May 282017
 
 May 28, 2017  Posted by at 9:51 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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Fred Stein Little Italy New York 1943

 

Trump Tells ‘Confidants’ US Will Leave Paris Climate Deal (R.)
New Home Prices Are Over 50% Higher In Canada Than The US (BD)
Low Volatility Is Market’s Most Significant Danger (BBG)
Jeremy Corbyn Within Striking Distance Of No. 10 (Mirror)
Fourth Turning’s Neil Howe: We Are In The 1930s, “Winter Is Coming” (Mauldin)
We’re Dealing With a New Type of War Lie (Swanson)
Private Mercenary Firm Targeted Dakota Access Pipeline Movement (IC)
Once-in-a-Generation Hopes Of Cyprus Reunification Appear To Be Dashed (G.)
US-Led Syria Strikes Kill Scores Of Relatives Of IS Fighters (AFP)
10,000 Migrants Rescued, Dozens Drown Between Italy And Libya This Week (AFP)

 

 

It’ll take Europe a while to recover from Trump.

Trump Tells ‘Confidants’ US Will Leave Paris Climate Deal (R.)

U.S. President Donald Trump has told “confidants,” including the head of the Environmental Protection Agency Scott Pruitt, that he plans to leave a landmark international agreement on climate change, Axios news outlet reported on Saturday, citing three sources with direct knowledge. On Saturday, Trump said in a Twitter post he would make a decision on whether to support the Paris climate deal next week. A source who has been in contact with people involved in the decision told Reuters a couple of meetings were planned with chief executives of energy companies and big corporations and others about the climate agreement ahead of Trump’s expected announcement later in the week. It was unclear whether those meetings would still take place.

“I will make my final decision on the Paris Accord next week!” he tweeted on the final day of a G7 summit in Italy at which he refused to bow to pressure from allies to back the landmark 2015 agreement. The summit of G7 wealthy nations pitted Trump against the leaders of Germany, France, Britain, Italy, Canada and Japan on several issues, with European diplomats frustrated at having to revisit questions they had hoped were long settled. [..] Although he tweeted that he would make a decision next week, his apparent reluctance to embrace the first legally binding global climate deal that was signed by 195 countries clearly annoyed German Chancellor Angela Merkel. “The entire discussion about climate was very difficult, if not to say very dissatisfying,” she told reporters. “There are no indications whether the United States will stay in the Paris Agreement or not.”

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Is optimism your friend?

New Home Prices Are Over 50% Higher In Canada Than The US (BD)

The price of new homes is quickly diverging in Canada and the US. Data from the Canadian Housing and Mortgage Corporation (CMHC) show that new homes are selling for substantially more than the same time last year. Meanwhile south of the border, data from the US Bureau of Census show that new home prices are on the decline. This has lead to an even wider gap between the average price of a new home in Canada and the US. The price of a new home across Canada is up for the second month in a row. The average sale price in April was CA$751,881 (US$559,123). This represents an 11% increase from the same time last year, when measured in Canadian dollars. When compared in US dollars, that increase drops to a much more conservative 2.64%. Even after factoring in the loonie’s decreased buying power in Canada, new home prices still climbed.

American new home builders aren’t seeing such steep climbs in sale prices. Actually, they aren’t seeing climbs at all. The average price of a new home in the US was CA$495,271 (US$368,300). This represents a 3% decline from the same time last year, when measured in US dollars. In Canadian dollars, this was a 0.49% decline from the same time last year. Both forms of measurement show declining home prices in the US, curious since their economy is in a much better state than Canada right now. New homes are trading at substantially higher values in Canada than the US in April. The average new home in April 2017 was 51% higher in Canada than the US. The same time last year, prices in Canada were only 36% higher. It appears in a post-crash United States, new home buyers are taking much more conservative strides. In a hasn’t-crashed-in-decades Canada, new home buyers are optimistic about future values.

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When markets don’t function, i.e. there is no price discovery, why would there be volatility?

Low Volatility Is Market’s Most Significant Danger (BBG)

Of all the dangers in the world of finance, the enduring low level of market volatility is the most significant. How quiet is quiet? Recently, the six-month realized volatility for the S&P 500 dipped to 6.7 percent, lower than even the period leading up to the financial crisis of 2008-09. During the mid-’90s, volatility was as low as it is now, but the size, complexity and interlinkages of financial market exposures were far less significant. Now, fluctuations are severely muted, and thus send a false signal of safety to both investors and policy makers who misread the calm as an “all clear” sign, dismissing the events above as insufficiently relevant. The result is an inability to appreciate how quickly market conditions can change, especially as trading strategies that capitalize on quiet markets become vulnerable to unwind, serving to amplify a risk-off event.

[..] There is an important debate in markets now about the causes of low realized volatility. A decline in the correlation among stocks, a global economy on more stable footing and a decline in perceptions of systemic risk (a euro-zone unraveling, for example) are among the factors. We should appreciate the importance of money flows as well. According to ETF.com, the exchange-traded fund industry is on pace for $500 billion in new asset growth in 2017. These vehicles can provide cheap, liquid access to market risk exposures. They simply put the money received to work in passive fashion, without evaluating the risk/return trade-off. The flows themselves are a factor in the positive returns and the low volatility that, in turn, attract additional flows.

What results is a dangerous circularity. Recall the period of wonderful outcomes preceding the financial crisis. The demand for housing spurred price appreciation, which enabled mortgage credit to be supplied at increasingly generous terms. The most suspect credit cannot default if the value of the collateral keeps appreciating and, as a result, the supply of credit keeps expanding. The fear of missing out is also supremely powerful. The conservative individual becomes less so when he or she sees a neighbor flipping houses with success. Similarly, the conservative lender is forced to compete with more aggressive suppliers of credit. For lenders, not being accommodative enough during the go-go years can amount to an existential business question.

Today’s risks differ meaningfully from those of a decade ago. However, the excess amount of capital chasing opportunity at increasingly aggressive terms is similar. The competition to put money to work, then, like now, results in low volatility. Investors are in danger of misinterpreting this tranquility as conveying safety when crowded positioning is resulting in more, not less, risk. While spending money on hedging is especially difficult in a seemingly benign environment, investors should be actively vigilant to market risks, devoting time to an action plan that helps protect portfolio wealth against the inevitable return of volatility.

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Different polls have very different numbers.

Jeremy Corbyn Within Striking Distance Of No. 10 (Mirror)

In the first week of the General Election campaign our ComRes poll for the Sunday Mirror gave Theresa May a magic 50% of the vote. She looked unstoppable. Today’s ComRes poll shows Jeremy Corbyn has narrowed her lead to 12 points , six points up on two weeks ago. As the man who invented the Swingometer says he’s never seen swings like it. If the PM goes into polling day on June 8th with this kind of lead she would not be unhappy. It would give her an overall majority of 62. Not the landslide she wished for perhaps, but with enough MPs to get her own way every time. But we are still 11 days from polling day – and on present form that’s enough for Mr Corbyn to pick up another 12 points. And that puts him in striking distance of No10. Our survey puts the Conservatives on 46%, Labour on 34% and the Lib Dems down two points on 8%.

Ukip are unchanged in fourth place at 5%. But the most striking findings are that the Labour leader’s personal ratings are up in every category while Mrs May’s are down in all but one. Mrs May’s Dementia Tax on the elderly and her U-turn over how to pay for it has clearly boomeranged. The Manchester bombing appears to have had little effect on voting intention. Mrs May is still way ahead of Mr Corbyn as being best to deal with terrorism. But she’s five points down on two weeks ago. Only a fifth of voters say she is most likely to protect elderly people dependent on social care while Mr Corbyn scores 43%. Curiously the mess she made of the Dementia Tax has not damaged her among voters aged 65 plus with nearly seven in ten saying they will still vote for her. But Mr Corbyn is ahead in every age group until pollsters get to those 44 or older.

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“..what comes next will be an era in which there is a new order..”

Fourth Turning’s Neil Howe: We Are In The 1930s, “Winter Is Coming” (Mauldin)

From the Balkans to the US, walls are going up, not down, according to demographer and The Fourth Turning author Neil Howe. Speaking to a packed crowd at Mauldin Economics’ Strategic Investment Conference in Orlando, Howe said we are reliving many of the same trends and changes of the 1930s. “Worldwide, people are losing trust in institutions,” he said. “Trust in the military, small business, and police is still there. But trust in democracies, media, and politicians is dropping.” When was the last time we saw these changes and the rise of right-wing populism?” he asked. “The 1930s.” Howe’s statement is borne out of a June 2016 Gallup poll. When poll takers were asked how much confidence they had in institutions in American society, the results were troubling.

Just 15% said they had a “great deal” of confidence in the US Supreme Court. Banks trailed behind at 11%, followed by the criminal justice system (9%), newspapers (8%), and big business (6%). Meanwhile, just 16% expressed a “great deal” of confidence in the presidency, with that number plummeting to 3% for Congress. In his keynote, Howe shared his forecasting logic: “My method is to step back and realize one thing: There is something we know about the world in 20 years’ time. The people who live there will be all of us, 20 years older and playing a different role. I call this ‘looking along the generational diagonal.’ The critical thing to remember about the current crisis period is that what comes next will be an era in which there is a new order.

According to the Strauss-Howe generational theory, as this new order takes root, individualism declines and institutions are strengthened. “History is seasonal, and winter is coming,” Howe has said. But after winter, comes spring. As the American Revolution was followed by calm, as the Civil War was followed by reconstruction and a gilded age, and as the Great Depression and World War II were followed by an age of peace and prosperity, so too will this crisis period be followed by a calm, stable era. It’s simply a matter of time.

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Russiagate.

We’re Dealing With a New Type of War Lie (Swanson)

The “Russian interference in the 2016 United States elections” even exists as a factual event in Wikipedia, not as an allegation or a theory. But the factual nature of it is not so much asserted as brushed aside. Former CIA Director John Brennan, in the same Congressional testimony in which he took the principled stand “I don’t do evidence,” testified that “the fact that the Russians tried to influence resources and authority and power, and the fact that the Russians tried to influence that election so that the will of the American people was not going to be realized by that election, I find outrageous and something that we need to, with every last ounce of devotion to this country, resist and try to act to prevent further instances of that.” He provided no evidence. Activists have even planned “demonstrations to call for urgent investigations into Russian interference in the US election.”

They declare that “every day we learn more about the role Russian state-led hacking and information warfare played in the 2016 election.” (March for Truth.) Belief that Russia helped put Trump in the White House is steadily rising in the U.S. public. Anything commonly referred to as fact will gain credibility. People will assume that at some point someone actually established that it was a fact. Keeping the story in the news without evidence are articles about polling, about the opinions of celebrities, and about all kinds of tangentially related scandals, their investigations, and obstruction thereof. Most of the substance of most of the articles that lead off with reference to the “Russian influence on the election” is about White House officials having some sort of connections to the Russian government, or Russian businesses, or just Russians.

It’s as if an investigation of Iraqi WMD claims focused on Blackwater murders or whether Scooter Libby had taken lessons in Arabic, or whether the photo of Saddam Hussein and Donald Rumsfeld shaking hands was taken by an Iraqi. A general trend away from empirical evidence has been extensively noted and discussed. There is no more public evidence that Seth Rich (a Democratic National Committee staffer who was murdered last year) leaked Democratic emails than there is that the Russian government stole them. Yet both claims have passionate believers. Still, the claims about Russia are unique in their wide proliferation, broad acceptance, and status as something to be constantly referred to as though already established, constantly augmented by other Russia-related stories that add nothing to the central claim. This phenomenon, in my view, is as dangerous as any lies and fabrications coming out of the racist right.

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Blackwater 2.0

Private Mercenary Firm Targeted Dakota Access Pipeline Movement (IC)

A shadowy international mercenary and security firm known as TigerSwan targeted the movement opposed to the Dakota Access Pipeline with military-style counterterrorism measures, collaborating closely with police in at least five states, according to internal documents obtained by The Intercept. The documents provide the first detailed picture of how TigerSwan, which originated as a U.S. military and State Department contractor helping to execute the global war on terror, worked at the behest of its client Energy Transfer Partners, the company building the Dakota Access Pipeline, to respond to the indigenous-led movement that sought to stop the project. Internal TigerSwan communications describe the movement as “an ideologically driven insurgency with a strong religious component” and compare the anti-pipeline water protectors to jihadist fighters.

One report, dated February 27, 2017, states that since the movement “generally followed the jihadist insurgency model while active, we can expect the individuals who fought for and supported it to follow a post-insurgency model after its collapse.” Drawing comparisons with post-Soviet Afghanistan, the report warns, “While we can expect to see the continued spread of the anti-DAPL diaspora … aggressive intelligence preparation of the battlefield and active coordination between intelligence and security elements are now a proven method of defeating pipeline insurgencies.” More than 100 internal documents leaked to The Intercept by a TigerSwan contractor, as well as a set of over 1,000 documents obtained via public records requests, reveal that TigerSwan spearheaded a multifaceted private security operation characterized by sweeping and invasive surveillance of protesters.

As policing continues to be militarized and state legislatures around the country pass laws criminalizing protest, the fact that a private security firm retained by a Fortune 500 oil and gas company coordinated its efforts with local, state, and federal law enforcement to undermine the protest movement has profoundly anti-democratic implications. The leaked materials not only highlight TigerSwan’s militaristic approach to protecting its client’s interests but also the company’s profit-driven imperative to portray the nonviolent water protector movement as unpredictable and menacing enough to justify the continued need for extraordinary security measures. Energy Transfer Partners has continued to retain TigerSwan long after most of the anti-pipeline campers left North Dakota, and the most recent TigerSwan reports emphasize the threat of growing activism around other pipeline projects across the country.

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Not much use talking to Erdogan. He needs his strongman image to much at home.

Once-in-a-Generation Hopes Of Cyprus Reunification Appear To Be Dashed (G.)

The best hope yet of reuniting war-partitioned Cyprus has been dashed after reconciliation attempts were brought to an abrupt halt following two years of intense negotiations. The optimism engendered by talks seen as a once-in-a-generation opportunity to unite the Mediterranean island ended when the United Nations special envoy, Espen Barth Eide, announced that he was terminating negotiation efforts. “Without a prospect for common ground, there is no basis for continuing this shuttle diplomacy,” the Norwegian former foreign minister said in a short statement. Eide now enters the long list of diplomats who, for the best part of 50 years, have attempted to solve one of the world’s most intractable diplomatic disputes.

Split between the majority population of Greeks in the south and Turks in the north, Cyprus has been divided since 1974 when Ankara ordered troops to invade the island in response to an Athens-organised coup to unite it with Greece. In Nicos Anastasiades and Mustafa Akinci – the respective leaders of the island’s Greek and Turkish communities – the two sides had found men who were not only moderate and born in the same town – Limassol – but willing to make the sort of concessions necessary to find a solution. Both had got to the point of poring over maps outlining territorial adjustments in a envisaged bi-zonal, bi-communal federation. In January, the first international conference on Cyprus was held at the UN headquarters in Geneva with representatives from Greece, Turkey and Britain – the island’s three guarantor powers.

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Hundreds of people are collateral damage.

US-Led Syria Strikes Kill Scores Of Relatives Of IS Fighters (AFP)

Dozens of relatives of Islamic State group fighters were killed Friday in Syria in US-led strikes, regime or Russian raids, after the UN urged nations striking the jihadists to protect civilians. Raids by the US-led coalition have pounded IS positions across Iraq and Syria since the jihadist group claimed responsibility for the devastating bombing of a concert in Manchester on Monday. Scores of civilians, many of them families of IS members, have been killed in bombing raids in recent days on the eastern Syrian town of Mayadeen, held by IS since 2014. Early Friday, at least 80 relatives of IS fighters were killed in US-led coalition bombardment, according to the Syrian Observatory for Human Rights.

“The toll includes 33 children. They were families seeking refuge in the town’s municipal building,” said Observatory head Rami Abdel Rahman. “This is the highest toll for relatives of IS members in Syria,” he told AFP. Coalition strikes on the town killed 37 civilians on Thursday night after 15 had been killed on Wednesday, according to the Britain-based Observatory. The US military on Friday confirmed that it had struck “near Mayadeen” on May 25 and 26, but said it was “still assessing the results of those strikes”, according to Pentagon spokesman Eric Pahon. The US military insists that it takes every precaution to avoid hitting civilians, but the United Nations on Friday urged parties bombing IS to do more.

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No moral values left: “The G7 only managed to “reaffirm the sovereign rights of states to control their own borders and set clear limits on net migration levels.“

10,000 Migrants Rescued, Dozens Drown Between Italy And Libya This Week (AFP)

Nearly 10,000 migrants were rescued off the coasts of Italy and Libya this week, as the leaders of G7 gathered for a summit coincidentally held in Sicily. And at least 54 people have drowned in the Mediterranean since Tuesday. Large-scale rescue efforts off the Italian coast on Friday saved 2,200 migrants who risked their lives traveling in unworthy sea vessels to reach Italy. Italian coastguard and commercial boats delivered those rescued to reception centers in Italy. A further 1,200 people were rescued by Libyan ships and taken to Tripoli or Zawiya. Some 6,400 migrants were rescued from the Mediterranean between Tuesday and Thursday. The Italian coastguard also discovered another 10 bodies, bringing to 54 the total number of officially registered deaths this week, officials told AFP.

The biggest tragedy occurred on Wednesday, when 35 migrants drowned, including at least 10 children, after they fell off an overloaded vessel that was hit by a huge wave while being rescued by an aid boat. At least 1,400 people have drowned so far this year trying to make the perilous journey across the sea to Italy, according to UN figures, while more than 50,000 migrants reached Italian coasts, most of them through Libya. Italy has on numerous occasions said that it barely has enough resources to deal with the migrant influx from Libya. The situation has become an EU-wide concern in recent years, with Brussels facing mounting pressure from human rights groups over its handling of the migrant crisis in the Mediterranean.

G7 leaders, who met in Sicily, discussed providing greater assistance to African countries to persuade migrants to stay at home rather than make the dangerous journey across the Mediterranean. However, no concrete plan of action was agreed upon at the end of the two-day summit in Taormina. The G7 only managed to “reaffirm the sovereign rights of states to control their own borders and set clear limits on net migration levels.”

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Mar 142017
 
 March 14, 2017  Posted by at 9:17 am Finance Tagged with: , , , , , , , , , , ,  1 Response »
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Arthur Rothstein Family leaving South Dakota drought for Oregon 1936

 

Wall Street Buzz Over Trump Gives Shiller Dot-Com Deja Vu (BBG)
This Is The Most Overvalued Stock Market On Record – Even Worse Than 1929 (MW)
Wall Street Has Found Its Next Big Short in US Credit Market: Malls (BBG)
Fed, In Shift, May Move To Faster Pace Of Rate Hikes (R.)
The Mystery of the Treasury’s Disappearing Cash (Stockman)
Countries With National Health Insurance Spend Less, Live Longer Than US (M&B)
Rand Paul, Tulsi Gabbard Introduce Bill To Stop The US Arming Terrorists (TAM)
Several States Jointly Sue To Block Trump’s Revised Travel Ban (R.)
Shadow Banking Has Made China’s Credit Markets More Complex And Opaque (BI)
The Pause That Refreshes (Jim Kunstler)
Iceland’s Recovery Shows Benefits Of Letting Over-Reaching Banks Go Bust (Tel.)
Merkel Calls Erdogan Attack ‘Absurd’ as Tensions Escalate (BBG)
UK Parliament Passes Brexit Bill And Opens Way To Triggering Article 50 (G.)
Theresa May Rejects Scotland’s Demand For New Independence Vote (G.)
‘1st In Canada’ Supermarket Donation Plan Aids Food Banks, Tackles Waste (G.)
Stock Of Properties Conceded To The Greek State Or Confiscated Grows (G.)

 

 

“They’re both revolutionary eras..” “This time a ‘Great Leader’ has appeared. The idea is, everything is different.”

Wall Street Buzz Over Trump Gives Shiller Dot-Com Deja Vu (BBG)

The last time Robert Shiller heard stock-market investors talk like this in 2000, it didn’t end well for the bulls. Back then, the Nobel Prize-winning economist says, traders were captivated by a “new era story” of technological transformation: The Internet had re-defined American business and made traditional gauges of equity-market value obsolete. Today, the game changer everyone’s buzzing about is political: Donald Trump and his bold plans to slash regulations, cut taxes and turbocharge economic growth with a trillion-dollar infrastructure boom. “They’re both revolutionary eras,” says Shiller, who’s famous for his warnings about the dot-com mania and housing-market excesses that led to the global financial crisis. “This time a ‘Great Leader’ has appeared. The idea is, everything is different.”

For Shiller, the power of a new-era narrative helps answer one of the most hotly debated questions on Wall Street as stocks set one high after another this year: Why are traders so fixated on the upsides of a Trump presidency when the downside risks seem just as big? For all his pro-business promises, the former reality TV star’s confrontational foreign policy and haphazard management style have bred uncertainty – the one thing investors are supposed to hate most. Charts illustrating the conundrum have been making the rounds on trading floors. One, called “the most worrying chart we know” by SocGen at the end of last year, shows a surging index of global economic policy uncertainty severing its historical link with credit spreads, which have declined in recent months along with other measures of investor fear. The VIX index, a popular gauge of anxiety in the U.S. stock market, has dropped more than 30 percent since Trump’s election.

[..] For Hersh Shefrin, a finance professor at Santa Clara University and author of a 2007 book on the role of psychology in markets, the rally is just another example of investors’ remarkable penchant for tunnel vision. Shefrin has a favorite analogy to illustrate his point: the great tulip-mania of 17th century Holland. Even the most casual students of financial history are familiar with the frenzy, during which a rare tulip bulb was worth enough money to buy a mansion. What often gets overlooked, though, is that the mania happened during an outbreak of bubonic plague. “People were dying left and right,” Shefrin says. “So here you have financial markets sending signals completely at odds with the social mood of the time, with the degree of fear at the time.”

Shiller says when markets are as buoyant as they are now, resisting the urge to pile in is hard regardless of what else might be happening in society. “I was tempted to do it, too,” he says. “Trump keeps talking about a new spirit for America and so you could (A) believe that or (B) you could believe that other investors believe that.” On whether stocks are nearing a top, Shiller can’t say with any certainty. He’s loathe to make short-term forecasts. Despite the well-timed publication of his book “Irrational Exuberance” just as the dot-com bubble peaked in early 2000, the Yale University economist had warned (with caveats) that shares might be overvalued as early as 1996. Investors who bought and held an S&P 500 fund in the middle of that year made about 8 percent annually over the next decade, while those who invested at the start of 2000 lost money. The index sank 49 percent from its high in March 2000 through a bottom in October 2002.

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“Don’t be fooled by the booming headline indexes.”

This Is The Most Overvalued Stock Market On Record – Even Worse Than 1929 (MW)

This is the most dangerous and overvalued stock market on record — worse than 2007, worse than 2000, even worse than 1929. Or so warns Wall Street soothsayer John Hussman in his scariest jeremiad yet. “Presently, we observe the broadest market valuation extreme in history,” writes the chairman of the cautious Hussman Funds investment group, “with the steepest median valuations on record, and the most reliable capitalization-weighted measures within a few percent of their 2000 peaks.” On top of such warning signs as “extreme valuations, bullish sentiment, and consumer confidence,” he adds, “market action has deteriorated in interest-sensitive sectors… As of Friday, more than one-third of stocks are already below their 200-day moving averages.” Don’t be fooled by the booming headline indexes.

More NYSE stocks hit new 52-week lows last week than new 52-week highs, he notes. In a nutshell: Run. OK, so, it is always easy to criticize. Husssman, a professional economist and well-known Wall Street figure, has been here before. He’s been warning about stock-market valuations for several years. He’s in that camp that the permabulls, wrongly, call “permabears.” He’s been wrong — or, perhaps, just very early — many times. But he was, notably, also correct and prescient about both the 2000 and 2008 crashes before they happened, when few others were. Opinions, of course, are free. But facts are sacred. And more than a few are suggesting caution. According to the World Bank, the total U.S. stock market is now valued at more than 150% of annual GDP. That is way above historic norms, and about the same as it was at the market extreme of 2000.

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Where are Americans going to meet now? Online?

Wall Street Has Found Its Next Big Short in US Credit Market: Malls (BBG)

Wall Street speculators are zeroing in on the next U.S. credit crisis: the mall. It’s no secret many mall complexes have been struggling for years as Americans do more of their shopping online. But now, they’re catching the eye of hedge-fund types who think some may soon buckle under their debts, much the way many homeowners did nearly a decade ago. Like the run-up to the housing debacle, a small but growing group of firms are positioning to profit from a collapse that could spur a wave of defaults. Their target: securities backed not by subprime mortgages, but by loans taken out by beleaguered mall and shopping center operators. With bad news piling up for anchor chains like Macy’s and J.C. Penney, bearish bets against commercial mortgage-backed securities are growing.

In recent weeks, firms such as Alder Hill Management – an outfit started by protégés of hedge-fund billionaire David Tepper – have ramped up wagers against the bonds, which have held up far better than the shares of beaten-down retailers. By one measure, short positions on two of the riskiest slices of CMBS surged to $5.3 billion last month – a 50% jump from a year ago. “Loss severities on mall loans have been meaningfully higher than other areas,” said Michael Yannell at Gapstow Capital, which invests in hedge funds that specialize in structured credit. Nobody is suggesting there’s a bubble brewing in retail-backed mortgages that is anywhere as big as subprime home loans, or that the scope of the potential fallout is comparable.

After all, the bearish bets are just a tiny fraction of the $365 billion CMBS market. And there’s also no guarantee the positions, which can be costly to maintain, will pay off any time soon. Many malls may continue to limp along, earning just enough from tenants to pay their loans. But more and more, bears are convinced the inevitable death of retail will lead to big losses as defaults start piling up. The trade itself is similar to those that Michael Burry and Steve Eisman made against the housing market before the financial crisis, made famous by the book and movie “The Big Short.” Often called credit protection, buyers of the contracts are paid for CMBS losses that occur when malls and shopping centers fall behind on their loans. In return, they pay monthly premiums to the seller (usually a bank) as long as they hold the position. This year, traders bought a net $985 million contracts that target the two riskiest types of CMBS. That’s more than five times the purchases in the prior three months.

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Run! Hide!

Fed, In Shift, May Move To Faster Pace Of Rate Hikes (R.)

The Federal Reserve, which has struggled to stoke inflation since the financial crisis and up until now raised rates less frequently than it and markets expected, may be about to hit the accelerator on rate hikes. On Wednesday, the U.S. central bank is almost universally expected to raise its benchmark interest rates, a move that just a few weeks ago was viewed by the markets as unlikely. And with inflation showing signs of perking up, Fed policymakers may signal there could be more than the three rate rises they have forecast for this year. “They do not have as much room to be patient as they did before,” said Tim Duy, an economics professor at the University of Oregon, who expects Fed policymakers to lift their rate forecasts this week.

Policymakers have their eyes on achieving full employment and 2-percent inflation. The faster the economy approaches those goals, Duy said, the quicker the Fed will want to tighten policy to avoid getting behind the curve. “That’s an acceleration in the dots,” he said, referring to forecasts published by the Fed that show policymakers’ individual rate-hike forecasts as dots on a chart. The economy already appears closer to its goals than the Fed had expected in December, the last time it released forecasts. The jobless rate, at 4.7%, is below what policymakers see as the long-run norm, and inflation, at 1.7%, is already in the range they had expected by year end. As Fed policymakers prepare to raise rates this week for the second time in three months, the inflation terrain they face looks steeper than it has been since the financial crisis when one of the central bank’s policy aims was to generate inflation.

There are signs of more inflation globally, the dollar is pushing down less on U.S. prices, domestic inflation expectations have picked up and Friday’s closely watched monthly jobs report showed wages rising 2.8% year-on-year in February, with payrolls rising a sturdy 235,000. The Fed’s preferred inflation measure, the so-called core PCE price index, recorded its biggest monthly increase in five years in January and was up 1.7% year-on-year after a similar gain in December. Most Fed policymakers say such data gives them increasing confidence that inflation will eventually reach the Fed’s goal after years of undershooting.

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“..the bureaucrats have apparently decided to sabotage what they undoubtedly believe to be the usurper in the White House.”

The Mystery of the Treasury’s Disappearing Cash (Stockman)

As of October 24, the U.S. Treasury was flush with $435 billion of cash. That was because the department’s bureaucrats had been issuing debt hand-over-fist and piling up a cash hoard, apparently, for the period after March 15, 2017 when President Hillary Clinton would need to coax another debt ceiling increase out of Congress. Needless to say, Hillary was unexpectedly (and thankfully) retired to Chappaqua, New York. But the less discussed surprise is that the U.S. Treasury’s cash hoard has virtually disappeared in the run-up to the March 15 expiration of the debt ceiling holiday. That’s right. As of the Daily Treasury Statement (DTS) for March 7, the cash balance was down to just $88 billion — meaning that $347 billion of cash has flown out the door since October 24.

And I find that on March 8 alone the Treasury consumed another $22 billion of cash — bringing the balance down to $66 billion! To be sure, there has been no heist at the Treasury Building — other than the normal larceny that is the stock-in-trade of the Imperial City. What’s different this time around is that the bureaucrats have apparently decided to sabotage what they undoubtedly believe to be the usurper in the White House. To this end, they’ve been draining Trump’s bank account rather than borrowing the money to pay Uncle Sam’s monumental bills. This has especially been the case since the January 20 inauguration. The net Federal debt on March 7 was $19.802 trillion — up $237 billion since January 20th. But that’s not the half of it. During that same 47 day period, the Treasury bureaucrats took the opportunity to pay-down $57 billion of maturing treasury bills and notes by tapping its cash hoard.

In all, they drained $294 billion from the Donald’s bank account during that brief period — or about $6.4 billion per day. You wouldn’t be entirely wrong to conclude that even Putin’s alleged world class hackers couldn’t have accomplished such a feat. At this point I could don my tin foil hat because this massive cash drain was clearly deliberate. Last year, for example, during the same 47 day period, the operating deficit was even slightly larger — $253 billion. But the Treasury funded that mainly by new borrowings of $157 billion, which covered 62% of the shortfall. Its cash balance was still $223 billion on March 7. Again, that cash balance is just $66 billion right now. Moreover, the Trump Administration has only a few business days until its credit card expires on March 15 — so it’s also way too late for an eleventh hour borrowing spree to replenish its depleted cash account. (Besides that, I’m predicting a very dangerous market event will start on the 15th.)

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Not that we can’t make it even worse.

Countries With National Health Insurance Spend Less, Live Longer Than US (M&B)

We see health as a basic human right. Every society should provide medical care for its citizens at the level it can afford. And, while the United States has made some progress in improving access to care, the results do not justify the costs. So, while we agree with President Trump’s statement that the U.S. health care system should be cheaper, better and universal, the question is how to get there. In this post, we start by setting the stage: where matters stand today and why they are unacceptable. This leads us to the real question: where can and should we go? As economists, we are genuinely partial to market-based solutions that allow individuals to make tradeoffs between quality and price, while competition pushes suppliers to contain costs.

But, in the case of health care, we are skeptical that such a solution can be made workable. This leads us to propose a gradual lowering of the age at which people become eligible for Medicare, while promoting supplier competition. Before getting to the details of our proposal, we begin with striking evidence of the inefficiency of the U.S. health care system. The following chart (from OurWorldInData.org) displays life expectancy at birth on the vertical axis against real health expenditure per capita on the horizontal axis. The point is that the U.S. line in red lies well below the cost-performance frontier established by a range of advanced economies (and some emerging economies, too). Put differently, the United States spends more per person but gets less for its money.


Life Expectancy and Health Expenditure per capita, 1970-2014

It really doesn’t matter how you measure U.S. health care outlays, you will come away with the same conclusion: the U.S. system is extremely inefficient compared to that of other countries. Today, for example, health expenditures account for more than 17% of U.S. GDP. This is more than twice the average of the share in the 42 other countries shown in the figure, and more than 40% higher than the next highest (which happens to be Sweden at 12%).

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“..considering the Trump administration is directly sending American troops to fight in Syrian territory, perhaps the various rebel groups on the ground have outlived their usefulness..”

Rand Paul, Tulsi Gabbard Introduce Bill To Stop The US Arming Terrorists (TAM)

According to a press release released Friday by the office of Rep. Tulsi Gabbard, Sen. Rand Paul has introduced their bill, the Stop Arming Terrorists Act, in the U.S. Senate. The bipartisan legislation (H.R.608 and S.532) aims to prohibit any federal agency from using taxpayer dollars to provide weapons, cash, intelligence, or any support to al-Qaeda, ISIS, and other terrorist groups. It would also prohibit the government from funneling money and weapons through other countries that are directly or indirectly supporting terrorists.

Gabbard said: “For years, the U.S. government has been supporting armed militant groups working directly with and often under the command of terrorist groups like ISIS and al-Qaeda in their fight to overthrow the Syrian government. Rather than spending trillions of dollars on regime change wars in the Middle East, we should be focused on defeating terrorist groups like ISIS and al-Qaeda, and using our resources to invest in rebuilding our communities here at home.” [..] “The fact that American taxpayer dollars are being used to strengthen the very terrorist groups we should be focused on defeating should alarm every Member of Congress and every American. We call on our colleagues and the Administration to join us in passing this legislation.

Rand Paul provided much-needed support for the bill, stating: “One of the unintended consequences of nation-building and open-ended intervention is American funds and weapons benefiting those who hate us. This legislation will strengthen our foreign policy, enhance our national security, and safeguard our resources.” The legislation is currently co-sponsored by Reps. John Conyers (D-MI); Scott Perry (R-PA); Peter Welch (D-VT; Tom Garrett (R-VA); Thomas Massie (R-KY); Barbara Lee (D-CA); Walter Jones (R-NC); Ted Yoho (R-FL); and Paul Gosar (R-AZ). It is endorsed by Progressive Democrats of America (PDA), Veterans for Peace, and the U.S. Peace Council.

One of Trump’s campaign narratives that resonated deeply with his voter base was an anti-radical Islam agenda, which separated him from Clinton’s campaign as he vowed to “bomb the shit” out of ISIS-controlled oil fields. However, his voter base may or may not be somewhat disillusioned now given that he just approved an arms sale to Saudi Arabia that was so controversial it was even blocked by Obama, a president who made a literal killing from arms sales to the oil-rich kingdom (ISIS adheres to Saudi Arabia’s twisted form of Wahhabist philosophy). In the context of recent events, whether or not the Trump administration will get fully behind Gabbard’s bill remains to be seen. But considering the Trump administration is directly sending American troops to fight in Syrian territory, perhaps the various rebel groups on the ground have outlived their usefulness and the bill will be allowed to proceed unimpeded.

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“The first hurdle for the lawsuits will be proving “standing,” which means finding someone who has been harmed by the policy. With so many exemptions, legal experts have said it might be hard to find individuals who would have a right to sue..”

Several States Jointly Sue To Block Trump’s Revised Travel Ban (R.)

A group of states renewed their effort on Monday to block President Donald Trump’s revised temporary ban on refugees and travelers from several Muslim-majority countries, arguing that his executive order is the same as the first one that was halted by federal courts. Court papers filed by the state of Washington and joined by California, Maryland, Massachusetts, New York and Oregon asked a judge to stop the March 6 order from taking effect on Thursday. An amended complaint said the order was similar to the original Jan. 27 directive because it “will cause severe and immediate harms to the States, including our residents, our colleges and universities, our healthcare providers, and our businesses.” A Department of Justice spokeswoman said it was reviewing the complaint and would respond to the court.

A more sweeping ban implemented hastily in January caused chaos and protests at airports. The March order by contrast gave 10 days’ notice to travelers and immigration officials. Last month, U.S. District Judge James Robart in Seattle halted the first travel ban after Washington state sued, claiming the order was discriminatory and violated the U.S. Constitution. Robart’s order was upheld by the 9th U.S. Circuit Court of Appeals. Trump revised his order to overcome some of the legal hurdles by including exemptions for legal permanent residents and existing visa holders and taking Iraq off the list of countries covered. The new order still halts citizens of Iran, Libya, Syria, Somalia, Sudan and Yemen from entering the United States for 90 days but has explicit waivers for various categories of immigrants with ties to the country.

[..] The first hurdle for the lawsuits will be proving “standing,” which means finding someone who has been harmed by the policy. With so many exemptions, legal experts have said it might be hard to find individuals who would have a right to sue, in the eyes of a court. To overcome this challenge, the states filed more than 70 declarations of people affected by the order including tech businesses Amazon and Expedia, which said that restricting travel hurts their revenues and their ability to recruit employees. Universities and medical centers that rely on foreign doctors also weighed in, as did religious organizations and individual residents, including U.S. citizens, with stories about separated families.

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That’s the whole idea.

Shadow Banking Has Made China’s Credit Markets More Complex And Opaque (BI)

A research note from Goldman Sachs highlights how large, complex and opaque China’s credit market has become over the last decade. In a report called Mapping China’s Credit, analysts Kenneth Ho and Claire Cui write that the rise in China’s total debt started with a RMB 4 trillion ($AU770 billion) stimulus package in 2009 to counter the global financial crisis. Since late 2008, debt to GDP (excluding financial debt) has risen from 158% to 262%. Including financial debt bumps the figure up to 289%. The rise in China’s debt to GDP follows a similar increase in America, where last week bond fund manager Bill Gross discussed the risks associated with the US debt to GDP ratio, which sits at around 350%. The analysts note they’re struggling to break down and make sense of the country’s credit market.

