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The growth rate of nominal GDP in the US has fallen to 2.4pc, the lowest level outside recession since the Second World War. It has been sliding relentlessly for almost two years, a warning signal that underlying deflationary forces may be tightening their grip on the US economy. Given this extraordinary backdrop, the violent spike in US and global bonds yields over the last four trading days is extremely odd. It is rare for AAA-rated safe-haven debt to fall out of favour at the same time as stock markets, and few explanations on offer make sense. We can all agree that oxygen is thinning as we enter the final phase of the economic cycle after 86 months of expansion. The MSCI world index of global equities has risen to a forward price-to-earnings ratio of 17, significantly higher than on the cusp of the Lehman crisis.

“We think that too much complacency has crept in,” says Mislav Matejka, equity strategist for JP Morgan. “After seven years of having a structural overweight stance on global equities, we believe the regime has fundamentally changed. We think that one should not be buying the dips any more, but use any rallies as selling opportunities,” he said. The correlation between bonds and equities has reached unprecedented levels, and that has the coiled the spring. The slightest rise in yields now has a potent magnifying effect across the spectrum of assets. Hence the angst over what is happening to US Treasuries. Yields on 10-year Treasuries – the benchmark borrowing cost for international finance – have jumped 19 basis points to 1.72pc since the middle of last week.

The amount of global government debt trading at rates below zero has suddenly fallen from $10 trillion to $8.3 trillion, with parallel effects for corporate bonds. You would have thought that inflation was picking up in the US and that the Fed was about to slam on the brakes, but that is not the case. The markets are pricing in a mere 15pc chance of a rate rise next week, and the figure has been falling. If anything, the US inflation scare has subsided. There were grounds for worrying earlier this year that Fed would have to act. In February, core CPI inflation was steaming ahead at a rate of 2.9pc on a three-month annualized basis. This has since dropped back to 1.8pc. Other core measures are lower.

Probably not going to calm down before next year.

• Wall Street VIX ‘Fear Gauge’ Suggests Stock Market Is About To Get Wild (MW)

So much for the those calm markets. Wall Street’s “fear gauge” is rearing higher as U.S. equities logged a second sharp selloff in the past three sessions, as hand-wringing over central-bank monetary policy contributes to a renaissance of volatility. The CBOE Volatility Index often used as a measure of fear in the market, rose 18% on Tuesday at 17.85—its highest level since June 28 and implying that investors are starting to dial up bets that stocks could suffer further near-term swings turbulent. The VIX has hovered around 12 since mid-July. That level usually signals quiescence, while a reading of 20 or above indicates that investors are bracing for moves sharply south

The rise in the VIX comes as the Dow Jones Industrial Average and the S&P 500 index and the Nasdaq Composite relinquished all of the sharp gains racked up 24 hours ago. Monday’s rally followed another tumble on Friday that saw the VIX jump 40%—the largest daily move since Brexit on June 23. On Tuesday, volume in an exchange-traded fund that tracks the VIX, Barclays Bank PLC iPath S&P 500 VIX Short-Term Futures exceeded that of stocks on the S&P 500 for the first time ever, as Bloomberg highlights:

On Wednesday, the VIX ticked higher as the Dow and S&P 500 lost momentum to trade lower late in the session. Three straight days of swings of at least 1% for stocks, marks the first time since 1963 that the S&P 500 followed an extended period of calm—43 days—with a trio of such choppy trading days, according to Dow Jones data. That was the two-day period before and immediately following the assassination of President John F. Kennedy in November 1963, Dow Jones data show. “The pickup in volatility is notable, and typically characterizes pullbacks,” said Katie Stockton, chief market technician at BTIG.

“We are to various degrees close to pushing on a string..”

• ‘There’s Only So Much You Can Squeeze Out Of A Debt Cycle’: Ray Dalio (CNBC)

The debt market is in a “dangerous situation” as central banks around the world lose their ability to stimulate growth, hedge fund giant Ray Dalio said Tuesday. As the world faces more than $11 trillion in negative-yielding debt, Dalio said central banks like the Fed, the ECB and the BOJ are facing a dilemma. “There’s only so much you can squeeze out of the debt cycle, and we’re there globally,” the head of Bridgewater Associates said at the Delivering Alpha conference presented by CNBC and Institutional Investor. “You can’t lower interest rates more.” Dalio spoke as Fed officials contemplate a rate hike at some point this year. Market-implied probability indicates that the Fed won’t hike until at least December. Its September meeting is next week. While monetary policy has been used as a fuel for growth and asset price appreciation, Dalio said its effectiveness is waning. “We are to various degrees close to pushing on a string,” he said.

“..there is essentially only one practical way to reduce the stock of outstanding debts: defaults.”

• China Debt Default Looms As Growth Options Run Out: Nomura (VW)

To alleviate its debt problem, China should adopt appropriate macro-economic policies encompassing currency depreciation and cutting interest rates to an ultra-low-level within two to three years, believe Nomura analysts. Yang Zhao and team said in their September 14 research piece titled “China: Solving the debt problem” that they believe RMB depreciation will continue and forecast USD/CNH at 7.1 at the end of 2017. Zhao and team highlight that debt-to-GDP ratio can be lowered either through reducing the numerator or increasing the denominator.

They believe that to contain or even reduce the debt-to-GDP ratio, the gap between debt growth and nominal GDP growth must shrink or turn negative. They believe lowering the ratio has to be premised on the acceptance of a slower rate of GDP growth: The Nomura analysts argue that default is the only practical way to trim the stock of outstanding debts. Instead of an outright default, per se, they suggest other approaches such as renegotiating terms, lowering interest rates, and tenure extension.

“Since increasing the denominator is unfeasible, policymakers must therefore look to lower the numerator. The only practical measures that can be taken to reduce the debt ratio are those aimed at reducing the growth of debt to below that of nominal GDP growth. “The outstanding stock of debt can only be reduced through either repayment or indeed default. One argument is that China’s corporate sector and/or local governments can, or should, simply repay their debts by selling the huge amount of assets that they have accumulated, but again, this is not a feasible solution.

The key reason behind the low level of corporate leverage despite the huge amount of debt is that asset prices have not collapsed. If the corporate sector or local governments repaid their debts by selling their assets – which are predominantly in real estate – their leverage will almost certainly spike higher due to the subsequent decline in the value of their remaining asset base. Hence, there is essentially only one practical way to reduce the stock of outstanding debts: defaults.”

Selling USD to prepare for SDR basket?!

• PBOC Yuan Positions Drop to Lowest Since 2011 (BBG)

The Chinese central bank’s yuan positions – which reflect the amount of foreign currency held on its balance sheet – fell to the lowest since 2011 in August, a sign that it sold dollars to support the yuan. The People’s Bank of China has been seen intervening in the market to stem the currency’s slide, with Bank of East Asia and Natixis saying that policy makers will prevent the exchange rate from slipping past 6.7 per dollar before its admission into the IMF’s basket of reserves on Oct. 1.

The only thing left of globalization is a vague idea.

• The Closing of the World Economy (Satyajit Das)

Pundits and policymakers everywhere are bemoaning the rise of a new, inward-looking populism. Led by the likes of Donald Trump and Nigel Farage, those who’ve felt only globalization’s ill effects, not its benefits, have mounted a fierce counterattack. Border-hopping elites fret that the whole process of opening up and knitting together the world through trade, capital flows and immigration may soon go into reverse. They’re missing the point. Support for freer trade and greater openness had in fact begun to falter well before economic nationalists like Trump and Farage took center stage. The same governments that count themselves among globalization’s greatest champions have been rolling it back steadily since the global financial crisis.

Their excuses are innocent-sounding and several: to protect national industries and iconic businesses; to secure export markets and competitive advantage; and above all, to prop up employment and incomes. Despite oft-repeated warnings about avoiding the beggar-thy-neighbor policies of the 1930s, these governments allowed global trade talks – the so-called Doha Round – to stall as early as 2008. Nations including the U.S. have instead pursued narrower bilateral and regional deals where they don’t have to satisfy so many different negotiating partners and can continue to protect key sectors. If these pacts are better than nothing, they more or less foreclose the possibility of a more ambitious multilateralism.

Meanwhile, between 2009 and 2015, three times as many discriminatory trade measures were introduced as liberalizing ones. In the first 10 months of 2015 alone, the latest Global Trade Alert database recorded 539 such initiatives adopted by governments worldwide that harmed foreign traders, investors, workers or owners of intellectual property – a record. Efforts to control trade flows have grown increasingly sophisticated. Most governments no longer impose tariffs or other crude roadblocks that would violate WTO rules. Instead countries from the U.S. – with the auto bailouts – to the U.K., China, Brazil, Canada and several EU members have funneled aid to domestic industries. State procurement rules – which in China, say, forbid buying strategic and defense technology from abroad – favor domestic suppliers, as do “buy local” campaigns like the ones launched since 2009 in the U.S., U.K. and Australia.

Innovation!?

• Wall Street’s Newest Money-Making Scheme Targets Your Home (MW)

Do you want Wall Street to get a piece of your house? On Tuesday, the noted venture capitalist Marc Andreesen announced that he’d invested in a startup called Point. Point casts itself as a solution to an intrinsic problem with home ownership: Most Americans have most of their wealth tied up in their home. There are mechanisms for “taking out” some of the equity built up as a mortgage is paid down, such as home-equity lines of credit or home-equity loans. But they require paying interest – not to mention having good credit. They also don’t help homeowners diversify their investments. Diversification was the driver behind an earlier version of what Point offers. Allan Weiss, who helped create the S&P/Case-Shiller price indexes, created a platform he calls “indexed fractional ownership.”

His idea came in part from a conversation with a neighbor who said he was looking forward to “cashing out” of an expensive home he’d owned for a long time – just before the housing market crashed. If you own a home and offer some of the equity to an investor like Point, the idea goes, you could take that money and invest it in a different asset class, like stocks. And what does Point get? If the house appreciates before it is sold, Point benefits. If the house depreciates, according to Andreessen Horowitz’s website, “Point gets paid back after the bank, but before the homeowner, in the event of a sale.” A blog post on Point’s site notes that, in addition to an initial appraisal, Point may require a “risk adjustment” that “offsets the chance that the home will depreciate before the end of the term.”

Yet Weiss and Andreessen Horowitz both envision their products gaining the critical mass to move beyond one-off agreements between investors and individual homeowners into what the latter calls a “broad basket” of homes. “It’s rethinking the fundamentals of residential real estate ownership – making single-family residential real estate a liquid, tradeable asset class,” the venture capitalists wrote.

By now, this is crazy.

• Ford Shifting All US Small-Car Production To Mexico (DFP)

Ford is shifting all North American small-car production from the U.S. to Mexico, CEO Mark Fields told investors today in Dearborn. “Over the next two to three years, we will have migrated all of our small-car production to Mexico and out of the United States,” Fields said. The industry has known for decades that domestic manufacturers struggle to make a profit on small cars. Shifting their assembly to Mexico can reduce costs to a point. But some of these cars are over-engineered. For example, Field said the current Ford Focus can be ordered in 300 different configurations of options and colors. Ford wants to reduce that to 30, which will make the production process simpler and less expensive.

But Americans prefer larger vehicles, especially pickups and higher-riding SUVs and crossover vehicles for their personal use. The future of smaller cars in the U.S. may depend on the ability to electrify their powertrains and introduce them to ride-sharing fleets where they can generate revenue from fares paid by multiple riders. Along those lines, Fields and other Ford executives Wednesday outlined an aggressive plan to invest $4.5 billion over the next four years. These will include new models in segments such as commercial vehicles, trucks, SUVs and performance vehicles. Ford also reiterated its commitment to developing an autonomous vehicle by 2021. The company believes that autonomous vehicles could account for up to 20% of vehicle sales by 2030.

Smart. But it may make prices fall even faster.

• Vancouver Tax on Empty Homes to Target Near-Zero Rental Supply (BBG)

Vancouver, suffering from a near-zero supply of homes available for rent, plans to slap investors sitting on vacant properties with a new tax in an effort to make housing more accessible in Canada’s most-expensive property market. The levy, which would start in January, may be as high as 2% of the property’s assessed value, Kathleen Llewellyn-Thomas, the city’s general manager of community services, told reporters Wednesday. That would mean a minimum C$20,000 ($15,000) annual payment for the typical C$1 million-plus detached home in Vancouver based on July 2015 assessment data, the most recent available. “Vancouver is in a rental housing crisis,” said Mayor Gregor Robertson, whose announcement follows a separate measure by the province in July to impose a 15% tax on foreign buyers.

“Dangerously low vacancy rates across the city are near zero.” While the city, ranked the world’s third-most-livable, has drawn attention for its sky-high purchase prices fomented by global money flows, the rental market has been just as contentious locally. Vacancies can get scooped up within hours, while bidding wars drive up the cost of leases. Public scrutiny has focused on absentee landlords, particularly from overseas, who are accused of sitting on investment properties where windows remain dark throughout the year. Robertson estimated that more than 10,000 homes are empty and an additional 10,000 are “under-utilized.” The tax aims to get those properties into the rental supply so that the vacancy rate rises to about 3 to 5% from near zero today, he said. The city expects to raise about C$2 million from the tax in the first year.

People do recognize propaganda to an extent.

• US Confidence In Media Hits Fresh Low (AFP)

Americans’ trust in the media has sunk to a new low, and a bitter presidential race may be to blame, a Gallup survey showed Wednesday. The poll asking whether the media report the news “fully, accurately and fairly” found just 32% of Americans have a great deal or fair amount of trust, the lowest level in Gallup polling history and 8 percentage points below last year. Gallup began asking the question in 1972, and has polled Americans on a yearly basis since 1997. Trust and confidence in the media hit its highest point in 1976, at 72% following the investigative journalism coverage of the Vietnam and the Watergate scandal, according to the research group. But confidence has been below 50% since 2007.

“While it is clear Americans’ trust in the media has been eroding over time, the election campaign may be the reason that it has fallen so sharply this year,” Gallup said in its report. “With many Republican leaders and conservative pundits saying (Democratic presidential nominee) Hillary Clinton has received overly positive media attention, while (Republican nominee) Donald Trump has been receiving unfair or negative attention, this may be the prime reason their relatively low trust in the media has evaporated even more.” Gallup said Trump’s sharp criticism of the press may also have had an impact on public opinion.

Just 14% of Republicans said they trust the media, down sharply from 32% a year ago and the lowest level of confidence among Republicans in 20 years, according to Gallup. Among Democrats, 51% expressed confidence in the media, down from 55% a year ago, while the number of independents trusting news organizations fell to 30% from 33%. Trust was also low among younger adults: just 26% of those between the ages of 18 and 49 said they felt confidence in the media compared with 38% of those 50 and older.

Bubble.

• US Rooftop Solar Boom Is Grinding To A Halt (BBG)

Rooftop solar, which has surged more than 1,000% since 2010, will barely grow at all next year. Residential installations are expected to increase by 21% this year, but in 2017 the figure will inch upward by about 0.3%. The change comes as utilities push back against mandates to buy the electricity and shifting tax policies curb demand. Throw in sliding electricity rates and it’s clear the economic benefits of rooftop panels are no longer so obvious to consumers. That’s forcing rooftop developers including Vivint Solar, Sunrun and Elon Musk-backed SolarCity to focus on profitability instead of growth.

“Much like PC manufacturers in the 1990s, solar installers need to realize substantial new customer sales each year just to tread water in terms of annual revenue,” Hugh Bromley at Bloomberg New Energy Finance said. Residential installations are already slowing from the 79% expansion in 2015. Developers are expected to add 2.76 gigawatts this year and that will inch upward to 2.77 gigawatts in 2017 as investment slips 6.4% to $6.8 billion, according to estimates from Bloomberg New Energy Finance. “After growing as much as it has, sustaining high double-digit growth rate forever is not realistic,” said Pavel Molchanov at Raymond James Financial.

US can’t afford to go to war anymore.

• Latest Estimate Pegs US Cost of Wars at Nearly $5 Trillion (I’Cept)

The total US budgetary cost of war since 2001 is $4.79 trillion, according to a report released this week from Brown University’s Watson Institute. That’s the highest estimate yet. Neta Crawford of Boston University, the author of the report, included interest on borrowing, future veterans needs, and the cost of homeland security in her calculations. The amount of $4.79 trillion, “so large as to be almost incomprehensible,” she writes, adds up like this:

• The wars in Iraq, Afghanistan, Pakistan, Syria, and other overseas operations already cost $1.7 trillion between 2001 and August 2016 with $103 billion more requested for 2017 • Homeland Security terrorism prevention costs from 2001 to 2016 were $548 billion. • The estimated DOD base budget was $733 billion and veterans spending was $213 billion. • Interest incurred on borrowing for wars was $453 billion. • Estimated future costs for veterans’ medical needs until the year 2053 is $1 trillion.

Crawford carried out a similar study in June 2014 that estimated the cost of war at $4.4 trillion. Her methodology mirrors that of the 2008 book The Three Trillion Dollar War: The True Costs of the Iraq Conflict by Linda Bilmes and Joseph Stiglitz. There are even more costs of war that Crawford does not include, she writes. For instance, “I have not included here state and local government expenses related to medical care of veterans and homeland security. Nor do I calculate the macro economic costs of war for the U.S. economy.” She also notes that she does not add the cost of war for other countries, nor try to put a dollar figures on the cost in human lives.

How did he land that job again?

• Juncker Denies Alcohol Problem In Interview, Drinks 4 Glasses Of Champagne

The controversial head of the European Commission has denied that he has a problem with alcohol during an interview in which he drank four glasses of champagne. Allegations have circulated around Brussels in recent years about Jean-Claude Juncker’s drinking and one senior diplomatic source has said he “has cognac for breakfast”. In an interview with a French newspaper he defended his record as he consumed numerous classes of champagne. In 2014 it emerged that Mr Juncker’s drinking habits had been discussed at the highest levels by European leaders who privately have concerns over his lifestyle. A week before the UK referendum vote a video emerged of an apparently-drunk Mr Juncker taken at a May 2015 EU summit welcoming Viktor Orban, the hardline Hungarian PM, as “the dictator” before giving him a playful slap on the cheek.

“The dictator is coming,” Mr Juncker is heard to say, before locking a shocked Mr Orban in a clumsy embrace while Donald Tusk, the president of the European Council looked on, visibly embarrassed. Defending himself in an interview with the Liberation, he said: “Orban, I always call dictator, I am like this. As soon as someone breaks the mould they are obviously crazy or an alcoholic. “You think I’d still be in office if I was having cognac for breakfast? It really makes me sad and it has even led my wife to question if I lie to her, as I do not drink when I’m home.” He also went on to blame his unsteady walking on problems with his leg after a serious car accident.

Basic. Better. Cheaper.

• Helping Homeless People Starts With Giving Them Homes (G.)

Finland is the only European country where homelessness has decreased in recent years. At the end of 2015 the number of single homeless people was for the first time under 7,000 and this number includes people living temporarily with friends and relatives, who constitute 80% of all homeless people. This development is mainly due to a national programme to reduce long-term homelessness. The main explanation for this success is quite simple: when the national programme started housing first was adopted as a mainstream national homelessness policy. This common framework made it possible to establish a wide partnership of state authorities, local communities and non-governmental organisations. Cooperation and targeted measures in the implementation of the programme led to the aforementioned results, which were backed up by independent international evaluations.

