Jun 292019
 
 June 29, 2019  Posted by at 10:09 am Finance Tagged with: , , , , , , , , , , ,  


Salvador Dali Paranoiac Woman-Horse (Invisible Sleeping Woman, Lion, Horse) 1930

 

Wall Street Wraps Up Its Best June In Generations (R.)
Not A Rate-Cut Economy (WS)
You Are Nuts To Think A July Interest-Rate Cut Is A Slam Dunk (MW)
Deutsche Bank To Fire Up To 20,000: One In Six Full-Time Positions (ZH)
China and US Agree To Restart Trade Talks (R.)
Russia-India-China Will Be The Big G20 Hit (Escobar)
Trump Offers To Meet Kim Jong-Un At The DMZ (R.)
Boeing 737 Max Likely Grounded Until The End Of The Year (CNBC)
Boeing 787 Dreamliner Caught In Deepening 737 MAX Probe (RT)
EU Leaders Decide Against Weber For Commission Presidency (R.)
Say Anything! (Kunstler)

 

 

And nobody cares that none of it is real… Or that 3/4 of Americans live paycheck to paycheck.

Wall Street Wraps Up Its Best June In Generations (R.)

Wall Street advanced in heavy trading on Friday, with the S&P 500 and the Dow closing the book on their best June in generations, ahead of much-anticipated trade talks between U.S. President Donald Trump and Chinese counterpart Xi Jinping at the G20 summit now underway in Japan. All three major U.S. stock indexes gained ground at the close of the week, month, quarter and first half of the year, during which time the U.S. stock market has had a remarkable run. The S&P 500 had its best June since 1955. The Dow posted its biggest June percentage gain since 1938, the waning days of the Great Depression.


From the start of 2019, after investors fled equities amid fears of a global economic slowdown, which sent stock markets tumbling in December, the benchmark S&P 500 jumped 17.3%, its largest first-half increase since 1997. “The market came to the realization that the world is not going to end,” said John Ham, financial adviser at New England Investment and Retirement Group in North Andover, Massachusetts. “Also, (Federal Reserve chair) Powell did a 180 since (the Fed’s) last (interest) rate hike, which has put wind in our sails in the first half of the year.”

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Mostly it all just sounds stupid to me.

Not A Rate-Cut Economy (WS)

The inflation index that the Fed has anointed to be the yardstick for its inflation target – the PCE price index without the volatile food and energy components – rose 0.19% in May from April, according to the Bureau of Economic Analysis this morning. This increase in “core PCE” was near the top of the range since 2010. It followed the 0.25% jump in April, which had been the third largest increase since 2010. Fed Chair Jerome Powell, at the press conference following the no-rate-hike FOMC meeting last week, gave a clear and succinct summary of the US economy. It was mostly in good shape, he said, in particular where it mattered the most: “All of the underlying fundamentals for the consumer-spending part of the economy, which is 70% of the economy, are quite solid,” he said.

[..] The Fed’s “symmetric” target is a 2% annual increase in the core PCE index, meaning the increase can fluctuate some above or below the target without causing the Fed to act. Core PCE inflation was in the 2%-range for much of last year. But early this year, the increases softened. So in his opening remarks at the press conference, Powell said that “committee participants expressed concerns about the pace of inflation’s return to 2 percent.” [..] a trigger for a rate cut would be a “sustained” period significantly below the 2% target. Inflation data is volatile and jumps up and down. Earlier this year, when core PCE inflation fell significantly below 2%, Powell said that the factors behind this low inflation were “transitory.”


Janet Yellen, when she was still Fed Chair, also used “transitory” to describe the factors that in early and mid-2017 were causing an actual dip in core PCE – which hasn’t happened this year. And a few months later, she was proven right. After today’s data on the increase in the core PCE index, following the jump in April, the three-month increase – March, April, and May – has now hit 0.50%. Annualized, this amounts to 2.0% core PCE inflation over the past three months, in the bull’s eye of the Fed’s symmetrical target, with the last two months being substantially above the Fed’s target. But note the sharp decline in January, February, and March, and how it has now reversed:

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The sooner the Fed is gone the better.

You Are Nuts To Think A July Interest-Rate Cut Is A Slam Dunk (MW)

The markets have gotten so used to the Federal Reserve doing whatever it takes to keep the S&P 500 and bond prices rising that traders and investors are now expecting the Fed to go against its own judgment and aggressively cut interest rates next month. In putting a 100% probability on a cut in the federal funds target rate at the next Fed meeting on July 30 and 31, traders — and the economists who advise them — seem to have forgotten how language and math work. Not to mention economics. Comments by Fed Chairman Jerome Powell in the past 10 days have indicated that the Fed is open to cutting rates if necessary to keep the expansion going, but there’s no sign that policy makers have made up their minds about a July cut — or any cut at all, for that matter.


Powell said it would depend, “you know, on actual data and evolving risks.” The Fed might very well deliver the rate cut that the market is demanding, but only if something significant changes in the next four and a half weeks. The Fed won’t cut rates because it promised to do so at the last Fed meeting (it didn’t). And it won’t cut rates because the U.S. economy is teetering on the edge of recession (it isn’t), or because inflation is dropping (uh-uh), or because fragile financial markets could use a shot of confidence (nope). Before they cut rates, Fed officials would want to see some hard evidence that the outlook for the economy has materially worsened since they met on June 19. About the only thing that would qualify would be a disastrous meeting between Donald Trump and China’s Xi Jinping this weekend.

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No more global player.

Wall Street may have the best June in generations, but not all of Wall Street.

Deutsche Bank To Fire Up To 20,000: One In Six Full-Time Positions (ZH)

While Deutsche Bank finally delivered some good news for a change to its long-suffering investors, when it miraculously failed to fail the latest Fed stress test, on Friday the chronically sick bank reverted to its “cutting into muscle” baseline when the largest German lender with the €45 trillion notional derivatives was said to be preparing “to cut as much as half its global workforce in equities trading as part of a broad restructuring to boost profitability”, according to Bloomberg with the WSJ adding that the total number could be between 15,000 and 20,000 job cuts, or more than one in six full-time positions globally. The cuts being contemplated by senior executives reflect an acceleration of Deutsche Bank’s downsizing and another major pullback from its global ambitions.


If followed through, the reduction would represent 16% to 22% of Deutsche Bank’s workforce of 91,463 employees, as disclosed by the bank as of the end of March. According to the proposed plan the bank will eliminate hundreds of positions in equities trading and research, as well as derivatives trading, and is expected to start informing staff of cuts – including in the U.S. and Asia – as soon as next month. Rates trading is also affected. While the move begs the question just how effective half of the bank’s equity trading desk was, it will likely be welcomed by the market even if by slashing revenue producers the bank confirms that its trading margins have dropped to negative levels, a virtually unheard of event.

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They should always talk.

China and US Agree To Restart Trade Talks (R.)

The United States and China agreed on Saturday to restart trade talks and that Washington would hold off on imposing new tariffs on Chinese exports, signaling a pause in the trade hostilities between the world’s two largest economies. The truce offered relief from a nearly year-long dispute in which the countries have slapped tariffs on billions of dollars of each other’s imports, disrupting global supply lines, roiling markets and dragging on global economic growth. “We’re right back on track and we’ll see what happens,” U.S. President Donald Trump told reporters after an 80-minute meeting with Chinese President Xi Jinping on the sidelines of a summit of leaders of the Group of 20 (G20) major economies in Japan.


Trump said while he would not lift existing import tariffs, he would refrain from slapping new levies on an additional $300 billion worth of Chinese goods – which would have effectively extended tariffs to everything China exports to the America. “We’re holding back on tariffs and they’re going to buy farm products,” he said at a news conference. “If we make a deal, it will be a very historic event.” Trump said China would buy more farm products but did not provide specifics. In a lengthy statement on the talks, China’s foreign ministry said the United States would not add new tariffs on Chinese exports and that negotiators of both countries would discuss specific issues. Xi told Trump he hoped the United States could treat Chinese companies fairly, the statement added.

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India and Iran.

Russia-India-China Will Be The Big G20 Hit (Escobar)

It all started with the Vladimir Putin–Xi Jinping summit in Moscow on June 5. Far from a mere bilateral, this meeting upgraded the Eurasian integration process to another level. The Russian and Chinese presidents discussed everything from the progressive interconnection of the New Silk Roads with the Eurasia Economic Union, especially in and around Central Asia, to their concerted strategy for the Korean Peninsula. A particular theme stood out: They discussed how the connecting role of Persia in the Ancient Silk Road is about to be replicated by Iran in the New Silk Roads, or Belt and Road Initiative (BRI). And that is non-negotiable.

Especially after the Russia-China strategic partnership, less than a month before the Moscow summit, offered explicit support for Tehran signaling that regime change simply won’t be accepted, diplomatic sources say. Putin and Xi solidified the roadmap at the St Petersburg Economic Forum. And the Greater Eurasia interconnection continued to be woven immediately after at the Shanghai Cooperation Organization (SCO) summit in Bishkek, with two essential interlocutors: India, a fellow BRICS (Brazil, Russia, India, China, South Africa) and SCO member, and SCO observer Iran.


At the SCO summit we had Putin, Xi, Narendra Modi, Imran Khan and Iranian President Hassan Rouhani sitting at the same table. Hanging over the proceedings, like concentric Damocles swords, were the US-China trade war, sanctions on Russia, and the explosive situation in the Persian Gulf. Rouhani was forceful – and played his cards masterfully – as he described the mechanism and effects of the US economic blockade on Iran, which led Modi and leaders of the Central Asian “stans” to pay closer attention to Russia-China’s Eurasia roadmap. This occurred as Xi made clear that Chinese investments across Central Asia on myriad BRI projects will be significantly increased.

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“While there, if Chairman Kim of North Korea sees this, I would meet him at the Border/DMZ just to shake his hand and say Hello(?)!”

Trump Offers To Meet Kim Jong-Un At The DMZ (R.)

U.S. President Donald Trump said on Saturday he would like to see North Korean leader Kim Jong Un this weekend at the demilitarized zone (DMZ) between North and South Korea, and North Korea said a meeting would be “meaningful” if it happened. Trump, who is in Osaka, Japan, for a Group of 20 summit, is due to arrive in South Korea later on Saturday. He is scheduled to return to Washington on Sunday. If Trump and Kim were to meet, it would be for the third time in just over a year, and four months since their second summit, in Vietnam, broke down with no progress on U.S. efforts to press North Korea to give up its nuclear weapons.


Trump made the offer to meet Kim in a comment on Twitter about his trip to South Korea. “While there, if Chairman Kim of North Korea sees this, I would meet him at the Border/DMZ just to shake his hand and say Hello(?)!” he said. Trump later told reporters his offer to Kim was a spur-of-the-moment idea: “I just thought of it this morning.” “We’ll be there and I just put out a feeler because I don’t know where he is right now. He may not be in North Korea,” he said. “If he’s there, we’ll see each other for two minutes, that’s all we can, but that will be fine,” he added. Trump said he and Kim “get along very well”.

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They still pretend it’s about software.

Boeing 737 Max Likely Grounded Until The End Of The Year (CNBC)

Boeing’s 737 Max could stay on the ground until late this year after a new problem emerged with the plane’s in-flight control chip. This latest holdup in the plane’s troubled recertification process has to do with a chip failure that can cause uncommanded movement of a panel on the aircraft’s tail, pointing the plane’s nose downward, a Boeing official said. Subsequent emergency tests to fix the issue showed it took pilots longer than expected to solve the problem, according to The Wall Street Journal. This marks a new problem with the plane unrelated to the issues Boeing is already facing with the plane’s MCAS automated flight control system, an issue the company maintains can be remedied by a software fix.


Boeing hopes to submit all of its fixes to the Federal Aviation Administration this fall, the Boeing official said. “We’re expecting a September time frame for a full software package to fix both MCAS and this new issue,” the official said. “We believe additional items will be remedied by a software fix.” Once that software package is submitted, it will likely take at least another two months before the planes are flying again. The FAA will need time to recertify the planes. Boeing will need to reach agreement with airlines and pilots unions on how much extra training pilots will need. And the airlines will need some time to complete necessary maintenance checks.

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There we go…

Boeing 787 Dreamliner Caught In Deepening 737 MAX Probe (RT)

Federal prosecutors are expanding their Boeing probe, investigating charges the 787 Dreamliner’s manufacture was plagued with the same incompetence that dogged the doomed 737 MAX and resulted in hundreds of deaths. The US Department of Justice has requested records related to 787 Dreamliner production at Boeing’s South Carolina plant, where two sources who spoke to the Seattle Times said there have been allegations of “shoddy work.” A third source confirmed individual employees at the Charleston plant had received subpoenas earlier this month from the “same group” of prosecutors conducting the ongoing probe into the 737 MAX.

Boeing is in the hot seat over alleged poor quality workmanship and cutting corners at the South Carolina plant. Prosecutors are likely concerned with whether “broad cultural problems” pervade the entire company, including pressure to OK shoddy work in order to deliver planes on time, one source told the Seattle Times. The South Carolina plant manufactured 45 percent of Boeing’s 787s last year, but its supersize -10 model is built exclusively there. Prosecutors are on the hunt for “hallmarks of classic fraud,” the source said, such as lying or misrepresentation to customers and regulators. Whistleblowers in the Charleston factory who pointed to debris and even tools left in the engine, near wiring, and in other sensitive locations likely to cause operating issues told the New York Times they were punished by management, and managers reported they had been pushed to churn planes out faster and cover up delays.


[..] A critical fire-fighting system on the Dreamliner was discovered to be dysfunctional earlier this month, leading Boeing to issue a warning that the switch designed to extinguish engine fires had failed in “some cases.” While the FAA warned that “the potential exists for an airline fire to be uncontrollable,” they opted not to ground the 787s, instead ordering airlines to check that the switch was functional every 30 days.

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Tidings from the Empire.

EU Leaders Decide Against Weber For Commission Presidency (R.)

European Union leaders have agreed that conservative German candidate Manfred Weber will not become president of the bloc’s executive Commission, Germany’s Die Welt daily reported on Friday, citing sources familiar with the decision. The decision was reached during talks on the sidelines of the G20 summit in Osaka, Japan, Die Welt said. If confirmed, the compromise would be a blow to Chancellor Angela Merkel, who had backed Weber’s bid to replace Jean-Claude Juncker. French President Emmanuel Macron had opposed Weber’s candidacy, partly because of his lack of experience in high office.

EU leaders failed at a summit earlier this month to agree on who should hold the bloc’s top jobs after European Parliament elections last month, including on the Commission, which has broad powers on matters from trade to competition and climate policy. Weber is the leader of the European People’s Party (EPP), the conservative bloc that won most seats in the election and which includes Merkel’s Christian Democrats (CDU). A senior European diplomat told Reuters that socialist Dutchman Frans Timmermans, a deputy head at the Commission, was the front-runner to succeed Juncker. “Timmermans is the best placed,” the diplomat said.


The EU’s 28 national leaders will meet on June 30 to decide who fills the five prominent positions that would help the bloc navigate through internal and external challenges. The jobs include the presidency of the European Central Bank, which has helped the bloc’s economy return to growth after the financial crisis thanks to an extraordinary monetary stimulus programme.

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“..a wayward jellyfish blown hither and yon by Progressive winds..”

Say Anything! (Kunstler)

Apart from the colorful homage to all things Mexican, the signal event of the night was Elizabeth Warren’s stealth political suicide when the popular question of Medicare-for-all came up and NBC’s Lester Holt asked the candidates for a show of hands as to who would abolish private health insurance altogether. Up shot Liz’s hand. Only New York’s mayor, the feckless Bill DeBlasio joined her. If the contest was a game of “Survivor” both would have thereby voted themselves off the island — except Big Bill was never really on the island, just circling around it like a wayward jellyfish blown hither and yon by Progressive winds.


The only “B” Team figure onstage who appeared to be a serious candidate was Hawaiian congressperson Tulsi Gabbard, a major in the US Army Reserve with tours-of-duty in Iraq and Kuwait — especially impressive when smacking down cretinous Ohio congressman Tim Ryan, who mistakenly asserted that the Taliban were behind 9/11. Uh, no, Tulsi informed him, it was al Qaeda (sponsored by our “friend” Saudi Arabia). I predict Tulsi will make the cut to the “A” team, despite the news media’s desperate efforts to shove her off the playing field.

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Jun 172019
 
 June 17, 2019  Posted by at 9:13 am Finance Tagged with: , , , , , , , , , , , ,  


Pablo Picasso The sculptor and his statue 1933

 

The Bleak Mood Of Pre-Brexit UK (O.)
Boeing May Never Recover From 737 Debacle (Auerback)
Huawei Prepares For 40%-60% Fall In International Smartphone Shipments (R.)
Huawei Moves To Russia-China Operating System (Escobar)
Deutsche Bank To Set Up €50 Billion Bad Bank (R.)
How Wall Street Got Rich Off The Fresh Market Deal (Cohan)
Japan Demands More Proof From US That Iran Attacked Tankers (JT)
The S-400 Is a Formidable Threat to US Arms Industry (Pieraccini)
While Lam Relents, Hong Kong Calls Massively For Her Ouster (AT)
Chinese Activists Seek UN Investigation Into Tiananmen Crackdown (R.)