“Given the development of the shadow banking sector, and the introduction of a number of retail investment channels such as wealth management products, it has become much more difficult to analyse and monitor China’s credit growth,” they say. In 2006, 85% of China’s credit was supplied by bank loans (offset by deposits). According to Ho and Cui’s estimates, the share of credit from bank loans has reduced to 53%. In its place, approximately 31% of debt is now supplied through bond and securities markets, and 16% through the shadow banking sector (more on that later). Ho and Cui write that as China’s debt pool has grown, larger state-related companies have seen a significant increase in leverage through traditional loans from state-affiliated banks. In addition, however, a decrease in domestic interest rates has encouraged smaller companies and individual investors to shift savings away from bank deposits.

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“The Democrats reduced themselves to a gang of sadistic neo-Maoists seeking to eradicate anything that resembles free expression..”

The Pause That Refreshes (Jim Kunstler)

Let’s take a breather from more consequential money matters at hand midweek to consider the tending moods of our time and place — while a blizzard howls outside the window, and nervous Federal Reserve officials pace the grim halls of the Eccles Building. It is clear by now that we have four corners of American politics these days: the utterly lost and delusional Democratic party; the feckless Republicans; the permanent Deep State of bureaucratic foot-soldiers and errand boys; and Trump, the Golem-King of the Coming Greatness. Wherefore, and what the fuck, you might ask. The Democrats reduced themselves to a gang of sadistic neo-Maoists seeking to eradicate anything that resembles free expression across the land in the name of social justice.

Coercion has been their coin of the realm, and especially in the realm of ideas where “diversity” means stepping on your opponent’s neck until he pretends to agree with your Newspeak brand of grad school neologisms and “inclusion” means welcome if you’re just like us. I say Maoists because just like Mao’s “Red Guard” of rampaging students in 1966, their mission is to “correct” the thinking of those who might dare to oppose the established leader. Only in this case, that established leader happened to lose the sure-thing election and the party finds itself unbelievably out-of-power and suddenly purposeless, like a termite mound without a queen, the workers and soldiers fleeing the power center in an hysteria of lost identity.

They regrouped briefly after the election debacle to fight an imaginary adversary, Russia, the phantom ghost-bear, who supposedly stepped on their termite mound and killed the queen, but, strangely, no actual evidence was ever found of the ghost-bear’s paw-print. And ever since that fact was starkly revealed by former NSA chief James Clapper on NBC’s Meet the Press, the Russia hallucination has vanished from page one of the party’s media outlets — though, in an interesting last gasp of striving correctitude, Monday’s New York Times features a front page story detailing Georgetown University’s hateful traffic in the slave trade two centuries ago. That should suffice to shut the wicked place down for once and for all!

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What does it say that only one small island can get it right?

Iceland’s Recovery Shows Benefits Of Letting Over-Reaching Banks Go Bust (Tel.)

It looks set to be a week packed with big financial milestones. In the US, the Federal Reserve will raise interest rates, putting the country on a path towards getting back to a normal price for money. In the Netherlands, a tense election may deal the fragile eurozone another blow. In this country, Theresa May could finally trigger Article 50, starting the process of taking the UK out of the European Union. The most significant event, however, as is so often the case, may well be something that hardly anyone is paying attention to. On Sunday, Iceland ended capital controls, finally returning its economy to normal after a catastrophic banking collapse back in 2008 and 2009. Why does that matter? Because Iceland was the one country that defied the global consensus and did not bail out its bankers.

True, there was shock to the system. But it was relatively short, and once the pain was dealt with, the country has bounced back stronger than ever. There is, surely, a lesson in that. It might well be better just to let banks go to the wall. Next time around, we should follow Iceland’s example. The crash of 2008 hit every country in the world. And yet none was quite so completely destroyed as Iceland. A tiny country, home to just 323,000 people, with cod fishing and tourism as its two major industries, it deregulated its finance sector and went on a wild lending spree. Its banks started bulking up in a way that might have made Royal Bank of Scotland’s Fred Goodwin start to wonder if his foot wasn’t pressed too hard on the accelerator. When confidence collapsed, those banks were done for.

In every other country in the world, the conventional wisdom dictated the financiers had to be bailed out. The alternative was catastrophe. Cash machines would stop working, trade would grind to a halt, and output would collapse. It would be the 1930s all over again. The state had no option but to dig deep, and pay whatever it took to keep the financial sector alive. But Iceland did not have that option. Its banks had run up debts of $86bn, an impossible sum for an economy with a GDP of $13bn in 2009. Even Gordon Brown, in full “saving the world’” mode, might have baulked at taking on liabilities of that scale. Iceland did the only thing it could do under the circumstances. It let its banks go bust: as British depositors quickly found out to their cost.

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Much more to come. See my article yesterday, Caesar, Turkey and the Ides of March

Merkel Calls Erdogan Attack ‘Absurd’ as Tensions Escalate (BBG)

Chancellor Angela Merkel derided as “clearly absurd” Turkish President Recep Tayyip Erdogan’s accusation that Germany supports terrorism, as Ankara announced retaliatory measures against the Dutch government amid escalating tensions with Europe. After Erdogan excoriated Merkel’s government for “openly giving support to terrorist organizations” on Monday, the Turkish government announced it would block the Dutch ambassador from re-entering the country. Erdogan has blasted European leaders, including accusing Germany of using “Nazi practices,” after a string of rallies by Turkish ministers on European soil were canceled. “The chancellor has no intention of participating in a competition of provocations” with Erdogan, her chief spokesman, Steffen Seibert, said in an emailed statement on Monday. “She’s not going to join in with that. The accusations are clearly absurd.”

Erdogan is seeking votes from Turkish expatriates in a referendum next month on constitutional changes that would make the presidency his country’s highest authority. He has lashed out at the EU and risked deepening tensions, particularly with Merkel. In an interview on Monday, he said Merkel’s government “mercilessly” supported groups such as the Kurdish PKK group, which has waged a separatist war with the Turkish military for more than three decades. “I don’t want to put all EU countries in the same basket, but some of them can’t stand Turkey’s rise, primarily Germany,” Erdogan told A Haber television. The standoff came to a head over the weekend when the Dutch government prevented Turkish ministers from participating in referendum campaign rallies. Some 3 million Turks outside their country can vote, though fewer than half of them did so in the last general election in 2015.

Merkel struck an unusually strident tone earlier this month, slamming Erdogan for trivializing World War II-era crimes by using a Nazi comparison to censure Germany for canceling ministers’ appearances. Such a tone “can’t be justified,” Merkel said March 6 after Erdogan’s previous outburst. European leaders have been vocal in their disapproval of the referendum, saying the executive-centered system that Erdogan is planning to introduce will concentrate power in the president’s hands at the expense of democracy in a NATO member state and EU membership applicant.

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The fight’s only just starting.

UK Parliament Passes Brexit Bill And Opens Way To Triggering Article 50 (G.)

Theresa May’s Brexit bill has cleared all its hurdles in the Houses of Parliament, opening the way for the prime minister to trigger article 50 by the end of March. Peers accepted the supremacy of the House of Commons late on Monday night after MPs overturned amendments aimed at guaranteeing the rights of EU citizens in the UK and giving parliament a “meaningful vote” on the final Brexit deal. The decision came after a short period of so-called “ping pong” when the legislation bounced between the two houses of parliament as a result of disagreement over the issues. The outcome means the government has achieved its ambition of passing a “straightforward” two-line bill that is confined simply to the question of whether ministers can trigger article 50 and start the formal Brexit process.

It had been widely predicted in recent days that May would fire the starting gun on Tuesday, immediately after the vote, but sources quashed speculation of quick action and instead suggested she will wait until the final week of March. MPs voted down the amendment on EU nationals’ rights by 335 to 287, a majority of 48, with peers later accepting the decision by 274 to 135. The second amendment on whether to hold a meaningful final vote on any deal after the conclusion of Brexit talks was voted down by 331 to 286, a majority of 45, in the Commons. The Lords then accepted that decision by 274 to 118, with Labour leader Lady Smith telling the Guardian that continuing to oppose the government would be playing politics because MPs would not be persuaded to change their minds.

“If I thought there was a foot in the door or a glimmer of hope that we could change this bill, I would fight it tooth and nail, but it doesn’t seem to be the case,” she said. But the decision led to tensions between Labour and the Lib Dems, whose leader, Tim Farron, hit out at the main opposition. “Labour had the chance to block Theresa May’s hard Brexit, but chose to sit on their hands. Tonight there will be families fearful that they are going to be torn apart and feeling they are no longer welcome in Britain. Shame on the government for using people as chips in a casino, and shame on Labour for letting them,” he said.

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We can be independent, but you can not.

Theresa May Rejects Scotland’s Demand For New Independence Vote (G.)

Theresa May has faced down Nicola Sturgeon’s demand for a second referendum on Scottish independence, accusing the SNP leader of “tunnel vision” and rejecting her timetable for a second vote. The prime minister said that the Scottish leader’s plan to hold a second referendum between the autumn of 2018 and spring 2019 represented the “worst possible timing,” setting the Conservative government on a collision course with the administration in Holyrood. The first minister’s intervention had been timed a day ahead of when May had been predicted to trigger article 50, but No 10 later indicated that it would not serve notice to leave the EU until the end of the month. The confirmation of the later date, in the aftermath of the speech, fuelled speculation the prime minister had been unnerved by Sturgeon.

Buoyed by three successive opinion polls putting support for independence at nearly 50/50, Sturgeon said that she had been left with little choice than to offer the Scottish people, who voted to remain in the EU, a choice at the end of the negotiations of a “hard Brexit” or living in an independent Scotland. “The UK government has not moved even an inch in pursuit of compromise and agreement. Our efforts at compromise have instead been met with a brick wall of intransigence,” the first minister said, claiming that any pretence of a partnership of equal nations was all but dead. Downing Street denied that it had ever planned to fire the starting gun on Brexit this week, but critics pointed out that ministers had failed to deny the widespread suggestion in media reports over the weekend. The Guardian understands that May will now wait until the final week of March to begin the process, avoiding a clash with the Dutch elections and the anniversary of the Rome Treaty, and giving the government time to seek consensus in different parts of the country.

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This should be so obvious, and implemented in law everywhere. It already is in France.

‘1st In Canada’ Supermarket Donation Plan Aids Food Banks, Tackles Waste (G.)

Supermarkets in Quebec will now be able to donate their unsold produce, meat and baked goods to local food banks in a program – described as the first of its kind in Canada – that also aims to keep millions of kilograms of fresh food out of landfills. The Supermarket Recovery Program launched in 2013 as a two-year pilot project. Developed by the Montreal-based food bank Moisson Montréal, the goal was to tackle the twin issues of rising food bank usage in the province and the staggering amount of edible food being regularly sent to landfills. Provincial officials said the pilot – which last year saw 177 supermarkets donate more than 2.5m kg of food that would have otherwise been discarded – would now begin expanding across the province.

“The idea behind it is: ‘Hey, we’ve got enough food in Quebec to feed everybody, let’s not be throwing things out,’” Sam Watts, of Montreal’s Welcome Hall Mission, which offers several programs for people in need, told Global News on Friday. “Let’s be recuperating what we can recuperate and let’s make sure we get it to people who need it.” Recent years have seen food bank usage surge across Canada, with children making up just over a third of the 900,000 people who rely on the country’s food banks each month. In Quebec, the number of users has soared by nearly 35% since 2008, to about 172,000 people per month.

The program’s main challenge was in developing a system that would allow products such as meat and frozen foods to be easily collected from grocers and quickly redistributed, said Watts. “There is enough food in the province of Quebec to feed everybody who needs food. Our challenge has always been around management and distribution,” he added. “Supermarkets couldn’t accommodate individual food banks coming to them one by one by one.” More than 600 grocery stores across the province are expected to take part in the program, diverting as many as 8m kg of food per year.

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Austerity. Germans can now buy Greek homes on the cheap. Insane.

Stock Of Properties Conceded To The Greek State Or Confiscated Grows (G.)

The austerity measures introduced by the government are forcing thousands of taxpayers to hand over inherited property to the state as they are unable to cover the taxation it would entail. The number of state properties grew further last year due to thousands of confiscations that reached a new high. According to data presented recently by Alpha Astika Akinita, real estate confiscations increased by 73 percent last year from 2015, reaching up to 10,500 properties. The fate of those properties remains unknown as the state’s auction programs are fairly limited. For instance, one auction program for 24 properties is currently ongoing. The precise number of properties that the state has amassed is unknown, though it is certain they are depreciating by the day, which will make finding buyers more difficult.

Financial hardship has forced many Greeks to concede their real estate assets to the state in order to pay taxes or other obligations. Thousands of taxpayers are unable to pay the inheritance tax, while others who cannot enter the 12-tranche payment program are forced to concede their properties to the state. Worse, the law dictates that any difference between the obligations due and the value of the asset conceded should not be returned to the taxpayer. The government had announced it would change that law, but nothing has happened to date. Property market professionals estimate that the upsurge in forfeiture of inherited property will continue unabated in the near future as the factors that have generated the phenomenon, such as high unemployment, the Single Property Tax (ENFIA) etc, remain in place.

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Mar 132017
 
 March 13, 2017  Posted by at 9:23 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle March 13 2017
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DPC The Mammoth Oak at Pass Christian, Mississippi 1900

 

The Ides of March Could Be A Critical Turning Point For The Stock Market (MW)
The US As The “Cleanest Dirty Shirt” (Snider)
A Third Of American Families Have ‘Roller Coaster’ Finances (MW)
US Interest Rate Rise To Deepen Developing Countries’ Debt Crisis (G.)
The Issue Is The Leverage And Instability Of The System (Rickards)
Who Bleeds When the Wolves Bite? (CNBC)
When It Comes to Wall Street, Preet Bharara Is No Hero (PP)
China’s Economic Miracle Is Over (Friedman)
Iceland Exits Capital Controls Eight Years After Banking Crash (BBG)
Steve Keen Is In The House (YT)
We Will All Need A Stiff Drink To Swallow Hammond’s Austerity (G.)
No Proof Russia Disrupts UK Democracy, But They Can – Boris Johnson (RT)
Brussels Keeping 2015 Emergency Grexit Plan Locked Away (K.)
Fukushima Evacuees Face ‘Forced’ Return As Subsidies Withdrawn (G.)
Police Raid Athens Squats, Detain Dozens Of Refugees (K.)
What Would You Do To Keep Your Children Alive? (I’Cept)

 

 

The Fed, the debt ceiling and the Dutch election. All this Wednesday, March 15.

The Ides of March (Latin: Idus Martiae, Late Latin: Idus Martii) is a day on the Roman calendar that corresponds to 15 March. It was marked by several religious observances and became notorious as the date of the assassination of Julius Caesar in 44 BC..

The Ides of March Could Be A Critical Turning Point For The Stock Market (MW)

As much as Julius Caesar’s assassination on the Ides of March signaled an inflection point in Roman history, March 15 may also mark a watershed moment for the U.S. stock market with the Federal Reserve poised to seek closure to its loose monetary policy regime. “The coming week has the potential to be huge for trading opportunities,” said Colin Cieszynski, chief market strategist at CMC Markets, in a note. “Everything centers around the Ides of March…with a number of key developments coming out both on [March] 15 and 16.” The Fed’s monetary policy decision on Wednesday will take center stage with markets nearly 100% certain of a rate increase following solid February jobs data. The focus will be on the Fed’s statement rather than the decision itself.

“The commentary will help determine how many more hikes the market has to get used to and then when it has to start preparing,” said Bob Pavlik at Boston Private Wealth. If the central bank strikes a hawkish tone, it could trigger a selloff in the market although Pavlik expects Fed Chairwoman Janet Yellen to keep her comments positive to avoid upsetting the market. Still, investors should keep in mind is that this is the third hike in the current tightening cycle, and history is working against the market. Since 1971, stocks have fallen an average of 2.2% on the third hike over the following three months, said Tom Lee at Fundstrat Global Advisors. To be sure, there are always exceptions. Stocks rose sharply in the following three months after the Fed hiked for a third time in both June 1984 and September 2004, he said.

Most analysts agree that stocks have largely priced in a rate hike of 25 basis points. But there are still bargains to be found in automobile, semiconductors, consumer finance and insurance sectors, which are cheap but benefit from a hawkish Fed, according to Bank of America Merrill Lynch. Aside from the Fed, eight other central banks are scheduled to meet next week, including the Bank of Japan and the Bank of England, providing a quick insight into whether other countries will adjust their policies in response to the Fed. Meanwhile, Trump is expected to present his preliminary budget request to the Congress on Thursday, outlining his administration’s priorities. It will serve as a critical test for whether the euphoria that propelled stocks to record territory in anticipation of tax reforms and ramped up fiscal spending under President Donald Trump is warranted.

The S&P 500 has risen 4.5% and the Dow Jones Industrial Average DJIA has gained 5.3% in the first 50 days since Trump took office, the best ever for a GOP president. However, if Trump’s budget proposal fails to meet the market’s expectations, it could spark a major unwinding in positions, leading to a sharp drop in prices. “Thursday could be the day the instant speed of markets crashes into the glacial speed of government,” said Cieszynski.

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Boy, what a bubble this is turning into.

The US As The “Cleanest Dirty Shirt” (Snider)

It is surely one of the primary reasons why many if not most people have so much trouble accepting the trouble the economy is in. With record high stock prices leading to record levels of household net worth, it seems utterly inconsistent to claim those facts against a US economic depression. Weakness might be more easily believed as some overseas problem, leading to only ideas of decoupling or the US as the “cleanest dirty shirt” – the US economy has problems, but how bad can they be? Yet, despite asset price levels and even record debt, all those prove is just how disconnected those places have become from what used to be an efficient way to redistribute financial resources.

According to the Fed’s Z1 report, Household net worth climbed by $2 trillion in Q4 alone to $92.8 trillion. That is a 69% increase from the low in Q1 2009, even though Final Sales to Domestic Purchasers have grown by just 30% in that same time. The wealth effect is dead, or, more specifically, it never was.

From the view of net worth, the increase to record debt levels seems manageable. From the more appropriate view of income and economy, it does not, even though US debt levels have grown more slowly post-crisis. That would mean debt is partway between assets and economy, sort of splitting the difference of what monetary policy believes and what it, at best, “achieved.”

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The Great Volatility.

A Third Of American Families Have ‘Roller Coaster’ Finances (MW)

When it comes to making money, consistency may be almost as important as quantity. Families that had large fluctuations in their incomes — even when it was a 25% gain — were more likely than those with stable incomes to say they wouldn’t be able to come up with $2,000 for an unexpected need, according to a study by Pew Charitable Trusts released this week. The study looked at “income volatility” among more than 5,600 families the term for a year-over-year change in annual income of 25% or more, between 2014 and 2015. “Volatility in general, regardless of the direction, is very disruptive to families,” said Erin Currier, the director of Pew’s financial security and mobility project, who called that volatility “a roller coaster” for many Americans. “It makes it harder for them to plan.”

More than a third of those households surveyed experienced these large changes in their incomes from 2014 to 2015, Pew found. That number has been fairly consistent over time, Currier said. Households of various incomes see major dips and drops, but since volatility is measured as a percentage change in income, those with lower incomes had the lowest threshold for qualifying as having volatile incomes, Pew’s report says. In fact, there were more households in the years Pew studied that saw a gain in their incomes than those who saw dips, which is probably less surprising given that the economy was growing in those years and many families were finally getting back on their feet after the Great Recession.

Roller coaster finances are more common than many people realize. A quarter of people saw their incomes rise or drop by 30% or more, according to an analysis of 27 million Chase bank accounts between 2013 and 2014 by the J.P. Morgan Chase Institute JPM, -0.32% a J.P. Morgan Chase think tank. Those fluctuations were about the same, regardless of account holders’ incomes. One problem: Although income and spending both change, they don’t always change in the same direction, which can create budgeting problems. Put bluntly, some people keep spending even when they and their families experience a reversal of fortune.

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Been warning about this for a long time. It could get completely out of hand. Much of it is private debt.

US Interest Rate Rise To Deepen Developing Countries’ Debt Crisis (G.)

Developing countries are struggling with steep rises in their debt payments after being hit by a double whammy of lower commodity prices and a stronger dollar, with more pain to come once the US central bank raises interest rates this week, campaigners warn. The Jubilee Debt Campaign said that some of the world’s poorest countries have seen the cost of repaying their debts – as a proportion of government revenue – hit the highest level for a decade. Government coffers have been depleted by lower revenues from commodity exports and the size of dollar-denominated debts has risen as the US currency has strengthened.

The dollar has risen more than 6% against a basket of other big currencies over the past six months as investors anticipate that big spending plans by President Donald Trump will boost US growth and that the US Federal Reserve will follow up December’s interest rate rise with more increases this year. After the latest US jobs numbers on Friday beat expectations, a rate rise from the Fed’s policymakers when they meet this Wednesday is seen as imminent among investors. That would further increase the cost of debt payments for poor countries, which have taken out big loans in recent years from western countries where interest rates have been low, said the Jubilee Debt Campaign.

Tim Jones, economist at the campaign group, warned the rising cost of debt payments was putting developing countries under extra strain just when they needed to be spending more money at home to meet the UN sustainable development targets – a series of goals for human development intended to be achieved by 2030. “The rapid increase in debt payments in many countries comes after a boom in lending, a fall in commodity prices, the rising value of the US dollar and now increasing dollar interest rates,” said Jones. He warned there was a danger that loans from the IMF and other lenders would be used to bail out “reckless lenders” who were at risk of not getting repayments from crisis-hit countries. That would lead to year of economic stagnation, just as in debt-laden Greece, Jones added. “Instead, reckless lenders should be made to shoulder some of the costs of recent economic shocks by accepting lower payments,” he said.

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Has been for may years.

The Issue Is The Leverage And Instability Of The System (Rickards)

[..] expectations of a Fed rate hike March 15 are now near 100% based on surveys of economists and fed funds futures contracts. Markets are looking at things like business cycle indicators, but that’s not what the Fed is watching these days. The Fed is desperate to raise rates before the next recession (so they can cut them again) and will take every opportunity to do so. But as I’ve said before, the Fed is getting ready to raise into weakness. It may soon have to reverse course. My view is that the Fed will raise rates 0.25% every other meeting (March, June, September and December) until 2019 unless one of three events happens — a stock market crash, job losses or deflation. But right now the stock market is booming, job creation is strong and inflation is emerging. So none of the usual speed bumps is in place. The coast is clear for a rate hike this Wednesday.

But growth is being financed with debt, which has now reached epic proportions. A lot of money has been printed since 2007, but debt has expanded much faster. The debt bubble can be seen at the personal, corporate and sovereign levels. If the debt bubble bursts, things can get very messy. In a liquidity crisis, investors who think they have “money” (in the form of stocks, bonds, real estate, etc.) suddenly realize that those investments are not money at all — they’re just assets. When investors all sell their assets at once to get their money back, markets crash and the panic feeds on itself. What would it take to set off this kind of panic? In a super-highly leveraged system, the answer is: Not much. It could be anything: a high-profile bankruptcy, a failed deal, a bad headline, a geopolitical crisis, a natural disaster and so on. This issue is not the catalyst; the issue is the leverage and instability of the system.

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Bit curious coming from a judge, but good title.

Who Bleeds When the Wolves Bite? (CNBC)

The question posed was, “Who Bleeds When the Wolves Bite?” It’s the title of an evocative paper written by Leo Strine, the chief justice of the Delaware Supreme Court. By wolves, he means hedge funds, and his answer, found within a 113-page paper set to be published next month in the Yale Law Review, is that average American investors are the ones getting bit by the existing corporate-governance system. While little known in circles outside the highest ranks of corporate America, Strine’s voice is among one of the most powerful in the business community. That’s because two-thirds of American companies are legally based in Delaware, meaning corporate litigation often takes place in that state, so his opinions on such topics can hold tremendous sway.

Strine’s paper is one of the strongest repudiations to date of hedge-fund activism — or what critics of the industry describe as the practice of investors with major stock holdings aggressively forcing companies into changes that will quickly pump up stock prices, often without regard for those same companies’ long-term health. Strine looks at what he calls a “flesh and blood” perspective on how hedge funds, and specifically hedge-fund activists, are harmful to typical American investors. He calls regular Americans “human investors,” distinguishing from the “wolf packs” of hedge funds. Human investors are those who invest in the capital markets and save for events like retirement or college for their children, according to Strine. Strine’s main argument is that the “current corporate governance system … gives the most voice and the most power to those whose perspectives and incentives are least aligned with that of ordinary Americans.”

Strine’s critics — largely hedge funds and hedge fund advisers — privately criticized the paper, arguing that a justice should not be on the record condemning a group of people who tend to litigate in his court and the lower Delaware courts. Additionally, they say his paper does not offer much in the way of prescriptions for how to fix what he sees as a flawed system. They declined to be quoted, fearing retribution from Strine.

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A history lesson.

When It Comes to Wall Street, Preet Bharara Is No Hero (PP)

After his election in 1968, President Richard Nixon asked Robert Morgenthau, the US Attorney for the Southern District of New York, to resign. Morgenthau refused to leave voluntarily, saying it degraded the office to treat it as a patronage position. Nixon’s move precipitated a political crisis. The president named a replacement. Powerful politicians lined up to support Morgenthau. Morgenthau had taken on mobsters and power brokers. He had repeatedly prosecuted Roy Cohn, the sleazy New York lawyer who had been Senator Joe McCarthy’s right-hand man. (One of Cohn’s clients and protégés was a young New York City real estate developer named Donald Trump.) When Cohn complained that Morgenthau had a vendetta against him, Morgenthau replied, “A man is not immune from prosecution merely because a United States Attorney happens not to like him.”

Morgenthau carried that confrontational attitude to the world of business. He pioneered the Southern District’s approach to corporate crime. When his prosecutors took on corporate fraud, they did not reach settlements that called for fines, the current fashion these days. They filed criminal charges against the executives responsible. Before Morgenthau, the Department of Justice focused on two-bit corporate misdeeds—Ponzi schemes and boiler room operations. Morgenthau changed that. His prosecutors went after CEOs and their enablers—the accountants and lawyers who abetted the frauds or looked the other way. “How do you justify prosecuting a nineteen-year old who sells drugs on a street corner when you say it’s too complicated to go after the people who move the money?” he once asked. Morgenthau’s years as United States Attorney were followed by political success. He was elected New York County District Attorney in 1974, the first of seven consecutive terms for that office.

There are parallels between Morgenthau, and Preet Bharara, the U.S. attorney for the Southern District who was fired by President Trump this weekend. Like Morgenthau, the 48-year old Bharara leaves the office of US Attorney for the Southern District celebrated for taking on corrupt and powerful politicians. Bharara prosecuted two of the infamous “three men in a room” who ran New York state: Sheldon Silver, the Democratic speaker of the assembly and Dean Skelos, the Republican Senate majority leader. He won convictions of a startling array of local politicians, carrying on the work of the Moreland Commission, an ethics inquiry created and then dismissed by New York’s Gov. Andrew Cuomo. (This weekend, Bharara cryptically tweeted that “I know what the Moreland Commission must have felt like,” a suggestion that he was fired as he was pursuing cases pointed at Trump or his allies.)

But the record shows that Bharara was much less aggressive when it came to confronting Wall Street’s misdeeds. President Obama appointed Bharara in 2009, amid the wreckage of the worst financial crisis since the Great Depression. He inherited ongoing investigations into the collapse, including a probe against Lehman Brothers. He also inherited something he and his young charges found more alluring: insider-trading cases against hedge fund managers. His office focused obsessively on those. At one point, the Southern District racked up a record of 85-0 in those cases. (Appeals courts would later throw out two prominent convictions, infuriating him and dealing blows to several other cases.)

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I know it’s George Friedman, but he’s right.

China’s Economic Miracle Is Over (Friedman)

Sustained double-digit economic growth is possible when you begin with a wrecked economy. In Japan’s case, the country was recovering from World War II. China was recovering from Mao Zedong’s policies. Simply by getting back to work an economy will surge. If the damage from which the economy is recovering is great enough, that surge can last a generation. But extrapolating growth rates by a society that is merely fixing the obvious results of national catastrophes is irrational. The more mature an economy, the more the damage has been repaired and the harder it is to sustain extraordinary growth rates. The idea that China was going to economically dominate the world was as dubious as the idea in the 1980s that Japan would. Japan, however, could have dominated if its growth rate had continued. Since that was impossible, the fantasy evaporates — and with it, the overheated expectations of the world.

In 2008, China was hit by a double tsunami. First, the financial crisis plunged its customers into a recession followed by extended stagnation, and the appetite for Chinese goods contracted. Second, China’s competitive advantage was cost, and they now had lower-cost competitors. China’s deepest fear was unemployment, and the country’s interior remained impoverished. If exports plunged and unemployment rose, the Chinese would face both a social and political threat of massive inequality. It would face an army of the unemployed on the coast. This combination is precisely what gave rise to the Communist Party in the 1920s, which the Party today fully understands. So, a solution was proposed that entailed massive lending to keep non-competitive businesses operating and wages paid. That resulted in even greater inefficiency and made Chinese exports even less competitive.

The Chinese surge had another result. China’s success with boosting low-cost goods in advanced economies resulted in an investment boom by Westerners in China. Investors prospered during the surge, but it was at the cost of damaging the economies of China’s customers in two ways. First, low-cost goods undermined businesses in the consuming country. Second, investment capital flowed out of the consuming countries and into China. That inevitably had political repercussions. The combination of post-2008 stagnation and China’s urgent attempts to maintain exports by keeping its currency low and utilize irrational banking created a political backlash when China could least endure it — which is now.

China has a massive industrial system linked to the appetites of the United States and Europe. It is losing competitive advantage at the same time that political systems in some of these countries are generating new barriers to Chinese exports. There is talk of increasing China’s domestic demand, but China is a vast and poor country, and iPads are expensive. It will be a long time before the Chinese economy generates enough demand to consume what its industrial system can produce.

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Greece has had capital controls for only 18 months or so.

Iceland Exits Capital Controls Eight Years After Banking Crash (BBG)

Iceland is back. The government at a hastily called press conference on Sunday in Reykjavik announced that effective Tuesday it will lift almost all of the remaining capital controls, allowing its citizens, corporations and pension funds full access to the global capital markets. The move ends an eight-year struggle to clean up after the 2008 banking collapse, which triggered the worst recession in more than six decades and enveloped the north Atlantic island of 340,000 people in political turmoil. Prime Minister Bjarni Benediktsson said this final step will “create more trust in the Icelandic economy,” with the most significant move being the removal of a requirement for businesses to return foreign exchange. “That will make direct foreign investment easier,” he said in an interview after the press conference.

The controls are being lifted as Iceland is booming, helped by a record surge in tourism. The economy is even at risk of overheating with money flowing back into the economy as the controls have been eased in steps. The economy last year surged 7.2%, driven by household spending and investments. Unemployment is down at about 3% and inflation is under control. The krona has rallied about 18% against the euro over the past year, in part as traders have been attracted to the nation’s higher interest rates. The government hopes these next moves will ease pressure on the currency to appreciate, according to Benediktsson. “We don’t have any exact hints as to what comes next,” he said. While pension funds have taken full use of exemptions that were granted in the past years, the public hasn’t rushed to invest abroad after other controls were eased, he said.

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In Britain, at least Steve gets invited. What good it will do is another matter.

Steve Keen Is In The House (YT)

This talk on whether we can avoid another financial crisis, and what caused the last one, was arranged by New City Agenda and held in a committee room of the House of Commons. I cover what caused the crisis (credit), why mainstream economics erroneously ignores credit, and the empirical data showing which countries face continued stagnation, and which countries face a future private debt crisis.

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Alcohol and politics?!

We Will All Need A Stiff Drink To Swallow Hammond’s Austerity (G.)

Yes, the Conservative party that for a long time believed the state had no role to play in industrial policy is now rediscovering the wheel – but has dismissed Michael Heseltine, who did not need to rediscover it. And the Treasury is placing great emphasis on the importance of “productivity” – ie the supply side of the economy – to provide the future growth on which higher living standards and tax revenues ultimately depend.

For the uncomfortable truth, underlined by the Office for Budgetary Responsibility, the Institute for Fiscal Studies and the Resolution Foundation last week, is that, after a splurge of consumer spending largely financed by borrowing, the outlook for real incomes is pretty bleak – indeed, there are already signs of a slowdown, and the OECD is forecasting economic growth this year of a mere 1.6%. And the OBR’s post-Brexit forecasts are frightening. But austerity in the public sector is set to continue. Let no one be in doubt: this was a policy choice on the part of George Osborne in 2010, and it is a policy choice now. Underlying it all is the Conservative party’s obsession with shrinking the size of the state and minimising the so called “tax burden” – a “burden” which helps to ensure we have decent hospitals, schools and infrastructure generally.

There can be little doubt that, on his own terms, the decision of Chancellor Lawson in the 1988 budget to bring the top rate of income tax down from 60% to 40%, and the basic rate from 27% to 25%, was what is known in the trade as a “game changer”. Total taxation as a proportion of national income has been around 34% in recent years. But when the economy is operating close to capacity, as the OBR believes it now is, in a decent society the ratio of taxation to national income should be considerably higher – even close to 40% – in order to provide decent public services. For all their conciliatory talk, May and Hammond are pursuing Osborne’s austerity policies. Meanwhile, although for all his efforts Osborne failed to achieve anything like a budget surplus for the nation, he has managed – while capitalising on the lecture circuit upon his experience in office – to achieve a healthy budget surplus for himself. Some people are shameless.

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Lame and empty.

No Proof Russia Disrupts UK Democracy, But They Can – Boris Johnson (RT)

Russia is planning to use “all sorts of dirty tricks” to meddle in the political life of European countries, British Foreign Secretary Boris Johnson warned, though he admitted there is “no evidence” that Moscow is actually involved in anything of the kind. “We have no evidence the Russians are actually involved in trying to undermine our democratic processes,” Johnson told British ITV’s Peston on Sunday show. “But what we do have is plenty of evidence that the Russians are capable of doing that,” he insisted adding that Russians “have been up to all sorts of dirty tricks.” Remarkably, Johnson made these statements just weeks before his visit to Russia, during which he will meet with his Russian counterpart, Sergey Lavrov. His visit would be the first made to Moscow by a British Foreign Minister in five years.

When asked what the UK’s approach to Russia should be now, he said that Britain needs to take “a twin-track approach” towards Russia. “As the prime minister has said, we’ve got to engage but we have to beware,” Johnson stated. Despite constantly saying there was solid proof that Russia had meddled in the affairs of other countries, such as by bringing down French TV stations and interfering in US elections, he failed to provide any concrete evidence to back his accusations. Johnson also implicated that Russia was involved in the situation in Montenegro, where a group of Serbian nationalists was arrested in October of 2016 suspected of planning to carry out armed attacks on the day of the country’s parliamentary elections.

The British Telegraph newspaper later reported that the group was sponsored and controlled by the Russian intelligence officers and had actually tried to stage a coup targeting its Prime Minister Milo Djukanovic with “the support and blessing” of Moscow. However, the paper’s report turned out to be based mostly on the assumptions of unidentified sources and Montenegrin Special Prosecutor for Organized Crime, Milivoje Katnic, confirmed that, despite the participation of several suspected “nationalists from Russia,” there was no “evidence that the state of Russia is involved in any sense.”

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Democracy, Transparency, EU.

Brussels Keeping 2015 Emergency Grexit Plan Locked Away (K.)

European Economic and Monetary Affairs Commissioner Pierre Moscovici has turned down a request from former Greek minister Anna Diamantopoulou for Brussels to make public the emergency plan it drafted in the summer of 2015 for the possibility of a Greek exit from the eurozone. Diamantopoulou, who also served as a European commissioner between 1999 and 2004, wrote to Moscovici earlier this year following a revival of Grexit speculation and asked for the plan to be published so Greeks could be aware of the dangers involved. However, Moscovici suggested in his response, which Diamantopoulou received a few days ago, that publishing the draft would simply fuel damaging speculation and would not be in the public interest as it would endanger financial, monetary and economic stability in Greece.

He also said that the document contains some highly sensitive issues. Parts of the plan, which is said to include emergency humanitarian aid for Greece, were discussed at the College of Commissioners in Brussels a few days before the July 5 referendum in 2015. “In our view, the public interest is best served when citizens know the whole truth about issues that affect their future,” Diamantopoulou, who now heads the Diktyo think tank, told Kathimerini. “When knowledge is absent, speculation, fear and populism flourish and we are left to watch the support for the euro wane day by day, while that for the drachma rises.”

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Japan’s leaders don’t admit failure easily.

Fukushima Evacuees Face ‘Forced’ Return As Subsidies Withdrawn (G.)