Implementing housing first is not reasonable without proper housing options. It should go without saying that you can’t offer homeless people homes if the homes do not exist. It is this scarcity of homes that engenders the system in Britain, with demand outstripping supply, and people in crisis forced to jump through hoops to avoid sleeping on the street. In Finland, housing options included the use of social housing, buying flats from the private market to be used as rental apartments for homeless people, and building new housing blocks for supported housing. An important part of the programme was the extensive conversion of shelters and dormitory-type hostels into supported housing, to address the huge need for accommodation that offered help to tenants.

The last big hostel for homeless people in Helsinki with 250 bed places was run by the Salvation Army. A couple of years ago this hostel was renovated and now consists of 80 independent apartments with on-site staff. The disappearance of temporary solutions like hostels has completely changed the landscape of Finnish homelessness policy in a very positive way, for vulnerable individuals and in combatting antisocial behaviour. All this costs money, but there is ample evidence from many countries that shows it is always more cost-effective to aim to end homelessness instead of simply trying to manage it. Investment in ending homelessness always pays back, to say nothing of the human and ethical reasons.

Debt Rattle August 25 2016

Aug 252016

August 25, 2016 Posted by Raúl Ilargi Meijer at 9:18 am Finance Tagged with: CO2, debt, deflation, EU, glut, helicopter, New Zealand, oil, P2P, tweet, war, Yellen 7 Responses »

Harris&Ewing US Navy Yard, Washington. Sight shop, big gun section 1917

• ‘It’s Easier To Start A War Than To Forgive Debt’ (ET)

• Mobius: Helicopter Money Will Be Japan’s Next Big Experiment, And Soon (BBG)

• Central Bankers Eye Public Spending To Plug $1 Trillion Investment Gap (R.)

• World Trade Falls for Second Quarter in a Row (WS)

• Largest Oil Companies’ Debts Hit Record High (WSJ)

• This is What’s Wrong with US Oil (WS)

• Scotland North Sea Oil Revenues Collapse 97% (Ind.)

• The Woman Who Revived Russia’s Markets (WSJ)

• China Imposes Caps on P2P Loans to Curb Shadow-Banking Risks (BBG)

• Runaway Bosses Fleeing Debts A Symptom Of China’s Economic Slowdown (SCMP)

• Real World Shows Economics Has a Deflation Problem (BBG)

• S&P: Increased Risk Of ‘Sharp Correction In New Zealand Property Prices’ (Int.)

• Treasury to EU: Back Off On Tax Probes Of US Companies (CNBC)

• French Support For The EU Project Is Crumbling On The Left And Right (AEP)

• ‘It Took On A Life Of Its Own’: How One Rogue Tweet Led Syrians To Germany (G.)

• We’ve Been Wrecking The Planet A Lot Longer Than You Think (SMH)

Good and long interview with Macquarie strategist Victor Shvets.

• ‘It’s Easier To Start A War Than To Forgive Debt’ (ET)

Shvets says the world should have actually delevered or paid down the debt to return initiative to the private sector, but thinks people could not accept the levels of pain associated with it. “You could eliminate the impact of the overcapacity through deflation. Nobody is prepared to accept that we might have to wipe out decades of growth just to eliminate leverage. Banks go, there are defaults, bankruptcies, layoffs,” he said. He thinks the Biblical debt jubilee, where slaves would be freed and debt would be forgiven every 50 years is a nice idea that would also work today if it weren’t for entrenched special interests. “The debt is not spread evenly, we still live in a tribal world, and it’s easier to start a war than to forgive debt,” Shvets said.

Global central banks with their easy money policies of negative interest rates and quantitative easing are working against a debt deflation scenario, with limited success, according to Shvets. “That was the entire idea of aggressive monetary policies: Stimulate investment and consumption. None of that works, there is no evidence. It can impact asset prices, but they don’t flow into the real economy,” he said. “Remember, the people at the Fed and the Bank of England are not supermen, they are people with an above average IQ trying to do a very difficult job in a highly complex environment.” Both overleveraging, easy money policies, and technological shifts are responsible for increasing levels of income inequality across the globe, another hallmark of the previous two industrial revolutions. Fewer people control more of the wealth.

So far it’s all just talk.

• Mobius: Helicopter Money Will Be Japan’s Next Big Experiment, And Soon (BBG)

The Federal Reserve signals a reluctance to raise interest rates. The yen strengthens to 90 per dollar. Haruhiko Kuroda decides to act. Helicopter money is coming, says Mark Mobius, even as soon as next month. The 80-year-old investment veteran is outlining how he expects central banks to respond to sluggish economic growth. For Mobius, executive chairman of Templeton Emerging Markets Group, traditional easing measures have just made people save instead of spend or borrow. Combined with a stronger yen, he says that’s going to force the Bank of Japan governor to contemplate a policy he’s repeatedly ruled out. “They’re really beginning to think what ammunition they have,” he said in an interview on a visit to a typhoon-struck Tokyo this week.

“The first reaction is to say, OK, let’s go for helicopter money, let’s get money directly into the hands of consumers,” he said. “I think that would probably be the next step.” Central bankers have flooded their economies with monetary stimulus in the eight years since the global financial crisis, driving up asset prices – including the stock markets that Mobius invests in – while struggling to kickstart global growth. A foray into negative interest rates in Japan has been met with the yen surging to about 100 per dollar, falling stocks and dwindling bank profits.

Party time.

• Central Bankers Eye Public Spending To Plug $1 Trillion Investment Gap (R.)

While markets wait for Janet Yellen’s latest message about the direction of monetary policy, the Federal Reserve chief and her colleagues already have one for politicians: the U.S. economy needs more public spending to shift into higher gear. In the past few weeks, Yellen and three of the Fed’s other four Washington-based governors have called in speeches and Congressional hearings for government infrastructure spending and other efforts to counter weak growth, sagging productivity improvements, and lagging business investment. The fifth member has supported the idea in the past. The Fed has no direct influence over fiscal policy and its officials traditionally refrain from discussing it in detail.

Having its top officials – from Yellen to former investment banker and Bush administration official Jerome Powell – speak in one voice sends a strong signal to the next president and Congress about the limits they face in setting monetary policy and what is needed to improve the economy’s prospects. The Fed’s annual conference in Jackson Hole, Wyoming, where Yellen speaks on Friday, is due to focus on how to improve central banks’ “toolkit,” but the unanimous message from the Fed’s top policymakers is that those tools are not enough. “Monetary policy is not well equipped to address long-term issues like the slowdown in productivity growth,” Fed vice chair Stanley Fischer said on Sunday. He said it was up to the administration to invest more in infrastructure and education.

Behind Fischer’s statement lies a troubling feature of the recovery – business investment has fallen below levels in prior years and companies seem to have stopped responding to low borrowing costs. As a share of GDP, U.S. annual business investment since 2008 has averaged nearly a full percentage point below the previous decade’s average, government data shows. Reuters calculations indicate the investment shortfall has blown a hole in annual GDP that has grown to as much as one trillion dollars a year compared with what it would have been if the previous trend continued.

“A full decade of stagnation.”

• World Trade Falls for Second Quarter in a Row (WS)

Adding to the picture of crummy demand for goods around the world, the CPB Netherlands Bureau for Economic Policy Analysis, a division of the Ministry of Economic Affairs, just released its preliminary data of its Merchandise World Trade Monitor for June. Trade volumes rose 0.7% in June from May, after falling 0.5% in May, but were about flat year-over-year, and below the volumes of December 2014! On a quarterly basis – it averages out the monthly ups and downs – world trade fell 0.8%, contracting for the second quarter in a row. The CPB recently adjusted its world trade data down, going back many years.

The new data now depicts a post-Financial Crisis recovery of global trade that was a lot weaker than the original data had indicated. These downward adjustments of 2% to 3% came in a world where economic growth, according to the IMF, is stuck at 3.1% in 2016. This chart of the CPB’s World Trade Monitor index shows the old data released as of July 2015 (blue line) and the newly adjusted data released today (red line). Note the 4.4% drop from the peak in global trade volumes in the original data for December 2014 and in the current data for June 2016!

World trade is a reflection of the goods-producing economy. Services don’t get shipped around the world. Goods do. So industrial production, excluding construction, is key. And here the trend is awful for advanced economies. Global industrial production, excluding construction, rose 0.6% in June, after a 0.3% decline in May. The index for industrial production in advanced economies rose to 102.5, below where it had been in January (103.4), a level it had hit after the Financial Crisis in December 2012, but down from the glory days before the Financial Crisis when the index peaked in February 2008 (107.8). And here’s a tidbit: the first time that the index hit the current level had been in April 2006. A full decade of stagnation.

Industrial production has shifted to emerging economies (“cheap labor” economies) for many years, such as China, as companies in the US, decades ago, and eventually in Europe and Japan began outsourcing and offshoring production to emerging economies. Hence, industrial production in emerging economies has surged over this period. This was particularly the case after the Financial Crisis when companies in the US, Europe, and Japan redoubled their efforts to get production relocated offshore. This chart shows the CPB’s industrial production index globally (green line), and also separated by advanced economies (the dismally flat-ish blue line at the bottom) and emerging economies (brown line at the top):

Someone better restructure that entire industry, or ugly things will happen.

• Largest Oil Companies’ Debts Hit Record High (WSJ)

Some of the world’s largest energy companies are saddled with their highest debt levels ever as they struggle with low crude prices, raising worries about their ability to pay dividends and find new barrels. Exxon Mobil, Shell, BP and Chevron hold a combined net debt of $184 billion—more than double their debt levels in 2014, when oil prices began a steep descent that eventually bottomed out at $27 a barrel earlier this year. Crude prices have rebounded since, but still hover near $50 a barrel. The soaring debt levels are a fresh reminder of the toll the two-year price slump has taken on the oil industry. Just a decade ago, these four companies were hauled before Congress to explain “windfall profits” but now can’t cover expenses with normal cash flow.

Executives at BP, Shell, Exxon and Chevron have assured investors that they will generate enough cash in 2017 to pay for new investments and dividends, but some shareholders are skeptical. In the first half of 2015, the companies fell short of that goal by $40 billion, according to a Wall Street Journal analysis of their numbers. “Eventually something will give,” said Michael Hulme, manager of the $550 million Carmignac Commodities Fund, which holds stakes in Shell and Exxon. “These companies won’t be able to maintain the current dividends at $50 to $60 oil—it’s unsustainable.” BP has said it expects to be able to pay for its operations, make new investments and meet its dividend at an oil price of between $50 and $55 a barrel next year.

The debt is piling up despite cuts of billions of dollars on new projects and current operations. Repaying the loans could weigh the companies down for years, crimping their ability to make investments elsewhere and keep pumping ever more oil and gas. “They are just not spending enough to boost production,” said Jonathan Waghorn at Guinness Atkinson Asset Management.

As graphs go…

• This is What’s Wrong with US Oil (WS)

Soothsayers out there have been prophesying time and again, for over a year, that very soon, in fact next week, the supply glut will start to unwind; that production in the US is already coming down sharply, that demand is up, or whatever…. In the end, a glut comes down to whether inventories are rising, particularly during a time of the year when they’re supposed to be falling (glut gets worse), or whether they’re falling (glut stabilizes or abates). It’s not just crude oil, but also the products that crude oil gets refined into for eventual use. And these stocks of petroleum products have been a doozie, particularly gasoline.

Gasoline stocks were essentially unchanged for the week, at 232.7 million barrels, a record for this time of the year, and up 8.5% from the already elevated inventory levels last year. Distillate fuels rose by 200,000 barrels to 153.3 million barrels. And “all other oils” jumped by a total of 3.9 million barrels to 490.6 million barrels. So total petroleum products stocks rose by 6.6 million barrels during the week, or 0.5%. Once again, this small-ish number, but over the period of the oil bust, total petroleum products stocks have soared by 30% and now exceed for the first time ever another huge milestone: 1.4 billion barrels. This chart shows what a truly relentless glut looks like:

No independence then?!

• Scotland North Sea Oil Revenues Collapse 97% (Ind.)

Scotland’s revenues from North Sea oil have collapsed by 97% in the past year as oil prices have plummeted, reigniting a fierce debate over whether an independent Scotland could finance itself. Scottish Liberal Democrat leader Willie Rennie said: “The nationalists’ case for independence has been swallowed up by a £14bn black hole.” Taxes collected from oil production fell from £1.8bn in 2015 to just £60m in 2016. The gap between tax revenues and what Scotland spends is now 9.5%, or £14.8bn, compared to a 4% deficit for the UK as a whole. Scotland’s public sector now spends £12,800 per person, but collects just £10,000 each, the figures reveal. In 2008-9, as oil peaked at almost $150 per barrel, the Scottish government brought in a record £11.6bn from North Sea fields.

Funny. Here’s what I wrote on April 8, 2015: Russia’s Central Bank Governor Is Way Smarter Than Ours

• The Woman Who Revived Russia’s Markets (WSJ)

Russian markets are red hot again. Two years after plunging oil prices and Western economic sanctions fueled an investor exodus, the Micex stock index on Tuesday hit an all-time high. It is up 25% this year in dollar terms, making Russia the sixth-best performer among 23 emerging countries tracked by MSCI Inc. The ruble has gained 13% against the dollar this year, ranking third among all emerging currencies. Russia’s local-currency bonds rank third this year in performance out of 15 countries tracked by JP Morgan Chase. Many investors credit central-bank chief Elvira Nabiullina for Russia’s resurgence. They cite her surprise decision to end the ruble’s peg to the dollar in November 2014 and then sharply raise interest rates to combat capital flight and knock down inflation.

The moves were painful for Russia’s economy, which went into a sharp recession as the value of the ruble slumped, reducing consumer and business purchasing power. But over time they have helped to restore some international-investor faith in a country still shadowed by its 1998 default. “The correct steps taken by the Russian central bank have restored confidence in the ruble and its macroeconomic policy,” said Andrey Kutuzov, an associate portfolio manager of the Wasatch Emerging Markets Small Cap fund. Global investors this year have added $1.3 billion to funds that invest in Russian bonds and stocks, according to EPFR Global. The share of foreigners among government bondholders rose to 24.5% as of June 1, its highest level since late 2012, according to the Russian central bank.

“..loans for weddings, guaranteed against the cash gifts that couples expect to receive..”

• China Imposes Caps on P2P Loans to Curb Shadow-Banking Risks (BBG)

China imposed limits on lending by peer-to-peer platforms to individuals and companies in an effort to curb risks in one part of the loosely-regulated shadow-banking sector. An individual can borrow as much as 1 million yuan ($150,000) from P2P sites, including a maximum of 200,000 yuan from any one site, the China Banking Regulatory Commission said in Beijing on Wednesday. Corporate borrowers are capped at five times those levels. Tighter regulation may encourage consolidation that aids the industry long-term, said Wei Hou at Sanford C. Bernstein in Hong Kong. China’s authorities are concerned about defaults and fraud among the nation’s 2,349 online lenders. In December, the country’s biggest Ponzi scheme was exposed after Internet lender Ezubo allegedly defrauded more than 900,000 people out of the equivalent of $7.6 billion.

The nation has 1778 “problematic” online lenders, according to the CBRC. The P2P lenders are barred from taking public deposits or selling wealth-management products and must appoint qualified banks as custodians and improve information disclosure, the regulator said. [..] China’s P2P industry brokered 982 billion yuan of loans in 2015, almost quadruple the amount in 2014 and an approximately 10-fold increase from 2013, according to Yingcan. P2P firms attracted more than 3.4 million investors and 1.15 million borrowers in July, with loans extended at an average interest rate of 10.3%, according to Yingcan. Products offered by P2P platforms in China can include anything from loans for weddings, guaranteed against the cash gifts that couples expect to receive, to high-yield lending for risky property or mining projects.

Biggest debts must be with shadow banks, and they don’t hang up posters.

• Runaway Bosses Fleeing Debts A Symptom Of China’s Economic Slowdown (SCMP)

Wanted posters for fugitive debtors, not commercials, are the main images that flash up on a big electronic screen in downtown Yixing, in the heart of the faltering Chinese industrial powerhouse that is the Yangtze River Delta. The posters, from the local courts, show the identity card numbers and pictures of dozens of people who have fled unpaid debts. Rewards ranging from 20,000 yuan (HK$23,000) to 330,000 yuan are offered to anyone reporting their whereabouts. But Hengsheng Square is the glitziest part of Yixing – with the most luxury stores, the brightest lights and the priciest office buildings – and few passers-by, their attention directed elsewhere, heed the wanted posters. They have little novelty value in any case, with the “runaway debtor” phenomenon now just part of daily life in the small city as economic growth slows.

In many ways, the square stands as a metaphor for the overall health of the Chinese economy. Under a prosperous surface, deep cracks have begun to emerge in its investment-led model, casting a shadow over the country’s economic growth prospects and even giving rise to doubts about the fundamental soundness of the world’s second-biggest economy. “The economic dynamics are waning,” said Professor Hu Xingdou, an economist at Beijing Institute of Technology. “China’s economic growth in recent years was powered by massive money printing, which is dangerous and unsustainable.”

Holding up Spain as a success story while it has 20-25% unemployment never seemed terribly credible. It still doesn’t.

• Real World Shows Economics Has a Deflation Problem (BBG)

Jacob Rothschild, the billionaire scion of arguably Europe’s greatest banking dynasty says we’re living through “the greatest experiment in monetary policy in the history of the world.” There’s a major flaw in the experiment, though: the real world isn’t responding to policy in the way that the textbooks say it should. Moreover, it seems increasingly evident that the fears that led to zero interest rates and quantitative easing were at best overblown, if not entirely unjustified. The economic quandary is easy to parse. Central banks almost everywhere have sanctioned a 2% inflation target as signifying financial Nirvana. But, as the table below shows, consumer prices in the world’s major economies are rising much slower than that arbitrary ideal:

Spain has emerged as the poster child for deflation. Prices fell by 0.6% in July, the country’s 12th consecutive month with no increase in inflation. The textbooks suggest that when there’s a prolonged period of falling prices – the definition of deflation – the economy can quickly find itself in a tailspin. Businesses and consumers will defer purchases in the expectation that goods and services will be even cheaper in the future. So if Spain has had an average inflation rate of -0.4% since the end of 2013, and has seen lower prices in 23 of the past 30 months, consumers will have responded by shunning the shops and curtailing their spending, right? Wrong:

Heed that warning.

• S&P: Increased Risk Of ‘Sharp Correction In New Zealand Property Prices’ (Int.)

International credit rating agency S&P Global Ratings has warned of the increasing risks facing New Zealand banks as a result of the continuing rise in house prices. In a new report, S&P has downgraded its Banking Industry Country Risk Assessment (BICRA) for NZ’s banks by a notch, dropping it from 3 to 4, on a scale where 1 is the lowest risk and 10 is the highest risk. However it has not changed the individual credit ratings of any New Zealand banks. [..] .. our ratings on all the financial institutions operating in New Zealand remain unchanged. “This reflects our expectation that despite some weakening in the capital levels of all these financial institutions, their stand alone credit profiles (SACPs) would remain unchanged.

However S&P did downgrade the SACPs of ASB and Rabobank by one notch each, although it did not downgrade the two banks’ credit ratings, “… reflecting our assessment of timely financial support from their respective parents, if needed,” S&P said. S&P said the increased risks to this country’s banking sector had been driven by “…continued strong growth in residential property prices nationally, coupled with an increase in private sector credit growth.” “We believe the risk of a sharp correction in property prices has further increased and, if it were to occur – with about 56% of registered banks’ lending assets secured by residential home loans – the impact on financial institutions would be amplified by the New Zealand economy’s external weaknesses, in particular its persistent current account deficit and high level of external debt.”

