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China’s Slow-Motion Sleight Of Hand Shatters

Jan 042016
 
 January 4, 2016  Posted by at 4:27 pm Finance Tagged with: , , , , , , ,  2 Responses »


Marion Post Wolcott Natchez, Mississippi, grocery window 1940

The Chinese stock markets broke through 2 circuit breakers today, breakers that were introduced only a few months ago in response to the market selloff, triggered by a surprise yuan devaluation, in August. The first breaker, at -5%, forced a 15-minute trading halt. The second one, at -7%, halted trading for the rest of the day.

For many people, today’s bust can’t have been a huge surprise, because it’s been known for some time that a ban on stock sales by parties holding a 5% or larger stake in a company, is set to expire on Friday. Beijing may panic again before that date, but it can’t force stakeholders to hold on to large portfolios forever either.

Xi and his crew should have stayed out of the markets from the start, but that’s not how they see the world. They still think like apparatchicks, and don’t understand that markets are opposed, at a 180º angle, to top down control. You can either have a market, or you can have central control.

They pumped up the housing market for all they could, and when that bubble blew they tricked their people into buying stocks. And now that one’s fixing to die too, and that didn’t take nearly as long as the housing bubble. The central control team is frantically looking for the next carnival attraction, but it won’t be easy.

They should have stayed out of all markets. Just like western central banks. All interference by governments and central banks can only make things worse, a fact at best temporarily hidden by the distortions they force upon markets.

And we shouldn’t forget that expectations for China as the world’s economic savior determined western central bank ‘thinking’ to a large extent over the past decade. Like so many others, central bankers too are incapable of spotting a Ponzi when it’s staring them in the face.

Now the Chinese bubble is bursting, and set to spill over into and over the global economy with dire consequences, we are all exposed to that much more than was ever necessary. All the PBoC, Yellen, Kuroda and Draghi managed to accomplish was a dran-out illusion, a slow-motion sleight of hand.

Here’s something I was writing over the weekend, prior to today’s market action:

China underlies all problems the world faces economically today. Since at least 2008, the global economy has been a one-dimensional one-way street, in which all hope was focused on China. Western companies and stock traders were so confident that China would lift the entire planet out of its recessionary doldrums, they leveraged themselves up the wazoo to bet on a China-based recovery. It was the only game in town, and it was merrily facilitated by central banks.

The People’s Bank of China threw some $25 trillion at the illusion, the Fed, ECB and BoJ combined for probably as much again. One way of looking at it is that if you weren’t sure on how bad the recession really was, now you know the numbers.

But today China is close to entering its own recession, whether Beijing will admit it or not. The official GDP growth goal of 6.5% looks downright silly when you see this graph that Charlene Chu sent to BI:


CEIC and the National Bureau of Statistics; Charlene Chu, Autonomous Research

From the article:

Secondary industry comprises about 40-45% of GDP. [..] In China, GDP is classified into three industries, primary (agriculture), secondary (manufacturing and construction), and tertiary (services). [..]

This slowdown in the secondary industry is part of China’s intentional shift toward an economy focused on services and consumer consumption rather than manufacturing.

The first line there is educative, the second is nonsense. Manufacturing in China is plunging because ‘we’ don’t buy their overcapacity and overproduction any longer. And neither do the Chinese themselves. Primary industry, agriculture, may grow a little bit, but certainly not much.

Tertiary industry, services, may also grow a bit, but Beijing can’t just flip a switch and get people to buy services on a scale that can make up for the decline in manufacturing. Neither can it retrain tens of millions of workers for jobs in that illusive services sector, let alone on short notice.

This decline will take years for the Chinese economy to absorb, since so much of it is based on overleveraged overcapacity and overproduction. The spectre of massive job losses hangs over the entire ‘adjustment’ process, both in China itself and in countries that -used to- supply it with commodities. Mass unemployment in China in turn raises the spectre of severe social unrest.

As I said in 2016 Is An Easy Year To Predict, China has got to be the biggest story going forward (rather than oil, for instance), and it would have been already, to a much larger extent than it has, if there were less denial involved. And less debt.

Like the west, China will have to deleverage its enormous debt burden before it can even start thinking of rebuilding its economy. Which is precisely what they all seek to deny, loudly and boisterously, not only as if a recovery were feasible without dealing with the debt, but even as if more debt could mean more recovery.