 

 

Broken. Completely.

The Bleak Mood Of Pre-Brexit UK (O.)

The survey by BritainThinks reveals an astonishing lack of faith in the political system among the British people, with less than 6% believing their politicians understand them. Some 75% say that UK politics is not fit for purpose. As the Conservative party focuses on who its new leader should be, and the Brexit impasse continues with no solution in sight, 86% think the UK needs a strong leader more than ever – but only 21% think the next prime minister, whoever it may be, will be up to the job. Some 52% believe the country is heading for a Boris Johnson premiership.

Pollster Deborah Mattinson said she was shocked by the findings. “I have been listening to people in focus groups since the late 1980s and I cannot recall a time when the national mood was more despairing. ‘Broken’, ‘sad’, ‘worried’, ‘angry’– the negatives tumble out, as does the long list of grievances. I’m hearing anxieties voiced in a way that I haven’t heard since the 1990s: a rundown NHS, job insecurity, teacher shortages.” BritainThinks polled more than 2,000 people and hosted several focus groups in London and Leicester to gauge the national mood.

Almost three-quarters of the British public believe the divisions on Brexit between Leavers and Remainers will deepen and get worse within the next year. Two-thirds feel depressed by rising poverty and homelessness. While people say Brexit has made them more politically engaged – 40% are paying more attention since the 2016 referendum, rising to 50% in those aged between 18 and 24 – the polling suggests the bitter political debate over leaving the EU has shattered public trust in the way the nation is governed. Some 83% feel let down by the political establishment and almost three-quarters (73%) believe the country has become an international laughing stock and that British values are in decline.

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Ralph Nader says the 737 MAX should never fly again.

Boeing May Never Recover From 737 Debacle (Auerback)

Many of us are familiar with the acronym “FUBAR.” A recent New York Times article on the Boeing 737 fiasco provides a perfect illustration of the concept. We’re now learning that the company “built deadly assumptions” into its newly designed 737 Max aircraft and, specifically, its Maneuvering Characteristics Augmentation System (MCAS). Even worse, the Times account concludes that the recent air crashes that have resulted in a worldwide grounding of the Boeing Max plane “might have been avoided, if employees and regulators had a better understanding of MCAS” and if the US Federal Aviation Authority (FAA) itself was not operating with outdated data on the software changes (which Boeing failed to provide).

The analysis is excellent as far as it goes. But the most damning fact only briefly hinted at in the article is that the problems were evident as early as 2012, some five years before the newest 737 version was marketed and sold across the globe. “At its core, this was a hardware problem, not a software issue. Even when Boeing was using a relatively “safer” version of the early MCAS software (that was later changed to a more dangerous version), the new 737 still had an engine too large to be accommodated in its traditional spot on the plane, which ultimately distorted “the relationship between the engine’s ‘thrust’ and its center of gravity,” as I’ve written before. The resultant aerodynamic problems could not be solved with a software “solution,” no matter how “safe” the original MCAS version (that was ultimately changed to an even more dangerous version) was purported to be.”

Just don’t expect any blowback from Washington. The whole episode provides yet another sick illustration of how the entire system of governance in the US has degenerated into a fully fledged “predator state.” About the only good thing that might emerge from this whole fiasco is that Boeing will provide future Master of Business Administration students with a textbook example of how not to manage a crisis. Likewise, future historians and political scientists will marvel in incredulity at the magnitude of corruption that enveloped the US during this very dark time in the life of the republic. Assuming, of course, that there still anything left worth studying by that point.

[..] Recall that the genesis of this disaster was a problem of hardware, not just MCAS. The extra lift of the far larger-diameter engines of the 737 Max (placed on a different position on the wing) caused the plane to pitch up whenever it approached stall angles of attack at both high and low speeds. This is a problem that should have become glaringly obvious to the greenest of aerodynamics personnel at Boeing the moment the first wind-tunnel model was tested at angles of attack higher than stall (it may have even been obvious on even earlier fluid-dynamics computer-simulation results).

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“.. In order to offset overseas decline, Huawei is aiming to grab up to half of China’s smartphone market in 2019..”

Huawei Prepares For 40%-60% Fall In International Smartphone Shipments (R.)

Huawei Technologies Co Ltd is preparing for a 40% to 60% decline in international smartphone shipments, Bloomberg reported on Sunday. The Chinese technology company is looking at options that include pulling the latest model of its marquee overseas smartphone, the Honor 20, according to the article, which cited people familiar with the matter. The device will begin selling in parts of Europe, including Britain and France, on June 21, the report said. Executives will be monitoring the launch and may cut off shipments if the sales are poor, it said. Marketing and sales managers at the tech giant are internally expecting a drop in volumes of anywhere between 40 million to 60 million smartphones this year, the report said. In order to offset overseas decline, Huawei is aiming to grab up to half of China’s smartphone market in 2019, Bloomberg said.

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Be careful what you wish for. Sanctions made Russia stronger too.

Huawei Moves To Russia-China Operating System (Escobar)

Google cuts Huawei off Android; so Huawei may migrate to Aurora. Call it mobile Eurasia integration; the evolving Russia-China strategic partnership may be on the verge of spawning its own operating system – and that is not a metaphor. Aurora is a mobile operating system currently developed by Russian Open Mobile Platform, based in Moscow. It is based on the Sailfish operating system, designed by Finnish technology company Jolla, which featured a batch of Russians in the development team. Quite a few top coders at Google and Apple also come from the former USSR – exponents of a brilliant scientific academy tradition.

In 2014, Russian entrepreneur Grigory Berezkin started co-owning Jolla, and from 2016 his Mobile Platform company started developing a Russian version of the operating system. In 2018, Rostelecom, a state company, bought a 75% share in Open Mobile Platform. Ahead of the St Petersburg International Economic Forum last week, Huawei chairman Guo Ping discussed the possibility of adopting Aurora with Russian minister of digital development and communications, Konstantin Noskov. According to Guo, “China is already testing devices with the Aurora pre-installed.” In Moscow, before moving to St Petersburg, Presidents Putin and Xi Jinping discussed multiple possible deals; and these include Huawei-Aurora, as well as where to locate some of Huawei’s production lines in Russia.

Aurora could be regarded as part of Huawei’s fast-evolving Plan B. Huawei is now turbo-charging the development and implementation of its own operating system, HongMeng, a process that started no less than seven years ago. Most of the work on an operating system is writing drivers and APIs (application programming interfaces). Huawei would be able to integrate their code to the Russian system in no time. HongMeng, for its part, is a key project of Huawei 2012 Laboratories, the innovation, research and technological development arm of the Shenzhen colossus. No Google? Who cares? Tencent, Xiaomi, Vivo and Oppo are already testing the HongMeng operating system, as part of a batch of one million devices already distributed.

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Mutti is not happy.

Deutsche Bank To Set Up €50 Billion Bad Bank (R.)

Deutsche Bank is planning to overhaul its trading operations by creating a “bad bank” to hold tens of billions of euros of assets and shrinking or shutting its U.S. equity and trading businesses, the Financial Times reported on Sunday. The bad bank would house or sell assets valued at up to 50 billion euros ($56.06 billion)- after adjusting for risk – and comprise mainly long-dated derivatives, the FT reported, citing four people briefed on the plan. With the creation of the bad bank, Chief Executive Officer Christian Sewing is shifting the German lender away from investment banking and focusing on transaction banking and private wealth management, the newspaper said.


As part of the restructuring, the lender’s equity and rates trading units outside continental Europe will be shrunk or closed entirely, the report said. The bank is planning cuts at its U.S. equities business, including prime brokerage and equity derivatives, to win over shareholders unhappy about its performance, four sources familiar with the matter told Reuters in May. “As we said at the AGM on May 23, Deutsche Bank is working on measures to accelerate its transformation so as to improve its sustainable profitability. We will update all stakeholders if and when required,” Deutsche Bank said in an emailed statement on Sunday in response to the FT report.

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Grand theft auto made legal.

How Wall Street Got Rich Off The Fresh Market Deal (Cohan)

Take the case of the March 2016, $1.36 billion cash buyout of a supermarket chain, Fresh Market, by Apollo Global Management, the firm started by Leon Black nearly 30 years ago that now manages more than $300 billion. In that deal Apollo teamed up with Ray Berry, the company’s founder, and his son, Brett, to buy out the company’s public stockholders. Before the buyout the Berrys owned about 10% of the public Fresh Market. They agreed to roll over that stake into the newly private Fresh Market, giving them about the same ownership in the private company—worth somewhere between $136 million and $930 million, if the alchemy of leveraged buyouts worked out. Apollo would own the remaining 90% of the equity of the private company.

Because the deal was, in effect, a management buyout of the company, Fresh Market set up a special three-member committee of independent directors to evaluate the Apollo proposal, as well as any others that might come in over the transom after the company decided to put itself up for sale shortly after September 1, 2015. As professional referees, the special committee hired JPMorgan Chase as its financial adviser, and Cravath, Swaine & Moore as one of its legal advisers. Their job was to evaluate the various proposals to buy Fresh Market, a collection of 186 stores in 27 states as of March 2016, and to make sure that the one chosen was, in the parlance of Wall Street, “fair” to the public shareholders of the company “from a financial point of view.”

That’s when things got interesting, especially since Apollo was the only final bid the company received. According to a class action shareholder lawsuit that is still wending its way through the Delaware Court of Chancery, Apollo used its long-standing financial ties to JPMorgan Chase and Cravath to co-opt the process for the benefit of itself and the Berrys, allowing them to buy the company on the cheap. In effect, the lawsuit alleges, by teaming up with the Berrys on an exclusive basis, Apollo was able to buy Fresh Market knowing that its competition for the company would be at a severe disadvantage, without being able to count on the Berrys support, and that JPMorgan Chase would likely bless the fairness of the deal.

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Japan, Germany, Corbyn…

Japan Demands More Proof From US That Iran Attacked Tankers (JT)

The Japanese government has been requesting the United States for concrete evidence to back its assertion that Iran is to blame for the attacks on two tankers near the Strait of Hormuz on Thursday, government sources said Sunday. The request came after U.S. Secretary of State Mike Pompeo gave a statement hours after the attacks blaming Iran but without offering proof. The Department of Defense later released a video allegedly showing an Iranian patrol boat removing an unexploded mine attached to the side of the Japanese-operated tanker Kokuka Courageous. But Japanese government officials remain unconvinced, the sources said. “The U.S. explanation has not helped us go beyond speculation,” said one senior government official.


Japan has been seeking more concrete evidence through various channels, including Foreign Minister Taro Kono who is likely to have made the request during a call with his counterpart on Friday, the sources said. Pompeo said in a press conference Thursday that the United States’ assessment was based on their “intelligence, the weapons used, the level of expertise needed to execute the operation, recent similar Iranian attacks on shipping, and the fact that no proxy group operating in the area has the resources and proficiency to act with such a high degree of sophistication.” A source close to Prime Minister Shinzo Abe said, “These are not definite proof that it’s Iran.” “Even if it’s the United States that makes the assertion, we cannot simply say we believe it,” he said.

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AI at its best.

The S-400 Is a Formidable Threat to US Arms Industry (Pieraccini)

The US finds itself faced with a situation it has not found itself in over the last 50 years, namely, an environment where it does not expect to automatically enjoy air superiority. Whatever semblance of an air defense that may have hitherto been able to pose any conceivable threat to Uncle Sam’s war machine was rudely dismissed by a wave of cruise missiles. To give two prime examples that occurred in Syria in 2018, latest-generation missiles were intercepted and shot down by decades-old Russian and Syrian systems. While the S-400 system has never been employed in Syria, it is noteworthy that the Serbian S-125 systems succeeded in identifying and shooting down an American F-117 stealth aircraft during the war in the Balkans.

There is a more secret aspect of the S-400 that is little disclosed, either within Russia itself or without. It concerns the S-400’s ability to collect data through its radar systems. It is worth noting Department of Defense spokesman Eric Pahon’s alarm over Turkey’s planned purchase of the S-400: “We have been clear that purchasing the S-400 would create an unacceptable risk because its radar system could provide the Russian military sensitive information on the F-35. Those concerns cannot be mitigated. The S-400 is a system built in Russia to try to shoot down aircraft like the F-35, and it is inconceivable to imagine.

Certainly, in the event of an armed conflict, the S-400’s ability to shoot down fifth-generation aircraft is a huge concern for the United States and her allies who have invested so heavily in such aircraft. Similarly, a NATO country preferring Russian to American systems is cause for alarm. This is leaving aside the fact that the S-400 is spreading around the world, from China to Belarus, with dozens of countries waiting in line for the ability to seal their skies from the benevolent bombs of freedom. It is an excellent stick with which to keep a prowling Washington at bay.

[..] The ability of the S-400 to collect data on both the F-35 and F-22 – the crown jewels of the US military-industrial complex – is a cause for sleepless nights for US military planners. What in particular causes them nightmares is that, for the S-400 to function in Turkey, it will have to be integrated into Turkey’s current “identification friend or foe” (IFF) systems, which in turn are part of NATO’s military tactical data-link network, known as Link 16.

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2 million. Beijing has said it stands behind her.

While Lam Relents, Hong Kong Calls Massively For Her Ouster (AT)

Hong Kong’s embattled Chief Executive Carrie Lam issued a public apology Sunday evening (June 16) as hundreds of thousands of protestors dressed in black clogged the city’s streets in another massive protest demanding her resignation and the scrapping of a contentious bill that would allow for the extradition of suspects to mainland China. A day after Lam announced a surprise decision to indefinitely postpone the bill in a press conference on Saturday, the city’s leader vowed to “sincerely and humbly accept all criticism and to improve and serve the public” in a statement released at 8:30 pm as chanting crowds stood outside the gates of her office calling for her to step down.


“Carrie Lam’s press conference yesterday just made Hong Kong people angrier. We don’t think she will step down, but we must force her out,” said 27-year-old Chiew minutes before demonstrators began marching from Victoria Park in the scorching afternoon heat with the aim of forcing the government to rescind, rather than postpone, the controversial bill. Gripped by a surge of mass dissent, the Asian financial hub has been thrust into political crisis amid the largest political demonstrations and some of the worst scenes of violence since Hong Kong’s return to Chinese rule in 1997. Organizers from the Civil Human Rights Front said almost two million people took part in Sunday’s march.


Protest organizers said almost two million people took part in a mammoth June 16 protest march. Photo: Nile Bowie

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Yeah, that’s going to happen.

Chinese Activists Seek UN Investigation Into Tiananmen Crackdown (R.)

More than 20 Chinese activists who took part in the Tiananmen Square pro-democracy movement called on Monday on the United Nations’ top human rights body to investigate Beijing’s deadly crackdown 30 years ago. Wang Dan and 21 others, backed by the group Chinese Human Rights Defenders, said they had submitted the complaint to the U.N. Human Rights Council, a Geneva forum which opens a three-week session on June 24. “We request the HRC investigate the gross violations of human rights and fundamental freedoms committed by the Chinese government during its military assault on peaceful protests,” they said in statement.


They also sought action over “the consistent pattern of human rights violations in persecuting Chinese citizens during the past three decades who broke the silence” about the events of June 3-4, 1989. The anniversary remains taboo in China. Beijing has not held a public inquiry nor permitted an independent investigation, the statement said. Beijing enjoys strong support among developing countries at the Human Rights Council, a 47-member state forum that has never adopted a resolution on China since being set up in 2006.

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Aug 052018
 
 August 5, 2018  Posted by at 8:57 am Finance Tagged with: , , , , , , , , , , ,  


Claude Monet Hollowed Cliff near Étretat 1883

 

The Real Threat To The Fed’s Independence Is Wall Street, Not Trump (WM)
The Trillion-Dollar Question: Can The Tech Giants Keep Growing? (G.)
Light It Up (Kunstler)
IMF Option Looms Larger For Turkey Amid Row With US (AL M.)
Beware the Slippery Slope of Facebook Censorship (Matt Taibbi)
Why Theresa May Must Stop The Brexit Clock (O.)
UK Trade Minister Fox Says EU Is Pushing Britain To No-Deal Brexit (R.)
Separating Children From Their Parents Puts UK Government To Shame, Too (O.)
Britain’s Economics Students Are Dangerously Poorly Educated (G.)
How Reality Is Being Redefined (Slog)
Greece’s Unemployment Highest in Developed World (GR)
Greece: An Economy That Has Shrunk So Much It Looks War-Torn (WaPo)

 

 

But we’ve given them all the power…

The Real Threat To The Fed’s Independence Is Wall Street, Not Trump (WM)

[..] the real threat to the Fed’s independence isn’t coming from Trump—it’s coming from Wall Street. The Fed’s structural flaws have led to regulatory capture, which compromises its ability to set monetary and regulatory policy in a manner that isn’t tilted to favor those at the very top of the economic ladder. Trump may have broken a norm by commenting on monetary policy, but the Fed’s status quo is unaccountable, opaque decision-making shaped by deep conflicts of interest with the very financial institutions the Fed is ostensibly supposed to supervise. Consider, for instance, the abrupt resignation in March of David Cote from the New York Fed’s board of directors—a move that came as a shock to many Fed watchers.