This is just plain funny.

• Treasury to EU: Back Off On Tax Probes Of US Companies (CNBC)

There’s a giant pot of corporate gold sitting outside the United States, and the U.S. Treasury and the European Commission are squabbling over how to get their hands on it. American multinational corporations have stashed more than $2 trillion in profits and assets outside to avoid paying what many companies argue are unduly high U.S. corporate tax rates. Over the past few years, the European Commission has opened investigations into a handful of those companies, including Apple, Starbucks and Amazon, to determine whether they owe taxes to European countries. But the Treasury Department, in a “white paper” released Wednesday, said those investigations have gone too far.

The paper attacked the legal approach the EU is using to determine tax liabilities on American companies, saying it targets “income that (European) Member States have no right to tax under well-established international tax standards.” The paper also argued that taxes collected by European countries could, in effect, come right out of the pockets of American taxpayers. That’s because taxes collected by European countries could be deducted from any future payments to the Treasury. “That outcome is deeply troubling, as it would effectively constitute a transfer of revenue to the EU from the U.S. government and its taxpayers,” the paper said. The report urged the European Commission to “return to the system and practice of international tax cooperation that has long fostered cross-border investment between the United States and EU Member States.”

France will demand the hollowing out of the EU. Decentralization. Inevitable when economies shrink.

• French Support For The EU Project Is Crumbling On The Left And Right (AEP)

The drama of Brexit may soon be matched or eclipsed by crystallizing events in France, where the Long Slump is at last taking its political toll. A democracy can endure deflation policies for only so long. The attrition has wasted the French centre-right and the centre-left by turns, and now threatens the Fifth Republic itself. The maturing crisis has echoes of 1936, when the French people tired of ‘deflation decrees’ and turned to the once unthinkable Front Populaire, smashing what remained of the Gold Standard. Former Gaulliste president Nicolas Sarkozy has caught the headlines this week, launching a come-back bid with a package of hard-Right policies unseen in a western European democracy in modern times.

But the uproar on the Left is just as revealing. Arnaud Montebourg, the enfant terrible of the Socialist movement, has launched his own bid for the Socialist Party with a critique of such ferocity that it bears examination. The former economy minister says France voted for a left-wing French manifesto four years ago and ended up with a “right-wing German policy regime”. This is objectively true. The vote was meaningless. “I believe that we have reached the end of road for the EU, and that France no longer has any interest in it. The EU has left us mired in crisis long after the rest of the world has moved on,” he said. Mr Montebourg stops short of ‘Frexit’ but calls for the unilateral suspension of EU labour laws. “As far as I am concerned, the current treaties have elapsed.

I will be inspired by the General de Gaulle’s policy of the ’empty chair’, a strike against the EU. I am not in favour of a French Brexit, but we can longer accept a Europe like that,” he said. In other words, he wishes to leave from within – as Poland, and Hungary are doing – without actually triggering any legal or technical clause. Mr Montebourg is unlikely to progress far but his indictment of president François Hollande is devastating. The party leadership was warned repeatedly and emphatically that contractionary policies would inevitably lead to another million jobless but the economic was swept aside. “They never budged from their Catechism and their false certitudes,” he said.

“..the first post on social media to change the course of European history..”

• ‘It Took On A Life Of Its Own’: How One Rogue Tweet Led Syrians To Germany (G.)

The tweet was sent by Germany’s ministry for migration and refugees a year ago today. “The #Dublin procedure for Syrian citizens is at this point in time effectively no longer being adhered to,” the message read. With 175 retweets and 165 likes, it doesn’t look like classic viral content. But in Germany it is being spoken of as the first post on social media to change the course of European history. Referring to an EU law determined at a convention in Dublin in 1990, the tweet was widely interpreted as a de facto suspension of the rule that the country in Europe where a refugee first arrives is responsible for handling his or her asylum application.

By this point in 2015, more than 300,000 asylum seekers had reached Europe by boat – a figure that was already 50% higher than even the record-breaking number of arrivals in 2014. Although the German ministry’s intervention certainly did not start the crisis, it did make Germany the first-choice destination for Syrians who previously might have aimed for other countries in Europe, such as Sweden, which at the time offered indefinite asylum to Syrians. It also created an impression of confusion and loss of political control, from which Angela Merkel’s government has at times struggled to recover. Twelve months on, politicians and officials at the centre of Berlin’s bureaucratic machine are still trying to figure out how the tweet came about.

Four days previously, Angelika Wenzl, the executive senior government official at the refugee ministry, which in Germany is known as BAMF, had emailed out an internal memo titled “Rules for the suspension of the Dublin convention for Syrian citizens” to its 36 field bureaux around the country, stating that Syrians who applied for asylum in Germany would no longer be sent back to the country where they had first stepped on European soil. [..] By channels that officials and journalists have so far failed to pinpoint, Wenzl’s internal memo was leaked to the press.

I forget who said it, but it’s still an interesting take: ”Nature developed mankind to get rid of a carbon imbalance”.

• We’ve Been Wrecking The Planet A Lot Longer Than You Think (SMH)

When Charles Dickens, the English novelist, was detailing the “soft black drizzle” of pollution over London, he might inadvertently have been chronicling the early signs of global warming. New research led by Australian scientists has pegged back the timing of when humans had clearly begun to change the climate to the 1830s. An international research project has found human-induced climate change is first detectable in the Arctic and tropical oceans around the 1830s, earlier than expected. That’s about half a century before the first comprehensive instrumental records began – and about the time Dickens began his novels depicting Victorian Britain’s rush to industrialise.

The findings, published on Thursday in the journal Nature, were based on natural records of climate variation in the world’s oceans and continents, including those found in corals, ice cores, tree rings and the changing chemistry of stalagmites in caves. Helen McGregor, an ARC future fellow at the University of Wollongong and one of the paper’s lead authors, said it was “quite a surprise” the international research teams of dozens of scientists had been able to detect a signal of climate change emerging in the tropical oceans and the Arctic from the 1830s. “Nailing down the timing in different regions was something we hadn’t expected to be able to do,” Dr McGregor told Fairfax Media.

Interestingly, the change comes sooner to northern climes, with regions such as Australasia not experiencing a clear warming signal until the early 1900s. Nerilie Abram, another of the lead authors and an associate professor at the Australian National University’s Research School of Earth Sciences, said greenhouse gas levels rose from about 280 parts per million in the 1830s to about 295 ppm by the end of that century. They now exceed 400 ppm.

Debt Rattle August 5 2016

Aug 052016

August 5, 2016 Posted by Raúl Ilargi Meijer at 9:46 am Finance Tagged with: bonds, elite, EU, evergreen, Gulen, Ike, peace, rate cut, Trump, Tsipras, war 1 Response »

G.G. Bain Three-ton electric sign blown into Broadway, New York. 1912

• New Tool for Central Banks: Buying Corporate Bonds (WSJ)

• UK Interest Rate Cut Is A ‘Hammer Blow’ For Workplace Pensions (G.)

• UK Labor Market Enters “Freefall” After Brexit Vote (R.)

• China Regulator Tells Banks to Evergreen Loans of Troubled Companies (ET)

• For Europe’s Elite the Party Lives On After Brexit (BBG)

• Tsipras Eyes Southern EU Alliance To Back Debt Deal (Kath.)

• The 60-Year Decay of American Politics (Bacevich)

• US Unlikely To Extradite Imam Turkey Blames For Coup (CNBC)

• How Europe Is Getting Rich by Fueling Its Own Terror Epidemic (TAM)

• War Or Peace: The Essential Question For American Voters On November 8th (RI)

Maybe we need to remind ourselves from time to time that we do NOT have functioning markets. Central banks buying up corporate bonds is of course about as distorting for markets as it comes.

We will yet take debt to its inevitable conclusion.

• New Tool for Central Banks: Buying Corporate Bonds (WSJ)

Central banks have a new favorite tool for boosting lackluster growth: corporate-debt purchases. Two months after the ECB started buying corporate bonds, the Bank of England said Thursday that it would adopt a similar strategy. It will buy as much as £10 billion ($13.33 billion) of U.K. corporate debt starting in September as part of a larger package of stimulus measures, including £60 billion of additional government-bond purchases. The move, investors and analysts say, is likely to drive down borrowing costs even further around the globe for large companies already benefiting from ultralow interest rates.

But the decision again raises concerns about possible side effects of unconventional monetary policies, including excessive risk taking by investors, and faces substantial skepticism from investors who doubt such programs meaningfully address the global economy’s core deficiencies, centering on soft demand for goods and services. Already this year, negative-interest-rate policies and aggressive bond buying by central banks in Japan and Europe have helped create trillions of dollars of negative-yielding government bonds. That in turn has driven down corporate-bond yields, leading to robust debt issuance among companies in the U.S., if not all developed countries.

In the U.S., the average yield of investment-grade corporate bonds was 2.85% Wednesday, compared with 3.67% at the end of 2015, according to Barclays data. The average spread to Treasury yields also has shrunk, to 1.48 percentage points from 1.72. Companies have issued $519.2 billion of investment-grade corporate bonds this year, just below their pace at this time last year when issuance ultimately reached a record $794.6 billion, according to Dealogic.

Wait till the stock market crashes, that’s when pensions will be hit.

• UK Interest Rate Cut Is A ‘Hammer Blow’ For Workplace Pensions (G.)

Pension savers could be big losers from the Bank of England rate cut, as critics warned of a “hammer blow” to workplace schemes and forecast that pension payouts would fall to record lows. Within minutes of the Bank’s decision to cut the base rate to 0.25%, yields on government bonds, otherwise known as gilts, dived to all-time lows. Companies that still offer final salary pension schemes will as a result see the cost of maintaining them soar. Hymans Robertson, a pensions consultancy, said the rate cut meant a £70bn increase in the amount company schemes needed to meet their commitments to scheme members, to a total of £2.4trn. “To put this in context, UK GDP currently stands at £1.8trn. This has pushed the aggregate UK [company scheme] deficit up to £945bn – the worst it has ever been,” it said.

Companies will have to find the money to fill the gap in their pension schemes, or like most already have, close them to new members. In extreme cases, some may attempt to redraw pension contracts to cap their future liabilities. Patrick Bloomfield of Hymans Robertson said: “Pension schemes are being hit hard by recent events, but we need to remember that the impact will not be felt equally by all … There are schemes with robust funding plans that don’t take more risk than they need to, which will be able to weather this. The gap between pension schemes that hedged their risks and those that haven’t is starker than ever before.”

A forced reset is not necessarily a bad thing.

• UK Labor Market Enters “Freefall” After Brexit Vote (R.)

Britain’s labour market entered “freefall” after the vote to leave the European Union, with the number of permanent jobs placed by recruitment firms last month falling at the fastest pace since May 2009, a survey showed on Friday. The monthly report from the Recruitment and Employment Confederation (REC) showed starting salaries for permanent jobs rose in July at the slowest pace in more than three years. Overall, the survey added to evidence that business confidence and activity slowed sharply after the June 23 vote to leave the European. “The UK jobs market suffered a dramatic freefall in July, with permanent hiring dropping to levels not seen since the recession of 2009,” said REC chief executive Kevin Green. “Economic turbulence following the vote to leave the EU is undoubtedly the root cause.”

Different countries have different ways of hiding their debt.

• China Regulator Tells Banks to Evergreen Loans of Troubled Companies (ET)

On the surface, China is talking the reform talk. But is it also walking the walk? There are many examples to demonstrate it isn’t. The most recent one is a directive from the China Banking Regulatory Commission (CBRC) to not cut off lending to troubled companies and evergreening bad loans. This first reported by The Chinese National Business Daily on Aug. 4. “A Notice About How the Creditor Committees at Banks and Financial Institutes Should Do Their Jobs” tells banks to “act together and not ‘randomly stop giving or pulling loans.’ These institutes should either provide new loans after taking back the old ones or provide a loan extension, to ‘fully help companies to solve their problems,’” the National Business Daily writes.

“It’s big news. A couple of weeks ago they were threatening Liaoning Province to cut off all lending to them if they didn’t tighten loan standards,” said Christopher Balding, a professor of economics at Peking University in Shenzen. “This is a pretty significant turn-around for them to do and it indicates how significant the problem is.” The official reform narrative is espoused in this Xinhua piece which claims China has to reform because there is no Plan B. “Supply-side structural reform is also advancing as the country moves to address issues like industrial overcapacity, a large inventory of unsold homes and unprofitable ‘zombie companies.’” Clearly resolving the bad debt of zombie companies is not high on the priority list.

Goldman Sachs complained in a recent note to clients that companies can default on payments and often nothing happens. The investment bank notes that companies like Sichuan Coal default on payments of interest and principal for weeks or months and then maybe pay creditors later. The company in question defaulted on 1 billion yuan ($150 million) worth of commercial paper in June but made full payments later during the summer, a somewhat arbitrary process. Another case is Dongbei Special Steel, which missed at least five payments on $6 billion of debt since the beginning of the year, but has done nothing to resolve the problem. This is why creditors wrote an angry letter to the local government to help resolve the issue.

Why the EU can’t be reformed.

• For Europe’s Elite the Party Lives On After Brexit (BBG)

Europe’s political elite may have missed the Brexit memo. Six weeks since U.K. voters rebuked the ruling class by choosing to leave the European Union, the region’s establishment has reacted by carrying on as before. The revolving door of former policy makers joining the finance industry has spun again, with European Commission President Jose Manuel Barroso signing up with Goldman Sachs and former Bank of England Governor Mervyn King joining Citigroup. Meanwhile departed Prime Minister David Cameron is facing criticism for nominating numerous aides for honors, including his wife’s stylist.

The perception of elite coziness risks further disenfranchising those backing Brexit, and peers across the continent who share the feeling of being left behind by the powerful and wealthy in the era of globalization and financial crises. A potential upshot is more support for populist parties that tap into alienation such as the U.K. Independence Party or France’s National Front. “Anything that doesn’t show government or public institutions in a good light merely confirms some of the attitudes that probably contributed to the Brexit vote,” said Chris Roebuck, a visiting professor at London’s Cass Business School. For some voters, “there is a group of people out there who aren’t normal people like you or me, who have benefited since the financial crisis – because they’re an elite.”

Tsipras already lost the ‘fight’. Beppe Grillo may lead such an alliance, not Tsipras.

• Tsipras Eyes Southern EU Alliance To Back Debt Deal (Kath.)

Prime Minister Alexis Tsipras is planning to forge an alliance with the leaders of other countries in Southeastern Europe in a bid to bolster Greece’s bid for a debt restructuring and lower the primary surplus targets set by creditors. Tsipras is expected to explore the prospects for such an alliance at a meeting of European socialist heads of state scheduled to take place in Paris on August 25, particularly with Italian Prime Minister Matteo Renzi and French President Francois Hollande. The meeting had originally been planned for May 20 in Rome but was postponed after an Egyptian passenger plane crashed in the Mediterranean. The Greek premier’s aim, according to sources, is to arrange a subsequent meeting in Athens, probably on September 9, and in any case before a scheduled European Union leaders’ summit on September 16, to further explore the prospect of forming a Southeastern European alliance.

Tsipras and Renzi had agreed at their last meeting on the sidelines of an EU summit on June 28 on the need for southern states to create their own growth-focused agenda, compared to the austerity prescribed by Northern European countries. At the time, Hollande and Portuguese Prime Minister Antonio Costa had appeared open to the prospect of such an alliance. In Athens, sources close to Tsipras believe the time is right to pursue the creation of a strong southern “axis” to counter the stance of countries in Northern Europe. The idea of a united front of Southern European countries was first mooted by leftist SYRIZA before the general elections of January 2015 that brought it to power.

At the time, Tsipras thought Athens would attract the solidarity of Southern European countries in SYRIZA’s rhetoric against austerity and that those countries would stand by Greece in its negotiations with international creditors. That solidarity did not transpire then. However, sources close to Tsipras believe the current situation is potentially more beneficial for Athens as the protracted imposition of austerity on Greece and elsewhere has increased the pressure on countries in Southern Europe. Athens is also hopeful about forming a common front on another crucial issue that has divided Southern and Northern European countries: the ongoing refugee crisis. Indications by Turkey that it might not honor a migrant deal with the EU have fueled concerns in Greece that a slowed migrant influx could pick up again.

Nostalgia. “And don’t kid yourself that things really can’t get much worse. Unless Americans rouse themselves to act, count on it, they will.”

• The 60-Year Decay of American Politics (Bacevich)

Presidential campaigns today are themselves, to use Boorstin’s famous term, “pseudo-events” that stretch from months into years. By now, most Americans know better than to take at face value anything candidates say or promise along the way. We’re in on the joke — or at least we think we are. Reinforcing that perception on a daily basis are media outlets that have abandoned mere reporting in favor of enhancing the spectacle of the moment. This is especially true of the cable news networks, where talking heads serve up a snide and cynical complement to the smarmy fakery that is the office-seeker’s stock in trade. And we lap it up. It matters little that we know it’s all staged and contrived, as long as — a preening Megyn Kelly getting under Trump’s skin, Trump himself denouncing “lyin’ Ted” Cruz, etc., etc. — it’s entertaining.

This emphasis on spectacle has drained national politics of whatever substance it still had back when Ike and Adlai commanded the scene. It hardly need be said that Donald Trump has demonstrated an extraordinary knack — a sort of post-modern genius — for turning this phenomenon to his advantage. Yet in her own way Clinton plays the same game. How else to explain a national convention organized around the idea of “reintroducing to the American people” someone who served eight years as First Lady, was elected to the Senate, failed in a previous high-profile run for the presidency, and completed a term as secretary of state? The just-ended conclave in Philadelphia was, like the Republican one that preceded it, a pseudo-event par excellence, the object of the exercise being to fashion a new “image” for the Democratic candidate.

The thicket of unreality that is American politics has now become all-enveloping. The problem is not Trump and Clinton, per se. It’s an identifiable set of arrangements — laws, habits, cultural predispositions — that have evolved over time and promoted the rot that now pervades American politics. As a direct consequence, the very concept of self-government is increasingly a fantasy, even if surprisingly few Americans seem to mind.

At an earlier juncture back in 1956, out of a population of 168 million, we got Ike and Adlai. Today, with almost double the population, we get — well, we get what we’ve got. This does not represent progress. And don’t kid yourself that things really can’t get much worse. Unless Americans rouse themselves to act, count on it, they will.

Can’t see US handing Gulen over on a platter, but Turkey is not done demanding his head. And many others.

• US Unlikely To Extradite Imam Turkey Blames For Coup (CNBC)

U.S. officials weren’t likely to extradite Fethullah Gulen, an imam Turkey blames for plotting the recent failed coup, The Wall Street Journal reported Thursday, citing people familiar with the discussion. Those people said the evidence presented so far by Turkey wasn’t convincing and U.S. officials were also concerned about Turkish officials’ threatening public statements, which made the fairness of his potential treatment questionable, the report said. Gulen, who lives in Pennsylvania, has denied wrongdoing, the report said.