Thousands of people who fled the meltdown at the Fukushima Daiichi nuclear power plant six years ago will soon lose their housing subsidies, forcing some to consider returning despite lingering concerns over radiation in their former neighbourhoods. The measure, condemned by campaigners as a violation of the evacuees’ right to live in a safe environment, will affect an estimated 27,000 people who were not living inside the mandatory evacuation zone imposed after Fukushima became the scene of the worst nuclear accident in Japanese history. The meltdown in three reactors occurred after a magnitude-9 earthquake on 11 March 2011 triggered a powerful tsunami that killed almost 19,000 people along Japan’s north-east coast and knocked out the plant’s backup cooling system.

As a “voluntary” evacuee, Noriko Matsumoto is among those who will have their subsidies withdrawn at the end of this month, forcing them to make a near-impossible choice: move back to homes they believe are unsafe, or face financial hardship as they struggle on living in nuclear limbo. “Many of the other evacuees I know are in the same position,” Matsumoto said at the launch of Unequal Impact, a Greenpeace Japan report on human rights abuses affecting women and children among the 160,000 people who initially fled from areas near the plant. As of last month, almost 80,000 were still displaced. Matsumoto said: “They would still have to contend with high radiation if they returned, but the government is forcing them to go back by withdrawing housing assistance – that’s tantamount to a crime.”

At the time of the incident, Matsumoto was living with her husband and their two daughters in the city of Koriyama, 43 miles (70km) west of the stricken facility, well outside the area where tens of thousands of people were ordered to leave. Matsumoto initially stayed put, but three months later, with her youngest daughter, then aged 12, having nosebleeds, stomach ache and diarrhoea, she left her husband behind and took their children to Kanagawa prefecture, more than 150 miles south of Fukushima. She said: “The government is playing down the effects of radiation exposure … Yet people who don’t return to places like Koriyama after this month will be left to fend for themselves. They will become internally displaced people. We feel like we’ve been abandoned by our government.”

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They should help them, not detain. For what purpose, send them to Turkey?

Police Raid Athens Squats, Detain Dozens Of Refugees (K.)

Police raided squats in central Athens early on Monday, reclaiming properties and detaining dozens of undocumented migrants. In the first raid, officers entered a building on Alkiviadou Street which has been occupied since February. They transferred 120 migrants from the premises to the Aliens Bureau on Petrou Ralli Street. Police subsequently raided a building in Zografou which has been occupied by members of anti-establishment groups since 2012. Noone was in the building at the time of the raid but they started returning while police were on the premises and seven people were taken to the Athens police headquarters. Riot police units were stationed outside the squat buildings to prevent their reoccupation.

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Refugee issues will keep growing until we help rebuild their countries, and work for stability instead of collateral damage control.

What Would You Do To Keep Your Children Alive? (I’Cept)

Women and children from Central America began arriving at the U.S.-Mexico border in unprecedented numbers during the summer of 2014. Referring to the “urgent humanitarian situation,” President Barack Obama called on Congress to build new detention centers, hire new immigration judges, and increase border surveillance as tens of thousands of unaccompanied children were detained by U.S. immigration officials. At the same time, the United States backed a Mexican government initiative to increase patrols, detentions, and deportations along Mexico’s southern border. The idea was to stop Central Americans from getting into Mexico, let alone the United States. But the gang violence, kidnappings, and extortion sending families fleeing from the “Northern Triangle” comprising El Salvador, Honduras, and Guatemala hasn’t stopped.


People illegally cross the Suchiate River on the Mexico-Guatemala border – Alice Proujansky

The area has the highest murder rate in the world outside a war zone, and people are still coming to Mexico. Only now, as photographer Alice Proujansky documents, they are taking new routes and facing new dangers. “Entire families arrive with little more than backpacks,” Proujansky said. “Women and children are particularly vulnerable: increased enforcement on freight trains has driven migrants to ride buses and walk on isolated routes where they face robbery, assault, and sexual violence.”

Proujansky spent time with families who were hoping to receive asylum from Mexico. There are no reliable figures on how many people cross the border with Guatemala each year, which is still porous despite increased patrols. But between 2014 and the summer of 2016, Mexico detained 425,000 migrants, according to an analysis of government statistics by the Washington Office on Latin America, or WOLA, a human rights advocacy group. In that same time, only 2,900 people received asylum. Last year, there were some 8,700 applicants, of whom 2,800 have so far received protection. (In 2014, Mexico’s refugee agency had just 15 people to screen thousands of applications.)


Alice Proujansky

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Oct 072016
 
 October 7, 2016  Posted by at 7:46 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle October 7 2016
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G. G. Bain Katherine Stinson, “the flying schoolgirl,” Sheepshead Bay Speedway, Brooklyn 1918

IMF, Global Finance Leaders Fret Over Populist Backlash (R.)
Donald Trump Makes History With Zero Major Newspaper Endorsements (Yahoo)
The Great Debt Unwind: US Business Bankruptcies Soar 38% (WS)
Pound Falls 10% In ‘Insane’ Asian Trading Mystery (G.)
California Overtakes UK To Become ‘World’s Fifth Largest Economy (Ind.)
China’s Housing Boom Looks a Lot Like Last Year’s Stocks Bubble (BBG)
Deutsche Bank Mismarked 37 Deals Like Monte Dei Paschi’s (BBG)
14 US Senators Call for Criminal Investigation of Wells Fargo (AP)
Liar Loans Surge in Australia’s Red-Hot Housing Bubble (WS)
Risk and Volatility Cannot be Extinguished (CH Smith)
USA’s Day Of Reckoning – Hidden Secrets Of Money 7 (Mike Maloney)
Why Democracy Rewards Bad People (Mises Inst.)
Marine Le Pen Says EU Responsible For “Monstrous Chaos In Syria” (ZH)
Renzi Must Go If He Loses Italy Referendum, Five Star Rival Says (BBG)
This Greek Grandmother Could Win The Nobel Peace Prize (USA Today)
EU Launches Tough Border Force To Curb Refugee Crisis (AFP)

 

 

Bunch of losers.

IMF, Global Finance Leaders Fret Over Populist Backlash (R.)

World finance leaders on Thursday decried a growing populist backlash against globalization and pledged to take steps to ensure trade and economic integration benefited more people currently left behind. Their comments at the start of the IMF and World Bank fall meetings signaled frustration with persistently low growth rates and the surge of public anger over free trade and other pillars of the global economic system. The meetings are the first since Britain voted in June to leave the EU and U.S. billionaire Donald Trump secured the Republican presidential nomination with a campaign that attacked trade deals.

“More and more, people don’t trust their elites. They don’t trust their economic leaders, and they don’t trust their political leaders,” German Finance Minister Wolfgang Schaeuble said during an IMF panel discussion in Washington. “In the UK, everyone from the elites told the people, ‘don’t vote for a Brexit.’ But they did.” Schaeuble said Germany was trying to “hold Europe together” in the face of rising nationalism, and failure to do so would bode poorly for global economic cooperation. Last week, the World Trade Organization slashed its global trade volume growth forecast to the slowest pace since 2007, saying it expected it to rise just 1.7% this year, down from the 2.8% it forecast in April.

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Propaganda works. Until it doesn’t.

Donald Trump Makes History With Zero Major Newspaper Endorsements (Yahoo)

With just a little over a month until election day, Donald Trump has racked up zero major newspaper endorsements, a first for any major party nominee in American history. While newspaper endorsements don’t necessarily change voters’ minds, this year’s barrage of anti-Trump endorsements could actually move the needle come November, experts say. “It’s significant,” Jack Pitney, professor of government at California’s Claremont McKenna College, told TheWrap. “The cumulative effect of all these defections could have an impact on moderate Republicans.” Some conservative papers, which have endorsed Republicans for decades, are now breaking with tradition to endorse Hillary Clinton or, at the very least, urge their readers not to vote for Trump.

Several have taken a stand even at the expense of losing subscribers at a time when newspapers are barely staying afloat. Some papers have received death threats. But for a growing number of newspaper editorial boards, staying on the sidelines is no longer an option. The Dallas Morning News, which has endorsed every Republican nominee since 1940, was so appalled by the idea of a President Trump that it introduced its Clinton endorsement with this caveat: “We don’t come to this decision easily. This newspaper has not recommended a Democrat for the nation’s highest office since before World War II — if you’re counting, that’s more than 75 years and nearly 20 elections.”

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But today’s jobs report will be a big ray of sunshine. It’s election time, don’t you know.

The Great Debt Unwind: US Business Bankruptcies Soar 38% (WS)

Something funny happened on the way to the bank: In August, commercial and industrial loans outstanding at all banks in the US fell for the first time month-to-month since October 2010, which had marked the end of the collapse of credit during the Financial Crisis. In October 2008, the absolute peak of the prior credit bubble, there were $1.59 trillion commercial and industrial loans outstanding. As the Great Recession chewed into the economy, C&I loans plunged. Many of them were cleansed from bank balance sheets via charge-offs. But then the Fed decided what the US needed was more debt to fix the problem of too much debt, thus kicking off what would become the greatest credit bubble in US history. By July 2016, C&I loans had surged to $2.064 trillion, 30% above their prior bubble peak.

But in August, something stopped working: C&I loans actually fell 0.3% to $2.058 trillion, according to the Federal Reserve Board of Governors. That translates into an annualized decline of 3.8%, after an uninterrupted six-year spree of often double-digit annualized increases. Note that first month-to-month dip since October 2010. [..] The ugliest credit stories in terms of bonds, according to Standard & Poor’s Distress Ratio, are the doom-and-gloom categories of “Energy” and “Metals, Mining, and Steel.” Next down the line are two consumer-facing industries: brick-and-mortar retailers and restaurants.

But these metrics by credit ratings agencies are based on companies that are big enough to be rated by the ratings agencies and that are able to borrow in the capital markets by issuing bonds. The 18.9 million small businesses in the US and many of the 182,000 medium size businesses don’t qualify for that special treatment. They can only borrow from banks and other sources. And they’re not included in those metrics. But when they go bankrupt, they are included in the overall commercial bankruptcy numbers, and those numbers are getting uglier by the month. In September, US commercial bankruptcy filings soared 38% from a year ago to 3,072, the 11th month in a row of year-over-year increases, according to the American Bankruptcy Institute.

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Just a fat finger, or…? Most of the loss has been recuperated.

Pound Falls 10% In ‘Insane’ Asian Trading Mystery (G.)

A “fat finger” error by a trader or computerised chain reaction was thought responsible as the pound plunged to a new three-decade low during “insane” early trading in Asia on Friday – adding to the huge losses sterling had already suffered amid speculation that Britain is heading for a “hard Brexit”. The pound fell almost 10% at one point to US$1.1378, prompting confusion among traders who were struggling to identify any news or market event that could have been to blame. As the currency recovered to around $1.2415 there was speculation a technical glitch or human error had sparked a rash of computer-driven orders.

“What we had was insane – call it flash crash but the move of this magnitude really tells you how low the currency can really go,” said Naeem Aslam, chief market analyst of Think Markets, in a note. “Hard Brexit has haunted the sterling.” [..] The pound has fallen 13% against the dollar since Britain voted in late May to leave the EU, with its losses accelerated after Theresa May announced on Sunday that she would trigger Article 50 by next March, a move that would begin Britain’s formal exit from the EU. Sean Callow, senior currency strategist at Westpac, noted that sterling had been “on a precipice” since May’s declaration in a speech at the Conservative party conference. “I think we’ve underestimated how many people had money positions for a very wishy-washy Brexit, or even none,” he said.

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Falling pound meets bragging rights.

California Overtakes UK To Become ‘World’s Fifth Largest Economy (Ind.)

Kevin de Leon, the leader of the California Senate, has said the state of California is now the fifth largest economy in the world after UK’s vote to leave the EU. His comments came a day after the pound sterling hit a new 31-year low against the dollar as on-going fears over the consequences of a “hard” Brexit spooked traders. Speaking at an event celebrating the tenth anniversary of the California Global Warming solution Act, de Leon said: “As of this morning California is officially the 5th largest economy in the world. “We have created more jobs than the other top two job creators in the US, Florida and Texas, combined,” he added.

Economists tend to be wary of comparing the relative size of economies using volatile market exchange rates, generally preferring to use a Purchasing Power Parity measure which adjusts for differences in local purchasing power. However, according to the US Bureau of Economic Analysis, California’s GDP in 2015 was $2.46 trillion. This compares to a GDP of $2.36 trillion for the UK in 2016, at the current currency exchange rate of $1.27. In June, the state of California’s GDP surpassed France to become the sixth largest in the world on this measure.

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China can only go from bubble to bubble, or the game is up.

China’s Housing Boom Looks a Lot Like Last Year’s Stocks Bubble (BBG)

Tai Hui is experiencing deja vu. China’s surge in home prices reminds JPMorgan Asset Management’s chief Asia market strategist of last year’s stock market mania. Spiraling leverage and implicit state support are among the common denominators, he says. Shanghai property values jumped 31% in August from a year earlier, the latest data show. In 2015, a 60% rally in the city’s equities through June 12 was followed by a $5 trillion rout. Deutsche Bank warned last month that China’s housing market is in a bubble, while Goldman Sachs said this week it sees growing risks across the real estate industry. Home prices started to take off last year in the wake of the stock market crash after the governments eased curbs on property purchases.

In recent days, cities including Shenzhen have started re-imposing restrictions. “It’s similar to the equity market where if you let things loose, it just runs like a stallion,” said Hui. “And then you have to really rein it back, then it’s like an ice bucket challenge. So you go through this extreme heat and cold. That’s not particularly good for the economy because then you’re going through very aggressive investment cycles.” [..] Home prices started to climb after China eased mortgage policies and down-payment requirements in March 2015 to arrest what was then a slide in prices. New curbs, such as higher deposits to limits on the number of homes people can buy, are proving ineffective given the easy access homebuyers have to leverage, said Wee May Ling at Henderson Global Investors.

Medium and long-term new loans, mostly mortgages, totaled 529 billion yuan ($79 billion) in August, while aggregate financing jumped to 1.47 trillion yuan, helping fuel a 39% jump in property sales by value in the first eight months. Private investment in fixed assets, meanwhile, stalled at 2.1% for a second straight month in the January through August period, matching a record low. While HSBC says the overall level of China’s household debt remains low, Deutsche Bank said it sees “clear sign of a bubble” in property – one that will end in a major correction in two years’ time. Just like last year’s equity boom, China is using credit growth to boost the economy, Zhiwei Zhang, chief China economist at Deutsche Bank, wrote in a report on Sept. 28.

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It’s like Tony Soprano is running the banking system.

Deutsche Bank Mismarked 37 Deals Like Monte Dei Paschi’s (BBG)

Deutsche Bank, indicted for colluding with Banca Monte dei Paschi di Siena to conceal the Italian lender’s losses, mismarked the transaction and dozens of others on its own books, according to an audit commissioned by Germany’s regulator. Executives at Deutsche Bank arranged 103 similar deals with a total value of €10.5 billion ($11.8 billion) for 30 clients, according to the audit, a copy of which was seen by Bloomberg. The lender, Germany’s largest, adjusted the accounting of 37 of those trades in 2013, in addition to Monte Paschi’s, changing them from loans that had been kept off the books to derivatives, the audit said. The widespread use of a transaction that’s now the subject of a criminal case highlights the lender’s appetite for complexity at a time when the bank was expanding its fixed-income empire.

While Deutsche Bank has since cut risky assets and eliminated thousands of jobs to bolster capital, mounting legal costs have become a source of increasing concern to investors, driving shares to a record low. “Very complex deals prevent the market and regulators from properly understanding the state of a bank’s balance sheet, inhibiting proper regulatory monitoring and distorting market discipline,” said Emilios Avgouleas at the University of Edinburgh. The audit found that while Monte Paschi was the only client that used a transaction to “window dress” its books, Deutsche Bank didn’t correctly account for similar deals with banks from Italy to Indonesia made between 2008 and 2010. The report also said senior executives didn’t properly authorize the Monte Paschi trade, dubbed Santorini, or adequately review the transaction after receiving a subpoena from the U.S. Federal Reserve in 2012.

[..] Deutsche Bank and six current and former managers, including Michele Faissola, who oversaw global rates at the time, and Ivor Dunbar, former co-head of global capital markets, were indicted in a Milan court on Oct. 1 for the 2008 Monte Paschi transaction. Both were top deputies to former Deutsche Bank co-Chief Executive Officer Anshu Jain, and all three have left the company.

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What’s needed is a comprehensive investigation of the whole system. But by all means, start with Wells Fargo and Deutsche.

14 US Senators Call for Criminal Investigation of Wells Fargo (AP)

Fourteen senators are calling on the Justice Department to open a criminal investigation of Wells Fargo executives after revelations that bank employees opened millions of fake banks and credit card accounts. A bank teller who steals bills from a cash drawer is likely to face charges, the senators said in a statement, but “an executive who oversees a massive fraud that implicates thousands of bank employees and costs customers millions of dollars can walk away with a hefty retirement package and millions in the bank.” House and Senate hearings last month with Wells Fargo CEO John Stumpf “raised serious questions” that point to possible wrongdoing by Stumpf and other high-ranking executive, said the senators, all but one of them Democrats.

U.S. and California regulators have fined San Francisco-based Wells Fargo $185 million, saying bank employees trying to meet aggressive sales targets opened up to 2 million fake deposit and credit card accounts in customers’ names. Regulators said employees issued and activated debit cards and signed people up for online banking without permission. The abuses are said to have gone on for years, unchecked by senior management. In their letter, the senators urged Attorney General Loretta Lynch to hold Wells Fargo accountable as a corporation and also prosecute individual executives who may have broken the law. “Every time the Department of Justice settles a case of corporate fraud without holding individuals accountable, it reinforces the notion that the wealthy and powerful have purchased a higher class of justice for themselves,” the senators said.

The letter was led by Democratic Sen. Mazie Hirono of Hawaii and signed by 12 other Democrats, including Sens. Elizabeth Warren of Massachusetts, Jeff Merkley of Oregon and Patrick Leahy of Vermont. Warren and Merkley serve on the Senate Banking Committee, while Leahy is senior Democrat on the Judiciary Committee.

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Well, that’s a surprise!

Liar Loans Surge in Australia’s Red-Hot Housing Bubble (WS)

UBS Securities Australia reported today that about 28% of Australian mortgages issued in 2015 and 2016 are what we in the US have come to call “liar loans,” which played a big role in the housing boom and the collapse and subsequent bailout of the global financial system. Reality is the last phase of a housing bubble needs liar loans to keep going because buyers have to reach beyond their limits, and the only way to do this is lie now, or miss out forever on buying a home. Evidence that home buyers are lying about income, assets, expenses, and other things on their mortgage applications has been surfacing for a while, along with fears that this would eventually lead to a “Mortgage Meltdown.” The US-style mortgage fraud would be a “Nuclear Bomb” to Australia’s banks.

Hedge funds are betting on this meltdown by shorting the big four banks. But everyone else wants these bank stocks that dominate the Australian stock exchange to rise. They’re in everyone’s portfolio. And they’re all doing what they can to turn shorting the banks into a widow-maker trade. To get “hard evidence,” UBS Securities Australia and UBS Evidence Lab surveyed 1,228 Australians who’d taken out a residential mortgage in 2015 or 2016. Participants, who remained anonymous, were asked 63 questions. The survey was broad based, covering all states and territories in Australia. Given the size of the sample and broad spread of respondents we believe the results are representative of Australian mortgage borrowers. Conclusions based on the total sample have a potential sampling error of just ±2.71% at a 95% confidence level.

The resulting report, “Mortgages – Time for the Truth?” found that 28% of the respondents admitted that they’d lied on their mortgage application: • 21% claimed their applications were “mostly factual and accurate.” • 5% stated they were “partially factual and accurate”• 2% “would rather not say.” How many of these liar-loan applicants lied on the survey to hide their lies on the mortgage application? We don’t know. But the actual percentage of liar loans could even be higher, given the propensity of liar-loan applicants – just my hunch – to lie on surveys to cover their tracks.

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Fractals, swaps and central banks.

Risk and Volatility Cannot be Extinguished (CH Smith)

[..] while modern portfolio management is statistically based (all those “standard deviations” you always see referenced in quantitative analyses), the markets behave fractally. Fractals are known as the geometry of chaos, for they describe how seemingly stable systems can quickly, and unpredictably, degrade into chaos. But as Mandelbrot explains, “100-year floods” actually occur with startling regularity in all markets. Put another way: you cannot disappear all risk with fancy statistical models and credit default swaps, etc., that offload the risk onto others, i.e. counterparties. In other words, all you’re really doing is masking the risk-you’re not eliminating it. And in hiding the real risk, you are lulling the market participants into a pernicious choice architecture in which their willingness to take riskier and riskier actions is rewarded and encouraged, while caution is punished.

This is the Paradox of Risk: by masking risk behind assurances that the Fed has your back, the Federal Reserve is encouraging unwary investors to increase their exposure to risk without even being aware of the dangers. I covered the perverse consequences of believing risk can be “managed away to near-zero” in my book An Unconventional Guide to Investing in Troubled Times. This is how you get a total systemic collapse of the entire choice architecture. And by this I mean not just the financial markets, but the backstop provided by central banks. In a system that is now highly correlated to central bank policies, the idea that some counterparty will cover your losses is illusory. This is magical thinking: that when the system implodes, the counterparties will magically escape the highly correlated collapse.

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Mike is one of the few people who understands the importance of money velocity -and deflation- the way the Automatic Earth has talked about it for a long time. We’ve been in touch off and on for many years now, lots of mutual respect. I’m not focused so much on the ‘crisis as opportunity’ story though, since in my view it leaves too many people behind.

USA’s Day Of Reckoning – Hidden Secrets Of Money 7 (Mike Maloney)

History shows that once or twice in a generation a global crisis comes along that radically devastates people’s way of life. A fundamental shift so big and drastic and overwhelming that it destroys their standard of living and impacts every area of their lives. We are about to experience one of those events… As Mike Maloney outlines in his brand new episode of the Hidden Secrets of Money, that next major event is deflation. And the culprit will be a relatively obscure monetary term that will impact virtually every area of your life: money velocity. You may not know exactly what money velocity means, but we will all soon experience it firsthand. In fact, money velocity will be the culprit of not just deflation, but the resulting inflation—and maybe hyperinflation—that will immediately follow.

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Not applicable to all forms of democracy, but as I’ve often said, our systems self-select for sociopaths.

Why Democracy Rewards Bad People (Mises Inst.)

One of the most widely accepted propositions among political economists is the following: Every monopoly is bad from the viewpoint of consumers. Monopoly is understood in its classical sense to be an exclusive privilege granted to a single producer of a commodity or service, i.e., as the absence of free entry into a particular line of production. In other words, only one agency, A, may produce a given good, x. Any such monopolist is bad for consumers because, shielded from potential new entrants into his area of production, the price of the monopolist’s product x will be higher and the quality of x lower than otherwise. This elementary truth has frequently been invoked as an argument in favor of democratic government as opposed to classical, monarchical or princely government.

This is because under democracy entry into the governmental apparatus is free – anyone can become prime minister or president – whereas under monarchy it is restricted to the king and his heir. However, this argument in favor of democracy is fatally flawed. Free entry is not always good. Free entry and competition in the production of goods is good, but free competition in the production of bads is not. Free entry into the business of torturing and killing innocents, or free competition in counterfeiting or swindling, for instance, is not good; it is worse than bad. So what sort of “business” is government? Answer: it is not a customary producer of goods sold to voluntary consumers. Rather, it is a “business” engaged in theft and expropriation — by means of taxes and counterfeiting — and the fencing of stolen goods.

Hence, free entry into government does not improve something good. Indeed, it makes matters worse than bad, i.e., it improves evil. Since man is as man is, in every society people who covet others’ property exist. Some people are more afflicted by this sentiment than others, but individuals usually learn not to act on such feelings or even feel ashamed for entertaining them. Generally only a few individuals are unable to successfully suppress their desire for others’ property, and they are treated as criminals by their fellow men and repressed by the threat of physical punishment. Under princely government, only one single person – the prince – can legally act on the desire for another man’s property, and it is this which makes him a potential danger and a “bad.”

However, a prince is restricted in his redistributive desires because all members of society have learned to regard the taking and redistributing of another man’s property as shameful and immoral. Accordingly, they watch a prince’s every action with utmost suspicion. In distinct contrast, by opening entry into government, anyone is permitted to freely express his desire for others’ property. What formerly was regarded as immoral and accordingly was suppressed is now considered a legitimate sentiment. Everyone may openly covet everyone else’s property in the name of democracy; and everyone may act on this desire for another’s property, provided that he finds entrance into government. Hence, under democracy everyone becomes a threat.

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As referenced quite lost here before: it’s an uncomfortable feeling if the far right is the only voice to speak the truth. But make no mistake: it speaks loud and clear to the failure of the entire rest of the political system.

Marine Le Pen Says EU Responsible For “Monstrous Chaos In Syria” (ZH)

With the proxy war in Syria escalating dramatically on a day by day basis, with ideological support for the warring powers split along West vs Russia (and China) lines, one particular outlier in the “western world” emerged overnight when Marine Le Pen, leader of France’s National Front party and the frontrunner for the role of president in near year’s French elections, accused the EU of being responsible for the ongoing chaos in Syria. She added that Europe has been too busy trying to overthrow Assad while Russia was actually fighting terrorists.

“You’ve done everything to bring down the government of Syria, throwing the country into a terrible civil war, while accusing Russia which is actually fighting Islamic State. Your responsibility could not be concealed”, she said speaking at the European Parliament plenary session in Strasbourg on Wednesday. “You cannot hide your responsibility […] for plunging this part of the world into an absolutely monstrous chaos,” Le Pen said, alleging that policies advocated by both the United States and the EU had contributed to the state Syria is currently in, as well as neighboring Iraq.

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Brussels is getting very nervous about this: “If he manages to supplant Renzi he plans to hold his own referendum – on Italian membership of the euro area..”

Renzi Must Go If He Loses Italy Referendum, Five Star Rival Says (BBG)

Italian Prime Minister Matteo Renzi cannot wriggle out of his pledge to quit if he loses the country’s referendum on constitutional reform, his main rival said. Luigi Di Maio, a leader of the anti-establishment Five-Star Movement and deputy-speaker of the lower house, said Italy will have to hold elections “as soon as possible” if Renzi’s plans for reform are rejected by voters on Dec. 4. “I am sure that Italians will ask him to maintain that promise despite the fact he has changed his mind,” Di Maio said in an interview at Bloomberg’s Rome office on Wednesday. “If Italians vote “No,” Renzi must keep the promise.” The premier has repeatedly pledged to step down if he loses the referendum which he says is central to his plans to make Italy work again after years of stagnation.

Still, he has backtracked somewhat in recent interviews as surveys show the “No” camp edging ahead and investors concerns mounting. The 30-year-old from near Naples is already described as “prime minister-in-waiting” by newspapers like Corriere della Sera with Five-Star neck-and-neck with Renzi’s Democratic Party in opinion polls. If he manages to supplant Renzi he plans to hold his own referendum – on Italian membership of the euro area. “I’d also like to see a European referendum on the euro, to see other countries starting to talk about it,” Di Maio said. “I know this is very difficult but I don’t think the Europe we know today will be the one we will face when we’re in government in a couple of years’ time.”

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Bless these people, win or no win. They need no prize, simply do what must be done. And in Greece, there’s so much that must be done.

This Greek Grandmother Could Win The Nobel Peace Prize (USA Today)

Emilia Kamvysi is not the typical Nobel Peace Prize candidate. The 86-year-old is not a politician, activist or lawyer. Her days are simple and slow. Like other Greek retirees on the island of Lesbos off the Turkish coast, she cooks for her children and grandchildren, watches the evening news and sits on the bench with her neighbors gazing at the sea. Then her life changed. Along with two neighbors -aged 89 and 85- Kamvysi was sitting on a bench in February, helping out a Syrian refugee mother by feeding her child with a bottle. The photo went viral, and she and the two other grannies in the photo became symbols of Greek generosity toward the migrants who have fled to Europe in recent years.

Soon after, a group of Greek lawmakers, academics and others nominated the grandmother as well as Greek fisherman Stratis Valiamos and actress Susan Sarandon. A second nomination included the grandmother and local agencies. Both cited their humanitarian efforts for the refugees. This Friday, Kamvysi and her granny-corps will find out whether she’ll become an official laureate. “I wish that Greece wins this prize, not just me,” Kamvysi said, pledging if she wins to give her share of the $1.2 million prize to the decaying Greek healthcare system. She lives well enough now on a $360-per-month farmer’s-pension, she said. “What am I going to do with it anyway?” she asked. “There are many people that helped the refugees — the fishermen, the volunteers. It wasn’t just us. Those poor babies, escaping war and drowning in the waters. It’s such a shame. We’re all crying in the village whenever there’s a shipwreck.”

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The exact opposite of the grandmothers helping refugees. Military force against people fleeing military force.

EU Launches Tough Border Force To Curb Refugee Crisis (AFP)

The EU launched its beefed-up border force Thursday in a rare show of unity by the squabbling bloc as it seeks to tackle its worst migration crisis since World War II. EU officials inaugurated the new task force at the Kapitan Andreevo checkpoint on the Bulgarian-Turkish border, the main land frontier for migrants seeking to enter the bloc and avoid the dangerous Mediterranean sea crossing. The European Border and Coast Guard Agency (EBCG) will have at its disposal some 1,500 officers from 19 member states who can be swiftly mobilised in case of an emergency, like a sudden surge of migrants. Brussels hopes the revamped agency will not just increase security, but also help heal the huge rifts that have emerged between member states clashing over the EU’s refugee policies.

The long-term goal is to lift border controls inside the bloc and fully restore the passport-free Schengen Zone. “The new agency is stronger and better equipped to tackle migration and security challenges,” EBCG director Fabrice Leggeri said at the launch. The force will also conduct stress tests at the bloc’s external borders to “identify vulnerabilities before a crisis hits”, he added. EU Migration Commissioner Dimitris Avramopoulos hailed the launch as a “historical day for the European Union”. “From now onwards, the external EU border of one member state is the external border of all member states – both legally and operationally,” he said. “Countries like Bulgaria, Greece and Italy are still under pressure, but they are not alone.”

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Aug 042016
 
 August 4, 2016  Posted by at 8:04 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle August 4 2016
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G.G. Bain New York, suffragettes on way to Boston 1913

Is Deutsche as Dangerous to Financial Stability as Citigroup in 2008? (M2)
Pound Volatility Gauge Climbs as Traders Brace for BOE Rate Cut (BBG)
Britain Faces A Nasty Shock When The Global Energy Cycle Turns (AEP)
Cash Handouts Are Best Way To Boost Growth, Say Economists (G.)
Shock At The ATM: 1000s Of Supplementary Greek Pensions Cut By 21%-46% (KTG)
EU Trade Policy ‘Close To Death’ If Canada Deal Fails (Politico)
Reality of BC’s Foreign Buyers Tax Begins To Bite, Deals Collapsing (FP)
Morgan Stanley Discloses $3.21 Billion Italian Swaps Claim (BBG)
Tesla Loses $293 Million as Deliveries Fall Short, Expenses Rise (WSJ)
We’re Not Out of the Woods Yet (STA)
Justice Department Officials Objected to US Cash Payment to Iran (WSJ)
Julian Assange: The Untold Story Of An Epic Struggle For Justice (Pilger)
Court Throws Out Terrorism Conviction In Canada, Cites Police Entrapment (I’Cept)
Italy Adopts ‘Beautiful’ New Law To Slash Food Waste (BBC)

 

 

Martens and Martens. “..a year ago, Deutsche Bank’s stock closed at $34.88. Its share price at the open this morning was $12.56, a loss of 64% in one year’s time. But from June 1 of 2007, Deutsche Bank has lost a whopping 90% of its share value, right on par with Citigroup.”

Is Deutsche as Dangerous to Financial Stability as Citigroup in 2008? (M2)

Deutsche Bank is starting to resemble the financial basket case that Citigroup became in 2008, leading to Citigroup’s partial ownership by the U.S. government for a time and the bank requiring the largest taxpayer bailout in U.S. financial history. Citigroup’s teetering condition and its interconnectedness to other mega banks played a critical role in the Wall Street crash and collapse of the U.S. economy. That Deutsche Bank (which is highly interconnected to other major Wall Street banks and locked and loaded with tens of trillions of dollars in derivatives) is now showing the same kind of stresses as Citigroup back in 2008, raises the obvious question about just how effectively the Obama administration has reined in systemic financial risk after six years of reassurances that Dodd-Frank financial reform was getting the job done.

On this date a year ago, Deutsche Bank’s stock closed at $34.88. Its share price at the open this morning on the New York Stock Exchange was $12.56, a loss of 64% in one year’s time. But from June 1 of 2007, prior to the onset of the financial crisis, Deutsche Bank has lost a whopping 90% of its share value, right on par with Citigroup. As of this morning’s open, Deutsche Bank has a measly $17.32 billion in equity capital versus a portfolio of derivatives amounting to just shy of $50 trillion notional (face amount) as of December 31, 2015.


Systemic Risk Among Deutsche Bank and Global Systemically Important Banks (Source: IMF: “The blue, purple and green nodes denote European, US and Asian banks, respectively. The thickness of the arrows capture total linkages (both inward and outward), and the arrow captures the direction of net spillover. The size of the nodes reflects asset size.”)

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Carney’s expected to announce desperate measures today.

Pound Volatility Gauge Climbs as Traders Brace for BOE Rate Cut (BBG)

A measure of overnight potential price swings for the pound against the dollar approached the highest closing level since Britain voted to leave the European Union in June as traders braced for the Bank of England’s policy decision Thursday, which most economists forecast will bring the first interest-rate cut in seven years. Sterling fell versus all but one of its 16 major peers as swaps pricing showed a 100% chance of a rate cut. While all except two of 52 analysts in a Bloomberg survey forecast a reduction, there are a suite of other measures, including an expansion of its bond-purchase program, which the BOE may adopt to tackle a Brexit-induced fallout which are more difficult to predict.

Some economists said they would not rule out the possibility that the BOE will keep its powder dry at this meeting, as it did in July, while awaiting a clearer economic picture. “There is quite a lot of speculation regarding what the BOE might do today, so the short-term volatility is to be expected,” said Mark Dowding, a London-based partner and money manager at BlueBay Asset Management. “We doubt the BOE would be opposed to the idea of the pound falling further as it would support the growth outlook, which is deteriorating markedly. We see the pound falling to $1.20 or lower by the end of the year.”

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Yes, Britain’s in for a bind. But energy is not Ambrose’s strong suit.

Britain Faces A Nasty Shock When The Global Energy Cycle Turns (AEP)

Britain’s energy industry is dying. While the US is striving for self-sufficiency in fuel and power as a primary goal of strategic security in a dangerous world, this country has acted with strange insouciance. We have let matters drift for so long that half of our nuclear reactors will be phased out over the next nine years with nothing ready to replace them. North Sea oil and gas is a spent reserve. Britain’s dependency on imported fuels and electricity has jumped from 17pc to 46pc since 2000. Energy is becoming a corrosive element in Britain’s current account deficit, now 6.9pc of GDP, and the scale of vulnerability has been masked by the slump in world energy prices. When the global fossil cycle turns – inevitable, given the $400 investment freeze in oil and gas projects over the last two years – Britain will face a national energy ‘margin call’.

The confluence of Brexit, a new government, and the review of the Hinkley Point nuclear plant have suddenly thrown open the debate on how the UK should power its economy. It is a dangerous moment, but also giddily fluid. As a summer exercise, I will float a few thoughts on how to seize this chance, open to suggestions from Telegraph readers for better ideas. My heterodox mix will satisfy nobody: it includes fracking a l’outrance, micro-nuclear and molten-salt reactors, more off-shore wind, a Norwegian-style push for electric vehicles by 2030, and a grand plan for carbon capture and storage to take advantage of Britain’s unique competitive advantage in this field and revitalize Northern industries.

There is no shortage of funds. Britain can borrow at 1.47pc for half a century, and it should do so without compunction as an investment stimulus to carry the country through the post-Brexit storm. Oil and gas fracking does not require public money anyway. Britain’s shale industry is already poised to drill, so that is where I will begin today.

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Including Steve Keen, David Graeber.

Cash Handouts Are Best Way To Boost Growth, Say Economists (G.)

Direct cash handouts to households would be a better way of boosting Britain’s flagging economy than the interest-rate cuts expected from the Bank of England on Thursday, according to a group of progressive economists. In a letter to the chancellor, 35 economists have urged Philip Hammond to ditch the approach that has been followed by the government since the recession of 2008-09 and give the Bank the right to try more radical options. The letter, to be printed in Thursday’s Guardian, suggests that the Bank should be allowed to create money to fund key infrastructure projects. Alternatively, the group says the Bank could pay for tax cuts or direct payments to households.

The letter states: “A fiscal stimulus financed by central bank money creation could be used to fund essential investment in infrastructure projects – boosting the incomes of businesses and households, and increasing the public sector’s productive assets in the process. Alternatively, the money could be used to fund either a tax cut or direct cash transfers to households, resulting in an immediate increase of household disposable incomes.” Threadneedle Street would need approval from the Treasury to adopt what the US economist Milton Friedman once described as “helicopter drops” of money on to the economy as a means of removing the threat of deflation. The nine members of the Bank’s monetary policy committee (MPC) will announce at midday how they plan to respond to the economic shock caused by the decision to leave the EU in the 23 June referendum.