Cote was one of just a couple people responsible for choosing the next president of the New York Fed, the most powerful economic policymaking position in the country that Trump doesn’t control. Yet before the search for New York Fed President Bill Dudley’s successor had formally concluded, Cote left the board to pursue “new business opportunities that could affect his eligibility to serve”—later revealed to be helping Goldman Sachs undertake an ambitious corporate acquisition strategy. The New York Fed claims that Cote and his fellow board members had already decided on former San Francisco Fed President John Williams to succeed Dudley by the time that Cote announced his resignation, but that means that Cote was simultaneously negotiating a new gig at Goldman Sachs while selecting one of Goldman’s top regulators.

The entire ordeal served as an unsettling reminder of the cozy relationship between the Federal Reserve and the biggest behemoth on Wall Street. Prior to being selected as New York Fed president in 2009, Dudley was Goldman Sachs’s chief economist. In 2008, Goldman Sachs Director Stephen Friedman chaired the New York Fed’s board of the directors at the same moment that it was reviewing Goldman’s application to become a bank holding company. In 2014, leaked tapes exposed New York Fed regulators pressuring one of their examiners to back off of a finding that would have imperiled Goldman Sachs’s ability to engage in a deal with Banco Santander. And in 2015, the Fed chose three consecutive men with strong ties to Goldman Sachs to be new Federal Reserve Bank presidents.

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Only if we let them.

The Trillion-Dollar Question: Can The Tech Giants Keep Growing? (G.)

It has been a tumultuous couple of weeks for America’s high-flying technology stocks, even by their own unique standards. Their shares have been soaring since the start of the year, despite being buffeted by trade war fears as President Trump talked of limiting Chinese investments in the US and restricting American technology imports to China. But now there are signs that cracks may be starting to appear in some of the biggest firms in the sector. Facebook suffered the biggest ever one-day drop in a company’s market value – losing more than £90bn – after its growth slowed in the wake of the Cambridge Analytica scandal. Twitter lost 20%, or $5bn, as it reported a surprise fall in active monthly users, while streaming service Netflix missed its targets for subscriber numbers.

On the other hand, electric car specialist Tesla managed to head in the right direction despite making a $717m second-quarter loss, as its controversial chief executive, Elon Musk, regained investor confidence after apologising for previous outbursts. That was in marked contrast to a conference call for the company’s previous set of figures, when he accused a Wall Street analyst of “boring bonehead questions” and ignored queries from investors. But the pick of the bunch remains Apple, which beat Amazon and Google to reach the landmark $1 trillion valuation on Thursday.

Despite the recent rollercoaster ride, the five key tech stocks, known as the “Faangs” – Facebook, Amazon, Apple, Netflix, and Alphabet-owned Google – have reached breathtaking heights. The total value of the five companies amounts to a staggering 19% of total US GDP. But their surge in value has prompted fears of a re-run of the dotcom boom of the late 1990s, when technology businesses dominated the stock market before coming crashing to earth. Russ Mould at investment group AJ Bell says: “That [19%] compares to the 15.5% of US GDP reached by the five biggest companies by value at the US stock market’s peak in the fourth quarter of 1999, just before the technology, media and telecoms bubble burst and that particular mania came to grief.”

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“That’s my theory about what Russia is up to. If you have a better one, let’s hear it?”

Light It Up (Kunstler)

The Guardians of the Galaxy at National Public Radio were beside themselves Wednesday night reporting that “the lights are blinking red for a 2018 election attack by Russia.” Well, isn’t that an interesting set-up? In effect, NPR is preparing its listeners in advance to reject and dispute the coming midterm election if they’re not happy with the results. Thus continues America’s institutional self-sabotage, with the help of a news media that’s become the errand boy of the Deep State.

What do I mean by the Deep State? The vested permanent bureaucracy of Washington DC, and especially its vastly overgrown and redundant “Intel Community,” which has achieved critical mass to take on a life of its own within the larger government, makes up its own rules of conduct, not necessarily within the rule of law, and devotes too much of its budget and influence defending its own prerogatives rather than the interests of the nation.

Personally, I doubt that President Putin of Russia is dumb enough to allow, let alone direct, his intel services to lift a finger “meddling” in the coming US midterm election, with this American intel behemoth vacuuming every digital electron on earth into the NSA’s bottomless maw of intercepted secrets. Mr. Putin must have also observed by now that the US Intel Community is capable of generating mass public hallucinations, to the beat of war-drums, and determined not to give it anything to work with. That’s my theory about what Russia is up to. If you have a better one, let’s hear it?

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Turkey double-crossed the US in a prisoner swap deal. Bad idea of course. Erdogan wants Gulen, but this is not the way.

IMF Option Looms Larger For Turkey Amid Row With US (AL M.)

While the climate of uncertainty is discouraging investments, inflation is eroding real incomes and curbing domestic consumption. As a result, the shrinking demand is bearing on economic growth, which has relied largely on the domestic market. The Turkish economy, which grew 7.4% in 2017, is expected to slow in the third quarter before beginning to contract.

The growing uncertainties are discouraging also the inflow of hot money from abroad, which Turkey desperately needs. Moreover, existing foreign investors have been fleeing the Turkish stock market, albeit slowly — a trend that contributes to sustaining the high prices of foreign exchange, especially the dollar. Accordingly, Turkey’s risk premium — reflected in credit default swaps (CDS) — is on the rise. Turkey’s CDS, which had stood at 166 basis points Feb. 1 and 199 basis points May 1, hit a record high of 334 basis points on the evening of Aug. 1 — up from 321 points in the morning. The increasing risk premium means that Turkey will now face higher interest rates when it tries to borrow from foreign creditors.

The country’s external financing needs for the next 12 months amount to $230 billion, including $180 billion to roll over external debts and $50 billion to cover its gaping current account deficit. Hence, the question of how the required funds will be secured and at what cost is crucial. The tensions with Washington came amid this already serious crunch, exacerbating the woes of Erdogan’s regime. The row over Brunson had flared last week, as both President Donald Trump and Vice President Mike Pence threatened sanctions unless Ankara took “immediate action” to release the pastor, who is being held on what Washington sees as bogus charges of espionage and collaboration with terrorist groups.

The warnings had an immediate economic effect, pushing up Turkey’s risk premium, as pundits sought to predict the scope of the upcoming sanctions. Some suggested that Washington’s hardening stance would bear on the flow of foreign capital to Turkey and the support it might seek from the IMF, while others saw trouble looming over Halkbank, the Turkish public lender embroiled in a scheme to evade US sanctions against Iran. Ultimately, Washington announced sanctions on Interior Minister Suleyman Soylu and Justice Minister Abdulhamit Gul under the 2016 Magnitsky Act, which targets individuals and entities involved in human rights abuses. According to Bloomberg, this “could be just the start of what would look like a US assault on Turkey’s vulnerable economy,” including a potentially hefty fine on Halkbank.

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There’s Mark Warner again, the guy who with Comey screwed up the Assange deal with the DOJ.

Beware the Slippery Slope of Facebook Censorship (Matt Taibbi)

You may have seen a story this week detailing how Facebook shut down a series of accounts. As noted by Politico, Facebook claimed these accounts “sought to inflame social and political tensions in the United States, and said their activity was similar — and in some cases connected — to that of Russian accounts during the 2016 election.” Similar? What does “similar” mean? The death-pit for civil liberties is usually found in a combination of fringe/unpopular people or ideas and a national security emergency. This is where we are with this unsettling new confab of Facebook, Congress and the Trump administration.

Read this jarring quote from Sen. Mark Warner (D-VA) about the shutting down of the “inauthentic” accounts: “Today’s disclosure is further evidence that the Kremlin continues to exploit platforms like Facebook to sow division and spread disinformation… I also expect Facebook, along with other platform companies, will continue to identify Russian troll activity and to work with Congress…” This was in a story in which Facebook stated that it did not know the source of all the pages. They might be Russian, or they might just be Warner’s idea of “sowing division.” Are we comfortable with that range of possibilities?

[..] Facebook was “helped” in its efforts to wipe out these dangerous memes by the Atlantic Council, on whose board you’ll find confidence-inspiring names like Henry Kissinger, former CIA chief Michael Hayden, former acting CIA head Michael Morell and former Bush-era Homeland Security chief Michael Chertoff. (The latter is the guy who used to bring you the insane color-coded terror threat level system.) These people now have their hands on what is essentially a direct lever over nationwide news distribution. It’s hard to understate the potential mischief that lurks behind this union of Internet platforms and would-be government censors. As noted in Rolling Stone earlier this year, 70 percent of Americans get their news from just two sources, Facebook and Google. As that number rises, the power of just a few people to decide what information does and does not reach the public will amplify significantly.

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Makes sense. But too much of the whole thing doesn’t.

Why Theresa May Must Stop The Brexit Clock (O.)

May’s cabinet colleagues, fanning out across the continent like Patton’s Third Army to advance her Chequers compromise, do not appear to have fared any better. Especially embarrassing are the efforts of Jeremy Hunt, the new foreign secretary. He gravely warned puzzled Europeans last week that Britain was heading for “no-deal by accident” by pushing itself off a cliff. The UK would not “blink first”, he added. Perhaps Hunt thinks he is Clint Eastwood. It matters not. On Brexit, this government has its eyes tight shut. It is blind to the consequences – and the waiting chasm. Blinking does not come into it. What part of the EU’s unchanging position on the principles governing Britain’s future relationship with Europe does May’s government not understand?

For two years or more, Barnier, the chief negotiator, firmly backed by 27 governments, has been telling London there can be no compromise and no fudge that weakens the integrity of the single market, pan-European customs and legal regulations and Europe’s borders. Yet May’s Chequers plan, seeking exceptional (and unworkable) arrangements, blithely ignores all that. In case the European public did not appreciate what was at stake, or was taken in by chauvinistic Tory claims of EU vindictiveness and dogmatism, Barnier published an op-ed in 20 European newspapers last week. Amid Brexit’s baffling complexities, his concision and clarity were refreshing. He explained the EU’s justified fears about the impact of Brexit on Europe and why it cannot reasonably be expected to bow to May’s demands for special treatment:

“The UK knows well the benefits of the single market. It has contributed to shaping our rules over the last 45 years. And yet some UK proposals would undermine our single market, which is one of the EU’s biggest achievements. The UK wants to keep free movement of goods between us, but not of people and services. And it proposes to apply EU customs rules without being part of the EU’s legal order. The UK wants to take back sovereignty and control of its own laws, which we respect, but it cannot ask the EU to lose control of its borders and laws,” Barnier wrote.

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Oh, yeah, they’re going to blame it on the EU.

UK Trade Minister Fox Says EU Is Pushing Britain To No-Deal Brexit (R.)

British trade minister Liam Fox said “intransigence” from the European Union was pushing Britain toward a no-deal Brexit, in an interview published on Saturday by the Sunday Times. With less than eight months until Britain quits the EU, the government has yet to agree a divorce deal with Brussels and has stepped up planning for the possibility of leaving the bloc without any formal agreement. Fox, a prominent Brexit supporter in Prime Minister Theresa May’s cabinet, put the odds of Britain leaving the European Union without agreeing a deal over their future relationship at 60-40. “I think the intransigence of the commission is pushing us toward no deal,” Fox told the Sunday Times after a trade mission in Japan.

“We have set out the basis in which a deal can happen but if the EU decides that the theological obsession of the unelected is to take priority over the economic wellbeing of the people of Europe then it’s a bureaucrats’ Brexit — not a people’s Brexit — (and) then there is only going to be one outcome.” It was up to the EU whether it wanted to put “ideological purity” ahead of the real economy, Fox said. If Britain fails to agree the terms of its divorce with the EU and leaves without even a transition agreement to smooth its exit, it would revert to trading under World Trade Organization rules in March 2019.

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All sociopaths do it. They are defined by their lack of empathy.

Separating Children From Their Parents Puts UK Government To Shame, Too (O.)

Donald Trump’s policy of forcibly separating immigrant parents and children at the US border has been greeted with shock and abhorrence. Around the world, people have listened to audio of young children sobbing for their parents while federal agents crack jokes and heard the stories of children locked up in cages in the richest country in the world. Even the prime minister broke with her usual timidity about Trump’s transgressions to call his family separation policy “deeply disturbing”. What hypocrisy. Less noticed – although no less inhumane – is the British government’s policy of separating parents from their young children as part of immigration detention, all conducted on Theresa May’s watch, first as home secretary, then as prime minister.

Charities such as Bail for Immigration Detainees (BID) have for years been raising the cases of children, many of whom are British citizens, taken into care because their parents have been detained, or even deported, without them. In recent months, a long list of cruelties meted out in the name of the government’s “hostile environment” policy has come to the public’s attention: people who’ve lived in Britain legally for decades, paying their taxes, suddenly denied life-saving NHS care; young people who’ve grown up in Britain facing many thousands of pounds in fees and a multi-year slog to get permanent residency; children raised in care facing the risk of deportation as an adult to a country they don’t know. Any sense of basic justice or human compassion seems to have eluded the Home Office.

But separating tiny children from their parents is cruelty of a whole different order. Today, we report on the case of Kishi, a young mother who dropped her two-year-old off at nursery in order to attend an appointment at an immigration reporting centre. There, she was restrained by immigration security officials and taken to an immigration removals centre. No arrangements were made for her toddler, who was put into emergency foster care when no one came to pick her up, and Kishi was not told where her daughter was for two days. It was another month before she saw her. Kishi and her child are not alone. BID says more than 300 children were removed from their parents in the last 12 months, an increase of 16% on the previous year. Many of those will have been taken into care as a result. The Home Office does not keep records on this; perhaps because it contravenes its own guidance, which says children must not be separated from their parents for immigration purposes if it means they will be taken into care.

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Sometimes I think in Britain it’s not only the economists.

Britain’s Economics Students Are Dangerously Poorly Educated (G.)

This month, the pressure group Rethinking Economics said Britain’s universities were failing to equip economics students with the skills that businesses and the government say they need. Following extensive interviews with employers, including organisations such as the Bank of England, it found that universities were producing “a cohort of economic practitioners who struggle to provide innovative ideas to overcome economic challenges or use economic tools on real-world problems”. Moreover, the group said, “when political decisions are backed by economics reasoning, as they so often are, economists are unable to communicate ideas to the public, resulting in a large democratic deficit.”

You could easily level that criticism at the economists forecasting the impact of AI. What are people supposed to think when those who study the field come up with such wildly varying predictions? More importantly, what will politicians think they should do? Nothing, probably, given the confusion. The Rethinking group is concerned that university departments only train, rather than educate, huge numbers of graduates for econometrics jobs across the banking, insurance and consulting sectors. In our increasingly student-led system, these young people don’t want to mess around with history or modules on inequality. They are on a mission to make money for themselves in the private sector.

If they were diverted into discussions of economic history, they might find out we are about to repeat the mistakes of the past and trigger another financial crisis. Even more inhibiting, their course might show that higher inequality dampens workers’ incentives to increase productivity, and might prompt them to ask why young economists in the City are paid colossal amounts of money to analyse bond yields or forecast oil prices. Pay them less, share the money around, and productivity might improve. Failing that, let a robot do their job.

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John put something like dictatorship in the title. Bit much.

How Reality Is Being Redefined (Slog)

The last burgeoning growth sector on the Planet is the pursuit of redefinition. The idea is first to confuse, then create a climate of acceptance, and finally do away with every form of liberty that stands in the way of power. Both Capital and Labour are actively following the same road. It will be the end of the road for citizen freedom unless they’re both stopped. John Williams at Shadowstats.com reckons that the real unemployment rate in the US is 21.4%. Unimpressed by the US State’s insane assumption that all those no longer able to claim unemployment welfare “have found a job”, Mr Williams provides further fuel for my longstanding thesis that no real recovery can occur – if more and more mass-market consumers work fewer and fewer hours for less and less money or have no job at all – because their personal disposable income is disappearing out of sight. The term ‘in employment’ has been redefined.

When he arrived at the UK Treasury as Chancellor, George Osborne immediately gave notice that he’d be switching from the higher RPI measure of inflation (then at 5.2%) to the lower CPI at 4.5%. That doesn’t sound like much, but one has to remember two things: first, that is a 14% difference in levels that makes inflation look much lower; and second, over time the different impression given is huge: from 1996 to 2011, under the RPI system prices rose 53.6%….but using the CPI method, it only came to 35.6%. Significantly, the CPI system excludes financial services costs and government charges to the consumer. Just fancy that. So the term ‘inflation’ has been redefined.

Within two years of taking office, the Conservative-led coalition’s leader David Cameron started claiming that “the Government’s long-term economic plan is working to create more jobs”. Government Party Political Broadcasts showed the statistics, and yes, it certainly looked that way. But “a job” to most people over the last half century meant 38-40 hours a week with a month’s notice. When analysed, these new jobs were averaging 20 hours a week, often at unsocial hours and frequently on no contracts at all. They typically demand, for example, that the “employee” be ready to come into the workplace without notice. When using the weasel term ‘job’, Cameron was comparing meat and two veg with bread and dripping. So the term ‘job’ has been redefined.

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One thing: people earning a low income ‘rate’ is much higher than 10.6%, and up by much more than 2% in 10 years. Lost in translation?

Greece’s Unemployment Highest in Developed World (GR)

Greece tops all countries in the developed world in unemployment according to the Organization for Economic Cooperation and Development’s (OECD) Employment Outlook 2018. Greece has suffered a dramatic spike in unemployment, with the 2017 total climbing to 21.7% of the working population, more than double the 2006 figure.