This debt deleveraging will involve such stupendous amounts of -largely virtual- money that the situation, the bottom, from which rebuilding will need to take place will be one at which today’s societies will be hardly recognizable anymore.

Debt deleveraging comes with deflation. Spending will plummet, unemployment will shoot up, production will grind to a halt. Power will shift from established political and economic parties to others.

Obviously, this will not be a smooth transition. The clarions of war sound in the distance already. What is crucial to realize is that none of it can be prevented, other than perhaps the warfare; the economic parts of the play must must be staged. All we can do is to make it as bearable as possible.

The people on the streets, as always, will bear the brunt of the downfall. We only need to look at Greece today to get a pretty good idea of how these things play out.

It won’t be all straight down from here, but the trend will be crystal clear. It didn’t start all of a sudden today, but China’s double circuit breaker is a useful sign, if not an outright red flag. One thing’s for sure: we’ll make the history books.

CON21

Dec 122015
 
 December 12, 2015  Posted by at 4:23 pm Finance Tagged with: , , , , , , ,  21 Responses »


Nickolay Lamm Jefferson Memorial under 25 feet of water

French Foreign Minister Laurent Fabius just announced, in Paris, a “legally binding agreement” that no-one has agreed the financing for. We can hear a couple thousand lawyers across the globe snicker. But it’s all the COP21 ‘oh-so-important’ climate conference managed to come up with. No surprises there. They couldn’t make the 2ºC former goal stick, so they go for 1.5ºC this time. All on red, double or nothing. Because who really cares among the leadership, just as long as the ‘targets’ are far enough away that they can’t be held accountable.

I’ve been writing the following through the past days, and wondering if I should post it, because I know so many readers of the Automatic Earth have so much emotion invested in these things, and they’re good and fine emotions. But some things must still be said regardless of consequences. Precisely because of that kind of reaction. No contract is legally binding if there’s no agreement on payment. Nobody has a legal claim on your home without it being specified that, if, when and how they’re going to pay for it.

I understand some people may get offended by some of the things I have to say about this – though not all for the same reasons either-, but please try and understand that and why the entire CON21 conference has offended me. After watching the horse and pony show just now, I thought I’d let ‘er rip:

I don’t know what makes me lose faith in mankind faster, the way we destroy our habitat through wanton random killing of everything alive, plants, animals and people, through pollution and climate change and blood-thirsty sheer stupidity, or if it is the way these things are being ‘protested’.

I’m certainly not a climate denier or anything like that, though I do think there are questions people gloss over very easily. And one of those questions has to be that of priorities. Is there anyone who has thought over whether the COP21 stage in Paris is the right one to target in protest, whatever shape it takes? Is there anyone who doesn’t think the ‘leaders’ are laughing out loud in -plush, fine wine and gourmet filled- private about the protests?

Protesters and other well-intended folk, from what I can see, are falling into the trap set for them: they are the frame to the picture in a political photo-op. They allow the ‘leaders’ to emanate the image that yes, there are protests and disagreements as everyone would expect, but that’s just a sign that people’s interests are properly presented, so all’s well.

COP21 is not a major event, that’s only what politicians and media make of it. In reality, it’s a mere showcase in which the protesters have been co-opted. They’re not in the director’s chair, they’re not even actors, they’re just extras.

I fully agree, and more than fully sympathize, with the notion of saving this planet before it’s too late. But I wouldn’t want to rely on a bunch of sociopaths to make it happen. There are children drowning every single day in the sea between Turkey and Greece, and the very same world leaders who are gathered in Paris are letting that happen. They have for a long time, without lifting a finger. And they’ve done worse -if that is possible-.

The only thing standing between the refugees and even greater and more lethal carnage are a wide, even confusingly so, array of volunteers, and the people of the Greek coastguard, who by now must be so traumatized from picking up little wide-eyed lifeless bodies from the water and the beaches, they’ll live the rest of their lives through sleepless nightmares.

Neither Obama nor Merkel nor Hollande will have those same nightmares. And let’s be honest, will you? You weren’t even there. And still, you guys are targeting a conference in Paris on climate change that features the exact same leaders that let babies drown with impunity. Drowned babies, climate change and warfare, these things all come from the same source. And you’re appealing to that very same source to stop climate change.

