within Italy’s Guardia Costiera, a semi-autonomous wing of the Italian navy. Pettorino leads its search-and-rescue division; Cafaro is in charge of the division’s planned rescue missions; and Manna heads its emergency response control room, which has ultimate responsibility for managing how coastguard, navy, and merchant vessels of all nationalities respond to migrant SOS calls. Cafaro said: “The problem of migration, of desperate people, will not be solved with these [military] measures. It will assume other forms. They will try to find other ways.” Cafaro admitted it was desirable “to stop all the involvement of criminal organisations in this traffic, all the money that they earn from this traffic, this is [something that is] necessary to destroy. But the problem of migration cannot be solved with measures like these.”

Cafaro also questioned whether European navies would be able to target smugglers’ boats before they are used for migration missions, due to both the absence of a blessing from Libya’s official government and the UN, as well the complexities of the smuggling process. Smuggling boats are often simply fishing boats bought in the days prior to a trip, and kept in civilian harbours until the night of their departure. Cafaro said: “I think that different European navy ships at sea can intercept and destroy wooden boats – that I think is very possible and feasible. [But] they can’t do that in Libyan territorial waters. They must do that when they are in international waters, after the people on board have been rescued, and then they can do it.”

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Of course the Guardian can’t help itself: it must label Syriza ‘a populist party’.

Far Right Set To Enter Government Coalition In Finland (Guardian)

Finland’s government is expected to include far right representation after the new prime minister, Centre party leader Juha Sipilä, confirmed that he was opening negotiations to bring the populist Finns party (PS) into coalition for the first time. The PS’s charismatic leader, Timo Soini, is poised to become a minister, probably with the finance or foreign affairs portfolio, after the party finished second in the general election on 19 April. Sipilä said it was the “best option” to meet the challenges facing the country, notably the economy. He said he wanted a strong coalition capable “of making reforms and implementing those decisions”.

The third partner in the coalition will be the conservative National Coalition party, led by outgoing premier Alexander Stubb. The coalition will have a comfortable majority, with 123 seats out of 200. Negotiations have begun on a detailed agenda for government. The Social Democrats, part of the previous government, will be in opposition after their crushing election defeat. Throughout the campaign, Soini, 52, assured voters he was ready to govern. He is a well-known Eurosceptic and a critic of the financial rescue package for Greece.

Soini avoided any reference to the euro on the campaign trail, though his party manifesto clearly states that Finland should renegotiate the terms of European Union membership and recover powers from Brussels. Soini also toned down his criticism of immigration, though he made no attempt to condemn the xenophobic comments of some other PS candidates. There is a consensus view, shared by the three main parties that have governed in the past, that it is preferable to have the populists on board, rather than allow them to gain ground in opposition. Along with Belgium and Greece, Finland is the third EU country with populist Eurosceptics in government.

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“WWIII: Capitalism vs Morality, the Final Battle to Save the World.”

The Best Show This Summer: Pope’s ‘Morality Vs. Capitalism’ (Paul B. Farrell)

Yes it’s summertime, folks! Family vacations! Rock stars on concert tours across America: Garth Books. Katy Perry. U2. One Direction. Plus endless movie blockbusters opening in theaters near you: “Mad Max.” “Jurassic World.” “Age of Ultron.” “Terminator Genisys.” “Tomorrowland.” “Mission Impossible: Rogue Nation.” But one blockbuster tour is destined to beat all competition, break all records, hit the music charts at No.1 with a bullet, fill stadiums seating millions and rattling enemies with endless screenings condemning the dark side of capitalism, while raking in billions for humanity. Yes, when ticket sales ante up, Pope Francis will crush the competition with his summer-long blockbuster rollout: “WWIII: Capitalism vs Morality, the Final Battle to Save the World.”

On the surface it’s “WWIII: Capitalism vs Climate.” But in fact, capitalism’s at war with morality. Capitalism has lost its soul, has no moral code. Yes, capitalism does hate the very mention of global warming, bristles at any suggestion of protecting Planet Earth from climate change. But bottom line, this is a battle to the death with morality, capitalism’s at war with the gods. In their arrogance and narcissism, capitalists really do believe they are superior, the “Invisible Hand” of God. Unfortunately they don’t see what’s about to hit them, some even dismissing the pope as politically irrelevant. Big mistake. They’re also distracted by the traveling tent circus overcrowded with 20 GOP presidential candidates fighting for money from rich donors, headlines in local newspapers, broadcast sound bites, all to get a few voters out in Iowa cornfields.

But so far, this is little more than a noisy distraction, previews of coming attractions for a home movie. So what’s ahead for capitalists? Some talking points already emerged from the pope’s recent trial balloon. A “Declaration of Religious Leaders, Political Leaders, Business Leaders, Scientists and Development Practitioners” was released right after the Vatican’s “Climate Summit” at the Pontifical Academies of Sciences and Social Sciences in Rome. The summit opened with a clear declaration that everyone, rich and poor, has a “moral duty” to protect the environment. Listen:

“Human-induced climate change is a scientific reality, and its decisive mitigation is a moral and religious imperative for humanity … the poor and excluded face dire threats from climate disruptions, including the increased frequency of droughts, extreme storms, heat waves, and rising sea levels … The world has within its technological grasp, financial means and know-how to mitigate climate change while also ending extreme poverty … through the relentless pursuit of peace, which also will enable the shift of public financing from military spending to urgent investments for sustainable development.”

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Permaculture understands this: “.. attracting wild bees (in this case, by planting wildflowers at the edge of a crop) could aid in crop pollination – up to 50% of it, at least.”

That’s Billion, With A Bee: The Massive Cost Of Hive Collapse (Reuters)

In farming, technology will only take you so far. GPS can help drive automated harvesters around the fields, satellites help to ensure the right crops get planted at the right time. But if you want your crops to grow, you’ll have to rely on something a little more old-fashioned: honey bees. And they’re dying in enormous numbers: The makers of insecticides containing neonics, Bayer and Syngenta chief among them, have a lot to lose if regulatory bodies end up siding with the environmentalists. More than 90% of the corn in the U.S. is treated with neonics, according to this release from Bayer. To put this in perspective, last year the USDA estimated that around 91.6 million acres of corn were planted in the United States. That’s a lot of neonic’d corn.

So what happens if — or when — we run out of honey bees? In addition to posing a huge risk to global food supply, there would be dire economic repercussions. Right now, the honey bee adds more than $15 billion to the U.S. economy alone, through its pollination of fruits, vegetables and other crops, according to a 2014 report from the White House. Worldwide, that number is around $365 billion per year. And it’s not just traditional farmers who would suffer. The honey bee industry in the U.S. pulls in more than $300 million in revenue a year, according to a December 2014 IbisWorld report.

But as the bees die, some fear the industry will go with them. The American Beekeeping Federation told the Wall Street Journal that its membership has been massively depleted over the past 20 years. The solution to a lack of honey bees might just be… different bees. At least that’s according to a University of Wisconsin-Madison study, which showed that attracting wild bees (in this case, by planting wildflowers at the edge of a crop) could aid in crop pollination – up to 50% of it, at least.

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