Large increases in unemployment and an underutilized workforce were accompanied by falling output, very high debt, a serious GDP deficit and deflation, the report says. Along with its impact on employment levels, the financial crisis caused a reduction in wage growth in a lot of countries, leading to a drop in living standards for many.

The proportion of working-age people earning the “low-income” rate jumped to 10.6%, up from 9.56% a decade earlier. Although Korea, Mexico, and Chile have seen a decrease in the number of low-income households, most of the countries hit hardest by the euro crisis, such as Greece, Italy, Spain and Slovenia, have suffered a 2% rise.

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Thank you Brussels and Berlin.

Greece: An Economy That Has Shrunk So Much It Looks War-Torn (WaPo)

The point is that this kind of economic collapse is usually the symptom of a broader state collapse. Which is why it almost never happens in rich countries. That’s clear enough if you look at the late Angus Maddison’s historical GDP per capita numbers. Going back to 1900, there have been only three general times when European economies have shrunk over a 10-year period as much as Greece’s has since 2008: after World War I, after World War II and after the fall of communism. Most of the exceptions to this involve other wars – in particular, the Balkan wars of the 1910s, the Spanish Civil War, the Greek Civil War and the Yugoslav wars of the 1990s — but there is one that largely took place during peacetime. That was Weimar Germany’s hyperinflation.

It’s worth pointing out what isn’t here: the Great Depression. That wasn’t quite as bad in Europe as it was in the United States — at its nadir in 1933, the U.S. 10-year decline was actually comparable to Greece’s today — partly due to the fact that most European countries were quicker to leave the gold standard when things did start to get more dire. That allowed them to inject enough monetary stimulus into their economies to jump-start almost immediate recoveries. The problem, of course, is that it’s a lot harder for Greece to do the equivalent of that right now. The gold standard and the euro are similar in that they are both fixed-exchange rate systems that can get countries into trouble if they are hit by a big enough shock that their economy “needs” a cheaper currency than it has under the system.

But they’re different in that it’s a lot simpler to say your currency won’t be worth as much gold as it used to than to replace all of your currency with a new one. So instead of stimulus, Greece has gotten austerity — and a lot of it. Under the terms of its just-about-to-be-completed bailout agreement, Greece is actually supposed to keep running primary budget surpluses of at least 2.2 percent of GDP until 2060. That’s right: four more decades of austerity. It’s no wonder, then, that Greece’s economy might not get back to where it was in 2008 until 2030. This is what Europe calls a success: an economy that has shrunk so much it looks war-torn.

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Aug 242017
 
 August 24, 2017  Posted by at 9:11 am Finance Tagged with: , , , , , , , , , ,  


Egon Schiele Meadow, Church and Houses 1912

 

Wall Street Banks Warn Downturn Is Coming (BBG)
Big US Banks Could See Profit Jump 20% With Deregulation (BBG)
ECB Chief Draghi: QE Has Made Economies More Resilient (BBC)
Yellen’s Coming Speech Could Mark The ‘End Of An Era’ (BI)
Here’s Why New Home Sales Tanked (CNBC)
Autos Put Economic Downside Risks on Full Display (DDMB)
Merkel Aide Says Germany Has ‘Vital Interest’ in Diesel Survival (BBG)
China’s ‘Belt And Road’ Could Be Next Risk To Global Financial System (CNBC)
Being Here (Brodsky)
All The Countries The USA Has Invaded, In One Map (Indy)
America, Home of the Transactional Marriage (Atlantic)

 

 

More cycles.

Wall Street Banks Warn Downturn Is Coming (BBG)

HSBC, Citigroup and Morgan Stanley see mounting evidence that global markets are in the last stage of their rallies before a downturn in the business cycle. Analysts at the Wall Street behemoths cite signals including the breakdown of long-standing relationships between stocks, bonds and commodities as well as investors ignoring valuation fundamentals and data. It all means stock and credit markets are at risk of a painful drop. “Equities have become less correlated with FX, FX has become less correlated with rates, and everything has become less sensitive to oil,” Andrew Sheets, Morgan Stanley’s chief cross-asset strategist, wrote in a note published Tuesday. His bank’s model shows assets across the world are the least correlated in almost a decade, even after U.S. stocks joined high-yield credit in a selloff triggered this month by President Donald Trump’s political standoff with North Korea and racial violence in Virginia.

Just like they did in the run-up to the 2007 crisis, investors are pricing assets based on the risks specific to an individual security and industry, and shrugging off broader drivers, such as the latest release of manufacturing data, the model shows. As traders look for excuses to stay bullish, traditional relationships within and between asset classes tend to break down. “These low macro and micro correlations confirm the idea that we’re in a late-cycle environment, and it’s no accident that the last time we saw readings this low was 2005-07,” Sheets wrote. He recommends boosting allocations to U.S. stocks while reducing holdings of corporate debt, where consumer consumption and energy is more heavily represented. That dynamic is also helping to keep volatility in stocks, bonds and currencies at bay, feeding risk appetite globally, according to Morgan Stanley. Despite the turbulent past two weeks, the CBOE Volatility Index remains on track to post a third year of declines.

Oxford Economics macro strategist Gaurav Saroliya points to another red flag for U.S. equity bulls. The gross value-added of non-financial companies after inflation – a measure of the value of goods after adjusting for the costs of production – is now negative on a year-on-year basis. “The cycle of real corporate profits has turned enough to be a potential source of concern in the next four quarters,” he said in an interview. “That, along with the most expensive equity valuations among major markets, should worry investors in U.S. stocks.” The thinking goes that a classic late-cycle expansion – an economy with full employment and slowing momentum – tends to see a decline in corporate profit margins. The U.S. is in the mature stage of the cycle – 80% of completion since the last trough – based on margin patterns going back to the 1950s, according to Societe Generale.

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They warn about a downturn, but not for themselves. Their asses are covered.

Big US Banks Could See Profit Jump 20% With Deregulation (BBG)

The deregulation winds blowing through Washington could add $27 billion of gross profit at the six largest U.S. banks, lifting their annual pretax income by about 20%. JPMorgan Chase and Morgan Stanley would benefit most from changes to post-crisis banking rules proposed by Donald Trump’s administration, with pretax profit jumping 22%, according to estimates by Bloomberg based on discussions with analysts and the banks’ own disclosures. Goldman Sachs would have the smallest percentage increase, about 16%. Bloomberg’s calculations are based largely on adjustments banks could make to the mix of securities they hold and the interest they earn from such assets. The proposed changes would allow the largest lenders to take on more deposits, move a greater portion of their excess cash into higher-yielding Treasuries and municipal bonds, and issue a lower amount of debt that costs more than customer deposits.

Of the changes proposed in June by Treasury Secretary Steven Mnuchin, the one that would probably have biggest impact on profit is allowing banks to buy U.S. government bonds entirely with borrowed money. Three others could also boost income: counting municipal bonds as liquid, or easy-to-sell, assets; requiring less debt that won’t have to be paid back if a bank fails; and making it easier to comply with post-crisis rules. Regulators appointed by Trump could make these changes without congressional approval. Doing so would reverse their agencies’ efforts since 2008 to strengthen capital and liquidity requirements for U.S. banks beyond international standards. While bringing U.S. rules in line with global ones probably wouldn’t threaten bank safety, some analysts and investors worry the pendulum could swing even further.

“Since the crisis, we’ve had the luxury of excess capital buildup in the banking system and regulators reining in risky activities,” said William Hines at Standard Life Aberdeen. “If there’s too much pullback on minimum capital requirements, too much relaxation of restraints, we’re concerned there’ll be more risk-taking by banks, and the system will become vulnerable.”

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Blowing bubbles everywhere and claiming they bring strength. It’s Orwell.

ECB Chief Draghi: QE Has Made Economies More Resilient (BBC)

European Central Bank President Mario Draghi has said unconventional policies like quantitative easing (QE) have been a success both sides of the Atlantic. QE was introduced as an emergency measure during the financial crisis to pump money directly into the financial system and keep banks lending. A decade later, the stimulus policies are still in place, but he said they have “made the world more resilient”. But he also said gaps in understanding these relatively new tools remain. As the economic recovery in the eurozone gathers pace, investors are watching closely for when the ECB will ease back further on its €60bn a month bond-buying programme. Central bankers, including Mr Draghi, are meeting in Jackson Hole, Wyoming, later this week, where they are expected to discuss how to wind back QE without hurting the economy.

On Monday, a former UK Treasury official likened the stimulus to “heroin” because it has been so difficult to wean the UK, US and eurozone economies off it. In a speech in Lindau, Germany on Wednesday, Mr Draghi defended QE and the ECB’s policy of forward guidance on interest rates. “A large body of empirical research has substantiated the success of these policies in supporting the economy and inflation, both in the euro area and in the United States,” he said. The ECB buying relatively safe assets such as government bonds means that banks can lend more and improve access to credit for riskier borrowers, Mr Draghi said. He added: “Policy actions undertaken in the last 10 years in monetary policy and in regulation and supervision have made the world more resilient. But we should continue preparing for new challenges.”

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End the Fed.

Yellen’s Coming Speech Could Mark The ‘End Of An Era’ (BI)

Janet Yellen could be on her way out as chair of the Federal Reserve. On Friday, she’s set to deliver a speech on financial stability at the Fed’s annual economic symposium in Jackson Hole, Wyoming. It could be her last, following months of speculation that President Donald Trump plans to nominate a different candidate when her four-year term ends in February. And Yellen’s successor could have a very different approach to the job. Yellen’s Jackson Hole showing could be the last one, for now, under a Fed chair who takes a technocratic approach to monetary policy, according to Luke Bartholomew, an investment strategist at Aberdeen Standard Investments. “There could be an end-of-an-era feel to Jackson Hole this year,” Bartholomew told Business Insider.

The Fed chair could be replaced by someone who’s “probably not the sort of academic economist that’s been leading it through the Bernanke/Yellen period,” he said, adding that there’s “a broader feeling that under the Trump administration, the technocratic approach of the Fed is increasingly out of favor.” Yellen, 71, was a career economist and academic before President Barack Obama nominated her to replace Ben Bernanke in 2014. Trump told The Wall Street Journal last month that Gary Cohn, Yellen, and “two or three” other candidates were in the running for the job. One of those other people could be Kevin Warsh, a former Fed governor who is now a fellow at the Hoover Institution. But Cohn, the National Economic Council director and Trump’s top economic adviser, is reportedly the top contender. He’s the “archetype of Wall Street, given his job at Goldman in the past,” Bartholomew said. “He certainly brings financial acumen to the job. I’m not sure that’s what the job of Fed chairman is, but he’s a fine candidate.”

Walsh brings some years of Fed experience to the table. But he has worked for seven years in investment banking, at Morgan Stanley, and isn’t an academic policymaker like Yellen or Bernanke. That’s not the only red flag Yellen’s exit would raise. On one extreme, Yale School of Management’s Jeffrey Sonnenfeld thinks markets would crash if Cohn were to leave the White House for the Fed. Stocks dipped last week as rumors spread that he was leaving the administration following Trump’s response to the white-nationalist rally in Charlottesville, Virginia. “I don’t want to be an alarmist, but there is a lot of faith that he is going to help carry through the tax reform that people are looking for,” Sonnenfeld told CNBC last week.

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“Long term, the new home median price has been mostly 10% to 20% above the existing home median since 1990. Since 2011, however, new home prices have been at a 35% to 40% premium over resale prices..”

Here’s Why New Home Sales Tanked (CNBC)

Newly built homes are more expensive than they’ve ever been before. They are also more expensive when compared to similar existing homes than they’ve ever been before. And that is why sales are suffering, dropping an unexpected 9.4% in July compared to June, according to the U.S. Census. They are simply out of reach for too many potential buyers. You don’t have to do a lot of math to see it. The median sale price of a newly built home in July jumped more than 6% compared to July 2016, to $313,700. That marks the highest July price ever. Last December, the median price hit the highest of any month on record. In addition, the price premium for newly built homes compared to comparable existing homes has more than doubled since 2011, according to John Burns Real Estate Consulting.

“Long term, the new home median price has been mostly 10% to 20% above the existing home median since 1990. Since 2011, however, new home prices have been at a 35% to 40% premium over resale prices,” John Burns wrote in a recent note to clients. “While the exact percentages aren’t perfect due to ‘apples and oranges’ comparisons, our consultants have been confirming for years that new home sales have been slowed by larger than usual new home premiums.” The supply of existing homes for sale is still extremely low, but the supply of newly built homes moved higher in July to 5.8 months of inventory. “The scars of the housing bust are still fresh in the minds of many homebuilders, so it is not surprising that many are taking a cautious approach to ramping up production,” noted Aaron Terrazas, a senior economist at Zillow, in reaction to the July report.

Homebuilders are feeling slightly better about their business lately, but they continue to complain about the costs of land, labor, materials and regulation. They claim that is why they cannot build cheaper homes. Unfortunately, the lower end of the market is where most of the demand is and where supply is weakest. “There is still no pickup in sales for homes priced below $300,000, and this is where most of the first time households would be shopping in,” wrote Peter Boockvar, chief market analyst at The Lindsey Group in a note following the Census release on new home sales. “I repeat that the housing industry needs a moderation in home price gains in order to better compete with renting where rents increases are now moderating.”

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Auto loans are a huge part of money creation.

Autos Put Economic Downside Risks on Full Display (DDMB)

Federal Reserve data released last week on July industrial production offered little more than more of the same. Despite post-election optimism for a rebound in activity on the nation’s factory floors, the data reveal a continued throttling down in the growth rate to just over 2% compared with this time last year. The main drag on activity – the auto sector – should come as no surprise to investors. Rather than rising by 0.2% over June as projected, manufacturing production contracted by 0.1%, marking the third decline in five months. Motor vehicles and parts production fell by 3.6% on the month, taking the year-over-year slide to 5%. Evidence continues to build that a sampling error may be to blame for the surprising strength in June and July car sales.

Inventory continues to pile up, suggesting more production cuts are in the offing: As of June, the latest data on hand, auto inventories were up 7.4% over last year, leaving manufacturers choking for air. In July, General Motors alone was sitting on 104 days of supply, well above its target of 70 days. Industry-wide, the July/August average of 69 days ties the August 2008 record and sits above the historic average of 56 days of supply. In all, automakers have 3.9 million units of unsold light vehicles, up 324,600 from last August and the highest on record for the month. For context, July and August tie for the leanest stock levels of the year. The decline in July sales was already the steepest this year. Fresh loan delinquency data suggest more pain ahead.

“Deep subprime” borrowers have been a big boost at the margin, propelling back-to-back record years of sales in 2015 and 2016 as lending standards loosened sufficiently to allow millions with credit scores below 530 to access financing. Equifax, the consumer credit reporting firm, didn’t hold back in its second-quarter update, saying the performance of recent vintages of deep subprime loans was “awful.” While industry insiders are quick to point out that the overall pace of defaults across all borrowers remains in check, up just marginally over last year, there is growing concern that deep subprime delinquencies are back at 2007 levels. “The bottom line is excess auto inventories are clearly evident and the auto sector is now in recession,” said The Lindsey Group’s Peter Boockvar.

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We’re about to winess the political power of German carmakers. How many execs are being prosecuted? Right.

Merkel Aide Says Germany Has ‘Vital Interest’ in Diesel Survival (BBG)

Chancellor Angela Merkel’s chief of staff said Germany has a “vital interest” in ensuring diesel engines survive, defending the embattled technology as the industry comes under fire for cheating on emissions tests. Excessive pollution from diesel, as well as traditionally close ties between the government and auto industry, have emerged as a campaign issue in the run up to the country’s federal election in September. Merkel has been confronted by voters on the campaign trail, who accused the government of being too lenient on automakers, prompting the chancellor to question high bonuses for auto executives embroiled in Volkswagen’s cheating scandal. “We have a vital interest in preserving diesel as a technology because it emits far less CO2 than other technologies,” Peter Altmaier, Merkel’s chief of staff, said in a Bloomberg TV interview in Berlin.

“At the same time we have to make sure that all the rules are respected and all the regulations are fully implemented.” Car bosses and government officials reached a compromise deal earlier this month to lower pollution that calls for software updates on million of vehicles instead of more costly hardware fixes. Volkswagen, Daimler and BMW also agreed to a trade-in bonus for cars with outdated emissions controls. The measures have been criticized as a slap on the wrist for Germany’s biggest industry. “We have the responsibility to fight for a good deal but also to preserve the strength and the performance of the automobile industry,” Altmaier said in the interview late on Tuesday. “I’m very optimistic that we will overcome this.”Diesel software updates alone are “insufficient” for many cities to meet the legal limit for nitrogen oxides in the air, Environment Minister Barbara Hendricks told reporters on Wednesday, citing ministry tests conducted this month.

Excessive pollution impacts 70 German towns and cities, and the fixes agreed earlier this month would cut car emissions by a maximum of 6%, she said. Hendricks – a member of Merkel’s junior coalition partner, the Social Democrats – said her ministry and others will ascertain in the coming weeks whether hardware changes in diesels currently on the road are necessary to further lower emissions and will present their findings after the election. “Nobody wants to ban diesels from our cities,” she said. Merkel, who has so far largely steered clear of the debate, is hosting a meeting on Sept. 4 with representatives of the major cities, including the hometowns of BMW, Mercedes-Benz and Porsche, struggling to lower their pollution levels. A number of cities and courts continue to evaluate potential diesel driving bans as the most effective means to meet regulation quickly.