What on earth makes you think the leaders you appeal to would care about the climate when they can’t be bothered for a minute with people, and the conditions they live in, if they’re lucky enough to live at all? Why are you not instead protesting the preventable drownings of innocent children? Or is it that you think the climate is more important than human life? That perhaps one is a bigger issue than the other?

Moreover, the very same leaders that you for some reason expect to save the planet -which they won’t- don’t just let babies drown, they also, in the lands the refugees are fleeing, kill children and their parents on a daily basis with bombs and drones. Dozens, hundreds, if not thousands, every single day. That’s how much they care for a ‘healthy’ planet (how about we discuss what that actually is?).

And in the hallways of the CON21 conference they’ve been actively discussing plans to do more of the same, more killing, more war. Save the world, bombs away! That’s their view of the planet. And they’re supposed to save ‘the climate’?

There are a number of reasons why the CON21 conference will not move us one inch towards saving this planet. One of the biggest is outlined in just a few quoted words from a senior member of India’s delegation -nothing new, but a useful reminder.

India Opposes Deal To Phase Out Fossil Fuels By 2100

India would reject a deal to combat climate change that includes a pledge for the world to wean itself off fossil fuels this century, a senior official said, underlying the difficulties countries face in agreeing how to slow global warming.

India, the world’s third largest carbon emitter, is dependent on coal for most of its energy needs, and despite a pledge to expand solar and wind power has said its economy is too small and its people too poor to end use of the fossil fuel anytime soon. “It’s problematic for us to make that commitment at this point in time. It’s certainly a stumbling block (to a deal),” Ajay Mathur, a senior member of India’s negotiating team for Paris, told Reuters in an interview this week.

“The entire prosperity of the world has been built on cheap energy. And suddenly we are being forced into higher cost energy. That’s grossly unfair,” he said.

This means the ‘poorer’ countries, -by no means just India; China has 155 more coal plants in the pipeline despite their pollution levels moving ‘beyond index’-, the poorer counties won’t volunteer to lower their emissions unless richer nations lower theirs even a lot more. US per capita emissions are over 10 times higher than India’s, those of the EU six times. Ergo: Step 1: lower US emissions by 90%. It also means that richer nations won’t do this, because it would kill their economies.

Which, in case you haven’t noticed, are already doing very poorly, much worse than the media -let alone politicians- will tell you. In fact, the chances that the richer countries will ‘recover’ from the effects of their debt binge are about on par with those of renewable energy sources becoming cheaper than fossil fuels -barring subsidies. If only because producing them depends entirely on those same fossil fuels. All the rest of what you hear is just con.

The people of India obviously know it, and you might as well. It’s going to cost many trillions of dollars to replace even a halfway substantial part of our fossil energy use with renewables, and we already don’t have that kind of money today. We will have much less tomorrow.

Besides, despite all the talk of Big Oil turning into Big Energy, Shell et al are not energy companies, they’re oil -and gas- companies, and they’ll defend their (near) monopolies tooth and claw. Especially now that their market caps are sinking like so many stones. They have no money left to invest in anything, let alone an industry that’s not theirs. They lost some $250 billion in ‘value’ this week alone. They’re getting killed.

In the same vein, China can’t close more than a token few of its most polluting plants. China’s getting killed economically. And for all nations and corporations there’s one principle that trumps all: competitive advantage. If going ‘green’ means losing that, or even some of it, forget it. We won’t volunteer to go green if it makes us less rich.

And who do you think represents big oil -and the bankers that finance them- more than anyone else? Right, your same leaders again, who make you pay for the by now very extensive and expensive security details that keep them from having to face you. Just like they’re planning to make you pay dearly for the illusion of a world running on renewables.

Because that’s where the profit is: in the illusion.

Whatever makes most money is what will drive people’s, corporations’, and nations’ actions going forward. Saving energy and/or substituting energy sources is not what makes most money, and it will therefore not happen. Not on any meaningful scale, that is.

There will be attempts to force people to pay through the nose to soothe their consciences -which will be very profitable for those on the receiving end-, but people’s ability to pay for this is shrinking fast, so that won’t go anywhere.

The only thing that could help save this planet is for all westerners to reduce their energy use by 90%+, but, though it is theoretically and technically feasible, it won’t happen because the majority of us won’t give up even a part of our wealth, and the powers that be in today’s economies refuse to see their profits (re: power) and those of their backers go up in -ever hotter- air.