Separately, Reuters reported that Turkey’s President Tayyip Erdogan pledged on Thursday to cut off revenues from businesses tied to the 75-year-old Gulen, which include schools, firms and charities. Even before the failed coup, authorities in Turkey had seized Islamic lender Bank Asya, closed media businesses and arrested businessmen on accusations of funding the imam’s movement, Reuters reported. The failed coup, which took place on July 15, left more than 230 dead. Since then, more than 60,000 people across various branches of government have been detained, suspended or put under investigation, Reuters reported. That’s spurred concerns Erdogan was cracking down on all dissent.

“68 flights that took place within 13 months transported weapons and ammunition to the Middle East, including to NATO member Turkey, which in turn “funnelled arms into brutal civil wars in Syria and Yemen.”

• How Europe Is Getting Rich by Fueling Its Own Terror Epidemic (TAM)

Though Europe does not have the rates of gun violence the United States continues to grapple with, European governments have made over a billion euros by fueling gun violence in the Middle East and North Africa. A report conducted by a team of reporters from the Balkan Investigative Reporting Network (BIRN) and the Organized Crime and Corruption Reporting Project (OCCRP) found a group of European nations has been funneling arms into the Middle East region since 2012, making at least 1.2 billion euros in the process. According to the report, 68 flights that took place within 13 months transported weapons and ammunition to the Middle East, including to NATO member Turkey, which in turn “funnelled arms into brutal civil wars in Syria and Yemen.”

The report also notes that these flights make up only a small portion of the 1.2 billion euros in arms deals between Europe and the Middle East since 2012. The report’s conclusions are horrifying, to say the least. The report states: “Arms export licenses, which are supposed to guarantee the final destination of the goods, have been granted despite ample evidence that weapons are being diverted to Syrian and other armed groups accused of widespread human rights abuses and atrocities.” Considering Europe is battling a continually rising terrorist threat, they seem to be going about tackling this issue the wrong way. Surely the best way to counter terrorism is to cease funding it in the first place.

One astounding aspect of the report is that the lucrative war-profiteering business involves nations the world would not usually regard as overly-interested in war. The countries contributing to the rising terror threat, as identified by the report, are Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, and Romania, among others. This report adds to the already glaring problem of European countries making billions of dollars off the death and destruction of Middle Eastern civilian life. The Stockholm International Peace Research Institute (SIPRI) found the United Kingdom was second only to the United States in arms sales, making up 10.4% of the total $401 billion worth of arms sold around the world for the 2014 period.

Trump for Peace. We have 3 months left to get used to that.

• War Or Peace: The Essential Question For American Voters On November 8th (RI)

In matters of substance as opposed to character assassination that both parties’ candidates have engaged in freely, what separates the candidates and makes it worthwhile to register and vote on November 8th is the domain of international relations. This, as a general rule, is the only area where a president has free hands anyway, whatever position his party holds in the Congress. Here the choice facing voters is stark, I would say existential: do we want War or Peace? Do we want to pursue our path of global hegemony, which is bringing us into growing confrontation with Russia, meaning a high probability of war, (the policy of Hillary Clinton), or do we want a harmonious international order in which the U.S. plays its role at the board of governors, just like other major world powers (the policy of Donald Trump).

Let me go one step further and explain what “war” means, since it is not something that gets much attention in our media, whereas it is at the top of the news each day in Russia. “War” does not mean Cold War-II, a kind of scab you can pick to indulge a pleasure in pain that is not life threatening. War means what our military like to call “kinetics” to mask the horror of it all. It means live ammunition, ranging from conventional to thermonuclear devices that can devastate large swathes of the United States if we play our hand badly, as would likely be the case for reasons I explain below should Hillary and her flock of Neocon armchair strategists take the reins of power in January 2017.

Debt Rattle July 10 2016

Jul 102016

July 10, 2016 Posted by Raúl Ilargi Meijer at 8:42 am Finance Tagged with: Australia, Blair, Brexit, China, debt, Deutsche, earnings, Gorbachev, Iraq, kelp, mangroves, war 6 Responses »

G.G. Bain Political museums, Union Square, New York 1909

• Bank Earnings Loom Large As Stocks Near Record on Wall Street (R.)

• The Epic Collapse Of The World’s Most Systemically Dangerous Bank (ZH/VC)

• Bank of England Considers Curbs On Property Funds (R.)

• China June Inflation Eases Further, More Policy Stimulus Anticipated (R.)

• China Healthcare Costs Forcing Patients Into Crippling Debt (R.)

• Gorbachev: ‘The Next War Will Be the Last’ (Sputnik)

• Blair’s Deputy PM Says Iraq Invasion Broke International Law (BBC)

• Families Of Soldiers Killed In Iraq Vow To Sue Blair For ‘Every Penny’ (Tel.)

• Australia’s Other Great Reef Is Also Screwed (Atlantic)

• 10,000 Hectares Of Mangroves Die Across Northern Australia (ABC.au)

• Global Insect Populations Fall 45% In Past 40 Years (e360)

Markets are now completely divorced from reality.

• Bank Earnings Loom Large As Stocks Near Record on Wall Street (R.)

The focus on Wall Street will shift to corporate earnings next week after a strong June jobs report on Friday gave investors confidence that the U.S. economy was on stable footing and left the S&P 500 within a whisper of a new closing record high. Earnings next week are expected from big banks JPMorgan, Citigroup and Wells Fargo as well as other financial companies such as BlackRock and PNC Financial Services. Earnings for the sector are expected to decline 5.4%. If bank earnings come in better than expected, the S&P 500 is likely to push through its record highs set in May 2015 after several failed attempts, as Friday’s jobs number helped push the benchmark index to less than one point from its closing record high of 2,130.82.

“Banks are definitely in the spotlight,” said Tim Ghriskey, CIO of Solaris Group in Bedford Hills, New York. “There is some trepidation in the market going into this earnings season, the quarter economically was not particularly strong.” Financials have been the worst performing of the 10 major S&P sector groups this year, down nearly 6%, as they were hit by reduced expectations for a U.S. interest rate hike by the Federal Reserve and uncertainty in the wake of “Brexit.” Second-quarter earnings overall are expected to decline 4.7%, according to Thomson Reuters data, the fourth straight quarter of negative earnings, but up slightly from the 5% decline in the first quarter.

Investors will be looking for confirmation this quarter that earnings are starting to turn, with analysts anticipating a return to growth in the back half of the year, starting with expectations for a 1.8% increase in the third quarter.

Two things still stuck in German media (Google translate for them is awful) as I write this: the chief economist for Deutsche Bank calls for a €150 billion bailout for European banks, and German top-economist Hans-Werner Sinn says Finland will be next to leave EU and first to leave eurozone.

• The Epic Collapse Of The World’s Most Systemically Dangerous Bank (ZH/VC)

It’s been almost 10 years in the making, but the fate of one of Europe’s most important financial institutions appears to be sealed. After a hard-hitting sequence of scandals, poor decisions, and unfortunate events,Visual Capitalist’s Jeff Desjardins notes that Frankfurt-based Deutsche Bank shares are now down -48% on the year to $12.60, which is a record-setting low. Even more stunning is the long-term view of the German institution’s downward spiral. With a modest $15.8 billion in market capitalization, shares of the 147-year-old company now trade for a paltry 8% of its peak price in May 2007.

If the deaths of Lehman Brothers and Bear Stearns were quick and painless, the coming demise of Deutsche Bank has been long, drawn out, and painful. In recent times, Deutsche Bank’s investment banking division has been among the largest in the world, comparable in size to Goldman Sachs, JP Morgan, Bank of America, and Citigroup. However, unlike those other names, Deutsche Bank has been walking wounded since the Financial Crisis, and the German bank has never been able to fully recover. It’s ironic, because in 2009, the company’s CEO Josef Ackermann boldly proclaimed that Deutsche Bank had plenty of capital, and that it was weathering the crisis better than its competitors.

It turned out, however, that the bank was actually hiding $12 billion in losses to avoid a government bailout. Meanwhile, much of the money the bank did make during this turbulent time in the markets stemmed from the manipulation of Libor rates. Those “wins” were short-lived, since the eventual fine to end the Libor probe would be a record-setting $2.5 billion. The bank finally had to admit that it actually needed more capital. In 2013, it raised €3 billion with a rights issue, claiming that no additional funds would be needed. Then in 2014 the bank head-scratchingly proceeded to raise €1.5 billion, and after that, another €8 billion. In recent years, Deutsche Bank has desperately been trying to reinvent itself.

Having gone through multiple CEOs since the Financial Crisis, the latest attempt at reinvention involves a massive overhaul of operations and staff announced by co-CEO John Cryan in October 2015. The bank is now in the process of cutting 9,000 employees and ceasing operations in 10 countries. This is where our timeline of Deutsche Bank’s most recent woes begins – and the last six months, in particular, have been fast and furious. Deutsche Bank started the year by announcing a record-setting loss in 2015 of €6.8 billion. Cryan went on an immediate PR binge, proclaiming that the bank was “rock solid”. German Finance Minister Wolfgang Schäuble even went out of his way to say he had “no concerns” about Deutsche Bank. Translation: things are in full-on crisis mode.

Just in time delivery?!

• Bank of England Considers Curbs On Property Funds (R.)

The Bank of England is considering curbs on withdrawals from property investment funds after Britain’s vote to leave the EU roiled the sector, the Sunday Telegraph newspaper said late on Saturday. The paper said it understood that the BoE was considering “enforced notice periods before redemptions, slashing the price for investors who rush to the door, or additional liquidity requirements for funds”. Andrew Bailey, the head of Britain’s Financial Conduct Authority, told a BoE news conference on Tuesday that the structure of open-ended real estate funds needed to be reviewed, as investors rushed to cash in their investments.

The BoE – where Bailey was deputy governor until he moved to the FCA this month – last year expressed concern about funds that invest in assets which can become illiquid in a crisis, but allow investors to withdraw funds without notice. On Friday the FCA issued guidance to property funds to avoid disadvantaging investors who had not sought to redeem funds. The Telegraph said regulators were considering requiring funds to ask investors to give a notice period of 30 days to six months for redemptions, or to hold more liquid assets to meet withdrawals, such as cash or shares and bonds in property-related companies. More than six British property funds suspended withdrawals last week to tackle a tide of redemptions after the June 23 vote to leave the EU unnerved investors who are worried that the uncertainty will hit demand to rent and buy commercial property.

As I said, China’s entered deflation.

• China June Inflation Eases Further, More Policy Stimulus Anticipated (R.)

China’s June consumer inflation grew at its slowest pace since January as increases in food prices eased, while producer prices extended their decline, reinforcing economists’ views that more government stimulus steps will be needed to support the economy. The consumer price index (CPI) rose 1.9% in June from a year earlier, compared with a 2.0% increase in May, the National Bureau of Statistics said on Sunday. Analysts had expected a 1.8% gain, a Reuters poll showed. Consumer inflation has remained low compared with the official target of around 3% for this year, indicating persistently weak demand in the world’s second-largest economy. Food prices were up 4.6% in June, compared with a 5.9% gain in the previous month.

Prices of China’s staple meat pork rose 30.1%, compared with a 33.6% increase in May. But recent flooding in China “is likely to push vegetable and fruit prices higher in the coming months,” ANZ economists Raymond Yeung and Louis Lam wrote in a research note. Non-food prices inched up 1.2% in June versus May’s 1.1% gain. “In our view, while China reiterates the importance of supply-side reform due to debt and overcapacity concerns, the authorities still need to stimulate demand in order to achieve its growth target,” Zhou Hao, senior Asia emerging market economist at Commerzbank in Singapore, said in a note. The People’s Bank of China last cut interest rates on Oct. 23, the seventh time since late 2014, as the government took steps to counter slowing economic growth.

Hmmm. Which other country does this remind you of? Official data show up to 44% of families pushed into poverty were impoverished by illness. Does that sound like communism to you?

• China Healthcare Costs Forcing Patients Into Crippling Debt (R.)

As China’s medical bills rise steeply, outpacing government insurance provision, patients and their families are increasingly turning to loans to pay for healthcare, adding to the country’s growing burden of consumer debt. While public health insurance reaches nearly all of China’s 1.4 billion people, its coverage is basic, leaving patients liable for about half of total healthcare spending, with the proportion rising further for serious or chronic diseases such as cancer and diabetes. That is likely to get significantly worse as the personal healthcare bill soars almost fourfold to 12.7 trillion yuan ($1.9 trillion) by 2025, according to Boston Consulting Group estimates. For many, like Li Xinjin, a construction materials trader whose son was diagnosed with leukemia in 2009, that means taking on crippling debt.

Li, from Cangzhou in Hebei province, scoured local papers and websites for small lenders to finance his son’s costly treatment at a specialist hospital in Beijing, running up debts of more than 1.7 million yuan, about 10 times his typical annual income. “At that time, borrowing money and having to make repayments, I was very stressed. Every day I worried about this,” said Li, 47, adding that he and his wife had at times slept rough on the streets near the hospital. “But I couldn’t let my son down. I had to try to save him,” he said. Li’s boy died last year. The debts will weigh him down for a few more years yet. Medical loans are just part of China’s debt mountain – consumer borrowing has tripled since 2010 to nearly 21 trillion yuan, and in eight years household debt relative to the economy has doubled to nearly 40% – but they are growing.

That is luring big companies like Ping An Insurance, as well as small loan firms and P2P platforms, as China’s traditional savings culture proves inadequate to the challenge of such heavy costs. The stress is particularly apparent in lower-tier cities and rural areas where insurance has failed to keep pace with rising costs, said Andrew Chen, Shanghai-based healthcare head for consultancy Parthenon-EY. “It’s a storm waiting to happen where patients from rural areas will have huge financial burdens they didn’t have to face before,” he said, adding people would often take second mortgages on their homes or turn to community finance schemes.

“..In the current situation…all political, economic, diplomatic and cultural forces should be engaged to pacify the world..”

• Gorbachev: ‘The Next War Will Be the Last’ (Sputnik)

Former Soviet President Mikhail Gorbachev declared in an interview with radio station Echo Moskvy that if the crisis escalates to another war, this war will be the last. NATO leaders agreed on Friday to deploy military forces to the Baltic states and eastern Poland while increasing air and sea patrols to demonstrate readiness to defend eastern members against the alleged ‘Russian aggression.’ Mikhail Gorbachev reportedly said after the summit that the decisions made at NATO summit in Warsaw should be regarded as a preparation for a hot war with Russia. On Saturday, Gorbachev told Echo Moskvy in an interview that he sticks to what he had said earlier and that he considers NATO decisions short-sighted and dangerous.

“Such steps lead to tension and disruption. Europe is splitting, the world is splitting. This is a wrong path for the global community” He said. “There are too many global and individual crises to abandon cooperation. It is essential to revive the dialogue.” According to the ex Soviet President, by irresponsibly deploying four multinational battalions to Russian borders, “within shooting distance”, the alliance draws closer another Cold War and another Arms Race. “There are still ways to…avoid military action.” Gorbachev stressed. “I would say that UN should be called upon on that matter.” He also called on Moscow not to respond to provocations but to come to the negotiating table. “In the current situation…all political, economic, diplomatic and cultural forces should be engaged to pacify the world. Mind you, the next war will be the last.”

Closing the net on Tony.

• Blair’s Deputy PM Says Iraq Invasion Broke International Law (BBC)

John Prescott, who was deputy prime minister when Britain went to war with Iraq in 2003, says the invasion by UK and US forces was “illegal”. Writing in the Sunday Mirror, he said he would live with the “catastrophic decision” for the rest of his life. Lord Prescott said he now agreed “with great sadness and anger” with former UN secretary general Kofi Annan that the war was illegal. He also praised Labour’s Jeremy Corbyn for apologising on the party’s behalf. Lord Prescott also said Prime Minister Tony Blair’s statement that “I am with you, whatever” in a message to US President George W Bush before the invasion in March 2003, was “devastating”.

“A day doesn’t go by when I don’t think of the decision we made to go to war. Of the British troops who gave their lives or suffered injuries for their country. Of the 175,000 civilians who died from the Pandora’s Box we opened by removing Saddam Hussein,” he went on. Lord Prescott said he was “pleased Jeremy Corbyn has apologised on behalf of the Labour Party to the relatives of those who died and suffered injury”. He also expressed his own “fullest apology”, especially to the families of British personnel who died. The former deputy PM said the Chilcot report had gone into great detail about what went wrong, but he wanted to identify “certain lessons we must learn”.

“My first concern was the way Tony Blair ran Cabinet. We were given too little paper documentation to make decisions,” he wrote. No documentation was provided to justify Attorney-general Lord Goldsmith’s opinion that action against Iraq was legal, he added.

…and taking all his money too…

• Families Of Soldiers Killed In Iraq Vow To Sue Blair For ‘Every Penny’ (Tel.)

Tony Blair will be pursued through the courts for “every penny” of the fortune he has earned since leaving Downing Street, the families of soldiers killed in Iraq vowed. Mr Blair faces a civil law suit over allegations he abused his power as prime minister to wage war in Iraq. The damages, according to legal sources close to the case, are unlimited. A well-placed source told The Telegraph that the Chilcot report appeared to provide grounds for the launch of a lawsuit. “It gives us a lot of threads to pursue and those threads make a powerful rope to catch him,” said the source. So far 29 families of dead soldiers have asked the law firm McCue & Partners to pursue a claim against Mr Blair. Others are expected to come on board.

The firm is looking at bringing a civil case of misfeasance in public office, which would see Mr Blair dragged through the courts for the first time over his decision to take the UK to war. Legal sources say for any case to be successful, lawyers would have to show that Mr Blair “had acted in excess of his powers” and that in doing so “harm has been caused and that the harm could have been predicted”. Sir John Chilcot, in his findings published on Wednesday, said Mr Blair should have seen the problems that resulted from the invasion in 2003 and came as he could to suggesting the military action was illegal.

Mr Blair has earned a fortune estimated at as much as £60 million since resigning as prime minister in 2007, largely through a complex network of companies that offers investment and strategic advice to private companies and international governments. Reg Keys, whose son Tom was one of six Royal Military Police killed at Majar al-Kabir in 2003, said: “Tony Blair has made a lot of money from public office which I believe he misused. He misused the powers of that office and has gone on to make a lot of money after leaving that office, a lot of it from the contacts he made while in Downing Street.”[..] “I would like to see him stripped of every penny he has got. I would like to see him dragged through the civil courts.”

Runs along the entire south coast of the continent.

• Australia’s Other Great Reef Is Also Screwed (Atlantic)

Imagine arriving at a region famed for its forests—the Pyrenees or the Rockies, perhaps—and discovering that all the trees had vanished. Where just a few years ago there were trunks and leaves, now there is only moss. That’s how Thomas Wernberg and Scott Bennett felt in 2013, when they dropped into the waters of Kalbarri, halfway up the western coast of Australia.

They last dived the area in 2010. Then, as in the previous decade, they had swum among vast forests of kelp—a tagliatelle-like seaweed whose meter-tall fronds shelter lush communities of marine life. But just three years later, the kelps had disappeared. The duo searched for days and found no traces of them. They only saw other kinds of seaweed, growing in thin, patchy, and low-lying lawns. “We thought we were in the wrong spot,” says Bennett. “It was like someone had bulldozed the reef. It was like a moonscape underwater—scungy, brown, and empty.”