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China exports its Ponzi.

China’s ‘Belt And Road’ Could Be Next Risk To Global Financial System (CNBC)

China has pitched its mammoth, pan-Eurasian “Belt and Road” infrastructure initiative as a means of promoting economic prosperity and fostering diplomatic ties on a global scale. That rhetoric may win plaudits at a time when other global powers are voicing increasingly protectionist agendas, but it also comes with risks, and increasing levels of state-backed funding have raised concerns about just how safe of a gamble it is. Reports on Tuesday claimed that some of China’s biggest state-owned commercial banks will begin raising capital to fund investments into the initiative, also known as “One Belt, One Road,” which aims to connect more than 60 countries across Asia, Europe and Africa with physical and digital infrastructure. China Construction Bank, the country’s second-largest bank by assets, has been conducting roadshows to raise at least 100 billion yuan ($15 billion) from on- and offshore investors.

Bank of China, Industrial and Commercial Bank of China, and Agricultural Bank of China are also said to be raising tens of billions of dollars. The news highlights the risk that the state could amass hundreds of billions of dollars in nonperforming loans if the projects fail. For Xu Chenggang, professor of economics at Cheung Kong Graduate School of Business in Beijing, it was not a surprise. “It supports my concerns,” Xu told CNBC over the phone. “The impact could be damaging not just for China, but for the global financial system.” “These loans are being extended to governments in risky countries to fund risky infrastructure projects. If the projects were launched by private firms we wouldn’t have to worry because they would know they had to bear the consequences. But here we are talking about government-to-government lending and, ultimately, intergovernmental relations.”

[..] It took decades of economic reforms and loss-making firms before it succeeded in what Xu termed a process of “quiet privatization” at the turn of the 21st century. However, the process has lost momentum over the past 10 years, and the state remains burdened with issues of overcapacity and myriad “zombie firms,” especially within the metals and construction and materials sectors. Xu said that has partially been the motivation for the “Belt and Road” initiative: “Instead of solving the overcapacity problems, they are expanding the problem to projects overseas.” “They (China) are proposing lending money to foreign governments, who will then use the Chinese funds to pay the Chinese companies,” he explained.

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“.. one might say Mr. Trump represents a triumph of democracy..”

Being Here (Brodsky)

It should not surprise anyone that Western societies are becoming restless. Trump, Brexit, Charlottesville and, arguably, even radical Islamic terrorism are bi-products of global economic distortions largely created by the unwillingness of the Western political dimension to let the global factors of production naturally settle global prices and wages. (Sorry, it had to be said.) Donald Trump is a sideshow. His ascension, or someone like him, was inevitable. He may have official authority to behave like the leader of the free world (even if he is unable to do so), but so far he has only shown that virtually anyone can become president. Indeed, one might say Mr. Trump represents a triumph of democracy. Behold the robustness of America: the most powerful nation on Earth is unafraid to elect a cross between P.T. Barnum and Chauncey Gardner!

This is not to say a US president cannot raise and emphasize truly meaningful economic goals and mobilize countries around the world to help achieve them; but it is to say that this President seems to not know or be interested in what those goals might be. As discussed, the biggest challenges facing the US economy and US labor stem from a distorted global price and wage scale. Mr. Trump’s domestic fiscal, regulatory, tax and immigration goals seek only to raise US output and wages. This cannot be achieved without the participation of global commerce. There is no such thing anymore as a US business that makes US products sold only in the US without being influenced by global prices, wages and exchange rates. The romantic, patriotic “made in the USA” theme does not comport with the reality that the US also seeks to keep the dollar the world’s reserve currency and that maintaining America’s power requires the US to control the world’s shipping lanes.

Mr. Trump and his base cannot have one without the other. (Do we really have to articulate this?) Mr. Trump’s “Being There” presidency is reflecting an inconvenient truth back on a society that has, until maybe now, successfully deluded itself into believing government is functionally the glue holding society together. Though he does not mean to, Mr. Trump is single-handedly demonstrating to groups ranging from idealistic Washington elites to social media zombies to southern white supremacists that Madisonian government has become a dignified cover for the financial, commercial and national security interests that control it. We suspect those interests would rather the reach of their power be less visible.

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Two maps, actually. Click the link for fully interactive versions.

All The Countries The USA Has Invaded, In One Map (Indy)

From Montezuma to the shores of Tripoli, the US has had a military presence across the world, from almost day one of her independence. What constitutes invasion? As one map below shows, the US has a military presence in much of the world without being an occupying force (though some would dispute that definition). For instance, although the Confederacy considered the US to be a hostile invading power, indy100 are not counting the Civil War or any annexation within the continental United States as an ‘invasion’. Using data on US military interventions published by the Evergreen State College, in Olympia Washington, indy100 has created this map (below). The data was compiled by Dr Zoltan Grossman, a professor of Geography and Native Studies. The map documents a partial list of occasions, since 1890, that US forces were used in a territory outside the US.

Caveats: This includes: Deployment of the military to evacuate American citizens, Covert military actions by US intelligence, Providing military support to an internal opposition group, Providing military support in one side of a conflict (e.g. aiding Iraq during the Iran-Iraq War 1988-89), Use of the army in drug enforcement actions (e.g. Raids on the cocaine region in Bolvia in 1986 It does not include threats of nuclear weapons against a territory, such as during the Berlin Air Lift (1948-49). It also excludes any time US military personnel were deployed to a foreign country for an exclusively humanitarian purpose – e.g. sending troops to the Democratic Republic of the Congo to provide assistance to refugees fleeing the Rwandan genocide (1996-97).

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The demise of a society. Not because of marriages declining, but because of why they are.

America, Home of the Transactional Marriage (Atlantic)

Over the last several decades, the proportion of Americans who get married has greatly diminished—a development known as well to those who lament marriage’s decline as those who take issue with it as an institution. But a development that’s much newer is that the demographic now leading the shift away from tradition is Americans without college degrees—who just a few decades ago were much more likely to be married by the age of 30 than college graduates were. Today, though, just over half of women in their early 40s with a high-school degree or less education are married, compared to three-quarters of women with a bachelor’s degree; in the 1970s, there was barely a difference. The marriage gap for men has changed less over the years, but there the trend lines have flipped too: 25% of men with high-school degrees or less education have never married, compared to 23% of men with bachelor’s degrees and 14% of those with advanced degrees.

Meanwhile, divorce rates have continued to rise among the less educated, while staying more or less steady for college graduates in recent decades. The divide in the timing of childbirth is even starker. Fewer than one in 10 mothers with a bachelor’s degree are unmarried at the time of their child’s birth, compared to six out of 10 mothers with a high-school degree. The share of such births has risen dramatically in recent decades among less educated mothers, even as it has barely budged for those who finished college. (There are noticeable differences between races, but among those with less education, out-of-wedlock births have become much more common among white and nonwhite people alike.)

[..] Autor, Dorn, and Hanson found that in places where the number of factory jobs shrank, women were less likely to get married. They also tended to have fewer children, though the share of children born to unmarried parents, and living in poverty, grew. What was producing these trends, the researchers argue, was the rising number of men who could no longer provide in the ways they once did, making them less attractive as partners. Furthermore, many men in these communities became no longer available, sometimes winding up in the military or dying from alcohol or drug abuse. (It’s important to point out that this study and similar research on employment and marriage focus on opposite-sex marriages, and a different dynamic may be at work among same-sex couples, who tend to be more educated.)

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Jan 042017
 
 January 4, 2017  Posted by at 10:29 am Finance Tagged with: , , , , , , , , ,  


Readers browse bomb-damaged library of Holland House, London 1940

The Wrong Things Are Being Forecast (Morgan)
China Calls US ‘A Shooting Star In The Ample Sky Of History’ (G.)
China’s New Year Currency Moves Won’t Make Donald Trump Happy (CNBC)
Banks Create Money From Nothing. And It Gets Worse (ND)
India Government Set To Endorse Universal Basic Income (BI)
US Banks Gear Up To Fight Dodd-Frank Act’s Volcker Rule (R.)
Wall Street Banks Have $2 Trillion European Exposure (Martens)
How to Make America Great Again with Other People’s Money (Orlov)
The Trump Effect Will Accentuate Unrest (Nomi Prins)
Anti-Surveillance Clothing Aims To Hide Wearers From Facial Recognition (G.)
Guardian Report On Ailing Greek Health System Sparks Ugly Row (Kath.)
The Necessity of Maintaining Borders (Kath.)

 

 

If all ‘growth’ is borrowed anyway, and then some, as in every dollar of ‘growth’ takes $10 of debt, maybe you should stop calling it growth?!

The Wrong Things Are Being Forecast (Morgan)

It is customary to use the start of the year to set out some forecasts. Though I’ve not previously done this, I’ve decided to make an exception this time – mainly because I’m convinced that the wrong things are being forecast. Central forecasts tend to focus on real GDP, but in so doing they miss at least three critical parameters. The first is the relationship between growth and borrowing. The second is the absolute scale of debt, and our ability to manage it. The third is the impact of a tightening resource set on the real value of global economic output. Most commentators produce projections for growth in GDP, and mine are for global real growth of around 2.3% between 2017 and 2020. I expect growth to slow, but to remain positive, in countries such as the United States, Britain and China.

It’s worth noting, in passing, that these growth numbers do not do much to boost the prosperity of the individual, since they correspond to very modest per capita improvements once population growth is taken into account. Moreover, the cost of household essentials is likely to grow more rapidly than general inflation through the forecast period. What is more intriguing than straightforward growth projections, and surely more important too, is the trajectory of indebtedness accompanying these growth estimates. Between 2000 and 2015, and expressed at constant 2015 dollar values, global real GDP expanded by $27 trillion – but this came at the expense of $87 trillion in additional indebtedness (a number which excludes the inter-bank or “financial” sector). This meant that, in inflation-adjusted terms, each growth dollar cost $3.25 in net new debt.

If anything, this borrowing-to-growth number may worsen as we look forward, my projection being that the world will add almost $3.60 of new debt for each $1 of reported real growth between now and 2020. On this basis, the world should be taking on about $5.8 trillion of net new debt annually, but preliminary indications are that net borrowing substantially exceeded this number in 2016. China has clearly caught the borrowing bug, whilst big business continues to take on cheap debt and use it to buy back stock. Incredible though it may seem, the shock of 2008-09 appears already to be receding from the collective memory, rebuilding pre-2008 attitudes to debt. On my forecast basis, global real “growth” of $8.2 trillion between now and 2020 is likely to come at a cost of $29 trillion in new debt. If correct, this would lift the global debt-to-GDP ratio to 235% in 2020, compared with 221% in 2015 and 155% in 2000.

Adding everything together, the world would be $116 trillion more indebted in 2020 than in 2000, whilst real GDP would have increased by $35 trillion. Altogether, what we are witnessing is a Ponzi-style financial economy heading for end-game, for four main reasons. First, we have made growth dependent on borrowing, which was never a sustainable model. Second, the ratio of efficiency with which we turn borrowing into growth is getting steadily worse. Third, the demands being made on us by the deterioration of the resource scarcity equation are worsening. Fourth, the ageing of the population is adding further strains to a system that is already nearing over-stretch. One thing seems certain – we cannot, for much longer, carry on as we are. y

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This calls for the poet in Trump to respond.

China Calls US ‘A Shooting Star In The Ample Sky Of History’ (G.)

Donald Trump has doubled down on his plans to transform US trade policy, picking a longtime China critic and protectionist to be America’s next chief trade negotiator. Robert Lighthizer, 69, has advocated for increasing tariffs and repeatedly criticised China for failing to adhere to international trade practices, saying tougher methods were needed to change the system. The move is likely to further alarm Beijing, where state-controlled media said on Wednesday “Trump is just fixated on trade” and warned the president elect “not try to boss China around” on economic and security issues. “May the arrogant Americans realise that the United States of America is perhaps just a shooting star in the ample sky of history,” said an editorial in the Communist party-affiliated Global Times newspaper.

It follows the selection by Trump last month of Peter Navarro to lead a new presidential office for US trade and industrial policy. Navarro has previously described China’s government as a “despicable, parasitic, brutal, brass-knuckled, crass, callous, amoral, ruthless and totally totalitarian imperialist power”. Trump has packed his cabinet with tycoons, vowed to renegotiate trade deals and crack down on what he says are China’s unfair policies. Lighthizer is a former Reagan-era trade official and had a previous stint in the Office of the US Trade Representative, where he travelled the world negotiating deals to curb steel imports. He then went on to a career as a trade lawyer, representing giants such as US Steel Corp working to fend off foreign imports.

In 2011, he wrote in an opinion piece for the Washington Times: “How does allowing China to constantly rig trade in its favour advance the core conservative goal of making markets more efficient? Markets do not run better when manufacturing shifts to China largely because of the actions of its government.” While less prone to bombast than Navarro, he and Lighthizer share the view that China’s economic policies are fundamentally flawed. Years of passivity and drift among US policymakers have allowed the US-China trade deficit to grow to the point where it is widely recognised as a major threat to our economy, Lighthizer wrote. Going forward, US policymakers should take these problems more seriously, and should take a much more aggressive approach in dealing with China.

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Excuse me? “China has put a new chip on the table to counter trade adventurism by the Trump administration.” Other than that, the new capital controls seem to work so far, to an extent.

China’s New Year Currency Moves Won’t Make Donald Trump Happy (CNBC)

Call it a New Year’s greeting from the Chinese government to the incoming administration of Donald Trump. As the president-elect rang in 2017 entertaining guests at his opulent Mar-a-Lago estate, China quietly ushered in a series of measures aimed at better controlling the value of its local currency, the yuan. Throughout his campaign, Trump accused China of “manipulating” the yuan to make Chinese exports more competitive in global markets. China’s latest announcement will likely add fuel to that debate. Unlike countries that mostly let markets determine the value of their currencies, Beijing tries to peg the yuan to a basket of other currencies. Starting Jan. 1, the Chinese State Administration of Foreign Exchange will use a new, broader basket of global currencies to benchmark the yuan’s value.

The change will have the effect of reducing the impact of the U.S. dollar on the official valuation. “This is unambiguously bad news for the United States,” High Frequency Economics Chief Economist Carl Weinberg said in a note to clients Tuesday. “China has put a new chip on the table to counter trade adventurism by the Trump administration.” While China has sought to dampen the value of its currency in the past, the People’s Bank of China has more recently been scrambling to support the yuan. Beijing is deeply concerned that the weakening yuan is encouraging Chinese to shift their wealth out of the country into stronger currencies or other, more stable holdings. China needs a lot of capital in the country in order to continue to fund its growth, which is very heavily reliant on borrowing.

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I was thinking about exactly this, the other day. That a basic income scheme may be a Trojan horse AND a wolf in sheep’s clothing if it comes entirely digitized.

Banks Create Money From Nothing. And It Gets Worse (ND)

Richard Werner, the German professor famous for inventing the term ‘quantitative easing’, says the world is finally waking up to the fact that “banks create money out of nothing” – but warns this realisation has given rise to a new “Orwellian” threat. In an exclusive interview with The New Daily, Professor Werner says the recent campaigns around the world, including in India and Australia, to get rid of cash are coordinated attempts by central bankers to monopolise money creation. “This sudden global talk by the usual suspects about the ‘need to get rid of cash’, ostensibly to fight tax evasion etc, has been so coordinated that it cannot but be part of another plan by central bankers, this time to stay in charge of any emerging reform agenda, by trying to control, and themselves run, the ‘opposition’,” he says.

“Essentially, the Bank of England and others are saying: okay, we admit it, you guys were right, banks create money out of nothing. So now we need to make sure that you guys will not be able to set the agenda of what happens in terms of reforms.” [..] The main point is that the banks do not lend existing money, but add to deposits and the money supply when they ‘lend’. And when those loans are repaid, money is removed from circulation. Thus, the supply of money is constantly being expanded and contracted by banks – which may explain why the ‘credit crunch’ of the global financial crisis was so devastating. Banks weren’t lending, so there was a shortage of money. By some estimates, the banks create upwards of 97% of money, in the form of electronic funds stored in online accounts. Banknotes and coins? They are just tokens of value, printed to represent the money already created by banks.

Professor Werner is pleased the world is waking up to the truth of how money is created, but is very displeased with what he sees as the central bankers’ reaction: the death of cash and the rise of central bank-controlled digital currency. This will further centralise what he describes as the “already excessive and unaccountable powers” of centrals banks, which he argues has been responsible for the bulk of the more than 100 banking crises and boom-bust cycles in the past half-century. “To appear active reformers, they will push the agenda to get rid of bank credit creation. This suits them anyway, as long as they can fix the policy recommendation of any such reform, to be … that the central banks should be the sole issuers of money.”