The current economic model depends on our profligate use of energy. A new economic model, then, you say? Good luck with that. The current one has left all political power with those who profit most from it. And besides, that’s a whole other problem, and a whole other issue to protest.

If you’re serious about wanting to save the planet, and I have no doubt you are, then I think you need to refocus. COP21 is not your thing, it’s not your stage. It’s your leaders’ stage, and your leaders are not your friends. They don’t even represent you either. The decisions that you want made will not be made there.

There will be lofty declarations loaded with targets for 2030, 2050 and 2100, and none of it will have any real value. Because none of the ‘leaders’ will be around to be held accountable when any of those dates will come to pass.

An imploding global economy may be your best shot at lowering emissions. But then again, it will lead to people burning anything they can get their hands on just to keep warm. Not a pretty prospect either. To be successful, we would need to abandon our current political and economic organizational structures, national governments and ‘up’, which select for the sociopaths that gather behind their heavy security details to decide on your future while gloating with glee in their power positions.

Better still, we should make it impossible for any single one of them to ever be elected to any important position ever again. For now, though, our political systems don’t select for those who care most for the world, or its children. We select for those who promise us the most wealth. And we’re willing to turn a blind eye to very many things to acquire that wealth and hold on to it.

The entire conference is just an exercise in “feel good”, on all sides. Is there anyone out there who really thinks the likes of Bill Gates and Richard Branson will do anything at all to stop this world from burning to the ground? You have any idea what their ecological footprints are?

Sometimes I think it’s the very ignorance of the protesting side that dooms this planet. There’s a huge profit-seeking sociopathic part of the equation, which has caused the problems in the first place, and there’s no serious counterweight in sight.

Having these oversized walking talking ego’s sign petitions and declarations they know they will never have to live up to is completely useless. Branson will still fly his planes, Gates will keep running his ultra-cooled server parks, and Obama and Merkel will make sure their economies churn out growth ahead of anything else. Every single country still demands growth. Whatever gains you make in terms of lower emissions will be nullified by that growth.

And in the hallways, ‘smart’ entrepreneurs stand ready to pocket a ‘smart’ profit from the alleged switch to clean energy. At the cost of you, the taxpayer. And you believe them, because you want to, and because it makes you feel good. And you don’t have the knowledge available to dispute their claims (hint: try thermodynamics).

You’re seeking the cooperation of people who let babies drown and who incessantly bomb the countries these babies and their families were seeking to escape.

I’m sorry, I know a lot of you have a lot of emotion invested in this, and it’s a good emotion, and you’re thinking this conference is really important and all, and our ‘last chance’ to save the planet. But you’ve been had, it’s as simple as that. And co-opted. And conned.

And it’s not the first time, either. All these conferences go the same way. To halt the demise of the planet, you can’t rely on the same people who cause it. Never works.

Debt Rattle December 7 2015

Dec 072015
 
 December 7, 2015  Posted by at 9:48 am Finance Tagged with: , , , , , , , , ,  8 Responses »


DPC Cuyahoga River, Lift Bridge and Superior Avenue viaduct, Cleveland, Ohio 1912

• Emerging Market Debt Sales Are Down 98% (BBG)
• BIS Warns “Uneasy Calm” In Global Markets May Be Shattered By Fed Hike (ZH)
• BIS Argues For Tighter Monetary Policy In Spite Of ‘Uneasy Calm’ (FT)
• Corporate Bond Market Hit By Rates Fears (FT)
• Junk Bonds Set For First Annual Loss Since Credit Crisis (WSJ)
• Japan’s Current Recession To Prove An Illusion (FT)
• Last Gasps of a Dying Bull Market – And Economy (Hickey)
• As Oil Keeps Falling, Nobody Is Blinking (WSJ)
• Gradual Erosion Of The EU Will Leave A Glorified Free-Trade Zone (Münchau)
• China’s Iron Ore, Steel Demand To Fall Further In 2016 (AFR)
• China’s Biggest Broker CITIC Can’t Locate Two Of Its Top Execs (Reuters)
• Falling Cattle Prices Put The Hurt On Kansas Ranchers, Feedlots (WE)
• Prison Labor In USA Borders On Slavery (AHT)
• German States Slam New Refugee Boss For ‘Slow Work’ (DPA)
• US Alliance-Supported Groups In Syria Turn Guns On Each Other (Reuters)
• Iraq Could Ask Russia for Help After ‘Invasion’ by Turkish Forces (Sputnik)

Maxed out.