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The rape of Greece continues.

Shock At The ATM: 1000s Of Supplementary Greek Pensions Cut By 21%-46% (KTG)

It was certainly a shock for thousands of Greek pensioners: beginning of August they saw their supplementary pensions to have undergone cuts from 21% up to 46%. Affected are 311,680 pensioners receiving pensions from 11 pension funds. The 3. bailout and the Pensions Reforms provided that if the sum of main and supplementary pension exceeds €1,300 gross, the supplementary pension has to be cut. The second wave of cuts to be implemented as of September will affect another 924,345 pensioners belonging to other pension funds.

The Pension Reforms ended up in throwing all pensioners in one bag and have them ‘share’ the available pension funds, although this is –first of all- “unfair” for the pensioners of the private sector. They have been loyally paying their social security contributions all through their work life, while the pensioners of the public sector have been paying much less and thus receiving disproportionately much more. Public servants who massively left service with early retirement of 25 years in 2010, they ended up receiving a pension amount equal to their salary – although it should have been much lower. Yes, it is unfair. And this is what I hear from more and more people form the private sector.

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100,000 TTiP protesters in Germany yesterday?!

EU Trade Policy ‘Close To Death’ If Canada Deal Fails (Politico)

One of the EU’s most senior officials has warned that the bloc’s trade policy will be “close to death” if it cannot ratify a landmark agreement with Canada. The alarm sounded by Jean-Luc Demarty, director-general for trade, is a sign of growing concern in Brussels that the European Commission is losing control over one of its core competencies in the face of surging public opposition to free trade. In a frustrating blow to the Commission, the member countries last month wrested the approval process for the trade deal with Canada away from Brussels. The accord will now require approval in Europe’s 38 national and regional parliaments, raising the specter of delays and even vetoes in assemblies ranging from Wallonia to Romania.

Demarty delivered his stark warning at the EU’s trade policy committee ahead of the summer break, according to people present at the confidential meeting. Most diplomats expect the Canadian deal to win the qualified majority required for provisional application at the Council. Notes from the July 15 meeting, seen by POLITICO on Monday, showed that Demarty warned that EU trade policy would have a “big credibility problem” if it could not ratify the deal. He then added that it would be “close to death.” Two other diplomats confirmed the remarks and added that this was now typical of Demarty’s tone on the subject. One observed that Demarty seemed “helpless.”

Traditionally, trade has been the blue-riband portfolio in Brussels, with national governments surrendering all of their powers to negotiate trade deals and impose tariffs to the Commission. But Brussels suffered a significant setback on July 5 when France and Germany unexpectedly insisted that a trade deal with Canada would have to be ratified by the EU’s 38 national and regional assemblies. That has left the Commission scrambling to rescue the deal and preserve its status as the biggest force in global trade.

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It’s healthy when bubbles burst. But painful too for some.

Reality of BC’s Foreign Buyers Tax Begins To Bite, Deals Collapsing (FP)

Realtors and lawyers desperate to get in under the deadline filed a record-setting 15,000 property transfer applications on Thursday and Friday, the last business days before B.C.’s punishing new 15-per-cent tax on foreign property buyers went into effect. More than 9,200 transactions were filed on Friday, breaking the 2007-2008 record of more than 8,400 in a single day, according to the B.C. Land Title and Survey Authority. It also reported over 5,800 transactions on Thursday, representing nearly as many deals registered at month’s end in April. The demand was so heavy that it crashed the land titles office’s electronic filing service on both days, the authority said.

Now, as a new dawn breaks in Metro Vancouver’s real estate market, realty companies and real estate boards are reporting the first anecdotes of deals falling through as foreign buyers forfeited deposits on binding deals rather than pay the new tax. And they report evidence of local buyers withdrawing offers in expectation that the market will soften. Elton Ash, executive vice-president of Re/Max Western Region, said it is too early to accurately quantify how many deals fell apart, but he’s heard from realtors in some of the company’s 30 Metro Vancouver offices of cases where foreign buyers who couldn’t rearrange previously negotiated closing dates have already walked away.

[..] Jonathan Cooper, vice-president of operations at MacDonald Realty, expects many cases to go to court because deposits are held in trust by realtors and usually can’t be released without a court order. “I think the next chapters in this story are going to be written by lawyers,” Cooper said. “There are going to be cases for sellers trying to get the deposit out of trust and maybe suing the buyer for specific performance trying to get them to complete, and/or for damages if they are not able to find a buyer at a similar price point.”

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“Across Italy, cities faced with shrinking income and rising expenses bought swaps from U.S. firms to cut short-term interest costs..”

Morgan Stanley Discloses $3.21 Billion Italian Swaps Claim (BBG)

Morgan Stanley said an Italian prosecutor may seek as much as €2.88 billion ($3.21 billion) over allegations that derivatives the investment bank sold more than a decade ago were improper and unfairly unwound. Italy’s Court of Accounts, the country’s state auditor, sent Morgan Stanley the proposed claim over derivatives created from 1999 through 2005 and terminated by 2012, the New York-based bank said Wednesday in a quarterly regulatory filing. Italy had paid Morgan Stanley $3.4 billion to unwind interest-rate swaps and options that had backfired, as it was cheaper than renewing the contracts, Bloomberg reported in 2012.

Mark Lake, a Morgan Stanley spokesman, said the proposed claim is groundless and that the bank will defend itself vigorously. Wall Street has been accused of duping municipalities with sophisticated and complex instruments. Some banks pitched the derivatives transactions as a way to save on borrowing expenses, but many ended up being costly for their government customers. Across Italy, cities faced with shrinking income and rising expenses bought swaps from U.S. firms to cut short-term interest costs, putting them at risk of paying more in the long run.

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Wonder when this bubble will burst. Tesla rides ‘green waves’ in more than one way.

Tesla Loses $293 Million as Deliveries Fall Short, Expenses Rise (WSJ)

Tesla Motors’s loss widened in the second quarter amid higher costs, but the company stuck to an ambitious plan that calls for building nearly 80,000 cars in 2016 and pulling forward a cheaper sedan aimed at the mass market. The Silicon Valley electric car maker’s report follows a tumultuous period capped by a traffic fatality related to the company’s semiautonomous Autopilot system. Regulators also dinged the company’s practice of having certain buyers sign nondisclosure agreements and the company faced continued questions about the quality of its Model X sport-utility vehicle.

Tesla, long known as a company that moves faster than traditional auto makers, plowed forward during the quarter. It announced its intention to combine with SolarCity Corp., which shares with Tesla Elon Musk as chairman. On Monday, the Tesla announced a firm deal with SolarCity valued at $2.6 billion.

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“..the next leg down in oil prices could be far more disruptive than most investors expect and it may not take much to trigger a major financial event.”

We’re Not Out of the Woods Yet (STA)

The risk of a global shock appears to be rising once again as (1) oil prices fall back into the $30s and (2) modestly improving US economic growth strengthens the case for a rising dollar. In addition to a likely revival in US rate hike expectations, growing foreign demand for US cash flows, or the prospect for more central bank easing abroad (both of which could drive the dollar higher), the world economy may already be nearing another breaking point as foreign central bank assets held at the Federal Reserve continue to fall on a year-over-year basis. Every time this measure has fallen below zero in the last fifty years, it has coincided with a major global event.

My suspicion is that oil producing countries (who officially flipped from current account surplus into current account deficit in 2015) are liquidating their US dollar assets to manage government budget shortfalls. With that in mind, the next leg down in oil prices could be far more disruptive than most investors expect and it may not take much to trigger a major financial event. We’re not aggressively betting on a crisis, but my colleagues and I on the STA Investment Committee continue to run conservative portfolios with an underweight to equities, and a focus on yield-oriented assets (like corporate bonds and preferred stocks) and defensive assets (like cash, gold, managed futures, and long-dated US Treasuries) while we wait for quality assets to go on sale.

If you’ve been paying attention to global markets this year, you are probably still scratching your head as to what fundamentally changed in early February. What pulled us back from the edge of a global crisis and set the stage for one of the most powerful reflations (ex earnings) in recent memory? What caused corporate credit spreads to collapse, crude oil to bottom, and the S&P 500 to scream higher? And, most importantly, is this a sustainable new trend? Or an epic bear trap? As regular FWIW readers may remember, I offered a hypothesis in mid-March – arguing that major central banks had begun to quietly intervene in foreign exchange markets – and I laid out a vision for 2016 as long as policy elites were able to keep the trade-weighted US dollar in a “goldilocks” trading range.

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Ronald Reagan Returns.

Justice Department Officials Objected to US Cash Payment to Iran (WSJ)

Senior Justice Department officials objected to sending a plane loaded with cash to Tehran at the same time that Iran released four imprisoned Americans, but their objections were overruled by the State Department, according to people familiar with the discussions. After announcing the release of the Americans in January, President Barack Obama also said the U.S. would pay $1.7 billion to Iran to settle a failed arms deal dating back to 1979. What wasn’t disclosed then was that the first payment would be $400 million in cash, flown in at the same time, as The Wall Street Journal reported Tuesday.

The timing and manner of the payment raised alarms at the Justice Department, according to those familiar with the discussions. “People knew what it was going to look like, and there was concern the Iranians probably did consider it a ransom payment,’’ said one of the people. The disclosures reignited a political furor over the Iran deal in Washington that could complicate White House efforts to fortify it before Mr. Obama’s term ends. Three top Republicans who have been feuding in recent weeks—presidential candidate Donald Trump, Sen. John McCain and House Speaker Paul Ryan—were united Wednesday in blasting the Obama administration.

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Excellent expose by John Pilger.

Julian Assange: The Untold Story Of An Epic Struggle For Justice (Pilger)

The siege of Knightsbridge is both an emblem of gross injustice and a gruelling farce. For three years, a police cordon around the Ecuadorean embassy in London has served no purpose other than to flaunt the power of the state. It has cost £12 million. The quarry is an Australian charged with no crime, a refugee whose only security is the room given him by a brave South American country. His “crime” is to have initiated a wave of truth-telling in an era of lies, cynicism and war. The persecution of Julian Assange is about to flare again as it enters a dangerous stage. From August 20, three quarters of the Swedish prosecutor’s case against Assange regarding sexual misconduct in 2010 will disappear as the statute of limitations expires.

At the same time Washington’s obsession with Assange and WikiLeaks has intensified. Indeed, it is vindictive American power that offers the greatest threat – as Chelsea Manning and those still held in Guantanamo can attest. The Americans are pursuing Assange because WikiLeaks exposed their epic crimes in Afghanistan and Iraq: the wholesale killing of tens of thousands of civilians, which they covered up, and their contempt for sovereignty and international law, as demonstrated vividly in their leaked diplomatic cables. WikiLeaks continues to expose criminal activity by the US, having just published top secret US intercepts – US spies’ reports detailing private phone calls of the presidents of France and Germany, and other senior officials, relating to internal European political and economic affairs.

None of this is illegal under the US Constitution. As a presidential candidate in 2008, Barack Obama, a professor of constitutional law, lauded whistleblowers as “part of a healthy democracy [and they]must be protected from reprisal”. In 2012, the campaign to re-elect President Barack Obama boasted on its website that he had prosecuted more whistleblowers in his first term than all other US presidents combined.

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The details are stunning, but at the same time familiar.

Court Throws Out Terrorism Conviction In Canada, Cites Police Entrapment (I’Cept)

Sting operations — in which an undercover agent or informant provides the means and opportunity to lure otherwise incapable people into committing a crime — have represented the default tactic for counterterrorism prosecutions since the 9/11 attacks. Critics believe these stings amount to entrapment. Human Rights Watch, for instance, argues that law enforcement authorities in the U.S. have overstepped their role by “effectively participating in developing terrorism plots.” Nonetheless, U.S. courts have rejected entrapment defenses, no matter how hapless the defendants. In Canada, however, the legal standing of counterterrorism stings has suddenly shifted.

Last week, a high-ranking judge in British Columbia stayed the convictions of two alleged terrorists, ruling that they had been “skillfully manipulated” and entrapped by an elaborate sting operation organized by the Royal Canadian Mounted Police. “The specter of the defendants serving a life sentence for a crime that the police manufactured by exploiting their vulnerabilities, by instilling fear that they would be killed if they backed out, and by quashing all doubts they had in the religious justifications for the crime, is offensive to our concept of fundamental justice,” the judge wrote. “Simply put, the world has enough terrorists. We do not need the police to create more out of marginalized people who have neither the capacity nor sufficient motivation to do it themselves.”

This is the first time that a counterterrorism sting — whose tactics were developed by the FBI through modifying those of undercover drug stings — has been thrown out of court whole cloth in Canada or the U.S. Supreme Court Justice Catherine J. Bruce was ruling in the case of John Nuttall and his common-law wife, Amanda Korody, two drug addicts who lived on the streets in British Columbia. As part of sting operation in which the RCMP paid at least 200 officers a total of more than $900,000 Canadian in overtime, law-enforcement agents encouraged the couple to place pressure-cooker bombs at the British Columbia parliament building on Canada Day 2013. As in FBI counterterrorism stings, RCMP provided Nuttall and Korody with everything they needed to become terrorists.

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Can we adopt this throughout the world please?

Italy Adopts ‘Beautiful’ New Law To Slash Food Waste (BBC)

Italy has passed into law a raft of new measures to try to reduce the mountain of food wasted in the country each year. The bill – backed by 181 Senators, with two against and 16 abstaining – aims to cut waste one million tonnes from the estimated five million it wastes each year. It has been heralded as “one of the most beautiful and practical legacies” of the Expo Milano 2015 international exhibition – which focused on tackling hunger and food waste worldwide – by Agriculture Minister Maurizio Martina. According to ministers, food waste costs Italy’s business and households more than €12bn per year. Studies suggest it could amount to more than 1% of GDP.

The problem is by no means confined to Italy. The UN Food and Agricultural Organisation (FAO) estimates that some one third of food may be wasted worldwide – a figure which rises to some 40% in Europe. “The food currently wasted in Europe could feed 200 million people,” the FAO says. It’s not the first time Italy has acted decisively over issues of hunger and food. Three months ago, its highest court ruled that stealing small amounts of food to stave off hunger was not a crime.

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Jun 072016
 
 June 7, 2016  Posted by at 8:29 am Finance Tagged with: , , , , , , , , , , ,  9 Responses »
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Esther Bubley Soldiers with their girls at the Indianapolis bus station 1943

This Job Market Slump Started In January
Yellen Sees Rates Rising Gradually But .. (BBG)
The Shadow Looming Over China (Balding)
Nation of Debt: New Zealand Sitting on Half-Trillion-Dollar Debt Bomb (NZH)
Sterling Swings Wildly As Polls Suggest UK Heading For EU Exit (G.)
S&P Downgrades Royal Bank of Canada Outlook (WSJ)
Goldman Probed Over Malaysia Fund 1MDB (WSJ)
This Fannie-Freddie Resurrection Needs To Die (WaPo ed.)
State Department Blocks Release Of Hillary Clinton’s TPP Emails (IBT)
Debt Buyers (John Oliver)
Taxes And Recession Slash Income Of Greek Households (Kath.)
Nausea Rising (Jim Kunstler)
NATO Countries Begin Largest War Game In Eastern Europe Since Cold War (G.)
Finns To Bury Nuclear Waste In World’s Costliest Tomb (AFP)
Great Barrier Reef: The Stench Of Death (G.)

And this is Yellen’s favorite index?! Makes you wonder.

This Job Market Slump Started In January

The sharp May hiring slowdown revealed in Friday’s employment report took a lot of people – including me – by surprise. It shouldn’t have. Things have actually been on the downswing for the U.S. labor market for months, according to the Federal Reserve’s Labor Market Conditions Index. The LMCI is a new measure cooked up by Federal Reserve Board economists in 2014 that consolidates 19 different labor market indicators to reflect changes in the job market. They calculated it going all the way back to 1976; the chart above shows its movements since the end of the last recession in June 2009. The May index, released Monday morning, showed a 4.8-point decline from April. As you can see from the chart, the index has now declined for five straight months — its worst performance since the recession.

The index does get revised a lot. When the January number was first reported on Feb. 8, for example, it was still modestly positive. Still, since the February number was released on March 7 the news from the LMCI has been unremittingly negative. Which probably should have told us something. Not many people were paying attention, though. Fed Chair Janet Yellen is apparently a fan of the LMCI, but I have to admit that I first learned of its existence Monday when Erica Groshen, the Commissioner of the BLS, mentioned it at a conference for BLS data users in New York. It was a good reminder, as were a lot of the other presentations at the conference, that the headline jobs numbers that get the lion’s share of attention – the monthly change in payroll employment and the unemployment rate – aren’t always the best places to look for information on the state of the jobs market.

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They should really start having her do these speeches in a cave filled with smoke and vapors.

Yellen Sees Rates Rising Gradually But .. (BBG)

Federal Reserve Chair Janet Yellen said the U.S. economy was making progress but was silent on the timing of another interest-rate increase, an omission viewed as a signal that a June move was off the table. “I continue to think that the federal funds rate will probably need to rise gradually over time to ensure price stability and maximum sustainable employment in the longer run,” Yellen said Monday during a speech in Philadelphia. Her comments were less specific than in her previous remarks in describing when she thought the Fed should raise rates again.

On May 27 at Harvard University, she said an increase would likely be appropriate in “coming months,” a phrase she didn’t repeat on Monday. Since then, the Labor Department reported U.S. employers in May added the fewest number of new jobs in almost six years, causing expectations for a rate increase to plunge. “She did not address the timing of the Fed’s next gradual move, which suggests to us that she is in no hurry,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd, arguing that her comments on the payroll report “largely rules out a move in rates next week. July is not a strong bet either.”

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Beijing has not just allowed shadow banks to grow much too big, it has used this growth to hide its actions behind. Local governments got most of their credit to build highways to nowhere from shadow banks. It’s really weird that the western press only catches on now.

The Shadow Looming Over China (Balding)

Of all the topics sure to be come up in Sino-U.S. economic talks this week – from the problem of excess capacity to currency controls – the health of China’s financial sector will no doubt feature high on the list. Especially worrying are the multiplying links between the country’s commercial and “shadow” banks – the name given to a broad range of non-bank financial institutions from peer-to-peer lending platforms to trusts and wealth management companies. All told, the latter now hold assets that exceed 80 percent of China’s gross domestic product, according to Moody’s – much of them linked to the commercial banking sector in one way or another. That poses a systemic threat, and needs to be treated as such. There’s nothing inherently wrong with shadow banks, of course.

Largely owned by the government, China’s commercial banks focus primarily on directing capital from savers to state-owned enterprises, leaving Chinese households and smaller private enterprises starved for funds. Shadow banks have grown to meet the demand. At their best, they allocate capital more efficiently than state-owned lenders and keep afloat businesses that create jobs and growth. The line between good shadow banks and dodgy ones is increasingly fuzzy, however, as is the divide between shadow and commercial banking. Traditional banks often assign their sales teams to sell shadow products. This gives an unwarranted sheen of legitimacy to schemes that are inherently risky. Buyers trust that the established bank will make them whole if their investment goes south.

Shadow banks are also selling more and more products directly to commercial banks. Wealth management products held as receivables now account for approximately 3 trillion yuan of interbank holdings, or around $500 billion — a number that’s grown sixfold in three years. According to Autonomous Research, as much as 85 percent of those products may have been resold to other shadow banks, creating a web of cross-ownership with disturbing parallels to the U.S. mortgage securities market just before the 2008 crash. In total, the big four state-owned banks hold more than $2 trillion in what’s classified as “financial investment,” much of it in trusts and wealth-management products.

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A nation of lost souls.

Nation of Debt: New Zealand Sitting on Half-Trillion-Dollar Debt Bomb (NZH)

New Zealand is sitting on a half-a-trillion-dollar debt bomb and Kiwis are increasingly treating their houses like cash machines, piling on the debt as they watch the value of their properties soar. Reserve Bank figures show household debt, excluding investment property, has risen 23% in the past five years to $163.4 billion. Incomes have risen only 11.5%. Households are now carrying a debt level that is equivalent to 162% of their annual disposable income – higher than the level reached before the global financial crisis. Including property investment the total debt households owed as of April was $232.9 billion, according to the Reserve Bank. Satish Ranchhod, a senior economist at Westpac Bank, says the main driver has been low interest rates.

“Continued low interest rates have sparked a sharp increase in household borrowing at a time when income growth has been very modest.” And it’s housing loans where the growth has mainly come from. Housing loan debt has risen 23.4% to $132.83 billion. Student loans were up 22.9% to $14.84 billion and consumer loans are up 16.6% to $15.7 billion. Ranchhod said much of the rising debt on housing was down to investors, as more people jumped into the property market on the back of rising house prices. He also believed many people were using their home loans to make consumer purchases. “We think a lot of the increase in lending on housing loans will also be an increase in spending … people feel wealthy when the value of their home goes up.”

Hannah McQueen, an Auckland financial coach and managing director of EnableMe, said she had seen three clients in the past week alone who had paid for a new car by using the equity in their home to increase their mortgage debt. “It’s definitely on the increase … People think, ‘I’m worth so much more now …'”

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Volatility just getting started.

Sterling Swings Wildly As Polls Suggest UK Heading For EU Exit (G.)

The pound swung wildly on currency markets on Monday, reaching extremes of volatility not seen since the financial crisis, as City traders reacted to polls suggesting voters were increasingly likely to send Britain out of the EU this month. The poll boost to the Vote Leave campaign sent the pound tumbling by up to 1.5 cents to below $1.44, adding to a decline of 2 cents last week and indicating the degree of pressure on the UK currency since the remain camp’s lead in the polls began to evaporate. A dovish speech by the US central bank chief, Janet Yellen, hinting that poor jobs data meant the Federal Reserve was unlikely to raise rates this month, steadied the pound – despite her comments that a vote to leave the EU could hurt the US economy.

“One development that could shift investor sentiment is the upcoming referendum in the United Kingdom. A UK vote to exit the European Union could have significant economic repercussions,” she said. Sterling’s value has become increasingly volatile as fears of a Brexit have increased among investors. The index charting the daily swings in the pound’s value has risen to its highest level of volatility since the first quarter of 2009. It is double the level seen in April when the remain camp was ahead in the polls. Elsa Lignos, a foreign exchange expert at City firm RBC, one of many to warn that the pound would come under further pressure should the lead established by Vote Leave be consolidated, said: “Brexit is almost all that matters for the pound at the moment.”

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Hmm.. “..speculative-grade borrowers..”, “..highly indebted Canadian consumers ..”

S&P Downgrades Royal Bank of Canada Outlook (WSJ)

Standard & Poor’s is downgrading the outlook for Royal Bank of Canada, a change it says reflects the lender’s increased risk appetite and credit-risk exposure relative to other domestic banks. The credit-ratings firm said Monday it was revising its outlook on RBC, Canada’s largest bank by assets, to “negative” from “stable,” but would leave its credit ratings untouched. The move comes less than two weeks after the Toronto-based lender reported a stronger-than-expected fiscal second-quarter profit but set aside bigger provisions to cover soured loans. “The outlook revision reflects concerns over what we see as RBC’s higher risk appetite, relative to peers,” said S&P credit analyst Lidia Parfeniuk in a release.

“We see one example of this in its aggressive growth in loans and commitments in the capital markets wholesale loan book, particularly in the U.S., with an emphasis on speculative-grade borrowers, including exposure to leveraged loans,” she added. S&P also pointed to RBC’s “higher-than-peer average exposure” to highly indebted Canadian consumers and to the country’s oil- and gas-producing regions, which have been hard hit by the collapse in crude-oil prices. S&P, however, affirmed RBC’s ratings including its “AA-/A-1+” long- and short-term issuer credit ratings. “RBC is one of the strongest and highest rated banks in Canada, reflecting our strong financial profile and the success of our diversified business model,” said RBC in an emailed statement. “This outlook change will have no direct impact to RBC clients,” it later added.

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“..Goldman wired the $3 billion in proceeds to a Singapore branch of a small Swiss private bank instead of to a large global bank, as would be typical for a transfer of that size..”

Goldman Probed Over Malaysia Fund 1MDB (WSJ)

U.S. investigators are trying to determine whether Goldman Sachs broke the law when it didn’t sound an alarm about a suspicious transaction in Malaysia, people familiar with the investigation said. At issue is $3 billion Goldman raised via a bond issue for Malaysian state investment fund 1Malaysia Development Bhd., or 1MDB. Days after Goldman sent the proceeds into a Swiss bank account controlled by the fund, half of the money disappeared offshore, with some later ending up in the prime minister’s bank account, according to people familiar with the matter and bank-transfer information viewed by The Wall Street Journal. The cash was supposed to fund a major real-estate project in the nation’s capital that was intended to boost the country’s economy.

U.S. law-enforcement officials have sought to schedule interviews with Goldman executives, people familiar with the matter said. Goldman hasn’t been accused of wrongdoing. The bank says it had no way of knowing how 1MDB would use the money it raised. Investigators are focusing on whether the bank failed to comply with the U.S. Bank Secrecy Act, which requires financial institutions to report suspicious transactions to regulators. The law has been used against banks for failing to report money laundering in Mexico and ignoring red flags about the operations of Ponzi scheme operator Bernard Madoff. The investigators believe the bank may have had reason to suspect the money it raised wasn’t being used for its intended purpose, according to people familiar with the probe.

One red flag, they believe, is that Goldman wired the $3 billion in proceeds to a Singapore branch of a small Swiss private bank instead of to a large global bank, as would be typical for a transfer of that size, the people said. Another is the timing of the bond sale and why it was rushed. The deal took place in March 2013, two months after Malaysia’s prime minister, Najib Razak, approached Goldman Sachs bankers during the annual meeting of the World Economic Forum in Davos, Switzerland. And it occurred two months before voting in a tough election campaign for Mr. Najib, who used some of the cash from his personal bank account on election spending, the Journal has reported, citing bank-transfer information and people familiar with the matter.

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This being from the mouthpiece WaPo, g-d only knows what’s behind it.

This Fannie-Freddie Resurrection Needs To Die (WaPo ed.)

It’s been said that Washington is where good ideas go to die. We don’t know about that, but some bad ideas are certainly hard to get rid of. Consider the persistent non-solution to the zombie-like status of Fannie Mae and Freddie Mac known as “recap and release.” The plan is to return the two mortgage-finance giants to their pre-financial-crisis status as privately owned but “government-sponsored” enterprises. That is to say, to recreate the private-gain, public-risk conflict that helped sink them in the first place. Their income would recapitalize the entities, rather than be funneled to the treasury, as is currently the case. Then they could exit the regulatory control known as “conservatorship” that has constrained them since 2008 — and resume bundling home loans and selling them, as if it had never been necessary to bail them out to the tune of $187 billion in the first place.

Congress last year effectively barred recap and release, at least for the next two years. Coupled with the Obama administration’s firm opposition, you’d think that would put a stake through its heart. But “no” is not an acceptable answer for the handful of Wall Street hedge funds that scooped up Fannie and Freddie’s beaten-down common stock for pennies a share after the bailout — and would realize a massive windfall if the government suddenly decided to let shareholders have access to company profits again. With megabillions on the line, the hedge funds have been arguing high-mindedly that their true concerns are property rights and the rule of law; they have also made common cause with certain low-income-housing advocates who see a resurrected Fan-Fred as a potential source of funds for their programs.

Left unexplained, because it’s inexplicable, is how the hedge funds’ arguments square with the fact that there wouldn’t even be a pair of corporate carcasses to fight over but for the massive infusion of taxpayer dollars and the public risk that represented. The latest iteration of recap and release is a hedge-fund-backed bill sponsored by Rep. Mick Mulvaney (R-SC), which would set Fannie and Freddie, unreformed, loose on the marketplace again and do so under terms wildly favorable to the hedge funds. Specifically, shareholders would be charged nothing for the government backing the entities would retain, supposedly to save scarce resources for the capital cushion. But as the WSJ recently noted, capital could be “risk-weighted” so forgivingly that the actual cushion required might be considerably less than headline numbers suggest.

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Desperate move.

State Department Blocks Release Of Hillary Clinton’s TPP Emails (IBT)

Trade is a hot issue in the 2016 U.S. presidential campaign. But correspondence from Hillary Clinton and her top State Department aides about a controversial 12-nation trade deal will not be available for public review — at least not until after the election. The Obama administration abruptly blocked the release of Clinton’s State Department correspondence about the so-called Trans-Pacific Partnership (TPP), after first saying it expected to produce the emails this spring. The decision came in response to International Business Times’ open records request for correspondence between Clinton’s State Department office and the United States Trade Representative. The request, which was submitted in July 2015, specifically asked for all such correspondence that made reference to the TPP.

The State Department originally said it estimated the request would be completed by April 2016. Last week the agency said it had completed the search process for the correspondence but also said it was delaying the completion of the request until late November 2016 — weeks after the presidential election. The delay was issued in the same week the Obama administration filed a court motion to try to kill a lawsuit aimed at forcing the federal government to more quickly comply with open records requests for Clinton-era State Department documents.

Clinton’s shifting positions on the TPP have been a source of controversy during the campaign: She repeatedly promoted the deal as secretary of state but then in 2015 said, “I did not work on TPP,” even though some leaked State Department cables show that her agency was involved in diplomatic discussions about the pact. Under pressure from her Democratic primary opponent, Bernie Sanders, Clinton announced in October that she now opposes the deal — and has disputed that she ever fully backed it in the first place.

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John Oliver buys $15 million of unpaid debt for $60,000. And then forgives it. Now there’s an idea. Unless I’m very mistaken, that means $1 million could forgive $250 million in debt. $10 million, you free $2.5 billion in debt. Well, quite a bit more, actually, because now we’d be talking wholesale. People raise a millon bucks for all sorts of purposes all the time. Know what I mean?

Someone get this properly organized in a fund, and why wouldn’t they (?!), means: You donate $1 and $250 in debt goes away. Donate $100 and $25,000 goes up in air. 100 people donate $100 each, $2,500,000 in debt is gone. I’m not the person to do it, but certainly somebody can?! (Do call me on my math if I missed a digit..). It’s crazy people like Bill Gates or Mark Zuckerberg are not doing this. Or even Janet Yellen. Not all that smart after all, I guess. $1 billion can buy off $250 billion in debt. Want to fight deflation?

Debt Buyers (John Oliver)

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How to make sure an economy and society cannot recover.

Taxes And Recession Slash Income Of Greek Households (Kath.)

The avalanche of new taxes that began this month will deal a devastating blow to household incomes, consumption and the prospects of the Greek economy in general. As the dozens of new measures are implemented, the market will also be forced to deal with the higher charges that will strengthen the lure of tax evasion. All this is expected to extend the recession and deter investment, while leading to more business shutdowns. Crucially, the disposable income of households will shrink anew due to the increase in taxation and the hikes in almost all indirect taxes and social security contributions.

Hundreds of thousands of families are cutting down on their basic expenses while many have run into debt over various obligations: For example, unpaid Public Power Corporation bills now total €2.7 billion. All that has resulted in major drop in retail spending. A consumer confidence survey carried out by Nielsen for the first quarter of the year shows that eight out of 10 Greeks are constantly attempting to reduce their household expenditure. Their main targets for cuts are going out for entertainment and food delivery, while they are buying cheaper and fewer groceries.

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JHK: “As you may know, Kunstler.com is currently under an aggressive Denial of Service (DoS) attack. My web and server technicians are working to get the website and blog back up and live soon (though it’s going to cost a pretty penny). In the meantime, here is today’s blog. Please share this with any of your friends so they don’t miss out.”

Nausea Rising (Jim Kunstler)

The people of the United States have real grievances with the way this country is being run. Last Friday’s job’s report was a humdinger: only 38,000 new jobs created in a country of over 300 million, with a whole new crop of job-seeking college grads just churned out of the diploma mills. I guess the national shortage of waiters and bartenders has finally come to an end. What’s required, of course, is a pretty stout restructuring of the US economy. And that should be understood to be a matter of national survival. We need to step way back on every kind of giantism currently afflicting us: giant agri-biz, giant commerce (Wal Mart etc.), giant banking, giant war-making, and giant government — this last item being so larded with incompetence on top of institutional entropy that it is literally a menace to American society.

The trend on future resources and capital availability is manifestly downward, and the obvious conclusion is the need to make this economy smaller and finer. The finer part of the deal means many more distributed tasks among the population, especially in farming and commerce operations that must be done at a local level. This means more Americans working on smaller farms and more Americans working in reconstructed Main Street business, both wholesale and retail. This would also necessarily lead to a shift out of the suburban clusterfuck and the rebuilding of ten thousand forsaken American towns and smaller cities.

For the moment, many demoralized Americans may feel more comfortable playing video games, eating on SNAP cards, and watching Trump fulminate on TV, but the horizon on that is limited too. Sooner or later they will have to become un-demoralized and do something else with their lives. The main reason I am so against the Hillary and Trump, and so ambivalent on Bernie is their inability to comprehend the scope of action actually required to avoid sheer cultural collapse.

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Completely crazy. Is Trump really the only person who can stop this? For the first time since the Nazi invasion of Soviet-occupied Poland began on 22 June 1941, German tanks will cross the country from west to east.

NATO Countries Begin Largest War Game In Eastern Europe Since Cold War (G.)

The largest war game in eastern Europe since the end of the cold war has started in Poland, as Nato and partner countries seek to mount a display of strength as a response to concerns about Russia’s assertiveness and actions. The 10-day military exercise, involving 31,000 troops and thousands of vehicles from 24 countries, has been welcomed among Nato’s allies in the region, though defence experts warn that any mishap could prompt an offensive reaction from Moscow. A defence attache at a European embassy in Warsaw said the “nightmare scenario” of the exercise, named Anaconda-2016, would be “a mishap, a miscalculation which the Russians construe, or choose to construe, as an offensive action”. Russian jets routinely breach Nordic countries’ airspace and in April they spectacularly “buzzed” the USS Donald Cook in the Baltic Sea.

The exercise, which US and Polish officials formally launched near Warsaw, is billed as a test of cooperation between allied commands and troops in responding to military, chemical and cyber threats. It represents the biggest movement of foreign allied troops in Poland in peace time. For the first time since the Nazi invasion of Soviet-occupied Poland began on 22 June 1941, German tanks will cross the country from west to east. Managed by Poland’s Lt Gen Marek Tomaszycki, the exercise includes 14,000 US troops, 12,000 Polish troops, 800 from Britain and others from non-Nato countries. Anaconda-2016 is a prelude to Nato’s summit in Warsaw on 8-9 July, which is expected to agree to position significant numbers of troops and equipment in Poland and the Baltic states.

It comes within weeks of the US switching on a powerful ballistic missile shield at Deveselu in Romania, as part of a “defence umbrella” that Washington says will stretch from Greenland to the Azores. Last month, building work began on a similar missile interception base at Redzikowo, a village in northern Poland. The exercise comes at a sensitive time for Poland’s military, following the sacking or forced retirement of a quarter of the country’s generals since the nationalist Law and Justice government came to power in October last year. So harsh have the cuts to the top brass been that the Polish armed forces recently found themselves unable to provide a general for Nato’s multinational command centre at Szczecin.

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Tell me, do I feel safe now? 100,000 years is a long time. No fault lines? Volcanic activity?

Finns To Bury Nuclear Waste In World’s Costliest Tomb (AFP)

Deep underground on a lush green island, Finland is preparing to bury its highly-radioactive nuclear waste for 100,000 years — sealing it up and maybe even throwing away the key. Tiny Olkiluoto, off Finland’s west coast, will become home to the world’s costliest and longest-lasting burial ground, a network of tunnels called Onkalo – Finnish for “The Hollow”. Countries have been wrestling with what to do with nuclear power’s dangerous by-products since the first plants were built in the 1950s. Most nations keep the waste above ground in temporary storage facilities but Onkalo is the first attempt to bury it for good. Starting in 2020, Finland plans to stow around 5,500 tons of nuclear waste in the tunnels, more than 420 metres (1,380 feet) below the Earth’s surface.

Already home to one of Finland’s two nuclear power plants, Olkiluoto is now the site of a tunnelling project set to cost up to €3.5 billion until the 2120s, when the vaults will be sealed for good. “This has required all sorts of new know-how,” said Ismo Aaltonen, chief geologist at nuclear waste manager Posiva, which got the green light to develop the site last year. The project began in 2004 with the establishment of a research facility to study the suitability of the bedrock. At the end of last year, the government issued a construction license for the encapsulation plant, effectively giving its final approval for the burial project to go ahead. At present, Onkalo consists of a twisting five-kilometre (three-mile) tunnel with three shafts for staff and ventilation. Eventually the nuclear warren will stretch 42 kilometres (26 miles).

[..] The waste is expected to have lost most of its radioactivity after a few hundred years, but engineers are planning for 100,000, just to be on the safe side. Spent nuclear rods will be placed in iron casts, then sealed into thick copper canisters and lowered into the tunnels. Each capsule will be surrounded with a buffer made of bentonite, a type of clay that will protect them from any shuddering in the surrounding rock and help stop water from seeping in. Clay blocks and more bentonite will fill the tunnels before they are sealed up.