The culprit—surprise, surprise—is climate change. The waters near western Australia were already among the fastest-warming regions in the oceans before being pummeled by a recent series of extreme heat waves. In the summer of 2011, temperatures rose to highs not seen in 215 years of records, highs far beyond what kelps, which prefer milder conditions, can tolerate. As a result, the kelp forests were destroyed. Before the heat wave, the kelps stretched over 800 kilometers of Australia’s western flank and cover 2,200 square kilometers. After the heat wave, Wernberg and Bennett found that 43% of these forests disappeared, including almost all the kelps from the most northerly 100 kilometers of the range. “It was just heartbreaking,” says Bennett.

“It really brought home to me the impact that climate change can have on these ecosystems, right under our noses.” “They have provided alarming and detailed evidence for one of the most dramatic climate-driven ecosystem shifts ever recorded,” adds Adriana Verges from the University of New South Wales.

Soon, Australia will have only barren coasts left.

• 10,000 Hectares Of Mangroves Die Across Northern Australia (ABC.au)

Close to 10,000 hectares of mangroves have died across a stretch of coastline reaching from Queensland to the Northern Territory. International mangroves expert Dr Norm Duke said he had no doubt the “dieback” was related to climate change. “It’s a world-first in terms of the scale of mangrove that have died,” he told the ABC. Dr Duke flew 200 kilometres between the mouths of the Roper and McArthur Rivers in the Northern Territory last month to survey the extent of the dieback. He described the scene as the most “dramatic, pronounced extreme level of dieback that I’ve ever observed”.

Dr Duke is a world expert in mangrove classification and ecosystems, based at James Cook University, and in May received photographs showing vast areas of dead mangroves in the Northern Territory section of the Gulf of Carpentaria. Until that time he and other scientists had been focused on mangrove dieback around Karmuba, Queensland, at the opposite end of the Gulf. “The images were compelling. They were really dramatic, showing severe dieback of mangrove shoreline fringing — areas just extending off into infinity,” Dr Duke said. “Certainly nothing in my experience had prepared me to see images like that.”

Dr Duke said he wanted to discover if the dieback in the two states was related. “We’re talking about 700 kilometres of distance between incidences at that early time,” he said. The area the Northern Territory photos were taken in was so remote the only way to confirm the extent and timing of the mangrove dieback was with specialist satellite imagery. With careful analysis the imagery confirmed the mangrove dieback in both states had happened in the space of a month late last year, coincident with coral bleaching on the Great Barrier Reef. “We’re talking about 10,000 hectares of mangroves were lost across this whole 700 kilometre span,” Dr Duke said.

It doesn’t get much scarier than this, without insects mankind doesn’t stand a chance: ”..out of 3,623 terrestrial invertebrate species on the International Union for Conservation of Nature [IUCN] Red List, 42% are classified as threatened with extinction.”

• Global Insect Populations Fall 45% In Past 40 Years (e360)

Every spring since 1989, entomologists have set up tents in the meadows and woodlands of the Orbroicher Bruch nature reserve and 87 other areas in the western German state of North Rhine-Westphalia. The tents act as insect traps and enable the scientists to calculate how many bugs live in an area over a full summer period. Recently, researchers presented the results of their work to parliamentarians from the German Bundestag, and the findings were alarming: The average biomass of insects caught between May and October has steadily decreased from 1.6 kilograms (3.5 pounds) per trap in 1989 to just 300 grams (10.6 ounces) in 2014.

According to global monitoring data for 452 species, there has been a 45% decline in invertebrate populations over the past 40 years.

“The decline is dramatic and depressing and it affects all kinds of insects, including butterflies, wild bees, and hoverflies,” says Martin Sorg, an entomologist from the Krefeld Entomological Association involved in running the monitoring project. Another recent study has added to this concern. Scientists from the Technical University of Munich and the Senckenberg Natural History Museum in Frankfurt have determined that in a nature reserve near the Bavarian city of Regensburg, the number of recorded butterfly and Burnet moth species has declined from 117 in 1840 to 71 in 2013. “Our study reveals, through one detailed example, that even official protection status can’t really prevent dramatic species loss,” says Thomas Schmitt, director of the Senckenberg Entomological Institute.

Declines in insect populations are hardly limited to Germany. A 2014 study in Science documented a steep drop in insect and invertebrate populations worldwide. By combining data from the few comprehensive studies that exist, lead author Rodolfo Dirzo, an ecologist at Stanford University, developed a global index for invertebrate abundance that showed a 45% decline over the last four decades. Dirzo points out that out of 3,623 terrestrial invertebrate species on the International Union for Conservation of Nature [IUCN] Red List, 42% are classified as threatened with extinction.

Beautiful Brexit and the Five Stages of Grief

Jul 092016

July 9, 2016 Posted by Raúl Ilargi Meijer at 2:59 pm Finance Tagged with: Anglo, bubble, Corbyn, debt, denial, grief, propaganda, Trump, war 4 Responses »

Ann Rosener San Francisco, California. The Bank of America 1943

The post-Brexit ‘conversation’ in Britain is taking on grotesque proportions. Nobody seems to know how to react, at least not in a rational manner. They all look to be stuck in phase one of Kübler Ross’s Five Stages of Grief, i.e. Denial. Phase two is supposed to be Anger, and while there’s plenty of that, the shape is takes makes one think Angry Denial, instead of a progression between phases.

That is to say, I don’t think I’ve seen one voice expressing anger at themselves. It’s all somebody else’s fault. And it just keeps going. After Farage, Johnson, Gove et al had been blamed for all there’s wrong with everyone else’s lives, now the anger is pointed at the two women who are supposed to be competing for the poisoned chalice of UK prime minister. That both belong to the clique which has just been voted down 2 weeks ago doesn’t seem to bother anyone. That is not smart.

But if you must insist on calling 17 million of your neighbors ‘racist’ and ‘stupid’ just to feel better about yourself, perhaps there’s no denying that the Five Stages insist on taking their time. Problem with that is there is no such time, before you know what’s happened the nation will be stuck with another ‘leader’ that far too many people are not going to be listening to. A game of ‘who said what about whom’ is not helping.

A main issue would seem to be the Anglo(-Saxon) disease version 2.0, as I label it: whereas numerous countries around the world have seen new political parties rise to the fore, Britain, the US, Australia etc. are sticking with the same old same old, even if that makes them essentially ungovernable. What Britain needs is Podemos or a Five-Star movement, and so do the US, Canada, Australia.

The global economic system is now collapsing so overtly that nothing incumbent powers do can hide it any longer. A more flexible system, and a less ‘let’s stick with what we got’ view of life, can be very helpful during times like these, because they can ease the friction of established powers losing their power, no matter how painful that process still will be.

In many if not most countries there is hardly any difference anymore between what used to be right and left in politics. Barack Obama, Tony Blair and soon perhaps Hillary Clinton were voted in by what used to be the left wing of their countries, but they might just as well have come from the other side of the aisle. They all represent the establishment, not the people.

That has worked to an extent so far, but now it is over, simply because too many people have too little left to feel comfortable in their lives. In that regard it’s interesting to see how Labour leader Jeremy Corbyn gets treated by his own party for wanting to take it ‘too far’ to the left, i.e. to represent the people. This may split up the party after all, and Corbyn would and should be happy to be rid of the right wing of the party, but he has caught Anglo Disease 2.0 too.

If Bernie Sanders or Jeremy Corbyn, even Donald Trump for that matter, were Italian, Spanish or even German, they would have started another party, not try to ‘reform’ an existing one. It doesn’t work, or it’s too much trouble trying. The disconnection is too great, between what the parties once stood for and stand for now, and between what they say and what they do.

Anglo Disease 1.0, by the way, is the government-induced blowing of housing bubbles in London, Vancouver, Sydney, Auckland etc etc. Take a good look at this graph and you can see what Beautiful Brexit (think I should patent the term?) is set to do to UK home prices: make then affordable again. Why do so many people apparently think that’s a terrible thing?

And Anglo Disease 1.0 is plenty contagious. Look at private debt levels in the Netherlands, where in the years after the graph below, 2015-6, home prices have kept rising and so have sales. Private debt at 800% (900% now?) of GDP is not a healthy thing no matter how you twist it, but they’ll all tell you they’re making smart investments and money hand over fist.

EA=Euro Area

Government and/or central bank induced bubbles are criminal. They make an economy look better temporarily, but people will have hefty prices to pay when they pop. And pop is just what Brexit does with the UK housing bubble. Whether that’s a good or a bad thing is perhaps up to one’s own personal judgment, but no thinking body would say yes when asked if they prefer living in a bubble.

For me, sitting inside a 10-year central bank liquidity bubble, I’m mostly afraid for those who have ever less left. The jobless, pensioners, anyone relying on benefits or fixed income, have yet to realize how much worse off they will be, but they will. ‘Homeowners’ with huge mortgages, even if they’re at low rates, will see ‘values’ plunge to the point where lenders will come with margin calls. And what then? More bank bail-outs?

Central banks and governments have been blowing their bubbles with one goal in mind: to keep incumbent powers in place. That part has succeeded, but it’s the only part, and the price to be paid by everyone else will be horrendous. And in the end the incumbents will be gone regardless, albeit with many pockets full of loot.

The last move the ‘rulers’ have left up their sleeves is perhaps to go to war with Russia, but I don’t see the people of Europe, despite 10+ years of heavy anti-Putin propaganda, allowing it. Europe might instead come to resemble the US, where people have another sort of battle to fight, a domestic one, which if not properly approached could lead to -more and increasing- very ugly confrontations.

Trump may not be the best person to lead his country into that, but the establishment, represented by Hillary, looks a much worse choice. Trump doesn’t owe nearly as much to those behind the curtains who have so much to lose. Hey, I wish there were better people available, but they’re not. Bernie Sanders has been outpropagandized and outmaneuvered, and he’s not perfect either.

America, too, will have to reinvent itself, just like so many nations across the planet. At least Trump will give the country a shot at not being dragged down into another war it can’t win, in or with Russia or China. Still, the art of propaganda on all sides and in all media has reached such dizzying heights and contortions that not a lot will seem obvious anymore.

One thing will though: increasing poverty. That will be the main factor to drive out the old and vote in the new. But the new will have two faces, one of which is Podemos, Sanders, Grillo or Corbyn, and one of which is some form or another of extreme right wing voices. Who come with their own Denial and Anger and other never completed Five Stages of Grief.

Elizabeth Kübler Ross: On Death and Dying – 1969

1 – Denial. Denial is a conscious or unconscious refusal to accept facts, information, reality, etc., relating to the situation concerned. …
2 – Anger.
3 – Bargaining.
4 – Depression. Also referred to as preparatory grieving. …
5 – Acceptance.

Debt Rattle July 5 2016

Jul 052016

July 5, 2016 Posted by Raúl Ilargi Meijer at 8:06 am Finance Tagged with: Brexit, Clinton, Deutsche, Draghi, EU, liberty, pound, Standard Life, UK, war 1 Response »

Jack Allison “Utopia Children’s House, Harlem, New York.” 1938

• Don’t Panic. Britain’s Economy Can Survive Just Fine Outside The EU (Mody)

• The UK Desperately Needs A Lower Pound (Steen Jakobsen)

• Brexit Accelerates the British Pound’s 100 Years of Debasement (BBG)

• Meanwhile At The Most Systemically Dangerous Bank In The World… (ZH)

• Standard Life Shuts Property Fund Amid Rush Of Brexit Withdrawals (G.)

• EU Authority Fraying In Reaction To Brexit Vote (R.)

• Draghi Should Have Done More To Help Italian Banks In 90’S, Says PM Renzi (R.)

• Did a Fear of Slave Revolts Drive American Independence? (NY Times)

• The Statue Of Liberty Was Built To Welcome Immigrants (Eggers)

• The Elites Hate Momentum and The Corbynites – I’ll Tell You Why (Graeber)

• In New Jersey Student Loan Program, Even Death May Not Bring a Reprieve (NYT)

• Sydney Home Prices Just Keep On Rising (BBG)

• How Australia Is Sold Into Waging War In Ukraine (Helmer)

• US Economist Galbraith Sheds Light On Varoufakis ‘Plan X’ (Kath.)

• Wikileaks Publishes More Than 1,000 Hillary Clinton War Emails (Ind.)

• Who The F**k Is Charlotte? (Jim Kunstler)

“Between 2000 and 2014, the share of British exports to Europe fell from 60 to 45%.”

• Don’t Panic. Britain’s Economy Can Survive Just Fine Outside The EU (Mody

The European Union was not the principal reason why many felt economically and politically powerless, but its bureaucratic creep became a potent symbol of the overpowering force of globalization. The outgoing Prime Minister of Britain David Cameron, who likes to think of himself as modern-day Winston Churchill, had little understanding of these historical forces. Indeed, even Churchill had his historical blind spots. He petulantly called Gandhi a “half-naked fakir” and vehemently opposed Indian independence. But Cameron, seeking his petty political victories, was largely clueless about the larger stakes he ended up playing for. Tactical gains can lead to strategic advance only when guided by a larger vision. All Cameron wanted was greater hold over his party.

But once he let the genie out of the bottle, Cameron misjudged again by making an economic case for remaining in the European Union rather than attempting a serious political argument for Europe—one based on shared values. Perhaps there was no political argument to be made, but the effort to present an economic calculus for a political decision was bound to backfire. The economic numbers to make the case for Britain remaining in Europe were fanciful, however many economists and international organizations joined to endorse them.

Following Brexit, productive British trade with the European Union will survive just fine wherever it is based on long-lasting economic gains and social relationships. At the same time, the shift toward trade with the faster-growing United States and Asia will continue. Between 2000 and 2014, the share of British exports to Europe fell from 60 to 45%. Almost all new British trade is being created outside of Europe. The new tougher trade regime could even spur productivity growth. As the British economy inevitably disengages from Europe, empathy for European Union will decline further. A referendum five years from now will produce an even clearer decision to say out.

“The UK’s problem remains their double deficit. The chronic budget and the current account deficits.”

• The UK Desperately Needs A Lower Pound (Steen Jakobsen)

I am writing this chronicle from South Africa which is almost as far away from Europe and the constant and never ending Brexit talk as you can come. It’s hard even here to avoid the turbulence and never ending ‘need’ for investors and media to understand what comes next. The best analogy I can use is one from my extensive travels: When you arrive at an airport to check in, you have to pass security control when two options are at hand: The fast track or the slow version (economy class). Using the fast track gets you quicker to the gate and allows you pre-boarding, but what really should matter is that the actual flight time and route is the same for everyone in business and in economy. We arrive at EXACTLY the same time.

The point? What is now transpiring in an economic sense is that we have entered the fast track courtesy of Brexit, the selloff in GBP, the lowering of growth projections and in some places talk about reform and change which would have happened with or without the Leave vote. The UK’s problem remains their double deficit. The chronic budget and the current account deficits. The last time the UK ran a surplus on the current account was the year Italy won the World Cup in Spain and the top scorer was Paolo Rossi. you guessed it — 1982. The UK also has the lowest productivity of the G7 countries together with Japan.

Yes, the UK needs a lower GBP and desperately so and if the ERM crisis of 1992 is any guideline, what comes next for UK is more employment and a stronger GDP as seen in this chart from the excellent research done by Societe Generale. It would be naive to anticipate only positive changes from the increased political uncertainty but do realise that the slowdown in the UK but also Europe was happening before the surprise ‘Leave’ result.

Loss of empire.

• Brexit Accelerates the British Pound’s 100 Years of Debasement (BBG)

There have been few better ways to chart Britain’s decline from empire than its currency. Historians, economists and foreign-policy specialists point to the more-than 10% plunge since the June 23 referendum as signaling another downward leg in the U.K.’s global role and influence. “The history of the pound against the dollar over the last century is essentially a downward ladder with big permanent steps,” according to Rui Pedro Esteves, an associate professor in economics at Oxford University. The world’s oldest currency — sterling is derived from the old German “ster” for strong or stable – bought almost $5 during World War I. The day of the EU referendum, it traded at $1.50. It was at $1.3330 as of 4:33 p.m. on Monday.

HSBC analysts are among those forecasting $1.20 as a likely destination. Billionaire investor George Soros suggests $1.15, the equivalent of about a euro – about 60 cents below its average since 1971. “A country’s economic size measured in other currencies – for the U.K., measured say in dollars – is an indicator of its capacity to project power and influence internationally,” said Barry Eichengreen, a professor of economics at the University of California Berkeley. While some economists, including former BOE Governor Mervyn King, see the weaker currency as leading to more export competitiveness, others see the threat of recession and lower interest rates – combined with more insular politics and withdrawal from the world’s largest trading bloc – as undermining appetite for U.K. assets.

“If you look at the U.K. now, certainly part of what is going on is a result of the exchange rate’s adjustment to growth expectations,” said Maurice Obstfeld, chief economist at the IMF. The pound has been in steady decline, spurred on by a series of financial jolts, for most of the past century – just as Britain’s prominence on the international stage has diminished.

Correlation AND causation.

• Meanwhile At The Most Systemically Dangerous Bank In The World… (ZH)

Another day, another fresh record low in Deutsche Bank’s stock price… For comparison’s sake, Deutsche Bank is analogically equivalent to where Lehman was in August 2008… when the stock soared 16% on chatter of a Korean Development Bank bailout… which then was denied, crashing the stock and ending the party…

Shares in Lehman Brothers rose substantially Friday as investors renewed hopes that the troubled investment bank was moving closer to raising capital to buffer it against a deteriorating economic environment. Capping a volatile week, the stock soared 16% on a report that the state-run Korea Development Bank was considering buying the bank, an idea that a spokesman for the South Korean firm said was “erroneous.” Lehman’s stock closed the day up 5% at $14.41.

The spokesman for Korea Development Bank told The New York Times that the bank was in the process of being privatized and was looking at various acquisitions. But he denied that buying Lehman was an option. “We have various thoughts for our future, but we don’t have any specific institutions in mind,” said the spokesman, who declined to be named, citing company policy. Lehman’s suddenly soaring stock underscores the volatility surrounding the firm as it scrambles to assess its options in the face of an abysmal third quarter. Only days ago, its shares tumbled more than 13%.

We wait for chatter of a Deutsche Bank ‘offer’ rumor any day now. We are sure it’s nothing. How can it be a problem given that US equities are so strong? right?

Can’t be just one fund that has these problems.

• Standard Life Shuts Property Fund Amid Rush Of Brexit Withdrawals (G.)

Investors in Standard Life’s property funds have been told that they cannot withdraw their money, after the firm acted to stop a rush of withdrawals following the UK’s decision to leave the EU. The firm halted trading on its Standard Life Investments UK Real Estate Fund and associated funds at midday on Monday, citing “exceptional market circumstances” for the decision. It said the suspension would remain in place until it is “practicable” to lift it, and that it would review the decision at least every 28 days. The £2.9bn fund, which invests in commercial properties including shopping centres, warehouses and offices, is thought to be the first UK property fund to suspend trading since the 2007-2009 financial crisis, when some of the biggest names in investment management stopped withdrawals because they did not have the money to repay investors.

Standard Life’s decision is the latest in a line of moves by investment firms to stem flows out of their property funds. Standard Life last week, together with rivals Henderson, Aberdeen and M&G, reduced the amount investors cashing in holdings would get back by up to 5%. In a statement, Standard Life said the decision followed an increase in redemption requests from investors. “The suspension was requested to protect the interests of all investors in the fund and to avoid compromising investment returns from the range, mix and quality of assets within the portfolio,” the company said.

Juncker’s days are definitely numbered. But nobody seems to either know nor agree what should be next.

• EU Authority Fraying In Reaction To Brexit Vote (R.)