• Emerging Market Debt Sales Are Down 98% (BBG)

The commodity-price slump and the slowdown in China’s economy are crippling developing nations’ ability to borrow abroad, even as international debt sales from advanced nations remain at a five-year high. Issuance by emerging-market borrowers slumped to a net $1.5 billion in the third quarter, a drop of 98% from the second quarter, according to the Bank for International Settlements. That was the biggest downtrend since the 2008 financial crisis and helped to reduce global sales of securities by almost 80%, a BIS report said. Emerging-market assets tumbled in the third quarter, led by the biggest plunge in commodity prices since 2008 and China’s surprise devaluation of the yuan.

The average yield on developing-nation corporate bonds posted the biggest increase in four years, stocks lost a combined $4.2 trillion and a gauge of currencies slid 8.3% against the dollar. Sanctions on Russian entities and political turmoil in Brazil and Turkey also affected sales by companies in those countries. “Weak debt-securities issuance in the third quarter can only be partially explained by seasonality,” the latest quarterly review from the BIS said. “Growing concerns over emerging-market fundamentals, falling commodity prices and rising debt burdens probably played a role. Additionally, an increasing focus on local markets may also have been a factor.”

One side effect of the decline in international-debt sales was the emergence of the euro as a borrowing currency. The net issuance of securities in the shared currency by non-financial companies was $23 billion in the three months through Sept. 30, while dollar-denominated debt accounted for $22 billion. The main reason for that was a jump in euro-bond offerings from emerging markets, where the share of the currency went up to 62% from 18% in the second quarter. Borrowers from advanced economies issued a net $22 billion in debt, $100 billion less than in the preceding three months. Still, cumulative figures remained the highest since 2010 because of the increases in the first half of the year.

Read more …

$3.3 trillion in non-bank EM debt. Hike into that.

• BIS Warns “Uneasy Calm” In Global Markets May Be Shattered By Fed Hike (ZH)

[..] the nightmare situation is that you accumulate an enormous amount of foreign currency liabilities only to see your currency crash just as market demand for EM assets dries up. Drilling down further, the bank notes that of the $9.8 trillion in non-bank, USD dollar debt outstanding, more than a third ($3.3 trillion) is concentrated in EM. “Since high overall dollar debt can leave borrowers vulnerable to rising dollar yields and dollar appreciation, dollar debt aggregates bear watching,” Robert Neil McCauley, Patrick McGuire and Vladyslav Sushko warn. The right pane here gives you an idea of how quickly borrowers’ ability to service that debt is deteriorating.

“Any further appreciation of the dollar would additionally test the debt servicing capacity of EME corporates, many of which have borrowed heavily in US dollars in recent years,” Borio reiterates, ahead of the December Fed meeting at which the FOMC is set to hike just to prove it’s actually still possible. All in all, central banks have managed to preserve an “uneasy calm,” Borio concludes, but “very much in evidence, once more, has been the perennial contrast between the hectic rhythm of markets and the slow motion of the deeper economic forces that really matter.” In other words: the market is increasingly disconnected from fundamentals and the rather violent reaction to a not-as-dovish-as-expected Mario Draghi proves that everyone still “hangs on the words and deeds” of central banks.

In the end, Borio is telling the same story he’s been telling for over a year now. Namely that the myth of central banker omnipotence is just that, a myth, and given the abysmal economic backdrop, the market risks a severe snapback if and when that myth is exposed. One of the pressure points is EM, where sovereigns may have avoided “original sin” (borrowing heavily in FX), but corporates have not. With $3.3 trillion in outstanding USD debt, a rate hike tantrum could spell disaster especially given the fact that the long-term, the fundamental outlook for EM continues to darken. Borio’s summary: “At some point, [this] will [all] have to be resolved. Markets can remain calm for much longer than we think. Until they no longer can.”

Read more …

“Markets can remain calm for much longer than we think. Until they no longer can.”