The professor also fears the global push for ‘basic income’, which is being trialled in parts of Europe and widely discussed in the media, will form part of the central bankers’ attempt to kill off cash. ‘Basic income’ is a popular idea that can be traced back to Sydney and Beatrice Webb, founders of the London School of Economics. It proposes we abolish all welfare payments and replace them with a single ‘basic income’ that everyone, from billionaires to unemployed single mothers, receives. Either we accept the digital currency issued by central banks, or we miss out on basic income payments. That is Professor Werner’s theory of what might happen. His solution to this “Orwellian” future is decentralisation, in the form of lots of non-profit community banks, as exist in his native Germany.

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That same basc income danger of course looms large in India.

India Government Set To Endorse Universal Basic Income (BI)

The Indian government is set to endorse Universal Basic Income, according to one of the leading advocates of the scheme. Professor Guy Standing, an economist who co-founded advocate group Basic Income Earth Network (BIEN) in 1986, told Business Insider that the Indian government will release a report in January which says the idea is “feasible” and “basically the way forward.” The idea behind universal basic income is simple: a regular state payment made to all citizens (one variation specifies adults), regardless of working status. Advocates say it would provide a vital safety net for all citizens and remove inefficient benefit systems currently in place; critics say it would remove the incentive for citizens to work and prove to be wildly expensive.

It has, however, attracted a growing amount of attention across the world, in both rich and developing countries. Standing, professor of development at the School for African and Oriental Studies, is considered one of the leading proponents of UBI. He has advised on numerous UBI pilot schemes, and recently returned from California, where he consulted on a $20 million trial set to launch in California this year. He was closely involved with three major pilot schemes in India — two in Madhya Pradesh, and a smaller one in West Delhi. The pilots in Madhya Pradesh launched in 2010, and provided every man, woman, and child across eight villages with a modest basic income for 18 months. Standing reports that welfare improved dramatically in the villages, “particularly in nutrition among the children, healthcare, sanitation, and school attendance and performance.”

He also says the scheme also turned out some unexpected results. “The most striking thing which we hadn’t actually anticipated is that the emancipatory effect was greater than the monetary effect. It enabled people to have a sense of control. They pooled some of the money to pay down their debts, they increased decisions on escaping from debt bondage. The women developed their own capacity to make their own decision about their own lives. The general tenor of all those communities has been remarkably positive,” he said. “As a consequence of this, the Indian government is coming out with a big report in January. As you can imagine that makes me very excited. It will basically say this is the way forward.”

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No, someone at Reuters really wrote this: “The Obama administration’s regulators and enforcement agencies have been tough on banks..” And then they printed it.

US Banks Gear Up To Fight Dodd-Frank Act’s Volcker Rule (R.)

Big U.S. banks are set on getting Congress this year to loosen or eliminate the Volcker rule against using depositors’ funds for speculative bets on the bank’s own account, a test case of whether Wall Street can flex its muscle in Washington again. In interviews over the past several weeks, half a dozen industry lobbyists said they began meeting with legislative staff after the U.S. election in November to discuss matters including a rollback of Volcker, part of the Dodd-Frank financial reform that Congress enacted after the financial crisis and bank bailouts. Lobbyists said they plan to present evidence to congressional leaders that the Volcker rule is actually bad for companies, investors and the U.S. economy. Big banks have been making such arguments for years, but the industry’s influence waned significantly in Washington after the financial crisis.

The Obama administration’s regulators and enforcement agencies have been tough on banks, while lawmakers from both parties have seized opportunities to slam Wall Street to score political points. Banks now see opportunities to unravel reforms under President-Elect Donald Trump’s administration and the incoming Republican-led Congress, which appear more business-friendly, lobbyists said. While an outright repeal of the Volcker rule may not be possible, small but meaningful changes tucked into other legislation would still be a big win, they said. “I don’t think there will be a big, ambitious rollback,” said one big-bank lobbyist who was not authorized to discuss strategy publicly. “There will be four years of regulatory evolution.” Proponents of the Volcker rule say lenders that benefit from government support like deposit insurance should not be gambling with their balance sheets. They also argue such proprietary bets worsened the crisis and drove greedy, unethical behavior across Wall Street.

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Darn Europeans. The US would be fine without them.

Wall Street Banks Have $2 Trillion European Exposure (Martens)

Just 17 days from today, Donald Trump will be sworn in as the nation’s 45th President and deliver his inaugural address. Trump is expected to announce priorities in the areas of education, infrastructure, border security, the economy and curtailing the outsourcing of jobs. But Trump’s agenda will be derailed on all fronts if the big Wall Street banks blow up again as they did in 2008, dragging the U.S. economy into the ditch and requiring another massive taxpayer bailout from a nation already deeply in debt from the last banking crisis. According to a report quietly released by the U.S. Treasury’s Office of Financial Research less than two weeks before Christmas, another financial implosion on Wall Street can’t be ruled out.The Office of Financial Research (OFR), a unit of the U.S. Treasury, was created under the Dodd-Frank financial reform legislation of 2010.

It says its role is to: “shine a light in the dark corners of the financial system to see where risks are going, assess how much of a threat they might pose, and provide policymakers with financial analysis, information, and evaluation of policy tools to mitigate them.” Its 2016 Financial Stability Report, released on December 13, indicates that Wall Street banks have been allowed by their “regulators” to take on unfathomable risks and that dark corners remain in the U.S. financial system that are impenetrable to even this Federal agency that has been tasked with peering into them. At a time when international business headlines are filled with reports of a massive banking bailout in Italy and the potential for systemic risks from Germany’s struggling giant, Deutsche Bank, the OFR report delivers this chilling statement:

“U.S. global systemically important banks (G-SIBs) have more than $2 trillion in total exposures to Europe. Roughly half of those exposures are off-balance-sheet…U.S. G-SIBs have sold more than $800 billion notional in credit derivatives referencing entities domiciled in the EU.”

When a Wall Street bank buys a credit derivative, it is buying protection against a default on its debts by the referenced entity like a European bank or European corporation. But when a Wall Street bank sells credit derivative protection, it is on the hook for the losses if the referenced entity defaults. Regulators will not release to the public the specifics on which Wall Street banks are selling protection on which European banks but just the idea that regulators would allow this buildup of systemic risk in banks holding trillions of dollars in insured deposits after the cataclysmic results of similar hubris in 2008 shows just how little has been accomplished in terms of meaningful U.S. financial reform.

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“What’s a poor bankrupt former superpower to do?” Lovely from Dmitry. Go after Saudi Arabia.

How to Make America Great Again with Other People’s Money (Orlov)

1. It all started when the US decided to leave the British Empire. This event is often portrayed as a tax revolt by rich landholders, but there is more to it than that: it allowed the former colonies to loot and plunder British holdings by funding and outfitting “privateers”—pirates, that is. This went on for quite some time.

2. Another major boost resulted from the Civil War, which destroyed the agrarian economy of the south and by so doing provided cheap labor and feedstocks to industries in the north. Plenty of people in the south are still in psychological recovery from this event, some 15 decades later. It was the first war to be fought on an industrial scale, and a fratricidal war at that. Clearly, Americans are not above turning on their own if there’s a buck or two to be made.

3. Early in the 20th century, World War I provided the US with a rich source of plunder in the form of German reparations. Not only did this fuel the so-called “roaring twenties,” but it also pushed Germany toward embracing fascism in furtherance of the long-term goal of creating a proxy to use against the USSR.

4. When in 1941 this plan came to fruition and Hitler invaded the USSR, the US hoped for a quick Soviet surrender, only joining the fray once it became clear that the Germans would be defeated. In the aftermath of that conflict, the US reaped a gigantic windfall in the form of Jewish money and gold, which fled Europe for the US. It was able to repurpose its wartime industrial production to make civilian products, which had little competition because many industrial centers of production outside of the US had been destroyed during the war.

5. After the USSR collapsed in late 1991, the US sent in consultants who organized a campaign of wholesale looting, with much of the wealth expropriated from the public and shipped overseas. This was the last time the Americans were able to run off with a fantastic amount of other people’s money, giving the US yet another temporary lease on life.

But after that the takings have thinned out. Still, the Americans have kept working at it. They destroyed Iraq, killed Saddam Hussein and ran off with quite a bit of Iraqi gold and treasure. They destroyed Libya, killed Muammar Qaddafy and ran off with Libya’s gold. After organizing the putsch in the Ukraine in 2014, shooting up a crowd using foreign snipers and forcing Viktor Yanukovich into exile, they loaded Ukrainian gold onto a plane under the cover of darkness and took that too. They hoped to do the same in Syria by training and equipping a plucky band of terrorists, but we all know how badly that has turned out for them. But these are all small fry, and the loot from them is too meager to fuel even a temporary, purely notional rekindling of erstwhile American greatness. What’s a poor bankrupt former superpower to do?

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Only point 10 of 10 in Nomi’s “My Political-Financial Road Map for 2017”. But it fits my format quite well. DO read the whole thing.

The Trump Effect Will Accentuate Unrest (Nomi Prins)

Trump is assembling the richest cabinet in the world to conduct the business of the United States, from a political position. The problem with that is several fold. First, there is a woeful lack of public office experience amongst his administration. His supporters may think that means the Washington swamp has been drained to make room for less bureaucratic decisions. But, the swamp has only been clogged. Instead of political elite, it continues business elite, equally ill-suited to put the needs of the everyday American before the needs of their private colleagues and portfolios.

Second, running the US is not like running a business. Other countries are free to do their business apart from the US. If Trump’s doctrine slaps tariffs on imports for instance, it burdens US companies that would need to pay more for required products or materials, putting a strain on the US economy. Playing hard ball with other nations spurs them to engage more closely with each other.That would make the dollar less attractive. This will likely happen during the second half of the year, once it becomes clear the Fed isn’t on a rate hike rampage and Trump isn’t as adept at the economy as he is prevalent on Twitter. Third, an overly aggressive Trump administration, combined with its ample conflicts of interest could render Trump’s and his cohorts’ businesses the target of more terrorism, and could unleash more violence and chaos globally.

Fourth, his doctrine is deregulatory, particularly for the banking sector. Consider that the biggest US banks remain bigger than before the financial crisis. Deregulating them by striking elements of the already tepid Dodd-Frank Act could fall hard on everyone. When the system crashes, it doesn’t care about Republican or Democrat politics. The last time a deregulation and protectionist businessmen filled the US presidential cabinet was in the 1920s. That led to the Crash of 1929 and Great Depression. Today, the only thing keeping a lid on financial calamity is epic amounts of artisanal money. Deregulating an inherently corrupt and coddled banking industry, already floating on said capital assistance, would inevitably cause another crisis during Trump’s first term.

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Nice.

Anti-Surveillance Clothing Aims To Hide Wearers From Facial Recognition (G.)

The use of facial recognition software for commercial purposes is becoming more common, but, as Amazon scans faces in its physical shop and Facebook searches photos of users to add tags to, those concerned about their privacy are fighting back. Berlin-based artist and technologist Adam Harvey aims to overwhelm and confuse these systems by presenting them with thousands of false hits so they can’t tell which faces are real. The Hyperface project involves printing patterns on to clothing or textiles, which then appear to have eyes, mouths and other features that a computer can interpret as a face. This is not the first time Harvey has tried to confuse facial recognition software. During a previous project, CV Dazzle, he attempted to create an aesthetic of makeup and hairstyling that would cause machines to be unable to detect a face.

Speaking at the Chaos Communications Congress hacking conference in Hamburg, Harvey said: “As I’ve looked at in an earlier project, you can change the way you appear, but, in camouflage you can think of the figure and the ground relationship. There’s also an opportunity to modify the ‘ground’, the things that appear next to you, around you, and that can also modify the computer vision confidence score.” Harvey’s Hyperface project aims to do just that, he says, “overloading an algorithm with what it wants, oversaturating an area with faces to divert the gaze of the computer vision algorithm.” The resultant patterns, which Harvey created in conjunction with international interaction studio Hyphen-Labs, can be worn or used to blanket an area. “It can be used to modify the environment around you, whether it’s someone next to you, whether you’re wearing it, maybe around your head or in a new way.”

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“The lives of patients that are lost are considered collateral damage in the conservation of power.”

Guardian Report On Ailing Greek Health System Sparks Ugly Row (Kath.)

A report by The Guardian on Sunday on the problems faced by Greece’s ailing public healthcare system has sparked an ugly war of words between Alternate Health Minister Pavlos Polakis and unionists. The row started with a social media post made by Polakis on Tuesday, in which he accuses the head of the Panhellenic Federation of Public Hospital Employees (POEDIN), Michalis Giannakos, who is extensively quoted in the report, of “despicable lies.” Polakis went on to say that Giannakos’s comments to Guardian reporter Helena Smith were “slandering to the country and the SYRIZA government, which cut off access to the chow trough and special favors,” and called the unionist a “louse.” In the same post, Polakis also suggested that local media quoting Giannakos’s “vomit-inspiring interview” were lashing out at the leftist-government for cutting advertising revenues from the Center of Disease Prevention and Control (KEELPNO).

“No one who works in a public hospital believes you anymore, just your posse of friends,” Polakis said in his comments, which were directed at Giannakos, adding that the data the unionist cited was from 2012 and no longer valid. “Your time has finished, your place is on history’s trash heap,” Polakis said. His comments prompted an equally vehement response from POEDIN on Tuesday, calling Polakis a “political miasma” and accusing Prime Minister Alexis Tsipras of appointing him “to do the dirty work.” “With his latest misspelt, badly written and delusional post on Facebook against the president of POEDIN, Mr. Polakis has once more confirmed that he is the political miasma of the country’s civil and social life,” the union said in its statement.

In the interview, Giannakos suggested that cutbacks are putting patients’ lives at risk by over-taxing dwindling staff and curbing hospitals’ access to basic necessities and equipment. “The interview in The Guardian underscores the collapse of the public health system and public hospitals. Why doesn’t the government use the publication as an opportunity in its negotiations with the lenders to exempt healthcare from the memorandums? It is clear from its reaction that the government intends to achieve high primary surpluses by the continued reduction of public healthcare spending,” POEDIN said. “The lives of patients that are lost are considered collateral damage in the conservation of power.” The union also said that it is planning to take legal action against Polakis, accusing the health official of using “degrading, insulting and wholly inappropriate” language in his post.

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Erdogan makes Greeks nervous. And mainatining your borders, like maintaining your culture, is not a bad thing. Nor will it lead to war. Quite the opposite.

The Necessity of Maintaining Borders (Kath.)

Since the failed coup in Turkey on July 15, I have been rather surprised by the silence of the country’s intellectuals, who up until recently had been very talkative. Whether they kept silent out of fear or discomfort, we should respect it. Nevertheless, Orhan Pamuk’s silence, for instance, cannot go unnoticed. The point is not to carry out direct political interventions, but to bare the essential transformations that Turkish society has gone through in the nearly 15 years that Recep Tayyip Erdogan’s Justice and Development Party (AKP) has been in power – changes that are obvious even to non-Turkish experts like myself. The mere presence (2002-17) of the same party in government for so long makes you wonder about the nature of our neighboring democracy.

I read in Monday’s Corriere della Sera that prior to the attack on Istanbul’s Reina nightclub, Turkey’s director for religious affairs, who represents the state, had accused those preparing to celebrate New Year’s Eve of being “infidels.” Meanwhile, author Burhan Sonmez told the same paper that similar complaints, regarding both Christmas and New Year’s Eve, were made by several leading AKP officials. While Turkey officially condemned the attack, on social media and elsewhere online, many defended the assassin in the name of religion. In a statement claiming responsibility for yet another mass murder, the slaughterers’ group referred to the “apostate Turkish government.” These are the same people Erdogan helped in the past but was forced to drop when he started reaching an understanding with Russia’s Vladimir Putin, abandoning the US, which is helping the Kurds and which forced him to move away from his friend Bashar al-Assad.

There is something wrong with the sultan of democracy. He now claims that Kurdish terrorism is equal to Islamic terrorism. The result of the equation is weekly massacres. How can social cohesion be maintained faced with weekly attacks on civilians from Diyarbakir to Istanbul? How much can you trust a leader who does not hide his autocratic tendencies, who has changed his country’s allies on numerous occasions in the last decade and who undermines his own military and secret service forces? Given that Greece and Europe have based their entire management of the refugee-migrant crisis on Erdogan’s word, should we start worrying? Instead of looking for frigates invading our islets, should we be looking out for dinghies flooding our cities with human despair? Until the world becomes paradise, you need borders, even those at sea.

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Sep 162015
 
 September 16, 2015  Posted by at 10:13 am Finance Tagged with: , , , , , ,  


NPC Fire at S. Kanns warehouse, Washington, DC 1908

It’s highly amusing to read all the ‘expert’ theories on a Federal Reserve hike or no hike tomorrow, but it’s also obvious that nobody really has a clue, and still feel they should be heard. Don’t know if that’s so smart, but I guess in that world being consistently wrong is not that big a deal.

Thing is, US economic numbers are so ‘massaged’ and unreliable, the Fed can pick whichever way the wind blows to argue whatever decision it makes. As long as jobs numbers get presented for instance without counting the 90-odd million Americans who are not in the labor force, and a majority of new jobs are waiters, just about anything goes in that area. Numbers on wages are just as silly.

And people can make inflation a big issue, but hardly anyone even knows what inflation is. Wonder if the Fed does. It had better, because if you don’t look at spending, prices don’t tell you a thing. They surely must look at velocity of money charts from time to time?!