[..] Italian Prime Minister Matteo Renzi, who has fought to bend EU budget deficit rules and now seeks to pump billions of euros into his country’s ailing banks if needed to shore them up, said on Monday the EU was run by “a technocracy with no soul”. He also opposed sanctions against fellow southern members Spain and Portugal for violating the EU’s deficit limits last year – a step the Commission is due to consider on Tuesday in a German-backed drive to uphold the much-abused budget rules. Italy’s banks are saddled with €360 billion in bad loans and their share prices plunged after last month’s Brexit vote. Rome is in talks with the EU Commission to devise a plan to recapitalize its lenders with public money limiting losses for bank investors.

Dutch and German ministers have attacked a Commission decision that the European Parliament can approve a trade pact with Canada without referring it to national parliaments. The Dutch parliament was assured it would have a chance to weigh in on the treaty. But perhaps most worryingly for the EU, senior ministers in Germany, the bloc’s reluctant hegemon, are advocating shrinking the executive Commission, trimming its powers, and bypassing common European institutions to take more decisions by intergovernmental agreement. A call from veteran German Finance Minister Wolfgang Schaeuble, long an advocate of closer integration, to shift more policy decision-making to governments for expediency’s sake was among the most striking indicators of the mood around Europe.

“If the Commission doesn’t get involved, then we should take the matter into our own hands and solve problems between governments,” Schaeuble told Welt am Sonntag newspaper, saying now was a time for pragmatism. “This intergovernmental approach proved successful during the euro zone crisis,” he added.

Renzi, in trying to save his career, becomes a danger to Brussels.

• Draghi Should Have Done More To Help Italian Banks In 90’S, Says PM Renzi (R.)

Italian Prime Minister Matteo Renzi criticized ECB Governor Mario Draghi for not having done more to resolve Italy’s banking woes when he held a key Treasury job in Rome in the 1990s. Renzi’s rare public criticism of Draghi came on the day Italy’s third-largest lender, Banca Monte dei Paschi di Siena (BMPS.MI), said that the ECB had asked it to cut its bad debts by 40% within three years, heaping more pressure on Rome to stabilize its banking system. After taking power in 2014, Renzi’s government introduced reforms aimed at strengthening the country’s cooperative banks, but several are struggling to stay afloat and a bailout fund took control of Veneto Banca last week after the ECB said it had to raise capital or close.

“If the measures concerning the cooperatives had not been taken by us but by the centre-left government that first put them forward, but was not strong enough to enact them in 1998 … then we would not have this problem,” Renzi said. The prime minister said that Draghi was director general of the Treasury at that time, with Carlo Azeglio Ciampi serving as economy minister. “And if people had the strength and intelligence to keep politics out of the banking system a bit before we did it … we would not have had cases like Monte dei Paschi di Siena,” Renzi told a meeting of his centre-left Democratic Party (PD).

How things are seldom what they seem. Or people, for that matter.

• Did a Fear of Slave Revolts Drive American Independence? (NY Times)

For more than two centuries, we have been reading the Declaration of Independence wrong. Or rather, we’ve been celebrating the Declaration as people in the 19th and 20th centuries have told us we should, but not the Declaration as Thomas Jefferson, Benjamin Franklin and John Adams wrote it. To them, separation from Britain was as much, if not more, about racial fear and exclusion as it was about inalienable rights. The Declaration’s beautiful preamble distracts us from the heart of the document, the 27 accusations against King George III over which its authors wrangled and debated, trying to get the wording just right. The very last one — the ultimate deal-breaker — was the most important for them, and it is for us:

“He has excited domestic insurrections amongst us, and has endeavored to bring on the inhabitants of our frontiers, the merciless Indian savages, whose known rule of warfare is an undistinguished destruction of all ages, sexes and conditions.” In the context of the 18th century, “domestic insurrections” refers to rebellious slaves. “Merciless Indian savages” doesn’t need much explanation. In fact, Jefferson had originally included an extended attack on the king for forcing slavery upon unwitting colonists. Had it stood, it would have been the patriots’ most powerful critique of slavery. The Continental Congress cut out all references to slavery as “piratical warfare” and an “assemblage of horrors,” and left only the sentiment that King George was “now exciting those very people to rise in arms among us.”

The Declaration could have been what we yearn for it to be, a statement of universal rights, but it wasn’t. What became the official version was one marked by division. Upon hearing the news that the Congress had just declared American independence, a group of people gathered in the tiny village of Huntington, N.Y., to observe the occasion by creating an effigy of King George. But before torching the tyrant, the Long Islanders did something odd, at least to us. According to a report in a New York City newspaper, first they blackened his face, and then, alongside his wooden crown, they stuck his head “full of feathers” like “savages,” wrapped his body in the Union Jack, lined it with gunpowder and then set it ablaze.

Reflecting on Lady Liberty’s right foot.

• The Statue Of Liberty Was Built To Welcome Immigrants (Eggers)

Though she is the most recognisable symbol of the American experiment, there is something about the Statue of Liberty that goes largely unnoticed. And that is that she is moving. The torch in her right hand, symbolising enlightenment, cannot be ignored and is never overlooked. The book in her left hand, with 4 July carved in roman numerals, is not likely to be missed. Nor are the seven spikes of her crown, matching the world’s seven continents and seven seas. And though, if pressed, we remember that she is wearing sandals, we forget, if we ever knew, that the Statue of Liberty is on the go. Take the ferry to Liberty Island. As your boat rises and falls on the rough waters of New York Harbor, you will see, with undeniable clarity, that her right foot is striding forward.

And around her feet are chains, broken, which sculptor Frédéric Auguste Bartholdi meant to symbolise the breaking of the chains of bondage and tyranny. She is caught, forever, in the moment of becoming free. The 305ft statue is a marvel of artistry and engineering, and there are many details to admire, but none is more important than her right leg, which is stepping forward, and stepping forward not casually but with great striding purpose. This right foot, though largely unheralded, might be its most important feature. For what would it mean if the symbol of liberty were standing still? That would imply that freedom is static, that once established, it’s a settled thing. But freedom is not a settled thing.

It would imply that once the first few million immigrants arrived on American shores, fleeing religious bigotry or political violence or ethnic persecution, then the United States should or could close its gates. It would imply that the welcoming of new arrivals, the poor and tired and struggling to be free, was a temporary thing, that the welcoming of the world’s oppressed was a thing of the past. But the welcoming of the world’s oppressed is not a thing of the past. We live in a moment when shrill voices tell us that not only should immigration be stifled, but that millions of current residents should be deported, returned to their country of origin, no matter the consequences for their souls or our consciences. These fearful voices put forth a direct repudiation of the origin and elemental purpose of this country, and to the meaning of the statue that we accept as our talisman.

The coup against Corbyn is also linked to Tony Blair’s possible indictment, and the risks that brings for those in the party who are linked to him.

• The Elites Hate Momentum and The Corbynites – I’ll Tell You Why (Graeber)

As the rolling catastrophe of what’s already being called the “chicken coup” against the Labour leadership winds down, pretty much all the commentary has focused on the personal qualities, real or imagined, of the principal players. Yet such an approach misses out on almost everything that’s really at stake here. The real battle is not over the personality of one man, or even a couple of hundred politicians. If the opposition to Jeremy Corbyn for the past nine months has been so fierce, and so bitter, it is because his existence as head of a major political party is an assault on the very notion that politics should be primarily about the personal qualities of politicians. It’s an attempt to change the rules of the game, and those who object most violently to the Labour leadership are precisely those who would lose the most personal power were it to be successful: sitting politicians and political commentators.

If you talk to Corbyn’s most ardent supporters, it’s not the man himself but the project of democratising the party that really sets their eyes alight. The Labour party, they emphasise, was founded not by politicians but by a social movement. Over the past century it has gradually become like all the other political parties – personality (and of course, money) based, but the Corbyn project is first and foremost to make the party a voice for social movements once again, dedicated to popular democracy (as trades unions themselves once were). This is the immediate aim. The ultimate aim is the democratisation not just of the party but of local government, workplaces, society itself.

In a nutshell: “..One reason for the aggressive tactics is that the state depends on Wall Street investors to finance student loans..”

• In New Jersey Student Loan Program, Even Death May Not Bring a Reprieve (NYT)

New Jersey’s loans, which currently total $1.9 billion, are unlike those of any other government lending program for students in the country. They come with extraordinarily stringent rules that can easily lead to financial ruin. Repayments cannot be adjusted based on income, and borrowers who are unemployed or facing other financial hardships are given few breaks. The loans also carry higher interest rates than similar federal programs. Most significant, New Jersey’s loans come with a cudgel that even the most predatory for-profit players cannot wield: the power of the state. New Jersey can garnish wages, rescind state income tax refunds, revoke professional licenses, even take away lottery winnings — all without having to get court approval.

“It’s state-sanctioned loan-sharking,” Daniel Frischberg, a bankruptcy lawyer, said. “The New Jersey program is set up so that you fail.” The authority, which boasts in brochures that its “singular focus has always been to benefit the students we serve,” has become even more aggressive in recent years. Interviews with dozens of borrowers, who were among the tens of thousands who have turned to the program, show how the loans have unraveled lives. The program’s regulations have destroyed families’ credit and forced them to forfeit their salaries. One college graduate declared bankruptcy at age 26 after struggling to repay his debt. The agency filed four simultaneous lawsuits against a 31-year-old paralegal after she fell behind on her payments.

Another borrower, Chris Gonzalez, could not keep up with his loans after he got non-Hodgkin’s lymphoma and was laid off by Goldman Sachs. While the federal government allowed him to suspend his payments because of hardship, New Jersey sued him, seeking $266,000 in payments, and seized a state tax refund he was owed. One reason for the aggressive tactics is that the state depends on Wall Street investors to finance student loans through tax-exempt bonds and needs to satisfy those investors by keeping losses to a minimum. Loan revenues also cover about half of the agency’s administrative budget.

How to kill a city.

• Sydney Home Prices Just Keep On Rising (BBG)

Sydney home prices resumed their upward march as dwindling supply outweighs tighter loan approvals by lenders. Dwelling values climbed 1.2% in June, taking gains for the second quarter to 6.8%, according to data from CoreLogic. The market is getting a leg up after a slowdown at the end of last year in Australia’s largest city, as new listings fell more than 16% from a year earlier to the lowest in five months in June, according to the data.

How to kill a country: “..it is financed by grants from the Australian Department of Defence, the Australian Army, the Australian Federal Police, the Dutch Foreign Ministry, and the Japanese Government; plus Raytheon, Northrup Grumman, Lockheed Martin, and Boeing..”

• How Australia Is Sold Into Waging War In Ukraine (Helmer)

Among Turnbull’s last-minute ploys to attract votes, one was the leak last month of Australian cabinet plans for an Australian Army force to fight in eastern Ukraine, alongside Dutch and other NATO units, to destroy the Donetsk and Lugansk rebellion against the regime in Kiev. Turnbull’s leak had suggested that Tony Abbott, the prime minister Turnbull had pushed aside to take the job, dreamed up the plan of Australian war at the Russian frontier by himself. The new report by Dibb now corroborates the idea of an Australian military expedition against Russia, in exchange for improved American commitments to defend Australia from the Chinese closer to home, in the Pacific.

“How things work out in Europe,” Dibb claims, “will affect Washington’s ability to reassure allies and partners everywhere, including those in our region who must contend with increasing coercion by China.” Unless Australia does more fighting with the Americans on the Russian front, he concludes, “China will take advantage of this, and allies and partners of the US in the region -including Australia- would be subject to further uncertainty about American military commitments to Asia.” Combating “Russia’s aggressive military behaviour “is necessary because, otherwise, “both Moscow and Beijing will be seen as getting away with it.” The 40-page Dibb report is entitled “Why Russia is a threat to the international order”. Read it in full. The publisher is a think-tank headquartered in Sydney called the Australian Strategic Policy Institute (ASPI).

It says “ASPI was established, and is partially funded, by the Australian Government as an independent, non-partisan policy institute.” The institute’s financial reports reveal it is financed by grants from the Australian Department of Defence, the Australian Army, the Australian Federal Police, the Dutch Foreign Ministry, and the Japanese Government; plus Raytheon, Northrup Grumman, Lockheed Martin, and Boeing — the leading arms-exporting corporations of the US. European arms builders also funding ASPI include the European missile-maker MBDA, BAE Systems, ThyssenKrupp Marine Systems, Rheinmetall, Airbus, and Navantia, the Spanish state shipbuilder. When Australians march into the field against the Russians, these suppliers aim to provide the best kit Australian money can buy.

Tsipras might have done well to pay some more attention.

• US Economist Galbraith Sheds Light On Varoufakis ‘Plan X’ (Kath.)

The Plan B for Greece that was drafted by former Greek Finance Minister Yanis Varoufakis foresaw the declaring of a state of emergency, the immediate nationalization of the Bank of Greece, the transformation of bank deposits into a New Drachma and emergency public order measures, according to a book by American economist James Galbraith, Varoufakis’s chief coordinator for the plan. In the book, “Welcome to the Poisoned Chalice: The Destruction of Greece and the Future of Europe,” which has been translated into Greek, Galbraith describes in detail Varoufakis’s plan for moving Greece to a parallel banking system last year.

Those privy to the Plan B – or Plan X as Varoufakis is said to have called it – would meet in conditions of high secrecy involving secure communications and the depositing of cell phones in hotel refrigerators. According to Galbraith, during the transition phase, the ministries of Defense and the Interior would have been responsible for public order, fuel supplies would be controlled, while employees at important public institutions (schools, hospitals, police) would be mobilized. Even though there was a high-level meeting about the plan, Galbraith said the prime minister did not ask to be briefed, so work on the endeavor ended with the submission of an extensive memo in May.

At some point, indictment or not, enough people will realize that Clinton is too much of a risk for the credibility of the entire American political system.

• Wikileaks Publishes More Than 1,000 Hillary Clinton War Emails (Ind.)

WikiLeaks, the anti-secrecy website, has released more than 1,000 emails from Hillary Clinton’s private email server pertaining to the Iraq War. The website tweeted a link to 1,258 emails on Monday that Clinton sent during her time as secretary of state. According to the release, the emails were obtained from the US State Department after they issued a Freedom of Information Act request. However, it’s unclear if any of the information is classified. WikiLeaks founder Julian Assange previously claimed that his website obtained enough proof for the FBI to indict the presumptive Democratic nominee for president.

“We could proceed to an indictment, but if Loretta Lynch is the head of the DOJ in the United States, she’s not going to indict Hillary Clinton,” Assange told ITV. “That’s not possible that could happen.” The newly released information will likely only serve as political fodder for the presumptive Republican nominee Donald Trump, as Clinton met with FBI investigators over the weekend wrapping up the lengthy investigation. Sources close to the probe recently told CNN that the bureau will announce no charges against Clinton in the weeks to come.

Ha! Funny! But I think Lynch’s involvement is far more insidious than this.

• Who The F**k Is Charlotte? (Jim Kunstler)

The mighty Shakespeare in his direst night sweats could not have conjured up the Clinton family in all their sharp angles and dark corners, but we can try to reconstruct the scene last week on Loretta Lynch’s plane out on the Phoenix airport tarmac.

Former president Bill steps aboard:
• Loretta: What the fuck are you doing here?
• Bill: I just had to tell you what Charlotte did last week.
• Loretta: Who the fuck is Charlotte?
• Bill: Our grand-kid. She’s turning into a good little earner.
• Loretta: We can’t meet like this. We’re about to depose your wife.
• Bill: Charlotte gave a speech to the whole Citibank C-suite.
• Loretta: I don’t give a fuck. Get off my plane right now!
• Bill: Well, I don’t know if ‘speech’ is the right word. She gurgles nice.
• Loretta: I guess you didn’t hear me.
• Bill: She pulled in fifty grand for that. Of course it was 100% remitted to the foundation. Well, bye now. (Exits plane).

I have a theory about the Clinton family dynamic. Bill does not want Hillary to win because he doesn’t want to live in the White House again. For sure he does not want to live with The Flying Reptile, but he especially doesn’t want to be on display in that fishbowl where folks pretty much can see what you’re up to 24/7. For one thing, “The Energizer” can’t discreetly come and go. But he certainly doesn’t want to concern himself as “First Husband” or “First Gentleman” (title TBD) with deciding which fabric to choose in replacing the East Room draperies. So Bill decided to fix things for sure with that innocent visit to the US Attorney General’s airplane to talk about grand-kids.

It seems to be working. If there was any question that Loretta Lynch could just sit on her hands about Hillary’s email investigation through the November election, it went up in a vapor last week. It also left the FBI director on the hot seat because now he will have to either cough up a referral to Justice Department prosecutors, or he’ll have some ‘splainin to do in the heat of a presidential election campaign. If you thought Watergate was a ripe peach, this one is beginning to look like a stinking durian (Durio zibethinus).

Debt Rattle June 12 2016

Jun 122016

June 12, 2016 Posted by Raúl Ilargi Meijer at 10:21 am Finance Tagged with: bonds, Brexit, bubble, ECB, pensions, unemployment, war 6 Responses »

Jack Delano Worker inspecting locomotive, Proviso Yard 1942

• European Central Bank Preparing for Brexit (IS)

• We’re Rich! We’re Rich! Are Inflated Asset Prices Like Real Wealth? (SA)

• The Pension Bubble: How The Defaults Will Occur (PD)

• Bulging Pension Funds Lure US Asset Managers to Australia (WSJ)

• ‘Condition Red Alert’ – Albert Edwards (BI)

• ECB Corporate Bond-Buying Program Makes Up Almost 1 In 5 Trades (CNBC)

• Real Unemployment Rate More Than Double The Official Number: CLSA (ZH)

• Where Do Matters Stand? (Paul Craig Roberts)

“..Brexit might potentially be a worse hit to mainland Europe than to the UK itself..”

• European Central Bank Preparing for Brexit (IS)

The European Central Bank said they are gearing up for the UK leaving the EU by activating swap lines to financial institutions should the Brexit trigger capital outflows in the short-term. Meanwhile, major European Banks are already facing declines in stock valuation, with dynamics in yield curves suggesting the market is weighing a greater possibility of the ‘Out’ vote in the UK. As volatility increases ahead of the June 23 referendum, additional euro-denominated liquidity might come in handy for the European banking system, particularly so given that the ultra-accommodative monetary conditions are failing to boost either growth or inflation in the near-to-mid-term.

The ECB announced they are ready to pour extra euro liquidity to financial institutions through the existing mechanisms of swap lines should the UK decide to leave the EU. In such a scenario, additional euros would help calm the markets and boost the already-battered banking sector capitalization, staving off the risks of massive financial turmoil amidst the uncertainty of the potential effects of Britain’s separation from the bloc. “Life won’t change much after the referendum — these agreements and contracts will still be in force,” Ilmars Rimsevics of the ECB Governing Council, and also the head of Latvia’s central bank said. “If they’ll be needed and there is some sort of shock, then of course these lines will work.”

Meanwhile, the European banks are tumbling and crumbling, as the prospect of Brexit becomes increasingly likely. During the past two weeks, the European financial institutions suffered the worst blow to their capitalization in two years, hinting at possible massive capital outflows in case of Brexit. Deutsche Bank dropped to its record lowest, according to European stock market data. Considering these developments, Brexit might potentially be a worse hit to mainland Europe than to the UK itself. Either way, the upside of this is that the overheated European stock markets would cool to be more in line with the sluggish overall growth in the region.