• BIS Argues For Tighter Monetary Policy In Spite Of ‘Uneasy Calm’ (FT)

Central banks must not let market volatility halt their plans to retreat from crisis-fighting monetary policies, the Bank for International Settlements has warned ahead of the expected first rate rise by the US Federal Reserve in nine years. While the current “uneasy calm” in financial markets threatened to blow up into bouts of financial turmoil, with clear tensions between markets’ behaviour and underlying economic conditions, such a threat should not dissuade monetary policymakers from taking the first steps towards tighter monetary policy, the BIS argued in its latest quarterly review. “At some point, [the tension] will have to be resolved,” said Claudio Borio, head of the BIS’s monetary and economic department. “Markets can remain calm for much longer than we think. Until they no longer can.”

The Federal Open Market Committee, the Fed’s rate-setting board, is set to vote on December 16. Recent strong jobs figures have raised the likelihood of an increase to the federal funds rate. An earlier shift towards the exit by the US central bank sparked a “taper tantrum” in financial markets — a reference to the Fed’s decision to announce that it was tapering, or slowing, the pace of its asset purchases made under its quantitative easing package. The Fed resisted raising rates this year in part because of market turmoil over the summer. Going into this month’s meeting, conditions have been milder — although the BIS noted this calm had been uneasy. “Very much in evidence, once more, has been the perennial contrast between the hectic rhythm of markets and the slow motion of the deeper economic forces that really matter,” Mr Borio said. The BIS has long believed that what it describes as “unthinkably” low interest rates are fuelling instability in global financial markets.

Read more …

“People are going to be carried out on stretchers..”

• Corporate Bond Market Hit By Rates Fears (FT)

Investor alarm at the riskier end of the US corporate bond market is mounting, with borrowing costs for the lowest-rated companies climbing to their highest level since the financial crisis as the Federal Reserve prepares to raise interest rates for the first time in nearly a decade. While the US stock market has recovered after a bumpy autumn and is relaxed about the prospect of tighter monetary policy, the corporate bond market has become increasingly jittery. Typically, when bond and stock markets point in different directions, a drop in the former augurs a correction in the latter — as happened this summer.

Concerns over the possible impact of a US interest rate increase on more vulnerable borrowers has been exacerbated by rising indebtedness and shrinking revenues among companies. This has fuelled concerns that the profitable “credit cycle” that has reigned since the financial crisis receded is coming to an end. “People are going to be carried out on stretchers,” said Laird Landmann, a senior bond fund manager at TCW, a Californian asset manager. “When earnings are coming down, leverage is high and interest rates are going up. It’s not good.” Safer corporate bonds judged “investment grade” by Standard & Poor’s, Moody’s or Fitch have been reasonably steady, with average yields dipping slightly again after a faltering start to November.

But debt rated below that threshold has had a bad autumn, particularly debt issued by companies in the struggling energy industry. UBS estimated in a note last week that as much as $1tn of US corporate bonds and loans rated below investment grade could be in the danger zone as borrowing conditions become tougher just as many face repayments. Much of the pain is in the energy sector but the Swiss bank argues the problems are wider than this. “It is our humble belief that the consensus at the Fed does not fully understand the magnitude of the problems in corporate credit markets and the unintended consequences of their policy actions,” wrote Matthew Mish, a UBS strategist.

Read more …

Debt debt debt wherever you look.

• Junk Bonds Set For First Annual Loss Since Credit Crisis (WSJ)

Junk bonds are headed for their first annual loss since the credit crisis, reflecting concerns among investors that a six-year U.S. economic expansion and accompanying stock-market boom are on borrowed time. U.S. corporate high-yield bonds are down 2% this year, including interest payments, according to Barclays data. Junk bonds have posted only four annual losses on a total-return basis since 1995. The declines are worrying Wall Street because junk-market declines have a reputation for foreshadowing economic downturns. Junk bonds are lagging behind U.S. stocks following a debt selloff in the past month. The S&P 500 has returned 3.6% on the year, including dividends.

Adding to the worries are signs that the selling has spread beyond firms hit by the energy bust to encompass much of the lowest-rated debt across the market, potentially snarling some takeovers and making it difficult for all kinds of companies to borrow new funds. In the fourth quarter of the year, there has been a “meaningful disconnect between equities and high yield,” said George Bory, head of credit strategy at Wells Fargo Securities. “It’s a warning sign about the potential challenges in the economy.” High-yield bonds pay high interest rates, typically above 7%, because the heavily indebted companies that issue them are more likely to default.