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Long piece on bleaching by the Guardian. Depressing.

Great Barrier Reef: The Stench Of Death (G.)

It was the smell that really got to diver Richard Vevers. The smell of death on the reef. “I can’t even tell you how bad I smelt after the dive – the smell of millions of rotting animals.” Vevers is a former advertising executive and is now the chief executive of the Ocean Agency, a not-for-profit company he founded to raise awareness of environmental problems. After diving for 30 years in his spare time, he was compelled to combine his work and hobby when he was struck by the calamities faced by oceans around the world. Chief among them was coral bleaching, caused by climate change. His job these days is rather morbid. He travels the world documenting dead and dying coral reefs, sometimes gathering photographs just ahead of their death, too.

With the world now in the midst of the longest and probably worst global coral bleaching event in history, it’s boom time for Vevers. Even with all that experience, he’d never seen anything like the devastation he saw last month around Lizard Island in the northern third of Australia’s spectacular Great Barrier Reef. As part of a project documenting the global bleaching event, he had surveyed Lizard Island, which sits about 90km north of Cooktown in far north Queensland, when it was in full glorious health; then just as it started bleaching this year; then finally a few weeks after the bleaching began. “It was one of the most disgusting sights I’ve ever seen,” he says. “The hard corals were dead and covered in algae, looking like they’ve been dead for years. The soft corals were still dying and the flesh of the animals was decomposing and dripping off the reef structure.”

[..] When the coral dies, the entire ecosystem around it transforms. Fish that feed on the coral, use it as shelter, or nibble on the algae that grows among it die or move away. The bigger fish that feed on those fish disappear too. But the cascading effects don’t stop there. Birds that eat fish lose their energy source, and island plants that thrive on bird droppings can be depleted. And, of course, people who rely on reefs for food, income or shelter from waves – some half a billion people worldwide – lose their vital resource.

[..] What’s at stake here is the largest living structure in the world, and by far the largest coral reef system. The oft-repeated cliche is that it can be seen from space, which is not surprising given it stretches more than 2,300km in length and, between its almost 3,000 individual reefs, covers an area about the size of Germany. It is an underwater world of unimaginable scale. But it is up close that the Great Barrier Reef truly astounds. Among its waters live a dizzying array of colourful plants and animals. With 1,600 species of fish, 130 types of sharks and rays, and more than 30 species of whales and dolphins, it is one of the most complex ecosystems on the planet.


Coral off Lizard Island, bleached in March, and then dead and covered in seaweed in May. Photo: the Ocean Agency

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Sep 162015
 
 September 16, 2015  Posted by at 11:27 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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‘Daly’ Somewhere in the South, possibly Miami 1941

Why the Fed Should Raise Rates Now (Brad Brooks)
Volatility Seen Lingering No Matter What The Fed Does (Reuters)
Kyle Bass: China’s Real Problem Is Its Banking Sector (CNBC)
China Braces for Second Onshore Bond Default by State Firm (Bloomberg)
Chinese Retreat From Australian Property As Capital Controls Bite (AFR)
1,300 Hedge Funds Liquidate Amid China’s $5 Trillion Stocks Selloff (Bloomberg)
Chief Of Biggest China Brokerage Swept Up In Stock-Rout Probe (Bloomberg)
West ‘Ignored Russian Offer In 2012 To Have Syria’s Assad Step Down’ (Guardian)
Hungary Locks Down EU Border, Taking Migrant Crisis Into Its Own Hands (Reuters)
Spanish ‘Safe Cities’ Hope To Offer A Haven For Refugees (Le Monde)
Refugees May Become Trapped In Greece, Minister Fears (Reuters)
Europe’s Frontex Gears Up To Thwart Unwanted Migrants (Reuters)
ECB Says Quantitative Easing Relatively Small So Far (Reuters)
Ukraine On Brink Of Debt Deal That Greece Can Only Dream Of (Ind.)
Tuna And Mackerel Populations Suffer Catastrophic 74% Decline (Guardian)
Land Degradation Costs World $10.6 Trillion A Year, 17% of World GDP (Guardian)
Indigenous Australia Storytelling Accurate on Sea Level Rises 7000 Years Ago (G.)

Plenty reasons. Plenty for the other side too.

Why the Fed Should Raise Rates Now (Brad Brooks)

Now that U.S. stock markets have experienced their first 10% correction since 2011, investors are again looking to the Federal Reserve to bail them out. Although the Fed hasn’t raised interest rates in almost 10 years, sympathetic pundits say it’s still too soon to raise them now. The economist Larry Summers, runner-up for the top spot at the Fed a few years ago, says raising rates would risk “tipping some parts of the financial system into crisis.” How did our financial system weaken to the point where a quarter of a % increase in rates is more than it can handle? The process started a dozen years ago, when Alan Greenspan – then chairman of the Fed – decided to lower rates to 1% after the country had emerged from the mild recession that followed the popping of the tech bubble.

Then, when the Fed began to tighten policy, it did so with agonizing slowness – raising rates just a quarter of a % at a time, so as not to upset the financial markets. This set the table for the subprime housing debt mess in a way that neither Greenspan nor his successor, Ben Bernanke, could foresee. Everyone assumed real estate was too diverse an asset class to ever be in a bubble. Despite credible warnings about the potential problems starting in 2005, the Fed and Treasury were still blindsided in 2008 by the enormous losses at Bear Stearns, Lehman and AIG. Suddenly, the emergency 0% overnight lending rate was required and, almost seven years later, it’s still deemed necessary. Meanwhile, three rounds of quantitative easing have added roughly $3.5 trillion in purchases to the Fed’s balance sheet.

What we have to show for this is a more concentrated financial system, in which the top five banks control nearly half of all U.S. financial assets. Even more troubling is evidence that, this time around, asset bubbles have formed in multiple arenas. Earlier this year, the economist Robert Shiller, who predicted the tech and real estate bubbles, warned that the U.S. now faces a potential bubble in the bond market. The high-end housing and art markets also seem to be in bubbly territory, but before they can cause too much trouble we’re likely to see a serious correction in the U.S. equity market.

The trigger is likely to be the hundreds of billions of dollars worth of bad debt in the energy sector – loans that were made to finance the fracking frenzy. Even when the price of oil was twice what it is today, many of the borrowers involved were not cash-flow positive, and few adequately hedged their exposure. While the experts like to talk about how quickly the price of oil rebounded after the financial crisis, the current oversupply makes today’s situation more akin to what happened in the 1980s. That took years to correct, as desperate companies and governments kept producing more crude.

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If volatility stays no matter what they do, they might as well…

Volatility Seen Lingering No Matter What The Fed Does (Reuters)

While investors, traders and forecasters may be on the fence as to whether the Fed pulls the trigger this week on the first U.S. interest rate hike in nearly a decade, Wall Street’s “smart money” is decisive on one thing: market volatility will linger. Heading into Thursday’s potentially momentous decision on interest rates from the Federal Open Market Committee, the Federal Reserve’s monetary policy-setting panel, speculative positions in CBOE VIX index futures are the most net long on record. To this crowd of hedge funds and other big speculators, it really doesn’t matter what the Fed does. Raising rates for the first time since 2006 would almost certainly send waves through equity markets, and not moving will keep the guessing game – and accompanying market gyrations – alive for weeks to come.

“There is a general consensus in the market that the Fed meeting will continue the volatility, and if they don’t do anything it may sustain the volatility at least for six more weeks till their next meeting,” said J.J. Kinahan, chief strategist at TD Ameritrade in Chicago. The most recent weekly Commitments of Traders data from the Commodity Futures Trading Commission shows speculative net long positions in VIX futures stood at 37,925 contracts as of Sept. 13. Not only is that a record high, it is more than two standard deviations from the norm.

Since VIX futures, a forward-looking gauge of market risk, were introduced in 2004, speculative positions have been skewed toward lower volatility far more often than not. Long VIX futures positions benefit from increased volatility and can be used to protect equity portfolios. Moreover, positioning in VIX futures has flipped like never before over the last month as the Fed guessing game has been compounded by worries over the health of China’s economy and its wobbly stock market. In contrast to the latest positioning, speculators in early August were net short by 64,445 contracts – a reversal of more than 100,000 in five weeks – highlighting the strong conviction of hedge funds and other large speculators that market gyrations are far from over.

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“..Chinese bank assets rose about 400% since 2007, and are now about $31 trillion against an economy with a GDP of $10 trillion.” “..a “likely” 10% asset loss in that banking sector would amount to $3 trillion.”

Kyle Bass: China’s Real Problem Is Its Banking Sector (CNBC)

While many are watching its stock market, China’s real problem may lie with its banking system, according to one hedge fund manager. Kyle Bass, Hayman Capital Management founder and managing partner, told CNBC’s “Squawk on the Street” on Tuesday that Chinese banks will likely experience losses that may affect the country as a whole. “Those that are watching whether Chinese stocks go up or down aren’t paying attention, in my opinion, to what the real problem is,” Bass said. “And the real problem is the loans in this banking sector.” The hedge fund manager said that Chinese bank assets rose about 400% since 2007, and are now about $31 trillion against an economy with a GDP of $10 trillion.

“When you run a bank expansion that aggressively, that quickly, you’re going to have some losses,” he said, adding that “the scary thing about that” is a “likely” 10% asset loss in that banking sector would amount to $3 trillion. Such losses would force China to use much of its foreign exchange reserves (which stand at about $3.6 trillion) and sell bonds to recapitalize the banking system, he said. Bass said these issues are mirrored in many emerging markets—especially those in Asia—and could therefore ultimately affect global GDP.

While the ripples of an emerging market downturn could draw U.S. GDP lower than estimated, countries like South Africa could be seriously impacted. Bass said his investment group is closing watching nations that run twin deficits, and those that may have to devalue their currency “in order to come back to some level of competitiveness with the rest of the world.” As the loan cycle forces emerging market banks to see steep losses, “the next two years are going to be tough,” he said. “We talk about this race to the bottom and this currency war. Well it’s happening as we speak,” he said. “China literally just started with its devaluation process—wait until you see where that goes.”

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When the state can’t keep its own companies alive, who’s going to trust it to save stocks?

China Braces for Second Onshore Bond Default by State Firm (Bloomberg)

China National Erzhong Group may miss an interest payment later this month after one of its creditors filed a restructuring request, putting it at risk of becoming the second state-owned company to default in the nation’s onshore bond market. The smelting-equipment maker might not be able to pay a coupon that’s due Sept. 28 on its 1 billion yuan ($157 million) of 5.65% 2017 notes if a local court accepts the creditor’s restructuring application before that date, according to a statement posted on Chinamoney.com.cn. China National Erzhong, based in China’s western Sichuan province, issued the five-year securities in 2012 at par and the debentures are currently trading at 67.72% of that.

Uncertainty over the payment comes as deflation risks, overcapacity and spiraling corporate debt cloud the outlook for China’s economy, forecast to expand at the slowest pace since 1990 this year. Baoding Tianwei Group failed to pay interest of 85.5 million yuan on one of its bonds in April, becoming the first state-owned enterprise to default in the onshore market. “Because Erzhong is a state-owned company, if it defaults it may arouse investors’ concern about companies’ credit risks,” said Qu Qing, a bond analyst at Huachuang Securities Co. in Beijing.

Five interest rate cuts by the People’s Bank of China since November and rules to relax yuan bond issuance onshore mean Chinese companies are becoming less reliant on dollar funding and more reliant on the nation’s domestic market. Local corporate bond sales have jumped 77% to 7.85 trillion yuan in 2015 from the same period last year, according to data compiled by Bloomberg. The extra spread investors demand to own five-year AA- rated bonds over government debt has narrowed 69.5 basis points since Dec. 31 to 214 basis points Tuesday, according to data compiled by ChinaBond. China National Erzhong is a wholly owned subsidiary of state-owned China National Machinery, according to a China International Capital Corp. report in April.

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And New Zealand, and Canada, and…

Chinese Retreat From Australian Property As Capital Controls Bite (AFR)

Chinese purchases of Australian property have dropped significantly in the past month, according to agents, as buyers struggle to shift money out of the country following Beijing’s move to tighten capital controls. One Chinese agent said the latest efforts by the central government to avoid large capital outflows were having a “significant impact” on his business. “It has affected 70 to 80% of current transactions and some have already been suspended,” said the agent who asked not to be named. The tighter foreign exchange rules are also set to impact the federal government’s relaunched Significant Investor Visa (SIV), which provides fast-tracked residency for those investing at least $5 million into Australia.

“I think it will be big, big trouble for the SIV program because the amount of money is just too large,” said one Shanghai-based adviser, who sells Australian property and advises wealthy clients on their migration plans. Only seven SIV applications have been submitted since the new rules were introduced on July 1, which require investors to put their money into riskier assets such as venture capital and emerging companies. China has previously tolerated significant capital outflows via so called “grey channels”, but has tightened up enforcement in recent weeks as the economy slows and fears over capital flight put downward pressure on the currency.

The crackdown from Beijing has seen Chinese banks setting up watch lists for unusual transactions, according to one bank manager, who asked not to be named as he was not authorised to speak about the policy. He said the operation was aimed at cracking down on a practice whereby family and friends of those wanting to purchase a property overseas all transfer US$50,000 into an overseas account. That’s the limit each Chinese individual is allowed to move out of the country each year. The purchaser then pays back his friends and family in China and uses the money from the overseas account to put down a deposit on the property.

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Relatively small, but of course crazily leveraged.

1,300 Hedge Funds Liquidate Amid China’s $5 Trillion Stocks Selloff (Bloomberg)

It’s about to get even uglier for China’s hedge funds. The newfangled industry, short on expertise and ways to protect itself from market declines, has seen almost 1,300 funds liquidate amid China’s $5 trillion stocks selloff, and a similar number may be at risk, according to Howbuy Investment Management Co. Now, a government crackdown on short selling and other hedging strategies have made prospering in a bear market difficult. It’s an inglorious turn for China’s on-again, off-again love affair with stocks, which saw the number of hedge-fund-like vehicles explode in past years as the government made it easier to register funds and introduced new financial instruments. The market rout – and the regulatory response to it – has revealed cracks in the industry that suggest it may need years to recover.

In the most devastating blow to domestic hedge funds, China has imposed new restrictions on trading in stock-index futures, a key investment strategy to dampen volatility and avoid big losses. “It spells the end, at least temporarily, for China domestic hedge funds,” Hao Hong at BOCOM International said in an interview. China’s hedge-fund industry has grown rapidly as the nation’s stock market jumped and wealthy individuals and smaller institutions sought to profit from that surge. The number of private placement securities funds, the Chinese equivalent of hedge funds, more than doubled from the beginning of the year, peaking at 11,159 as of Aug. 31, managing 1.62 trillion yuan (about $254 billion) in assets, according to the China Securities Regulatory Commission. Individual investors are required to have at least 5 million yuan in assets to invest in hedge funds, while institutions must have at least 10 million yuan.

While these vehicles in China are broadly categorized as hedge funds, there is one key difference with counterparts in the U.S., Europe and Hong Kong. Most of them are long-only, meaning they bet solely on rising markets. Even before government restrictions on practices such as short-selling, many limited hedging so they maximize benefits from a market that had advanced almost 50% in the two years through 2014 and rallied another 60% through mid-June. Most China-based managers rarely wager against individual securities because the practice is expensive and many new managers lack the expertise for complex strategies, Alexis He at Z-Ben Advisors said.

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If you don’t let people sell anything, you don’t have a market.

Chief Of Biggest China Brokerage Swept Up In Stock-Rout Probe (Bloomberg)

The president of China’s biggest brokerage has been swept up in a widening campaign to root out financial wrongdoing and assign blame for the nation’s US$5 trillion stock rout. The probe of Citic Securities Co. president Cheng Boming comes after the state-run Xinhua News Agency reported last month that four executives at Citic had admitted to so-called insider trading. The firm is part of Citic Group, the nation’s first state-owned investment corporation, which was set up in 1979 as part of paramount leader Deng Xiaoping’s push to modernize the country. Since the market crash, China’s targets have ranged from so-called “malicious” short sellers to a journalist from business magazine Caijing whose report was alleged to have caused market panic. Authorities say they want to “purify” the market.

“There does seem to be a bit of a witch hunt for a scapegoat at the moment, but I think this is mostly signaling by the authorities that they will not tolerate what they perceive as ‘unhelpful’ selling in the market,” said Tony Hann, a London-based money manager at Blackfriars Asset Management, which oversees about US$350 million. Citic confirmed the police investigation of Cheng in a statement to Shanghai’s stock exchange. Shares of the company fell 1.2% in Shanghai to 13.36 yuan, the lowest intraday level since Nov. 7, as of 9:38 am local time. The stock has slumped 58% since June amid a rout in Chinese equities that dragged down the benchmark index from a more than seven-year high. Citic Securities is one of the brokerages whose booming margin lending had helped fuel the stock-market’s prior rally.

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Just think of all the money made by the weapons industry in the intervening years…

West ‘Ignored Russian Offer In 2012 To Have Syria’s Assad Step Down’ (Guardian)

Russia proposed more than three years ago that Syria’s president, Bashar al-Assad, could step down as part of a peace deal, according to a senior negotiator involved in back-channel discussions at the time. Former Finnish president and Nobel peace prize laureate Martti Ahtisaari said western powers failed to seize on the proposal. Since it was made, in 2012, tens of thousands of people have been killed and millions uprooted, causing the world’s gravest refugee crisis since the second world war. Ahtisaari held talks with envoys from the five permanent members of the UN security council in February 2012. He said that during those discussions, the Russian ambassador, Vitaly Churkin, laid out a three-point plan, which included a proposal for Assad to cede power at some point after peace talks had started between the regime and the opposition.

But he said that the US, Britain and France were so convinced that the Syrian dictator was about to fall, they ignored the proposal. “It was an opportunity lost in 2012,” Ahtisaari said in an interview. Officially, Russia has staunchly backed Assad through the four-and-half-year Syrian war, insisting that his removal cannot be part of any peace settlement. Assad has said that Russia will never abandon him. Moscow has recently begun sending troops, tanks and aircraft in an effort to stabilise the Assad regime and fight Islamic State extremists. Ahtisaari won the Nobel prize in 2008 “for his efforts on several continents and over more than three decades, to resolve international conflicts”, including in Namibia, Aceh in Indonesia, Kosovo and Iraq.

On 22 February 2012 he was sent to meet the missions of the permanent five nations (the US, Russia, UK, France and China) at UN headquarters in New York by The Elders, a group of former world leaders advocating peace and human rights that has included Nelson Mandela, Jimmy Carter, and former UN secretary general Kofi Annan. “The most intriguing was the meeting I had with Vitaly Churkin because I know this guy,” Ahtisaari recalled. “We don’t necessarily agree on many issues but we can talk candidly. I explained what I was doing there and he said: ‘Martti, sit down and I’ll tell you what we should do.’

“He said three things: One – we should not give arms to the opposition. Two – we should get a dialogue going between the opposition and Assad straight away. Three – we should find an elegant way for Assad to step aside.” Churkin declined to comment on what he said had been a “private conversation” with Ahtisaari. The Finnish former president, however, was adamant about the nature of the discussion. “There was no question because I went back and asked him a second time,” he said, noting that Churkin had just returned from a trip to Moscow and there seemed little doubt he was raising the proposal on behalf of the Kremlin.

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And others will follow that. Watch Croatia and Slovenia. Europe will need to close all entrances. And even then refugess will still keep coming.

Hungary Locks Down EU Border, Taking Migrant Crisis Into Its Own Hands (Reuters)

Hungary’s right-wing government shut the main land route for migrants into the EU on Tuesday, taking matters into its own hands to halt Europe’s influx of refugees. An emergency effort led by Germany to force European Union member states to accept mandatory quotas of refugees collapsed in discord. Berlin called for financial penalties against countries that refused to accommodate their share of migrants, drawing a furious response from central Europe. A Czech official accused Berlin of making empty threats while Slovakia said such penalties would bring the “end of the EU”. Under new rules that took effect from midnight, Hungary said anyone seeking asylum at its border with Serbia, the EU’s external frontier, would automatically be turned back.

Anyone trying to sneak through would face jail. In scenes with echoes of the Cold War, families with small children sat in fields beneath the former communist country’s new 3.5-metre (10 foot) high fence, which runs almost the length of the border, topped with razor wire. [..] Eastern European countries argue that a more welcoming stance encourages more people to make dangerous voyages, and risks attracting an uncontrolled influx that would overwhelm social welfare systems and dilute national cultures. Under its new rules, Hungary said it will now automatically turn back refugees who arrive by land over the main route from Serbia, a country it has declared “safe”. Asylum claims would be processed within eight days and those at the Serbian border should be rejected within hours.

“If someone is a refugee, we will ask them whether they have submitted an asylum request in Serbia. If they had not done so, given that Serbia is a safe country, they will be rejected,” Orban was quoted as telling private broadcaster TV2 on Monday. “We will start a new era,” government spokesman Zoltan Kovacs said shortly after midnight on the border. “We will stop the inflow of illegal migrants over our green borders.” Serbia called the new Hungarian rules “unacceptable”. The United Nations disputed the definition of Serbia as safe, saying the poor ex-Yugoslav state lacked capacity to house thousands of refugees turned back at Europe’s gates.

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Poorer countries have more decency.

Spanish ‘Safe Cities’ Hope To Offer A Haven For Refugees (Le Monde)

The Spanish government, led by Mariano Rajoy, may have dragged its feet in response to pressure from Brussels to take Syrian refugees, but Barcelona, Madrid and several other cities governed by councils with roots in the indignado movement took the initiative with a network of “safe cities” to assist some of those arriving in Europe. Ada Colau, the mayor of Barcelona, started the ball rolling when she announced the launch of a register of families willing to open their home to refugees or simply help them. It proved an immediate success. Thousands of Catalans emailed their details to the list. A dozen cities have signed up to the scheme. Madrid mayor Manuela Carmena has been looking at “ways of alleviating the distress”.

Valencia plans to open emergency accommodation for refugees and is allocating 110 social workers specifically to look after children. Several councils have asked banks to release housing stock that has been vacant since the property market tumbled. Other cities involved include Pamplona, Zaragoza, La Coruña and Malaga. Colau said the predicament of people fleeing war and persecution was “shameful, condemning Europe for dodging the issue and criticising the “ridiculous” figure initially proposed by the Rajoy government to cope with the crisis. The Spanish government has since agreed it would accept its share of migrants under the European commission’s proposed new quota system, according to AFP.

Spain agreed to take in another 14,931 refugees as proposed by the commission, in addition to the 2,379 it had initially said it would accept. The government had initially announced that it would only be accepting 2,379 refugees, as part of EU efforts to solve the crisis, whereas Brussels had initially wanted it to take 5,849.

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Maybe Europe likes it that way.

Refugees May Become Trapped In Greece, Minister Fears (Reuters)

Greece may find it increasingly hard to cope with refugees entering the country as unilateral decisions by other European nations cause bottlenecks and worsening weather fails to deter new arrivals, its interim maritime minister said. Greece has this year become the main gateway for hundreds of thousands of refugees flowing into Europe, many fleeing conflict in Syria and Afghanistan, in the continent’s biggest migration crisis since World War Two. “We cannot carry this load alone,” Christos Zois told Reuters in an interview on Tuesday from his office overlooking the busy port of Piraeus, where thousands of refugees and migrants arrive from the country’s eastern islands every day.

“This is not Greece’s problem alone. We’re not guarding Greece’s borders, we’re guarding the European Union’s borders. We need support – economic and moral support.” Its economy already crippled by years of recession and bailout-driven austerity, Greece has repeatedly called for European Union funds to help it weather the refugee crisis. Of the record 430,000 refugees and migrants that have made the journey across the Mediterranean to Europe so far this year, 309,000 have arrived via Greece, according to the International Organization for Migration. In July and August alone, Greece saw 150,000 arrivals, Zois said.

So far the vast majority have used the country only as a transit point along a route taking them north to richer states. But decisions by Hungary to fence off that route and by Germany to reimpose border controls have increased the risk that Greece will be unable to move the migrants on, possibly tipping its economy back into recession. Asked if he was concerned that refugees might become trapped in Greece, the minister said: “I’m not optimistic because I see that everyone is buying time which, meanwhile… is running out.” His unease is shared by the IOM, a United Nations partner agency. “The expectation is that the refugees and migrants …will just build up … and add enormous pressure on the Greek authorities,” IOM spokesman Leonard Doyle told a briefing in Geneva.

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Another vile institution in the EU: “..could imagine Frontex one day having forces of its own to deploy.”

Europe’s Frontex Gears Up To Thwart Unwanted Migrants (Reuters)

Europe’s border agency Frontex is preparing to speed up identification of illegal migrants and help deport them in large numbers as irregular arrivals this year topped a record half a million. “When you have up to 40% of migrants coming from a third country not granted refugee status and if nothing happens, if they are not returned, what message does the EU convey to potential migrants?” Frontex head Fabrice Leggeri told Reuters a day after EU ministers agreed to grant the agency more powers and resources. EU data show just under half of asylum claims were granted last year but less than half of those rejected were deported. Frenchman Leggeri, who took over the coordinating agency for the EU’s external borders in January, warned that more migrants may have to be detained and forcibly sent home.

But he voiced concern that national governments have cut back on border guards during the recession, limiting the numbers of trained personnel available for secondment by Frontex to crisis zones. After a call last week by EU chief executive Jean-Claude Juncker for a dedicated EU border guard and coastguard service, Leggeri said he was keen to extend typical periods of secondment for staff to a year or more from as little as a month and could imagine Frontex one day having forces of its own to deploy. Funding and staff are still being worked out, Leggeri said, but Frontex is now working on ways to speed fingerprinting and registration of people claiming asylum, notably to filter those fleeing for their lives from those simply seeking a better life.

With Europe opening its doors to Syrians, Frontex operations in Greece had revealed high levels of “nationality swapping” – of people initially claiming to be Syrian, 13% were not. “Those 13% are very likely irregular migrants, some are from North Africa,” he said. “They must be returned.”

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Clueless in Frankfurt: “China can still stabilize its situation and to keep growth above 6% is achievable in the short term.”

ECB Says Quantitative Easing Relatively Small So Far (Reuters)

The European Central Bank has scope to buy more assets as its quantitative easing has been small compared to similar schemes elsewhere, ECB Vice President Vitor Constancio said, adding that Europe also needs the US and Chinese economies to motor ahead. The asset buys, started in March to lift the bloc out of deflation, helped Europe to weather the Greek and Chinese turmoil but euro area inflation could turn negative again in the coming months so the bank stands ready to increase the size, composition and duration of the scheme, if necessary, Constancio said. Drawing a comparison with other major central banks around the globe, Constancio said the European scheme is dwarfed by past asset buys, particularly by the US Federal Reserve and the Bank of Japan.

“The total amount that we have purchased represents 5.3% of the GDP (gross domestic product) of the euro area, whereas what the Fed has done represents almost 25% of the US GDP, what the Bank of Japan has done represents 64% of the Japanese GDP and what the UK has done 21% of the UK’s GDP,” Constancio told Reuters in an interview. “So we are very far from what the major central banks have done,” Constancio, 71, said. “This is not a benchmark …(but) there is scope, if the necessity is there.” But Constancio also dismissed criticism from some that quantitative easing was not working, pointing to improved inflation expectations, growth in bank lending and a drop in borrowing costs despite the anxiety in financial markets.

He also said that the bank needs to look through volatility even if market turbulence is now more prevalent than in the past. “Monetary policy is not about fine tuning volatility in financial markets,” he said. “Central banks should be independent from financial markets and not follow all their fluctuations.” The ECB’s 1 trillion-euro plus asset-buying program is set to run for another year but the majority of analysts polled by Reuters expect the scheme to be expanded as sharply lower commodity prices dampen long term price expectations and as inflation, now at 0.2%, takes years to pick up. Indeed, one of the ECB’s top measures of long-term inflation expectations, the five-year, five-year euro zone breakeven forward has fallen to below 1.7%, short of the ECB’s inflation target of just under 2%.

Pointing to uncertainties, Constancio said much depended on the United States and China. “We need a strong recovery in the US,” Constancio said. “China can still stabilize its situation and to keep growth above 6% is achievable in the short term.”

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More equal.

Ukraine On Brink Of Debt Deal That Greece Can Only Dream Of (Ind.)

In a rare piece of European economic good news, Ukraine’s major creditors look set to write off 20% of the embattled country’s foreign debt. Prime Minister Arseniy Yatsenyuk, speaking at an economic conference on the weekend, said he expects parliament to approve the measures in the next few days. The deal will effectively restructure £11.7bn of Ukraine’s total foreign loans, thus helping the country avoid the drawn-out negotiations suffered by Greece in recent months. It also unlocks support from the IMF and halts principal payments for the next four years to help the country get back on its feet. Ukraine is currently in the grip of a deep recession following mismanagement by previous governments as well as dealing with ongoing skirmishes with pro-Russia rebels in the east of the country.

Ukraine’s finance minister Natalie Jaresko told The New York Times that the deal showed that creditors can work with debt-burdened countries and not end up on “opposite sides of the table”: It’s a benchmark for emerging markets [that could serve as a template]. It is every sovereign’s dream. I would hope that it shows that you don’t need to rush into a default, even having the willingness to use a moratorium if needed. The deal has been praised in many corners, but it’s not clear what will happen if Russia, a major creditor not present at the talks, decides not to participate. The domineering neighbour is unlikely to view the deal favourably given that the Ukrainian finance ministry released a statement saying the deal will allow more money to be channelled into fighting pro-Russia separatists.

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We’re going to wreck it all.

Tuna And Mackerel Populations Suffer Catastrophic 74% Decline (Guardian)

Tuna and mackerel populations have suffered a “catastrophic” decline of nearly three quarters in the last 40 years, according to new research. WWF and the Zoological Society of London found that numbers of the scombridae family of fish, which also includes bonito, fell by 74% between 1970 and 2012, outstripping a decline of 49% for 1,234 ocean species over the same period. The conservation charity warned that we face losing species critical to human food security, unless drastic action is taken to halt overfishing and other threats to marine life. Louise Heaps, chief advisor on marine policy at WWF UK, said: “This is catastrophic. We are destroying vital food sources, and the ecology of our oceans.”

Attention in recent years has focused on species such as bluefin tuna, now on the verge of extinction, but other close relatives commonly found on restaurant menus or in tins, such as yellowtail tuna and albacore, are now also becoming increasingly scarce. Only skipjack, also often tinned, is showing “a surprising degree of resilience”, according to Heaps, one of the authors of the Living Blue Planet report, published on Wednesday. Other species suffering major declines include sea cucumbers, a luxury food in Asia, which have fallen 98% in number in the Galapagos and 94% in in the Egyptian Red Sea. Populations of endangered leatherback turtles, which can be seen in UK waters, have plummeted. Overfishing is not the only culprit behind a halving of marine species since 1970.

Pollution, including plastic detritus which can build up in the digestive systems of fish; the loss of key habitats such as coastal mangrove swamps; and climate change are also taking a heavy toll, with the oceans becoming more acidic as a result of the carbon dioxide we are pouring into the atmosphere. “I am terrified about acidification,” Heaps told the Guardian. “That situation is looking very bleak. We were taught in the 1980s that the solution to pollution is dilution, but that suggests the oceans have an infinite capacity to absorb our pollution. That is not true, and we have reached the capacity now.” She predicts that all of the world’s coral reefs could be effectively lost by 2050, if current trends are allowed to continue unchecked, and said that evidence of the effects of acidification – which damages tiny marine animals that rely on calcium to make their shells and other organs – could be found from the Antarctic to the US west coast.

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Externalities. Bills to pay later.

Land Degradation Costs World $10.6 Trillion A Year, 17% of World GDP (Guardian)

Land degradation is costing the world as much as $10.6tn every year, equivalent to 17% of global GDP, a report has warned. More than half of the world’s arable land is moderately or severely degraded, according to a report published on Tuesday by the Economics of Land Degradation (ELD) Initiative (pdf). The report estimates the cost of this environmental destruction, not only from lost agricultural production and diminished livelihoods, but also from the lost value of ecosystem services formerly provided by the land, including water filtration, erosion prevention, nutrient cycling and the provision of clean air. Land degradation – decreased vegetation cover and increased soil erosion – also means that land is less able to store carbon, contributing to climate change.

Land use changes represent the second biggest source of greenhouse gas emissions after fossil fuel combustion, the study says. “Burgeoning populations with shifting demographics and distributions are increasing the demands on land to produce food, energy, water, resources and livelihoods,” the report says. Desertification, the result of climate change, is having a profound effect on migration. Karmenu Vella, European commissioner for Environment, Maritime Affairs and Fisheries, said that land degradation and desertification is forcing hundreds of thousands to move from their homes. A study by the UN’s Convention to Combat Desertification (UNCCD), which was cited by the authors of the ELD report, found that the process may drive an estimated 50 million people from their homes in the next 10 years.

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An awfully underestimated civilization.

Indigenous Australia Storytelling Accurate on Sea Level Rises 7000 Years Ago (G.)

Indigenous stories of dramatic sea level rises across Australia date back more than 7000 years in a continuous oral tradition without parallel anywhere in the world, according to new research. Sunshine Coast University marine geographer Patrick Nunn and University of New England linguist Nicholas Reid believe that 21 Indigenous stories from across the continent faithfully record events between 18,000 and 7000 years ago, when the sea rose 120m. Reid said a key feature of Indigenous storytelling culture – a distinctive “cross-generational cross-checking” process – might explain the remarkable consistency in accounts passed down by preliterate people which researchers previously believed could not persist for more than 800 years.

“The idea that 300 generations could faithfully tell a story that didn’t degenerate into Chinese whispers, that was passing on factual information that we know happened from independent chronology, that just seems too good to be true, right?” Reid told Guardian Australia. “It’s an extraordinary thing. We don’t find this in other places around the world. The sea being 120 metres lower and then coming up over the continental shelf, that happened in Africa, America, Asia and everywhere else. But it’s only in Australia that we’re finding this large canon of stories that are all faithfully telling the same thing.” Scholars of oral traditions have previously been sceptical of how accurately they reflect real events.

However, Nunn and Reid’s paper, “Aboriginal memories of inundation of the Australian coast dating from more than 7000 years ago”, published in Australian Geographer, argues the stories provide empirical corroboration of a postglacial sea level rise documented by marine geographers. Some of the stories are straight factual accounts, such as those around Port Phillip Bay near Melbourne, which tell of the loss of kangaroo hunting grounds. Others, especially older stories such as those from around Spencer Gulf in South Australia, are allegorical: an ancestral being angered by the misbehaviour of a clan punishes them by taking their country, gouging a groove with a magical kangaroo bone for the sea to swallow up the land.

“Our sense originally is that the sea level must have been creeping up very slowly and not been noticeable in an individual’s lifetime,” Reid said. “But we’ve come to realise through conducting this research that Australia must in fact have been abuzz with news about this. “There must have been constant inland movement, reestablishing relationships with country, negotiating with inland neighbours about encroaching onto their territory,” Reid said. “There would have been massive ramifications of this.” The fortunes of those faced with the decision to retreat as camps, tracks and dreaming places were slowly swallowed up – especially on islands – were mixed.

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 September 11, 2015  Posted by at 9:57 am Finance Tagged with: , , , , , , , , , ,  5 Responses »
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John Collier Japanese restaurant, Monday after Pearl Harbor, San Francisco Dec 8 1941

It Is In Warsaw Not Athens That The March Of The Euro Will Be Halted (Telegraph)
The German Counter-Attack On Juncker’s Euro Plans (FT)
Brussels Plans Radical New Eurozone Treasury And Euro Parliament (Telegraph)
Oil Could Drop as Low as $20, Goldman Says (Bloomberg)
Shale Drillers Turn to Asset Sales as Early Swagger Wanes (Bloomberg)
Emerging-Market Currencies: Things Look to Get Worse (WSJ)
Brazil Reduced To Junk As BRICS Facade Crumbles (AEP)
China’s ‘New Normal’ Growth Model Is Starting to Get Expensive (Bloomberg)
Is Today’s Volatility an Echo of 1987? (A. Gary Shilling)
UN Votes For New Debt Rules But UK, US Try To Block (Jubilee Debt Campaign)
The ECB Could Kick-Start The Economy With A Limited Basic Income (BI.org)
Rajoy’s Trump-Like Candidate Poses Trump-Like Risks in Catalonia (Bloomberg)
Bribes, Debt, $100 Billion Lost: Nigeria Can’t Keep the Power On (Bloomberg)
Auckland House Prices Rising $345 A Day (NZ Herald)
Sue Your Bank, Keep Your Home, Repeat (Bloomberg)
The Civil War In Syria – Part 2 (Beppe Grillo)

“It is about as keen on the euro as Nigel Farage.”

It Is In Warsaw Not Athens That The March Of The Euro Will Be Halted (Telegraph)

Another week, and another Greek crisis looms. It might seem only yesterday that the markets were on tenterhooks over whether the country would finally bring its miserable experiment in sharing a currency with Germany and France to an end, or whether there would be a last-minute compromise that would keep the show on the road for a few more months. Now, with elections due on September 20, and no clear victor likely, the whole circus is about to start up again. Investors could be forgiven for tuning out of the whole saga, and going back to worrying about whether anyone will actually pay £60 for an Apple Pencil, or what dramas lie in store for the Crawley family in the new series of Downton Abbey instead.