“..the U.S. economy is by far the best it has ever been and total household wealth is clearly vastly superior to prior periods.”

• We’re Rich! We’re Rich! Are Inflated Asset Prices Like Real Wealth? (SA)

The Federal Reserve recently released the latest “Financial Accounts of the United States” and I am pleased to inform readers that the U.S. economy is by far the best it has ever been and total household wealth is clearly vastly superior to prior periods. In a nutshell, we’ve done it. We beat back the last recession and generated enormous amounts of new wealth by having asset prices for existing wealth move higher. Who says you need growth in GDP or that real wealth has to be measured in having the goods and services that improve human lives? The financial accounts clearly show that the total household wealth in the United States has grown dramatically and vastly outpaced inflation so long as inflation is measured in other terms.

[..] Say you live in a city where the hospital has only one ambulance. If you have a heart attack, you may be out of luck. If the hospital can acquire a second ambulance, the community has gained a form of real wealth. That ambulance can provide a service that can save lives. In such a situation, you might feel that your odds of surviving a heart attack had improved. On the other hand, if the price of ambulances doubled it would do nothing to improve your odds of surviving. Unfortunately, either of these situations would double asset value recorded for ambulances. Since inflation rates are low over the last several years there is a general theory that the impact of inflation is not material to these measurements.

Slowly?!

• The Pension Bubble: How The Defaults Will Occur (PD)

Experts worry about stock, bond and real estate market excesses. But a bubble is forming that dwarfs them all: in pension plans. Millions of Americans and Canadians who are counting on pension benefits to fund their retirements risk being severely disappointed. The hard money community has, of course, been aware of this for some time. However in recent years, even the elites have been taking notice. One such group, the International Forum of the Americas, will be holding its fourth annual pension conference in Montreal next Monday. There politicians, financiers and monetary policy officials will discuss the declining rates of return in public and private sector pension plans. The picture they will paint is increasingly grim.

Pension funds, which have been issuing over-optimistic revenue forecasts for years, aren’t going to earn nearly enough money to pay the benefits recipients expect. Much of this relates to secular stagnation in the economy. Bonds, which form a major part of most plans’ holdings, earn next to nothing in interest. Stocks, which are trading at record levels, despite falling corporate earnings, look to have more downside risk than upside potential. Worse, if bond returns average 2%, balanced portfolios projecting 7% to 8% annual returns, have to earn 12% to 14% on equities investments to make up the difference. That’s unlikely to happen. At least private sector plans have some money in them – public sector plans are in even in worse shape. Governments have almost nothing put aside to fund future retirees – and they don’t even fully list their debts.

That process of “cooking the books” ramped up in a major way during Bill Clinton’s administration, whom Hillary Clinton, the current Democratic Presidential nominee, has promised to “put in charge of the economy.” The upshot is that most Americans and Canadians have no clue how far in debt their countries are. Researchers such as Laurence Kotlikoff , a professor at Boston University and a write-in candidate for President in 2016, suggest that unfunded pension and other liabilities run into the tens of trillions of dollars in the United States. The Fraser Institute has shown that Canada isn’t much better.

Hedge funds will help pension funds default.

• Bulging Pension Funds Lure US Asset Managers to Australia (WSJ)

U.S. asset managers are going for the hard sell in Australia in a bid to woo some of the world’s most cashed-up pension funds as clients. The push is being led by hedge funds and other firms offering so-called alternative investments in anything from almond plantations to oil futures. Several large U.S. asset managers recently opened offices in Sydney. Others have forged alliances with local fund managers and some already-established players are adding more sales staff.

Los Angeles-based Oaktree Capital Management, which invests in commercial mortgages and debt of financially troubled companies, opened a local branch here in March. U.S. giant TIAA Global Asset Management, which for years has been buying up Australian farmland, timber plantations and shopping malls, last year cemented its presence with a Sydney office. A major draw for foreign managers is the country’s two trillion Australian dollars (about US$1.5 trillion) in retirement savings, one of the largest and fastest-growing pools of pension money in the world. “Everyone wants to get their hands on that pie,” said Jesse Huang at Boston-based quantitative hedge fund PanAgora Asset Management. “People think there’s a lot of money to be made in Australia.”

“It is not a pleasant place. It is cold, dark, and damp..”

• ‘Condition Red Alert’ – Albert Edwards (BI)

“The key to the Ice Age thesis is to sound CONDITION RED ALERT as each recession approaches, because the equity outcome then always proves much worse than anyone expects due to the additional phase of secular de-rating..” In the aftermath of the latest, weaker than expected, nonfarm payroll data, economists are certainly more worried. The excellent folks at Advisor Perspectives highlight the Fedis Labour Market Conditions Index as suggesting a recession is imminent (the cumulative peak is an average of 9 months ahead of the start of recession and we are now four months beyond a peak. For investors who think copper still has some predictive power, its recent move is disturbing.

This, of course, is just another recession in Edwards’ Ice Age thesis, which posits that during long-term equity downturns, it takes at least four recessions to work through. So far, according to Edwards, we have only had two since the top of the bubble in 2000, so we still have a way to go until the pain is over. “The secular bear market only ends when cyclically adjusted valuation measures reach rock bottom (such as the Shiller PE on the bottom line),” said Edwards. “Each successive recession (red part of real S&P top line) sees huge downturns, usually to new lower lows of both prices and valuations. That is why we reiterated our view early this year that in the coming recession the S&P will bottom at 550, a 75% decline from current levels.”

Edwards maintains that he is bearish for a reason, despite it being a difficult spot. “We remain at the bearish extreme of the market,” he wrote. “It is not a pleasant place. It is cold, dark, and damp. People either don’it speak to you or send you abusive emails. Members of your own family pretend not to know you. Actually, I made that last bit up.”

They’re shooting for more.

• ECB Corporate Bond-Buying Program Makes Up Almost 1 In 5 Trades (CNBC)

Nearly 19% of all corporate bond activity in the past two days is down to the European Central Bank’s corporate bond-buying program, according to insights from market data provider Trax. The ECB formally kicked off its corporate bond buying program on June 8th, a move heralded by President Mario Draghi in March. As part of its plan, the ECB will buy euro-denominated investment grade bonds issued by companies in the euro area. Data from Trax released Friday showed that in the whole of 2015, corporate bond buying accounted for 12% of all corporate bond activity processed by Trax. This number went up to 14% in just the first half of 2016, the firm reported. The company processes approximately 65% of all fixed income transactions in Europe through its post-trade services.

What everyone knows.

• Real Unemployment Rate More Than Double The Official Number: CLSA (ZH)

While everyone loves to focus on the headline unemployment rate as a reason to say the economy is doing well, especially those at the Fed trying to justify hiking rates into a recession, or those in the current administration trying to establish a legacy of being a market whisperer, the facts get in the way of that narrative. We continuously remind those who are interested in the truth that the number of Americans who are no longer in the labor force has hit an all time high of 94.7 million. If one were to factor in the low labor force participation rate, the actual unemployment rate would be significantly higher than the 4.7% headline.

According to CLSA economists, who have updated an analysis we first did in the summer of 2010, if the participation rate stayed at the levels before the financial crisis, the unemployment rate would be 9.6%, more than double what it is today.

“..the West is incapable of producing leadership capable of preserving life on earth.”

• Where Do Matters Stand? (Paul Craig Roberts)

On the eve of World War II the United States was still mired in the Great Depression and found itself facing war on two fronts with Japan and Germany. However bleak the outlook, it was nothing compared to the outlook today. Has anyone in Washington, the presstitute Western media, the EU, or NATO ever considered the consequences of constant military and propaganda provocations against Russia? Is there anyone in any responsible position anywhere in the Western world who has enough sense to ask: “What if the Russians believe us? What if we convince Russia that we are going to attack her?” The same can be asked about China.

The recklessness of the White House Fool and the media whores has gone far beyond mere danger. What do the Russians think when they see that the Democratic Party intends to elect Hillary Clinton president of the US? Hillary is a person so crazed that she declared the president of Russia to be “the new Hitler” and organized through her underling, neocon monster Victoria Nuland, the overthrow of the democratically elected government of Ukraine. Nuland installed Washington’s puppet government in a former Russian province that until about 20 years ago was part of Russia for centuries. I would bet that this tells even the naive pro-western part of the Russian government and population that the United States intends war with Russia.

[..] The Russians know that the propaganda about “Russian aggression” is a lie. What is the purpose of the lie other than to prepare the Western peoples for war with Russia? There is no other explanation. Even morons such as Obama, Merkel, Hollande, and Cameron should be capable of understanding that it is extremely dangerous to convince a major military power that you are going to attack. To simultaneously also convince China doubles the danger. Clearly, the West is incapable of producing leadership capable of preserving life on earth.

Did The Greatest American Alive Just Die?

Jun 042016

June 4, 2016 Posted by Raúl Ilargi Meijer at 8:25 am Finance Tagged with: Ali, America, boxing, Muhammad Ali, pretty, racism, segregation, Vietnam, war 3 Responses »

Ali escorted to jail April 28 1967

“Boxing legend dies”, is what most headlines say. And the news was first reported on sports pages, though it did soon move to frontpages, fast.

Muhammad Ali was so much more than a boxing legend. So much more that to mention boxing first doesn’t do him justice. Ali was first and foremost a very brave and intelligent man, who changed America for the better. Or should we say: changed Americans?

He grew up in an intensely racist, segregated and divided America, and in the arguably most divided part of that America. That shaped him. Boxing was merely his way out, his way to fight discrimination and racism.

But it didn’t come easy. His was a lonely fight, for most of it. But then, he wasn’t the greatest for nothing.

The only people who stood by him were the Nation of Islam, who made him say some crazy things and from whom he later split acrimoniously; Ali wanted peace, they, not so much. Ali found he was much closer to Martin Luther King at heart. But still.

I saw some numbers flash by earlier. America’s been at war in 223 of the 240 years of its existence since 1776.

Ali refused to go. No matter what the cost. He could easily have been killed for doing it, or locked away for the rest of his life, and he knew it. But he didn’t even flinch. He would not fight the fight of those who set their dogs on his people. He would instead fight against them.

“I am America. I am the part you won’t recognize… But get used to me. Black, confident, cocky; my name, not yours; my religion, not yours; my goals, my own; get used to me.”

“Why should they ask me to put on a uniform and go 10,000 miles from home and drop bombs and bullets on brown people in Vietnam while so-called Negro people in Louisville are treated like dogs and denied simple human rights?

No, I’m not going 10,000 miles from home to help murder and burn another poor nation simply to continue the domination of white slave masters of the darker people the world over.

This is the day when such evils must come to an end. I have been warned that to take such a stand would cost me millions of dollars. But I have said it once and I will say it again. The real enemy of my people is here.

I will not disgrace my religion, my people or myself by becoming a tool to enslave those who are fighting for their own justice, freedom and equality. If I thought the war was going to bring freedom and equality to 22 million of my people they wouldn’t have to draft me, I’d join tomorrow.

I have nothing to lose by standing up for my beliefs. So I’ll go to jail, so what? We’ve been in jail for 400 years.”

(NOTE: Whether Ali ever actually said: “No Vietcong ever called me a nigger” is not entirely clear. But he did say this:)

“My conscience won’t let me go shoot my brother, or some darker people, or some poor hungry people in the mud for big powerful America. And shoot them for what? They never called me nigger, they never lynched me, they didn’t put no dogs on me, they didn’t rob me of my nationality, rape and kill my mother and father… Shoot them for what? How can I shoot them poor people? Just take me to jail.”

Whether Ali was the greatest American alive when he died a few hours ago is of course a personal view. That he was way up there is beyond dispute. And he had been there for 50 years, while he was still alive. Oh, yeah, and he was a good boxer too. And very pretty.

Debt Rattle May 28 2016

May 282016

May 28, 2016 Posted by Raúl Ilargi Meijer at 8:26 am Finance Tagged with: Abenomics, avarice, bonds, Brexit, farm belt, neoliberalism, refugees, shadow banks, Trump, war, Yellen 5 Responses »

Jack Delano Row houses, Baltimore 1940

• Yellen Leans Toward Near-Term Rate Rise Without Detailing Timing (BBG)

• Trump: Only ‘Dummies’ Believe Fed’s Unemployment Figure (Crudele)

• Japan’s Abe Plans Up to $90.7 Billion Stimulus (BBG)

• US Farm Belt Banks Tighten the Buckle (WSJ)

• Companies Go on Worldwide Bond Bender With $236 Billion of Sales (BBG)

• Clinton Lurks in Shadows When Sparring With Sanders on Banks (BBG)

• Toronto’s Red-Hot Market Sends Property Values Soaring (Star)

• UK House Prices Compared With Earnings ‘Close To Pre-Crisis Levels’ (G.)

• Paris and Berlin Ready ‘Plan B’ For Life After Brexit (FT)

• Neoliberalism Increases Inequality and Stunts Economic Growth: IMF (Ind.)

• How the Deadly Sin of Avarice Was Rehabilitated as Self Interest (Evon.)

• Silencing the United States as It Prepares for War (Pilger)

• ISIS Advance Traps 165,000 Syrians at Closed Turkish Border (HRW)

“The economy is continuing to improve..” Nuff said.

• Yellen Leans Toward Near-Term Rate Rise Without Detailing Timing (BBG)

Federal Reserve Chair Janet Yellen threw her support behind a growing consensus at the central bank in favor of another interest rate increase soon, while steering clear of specifying the timing of such a move. “It’s appropriate – and I’ve said this in the past – for the Fed to gradually and cautiously increase our overnight interest rate over time,” Yellen said Friday during remarks at Harvard University in Cambridge, Massachusetts. “Probably in the coming months such a move would be appropriate.” Yellen will host her colleagues on the Federal Open Market Committee in Washington June 14-15, when they will contemplate a second interest-rate increase following seven years of near-zero borrowing costs that ended when they hiked in December.

A series of speeches by Fed officials and the release of the minutes to their April policy meeting have heightened investor expectations for another tightening move either next month or in July. “The economy is continuing to improve,” she said in a discussion with Harvard economics professor Gregory Mankiw. She added that she expects “inflation will move up over the next couple of years to our 2% objective,” provided headwinds holding down price pressures, including energy prices and a stronger dollar, stabilize alongside an improving labor market.

Several regional Fed presidents, ranging from Boston Fed President Eric Rosengren to San Francisco’s John Williams, have in recent weeks urged financial market participants to take more seriously the chances of a rate hike in the next two months, pointing to continued signs of steady if unspectacular growth in the U.S. economy and the waning of risks posed by global economic and financial conditions. Yellen suggested that a rate rise would be appropriate if economic growth picks up and the labor market continues to improve – two developments that she said she expects to happen.

Trump sees a whole other world than Yellen does. Take your pick.

• Trump: Only ‘Dummies’ Believe Fed’s Unemployment Figure (Crudele)

Donald Trump, if elected president, will investigate the veracity of US economic statistics produced by Washington — including “the way they are reported.” I caught up with Trump, the presumptive Republican nominee, by phone Tuesday morning, and we had a frank talk about the economy and what is making his campaign tick. “When you look at some of these [economic] numbers they give out and then you go out and see people dying to get a job all over the country, I mean, it’s not jibing with what’s really going on,” Trump said. “The economy is not doing well,” Trump said. “You know, John, I’m getting 20,000 to 25,000 people every time I make a speech, and they are not there just because of the border,” he added, referring to his vow to build a wall between the US and Mexico.

“They are there because — and you know — if you put out a job notice, you’ll get thousands of people showing up to pick up a job,” Trump said. As I’ve mentioned before, I first met Trump decades ago and we used to talk once in a while, but haven’t for many years. Trump says he thinks the US unemployment rate is close to 20% and not the 5% reported by the Labor Department. Anyone who believes the 5% is a “dummy,” he said. The Federal Reserve, of course, always quotes the 5% figure and may raise interest rates based on that belief in the coming months. But even the Fed must not be too certain since it produces its own version of the jobless number, something I’ve already written about. Trump has said in the past that the Fed is also in his cross hairs for an audit. (I would recommend he look into how the Fed interferes with the markets.)

As I’ve been reporting for years, the official unemployment rate is conveniently reduced by a number of factors — each in place during both Democratic and Republican administrations. One of these factors, for example, is out-of-work people who have stopped looking for work for more than a year because they may have grown frustrated by the lack of jobs. They are not counted in the unemployment rate. A less popular unemployment stat, called the U-6, which measures some of these idled souls plus others who are forced to work part-time because they can’t find a 40-hour-a-week gig, stands at 9.7%. The truly frustrated aren’t counted at all.

It’s stunning, really, that this man still gets to dig his country ever deeper in. He hasn’t delivered on f**k all.

• Japan’s Abe Plans Up to $90.7 Billion Stimulus (BBG)

Japan Prime Minister Shinzo Abe plans to propose a fiscal stimulus package of as much as 10 trillion yen ($90.7 billion) after warning Group of Seven leaders that the global economy faces significant risk of another crisis, according to the Nikkei newspaper. Abe will seek a second supplementary budget worth 5 trillion yen to 10 trillion yen after July’s upper-house election, the Nikkei reported Saturday without attribution. Proposals will include accelerating the construction of a magnetic-levitation train line from Nagoya to Osaka, issuing vouchers to boost consumer spending, increasing pay for child-care workers and setting up a scholarship fund, the Nikkei said. “When you want to get the economy going, as long as demand in Asia is weak, you need additional public spending,” Martin Schulz at Fujitsu Research Institute in Tokyo, said by phone.

“Since private spending is still not picking up, the government is simply taking up the slack.” Abe is getting closer to delaying an increase in Japan’s sales tax, saying Friday he’ll make a decision before an upper-house election this summer on whether to go ahead with a planned hike in the levy next April to 10%, from 8%. A formal announcement of a two-year delay is expected Wednesday at the close of the parliamentary session, the Nikkei reported. This would be the second postponement by Abe, as the tax was initially scheduled to be raised in October 2015. An increase in the levy in 2014 pushed Japan into a recession. Abe had previously said the tax hike would be delayed only if there was a shock on the scale of a major earthquake or a corporate collapse like that of Lehman Brothers.

Since the previous tax hike, the economy has swung between contraction and growth, with consumer spending remaining weak. Bank of Japan Governor Haruhiko Kuroda has struggled to spur inflation despite record asset purchases and negative interest rates. Consumer prices excluding fresh food fell 0.3% in April from a year earlier, after dropping by the same amount in March, data released Friday showed. Meanwhile, the yen has surged about 9% versus the dollar this year, threatening profits for exporters including Toyota and weighing on the nation’s stock market. The benchmark Topix index has fallen 13% in 2016.

Compliments of the globalized and chemicalized food industry.

• US Farm Belt Banks Tighten the Buckle (WSJ)

Banks are tightening credit for U.S. farmers amid a rise in delinquencies, forcing some growers to turn to alternative sources of loans. When U.S. agriculture was booming this decade, banks doled out ample credit to strong performers and weaker growers alike, said Michael Swanson, an agricultural economist at Wells Fargo. But with the farm slump moving into its third year, banks have become pickier, requiring some growers to cough up more collateral and denying financing outright to some customers who need it to pay for seeds, crop chemicals and rent. Farmers this year have been grappling with low commodity prices, mounting debt and weaker incomes.