Investors flock to the debt in boom times when other securities pay minimal interest and often dump it just as quickly when they get nervous, making junk bonds a bellwether for risk appetite. Defaults are rising after several years near historically low levels, as new bond sales stall and companies with below-investment-grade credit ratings struggle to refinance their debts. The junk-bond default rate rose to 2.6% from 2.1% this year and will likely jump to 4.6% in 2016, breaching the 30-year average of 3.8% for the first time since 2009, said New York University Finance Professor Edward Altman, inventor of the most commonly used default-prediction formula.

Read more …

Wow. Abe turns into Catweazle. All about magic.

• Japan’s Current Recession To Prove An Illusion (FT)

Japan’s “recession” will soon be exposed as an illusion according to the country’s economy minister, Akira Amari, who on Sunday predicted data revisions this week will turn contraction into growth. Initial figures just three weeks ago showed the economy shrank at an annualised 0.8% in the third quarter, meeting the technical definition of a recession, and prompting gloom about the outlook. But Mr Amari said he expected a revision from 0.8% to zero this week. That would confirm Japan’s economy is not in a downward spiral, despite sluggish consumption and exports, but it would raise fresh questions about the unreliable early growth data. “I expect growth to turn positive from here,” said Mr Amari, an influential figure in the government of prime minister Shinzo Abe. “I think we’re on a path of steady recovery.”

Expectations for an upward revision have grown since the publication of finance ministry data last week showing a third-quarter rise in corporate investment. That was the opposite of the initial gross domestic product data, which showed investment falling. Analysts at Citi in Tokyo expect an upward revision to show growth was flat while Goldman Sachs expects a revision to plus 0.2% for the quarter. Mr Abe wants companies to invest more at home and is planning to encourage them by cutting corporation tax from 32.11% to 29.77% next year. He is also pushing them to raise wages. Mr Abe’s goal is to turn the surge in corporate profits caused by the weak yen into greater demand, in order to sustain economic growth and drive inflation towards the Bank of Japan’s goal of 2%.

One problem is the large number of Japanese companies that make accounting losses and therefore pay no corporation tax anyway. On Sunday, Mr Amari hinted at new measures to push them towards investment. “You have to pay fixed asset taxes regardless of losses,” he said. “I’d like to bring in fixed asset tax relief for companies making new investments, which is something we’ve never done before.”

Read more …

“..in the U.S., the economy appears relatively healthier only because the rest of the world is so awful.”

• Last Gasps of a Dying Bull Market – And Economy (Hickey)

Deteriorating market breadth and herding into an ever-narrower number of stocks is classic market top behavior. Currently, there are many other warning signs that are also being ignored. The merger mania (prior tops occurred in 2000 and 2007), the stock buyback frenzy (after the record amount of buybacks in 2007 buybacks were less than one-sixth of that level at the bottom in 2009), the year-over-year declines in corporate sales (-4% in Q3 and down every quarter this year) and falling earnings for the entire S&P 500 index, the plunges this year in the high-yield (junk bond) and leveraged loan markets, the topping and rolling over (the unwind) of the massive (record) level of stock margin debt… and I could go on.

It was very lonely as a bear at the tops in 2000 and 2007. I was just a teenager in 1972 so I was not an active investor, but just a few days prior to the early 1973 January top, Barron ‘s featured a story titled: “Not a Bear Among Them.” By “them” Barron ‘s meant institutional investors. I do vividly remember my Dad listening to the stock market wrap-ups on the kitchen radio nearly every night in 1973-74. It seemed to me back then that the stock market only went in one direction — and that was DOWN. The global economy is in disarray. It’s the legacy of the central planners at the central banks. China’s economy has been rapidly slowing despite all sorts of attempts by the government to prop it up (including extreme actions to hold up stocks). China’s economic slowdown has cratered commodity prices to multi-year lows and helped drive oil down to around $40 a barrel.

All the “commodity country” economies (and others) that relied on exports to China are suffering. Brazil is now in a deep recession. Last month Taiwan officially entered recession driven by double-digit declines (for five consecutive months) in exports. Also last month Japan officially reentered recession. Canada and South Korea’s governments recently cut forecasts for economic growth. Despite the lift from an extremely weak euro, Germany’s Federal Statistical Office reported last month that the economy slowed in Q3 due to weak exports and slack corporate investment. The German slowdown led a slide in the overall eurozone economy in Q3 per data from the European Union’s statistics agency. The recent immigration and terrorist problems make matters worse. Tourism will suffer.