The biggest thing for the Fed might, and perhaps must, be the confidence factor. It’s been talking about rate hikes for so long now that if it decides to leave rates alone, it will only create more uncertainty down the road. Uncertainty about the economy (no hike would suggest a weak economy), and also about its own capabilities.

If all you have is talk, people tend to take you a lot less serious. Moreover, the abject -and grossly expensive- failure of the Chinese central bank to quiet down its domestic stock markets has raised questions about the omnipotence of all central banks.

This morning’s spectacle of a 5% rise in Shanghai in under an hour near the close no longer serves to restore confidence, it further undermines it. Beijing doesn’t seem to get that yet. But the Fed might.

No rate hike is therefore an enormous potential threat to Fed credibility. And that’s a factor it may well find much more important than a bunch of numbers it knows are mostly fake anyway. It has for years been able to fake credibility, but that is no longer all that obvious. And delaying a hike will certainly not boost that credibility.

Sure, volatility is an issue too, but volatility won’t go down on a hike delay. It’ll simply continue – and perhaps rise- until the next meeting. There’s nothing to gain there.

Besides, don’t let’s forget how crazy it is that the entire financial world is dead nervous ahead of a central bank meeting, even as everyone knows it’s all just about a decision on a very small tweak in rates.

Yellen et al are very aware of the risks of that, even if they love the limelight it brings. All that attention tells people, meeting after meeting, that the US economy is not functioning properly, no matter what the official statements say.

There are ‘experts’ talking about the dangers of emerging markets if the Fed votes Yes on a hike, but those markets are not even part of its mandate. if Yellen thinks something can be gained from pushing emerging markets and currencies down further, she’ll do just that.

Still, all this is just pussyfooting around the bush. The Fed may have noble mandates to help the real economy, but it will in the end always decide to do what’s best for Wall Street banks. And these banks could well make a huge killing off a rate hike.

They can profit from trouble and volatility in emerging markets as well as domestic markets, provided they’re well-positioned. Given that they’ve had ample time, and it’s hard to answer the question who else is in a good position, we may have an idea which wind the wind will blow.

Increasing credibility for the Fed and increasing profits for Wall Street banks. Might be a winning combination. And if Yellen is realistic about the potential for a recovery in the American economy, why would she not pick it?

Feb 232015
 
 February 23, 2015  Posted by at 7:22 am Finance Tagged with: , , , , , ,  


Dorothea Lange “Men on ‘Skid Row’, Modesto, California” 1937

Before we get news in a few hours on the new proposals Greece is required to hand to its slavemasters today, Monday Feb 23, it seems relevant to point out one more time that what is happening to Greece is the result of political, not economic, decisions and points of view. One could argue that Greece is being thrown under the bus because it’s not – yet – deeply enough entangled and enmeshed in the global financial matrix. Just think back to a point Gordon Kerr of Cobden Partners made a few days ago on Bloomberg:

They [Greece] don’t have systemically important financial institutions dragging down their economy ..

In other words, Greek banks are not too big to fail. They could therefore be restructured – by the Greek government itself – without global contagion, certainly theoretically (it’s hard to pinpoint how this would turn out in practice, there are too many variables involved). And that is a major potential threat to other – European -banks, who A) could then also face calls for restructuring, and B) still have money invested in Greece. Just not that much anymore…

Bloomberg’s Mark Whitehouse showed in a piece over the weekend to what extent Germany’s banks pulled out of Greece since 2010. Thanks to the same bailouts that are now being used to try and force Greece into ever more austerity, budget cuts, depleted services and shy high unemployment.

I said it before: the decision to not restructure banks is purely political. It’s not an economic decision, though you will see everyone pretend it is, and claim the banking system(s) would collapse in case of debt restructuring and defaults on wagers. It was decided early on, 2007, that bank debts would, instead of being restructured, be transferred to public coffers. But that’s just a choice, not a necessity.

Moreover, it’s the by far worst choice, if only because it rewards gambling addicts for their behavior, at the cost of everyday people simply trying to make ends meet – and failing -. And this is self-reinforcing: the world today is firmly ruled by gambling addicts and their enablers, because they have managed to get their hands in the till. And they’re not just not planning to let go, they want more.

Here’s what happened to German bank debt in Greece:

Why Germany Might Not Be Bluffing in Greece

As Europe’s high-stakes debt negotiations with Greece reach an impasse, Germany has appeared surprisingly willing to drive the country out of the euro, regardless of the potentially dire repercussions for Italy, Portugal, Spain and the entire currency union. One possible explanation for Germany’s brinkmanship: Its banks have a lot less to lose than they once did. When the European debt crisis first flared up in 2010, Germany’s finances were closely linked to those of the euro area’s more economically fragile members. Its banks’ claims on Greece, Italy, Portugal and Spain – including money lent to governments and companies – amounted to more than €350 billion, about equal to all the capital in the German banking system.

If the periphery countries had forced losses on private creditors, which they arguably should have done, Germany would have had to recapitalize its banks or face an immediate meltdown.

The picture is very different now. The ECB, the IMF and other taxpayer-backed creditors have pumped hundreds of billions of euros of loans into the periphery countries, making it possible for German banks to extract themselves with minimal damage.

Thanks in part to this back-door rescue, the banks have also been able to raise some capital. As a result, they are in much better shape to withstand a Greek disaster. As of September 2014, their claims on Greece, Italy, Portugal and Spain had declined to about €216 billion, or 46% of capital. The upshot: Greece is left with more debt than it can pay, and Germany – with its banks effectively bailed out – has one less pressing reason to give Greece a break. Hardly the right incentives for a happy ending.

Merkel and Schäuble decided to save Wall Street mogul and derivatives behemoth Deutsche Bank at the cost of the Greek people. Not for economic reasons, but because Deutsche has much more political power inside the European Union than the entire Greek nation. Now you know what’s so inherently wrong in that union. Same story for France, where BNP, SocGen and Crédit Agricole had humongous amounts of debt outstanding in Athens. Where’s all that debt now, where’s it gone? Well, check your wallet.

When the decision came to throw either their own biggest banks, or the grandmas of a co-member nation of the currency union under the bus, I don’t think they even hesitated; they probably only went looking for the most efficient way to do it. And they have control over the perfect vehicle for such tasks: the ECB. A allegedly neutral institution that in reality peddles political influence in a way that guarantees the poorer countries will always wind up footing the bill.

And now that the systemic risk that Greece still might have been is effectively gone, and the debt has been transferred to the union’s bottom dwellers, Merkel and Schäuble can talk tough to Greece. Even if it wasn’t the Greeks that created this mess, it was Merkel and the Frankfurt bank CEO’s she confers with on a daily basis.

Banks are more important than people, certainly grandmas. That’s true on Wall Street, and it‘s true all over Europe. But it’s still just a political decision. And one that could be reversed as easily as it was taken. Which it what the paymasters find so scary about Syriza.

For those of you who don’t want to wake up one day to find their own grandmas crushed under the same bus the Greek yiayia’s are under as we speak, it would be beneficial to ponder how perverse this all is, not just the isolated events but the entire underlying system that produces them. And you support this perversity. And don’t fool yourself into thinking that the system won’t come for your grandma too. If you think that, you simply don’t understand how it works.

Feb 052015
 
 February 5, 2015  Posted by at 11:40 pm Finance Tagged with: , , , , , , , ,  


Harris&Ewing Washington snow scenes April 1924

With all the media focus aimed at Greece, we might be inclined to overlook – deliberately or not – that it is merely one case study, and a very small one at that, of what ails the entire world. The whole globe, and just about all of its 200+ nations, is drowning in debt, and more so every as single day passes. Not only is this process not being halted, it gets progressively, if not exponentially, worse. There are differences between countries in depth, in percentages and other details, but at this point these seem to serve mostly to draw attention away from the ghastly reality. ‘Look at so and so, he’s doing even worse than we are!’

Still, though there are plenty accounting tricks available, you’d be hard put to find even one single nation of any importance that could conceivably ever pay back the debt it’s drowning in. That’s why we’re seeing the global currency war slash race to the bottom of interest rates.

Greece is a prominent example, though, simply because it’s been set up as a test case for how far the world’s leading politicians, central bankers, bankers as well as the wizards behind the various curtains are prepared to go. And that does not bode well for you either, wherever you live. Greece is a test case: how far can we go?

And I’ve made the comparison before, this is what Naomi Klein describes happened in South America, as perpetrated by the Chicago School and the CIA, in her bestseller Shock Doctrine. We’re watching the experiment, we know the history, and we still sit our asses down on our couches? Doesn’t that simply mean that we get what we deserve?

Here’s McKinsey’s debt report today via Simon Kennedy at Bloomberg:

A World Overflowing With Debt

The world economy is still built on debt. That’s the warning today from McKinsey’s research division which estimates that since 2007, the IOUs of governments, companies, households and financial firms in 47 countries has grown by $57 trillion to $199 trillion, a rise equivalent to 17 percentage points of gross domestic product.

While not as big a gain as the 23 point surge in debt witnessed in the seven years before the financial crisis, the new data make a mockery of the hope that the turmoil and subsequent global recession would put the globe on a more sustainable path. Government debt alone has swelled by $25 trillion over the past seven years and developing economies are responsible for almost half of the overall gain. McKinsey sees little reason to think the trajectory of rising leverage will change any time soon. Here are three areas of particular concern:

1. Debt is too high for either austerity or growth to cure. Politicians will instead need to consider more unorthodox measures such as asset sales, one-off tax hikes and perhaps debt restructuring programs.

2. Households in some nations are still boosting debts. 80% of households have a higher debt than in 2007 including some in northern Europe as well as Canada and Australia.

3. China’s debt is rising rapidly. Thanks to real estate and shadow banking, debt in the world’s second-largest economy has quadrupled from $7 trillion in 2007 to $28 trillion in the middle of last year. At 282% of GDP, the debt burden is now larger than that of the U.S. or Germany. Especially worrisome to McKinsey is that half the loans are linked to the cooling property sector.

Note: Chinese total debt rose $20.8 trillion in 7 years, or 281%. And we’re talking about Greece as a problem?! You’d think – make that swear – that perhaps Merkel and her ilk have bigger fish to fry. But maybe they just don’t get it?!

Ambrose has this earlier today, just let the numbers sink in:

Devaluation By China Is The Next Great Risk For A Deflationary World

China is trapped. The Communist authorities have discovered, like the Japanese in the early 1990s and the US in the inter-war years, that they cannot deflate a credit bubble safely. A year of tight money from the People’s Bank and a $250bn crackdown on shadow banking have pushed the Chinese economy close to a debt-deflation crisis. Wednesday’s surprise cut in the Reserve Requirement Ratio (RRR) – the main policy tool – comes in the nick of time. Factory gate deflation has reached -3.3%.

The official gauge of manufacturing fell below the “boom-bust” line to 49.8 in January. Haibin Zhu, from JP Morgan, says the 50-point cut in the RRR from 20% to 19.5% injects roughly $100bn into the system. This will not, in itself, change anything. The average one-year borrowing cost for Chinese companies has risen from zero to 5% in real terms over the past three years as a result of falling inflation.

UBS said the debt-servicing burden for these firms has doubled from 7.5% to 15% of GDP. Yet the cut marks an inflection point. There will undoubtedly be a long series of cuts before China sweats out its hangover from a $26 trillion credit boom. Debt has risen from 100% to 250% of GDP in eight years. By comparison, Japan’s credit growth in the cycle preceding its Lost Decade was 50% of GDP.

Wednesday’s trigger was an amber warning sign in the jobs market. The employment component of the manufacturing survey contracted for the 15th month. Premier Li Keqiang targets jobs – not growth – and the labour market is looking faintly ominous for the first time. Unemployment is supposed to be 4.1%, a make-believe figure. A joint study by the IMF and the International Labour Federation said it is really 6.3% [..]

Whether or not you call it a hard-landing, China is struggling. Home prices fell 4.3% in December. New floor space started has slumped 30% on a three-month basis. This packs a macro-economic punch. A study by Jun Nie and Guangye Cao for the US Federal Reserve said that since 1998 property investment in China has risen from 4% to 15% of GDP, the same level as in Spain at the peak of the “burbuja”. The inventory overhang has risen to 18 months compared with 5.8 in the US.

The property slump is turning into a fiscal squeeze since land sales make up 25% of local government money. Zhiwei Zhang, from Deutsche Bank, says land revenues crashed 21% in the fourth quarter of last year. “The decline of fiscal revenue is the top risk in China and will lead to a sharp slowdown,” he said.

Asia is already in a currency cauldron, eerily like the onset of the 1998 crisis. The Japanese yen has fallen by half against the Chinese yuan since Abenomics burst upon the Pacific Rim. Japanese exporters pocketed the windfall gains of devaluation at first to boost margins. Now they are cutting prices to gain export share, exporting deflation.

This is eroding the wafer-thin profit margins of Chinese companies and tightening monetary conditions into the downturn. David Woo, from Bank of America, says Beijing may be forced to join the currency wars to defend itself, even though this variant of the “Prisoner’s Dilemma” leaves everybody worse off. “We view a meaningful yuan devaluation as a major tail-risk for the global economy,” he said.

If this were to happen, it would send a deflationary impulse worldwide. China spent $5 trillion on fixed investment last year, more than Europe and America combined, increasing its overcapacity in everything from shipping to steels, chemicals and solar panels , to even more unmanageable levels. A yuan devaluation would dump this on everybody else. Such a shock would be extremely hard to combat. Interest rates are already zero across the developed world. Five-year bond yields are negative in six European countries. The 10-year Bund has dropped to 0.31. These are no longer just 14th century lows. They are unprecedented.

[..] .. helicopter money, or “fiscal dominance”, may be dangerous, but not nearly as dangerous as the alternative. China faces a Morton’s Fork. Li Keqiang has been trying for two years to tame the state’s industrial behemoths, and trying to wean the economy off credit. Yet virtuous intent has run into cold reality. It cannot be done. China passed the point of no return five years ago.

That ain’t nothing to laugh at. But still, Malcolm Scott has more for Bloomberg:

Pushing on a String? Two Charts Showing China’s Dilemma

Is China’s latest monetary easing really going to help? While economists see it freeing up about 600 billion yuan ($96 billion), that assumes businesses and consumers want to borrow. This chart may put some champagne corks back in. It shows demand for credit is waning even as money supply continues its steady climb.

The reserve ratio requirement cut “helps to raise loan supply, but loan demand may remain weak,” said Zhang Zhiwei, chief China economist at Deutsche Bank. “We think the impact on the real economy is positive, but it is not enough to stabilize the economy.” This chart may also give pause. It shows the surge in debt since 2008, which has corresponded with a slowdown in economic growth.

Note: Social finance is, to an extent, just another word for shadow banking.

“Monetary stimulus of the real economy has not worked for several years,” said Derek Scissors, a scholar at the American Enterprises Institute in Washington who focuses on Asia economics. “The obsession with monetary policy is a problem around the world, but only China has a money supply of $20 trillion.”

China now carries $28 trillion in debt, or 282% of its GDP, $20 trillion of which was added in just the past 7 years. It’s also useful to note that it boosted its money supply to $20 trillion. What part of these numbers includes shadow banking, we don’t know – even if social finance can be assumed to include an X amount of shadow funding-. However, there can be no doubt that China’s real debt burden would be significantly higher if and when ‘shadow debt’ would be added.

Ergo: whether it’s tiny Greece, or behemoth China, or any given nation in between, they’re all in debt way over their heads. One might be tempted to ponder that debt restructuring would be worth considering. A first step towards that would be to look at who owes what to whom. And, of course, who profits. When it comes to Greece, that’s awfully clear, something you may want to consider next time you think about who’s squeezing who. From the Jubilee Debt Campaign through Telesur:

That doesn’t leave too many questions, does it? As in, who rules this blue planet?! That also tells you why there won’t be any debt restructuring, even though that is exactly what this conundrum calls for. Debt is a power tool. Debt is how the Roman Empire managed to stretch its existence for many years, as it increasingly squeezed the periphery. And then it died anyway. Joe Stiglitz gives it another try, and in the process takes us back to Greece:

A Greek Morality Tale: We Need A Global Debt Restructuring Framework

At the international level, we have not yet created an orderly process for giving countries a fresh start. Since even before the 2008 crisis, the UN, with the support of almost all of the developing and emerging countries, has been seeking to create such a framework. But the US is adamantly opposed; perhaps it wants to reinstitute debtor prisons for over indebted countries’ officials (if so, space may be opening up at Guantánamo Bay).

The idea of bringing back debtors’ prisons may seem far-fetched, but it resonates with current talk of moral hazard and accountability. There is a fear that if Greece is allowed to restructure its debt, it will simply get itself into trouble again, as will others. This is sheer nonsense. Does anyone in their right mind think that any country would willingly put itself through what Greece has gone through, just to get a free ride from its creditors?

If there is a moral hazard, it is on the part of the lenders – especially in the private sector – who have been bailed out repeatedly. If Europe has allowed these debts to move from the private sector to the public sector – a well-established pattern over the past half-century – it is Europe, not Greece, that should bear the consequences. Indeed, Greece’s current plight, including the massive run-up in the debt ratio, is largely the fault of the misguided troika programs foisted on it. So it is not debt restructuring, but its absence, that is “immoral”.