There is, however, an election coming up that genuinely matters to the future of the single currency – only it is taking place not in Greece, but in Poland. When that country elects a new government next month, the likely victor, the Law & Justice Party, will effectively close off the option of joining the euro one day. In reality, Greece was always too small and chaotic an economy to matter one way or another to the eurozone. But if Poland, along with the other rising economic powers of eastern Europe, turns its back on the euro, then that is far more serious. [..] When the big new countries of eastern Europe joined the EU, all of them were technically committed to joining the single currency as well. A few of the smaller ones have done so. Slovakia, Slovenia, Latvia and Lithuania have all joined since the currency was launched.

But with a combined population of less than 12m people, none of them has the weight to make much of an impact. The big countries are a different matter. With a combined population of 60m, Poland, Hungary and the Czech Republic are of a similar size, taken together, to Britain or France. Whether they ultimately join or not can have a big impact. From next month, that is going to be increasingly unlikely. Parliamentary elections are likely to result in the Right-wing Law & Justice party taking power. The party’s Andrzej Duda already overturned the odds to win the presidency earlier this year. It is about as keen on the euro as Nigel Farage. Only this week, Duda insisted that if Poland was to ever join the euro there would have to be a referendum: there is more chance of Nicola Sturgeon getting elected MP for Tunbridge Wells than of any country voting to join the euro – it usually gets pushed through without consultation.

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Translation: France vs Germany.

The German Counter-Attack On Juncker’s Euro Plans (FT)

When Jean-Claude Juncker this week told a packed European Parliament he intends to forge a eurozone system for guaranteeing bank deposits, the European Commission president’s intention was to send a firm message of determination to strengthen the single currency’s foundations. But just days after Juncker’s “state of the union” address, his attempt to sow hopeful seeds has hit stony ground in Berlin, where the plan was taken more as a declaration of war. Germany’s fightback begins when finance ministers gather in Luxembourg on Friday, and is set out in a “non paper” obtained by the FT. Unlike the series of emergency gatherings on Greece this summer, the weekend “informal” meeting of eurozone finance ministers was intended to be a calmer, and above all shorter, stocktaking of the health of the common currency.

Now, however, Germany has decided to use it as an opportunity to put down clear red lines in an attempt to redirect the eurozone reform discussion, which gained momentum following the mess of the July Greek bailout deal on what Berlin believes is an unacceptable course. Several other eurozone governments – notably France – were urging a speeding up of the eurozone reforms as a way to build confidence in the single currency after the tremors caused by a near “Grexit”, but the German paper, by so openly breaking with the EC, may instead highlight the deep differences that still exist. For Germany, Juncker’s announcement that he intends to “move swiftly on all fronts – economic, financial, fiscal and political Union,” seems to be viewed as a classic case of Europe seeking to put German taxpayers’ money where the EU’s mouth is. Or, alternatively, of putting the cart of shared financial risks, before the cart of tough creditor discipline.

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Europe had better stop this nonsense.

Brussels Plans Radical New Eurozone Treasury And Euro Parliament (Telegraph)

The survival of economic and monetary union will require the creation of new supra-national institutions, including a joint eurozone treasury and a separate euro parliament, according to the single currency’s bail-out chief. Klaus Regling, head of the European Stability Mechanism (ESM), joined a clamour of voices in Brussels who are pushing for member states to cede sovereignty in bid to establish a full-blown fiscal union on the Continent. The first step will be the creation of a eurozone finance ministry, backed by a separate chamber for the currency’s 19 member states in the European parliament, said Mr Regling, who oversees the euro’s €500bn rescue fund. The move is necessary to “increase the robustness and minimise the vulnerabilities of the currency union”, said Mr Regling.

He added it would “imply a significant transfer of sovereignty, requiring democratic legitimacy”, which could be provided by a “special chamber of the European Parliament composed of deputies solely from euro area Member States”. His comments follow on from Jean-Claude Juncker, president of the European Commission, who is pushing for the creation of a euro treasury, along with a system of common deposit insurance and beefed-up tax and spending powers for the European parliament. Details of the new treasury – which would act as a finance ministry, pooling funds from euro member states – remain sketchy. But the notion has long been championed by France who want to steer EMU away from simply an enforcer of fiscal discipline, into a true economic government of Europe. Paris has also called for the eurozone to have a permanent finance minister.

Benoit Couere, France’s executive board member on the ECB, has called for the new treasury to be founded on the principles of the ESM – which currently pools contributions guaranteed by all members states for use in times of emergency financial stress. The ESM will be providing up to €60bn of Greece’s latest rescue deal, and has been deployed to bail-out Spanish and Cypriot banks over the last three years. But plans to forge ahead with a political and fiscal union are likely to meet fierce resistance in Berlin. Germany, Europe’s largest creditor state and biggest contributor to eurozone rescue schemes, has rejected surrendering tax and budget powers to Brussels before tougher rules are put in place to limit spending and punish errant governments – including the French. “It’s much more of a French idea rather than something according to Germany’s vision for the euro,” said Michael Wohlgemuth, director of the Open Europe think-tank in Berlin. “Germans don’t even have a word for ‘treasury'”.

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Everyone must and will drill drill drill for cash flow.

Oil Could Drop as Low as $20, Goldman Says (Bloomberg)

The global surplus of oil is even bigger than Goldman Sachs thought and that could drive prices as low as $20 a barrel. While it’s not the base-case scenario, a failure to reduce production fast enough may require prices near that level to clear the oversupply, Goldman said in a report e-mailed Friday. The bank cut its forecast for Brent and WTI crude through 2016 on the expectation that the glut will persist on OPEC production growth, resilient non-OPEC supply and slowing demand expansion. “The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016,” Goldman analysts including Damien Courvalin wrote in the report. “We continue to view U.S. shale as the likely near-term source of supply adjustment.”

Goldman trimmed its 2016 estimate for West Texas Intermediate to $45 a barrel from a May projection of $57. The bank also reduced its 2016 Brent crude prediction to $49.50 a barrel from $62. WTI for October delivery fell as much as 45 cents, or 1%, to $45.47 a barrel on the New York Mercantile Exchange and is heading for a weekly decline. Prices are down 14% this year. Brent for October settlement is 1.7% lower this week. Oil in New York has slumped more than 25% from its June closing peak amid signs the glut will persist. Leading members of OPECs are sustaining output, while Iran seeks to boost supply once international sanctions are lifted. U.S. stockpiles remain about 100 million barrels above the five-year seasonal average.

“We now believe the market requires non-OPEC production to shift from our prior expectation of modest growth to large declines in 2016,” Goldman said. “The uncertainty on how and where that adjustment will take place has increased.” The U.S. pumped 9.14 million barrels a day of oil last week, almost 3 million barrels above the five-year seasonal average, according to data from the Energy Information Administration. While the EIA this week cut its 2015 output forecast for the nation by 1.5% to 9.22 million barrels a day, production this year is still projected to be the highest since 1972. OPEC, the supplier of 40% of the world’s crude, has produced above its 30-million-barrel-a-day quota for the past 15 months. Iranian Oil Minister Bijan Namdar Zanganeh has vowed to increase output by 1 million barrels a day once sanctions are removed as the nation seeks to regain market share.

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What’s a company worth that is forced to sell its assets?

Shale Drillers Turn to Asset Sales as Early Swagger Wanes (Bloomberg)

A renewed plunge in oil prices and the winding down of other financial lifelines is forcing shale drillers to auction off once-prized assets and settle for less in potential deals. This week, companies such as Chesapeake Energy Corp. said they are embracing the strategy as they confront the reality of a prolonged, painful crash. While executives have assured investors that it won’t be a fire sale, recent deals suggest that prices have fallen significantly from even a few months ago, according to data compiled by Bloomberg. With one-sixth of major independent oil and gas producers facing debt payments that are more than 20% of their revenue, austerity has replaced the swagger that characterized the earliest days of the oil bust.

Contracts that locked in higher prices are expiring, leading banks to reduce credit lines in coming months. Drillers caught in the squeeze may be forced to auction off some of their best holdings to raise cash or accept more expensive financing to avoid bankruptcy, according to more than a dozen bankers, lawyers and company officials who specialize in energy deals. “These companies are starting to be a little more realistic about their situation and to face up to the fact that they will probably have to do something they don’t want to do,” said Omar Samji, a partner in law firm Jones Day in Houston. “There’s not going to be an easy lifeline.” The first wave of deals is already looming: sales of land holdings in prolific oil regions. Oil market gyrations since July have made valuations hard to pin down, dimming the outlook for sales of whole companies.

Instead, executives are looking to shore up their balance sheets by selling land or wooing deep-pocketed private equity groups or hedge funds to invest in their operations in exchange for a share of revenue, Samji said. Cobalt sold off discoveries in Angola last month and EOG has begun an auction for acreage in Colorado and Wyoming. Anadarko said it will continue to weigh offers, and Chesapeake said Tuesday it’s still pursuing asset sales. The Oklahoma City-based producer is said to be seeking buyers for dry gas acreage in the Utica shale formation, according to people with knowledge of the matter. “Chesapeake is not desperate,” Chief Executive Officer Doug Lawler told investors Tuesday. “We are not going to have a fire sale on any asset.”

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And more worserer after that.

Emerging-Market Currencies: Things Look to Get Worse (WSJ)

Investor bets that Brazil and South Africa will default on their debt hit their highest level since the financial crisis, underscoring the stress mounting on emerging-market economies heading into the most anticipated Federal Reserve meeting in years. The cost to buy credit-default swaps—insurance-like contracts that compensate users for debt defaults—is far from the only sign that investor anxiety is building ahead of the Fed’s two-day meeting concluding Sept. 17. Currencies in Turkey, South Africa and Malaysia have plunged to the weakest levels in many years against the dollar. The average 10-year government debt yield in emerging countries has increased significantly, even as U.S. yields have slipped this summer. Bond yields move inversely to prices.

Many investors believe the Fed will raise short-term interest rates this year for the first time since 2006, intensifying the strain on developing nations that in many cases already are struggling with slowing growth, substantial debt and crumbling demand for the commodities that are at the heart of many of their domestic economies. Turkey and Brazil are considered especially vulnerable by many investors, thanks to economic imbalances that will likely be exacerbated by the declines of their currencies. Turkey’s external debt, or debt borrowed from foreigners, as a%age of its GDP is among the highest of all emerging countries, while Brazil is facing problems including weaker commodity prices, sluggish Chinese demand for its goods and the government’s struggles to cut spending without hitting revenue.

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“Signatures were accumulating at 30,000 an hour on the pro-impeachment website on Thursday.”

Brazil Reduced To Junk As BRICS Facade Crumbles (AEP)

Brazil’s currency has plummeted to an all-time low and borrowing costs have tightened viciously after Standard & Poor’s slashed the country’s debt to junk status, warning that the budget deficit has reached danger levels. The downgrade is a painful blow to a nation that thought it had finally escaped the Latin American curse of boom-bust cycles and joined the top league of rich economies. It is the second of the big emerging market (EM) economies to be stripped of its investment grade rating this year after Russia crashed out of the club in January. Little remains of the BRICS allure that captivated the world seven years ago, and now looks like a marketing gimmick. The Brazilian real tumbled to 3.90 against the US dollar as markets braced for parallel moves by Fitch or Moody’s.

The currency has lost 31pc of its value this year and more than 60pc since early 2011, when slums in the favelas of Rio were selling for the price of four-bedroom houses in the US. “The numbers are going to get much worse before they get better. We see nothing on the horizon that could be perceived as ‘good’ news,” said Win Thin from Brown Brothers Harriman. Mr Thin expects the real to reach 4.50 over the next three to six months in a cathartic overshoot, with the Bovespa index of equities likely to fall by another two-fifths, testing its post-Lehman low of 29,435 as the excesses of the credit bubble come home to roost. Investors have begun to shed holdings of Brazilian debt, afraid that some funds may be forced to eject Brazil from their indexes and liquidate holdings if a second agency joins S&P.

Yields on 10-year domestic bonds spiked almost one%age point to 15.6pc in panic trading in Sao Paolo on Thursday. S&P said Brazil’s government has failed to get a grip on rampant over-spending as tensions erupt between President Dilma Rousseff’s Workers Party (PT) and her coalition partners, and the economy slides into deep recession, leaving it badly exposed as the US Federal Reserve starts to drain liquidity from the global economy. “We now expect the general government deficit to rise to an average of 8pc of GDP in 2015 and 2016,” it said. Mrs Rousseff said Brazil would “pay all its bills and meet all its obligations”. Yet it is unclear how long she can last as momentum builds for impeachment over her role in the Petrobras corruption scandal.

Signatures were accumulating at 30,000 an hour on the pro-impeachment website on Thursday. “People are sick of this government, which has yet to offer any way out of the crisis. It is utterly incapable of governing,” said opposition leader Mendoca Filho. The country is now in a classic stagflation trap. S&P expects the economy to contract by 2.5pc this year and 0.5pc next year, causing the debt ratio to ratchet up quickly. Mrs Rousseff is being forced to tighten policy into the recession in a belated bid to salvage credibility, just as the commodity slump eats into export revenues from iron ore and other raw materials. The current account deficit is 4pc of GDP.

Gabriel Gersztein, from BNP Paribas, said nothing short of a 400 to 500 point rise in rates would stabilize the currency, but the central bank cannot plausibly do this because it would deepen the downturn, playing havoc with debt dynamics. Bhanu Baweja, from UBS, said public debt is likely to reach 72.5pc of GDP by 2018 and could rise relentlessly after that as the country passes its demographic sweet spot and starts to age rapidly. “The clock slowly ticks on, asking ever louder questions about public debt sustainability,” he said.

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Command P.

China’s ‘New Normal’ Growth Model Is Starting to Get Expensive (Bloomberg)

When Premier Li Keqiang took the stage Thursday at the World Economic Forum s Summer Davos meeting in Dalian, he told business leaders that although China faces challenges, growth is on track and fundamentals remain sound. The upbeat message is all part of a New Normal narrative from China s leadership as the economy transitions from relying on heavy industry and debt to one driven by consumption and services. What Li didn t mention was the spiraling bill associated with keeping the economy on course to hit the Communist Party s growth target of about 7% for this year.

From building bridges and highways to shoring up the nation’s currency and stock markets, China is rolling out hundreds of billions of dollars in its biggest stimulus since the package that followed the 2008 global financial crisis. More spending is coming, with the finance ministry this week urging an acceleration of projects and promising to cut fees and taxes for companies, while provinces are taking their own steps to support growth. Beijing has turned on the taps, lifting spending on everything from infrastru cture to public services, said Frederic Neumann at HSBC in Hong Kong. The nation’s authorities cannot be accused of sitting idly by as growth decelerates, with measures announced year-to-date amounting to substantial policy support, he said.

The world’s second-largest economy is growing at its slowest pace in 25 years, forcing the central bank to cut interest rates five times since November and funnel credit to local governments to finance new construction. Estimates vary on the overall size of spending given the difficulty in netting out new expenditure and money that would have been spent anyway. Shen Jianguang at Mizuho Securities expects the stimulus package to be as large as the one rolled out in 2009 and 2010, with fixed asset investment of up to 10 trillion yuan ($1.57 trillion) over the next two to three years.

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No, Gary. Today’s markets are their own echo.

Is Today’s Volatility an Echo of 1987? (A. Gary Shilling)

Volatility – the rate at which prices move up or down – has leaped in many security markets recently. The St. Louis Fed’s Financial Stress Index, whose 18 components include yields on junk and corporate bonds, an index of bond market volatility, and the Standard & Poor’s 500 index, is almost at a four-year high. I believe the restrictions on bank trading imposed by the 2010 Dodd-Frank Act, including the ban on banks’ proprietary trading and increased capital requirements, are a key reason, at least in the U.S. Large banks and other financial institutions simply aren’t carrying the big trading positions they once did, and therefore, liquidity in many markets has atrophied.

Then there’s China’s stock-market nosedive and currency devaluation. They provided a wake-up call about China’s slowing growth and the global effects on commodity prices, emerging markets and money flows. Volatility in U.S. markets may also be due in part to the delayed effects of the ending of quantitative easing by the U.S. Federal Reserve late last year. Since stocks began to revive in March 2009, equities have been floating on a sea of Fed money with little connection to the slowly growing economy beneath – something I dubbed “the Grand Disconnect.” Then there’s the shaky base of corporate earnings growth. With slower economic growth, sales gains have been slight. And business pricing power has been almost nonexistent, with minimal inflation and a strong dollar.

So top-line revenue growth – the foundation for profit gains – has been largely missing. Resourceful American businesses have cut costs ruthlessly to make up for the lack of revenue growth. As a result, profits’ share of national income leaped from the lows of the 2007-2009 recession. But profits’ share has stalled over the last several years, reflecting the slowing of productivity growth. Also, stocks aren’t cheap relative to earnings. The price-to-earnings ratio on the S&P 500 index over the last year is 18.2, compared with the norm of 19.4 over the last 20 years. But the better measure is the cyclically adjusted ratio, developed by Robert Shiller, which uses real earnings over the preceding 10 years to iron out cyclical fluctuations. On that basis, the current price-to-earnings ratio of 25.84 is 55% above the long-run norm of 16.6. And since the norm has been about 16.6 almost since 1992, price-to-earnings should run below trend for years to come, assuming the 16.6 remains valid.

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Now you know where bankers rule.

UN Votes For New Debt Rules But UK, US Try To Block (Jubilee Debt Campaign)

The United Nations General Assembly has voted to accept new rules to guide sovereign debt restructurings. At a vote in New York on Thursday evening, the set of nine principles were adopted with 136 votes in favour, just 6 against and 41 abstentions. However, implementation of the principles is in doubt as the majority of international debt is governed by US or UK law. Both the US and UK were amongst the just six countries which voted against. The other four countries which voted against were Canada, Germany, Israel and Japan.

Commenting on the vote, Tim Jones, policy officer, Jubilee Debt Campaign, said: “This could prove to be a historic breakthrough. The vast majority of nations have spoken out for a change to the broken debt system. From the Greek debt debacle, to Argentina being held to ransom by vulture funds, to decades-old debt crises in Jamaica and El Salvador the need for change has never been clearer. It is outrageous that the UK has chosen to put reckless lenders ahead of people around the world by voting against these principles.”

The vote adopted nine principles that should be respected when restructuring sovereign debt: sovereignty, good faith, transparency, impartiality, equitable treatment, sovereign immunity, legitimacy, sustainability and majority restructuring. The principles come from negotiations over the last year, which most EU countries refused to take part in.

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But will do QEn instead.

The ECB Could Kick-Start The Economy With A Limited Basic Income (BI.org)

QE thus does not appear to be the best way forward for Europe. This is why there are economists who propagate a more efficient alternative, the so-called “helicopter money” approach. For as long as the economy fails to recover, newly printed money is simply distributed directly to the general population, as if it were dropped from a helicopter. Research shows that the money would be spent pretty much straight after it’s received, which would restore confidence to invest among businesses. It would also restore business confidence to take on new employees, who in turn respond by consuming more. And so the result becomes a virtuous circle. But there are drawbacks. Sharing out helicopter money is a temporary measure that can only be adopted in exceptional circumstances.

If at some point it transpires that the ECB has gone too far and created a threat of runaway inflation, it is very difficult to remove the newly created money from the economy. This is why there is a clear need for a structural and flexible policy measure which the central bank is able to use to kick-start the economy as and when it is necessary. A variation on the helicopter theme, a monetary basic income, provides a way forward. Under this scenario, the ECB would distribute an amount of money to each citizen on a monthly basis, calculated as a%age of average income (the amount therefore varies between countries). Let’s assume for the sake of simplicity that the amount is €400 a month throughout the Eurozone. It’s important that the individual Eurozone countries remain responsible for raising the €400 – for example by reducing benefit payments or tax allowance levels – whereupon they pay it back to the ECB.

So far, this is a neutral measure that shuffles money around without creating a stimulus. This remains the case except in times of crisis when the central bank increases the monthly payment to, say, €600, until the economy recovers. Meanwhile, each national authority keeps its repayment levels fixed at €400. The ECB thereby ends up printing an additional €200 per person per month, and this money is relatively quickly spent. As the economy recovers and growth and inflation figures rise, the basic income can be returned to the neutral level of €400. In cases where the ECB had been too generous, the basic income level could even be lowered temporarily to €300 until inflation stabilizes. This would essentially remove money from the economy.

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Bring on the crazies.

Rajoy’s Trump-Like Candidate Poses Trump-Like Risks in Catalonia (Bloomberg)

Prime Minister Mariano Rajoy’s decision to pick a Donald Trump-style candidate to fire up his base in Catalonia is exposing Spain’s governing party to risks that Republican leaders in the U.S. may recognize. Xavier Garcia Albiol, a 47-year-old former basketballer who stands six foot eight inches (2 meters) tall, defied the People’s Party’s declines across most of Catalonia in 2011 to become mayor of the region’s third-biggest city with a campaign that demonized immigrants. While Rajoy may have calculated Albiol’s track record was worth the risk, he probably didn’t bank on the kind of off-message comments that have seen the would-be Republican presidential candidate rile his party’s establishment in the U.S. – in an interview last week, Albiol attacked the PP’s strategy for containing Catalonia’s efforts to break away from Spain and said the prime minister had made mistakes.

Rajoy is trying to revive his party’s fortunes in Catalonia’s Sept. 27 regional election to create a firebreak against Ciudadanos, a rival for the anti-independence, pro-business vote that is set to deny the prime minister an outright majority in December’s general election. The election campaign proper kicks off on Friday when the separatist parties aim to bring hundreds of thousands of supporters onto the streets of Barcelona. Spain’s 10-year bonds fell yesterday with yields rising 2 basis points to 2.102% after a survey by the state pollster, CIS, showed separatist parties might win a majority with 68 or 69 deputies in the 135-strong chamber.

The PP is set to win as few as 12 seats, with barely half the votes of Ciudadanos, the poll showed. Outflanked by Ciudadanos’s early opposition to Catalonia’s separatist president, Artur Mas, Rajoy is betting that Albiol’s ability to attract blue-collar voters by playing on their concerns about immigrants can limit the damage for his party. “It shows that the PP is fully aware of its marginal role in Catalonia,” Lluis Orriols, a political scientist at Madrid’s Carlos III University, said in a phone interview. “Like Donald Trump, the PP candidate can mobilize a group of voters you can’t reach otherwise, but you can hardly aspire to win like that.”

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A sign of things to come.

Bribes, Debt, $100 Billion Lost: Nigeria Can’t Keep the Power On (Bloomberg)

Five minutes into Frank Edozie’s presentation on the challenges facing Nigeria’s power industry, the electricity cut out in the Jasmine Hall at the upmarket Eko Hotel in Lagos. “Very timely,” Edozie, a former power ministry adviser and a senior consultant to the U.K.-funded Nigerian Infrastructure Advisory Facility, said over the low muttering and laughter of an audience of more than 100 people. “We probably ran out of gas.” There’s no end in sight to the daily blackouts that the government says are costing Africa’s largest economy about $100 billion a year in missed potential and that President Muhammadu Buhari calls a “national shame.”

Gas shortages, pipeline vandalism, inadequate funding, unprofitable prices and corruption mean fixing the electricity cuts two years after a partial sale of state power companies to private investors won’t be easy. Generated output has never risen above 5,000 megawatts, which is about a third of peak demand, and if it did the state-owned transmission system can’t deliver any more than that before it starts breaking down. South Africa, with a less than a third of Nigeria’s population of about 180 million, has nine times more installed capacity and it too is grappling with blackouts. Nigeria, Africa’s biggest oil producer, ranked the worst of 189 countries after Bangladesh and Madagascar on the ease of getting electricity connected to businesses, costing almost 7% of lost sales each month, according to a 2015 World Bank Doing Business report.

The power bottleneck comes on top of slump in oil prices and currency that are threatening Nigeria’s role as a destination for investors. Economic growth slowed to 2.4% on an annual basis in the second quarter from 6.5% a year earlier. About two-thirds of Nigeria’s people have no access to electricity, and at the current plant commissioning rate, supply will barely meet 9,500 megawatts by 2020, according to a 2014 World Bank project document. Demand is expected to increase 10% each year. Buhari’s party promised before he won power in March’s election to generate 40,000 megawatts within four to eight years.

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Blindly stumbling towards the cliff.

Auckland House Prices Rising $345 A Day (NZ Herald)

Auckland house prices were up $125,950 on last year – or $345 a day – according to sales data out from the Real Estate Institute. The city’s median sale price rose from $614,050 last August to $740,000 last month and prices were up $5000 since July. Colleen Milne, REINZ chief executive, said the presence of Auckland buyers in other regions was becoming more noticeable with a surge in Auckland investors buying in Dunedin and continued strong demand for properties in the Waikato and Bay of Plenty from Auckland buyers.

Nationally, 7766 homes were sold last month, up 41.7% annually but down 4.4% on the previous month of July. The national median price rose $45,000 annually to $465,000. The figures from REINZ come as the Reserve Bank cut official interest rates to 2.75%, and banks followed suit, cutting their floating mortgage rates. Most economists expect the Reserve to now retain an easing bias, with some tipping the rate to drop to 2% by early next year.

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Almost funny.

Sue Your Bank, Keep Your Home, Repeat (Bloomberg)

Four years ago, Robert and Joan Potter were facing a crisis. The monthly payments on their two-bedroom home in the coastal suburb of Laguna Niguel, Calif., had ballooned from $2,000 to $5,000 in the decade since they bought it for about $360,000. Now the retirees were rapidly falling behind. “It was my parents’ dream home,” said their son, Derrick, 43. Derrick, who works as a mortgage consultant, said Robert and Joan got suckered into the kind of inflationary deal known as a negative amortization loan, since outlawed by state legislators. “They had some sleazy mortgage broker who said my mom, who hasn’t worked in 25 years, made $10,000 a month.” Still, there was hope. The Potters heard about a firm called Brookstone Law, which was pioneering a novel strategy for challenging allegedly predatory banks.

The best part: As long as Brookstone was representing Robert and Joan, the bank would hold off on collecting mortgage payments or foreclosing. In 2011, Robert and Joan paid Brookstone $6,000 to become the lead plaintiffs in a “mass joinder” lawsuit against their lender, JPMorgan Chase Bank. Similar to class actions, mass joinders allow large numbers of people to collectively sue one defendant, except that in a mass joinder the plaintiffs do not have identical claims. Settlements, if there are any, get sorted out individually, depending on each plaintiff’s circumstances. Brookstone’s case against Chase alleged mortgage-related misconduct such as wrongful foreclosure and breach of contract. It demanded that the bank pay for lost home equity, lowered credit scores, and further damages.

It claimed that when the Potters refinanced in 2006, the bank manipulated them into taking a loan they couldn’t afford and hid its true interest rate. The suit was filed in Los Angeles County Superior Court on April 15, 2011. Eventually, Brookstone signed up more than 250 clients to join it. Casting itself as defending the little guys caught up in the subprime crisis, Brookstone, founded by a 41-year old attorney named Vito Torchia Jr., has represented at least 4,000 clients in a dozen mass joinder lawsuits against big banks, including Wells Fargo and Bank of America. Court documents indicate Brookstone’s earnings during 2011 and 2012 could be in the tens of millions of dollars. Yet the firm has yet to win a single one of these cases on the merits.

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“For the Washington-Ankara-Riyadh axis, the objective of getting rid of ISIL implies the real objective which is to get rid of Assad.”

The Civil War In Syria – Part 2 (Beppe Grillo)

Foreign Fighters. The proliferation of Islamic militias in the region has been helping to create a jihadist “melting pot” in the last few months. In Iraq and in Syria this is channeling the ambitions of hundreds of foreign fighters who have set off to get to the front to join up with the rebel militias who are fighting against Assad’s government troops. This is a crucial element in the Syrian civil war. Today it’s estimated that the two most important jihadist groups, the al-Nusra Front, and the Islamic State in Iraq and the Levant have recruited to their ranks at least 9,000 non-Syrian fighters which is about 20% of the total. Including the other islamic groupings and the Free Syrian Army, this brings the overall figure to between 11,000 and 15,000.

According to estimates from our intelligence services, there are more than 60 of our fellow citizens who have gone off to fight side by side with the terrorists and at least 10 of these are Italians or naturalised Italians. Anyway, it’s a tiny number compared to the more than 1,500 who have set off from France, and the 800-1000 from Britain, or the 650 Germans and the 400 from the Netherlands and from Belgium. In this process, even the women have had leading roles: the Italian woman Maria Giulia Sergio is one of the young people that has recently chosen to convert to Islam to then join up in Syria. Since al-Baghdadi’s proclamation of the Caliphate, the Centre for the Study of Radicalisation and Political Violence in London has estimated that at least 4,000 western citizens have joined the conflicts in Iraq and Syria. Of these, about 550 are thought to be women who have set off from Europe and are now in the territory controlled by ISIL.

The controversial role of Ankara and the weapons going to the Peshmerga. In this coming and going of presumed and potential jihadists, Turkey is playing a crucial role. According to some people, even though Turkey is a member of NATO and a close ally of the West, it is in fact thought to be one of the leading supporters of ISIL. And anyway, it’s not by chance that the main strongholds of the terrorist group are situated along the border with Turkey. Meanwhile, the United States is arming and training the “moderate“ rebels and now ISIS fighters have rifles bearing the inscription: “Property of US Govt“. This was discovered by a governmental organisation: Conflict Armament Research.

The international coalition and the Washington-Riyadh axis . Having understood, with a certain delay, the danger of the expansion of the jihadist militias in the region, in August 2014, Obama made an agreement with a few partners in Europe, including ltaly, to establish an international coalition to fight ISIS. To support this, our government has so far sent 2.5 million dollars-worth of weapons, including machine guns, grenades, fighter planes and more than a million rounds of ammunition, as well as humanitarian assistance. The mission has given many people to believe that all of a sudden, Washington has changed tack and has decided to support the Syrian regime. That’s just not true. For the Washington-Ankara-Riyadh axis, the objective of getting rid of ISIL implies the real objective which is to get rid of Assad.

This can be seen in the words spoken by Obama who recently when he said that he was even ready to hit Syrian government positions if attacks on the ciilian population were found to be coming from such positions. However, the humanitarian factor carries very little weight on the political stage. The crucial point today is exclusively the future of Assad: Moscow and Teheran are asking for him to stay in power, the West is continuing to exert pressure to have him resign. Anyway, history teaches us that up until now, outside interference has never had the outcomes that were hoped for. In fact, it has always contributed to increasing sectarian clashes. Dividing up power into ethnic and religious quotas on the basis of one’s own interests is thought to be a deterrent for any sort of peaceful transition in preparation for national unity. Iraq, Lebanon, Afghanistan and Libya should tell us something.

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Sep 102015
 
 September 10, 2015  Posted by at 9:16 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Dorothea Lange Negro woman who has never been out of Mississippi July 1936

Japan’s Stock Market is Now Wilder Than China’s (Bloomberg)
China Deflation Risks Grow, Foreign Central Banks On Alert (Reuters)
Beijing Clamps Down On Forex Deals To Stem Capital Flight (FT)
Citigroup Sees 55% Risk of a Global Recession Made in China (Bloomberg)
SocGen Is Very Nervous About The Recent $9 Trillion Global Market Cap Loss (ZH)
UK North Sea Oil Investment to Plunge 80% (Bloomberg)
Europe Faces Political War On Two Fronts As Backlash Builds (AEP)
If This Is The Best Britain Can Do For Refugees, It’s Sickening (Simon Jenkins)
America Owns This Nightmare (Salon)
Thank God for Germany (Robert Fisk)
EU Presents Plan to Distribute Refugees Across Europe (WSJ)
Nigel Farage On Juncker Calling For More EU (EV)
Denmark Blocks Trains, Roads To Germany To Stop Refugees (Quartz)
Orderly German Welcome Masks Chaos For Refugees
Greek Economy Back In Intensive Care (Reuters)
EU Squeezed €7 Billion Greek Bridge Loan Via ESM Loophole (Bloomberg)
Brazil Credit Rating Cut to Junk by S&P Amid Budget Strain (Bloomberg)
UK Immigration Income Threshold Creates Thousands Of ‘Skype Kids’ (Guardian)
Critical Realism & Mathematics versus Mythematics in Economics (SteveKeen)
Downtown Austin Vault Of Precious Metals Turns Up Mostly Empty (AS)
The Civil War In Syria – Part 1 (Beppe Grillo)

Keep swinging.

Japan’s Stock Market is Now Wilder Than China’s (Bloomberg)

For the first time this year, Japan’s stock market is wilder than China’s. As the Topix index plunged 16% from mid-August through Tuesday, short-term volatility jumped to the highest since the aftermath of the 2011 earthquake. The Japan equity measure then soared 6.4% Wednesday, making its price swings more exaggerated than those on the Shanghai Composite Index for the first time since December, data compiled by Bloomberg show. “As it continues to be more volatile, gradually some investors and traders will move to the sidelines to sit back and watch because they view the markets as too dangerous,” said Andrew Clarke at Mirabaud Asia. “And they are correct – just lately Asian markets, especially China, Hong Kong and Japan, have been behaving like casinos.”

For most of the year, Japanese equity investors enjoyed market calm as corporate-governance improvements and a decoupling of stocks from the yen helped the Topix to an eight-year high. Then China’s unexpected yuan devaluation on Aug. 10 spurred a global selloff and upended investment strategies in Tokyo: the correlation between Japan’s equities and currency has soared, while the Topix has been among the world’s worst performing stock measures.

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Now even central bankers openly doubt China numbers.

China Deflation Risks Grow, Foreign Central Banks On Alert (Reuters)

The risk China’s economy enters deflation is growing, data suggested on Wednesday, as signs emerge that some foreign central banks are increasingly worried about the impact falling Chinese prices and a weaker yuan could have on their economies. New Zealand’s central bank governor Graeme Wheeler said that China’s surprise devaluation of the yuan, or renminbi, last month had left them concerned about the risk they may let it slide further. “We’ve seen authorities basically say they want to stabilize the renminbi, but if there were to be a very substantial depreciation in the renminbi it would certainly export deflation around the rest of the world, so everybody is looking closely at China,” he said at a press briefing following an interest rate cut in New Zealand.

The deflation threat was underlined by data showing that Chinese manufacturers cut prices at their fastest rate in six years, with the producer price index (PPI) down 5.9% in August from a year earlier, though consumer prices are rising for now. A growing worry for overseas central banks like the Reserve Bank of New Zealand (RBNZ) is that falling Chinese factory gate prices coupled with a weaker yuan mean the price of exports from China will fall sharply, feeding downward price pressures into their economies. Wheeler’s comments came despite attempts by Chinese policymakers to reassure global markets that the yuan will remain stable and China’s economic growth, whilst slowing, is still set to be around 7% this year.

“The RBNZ…verbalised it but this is probably an underlying concern shared by policymakers around the region,” said Sim Moh Siong, foreign exchange strategist at Bank of Singapore. Wheeler said his central bank’s view is that the Chinese economy is actually growing somewhere between “5-6.5% at this point”, a rare public comment by a central bank governor suggesting that China’s growth is below where the country’s policymakers say it is. The slide in Chinese factory prices is not yet feeding into the consumer price index (CPI), which posted a rise of 2% in August from a year earlier, though the National Bureau of Statistics flagged that last month’s gains were mainly due to soaring food prices, not an improvement in economic activity. “The risk for China is still deflation, not inflation,” said Kevin Lai at Daiwa.

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“They have gone from a credible peg that cost them almost nothing to a weak peg that nobody believes and that is costing them more than $10bn a day to defend. They’re paying huge sums for something they had for free just a few weeks ago..”

Beijing Clamps Down On Forex Deals To Stem Capital Flight (FT)

China has tightened its capital controls, in a sharp reversal of its market liberalising rhetoric, as it struggles to contain the fallout from last month’s devaluation of the renminbi. The August 11 devaluation unleashed turmoil on global stock markets and policy confusion at home, forcing the central bank to spend up to $200bn to support the currency. The prospect of an interest rate rise in the US has further encouraged capital flight. The State Administration of Foreign Exchange (Safe), the unit of the People’s Bank of China in charge of managing the currency, has in recent days ordered financial institutions to step up checks and strengthen controls on all foreign exchange transactions, according to people familiar with the matter and an official memo seen by the Financial Times.

The Safe has ordered banks and financial institutions to pay particular attention to the practice of over-invoicing exports, used to disguise large capital outflows. The administration confirmed the existence of the memo, but declined to comment further. China has long imposed limits on the amount of foreign exchange that can be bought or sold by individuals and companies, but those controls have broken down somewhat in recent years as the renminbi has become more widely used around the world. Wang Tao, chief China economist at UBS, said the government had been expected to tighten some FX controls. But she added that relying on them exclusively to protect the renminbi “will not be viable over the long term and hence is unlikely to be pursued by China’s central bank for long”.