Claude Sem, chief executive of Farm Credit Services of North Dakota, said he asked some farmers to put up more land or machinery to back loans this spring. Collateral requirements could increase for more farmers if crop prices remain low, he said, noting that the cash price for wheat in northern North Dakota recently was about $4.50 a bushel, roughly a dollar below what it costs many farmers to raise the crop. “Below break-even, everything tightens up,” Mr. Sem said, adding that falling land values also have spurred lenders to boost collateral requirements, with cropland prices down as much as 20% in some parts of North Dakota.

With traditional bank loans harder to come by, farmers are turning to sources like CHS Inc., a large farmer-owned cooperative in the U.S., which operates grain elevators and retail stores across the Midwest. CHS said its loans to farmers increased 48% in both number and volume in the 12 months to March and have more than doubled since 2014. It “suggests there are many farmers struggling to obtain financing,” said Randy Nelson, president of the co-op’s financing subsidiary, CHS Capital.

Lemmings ‘R’ Us.

• Companies Go on Worldwide Bond Bender With $236 Billion of Sales (BBG)

A borrowing binge by companies globally is poised to make May one of the the busiest months ever, thanks to investors who continue to devour the relatively juicy yields on corporate debt in a negative-rate world.\ Global issuance of non-financial company debt will be in excess of $236 billion by month-end, according to data compiled by Bloomberg, led by computer maker Dell, which sold $20 billion of bonds to back its takeover of EMC in the year’s second-biggest corporate offering. In Europe, companies sold €48.5 billion ($54.2 billion) making it the busiest May on record. U.S. borrowers including Johnson & Johnson and Kraft Heinz did deals of more than €1 billion.

The surge in issuance is unlikely to satisfy investors who hoped to boost their income by buying company debt when easy-money monetary policies push yields on more than $9 trillion of bonds worldwide below zero. The extra yield investors demand to hold company debt globally relative to safer government bonds remains near year-to-date lows, while concessions on newly issued notes have fallen over the course of the month. “Deals continue to be very much oversubscribed,” said Travis King, head of investment-grade credit at Voya Investment Management, which oversees $203 billion. “It is very difficult to get bonds, especially in the hotter deals.” For investors who placed more than $80 billion of orders for Dell’s bond sale, the problem may get worse next month.

Seasonal declines in issuance, combined with decisions by some companies to accelerate debt sales to May, indicate June volumes in the U.S. will be in the $75 billion to $85 billion range, about half of this month’s supply, according to Bank of America. Vincent Murray, who heads U.S. fixed-income syndicate at Mizuho in New York, said the flow of new deals kept his team kept busy all month. While bond issuance will be less than $100 billion in June, some opportunistic companies may take advantage of low rates in the weeks ahead to issue debt, he said. “The market has remarkably weathered the storm of all this supply,” Murray said. “The fact that supply hasn’t affected the spreads in the marketplace may attract some more issuers that were thinking of passing.”

“..until the mid-1990s, the sum of runnable liabilities was steady at about 40% of U.S. GDP. That number peaked in early 2008 at 80%, but remains above historical levels, at about 60% of GDP.” And that does not include derivatives.

• Clinton Lurks in Shadows When Sparring With Sanders on Banks (BBG)

There is no universal definition for “shadow bank.” At its broadest, it’s any institution that borrows money and invests in financial assets, but is neither a bank, nor regulated like one. This can include insurance companies, hedge funds, private equity firms, and government-sponsored entities such as Fannie Mae and Freddie Mac. In debates, Clinton brings up hedge funds and insurance companies. But her published plan hints at a more precise definition: if it’s runnable, it’s a shadow bank. A research note last year from economists at the Federal Reserve Board in Washington describes “runnables” – short-term funds at financial institutions that can evaporate in a panic. Bank deposits over $250,000 are uninsured, and therefore runnable.

So are shares in money-market mutual funds; they should be considered investments, but in practice are not expected to lose principal. Repurchase agreements, also on the list, allow a borrower to sell a stock or bond, along with a promise to buy it back, often in a day or two. Short-term corporate debt, called “paper,” is similarly runnable. According to the Fed economists’ research, until the mid-1990s, the sum of runnable liabilities was steady at about 40% of U.S. GDP. That number peaked in early 2008 at 80%, but remains above historical levels, at about 60% of GDP. The definitions differ slightly, but this is consistent with patterns measured by Morgan Ricks at the Vanderbilt University Law School in Nashville, and by the the Financial Stability Oversight Council, a group of representatives from several regulators.

Runnables, said Ricks, are the “central unsolved problem of financial reform.” Ricks, who was a senior policy adviser at the Treasury Department in 2009 and 2010, takes a historical view of financial runs. Before the U.S. began insuring bank deposits in 1933, bank runs happened about once a decade. Since then, even during the financial crisis, they’ve been rare. But the risk moved outside the banks. Paul McCulley coined the term “shadow bank” during the Kansas City Fed’s 2007 Jackson Hole conference on economic policy. Then the chief economist of Pimco, McCulley laid out the systemic danger hidden in bank-like firms that relied on uninsured short-term funding. By the end of the next year, Bear Stearns, Lehman Brothers, and Merrill Lynch all collapsed. None of these were banks, but all had seen runs on short-term funding. “These are all species of the same genus,” said Ricks.

The wholesale destruction of cities and communities is not done.

• Toronto’s Red-Hot Market Sends Property Values Soaring (Star)

Toronto’s blistering housing market has prompted a 30% jump in residential property values over the last four years, according to the company that assesses real estate in the province. City homeowners will receive assessment notices — their first since 2012 — from the Municipal Property Assessment Corp. (MPAC) beginning next week showing a 7.5% annual increase in their property values. That’s well above the 4.5% provincial average, but lower than the double-digit increases in some 905-area communities such as Richmond Hill and Markham. The average assessed value for a single-family detached home in Toronto is $770,000, up about $200,000 on average from the last assessment in 2012. Toronto condo values increased 2.9% on average to $363,000, about $35,000 higher than four years ago.

Although assessments are linked to property taxes, homeowners should not panic about a steep rise in taxes, says MPAC. “Just because the assessment does increase doesn’t necessarily mean that this is going to have an impact on their taxes,” said Greg Martino, director of valuation and customer relations MPAC. Municipalities, not MPAC, determine property tax rates. How much an individual owner pays depends on where their assessment ranks compared to the city average. Owners whose properties are assessed above the 7.5% average will pay more. Those with below-average assessments pay less. In Toronto, virtually every property will be assessed at a higher rate than it was in 2012. If two properties were assessed at $500,000 in 2012, each would share an equal portion of the city’s tax burden. But if they are reassessed and one home remains at $500,000 but the other is now valued at $600,000, the higher valued property now carries a bigger tax responsibility.

Force interest rates up by just 1% and you have mayhem.

• UK House Prices Compared With Earnings ‘Close To Pre-Crisis Levels’ (G.)

House prices as a multiple of average earnings are “within a whisker” of record levels set before the financial crisis, a City consultancy has warned. The average UK house price is now 6.1 times average earnings, close to the peak of 6.4 it hit before the downturn, Fathom Consulting said. A rise in interest rates from their current low of 0.5% would lead to a correction, it said, although a return to “normal” rates was some way off. Prices have been pushed up by the availability of cheap home loans, and would need to fall by 40% to bring the ratio back to the pre-2000 average of 3.5 times earnings, it added. During the financial crisis, banks and building societies withdrew from lending, particularly to borrowers with small deposits.

But since then, the government’s funding for lending scheme made loans cheaper for borrowers with substantial equity, and then help to buy brought back 95% mortgages. Lenders are now cutting ratesand easing lending criteria. Fathom said this cheap borrowing had been the biggest driver for demand for homes. “Since 2013, the demand for housing has been turbocharged by chancellor [George] Osborne’s help-to-buy policy and the search for yield – which has resulted in the accumulation of housing wealth as an investment alternative for low-yielding financial assets,” it said. “As a consequence, house prices are now close to an all-time high of more than six times disposable income.”

The firm said couples buying together were increasingly taking on large loans relative to their income. Before the crisis fewer than 30% of joint mortgages were taken at more than 2.75 times income , but now that proportion has risen to more than a third. Fear of destabilising the “fragile arithmetic” that underpinned the housing market meant the Bank of England was unlikely to increase the base rate from its current record low of 0.5% until at least 2018, it said, regardless of the EU referendum result. “If it were to tighten Bank rate, it could trigger a rapid correction in the UK housing market and compound the slowdown in economic growth,” it said.

“Making Brexit a success will be the end of the EU. It cannot happen.” Brexit, period, will be the end.

• Paris and Berlin Ready ‘Plan B’ For Life After Brexit (FT)

European leaders have stepped-up secret discussions about a future union without Britain, drawing-up a “plan-B” focused on closer security and defence co-operation in the event of a UK vote to leave the EU. At several overlapping meetings in recent weeks — in Hanover, Rome and Brussels — EU leaders and their most trusted aides have discussed how to mount a common response to Brexit, which would be the bloc’s biggest setback in its 60-year history. More than a dozen politicians and officials involved at various levels have sketched out to the Financial Times the ideas for concerted action to “double down on the irreversibility of our union” — as well as the many internal divisions that stand in their way.

Rather than attempt a sudden lurch to integrate the eurozone, Chancellor Angela Merkel and President François Hollande are instead eyeing a push to deepen security and defence co-operation, a less contentious initiative that has appeal beyond the 19-member euro area. Foremost is the challenge of managing expected financial and political turmoil in the aftermath of a Brexit vote. Beyond the first statements to reassure markets, officials expect a special gathering of EU leaders — without Britain — to discuss the bloc’s response. A summit of all 28 leaders is already scheduled for June 28-29. “Everybody will say: ‘We’re sorry, this is a historical disaster but now we have to move on.’ And then they will say ‘OK, David [Cameron], goodbye, because now we have to meet as 27 leaders,’” said one senior diplomat intimately involved in the planning.

“That will be rather a decisive moment: will the 27 find the energy, the convergence of views to define a common agenda or whether it will be only the 19?” French officials are wary of Brexit contagion spreading to other member states and the lift it would provide to anti-EU insurgents like the National Front’s Marine Le Pen. They are determined to send a tough and punitive message to show divorce will be costly for Britain. “Playing down or minimising the consequences would put Europe at risk,” said one senior French official. “The principle of consequences is very important — to protect Europe.” Another leading European politician central to the Plan B process said: “Making Brexit a success will be the end of the EU. It cannot happen.”

There are a few smart people working at the IMF. But they don’t make policy. Neoliberals do.

• Neoliberalism Increases Inequality and Stunts Economic Growth: IMF (Ind.)

Key parts of neoliberal economic policy have increased inequality and risk stunting economic growth across the globe, economists at the IMF have warned. Neoliberalism – the dominant economic ideology since the 1980s – tends to advocate a free market approach to policymaking: promoting measures such as privatisation, public spending cuts, and deregulation. It is generally antipathetic to the public sector and believes the private sector should play a greater role in the economy. The ideology was initially championed by Margaret Thatcher and Ronald Reagan in Britain and America, but was ultimately also adopted by centre-left parties worldwide, under “third way” figures like Tony Blair.

The approach has long been the target of criticism from the radical left and parts of the reactionary right – but has been endorsed as common sense by centrist parties across the world for decades. Now a paper published in June 2016’s issue of the IMF’s Finance and Development journal warns that, after nearly forty years of neoliberalism, the approach is jeopardising the future of the world economy. “Instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardising durable expansion,” the senior IMF economists who drew up the paper said. The authors say that while the liberalisation of trade has helped lift people out of poverty in the developed world and some privatisations have raised efficiency, other aspects of the policy platform had seriously misfired.

“There are aspects of the neoliberal agenda that have not delivered as expected,” they said, focusing specifically on austerity and the freedom of capital to move across borders. “The benefits in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries. “The costs in terms of increased inequality are prominent. Such costs epitomize the trade-off between the growth and equity effects of some aspects of the neoliberal agenda. “Increased inequality in turn hurts the level and sustainability of growth. Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects.”

They go on to say that throwing open national borders to multinational corporations has had “uncertain” growth benefits but quite clear costs – due to “increased economic volatility and crisis frequency” which they say is more evident under neoliberalism. On the issue of austerity, the authors say there is strong evidence that there is no reason for countries like Britain to inflict austerity on themselves. “Austerity policies not only generate substantial welfare costs due to supply-side channels, they also hurt demand – and thus worsen employment and unemployment,” they say. “In sum, the benefits of some policies that are an important part of the neoliberal agenda appear to have been somewhat overplayed.”

“During the Middle Ages, avarice had been considered to be among the most mortal of the seven deadly sins..”

• How the Deadly Sin of Avarice Was Rehabilitated as Self Interest (Evon.)

In the aftermath of the stock market crash of 1987, the New York Times headlined an editorial “Ban Greed? No: Harness It,” It continued: “Perhaps the most important idea here is the need to distinguish between motive and consequence. Derivative securities attract the greedy the way raw meat attracts piranhas. But so what? Private greed can lead to public good. The sensible goal for securities regulation is to channel selfish behavior, not thwart it.” The Times, surely unwittingly, was channeling the 18th century philosopher David Hume: “Political writers have established it as a maxim, that in contriving any system of government . . . every man ought to be supposed to be a knave and to have no other end, in all his actions, than his private interest. By this interest we must govern him, and, by means of it, make him, notwithstanding his insatiable avarice and ambition, cooperate to public good.”

The idea that base motives could be harnessed for the public good is what I term economic alchemy. And in Hume’s time it was definitely a new way of thinking about how society could be governed. During the Middle Ages, avarice had been considered to be among the most mortal of the seven deadly sins, a view that became more widespread with the expansion of commercial activity after the twelfth century. So it is surprising that self-interest would eventually be accepted a respectable motive, and even more surprising that this change owed little to the rise of economics, at least at first. How this came about, you will see, is a remarkable story, one that is finally running its course in light of mounting evidence not only that people are not really all that knavish, but also that treating citizens as if they were knaves may lead them to act is if they really were knaves! But I am getting ahead of the story.

It all began in the sixteenth century with Niccolò Machiavelli. “Anyone who would found a republic and order its laws” he wrote in his Discourses, “must assume that all men are wicked [and] . . . never act well except through necessity . . . It is said that hunger and poverty make them industrious, laws make them good.” Hume, it seems was channeling Machiavelli! It was the shadow of war and disorder that made self-interest an acceptable basis of good government. During the seventeenth century, wars accounted for a larger share of European mortality than in any century for which we have records, including what Raymond Aron called “the century of total war,” which happily is now finished.

Writing after a decade of warfare between English parliamentarians and royalists, Hobbes (in 1651) sought to determine “the Passions that encline men to Peace” and found them in “Feare of Death; Desire of such things as are necessary to commodious living; and a Hope by their Industry to obtain them.” Knaves might be preferable to saints or at least likely to be more harmless. The year before Adam Smith wrote in his Wealth of Nations (1776) about how the self-interest of the butcher, the brewer, and the baker would put our dinner on the table, James Boswell’s Dr. Johnson gave Homo economicus a different endorsement: “There are few ways in which a man can be more innocently employed than in getting money.”

“[One] great myth we’re seeing play out is that of Obama as some kind of peaceful guy who’s trying to get rid of nuclear weapons. He’s the biggest nuclear warrior there is. He’s committed us to a ruinous course of spending a trillion dollars on more nuclear weapons. Somehow, people live in this fantasy that because he gives vague news conferences and speeches and feel-good photo-ops that somehow that’s attached to actual policy. It isn’t.”

• Silencing the United States as It Prepares for War (Pilger)

Returning to the United States in an election year, I am struck by the silence. I have covered four presidential campaigns, starting with 1968; I was with Robert Kennedy when he was shot and I saw his assassin, preparing to kill him. It was a baptism in the American way, along with the salivating violence of the Chicago police at the Democratic Party’s rigged convention. The great counter revolution had begun. The first to be assassinated that year, Martin Luther King, had dared link the suffering of African-Americans and the people of Vietnam. When Janis Joplin sang, “Freedom’s just another word for nothing left to lose”, she spoke perhaps unconsciously for millions of America’s victims in faraway places.

“We lost 58,000 young soldiers in Vietnam, and they died defending your freedom. Now don’t you forget it.” So said a National Parks Service guide as I filmed last week at the Lincoln Memorial in Washington. He was addressing a school party of young teenagers in bright orange T-shirts. As if by rote, he inverted the truth about Vietnam into an unchallenged lie. The millions of Vietnamese who died and were maimed and poisoned and dispossessed by the American invasion have no historical place in young minds, not to mention the estimated 60,000 veterans who took their own lives. A friend of mine, a marine who became a paraplegic in Vietnam, was often asked, “Which side did you fight on?” A few years ago, I attended a popular exhibition called “The Price of Freedom” at the venerable Smithsonian Institution in Washington.

The lines of ordinary people, mostly children shuffling through a Santa’s grotto of revisionism, were dispensed a variety of lies: the atomic bombing of Hiroshima and Nagasaki saved “a million lives”; Iraq was “liberated [by] air strikes of unprecedented precision”. The theme was unerringly heroic: only Americans pay the price of freedom. The 2016 election campaign is remarkable not only for the rise of Donald Trump and Bernie Sanders but also for the resilience of an enduring silence about a murderous self-bestowed divinity. A third of the members of the United Nations have felt Washington’s boot, overturning governments, subverting democracy, imposing blockades and boycotts. Most of the presidents responsible have been liberal – Truman, Kennedy, Johnson, Carter, Clinton, Obama.

The breathtaking record of perfidy is so mutated in the public mind, wrote the late Harold Pinter, that it “never happened …Nothing ever happened. Even while it was happening it wasn’t happening. It didn’t matter. It was of no interest. It didn’t matter … “. Pinter expressed a mock admiration for what he called “a quite clinical manipulation of power worldwide while masquerading as a force for universal good. It’s a brilliant, even witty, highly successful act of hypnosis.”

Is Russia the only party to turn to?

• ISIS Advance Traps 165,000 Syrians at Closed Turkish Border (HRW)

There are two walls on the Turkey-Syria border. One is manned by Turkish border guards enforcing Turkey’s 15 month-old border closure who, according to witnesses, have at times shot at and assaulted Syrian asylum seekers as they try to reach safety in Turkey – abuses strongly denied by the Turkish government. The other is a wall of silence by the rest of the world, including the United Nations, which has chosen to turn a blind eye to Turkey’s breach of international law which prohibits forcing people back to places, including by rejecting them at the border, where their lives or freedom would be threatened. Both walls are trapping 165,000 displaced Syrians now scattered in overcrowded informal settlements and fields just south of Turkey’s Öncupınar/Bab al-Salameh border crossing and in and around the nearby Syrian town of Azaz.

In April, 30,000 of them fled ISIS advances on about 10 informal displacement camps to the east of Azaz, which came under ISIS attack, and one of which has since been hit by an airstrike that killed at least 20 people and injured at least 37 more. Turkish border guards shot at civilians fleeing ISIS and approaching the border. Now aid agencies operating in the area say that between May 24 and 27, another 45,000 fled a new ISIS assault on the area east of Azaz and are now stuck in and around Azaz too. Aid agencies say there is no question all 165,000 would seek asylum in Turkey if the border were open to them.

(Re-)Covering Oil and War

Jan 152016

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

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

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

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

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

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

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

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

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

The Real Price of Oil Is Far Lower Than You Realize

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

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

Zero Hedge does one better and looks at 1998 dollars:

The ‘Real’ Price Of Oil Is Below $17

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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