There is nothing particularly special about the dilemmas that Greece faces today; many countries have been in the same position. What makes Greece’s problems more difficult to address is the structure of the eurozone: monetary union implies that member states cannot devalue their way out of trouble, yet the modicum of European solidarity that must accompany this loss of policy flexibility simply is not there.

You can put it down to technical or structural issues, but down the line none of that will convince me. Who cares about talking about technical shit when people are suffering, without access to doctors, and/or dying, in a first world nation like Greece, just so Angela Merkel and Mario Draghi and Jeroen Dijsselbloem can get their way?

Oh, no, wait, that graph there says it’s not them, it’s Wall Street that gets their way. It’s the world’s TBTF banks (they gave themselves that label) that get to call the shots on who lives in Greece and who does not. And they will never ever allow for any meaningful debt restructuring to take place. Which means they also call the shots on who lives in Berlin and New York and Tokyo and who does not. Did I mention Beijing, Shanghai, LA, Paris and your town?

Greece’s problem can only be truly solved if large scale debt restructuring is accepted and executed. But that would initiate a chain of events that would bring down the bloated zombie that is Wall Street. And it just so happens that this zombie rules the planet.

We are all addicted to the zombie. It allows us to fool ourselves into thinking we are doing well – well, sort of -, but the longer term implications of that behavior will be devastating. We’re all going to be Greece, that’s inevitable. It’s not some maybe thing. The only thing that keeps us from realizing that is that the big media outlets have become part of the same industry that Wall Street, and the governments it controls, have full control over.

And that in turn says something about the importance of what Yanis Varoufakis and Syriza are trying to accomplish. They’re taking the battle to the finance empire. And it should not be a lonely fight. Because if the international Wall Street banks succeed in Greece, some theater eerily uncomfortably near you will be next. That is cast in stone.

As for the title, it’s obviously Marquez, and what better link is there than Wall Street and cholera?

Jan 312015
 
 January 31, 2015  Posted by at 11:47 pm Finance Tagged with: , , , ,  


DPC Grand Central Station and Hotel Manhattan, NY 1903

On the one hand, I’ve written so much about Greece lately I fear I’m reaching overkill. On the other hand, there’s so much going on with Greece, and so fast, that I wouldn’t know here to begin. Moreover, I’m thinking and trying to figure what is what and what is actually happening so much it’s hard to stay focused for more than a short while before something else happens again and it all starts all over. And I’m thinking it must feel that way for the Syriza guys as well.

One thing I do increasingly ponder is that it gets ever harder to see the eurozone survive. In its present shape and form, that is. Damned if you do, doomed if you don’t, is an expression I’ve used before. It’s like this big experiment that a bunch of power hungry Europeans really get off on, that now all of a sudden is confronted with the democracy they all only thought existed in books of history anymore.

But if you take your blind hunger far enough to kill people, or ‘only’ condemn them to lives of misery, they will eventually try to speak up, even if not nearly soon enough. It’s like a law of physics, or like Icarus in, yes, Greek mythology: try to reach too high, and you’ll find you can’t.

What is Brussels supposed to do now? Throw Athens off a cliff? Not respect the voice of the Greek people? That doesn’t really rhyme with the ideals of the union, does it? If they want to keep the euro going, they’re going to have to give in to a probably substantial part of what Syriza is looking for. Or Greece will leave the eurozone, and bust it wide open, exposing its failures, its lack of coherence, and especially its lack of democratic and moral values.

The problem with giving in, though, is that there are large protest demonstrations in Spain and Italy too. Give anything at all to Greece, and the EU won’t be able to avoid giving it to others as well. And by then you’re talking real money.

They called it upon themselves. They got too greedy. They thought those starving Greek grannies would not be noticed enough to derail their big schemes. That claiming “much progress has been made”, as Eurogroup head Dijsselbloem did again this week, would be considered more important than the fact that an entire eurozone member nation has been thrown into despair.

That’s a big oversight no matter how you put it. The leadership can be plush and comfy in Berlin, Paris, Helsinki, but that doesn’t excuse them sporting blinders. And now they know. Or, let’s say, are beginning to know, because they still think they can ‘win this battle’, ostensibly with the aim of deepening the Greek misery even further, while continuing to proclaim that “much progress has been made”.

Not very smart. At least that much is obvious. But what else is? Greek Finance Minister Varoufakis declares in front of a camera that Greece ever paying back its full debt is akin to the Santa Claus story. Less than 24 hours later, PM Tsipras says of course Greece will pay back its debt. Varoufakis lashed out about Syriza not being consulted on EU sanctions against Russia, but shortly after their own Foreign Minister was reported to have said he reached a satisfactory compromise on the sanctions with his EU peers.

Discontent, confusion, or something worse, in the ranks? Hard to tell. What we can tell, however, is that the obvious discomfort with Dijsselbloem, Draghi, and the entire apparatus in Brussels – and Frankfurt – is a fake move. Either that or it’s only foreplay. If Yanis and Alexis want to get anywhere, they’ll need to take on Wall Street and its international, American, French, German, TBTF banks, primary dealers. And if there’s one thing those guys don’t like, it’s democracy.

Syriza is not really up against the EU or ECB, or the Troika, that’s a sideshow. They’re taking the battle to the IMF, a sort of silent partner in the Troika, and the organization that rules the world for the rich and the banks they own. And that, if they had paid a bit more attention and a bit less hubris, could have gone on the way they have, small squeeze after small squeeze, without hardly anyone noticing, until the end of – this – civilization. But no. It had to be more.

It’s going to be a bloody battle. And it hasn’t even started yet. But kudos to all Greeks for starting it. It has to be done. And I don’t see how the euro could possibly survive it.

Jan 292015
 
 January 29, 2015  Posted by at 6:49 pm Finance Tagged with: , , , , , , ,  


Edwin Rosskam Shoeshine, 47th Street, Chicago’s main Negro business street 1941

First off, no, I don’t think Syriza is a problem, I just couldn’t resist the Sound of Music link once it popped into my head, as in ‘headlines you can sing’. I think Syriza may well be a solution, if it plays its cards right. But that still leaves politicians and investors denominating Tsipras et al as a problem, if not a menace. Now, investors may not need to possess any moral values – though things would probably have been much better if that were a requirement -, but you can’t say the same for politicians. Politics is supposed to BE about moral values.

And supporting Samaras and his technocrat oligarchy, as has been the EU/Troika policy, doesn’t exactly show a high moral standard. Not just because trying to influence an election is an no-go aberration (though it’s so common in the EU you’d almost forget that), but certainly also because of what Samaras and the EU have done to the Greek people over the past few years. And neither does it show in what happens now, where the Greeks, steeped in Troika-induced misery as they are, are labeled greedy bastard cheats.

Since the EU lies as much about Greece as it does about Russia, it’s only fitting that the former should speak out for the latter. And it’s deliciously easy: the EU wants to step up sanctions against Russia (because the Ukraine shelled Mariupol?!), but EU sanctions decisions require unanimity. Since Greek-Russian relations have historically been close, Syriza resisting ever tighter sanctions should be no surprise.

At the end of the day, European taxpayers shouldn’t be angry at Greece, no matter how much their media try to stoke that anger, but at their own banks, governments and central banks. Things pertaining to Greece and its debt are not at all what they seem. Most of it is just another narrative originating in Brussels, Frankfurt and the financial media cabal. Not much is left of this narrative if we dig a little deeper. This from Mehreen Khan for the Telegraph today may be a little ambivalent in what it points to, but it certainly puts the Greek debt in a different light from the ‘official’ one:

Three Myths About Greece’s Enormous Debt Mountain

€317bn. Over 175% of national output. That’s the enormous debt mountain that faces the new Greek government. It is the issue over which the country is set to clash with other countries in the eurozone. As it stands, Greece’s debt-to-GDP ratio is the highest in the currency bloc. It has been steadily rising as the country has undergone painful austerity and experienced a severe contraction in economic output. The new far-left/right-wing coalition is now demanding a write-off of up to 50% of its liabilities. The government argues that this is the only way Greece can remain in the single currency and prosper.

According to the newly appointed finance minister, who first coined the term “fiscal waterboarding” to describe Greece’s plight, the EU has loaded “the largest loan in human history on the weakest of shoulders – the Greek taxpayer”. So far, the rest of the eurozone is adamant that it will not meet demands for debt forgiveness. And yet, the value of Greece’s debt mountain has been called a meaningless “accounting fiction” by Nobel laureate Paul Krugman. So what does Greece’s €317bn debt really mean for the country and its creditors? And can it ever be paid back?

Myth 1: They can never pay it back. Ever. Never say never. On the issue of repaying back its liabilities, it’s more a question of time, rather than money. Greece has already been the beneficiary of a number of debt extensions, and in 2012, underwent the biggest private sector debt restructuring in history. The average maturity on Greek government debt currently stands at 16.5 years. The sustainability, or otherwise, of the country’s burden relies more on the timetable for repayment rather than the overall stock of the debt, argue many economists. The chart below shows the repayment schedule on the country’s €245bn rescue package and extends all the way out to 2054.


Source: Hellenic Republic Public Debt Bulletin

Although the question of cancelling any portion of the principal owed to Greece’s creditors seems to be a firm no-go area, the idea of further debt extensions could be an option. But as noted by Ben Wright, allowing Greece more time to payback its loans is still a fiscal transfer in all but name.

Myth 2: Greece is paying punitive interest rates. Not really. Greece has managed to negotiate favourable terms on which it can service the cost of its loans and the interest paid by the country is far below that of Spain, Ireland, and Portugal (see chart below). Think-tank Bruegel calculates that Greece paid a sum equal to around 2.6% of its GDP (rather than the widely quoted figure of around 4%) to service its loans last year. This is because Greece will actually receive back the interest it pays to the ECB should it continue to meet its bail-out conditions.

Even without a further renegotiation on interest payments, the costs could be even lower this year. In the words of economist Zolst Darvas from Bruegel:

Given that interest rates have fallen significantly from 2014, actual interest expenditures of Greece will be likely below 2% of GDP in 2015, if Greece will meet the conditions of the bail-out programme.

It is this combination of such long maturities and rock-bottom interest rates, that has led at least one former ECB governing board member to argue that Greece’s debt burden is far more sustainable than many of its southern neighbours.


Who owns Greek debt? (Source: Open Europe)

Myth 3: Greece won’t recover without debt forgiveness. Wrong again. For all the fixation on the outstanding stock of Greek debt, kickstarting growth in the country is more likely to happen through a relaxation of budget rules rather than a debt cancellation. With the coffers looking sparse, the Syriza-led government is also asking for a renegotiation of the surplus rules imposed on the country. Greece is currently required to run a primary surplus of 4.5% of its GDP. Before taking account of its debt interest payments, it is likely to achieve a primary budget surplus of around 3% of its national output this year. This severely limits the new government’s room for fiscal manoeuvre. It also makes it almost impossible for Syriza to fulfil its pre-election promises to raise the minimum wage and create public sector jobs.

According to calculations from Paul Krugman:

Dropping the requirement that Greece run a primary surplus of 4.5% of GDP would allow spending to rise by 9% of GDP, and that this would raise GDP by 12% relative to what it would have been otherwise. Unemployment would fall by around 10% relative to no relief.

None of this is to deny that Greece would hugely benefit from a significant debt cancellation. But the politics of the eurozone means that this is virtually impossible. However, there do seem to be other ways that Greece could start tackling its enormous debt mountain.

And if that is not enough to change your mind about what the reality is in the Greek debt situation, David Weidner at MarketWatch has more, from an entirely different angle, that nevertheless hammers the official narrative just as much, if not more. Weidner refers to work by French economist Eric Dor, as cited by Mish Shedlock last week. What Dor contends is that a very substantial part of Greece’s debt to EU taxpayers was nothing but Wall Street wagers gone awry.

Not exactly something one can blame the Greeks in the street for, just perhaps the elite and oligarchy. Instead of restructuring their banks, the richer nations of Europe, like the US, decided to transfer their gambling losses to the people’s coffers. And though there are all kinds of reasons provided, which even Weidner suggests may be ‘genuine’, not to restructure a banking system, in the end it is a political choice made by those who owe their power to those same banks.

The result has been that Greece was saddled with so much debt, they had to borrow even more, and the Troika could come in and unleash a modern day chapter of the Shock Doctrine. How convenient.

How Wall Street Squeezed Greece – And Germany

Europe’s political leaders and bankers would have you believe that the conflict between Greece and the European Union is a tug of war between a deadbeat nation and its richer ones who have come to the debtor’s aid time and time again. Instead, what most of these leaders miss is that it’s a bank bailout in plain view.

What’s really happened is that since Greece ran into serious trouble repaying its debts four years ago, Germany, France and the EU have instituted what can only be described as a massive bailout of its own financial system – shifting the burden from banks to taxpayers. Last week, Mike Shedlock republished research by Eric Dor, a French business school director, and it shows the magnitude of the shift. To put it simply, German taxpayers are on the hook for roughly $40 billion in Greek debt. German banks? Just $181 million, though they do hold $5.9 billion in exposure to Greek banks. Those numbers are a flip-flop from where things stood less than five years ago.

German banks were heavily exposed to Greek debt when the crisis began, but they’ve been bailed out and now German taxpayers are on the hook. French banks were similarly bailed out by the European Union.

This massive shift from private gains to public losses was done through the European Financial Stability Facility. Created in 2010, this was the European Union’s answer to the U.S. Troubled Asset Relief Program, the Treasury Department’s 2008 bailout program. There are some differences. The EFSF issues bonds, for instance, but the principle is the same. Governments buy bad bank debt and hold it on the public’s books.

The terms set by the EFSF are basically what’s at issue when we hear about Greece’s new government being opposed to austerity in their nation. The Syriza victory, which was a sharp rebuke to the massive cost-cutting in government spending, including pensions and social welfare costs, drew warnings from leaders across Europe. “Mr. Tsipras must pay, those are the rules of the game, there is no room for unilateral behavior in Europe, that doesn’t rule out a rescheduling of the debt,” ECB’s Benoît Coeuré said.

“If he doesn’t pay, it’s a default and it’s a violation of the European rules.” British Prime Minister David Cameron’s Twitter account said, the Greek election results “will increase economic uncertainty across Europe.” And Jens Weidmann, president of the German central bank, warned the new ruling party that it “should not make promises that the country cannot afford.” Those sound like very threatening words. And one wonders if these same officials made the same tough statements to Deutsche Bank, Commerzbank, Credit Agricole or SocGen when they were faced with potentially billions in losses when the banks were holding Greek debt.

European leaders such as Angela Merkel in Germany, Francois Hollande in France and Finnish Prime Minister Alexander Stubb have been eager to beat down Greece and stir broader support at home by making it an us-against-them game. Not to deny that Greece’s financial troubles do threaten the European Union, but today’s crisis pitting nation against nation was created by these leaders in an effort to minimize losses at their biggest lending institutions. Perhaps the move to shift Greek liabilities to state-owned banks (Germany’s export/import bank holds $17 billion in Greek debt) was necessary, but that doesn’t make it fair, or the right thing to do. Europe, like the United States, seems to be at the beck and call of its financial industry.

Michael Hudson recognized this early on. In 2011 he wrote that in Europe there is a belief “governments should run their economies on behalf of banks and bondholders. “They should bail out at least the senior creditors of banks that fail (that is, the big institutional investors and gamblers) and pay these debts and public debts by selling off enterprises, shifting the tax burden onto labor. To balance their budgets they are to cut back spending programs, lower public employment and wages, and charge more for public services, from medical care to education.”

Yes, Greece overspent. But to do so, someone had to overlend. German and French banks did so because of an implicit guarantee by the EU that all nations would stick together. Well, the bankers and politicians have stuck together. Everyone else seems to be on their own. Merkel and the austerity hawks of Europe who won’t share the responsibility for a system’s failure are doing the bidding of banks. At least in Greece, the lawmakers are put into power by the people.

And that still leaves unaddressed that Greece as a whole may have overspent and -borrowed, but it was the elite that was responsible for this, egged on by the likes of Goldman Sachs, whose involvement in the creative accounting that got Greece accepted into the EU, as well as the derivatives that are weighing down the nation as we speak, is notorious.

The world’s major banks got rich off the back of the Greek population at large, and when their wagers got so absurd they collapsed, the banks saw to it that their losses were transferred to European -and American – taxpayers. And those taxpayers are now told to vent their anger at those cheating, lazy Greeks, who are actually notoriously hard workers, who have doctors prostituting themselves, and many of whom have no access to the health care those same doctors should be providing, and whose young people have no future to speak of in their own magnificently beautiful nation.

The Troika, the EU, the IMF, and the banks whose sock puppets they have chosen to be, are a predatory force that has come a long way towards wiping Greece off the map. And we, whether we’re European or American, are complicit in that. It’s Merkel and Cameron etc., who have allowed for their banks to transfer their casino losses to the – empty – pockets of the Greeks, and of all of us. That is the problem here.

And that’s what Syriza has set out to remediate. And for that, they deserve, and probably will need, our unmitigated support. It’s not the Greek grandmas (they’re dying because they have no access to a doctor) who made out like bandits here. It’s the usual suspects, bankers and politicians. And you and I, too, are eerily close to being the usual suspects. We should do better. Or else we are dead certain of being next in line.