The policy reversal comes after China’s central bank drew heavily on its vast foreign exchange reserves to prevent the renminbi falling dramatically against the dollar in the wake of the technical devaluation last month. Although still the largest in the world, its reserves fell by the biggest amount on record in August, dropping $94bn to about $3.56tn. For the first time since it began internationalising its currency a few years ago, the central bank has also been intervening heavily in the offshore renminbi market to narrow the gap between the onshore (CNY) and offshore (CNH) exchange rates.

Analysts and people familiar with the matter say Beijing has spent up to $200bn defending the currency, but the net impact on the reserves is disguised by fluctuating valuations of reserve assets and other inflows into the reserves. “They have gone from a credible peg that cost them almost nothing to a weak peg that nobody believes and that is costing them more than $10bn a day to defend. They’re paying huge sums for something they had for free just a few weeks ago,” said one person with close ties to China’s central bank. Within the government, the decision to move on the currency so soon after the bursting of an enormous stock market bubble is now widely regarded as a policy misstep.

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55.41% would have sounded just as relevent.

Citigroup Sees 55% Risk of a Global Recession Made in China (Bloomberg)

Citigroup Inc. is sounding the alarm bells for the world economy. In an analysis published late on Tuesday, chief economist Willem Buiter said there is a 55% chance of some form of global recession in the next couple of years, most likely one of moderate depth and length. Unlike the U.S.-driven international slumps of the past two decades, this one will be generated by sliding demand from emerging markets, especially China, which has surged in size to become the world’s No. 2 economy. “The world appears to be at material and rising risk of entering a recession, led by EMs and in particular by China,” wrote Buiter, a former U.K. policy maker. Among reasons for worry is his view that in reality China is already growing closer to 4% than the government’s goal of about 7% targeted for this year.

A shallow recession would likely occur if expansion slowed to 2.5% in the middle of next year and stayed there, he said. Other emerging markets such as Brazil, South Africa and Russia are already in trouble while developed economies are still lackluster. Commodity prices, trade and inflation remain sluggish and corporate earnings are slowing. Buiter is a frequent outlier. Counterparts at Goldman Sachs and JPMorgan are playing down the risk posed by China to rich economies, while those at SocGen said this week that they envisage just a 10% chance of a new global recession with cheap oil providing a buffer against the emerging market weakness. In July 2012, Citigroup was warning of a 90% chance Greece would leave the euro only to be proved wrong.

In the case of China, Buiter reckons it’s facing a “high and rapidly rising risk of a cyclical hard landing” given excess capacity and debts in key sectors as well as corrections in the markets for stocks and real estate. He worries the policy response to fading demand will fall short with debts limiting the scope for monetary policy to help even as the central bank cuts interest rates and tells banks they can hold less cash. Authorities are reluctant to let the yuan fall too far after August’s devaluation or to race to the rescue with fiscal policy. Indeed, PBOC governor Zhou Xiaochuan said last weekend he sees no reason for the yuan to decline further in the long run. As for the advanced economies, Buiter said China’s woes could infect them via declines in trade given it accounted for 14.3% of global commerce in 2013. China unloading some of its $6 trillion of foreign assets such as U.S. Treasuries could also roil international financial markets, while the dollar could surge as investors seek a safe haven.

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Graph is from Bloomberg; puts losses at $12,5 trillion.

SocGen Is Very Nervous About The Recent $9 Trillion Global Market Cap Loss (ZH)

The good news: the collapse in global market cap since May of 2015 is not the worst ever. The bad news: the $9 trillion drop in combined market cap between the MSCI All World index and Chinese stocks, is the second highest ever, surpassed only by the $13 plunge in global market capitalization in late 2008. Wait, $9 trillion? Yes: for all the focus on the modest correction in the S&P500, what most have forgotten is that in addition to the US, various other development markets, not to mention emerging markets, have lost trillions and trillions in value since their May peaks.

According to SocGen calculations, there has been a $1 trillion drop in emerging markets, a $4 trillion decline in development equity markets, and let’s not forget, the bursting of the Chinese stock bubble, which from a peak market capitalization of $10 trillion in early June, or about the same as China’s GDP, has lost some $4 trillion, since despite the Chinese government’s increasingly more desperate and futile attempts to reflate the bubble. Combining all this, SocGen summarizes, “we are looking at an overall $US9 trillion loss of market capitalisation in less than 3 months! To put that number in context the most severe loss in market capitalisation over 3 months during the 2008/09 financial crisis was $12.8 trillion.” The drop is almost the same as China’s $10 trillion GDP (and likely well higher if one uses credible calculations).

But that’s not the worst news. As SocGen’s Andrew Lapthorne suggests, “such a decline in market values will impact implied leverage calculations and as such all eyes should now be on credit markets. Asian credit is already reacting to the price declines, with the likes of the Markit iTraxx Asia ex Japan CDS index moving significantly wider. However there has, as yet been no significant de-rating of credit in the likes of the US.” [..] Lapthorne’s conclusion… “US corporates also have an insatiable appetite for more debt, with non-financials raising a further $450bn over the past year, according to their latest report and accounts. Why do they need to borrow so much? Well to buy back their own market capitalisation of course!“

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“Spending on decommissioning old fields will increase by over 50% to 2019 and overtake spending on the development of new fields the same year..”

UK North Sea Oil Investment to Plunge 80% (Bloomberg)

Investment in U.K. North Sea oil and gas projects could drop as much as 80% by 2017 as the collapse in crude prices forces the industry to cut back. Capital investment across the industry of 14.8 billion pounds ($22.8 billion) last year will probably decline by 2 billion to 4 billion pounds annually to 2017, Oil & Gas U.K., an industry lobby group, said in its annual economic report Wednesday. “This great industry of ours is facing very challenging times,” Deirdre Michie, Oil & Gas U.K.’s chief executive officer, said in a statement. “Exploration for new resources has fallen to its lowest level since the 1970s” and few new projects are gaining approval from “hard-pressed” companies, she said.

The decline in crude prices of more than 50% over the past year has forced the oil industry to review projects and reduce operating costs. The U.K. North Sea is one of the world’s most expensive areas to operate and resources that were first tapped in the 1960s are depleted. Employment supported by the industry has shrunk by 15% since last year and the lobby group predicts more reductions. “Last year, more was spent than was earned from production, a situation which has been exacerbated by the continued fall in commodity prices,” Michie said. “A continued low oil price will inevitably cause companies to reflect on the long-term viability of their assets.”

About 140 fields will stop producing over the next five years as low oil prices accelerate decommissioning efforts in the region, Wood Mackenzie said in a report. Five fields have already been retired earlier than expected this year and not even a rebound of prices to $85 a barrel would prevent further closures, it said. The Edinburgh-based energy consultant expects 38 new fields will come online over the same period and another 17 new projects to be approved. Spending on decommissioning old fields will increase by over 50% to 2019 and overtake spending on the development of new fields the same year, it said.

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“Mr Juncker wishes to invoke treaty powers to force countries to accept 160,000 refugees by a quota, whether or not they agree with his solutions..”

Europe Faces Political War On Two Fronts As Backlash Builds (AEP)

The European Union is fracturing along multiple lines of cleavage, torn by an emerging Kulturkampf over migrant flows before it has overcome the bitter conflict at the heart of monetary union. “The bell tolls, the time has come,” said Jean-Claude Juncker, the head of the European Commission, in his State of the Union speech. “We have to look at the huge issues with which the European Union is now confronted. Our Union is not in a good situation,” he said. Perhaps it would be churlish to point out that the cause of this near existential breakdown is a series of moves that have his fingerprints all over them:

The fateful decision to launch the euro at Maastricht in 1991 without first establishing an EU political union to make it viable, and to do this despite crystal-clear warnings from experts within the Commission and the Bundesbank that it would inevitably lead to a crisis – the “beneficial crisis” as the EMU enthusiasts mischievously supposed. The escalating treaties of Amsterdam, Nice and Lisbon, each concentrating power further in the hands of a deformed institutional system, sapping at the parliamentary lifeblood of the ancient nation-states that can alone be the fora of authentic democracy in Europe. Above all, to destroy trust by overruling the categorical “No” of French and Dutch voters to the European Constitution in 2005, and bringing back the same treaty by executive Putsch, with a disgusted but complicit British prime minister signing the document in a side-room in Lisbon safely screened from the cameras.

One might have thought that the proper conclusion to draw is that the EU can only save itself at this stage by abandoning the Monnet method of treaty-creep and reflexive attempts to force integration beyond proper limits, and retreat instead to the surer ground of bedrock nation states wherever possible. But no, Mr Juncker wishes to invoke treaty powers to force countries to accept 160,000 refugees by a quota, whether or not they agree with his solutions, or indeed whether or not they think it is highly dangerous given the state of total war that now exists between Western liberal civilisation and Jihadi fundamentalism. [..]

By invoking EU law to impose quotas under pain of sanctions, Brussels has unwisely brought home the reality that states have given up sovereignty over their borders, police and judicial systems, just as they gave up economic sovereignty by joining the euro. This comes as a rude shock, creating a new East-West rift within European affairs to match the North-South battles over EMU. With certain nuances, the peoples of Hungary, Slovakia, the Czech Republic, Poland and the Baltic states do not accept the legitimacy of the demands being made upon them.

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There were times when…

If This Is The Best Britain Can Do For Refugees, It’s Sickening (Simon Jenkins)

Britons hate immigrants; Britons need immigrants. History has resolved this paradox through occasional charitable outbursts, when the country’s natural defences are besieged by desperate people seeking shelter. Charity conquers aversion, and the nation has always grown stronger in consequence. The European commission president, Jean-Claude Juncker, welcomed the fact today that Europe was currently seen as “a place of refuge and exile, a beacon of hope and haven of stability”. That should be source of pride, not fear. He is right. Yet to him the Syrian refugees were a political test for the European Union, a test it was failing. Along the frontiers of Greece and Germany, the refugees were not a test. They were a human tide pleading for help – and help now.

Britain has no excuse for turning its back on this plea, least of all when its politicians are playing macho by bombing the refugees’ country of origin. It is sickening at such a time to hear the House of Commons told of “heads not hearts policy … a matter of causes not symptoms … doing more to topple Assad … getting others to pull their weight”. The British have been exemplary hosts to those in distress. The Jews expelled by Edward I began to return under Cromwell, much to the City of London’s gain. The Huguenots of the 16th and 17th centuries landed at Dover, like the Syrians on Lesbos. Britons donated a vast sum, of £50,000, to help them, worth some £8bn today. The refugees were so popular that towns such as Colchester begged for more.

Responses in the 19th century to famine in Ireland and the eastern European pogroms were not so welcoming, but refugees were not turned away. In just two years, during 1846 to 1848, Liverpool took in an astonishing 500,000 people from Ireland. Half a century later, in 1914, 700,000 European Jews were estimated to have found sanctuary in London’s Whitechapel and Manchester’s Strangeways and Red Bank neighbourhoods. There were some riots, but no one quibbled over numbers, or talked of heads not hearts. The flows continued. Government statistics found 25,000 Germans, 15,000 Belgians, 12,000 French and 10,000 Norwegians in wartime Britain. Postwar Poland saw a Syrian-scale exodus, with 8 million fleeing the country.

By the 1950s there were 35,000 Poles registered in London, producing no fewer than 50 Polish newspapers. These flows were overtopped by hundreds of thousands of Asians from the subcontinent and East Africa from the 1960s onwards. In 1972 Britain took in 27,000 Ugandan Asians virtually overnight. The result was nothing but benefit to the British economy. Indeed, the chief argument against accepting so-called economic migrants is that it is an economic sanction on the country of origin.

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We all own it.

America Owns This Nightmare (Salon)

It is not that the West, or America in particular, is responsible for everything that befalls our awful world. Readers sometimes make it known that they assume this to be the ruling view in this column. But they are grossly unfair and must be corrected: The West, and American in particular, is responsible for almost everything now going wrong across the planet. This is no kind of default political position. It is a detached observation—the kind most Americans dread most. There is not much case for objecting to this thought. Since Columbus hit the rocks in Hispaniola, and da Gama anchored off the Malabar Coast six years later, the West has insisted on leading all the rest. By and large, the world as we have it—defiled, disorderly, violent—is our world.

We Westerners have known best for half a millennium, and our leaders do not take orders—or even suggestions—from anybody. Whatever you see out your window or across any ocean is the doing of those we are content to leave in charge. You may not yet realize that you are reading a column about the migrant crisis in Europe. But it is always best to begin at the beginning. Syrians, Iraqis, Libyans, Afghans, South Asians—one way or another, directly or indirectly, immediately or at a slight remove, they are all victims of the policies through which the Western powers have sought over centuries to impose their will upon weaker people they thought worth disrupting, subjugating and exploiting.

I hope some photographers win press prizes this year for the images coming out of the crisis zones. For me they produce a very weird mixture of sorrow and shame, and I know I am not alone in either case. All those lives interrupted, ruined or lost altogether: Who cannot be moved? But it is only the honest among us who can then admit that every picture coming from a Mediterranean beach or a highway in Hungary is a mirror a migrant holds up to us.

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Nice from Fisk.

Thank God for Germany (Robert Fisk)

And we – in this critical hour in the history of our continent, in the history of the EU, in the story of what was once called “Christendom” – we failed the Great Test. Our state-of-the-art nations did not want these wretched people. They became bloodsuckers, human mosquitoes, people-smugglers, a “swarm”. And if the rags of our integrity as human beings have been salvaged these past few weeks, this is due to the dour, rather sour Protestant ethics of an east German hausfrau who history may (or may not, for let us remember her people’s grandfathers for whom my Dad was supposed to shoot his own refugees) say has saved our soul.

But if our generosity stretched that far in welcoming Belgian refugees in the First World War, Jewish refugees before the Second World War, Germans afterwards, Hungarians fleeing the 1956 uprising, even a few Chernobyl survivors (some soon to die), they usually had two things in common. They were white – or as near as much as makes no difference – and they were European and – or as near as much as makes no difference – were from our monotheistic world. The Bosnian refugees of the early 1990s were mostly Muslim, of course, but they looked like and were Europeans, and their version of Islam was for us picturesque rather than religious: snow-covered mosques rather than hot Kabaas, a whiff of eastern cuisine washed down with slivovica, Ramadan-and-one-for-the-road.

But these chaps today, camping opposite Dover, for example, as my Dad’s racist friends used to say, were “black as the ace of spades”. Or a bit black. Or brown. Even the Ethiopian Christians – who passed the Christianity test – failed the colour bar. That is why, I fear, we wept for poor Aylan al-Kurdi. His Muslim religion (such as he would have understood it at that age) was cancelled out by his Kurdish origin – the Kurds being a brave warrior people whom we regularly admirer, support and usually betray. We mourned for him not just because he was an innocent three-year old but because he was a white innocent three-year old. Only one more remark remains to me, and I say it now for the first time in my life, as the son of a father who fought the Kaiser’s arms on the Somme, and of a mother who repaired radios on damaged Spitfires during the Second World War. Thank God for Germany.

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More EU. Compulsory measures.

EU Presents Plan to Distribute Refugees Across Europe (WSJ)

Faced with the largest migration of displaced people since the end of World War II, the European Union proposed to redistribute 160,000 refugees across the bloc, in a move bound to challenge countries with scant experience accommodating newcomers. The EU has sputtered in previous attempts to craft a coherent approach to the crisis amid competing national interests and insistence by some countries -particularly in the poorer East- that accepting refugees must be voluntary. But support for the burden-sharing plan was growing, propelled by public outcry after 71 migrants were found dead in a truck in Austria last month and images of a drowned 3-year-old Syrian boy in Turkey went viral last week.

The new plan still has to be approved by a so-called qualified majority of EU governments, in which bigger countries have weightier votes. With the four largest countries involved -Germany, France, Spain and Italy- in favor, the odds that the proposal would be adopted are growing. In presenting the plan Wednesday, European Commission President Jean-Claude Juncker acknowledged that it wouldn’t go far enough to address the massive flow of migrants to the continent. The plan is Mr. Juncker’s second attempt to help Greece, Italy and Hungary, the three countries on the front line of the crisis.

“I do believe that given the gravity of the situation we face, this proposal is quite modest,” Mr. Juncker said at a news conference, adding that nearly 500,000 people have made their way to Europe in the past year. He added that while the number of incoming refugees and migrants may be “frightening” for some Europeans, they represent only 0.11% of the total EU population, dwarfing the efforts made by Lebanon, Turkey and Jordan, where a total of four million Syrians have found refuge. Mr. Juncker pointed out that earlier, more modest plans were rejected by EU leaders, saying that if “we had taken decisions back then, perhaps we would have saved a lot of lives.”

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Farage shows his true face. Good. He’s as right on some issues as he is scarily off on others. It’s a shame that bigots will have to decide the future of the EU, but it’s better than more EU.

Nigel Farage On Juncker Calling For More EU (EV)

“Thank you. Mr Juncker you’ve simply got this wrong. “As I warned you in April, the European Common Asylum Policy sets its terms so wide that to say that anyone who sets a foot on EU soil can stay, I said it would lead to a flow of biblical proportions and indeed that is what we are beginning to see and that’s been compounded by Germany last week saying that basically anyone can come. It is a bit too late now to draw up a list of countries from whom can stay and can’t stay. All they have to do, as they’re doing, is to throw their passports in the Mediterranean and say they’re coming from Syria. As we know the majority of people that are coming and the Slovak Prime Minister has been honest enough to say so, the majority that are coming are economic migrants.

“In addition we see as I warned earlier evidence that ISIS are now using this route to put their jihadists on European soil. We must be mad to take this risk with the cohesion of our societies. If we want to help genuine refugees, if we want to protect our societies, if we want to stop the criminal trafficking gangs from benefitting as they are, we must stop the boats coming as the Australians did and then we can assess who qualifies for refugee status.

“I noted your comments because there is a referendum coming in the United Kingdom. I look forward to seeing you in the UK, I know you intend to spend tens of millions of pounds of British tax payers money telling us what we should think. I have a feeling that the British people will warm to you on a personal level but to suggest that getting rid of a few EU regulations is going to change our minds, sorry unless you give Mr Cameron back control and discretion over our borders the Brits will over the course of the next year, vote to leave.”

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Unblocked by now. Refugees free to travel. What a stupid move that was.

Denmark Blocks Trains, Roads To Germany To Stop Refugees (Quartz)

In a new development in Europe’s escalating refugee crisis, Denmark has cut off all rail links to Germany. The country’s government is trying to stop migrants and refugees on their way to Sweden. On Wednesday (Sep.9), Danish police halted at the border two trains coming from Germany to Denmark carrying 200 migrants, reports the BBC. Authorities said that passengers refused to leave the trains because they did not want to be registered as refugees in Denmark, but rather in Sweden.

Denmark’s center-right government has recently cut benefits for asylum seekers, and has been “promoting” its new strict regulations on refugees in Middle Eastern newspapers, in attempt to stop people from coming. Earlier on the same day, Danish police also closed down a highway after 300 migrants were forced off a train and began to make their way across the country on foot. More than 1,200 migrants and refugees have crossed the border between Denmark and Germany in recent days, according to the BBC. Both countries belong to the Schengen zone of passport-free travel, but according to EU law, the scheme can be suspended in extraordinary circumstances.

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At least they’re trying. At the same time, though, they’re sending back Balkan migrants at a much higher pace.

Orderly German Welcome Masks Chaos For Refugees

The refugees arrive exhausted in Germany, are greeted and fed by waiting volunteers, then whisked away to reception centres around the country. It all seems as smooth as the assembly line in a BMW factory. Behind this efficient welcome for asylum seekers, though, are scenes of chaos and confusion as Germany’s famous orderliness is overwhelmed and officials scramble to keep up with the waves of newcomers spilling in from the Middle East. Standard procedures like identification and registration are forgotten as most newcomers – Syrians, Iraqis, Afghans and any number of other nationalities – pass through cities like Munich on their way to a hoped-for new life elsewhere. “People who arrive in Munich don’t get registered here at all – they’re distributed all over Germany,” said Christoph Hillenbrand, senior administrator of the Upper Bavaria district around Munich.

Officials are buying so many bunk beds for refugee centres that local supplies are often exhausted and orders are made all the way to China. “IKEA can’t keep up with the demand,” he added, referring to the furniture chain store from Sweden. Newcomers are told to register for refugee benefits at their final destinations within five days, but there is no way to check if they do it. Of about 25,000 arrivals over the weekend, only around 2,000 have stayed in Munich, he added. Officials estimate almost 40% of those arriving this year come from the Balkans and most will be denied asylum, unlike Syrians deemed worthy of protection from their civil war.

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Going to be a long winter.

Greek Economy Back In Intensive Care (Reuters)

With deflation entrenched, its industrial base shrinking and a tough new bailout to service, Greece’s economy is heading for another fall with even those of its citizens lucky enough to be in work poorer than at any time since 2001. [..] The economy grew 0.9% between April and June – the only full quarter in office for Tsipras’s government – as consumer spending rose and exports edged up. But economists say GDP will soon go back into reverse. “We expect the economy to shrink (this year) by a bit less than 2%,” Angelos Tsakanikas, economist at IOBE think tank said, after data on Wednesday showed industrial output fell for the second month running in July and August marked the 30th straight month of year-on-year deflation.

Among factors impacting growth, capital controls were imposed in July, when the banks also stayed shut for a week, and the bailout will come with fresh taxes and pension cuts. “Private consumption was a driver behind the growth in the second quarter, helped by tourism … There was also sporadic spending due to fears of haircuts on deposits related to a possible Grexit,” IOBE’s Tsakanikas said. With the danger of an exit from the eurozone and of a possible overnight devaluation averted for now, Greeks will be less inclined to splash out on consumer goods, especially given salaries are at a 14-year low.

Having risen year-on-year in the previous three quarters, the Greek wage index fell in the second quarter to 85.2, its lowest level since the same quarter of 2001, statistics office data showed on Tuesday. After minimal growth in the third quarter, Tsakanikas expects the economy to contract again in the fourth, and further declines are widely predicted for 2016. That signals a return to a recession that ran from 2008 and 2014 and augurs badly for an unemployment rate that, at 25% in May, is already the highest in Europe. “There is no job creation … The jobless rate will rise after the seasonal boost from tourism fades,” Tsakanikas said, predicting a rise to 28% – a tenth of a percentage point above the record high reached in September 2013.

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Like democracy, accountability is a European orphan.

EU Squeezed €7 Billion Greek Bridge Loan Via ESM Loophole (Bloomberg)

Who do you call on for €7 billion at short notice to tide over a country like Greece for a month? That was the dilemma euro-area policy makers faced in July as they raced to complete a bailout for Greece and prevent the country from defaulting on the ECB. With time against them, the European Commission’s financial mechanics hit upon a novel solution, without breaking any of the rules shielding taxpayers from losses. While financial markets were used to fund Greece’s bridge loan, the sole investor for the temporary injection was the euro area’s own firewall, according to two people familiar with the matter, who spoke on the condition of anonymity.

The European Stability Mechanism, at that point barred from lending directly to Greece, financed the EU cash advance through a private placement for the Greek bridge loan, the people said. Greece then paid back the short-term funding in August, once its €86 billion ESM bailout was approved. “It highlights just what a political animal the ESM is,” said Jacob Funk Kirkegaard of the Peterson Institute for International Economics in Washington. “That they don’t talk about it is probably because they don’t want to have a debate about just how flexible in practice the ESM is, because there may be other times in the future when people would like to call upon that flexibility to be used.”

When asked Tuesday about the bridge financing, the ESM press office said it doesn’t communicate pro-actively about its investment strategy. The decision to make the private placement to the bridge loan was in keeping with investment policies, which focus on capital preservation and require the fund to invest only in high-quality assets, the Luxembourg-based firewall said. “The proposal by the EC to invest in a short-term transaction in the name of the EU was seen as a good investment opportunity by the ESM investment and treasury department,” the ESM said. “The investment is fully compliant with the ESM existing investment guidelines.”

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This could have a major effect globally.

Brazil Credit Rating Cut to Junk by S&P Amid Budget Strain (Bloomberg)

Brazil’s sovereign rating was cut to junk by Standard & Poor’s, taking away the investment grade the country enjoyed for seven years, as President Dilma Rousseff’s struggles to shore up fiscal accounts amid a faltering economy. The country’s rating was reduced one step to BB+, with a negative outlook, S&P said in a statement after markets closed. Brazil’s largest U.S. exchange-traded fund tumbled 6.6% in late trading along with American depositary receipts for Petrobras, the state-controlled oil company. The downgrade, and S&P’s warning that another cut is possible, puts pressure on the economic team led by Finance Minister Joaquim Levy to win passage of measures that would shore up the country’s fiscal situation by cutting spending or raising taxes.

Rousseff has been unable to find support for her initiatives amid an investigation into corruption at the state-controlled oil company that allegedly occurred while she was its chairman, sending her popularity to a record low and generating calls for her impeachment. “The downgrade could be a wakeup call but the political situation is so bad that it’s difficult to resolve, so its a dark path ahead,” Daniel Weeks, the chief economist at Garde Asset Management, said from Sao Paulo. “Markets will take this as a negative, and it will probably drag down emerging markets at a global level.” Brazil’s government said in August it forecasts a fiscal deficit in 2016 of 30.5 billion reais ($7.9 billion), or about 0.5% of gross domestic product. That compares with a targeted surplus of 2% at the beginning of this year and a revised objective of 0.7% announced in July. The country’s gross debt as a percentage of its economy climbed to 65% in July from 51% at the end of 2011.

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What Britain does to its own citizens.

UK Immigration Income Threshold Creates Thousands Of ‘Skype Kids’ (Guardian)

At least 15,000 British children are growing up as “Skype kids” because an immigration income threshold does not allow both of their parents to live together in Britain, a children’s commissioner report has found. The research, by the Joint Council for the Welfare of Immigrants (JCWI) and Middlesex University, shows that thousands of British families have been affected by a Home Office minimum income threshold of £18,600 a year for sponsoring a foreign spouse to live in the UK, which was introduced in 2012. The report, Family Friendly?, says the introduction of the £18,600 threshold has resulted in separation for thousands of British families in which one parent is not entitled to live in the UK.

Most of the children – 79% in the survey – affected by the changes are themselves British citizens, and many have suffered distress and anxiety as a result of separation from a parent. The research confirms that the £18,600 minimum income threshold for a UK citizen to bring a foreign spouse or partner from outside Europe to live in Britain on a family visa would not be met by almost half of the adult population. “The threshold is too high and is discriminatory. British citizens who have lived and worked abroad and formed long-term relationships abroad are particularly penalised and find it very difficult to return to the UK,” says the report, published on Wednesday.

Anne Longfield, the children’s commissioner for England, said there was a wealth of evidence indicating that children were far more likely to thrive when raised by parents in a warm, stable and loving family environment. “I am therefore very concerned that the immigration rules introduced in July 2012 actively drive families apart, and leave British children able to communicate with one parent only via Skype,” said Longfield.

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The route to chaos: Simple rules, complex behavior

Critical Realism & Mathematics versus Mythematics in Economics (SteveKeen)

The Critical Realist movement, developed by Tony Lawson at Cambridge University, argues against the use of mathematics in economics. I argue that their critique is directed at the abuse of mathematics by Neoclassical economists, rather than the proper use of mathematics per se. In this brief talk–where for some reason my webcam was as static as a Neoclassical model – I explain that my 1995 complex systems model of Minsky – led to a prediction from the properties of the model that could never have been made verbally–and which turned out to be accurate. It is also derived from a set of identities, so while it can be incomplete, it cannot be a mis-specification, as is the case with so many Neoclassical models.

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Solid reporting job from American Statesman.

Downtown Austin Vault Of Precious Metals Turns Up Mostly Empty (AS)

Gold first caught Ron Barbala’s eye in 2008. With the housing values plummeting and the stock market cratering, the Phoenix engineer felt betrayed by the economy, which increasingly he considered little more than a mirage. “The standard American method of investing, all of it”, he said. “I’d had it”. Desperate for something of value he literally could put his hands on, he began acquiring gold and silver bullion. “Its value is in its physicality”, Barbala said. “It just is.” Over the next several years, Barbala bought more than $100,000 worth of precious metals through a little-known downtown Austin company. Started in 1999, Bullion Direct began as an online virtual trading floor where thousands of customers could buy and sell precious metals to each other, with the company taking a cut of each sale.

Later, it began selling the metals to customers directly. It also stored the commodities for those who requested it such as Barbala with the glittering coins and bars kept safely in individual piles for each investor in an old bank vault in its Lavaca Street offices. At least that s what everyone thought. By the time auditors and lawyers got access to Bullion Direct s 14th-floor offices six weeks ago, there were only a handful of gold and silver coins in an office safe. A second vault it had recently rented held only slightly more. An estimated $30 million in cash, metal bullion and valuable coins, meanwhile, had vanished. The cumulative weight of the unaccounted for metal is the equivalent of dozens of standard-sized gold bullion bars and hundreds of silver ones. Also missing are an estimated 1,400 ounces of platinum and palladium.

In recent weeks, as thousands of investors in Texas and across the country have absorbed their bad fortune, there has been no shortage of theories where the precious commodities went — including whether they ever existed at all. The one person who knows for sure, company founder and owner Charles McAllister, recently moved from Wimberley to Alabama. Officials say that while he is being cooperative, many basic questions about the missing fortune remain unanswered.

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“The war in Syria is a business in which the Italian government is participating and it is destroying millions of lives including people who are displaced, fleeing or dead.” “With more than 220 thousand victims, 3.5 million refugees and 12 million displaced people, of whom half are children, Syria is a country that no longer exists.”

The Civil War In Syria – Part 1 (Beppe Grillo)

For years, ltaly has been in the top ten countries in the world for manufacturing weapons. These are sold to countries at war, especially to Africa and the Middle East. Italy is the top European country selling weapons to Syria: since 2001, Syria purchased weapons under license from Europe to a value of €27,700,000. Of this, the value of weapons coming from our country is nearly €17,000,000. Meanwhile, the United States is arming and training the “moderate“ rebels and now ISIS fighters have rifles bearing the inscription: “Property of US Govt“. Someone’s playing games. The war in Syria is a business in which the Italian government is participating and it is destroying millions of lives including people who are displaced, fleeing or dead.

Does the government want to make a contribution to reducing the number of refugees coming from the countries at war? It has to immediately block the export of weapons to countries in the theatre of war and bring in a foreign policy that is not subject to the interests of the USA. Below is the first part of the reconstruction of Syria’s civil war with the responsibilities and the interests of the international players. In the last few days, the photo of little Aylan, who drowned in Turkey, has jolted our emotions and our consciences. And it has once more turned the spotlight onto a war that the world has forgotten. With more than 220 thousand victims, 3.5 million refugees and 12 million displaced people, of whom half are children, Syria is a country that no longer exists.

The NGOs on the ground are talking about a crisis that is worse than the second world war. We are not just looking at a simple theatre of war. Syria is not a new Kosovo or another Afghanistan, but a conflict that is wider and more complex, that is hosting scores of other micro-conflicts. It’s almost impossible to give a simple account of the last few years, but we have a moral duty to try to do so, so that we can understand the rights and wrongs of one of the worst wars of this century. In order to understand the causes that have facilitated the rise of “Islamic State” in Syria, we need to take a few steps back. At the end of 2011, it was the Syrian army that defeated the anti-government rebels, but at the beginning of January, other parallel and autonomous groups popped up.

Among these was the Al-Nusra Front that came into being on 23 January 21012. It was initially composed of members of the Iraqi branch of al Qaeda (Islamic State of Iraq) that was fighting the American presence in the country. It was the first time that there was the creation of a rebel cell clearly inspired by principles of radical Islam. The strategy of suicide attacks generally using car bombs, started off in the Al-Midan neighbourhood of Damascus on 6 January 2012 with the death of 26 people including many civilians. At the end of March 2012, the total deaths in Syria rose to 10,000 and the veil of hypocrisy fell on the rebels – the ones strongly supportred by the United States and the European Union.

Of the demonstrations out in the streets, there’s just a vague memory. Now there’s open warfare. It’s very violent and it’s between factions. In 2013, what many people had feared up until then, actually happened: the Syrian crisis went across the border with Iraq where the power vacuum left by the withdrawal of the USA troops, opened up the way to horrors that took us back to the previous decade. Armed men with their faces covered retook control of the cities of Fallujah and Ramadi, cities that had already experienced brutal urban warfare in 2004 and 2007. The militia with Abu Bakr al Baghdadi are the ones fighting under the flag of ISIL (Islamic State of Iraq and the Levant) or ISIS (Islamic State of Iraq and Syria).

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Jul 192015
 
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Harris&Ewing “Congressional Union for Woman Suffrage” 1916

China’s $16.1 Trillion Corporate Debt Threat (Reuters)
Chinese Investors Flock To Sell Properties, Cancel Contracts (Nikkei)
Regulators Cannot Eliminate Volatility In China’s Stock Markets (Pettis)
Greece Should Turn To China To Break Debt Spiral – Economic Hit Man (ABC.au)
‘Plan B’ Needed As Euro One Recession Away From Implosion – David McWilliams (GC)
Deeper Eurozone Integration Would Be A ‘Huge Mistake’ (Telegraph)
Built To Foster Friendship, The Euro Is Manufacturing Misery (Economist)
Greece Is Being Taxed To Death (Politico)
Greece: Death Spiral Ahead (James K. Galbraith)
Greece Reforms ‘Will Fail’ – Varoufakis (BBC)
Dr Schäuble’s Plan for Europe: Do Europeans Approve? (Yanis Varoufakis)
Dublin, Lisbon And Madrid Beat The Bailout. It’s No Comfort To Athens (Guardian)
Alexis Tsipras Has Shown Greeks He Can Save Them (Spiegel)
Stiglitz Meets With Greek Government Officials (GR)
Greece’s Lesson For Russia – and China (Paul Craig Roberts)
Europe’s Best And Brightest Need To Head For Greece (Helene Rey)
Hillary Clinton and Glass-Steagall (Robert Reich)
Don Quixote Airport Cost €1bn – It Could Sell To China For €10,000 (Guardian)
Lunch with Beppe Grillo (FT)

China borrows itself into oblivion.

China’s $16.1 Trillion Corporate Debt Threat (Reuters)

Beijing may have averted a crisis in its stock markets with heavy-handed intervention, but the world’s biggest corporate debt pile – $16.1 trillion and rising – is a much greater threat to its slowing economy and will not be so easily managed. Corporate China’s debts, at 160% of GDP, are twice that of the United States, having sharply deteriorated in the past five years, a Thomson Reuters study of over 1,400 companies shows. And the debt mountain is set to climb 77% to $28.8 trillion over the next five years, credit rating agency Standard & Poor’s estimates. Beijing’s policy interventions affecting corporate credit have so far been mostly designed to address a different goal – supporting economic growth, which is set to fall to a 25-year low this year.

It has cut interest rates four times since November, reduced the level of reserves banks must hold and removed limits on how much of their deposits they can lend. Though it wants more of that credit going to smaller companies and innovative areas of the economy, such measures are blunt instruments. “When the credit taps are opened, risks rise that the money is going to ‘problematic’ companies or entities,” said Louis Kuijs, RBS chief economist for Greater China. China’s banks made 1.28 trillion yuan ($206 billion) in new loans in June, well up on May’s 900.8 billion yuan.

The effect of policy easing has been to reduce short-term interest costs, so lending for stock speculation has boomed, but there is little evidence loans are being used for profitable investment in the real economy, where long-term borrowing costs remain high, and banks are reluctant to take risks. Manufacturers’ debts are increasingly dwarfing their profits. The Thomson Reuters study found that in 2010, materials companies’ debts were 2.8 times their core profit. At end-2014 they were 5.3 times. For energy companies, indebtedness has risen from 1.1 to 4.4 times core profit. For industrials, from 2.5 to 4.2.

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It’s all just starting. The margin calls will come in fast and furious. From the shadow banking system. Will we see a ban on selling real estate too?

Chinese Investors Flock To Sell Properties, Cancel Contracts (Nikkei)

Turbulence on China’s equity market is starting to rock the country’s property market. Investors are quickly pulling their cash out of housing they purchased to cover losses incurred by stock investments. Some have begun offering discounts on property due to difficulties with finding buyers. Continued turmoil on the stock market looks as though it will have a heavy impact on the country’s real estate market. China’s stock market rally also helped drive up sales of domestic homes. The Shanghai Composite Index surged 60% from its low of around 3,200 in early March, rising to 5,166 logged on June 12. China Securities Depository and Clearing said that the number of accounts opened to trade yuan-denominated A-shares reached 980,000 in May in Shenzhen, where property prices are climbing faster than other areas.

The figure accounted for roughly 80% of the total 1170,000 accounts in Guangdong Province, where large numbers of such account holders reside. Many newbie investors, who have just jumped into the stock market, likely gave a fresh impetus to the property market. China’s share price upswing prompted investors to reach out for new investments, including houses and other properties. A property analyst at major Chinese brokerage Guotai Junan Securities said that sales of luxury properties worth over 10 million yuan ($1.61 million) each for the first half of the year topped annual sales last year in Shanghai and Beijing. After this, Chinese stocks began to crumble. In early July, the Shanghai Composite Index dropped more than 30%, after hitting a seven-year high in mid-June.

Investors who suffered big losses on the stock market were forced to sell property and cancel real estate purchase agreements. The Hong Kong Economic Times said that consumers are increasingly asking real estate firms for grace periods on down payments for mortgage loans, as they run out of cash because of weak stocks. Some canceled home purchase contracts, while others canceled mortgage loans, according to China’s largest property developer China Vanke, which has a strong foothold in Shenzhen. Local media reported that an official at China Vanke is concerned about massive numbers of cancellations in the future.

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“It’s not just that markets are about volatility. It is that volatility can never be eliminated.”

Regulators Cannot Eliminate Volatility In China’s Stock Markets (Pettis)

For now I think we can safely say the panic is finally over, but none of the fundamental questions have been resolved and I expect continued volatility. Because I also think the market remains overvalued, however, I have little doubt that we will see at least one more very nasty bear market. Either way the panic and the policy responses have opened up a ferocious debate on China’s economic reforms and Beijing’s ability to bear the costs of the economic adjustment. Among these costs are volatility. Rebalancing the economy and withdrawing state control over certain aspects of the economy, especially its financial system, will reduce Beijing’s ability to manage the economy smoothly over the short term but it may be necessary in order to prevent a very dangerous surge in volatility over the longer term. Sunday’s Financial Times included an article with the following:

Critics of the measures unleashed by Beijing last week argue that they point to a fundamental tension at the heart of China’s political economy that a free-floating renminbi would test even more severely. The ruling Chinese Communist party, they argue, is ultimately incapable of surrendering control of crucial facets of the country’s economic and financial system. As one person close to policymakers in Beijing puts it: “The problem with this system is that it cannot tolerate volatility and markets are all about volatility.”

It’s not just that markets are about volatility. It is that volatility can never be eliminated. Volatility in one variable can be suppressed, but only by increasing volatility in another variable or by suppressing it temporarily in exchange for a more disruptive adjustment at some point in the future. When it comes to monetary volatility, for example, whether it is exchange rate volatility or interest rate and money supply volatility, central banks can famously choose to control the former in exchange for greater volatility in the latter, or to control the latter in exchange for greater volatility in the former.

Regulators can never choose how much volatility they will permit, in other words. At best, they might choose the form of volatility they least prefer, and try to control it, but this is almost always a political choice and not an economic one. It is about deciding which economic group will bear the cost of volatility.

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China is two-faced being. Economic collapse at home, aid offers abraod.

Greece Should Turn To China To Break Debt Spiral – John Perkins (ABC.au)

A prominent economist says China’s banks are circling debt-stricken countries like Greece, offering an alternative to the brutal austerity measures proposed by the IMF and EU. Former adviser to the IMF and the World Bank, John Perkins, told the ABC’s The Business that China’s Asian Infrastructure Investment Bank (AIIB) and the BRICS bank were courting countries like Greece. Mr Perkins said he believed China had sent people to Greece to offer an alternative bailout deal. “If I were the finance minister running the system I would seriously be looking at that alternative. I think that the Chinese are presenting a competitive edge here,” he said.

Mr Perkins revealed in his international bestseller, Confessions of an Economic Hit Man, how international organisations like the IMF and the World Bank enslave countries like Greece by offering crippling and unsustainable loans which never deliver the economic growth they promise. He said he believed Greece and the other European countries in similar positions should turn to China as a means of breaking the debt spiral. “These austerity programs are not the right program, even the IMF said recently there has to be more debt forgiveness we have to readjust the debt and the Europeans don’t seem willing to do this,” he said. Mr Perkins was surprised by the IMF’s public criticism of the eurozone’s bailout deal this week and said it shows the growing influence of China’s banks.

“I think the motivation may have been the Chinese because the Chinese have stepped in before, in Ecuador and several other countries, and we now have these very powerful banks that the Chinese are heading up,” he said. Mr Perkins said the growing strength of the banks will result in a major shift of power away from the United States and European Union. He conceded that there is nothing to stop China from becoming another “economic hit man” but said the Chinese have a good record so far, particularly in South American countries like Ecuador. “I recently met with a minister of Ecuador – and he said ultimately that he has no idea what China will do but we do know that the IMF, the World Bank, the Europeans and the US have screwed us over,” he said. “They’ve put military bases around here and threatened us and China hasn’t done that, so right now we trust China more than the US.”

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“Countries that don’t play ball with Germany will see their banking system used against their democratically elected politicians.”

‘Plan B’ Needed As Euro One Recession Away From Implosion – David McWilliams (GC)

Europe’s next recession will “kill the euro” according to economist, writer and journalist David McWilliams. McWilliams, who is among the best economics commentators from the only Anglophone nation in the euro – Ireland, warns that we only have a few months to plan an alternative to the disastrous consequences on peripheral nations of what he sees as German hegemony. He describes the mismanagement of the euro currency as “both laughable and terrifying”. Marathon negotiation sessions are not conducive to clear headed, rational decision making on the future of a nation or the eurozone. Indeed, it smacks of coercion. He lambasts the suggestion offered that Greece could have a “temporary euro”, adding, “If the board and management of a public company dealt with problems like this, the share price would collapse. There is quite simply no corporate governance within the euro”.

David McWilliams believes that Germany is out control. France is no longer strong enough to offer a counterweight and Britain is happy to allow the circus to continue as they focus on potentially getting out of the EU. He describes last weekends negotiations in Brussels as a “teutonic kangaroo court”. Should Britain successfully navigate its way out of the EU, other countries will likely follow rather than exist as provinces of Germany. Norway and Switzerland have coped just as well from the outside as their EU neighbours. He makes the obvious, though seldom heard assertion that “when economic negotiations stop making economic sense, you should begin to question the motives of the EU”. Pointing to the plundering of Greek state assets to pay off creditors whilst forcing further austerity on the Greek people.

Each previous round of austerity has caused the economy to contract further – thus forcing Greece into a debt trap from which it cannot escape. We believe this is a crucial point. While Germany have played a major role it in the subjugation of Greece it is worth asking who truly benefits from economic negotiations that have stopped making economic sense. Could it be the large banks who, following a similar model imposed on countries in Latin America, Southeast Asia and Africa since the 1970’s, continue to extract wealth from the poorest people on earth? Has not almost every development in the EU in the past ten years served to consolidate the power of financial institutions at the expense of the citizenry?

McWilliams highlights the dramatic u-turn in policy where membership of the EU is now conditional. When Mario Draghi initiated the “whatever-it-takes” mass purchase of bonds of peripheral nations the message was clear – the euro is forever. Now, however, countries must bend to Germany’s demands which are the demands of politicians who want to keep their electorate happy if they are to be re-elected. “Countries that don’t play ball with Germany will see their banking system used against their democratically elected politicians. The banking system is the soft underbelly and the Germans are prepared to orchestrate bank runs in member states to get their way. This is not only new, it is outrageous.”

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Amen.

Deeper Eurozone Integration Would Be A ‘Huge Mistake’ (Telegraph)

Deeper fiscal integration in the eurozone is a “huge mistake” that could end up tearing the bloc apart, Sweden’s former finance minister has warned. Anders Borg said forcing countries to cede sovereignty could trigger a right-wing backlash across Europe, as he predicted that countries such as Sweden and Poland, which are obliged to join the euro, would not adopt the single currency for “decades”. “If you go for tighter co-operation that basically brings higher taxes to the north to subsidise the south, you build in a political divide that is not sustainable in the long term,” he said. Mr Borg, who stepped down in October 2014, said that while the current structure of the eurozone was problematic, the only way to secure a broad-based recovery across the bloc without creating a political rift was to focus on competitiveness.

“We’re not talking about good and bad outcomes here, we are talking about only very problematic alternatives. If you push for further fiscal integration, moving more decisions to Brussels, taxing northern European countries more heavily and subsidising countries with long-term competitive issues and deep problems in the south you would obviously have a strong Right-wing reaction that would undermine the political support for that direction and create a less open, less liberal and less dynamic Europe,” he said. “I think there are great risks in connection to the course that we now hear from political integration. There is no voter base for that and it’s not certain either that you’re dealing with the right focus.”

Mr Borg said the eurozone and the wider EU area, which includes the UK, should focus on policies such as “completing the single market, voting for free trade co-operation with the US and increasing infrastructure investment”. “[Countries] are under-spending on infrastructure. We are under-spending in education. Our labour markets are over-regulated and we have tax levels for investment and work that are too high, so we need to do fundamental tax reforms and we need to fix our expenditure so that we are concentrating on the areas where public expenditures have most return.” Mr Borg, who voted for Sweden to join the euro in 2003, said the country’s membership was unlikely for “decades”. “It’s very difficult to argue today to your population that it’s a well functioning system,” he said.

Mr Borg, who predicted in 2012 that Greece would leave the euro, welcomed the news that the eurozone had opened the door to a third Greek bail-out package to begin. He said he was in “full agreement” with the IMF that creditors needed to write off some of the country’s debt “substantially”. “There is a need to establish a credible long-term programme for financing Greece. There is serious rethinking that has to be done on the Greek side but also on the creditors’ side. I would hope that people are ready to do this because the alternative is catastrophic for Greece. It’s clear that we’re not out of the woods yet,” he said.

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Shouldn’t have left it in the hands of sociopaths.

Built To Foster Friendship, The Euro Is Manufacturing Misery (Economist)

Unravelling the tangled logic of Greece’s bail-out talks, Charlemagne has learned, is a little like trying to explain the rules of cricket to an American. How to make sense of a process in which Greek voters loudly spurn a euro-zone bail-out offer in a referendum, only to watch Alexis Tsipras, their prime minister, immediately seek a worse deal that is flatly rejected by the euro zone, which in turn presses a yet more stringent proposal to which Mr Tsipras humbly assents? Better, perhaps, not to try. After six months of this nonsense, little wonder everyone is depressed. The immediate danger of Grexit has at least been averted, after Mr Tsipras and his fellow euro-zone heads of government pulled a brutal all-nighter in Brussels this week.

But it comes at the price of a vast taxpayer-funded bail-out for Greece, worth up to €86 billion over three years, and a humiliating capitulation by Mr Tsipras. Greece’s economy is in tatters, its creditors are fuming and Europe’s institutions are in despair. Much to Britain’s disgust even non-euro countries have been sucked into the nightmare: a bridge loan designed to keep Greece afloat while the bail-out talks proceed looks set to tap a fund to which all EU countries have contributed. But wasn’t this week’s agreement a triumph for the shock troops of austerity? Hardly. Finland’s coalition, formed only two months ago, tottered at the prospect of funding a third Greek bail-out. The Dutch prime minister, Mark Rutte, has admitted that it would violate an election pledge he made in 2012.

One euro-zone diplomat says that 99% of her compatriots would say “no” to the bail-out if offered a Greece-style referendum. Even Angela Merkel, Germany’s chancellor and Mr Tsipras’s chief tormentor, is damaged. The deal, crafted largely by Mrs Merkel, Mr Tsipras and François Hollande, France’s president, has exposed the German chancellor to competing charges: of cruelty abroad and of leniency at home, notably among Germany’s increasingly irritable parliamentarians, who must vote twice on the Greek package. Europe’s single currency, designed to foster unity and ease trade between its members, has thus become a ruthless generator of misery for almost all of them.

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“Looked at separately, each of these suffocating tax rates might appear almost reasonable. Looked at together, they are totally unreasonable.”

Greece Is Being Taxed To Death (Politico)

More than five years have passed since May 2010, when Greece was enticed to borrow €73 billion from the IMF, EC and ECB with painful strings attached. That 2010 program, said the IMF, “had two broad aims: to make fiscal policy and the fiscal and debt position sustainable, and to improve competitiveness.” There was no emphasis on improving domestic economic growth or employment — just “competitiveness” in trade. The IMF speculated that “restoring confidence” would “lead to a growth recovery” in 2012. When that didn’t happen, another €154 billion in loans was provided. And the IMF blamed the bad “investment climate” on a “lack of confidence,” rather than any lack of after-tax income.

Prominent U.S. economists blame the seven-year depression in Greece on savage cutbacks in government spending. “The contraction in government spending has been predictably devastating,” wrote Joseph Stiglitz in February. And Paul Krugman later criticized the period “from 2009 to 2013, the last year of major spending cuts” in Southern Europe. In reality, however, Greek government spending rose from 44.9% of GDP in 2006 to 53.7% from 2009 to 2012 and to 60.1% in 2013. That 2009-2013 “fiscal stimulus” was precisely when the economy contracted — by 4.4% in 2009, 5.4% in 2010, 8.9% in 2011, 6.6% in 2012 and 3.9% in 2013. By contrast, the economy grew slightly in 2014 when government spending was “only” half of GDP.

That is, the economy fell when government’s share rose, and the economy rose when government’s share fell. What is rarely or never mentioned in the typically one-sided misperception of spending “austerity” is the other side of the budget — namely, taxes. The latest Greek efforts to appease creditors would raise corporate tax again to 28%, raise the 5% “solidarity surcharge” on personal incomes, and discourage tourism by raising the VAT on restaurants and island shopping. Looked at separately, each of these suffocating tax rates might appear almost reasonable. Looked at together, they are totally unreasonable.

To offer a Greek employee an extra €100 requires that €42 be first subtracted for Social Security tax, and then up to €46 more subtracted for income tax. Out of the original €100 of marginal labor cost, the remaining €14 of after-tax income going to a skilled worker could only buy about €10 worth of goods after value-added tax is paid. The tax wedge between what employers pay for labor and what workers have left to spend, after taxes, is 43.4% for a Greek family of four with average earnings — the highest in the OECD and more than double the comparable U.S. wedge of 20.6%. This demoralizing tax wedge, which grows even larger at higher incomes, clearly depresses hiring and working in the formal economy. It also helps explain why a third of the Greek labor force is self-employed (making tax avoidance easier).

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“..an economic death spiral — contraction leading to banking failure, banking failure leading to contraction — first in Greece and, later on, elsewhere in Europe.”

Greece: Death Spiral Ahead (James K. Galbraith)

The Greek parliament has now voted to surrender control of the Greek state to platoons of bureaucrats from Brussels, Frankfurt and Berlin, who will now re-impose the full policy regime against which Greeks rebelled in January 2015 — and which they again rejected, by overwhelming majority, in the referendum of July 5. The orders from Brussels will impose strict new rules on the Greek people in the interest of paying down Greece’s debt. In return, the Europeans and the IMF will put up enough new money so that they themselves can appear to be repaid on schedule — thus increasing Greece’s debt — and the ECB will continue to prop up the Greek banking system. A hitch has already appeared in the plan: the IMF, whose approval is required, has pointed out — correctly — that the Greek debt cannot be paid, and so the Fund cannot participate unless the debt is restructured.

Now Germany, Greece’s main creditor, faces a new decision: either grant debt relief, or force Greece into formal default, which would cause the ECB to collapse Greece’s banks and force the Greeks out of the Euro. There are many ways to rewrite debt, and let’s suppose the Germans find one they can live with. The question arises: What then? An end to the immediate crisis is likely to have some good near-term effect. The Greek banks will “reopen,” likely on Monday, and the European Central Bank will raise the ceiling on the liquidity assistance on which they rely for survival. The ATMs will be filled, although limits on cash withdrawals and on electronic transfers out of the country will likely remain. There will be some talk of new public investment, funded by the EU; perhaps some stalled road projects will restart.

With these measures, it is not impossible that the weeks ahead will see a small uptick of economic life, and certainly, any such will make big news. It’s also possible that even without good news, Greece may limp along in stagnation, within the euro. ut if you walk through the requirements of Greece’s new program, there is another possibility. That possibility is an economic death spiral — contraction leading to banking failure, banking failure leading to contraction — first in Greece and, later on, elsewhere in Europe.

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“This programme is going to fail whoever undertakes its implementation.” Asked how long that would take, he replied: “It has failed already.”

Greece Reforms ‘Will Fail’ – Varoufakis (BBC)

Former Greek Finance Minister Yanis Varoufakis has told the BBC that economic reforms imposed on his country by creditors are “going to fail”, ahead of talks on a huge bailout. Mr Varoufakis said Greece was subject to a programme that will “go down in history as the greatest disaster of macroeconomic management ever”. The German parliament approved the opening of negotiations on Friday. The bailout could total €86bn in exchange for austerity measures. In a damning assessment, Mr Varoufakis told the BBC’s Mark Lobel: “This programme is going to fail whoever undertakes its implementation.” Asked how long that would take, he replied: “It has failed already.”

Mr Varoufakis resigned earlier this month, in what was widely seen as a conciliatory gesture towards the eurozone finance ministers with whom he had clashed frequently. He said Greek Prime Minister Alexis Tsipras, who has admitted that he does not believe in the bailout, had little option but to sign. “We were given a choice between being executed and capitulating. And he decided that capitulation was the optimal strategy.” Mr Tsipras has announced a cabinet reshuffle, sacking several ministers who voted against the reforms in parliament this week. But he opted not to bring in technocrats or opposition politicians as replacements. As a result, our correspondent says, Mr Tsipras will preside over ministers who, like himself, harbour serious doubts about the reform programme.

Greece must pass further reforms on Wednesday next week to secure the bailout. Germany was the last of the eurozone countries needing parliamentary approval to begin the talks. But the head of the group of eurozone finance ministers, Jeroen Dijsselbloem, has warned that the process will not be easy, saying he expected the negotiations to take four weeks. On Saturday, the Greek government ordered banks to open on Monday following three weeks of closures. Separately, the European Council approved the €7bn bridging loan for Greece from an EU-wide emergency fund. The loan was approved in principle by eurozone ministers on Thursday and now has the go-ahead from all non-euro states. It means Greece will now be able to repay debts to two of its creditors, the ECB and IMF, due on Monday.

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Another very transparent essay from Yanis.

Dr Schäuble’s Plan for Europe: Do Europeans Approve? (Yanis Varoufakis)

The avalanche of toxic bailouts that followed the Eurozone’s first financial crisis offers ample proof that the non-credible ‘no bailout clause’ was a terrible substitute for political union. Wolfgang Schäuble knows this and has made clear his plan to forge a closer union. “Ideally, Europe would be a political union”, he wrote in a joint article with Karl Lamers, the CDU’s former foreign affairs chief (Financial Times, 1st September 2014). Dr Schäuble is right to advocate institutional changes that might provide the Eurozone with its missing political mechanisms. Not only because it is impossible otherwise to address the Eurozone’s current crisis but also for the purpose of preparing our monetary union for the next crisis. The question is: Is his specific plan a good one? Is it one that Europeans should want?

How do its authors propose that it be implemented? The Schäuble-Lamers Plan rests on two ideas: “Why not have a European budget commissioner” asked Schäuble and Lamers “with powers to reject national budgets if they do not correspond to the rules we jointly agreed?” “We also favour”, they added “a ‘Eurozone parliament’ comprising the MEPs of Eurozone countries to strengthen the democratic legitimacy of decisions affecting the single currency bloc.” The first point to raise about the Schäuble-Lamers Plan is that it is at odds with any notion of democratic federalism. A federal democracy, like Germany, the United States or Australia, is founded on the sovereignty of its citizens as reflected in the positive power of their representatives to legislate what must be done on the sovereign people’s behalf.

In sharp contrast, the Schäuble-Lamers Plan envisages only negative powers: A Eurozonal budget overlord (possibly a glorified version of the Eurogroup’s President) equipped solely with negative, or veto, powers over national Parliaments. The problem with this is twofold. First, it would not help sufficiently to safeguard the Eurozone’s macro-economy. Secondly, it would violate basic principles of Western liberal democracy. Consider events both prior to the eruption of the euro crisis, in 2010, and afterwards. Before the crisis, had Dr Schäuble’s fiscal overlord existed, she or he might have been able to veto the Greek government’s profligacy but would be in no position to do anything regarding the tsunami of loans flowing from the private banks of Frankfurt and Paris to the Periphery’s private banks.

Those capital outflows underpinned unsustainable debt that, unavoidably, got transferred back onto the public’s shoulders the moment financial markets imploded. Post-crisis, Dr Schäuble’s budget Leviathan would also be powerless, in the face of potential insolvency of several states caused by their bailing out (directly or indirectly) the private banks. In short, the new high office envisioned by the Schäuble-Lamers Plan would have been impotent to prevent the causes of the crisis and to deal with its repercussions. Moreover, every time it did act, by vetoing a national budget, the new high office would be annulling the sovereignty of a European people without having replaced it by a higher-order sovereignty at a federal or supra-national level.

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Ireland: “30% of people live in deprivation conditions – 40% of children..”

Dublin, Lisbon And Madrid Beat The Bailout. It’s No Comfort To Athens (Guardian)

They used to be pejoratively labelled the “Pigs”: Portugal, Ireland, Greece and Spain, the “peripheral” countries carried into the eurozone on a wave of prosperity that were all forced to go cap in hand to their neighbours – and the IMF – when the financial crash came. Yet while Greece’s plight has only worsened over the five years since it was first rescued, the other three bailed-out countries have managed to return to growth, and send the inspectors from the International Monetary Fund back to Washington. Ireland graduated from its bailout programme in 2013. Spain – which never had a full-blown rescue, but received aid to prop up its ailing banks – did so in January last year; Portugal followed suit shortly afterwards.

As Greece attempts to rebuild its shattered economy with the aid of last week’s controversial bailout, it will be encouraged to take heart, and learn the lessons, from these success stories. Yet these countries have taken their own, tough paths back to economic growth – and the pain is still being felt. Ireland, which experienced an extraordinary property boom in the runup to the crisis and a deep downturn when the reckoning came, is expected to see GDP growth of around 5% this year. But its economic output is artificially boosted by the enthusiasm of multinationals for the country’s rock bottom 12.5% corporation tax rate — part of a long-term industrial strategy.

Ireland was also in a very different position to Greece when entering the crisis: until the country’s politicians chose to bail out its fragile banks, the public finances were in a relatively healthy state, with government debt at around 40% of GDP. Nevertheless, Michael Taft of the Unite trade union in Ireland says the deep spending cuts imposed as part of the post-crisis settlement have left long-term scars. “30% of people live in deprivation conditions – 40% of children,” he says. He adds that the fact that parties on both sides of the political divide shared a commitment to spending cuts meant it was hard for a Syriza-style, anti-austerity narrative to take hold: “The debate has been like the sound of one hand clapping.” However, more recently there was a noisy public revolt when the government considered imposing charges for water.

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The view from Germany.

Alexis Tsipras Has Shown Greeks He Can Save Them (Spiegel)

At the moment it appears that Tsipras the pragmatist has knocked out Tsipras the ideologue. “He’s finally putting his country before his party,” one opposition politician said on Wednesday, expressing relief. But Tsipras didn’t have any other choice. If Tsipras hadn’t reached an agreement in Brussels, Greece would have collapsed. The banks would have collapsed; even more businesses would have gone under. And Tsipras would have been the one responsible for it all. But with his U-turn, he also showed that he is ultimately a politician and not a gambler. The latest summit in Brussels lasted 17 hours, during which Tsipras abandoned one position after the other. He repeatedly left the room, where he was negotiating with Angela Merkel, François Hollande and EC President Donald Tusk.

Outside, he telephoned with his people back in Athens. In the end, he did succeed in keeping the fund for privatizing state-owned assets — that was to be based in Luxembourg and used as collateral for the loans — under Athens’ control. The fact that the fund is unlikely to ever bring in the €50 billion expected hardly mattered. Tsipras needed the victory. It is virtually a certainty that this won’t be the only element in the new bailout deal that will not get implemented. Tsipras knows that and so do Greece’s international creditors. Greece will never be able to pay back its debts — the InMF isn’t the only party to have come to this conclusion.

Despite all the broken promises, despite the “no” vote on the austerity diktat that Tsipras would transform into a “yes” vote only a few days later, like some magician pulling a rabbit out of the hat, surveys showed 70% of Greeks supporting the deal, which they consider to be “necessary and without alternative.” 68% say they would vote for Tsipras again if there were new elections. Polls also suggest he would be able to govern without a coalition partner. Those are astonishing figures for a prime minister under whose watch the banks had to be shuttered because they were threatened with collapse. Under whom capital controls had to be introduced, limiting daily withdrawals by Greeks to €60.

Furthermore, the Greek economy hasn’t been in this bad a shape at any other point since the start of the crisis five years ago. After one and a half years of consolidation, the economy has fallen back into recession and is shrinking rapidly. The fact that he isn’t being loudly criticized and that he managed to get 61% of Greeks to back him in the July 5 referendum is Tsipras’ political masterpiece. He had pitted “democracy against the Troika” as he often stated. It was a demonstration of power and at the same time a slap in the face of the Europeans. It’s possible they underestimated Tsipras because he had always come across as being so polite and reserved. But Tsipras also tested the limits and had no qualms about crossing the line.

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No, Stiglitz is not a scientist. Economics is NOT a science. See Popper and falsifiability.

Stiglitz Meets With Greek Government Officials (GR)

Former World Bank chief economist and Nobel Prize winner Joseph Stiglitz expressed his serious concerns over the economic rationale behind Greece’s rescue agreement during his meetings with Greek government officials in Athens on Friday. He reassured, however, that both he and a large number of eminent scientists from Europe and America are willing to assist the Greek government in any way possible during its agonizing efforts to end the harsh austerity tantalizing the country and its people. The American economist has been opposed to the tactics of the IMF and the structure of the current financial system, defending Greece and the attempts of Greek Prime Minister Alexis Tsipras during his country’s negotiations with creditors, exerting harsh criticism toward Germany. “Germany has shown no common sense regarding the European economy, nor compassion,” he stressed, disapproving the measures imposed to Greece by European forces, and suggested a “brave” haircut to the Greek debt.

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“It is testimony to the insouciance of our time that the stark inconsistency of globalism with American unilateralism has passed unnoticed..”

Greece’s Lesson For Russia – and China (Paul Craig Roberts)

The termination of Greece’s fiscal sovereignty is what is in store for Italy, Spain, and Portugal, and eventually for France and Germany. As Jean-Claude Trichet, the former head of the European Central Bank said, the sovereign debt crisis signaled that it is time to bring Europe beyond a “strict concept of nationhood.” The next step in the centralization of Europe is political centralization. The Greek debt crisis is being used to establish the principle that being a member of the EU means that the country has lost its sovereignty. The notion, prevalent in the Western financial media, that a solution has been imposed on the Greeks is nonsense. Nothing has been solved. The conditions to which the Greek government submitted make the debt even less payable. In a short time the issue will again be before us.

As John Maynard Keynes made clear in 1936 and as every economist knows, driving down consumer incomes by cutting pensions, employment, wages, and social services, reduces consumer and investment demand, and thereby GDP, and results in large budget deficits that have to be covered by borrowing. Selling pubic assets to foreigners transfers the revenue flows out of the Greek economy into foreign hands. Unregulated naked capitalism, has proven in the 21st century to be unable to produce economic growth anywhere in the West. Consequently, median family incomes are declining. Governments cover up the decline by underestimating inflation and by not counting as unemployed discouraged workers who, unable to find jobs, have ceased looking.

By not counting discouraged workers the US is able to report a 5.2% rate of unemployment. Including discouraged workers brings the unemployment rate to 23.1%. A 23% rate of unemployment has nothing in common with economic recovery. Even the language used in the West is deceptive. The Greek “bailout” does not bail out Greece. The bailout bails out the holders of Greek debt. Many of these holders are not Greece’s original creditors. What the “bailout” does is to make the New York hedge funds’ bet on the Greek debt pay off for the hedge funds. The bailout money goes not to Greece but to those who speculated on the debt being paid. According to news reports, Quantitative Easing by the ECB has been used to purchase Greek debt from the troubled banks that made the loans, so the debt issue is no longer a creditor issue.

China seems unaware of the risk of investing in the US. China’s new rich are buying up residential communities in California, forgetting the experience of Japanese-Americans who were herded into detention camps during Washington’s war with Japan. Chinese companies are buying US companies and ore deposits in the US. These acquisitions make China susceptible to blackmail over foreign policy differences. The “globalism” that is hyped in the West is inconsistent with Washington’s unilateralism. No country with assets inside the Western system can afford to have policy differences with Washington. The French bank paid the $9 billion fine for disobeying Washington’s dictate of its lending practices, because the alternative was the close down of its operations in the United States. The French government was unable to protect the French bank from being looted by Washington.

It is testimony to the insouciance of our time that the stark inconsistency of globalism with American unilateralism has passed unnoticed.

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Oh good god, she means tax collectors… Greece “needs” German tax collectors…. What, to revive biblical times?

Europe’s Best And Brightest Need To Head For Greece (Helene Rey)

Last weekend’s negotiations were painful, but the Greeks were not entirely without friends. Amid the conflict and antagonism, France helped Athens draft its proposals and François Hollande, the French president, battled to avoid Grexit while keeping Germany and others on board. European solidarity looked exhausted. But contrary to some reports, it was not dead. The deal to keep Athens in the single currency, despite all its undesirable aspects, remains vastly preferable to Grexit. Now that the tricky business of implementation is about to begin, it is time that Greece received a little more help from its European friends. Admittedly, generosity was not Mr Hollande’s only motive. Grexit would have spelt still more hardship for Greek people and risked creditors losing all their money.

But it would also have imperilled the European project itself. It would have bolstered the likes of the Nationl Front’s Marine Le Pen in France, who is keen to see the euro disintegrate, and Vladimir Putin, Russian president, who has made clear his desire for European fragmentation. Mr Hollande’s actions were also well received by the ruling Socialist party’s disaffected leftwingers, who harbour sympathy for Greece’s Syriza-led government. But this is not enough of an effort, either on Greece’s part or that of its partners. The agreement comes in the wake of massive austerity in Greece, amid deteriorating economic and fiscal conditions and in an environment where elementary pro-growth reforms have yet to be made. The danger is that the deal, and what should be a healing process in Europe, will be derailed.

One huge issue is implementation: the Greek government needs to improve the judicial system, write a new civil code, fight cartels in product markets and reform public administration very quickly. Such reforms should improve the country’s wellbeing, but enacting them speedily would be a tall order for even the best-organised administration. And it is here that the rest of Europe can and should help out. The fabled École nationale d’administration might offer a few tips, but this is not a question of énarques — as its graduates are known — parachuting into Athens, or of more European overlords appearing in Greece. It is instead one of using European know-how to provide technical assistance in areas where Greece needs it and where Syriza, like its predecessor governments, has failed to deliver.

Goals such as more efficient tax collection (particularly from the rich) and fighting clientelism are part of the agreement and are vital. But they come bundled with other measures, such as value added tax increases, that will stifle any recovery. Hence the need for more solidarity to help the Greeks move fast.

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Reich is right, of course. But why did he stay on in Bill Clinton’s cabinet when he disagreed so much on the repeal?

Hillary Clinton and Glass-Steagall (Robert Reich)

For more than six decades after 1933, Glass-Steagall worked exactly as it was intended to. During that long interval few banks failed and no financial panic endangered the banking system. But the big Wall Street banks weren’t content. They wanted bigger profits. They thought they could make far more money by gambling with commercial deposits. So they set out to whittle down Glass-Steagall. Finally, in 1999, President Bill Clinton struck a deal with Republican Senator Phil Gramm to do exactly what Wall Street wanted, and repeal Glass-Steagall altogether. What happened next? An almost exact replay of the Roaring Twenties. Once again, banks originated fraudulent loans and sold them to their customers in the form of securities. Once again, there was a huge conflict of interest that finally resulted in a banking crisis.

This time the banks were bailed out, but millions of Americans lost their savings, their jobs, even their homes. [..] To this day some Wall Street apologists argue Glass-Steagall wouldn’t have prevented the 2008 crisis because the real culprits were nonbanks like Lehman Brothers and Bear Stearns. Baloney. These nonbanks got their funding from the big banks in the form of lines of credit, mortgages, and repurchase agreements. If the big banks hadn’t provided them the money, the nonbanks wouldn’t have got into trouble. And why were the banks able to give them easy credit on bad collateral? Because Glass-Steagall was gone. Other apologists for the Street blame the crisis on unscrupulous mortgage brokers. Surely mortgage brokers do share some of the responsibility. But here again, the big banks were accessories and enablers.

The mortgage brokers couldn’t have funded the mortgage loans if the banks hadn’t bought them. And the big banks couldn’t have bought them if Glass-Steagall were still in place. I’ve also heard bank executives claim there’s no reason to resurrect Glass-Steagall because none of the big banks actually failed. This is like arguing lifeguards are no longer necessary at beaches where no one has drowned. It ignores the fact that the big banks were bailed out. If the government hadn’t thrown them lifelines, many would have gone under. Remember? Their balance sheets were full of junky paper, non-performing loans, and worthless derivatives. They were bailed out because they were too big to fail. And the reason for resurrecting Glass-Steagall is we don’t want to go through that ever again.

As George Santayana famously quipped, those who cannot remember the past are condemned to repeat it. In the roaring 2000’s, just as in the Roaring Twenties, America’s big banks used insured deposits to underwrite their gambling in private securities, and then dump the securities on their customers. It ended badly. This is precisely what the Glass-Steagall Act was designed to prevent – and did prevent for more than six decades. Hillary Clinton, of all people, should remember.

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All borrowed money anyway. Can someone please hold Brussels accountable?

Don Quixote Airport Cost €1bn – It Could Sell To China For €10,000 (Guardian)

It cost €1bn (£694m) to build and was on sale for a knockdown price of €40m, but now looks set to be sold for just €10,000. Ciudad Real airport, one of the most notorious emblems of Spain’s economic crash, has found a buyer. A Chinese-led consortium has emerged as the only bidder for the deserted site 100 miles south of Madrid, for an apparent bargain price after no one met the much reduced valuation. Its facilities include a runway long enough to land an Airbus A380, the world’s largest passenger plane, along with a passenger terminal that could handle 10m travellers per year. It is also in pristine condition because it has barely been used, having opened to international flights in 2010 as the eurozone crisis raged, only to shut two years later.

Appropriately for such a vainglorious project, the La Mancha airport was previously named after the region’s most famous, and deluded, literary export: Don Quixote. But Tzaneen International, a Chinese company set up in March with just €4,000 in capital, believes it can succeed where others have failed. Its bid – the only offer – succeeded at a public auction. Its initial €10,000 outlay buys all the land and most of the buildings, including the runway and control tower. Tzaneen says it also wants to acquire the terminal building and the car parks and is prepared to invest up to €100m in the project because “there are several Chinese companies that want to make the airport the European point of entry for cargo”.

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“I am sure that if they take back the drachma, they’ll have a year of trouble but then they will become paradise on earth with 10m people.“

Lunch with Beppe Grillo (FT)

[..] when I ask him directly what he thinks of the deal, he seems more discouraged than angry. “I don’t know, it’s always the same story. Every nation has lost its sovereignty.” This leads into the first of many tangents. “We’ve delegated politics to bankers. The ECB is inside Deutsche Bank and Deutsche Bank is inside the Bundesbank,” he says before moving on to mention Japanese “just-in-time” manufacturing and Britain’s zero-hour labour contracts. “They trick all the statistics because, if you work one hour, it means you’re employed.” As we nibble on pane carasau, a traditional Sardinian flatbread, I try to reel him back to the main question. A week earlier, Grillo had showed his support for Greece by making the trip to Athens’ Syntagma Square, after Tsipras had unexpectedly called a referendum on earlier bailout terms proposed by Brussels. The “No” vote — backed by Tsipras — won a resounding victory that night.

Now that plebiscite of defiance seems to have been pointless. Greece still needed funds to avoid default, and Tsipras had been forced to cave on many points to get it. So was it worth it, I ask? Grillo, who has been vocal about his desire for Italy to hold its own referendum on the euro, hesitates. “I think it helped clear up the notion that these decisions should be taken by the people, not others,” he says. As for Tsipras, he says: “If he sells out the country, that’s exactly what the Greeks don’t want.” The food arrives and the best of my antipasto is the seared tuna with peach, and the marinated salmon. Grillo loads his salad up with salt and that seems to rev him up a notch. He starts attacking “those people” who have a stranglehold on Europe’s economy.

“They have a kind of illness, it’s called alexithymia, which means difficulty recognising the emotions of others: pain, pleasure, joy,” he says. Does he mean people like Merkel and Jean-Claude Juncker, president of the European Commission? “Yes,” he responds. “They don’t care if they have to put tens of millions of people into hunger to balance an account, it’s collateral damage. We’ve entrusted our lives to people who know nothing about life,” he adds. I suggest that a referendum on euro membership might not appeal to Italians, given the scenes of economic distress they have witnessed in Athens in the past few weeks. But Grillo tells me I’m wrong because Italy’s experience with the single currency has been awful.

The Italian economy has only just started growing again — by 0.3% in the first quarter of this year, after a bruising triple-dip recession. Unemployment remains high — at 12.4% — and for the country’s youth that figure is more than 40%. “We entered monetary union from one day to the next, and they said it was for our own good,” he says. “Since then, all our economic, social and financial indicators have got worse.” The chaos in Athens has, he says, been wildly overstated. “I went there with bread, cheese and nylon socks, to help. I thought there would be people on the ground, screaming, ‘Aaaaaah!’ Instead, I found a splendid city, the restaurants were full. There were many tourists. You ate well — with €18 or €20. It was clean. I am sure that if they take back the drachma, they’ll have a year of trouble but then they will become paradise on earth with 10m people.”

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