Here in the U.S., the economy appears relatively healthier only because the rest of the world is so awful. That has driven the U.S. dollar skyward (DXY index over 100), hurting tourism and multinational companies exporting goods and services overseas. Last month the U.S. Agriculture Department forecast that U.S. farm incomes will plummet 38% this year to $56 billion – the lowest level since 2002.

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But someone will have to take the losses… And they will be spectacular.

• As Oil Keeps Falling, Nobody Is Blinking (WSJ)

The standoff between major global energy producers that has created an oil glut is set to continue next year in full force, as much because of the U.S. as of OPEC. American shale drillers have only trimmed their pumping a little, and rising oil flows from the Gulf of Mexico are propping up U.S. production. The overall output of U.S. crude fell just 0.2% in September, the most recent monthly federal data available, and is down less than 3%, to 9.3 million barrels a day, from the peak in April. Some analysts see the potential for U.S. oil output to rise next year, even after Saudi Arabia and OPEC on Friday again declined to reduce their near-record production of crude. With no end in sight for the glut, U.S. oil closed on Friday below $40 a barrel for the second time this month.

The situation has surprised even seasoned oil traders. “It was anticipated that U.S. shale producers, the source of the explosive growth in supply in recent years, would be the first to fold,” Andrew Hall, CEO of commodities hedge fund Astenbeck Capital wrote in a Dec. 1 letter to investors reviewed by The Wall Street Journal. “But this hasn’t happened, at least not at the rate initially expected.” For the past year, U.S. oil companies have been kept afloat by hedges—financial contracts that locked in higher prices for their crude—as well as an infusion of capital from Wall Street in the first half of the year that helped them keep pumping even as oil prices continued to fall. The companies also slashed costs and developed better techniques to produce more crude and natural gas per well.

The opportunity for further productivity gains is waning, experts say, capital markets are closing and hedging contracts for most producers expire this year. These factors have led some analysts to predict that 2016 production could decline as much as 10%. But others predict rising oil output, in part because crude production is growing in the Gulf, where companies spent billions of dollars developing megaprojects that are now starting to produce oil. Just five years after the worst offshore spill in U.S. history shut down drilling there, companies are on track to pump about 10% more crude than they did in 2014. In September, they produced almost 1.7 million barrels a day, according to the latest federal data.

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What it always should have been, at the most.

• Gradual Erosion Of The EU Will Leave A Glorified Free-Trade Zone (Münchau)

The main characteristic of today’s EU is an accumulation of crises. This is no accident. It happens because policies are not working. Political leaders such as David Cameron and Viktor Orban, the prime ministers of the UK and Hungary, are even questioning some of the fundamental values on which the EU is built – such as the freedom of movement of people. The EU is in an unstable equilibrium: small disturbances can produce large changes. We have reached this point because the various projects of the union now have a negative economic effect on large parts of the European population. I would no longer hesitate to say, for example, that your average Italian is worse off because of the euro.

The country has had no real growth since it joined the euro, while it had grown at fairly average rates before and I have heard no rational explanation that does not attribute this to the flaws in European monetary arrangements. This is not just a problem for the eurozone. As Simon Tilford of the Centre for European Reform has argued, the worst-paid Britons have been made worse off, too. Their real incomes have fallen, and an inadequate supply of housing has pushed up accommodation costs. Both trends have been exacerbated by a net inflow of workers from abroad, even though net immigration into the UK has not been extreme by European standards.

No individual is in a position to make an objective assessment of the effect of immigration on their own income and wealth, but it is clearly not irrational to suspect that an influx of net immigration and one’s own falling real wages to be somehow related. The Danes, who last week voted against ending the country’s opt-out from EU home and justice affairs, also acted rationally. Why opt into a common justice system that still cannot produce adequate levels of co-ordination between police forces in the fight against terrorism? Home and justice affairs are public goods. Why should a rational voter prefer a dysfunctional public goods provider? The same holds for Finland. The country has been locked in a four-year long recession.

There is now a parliamentary motion in the works that may end up in a referendum on whether to quit the eurozone. I do not think that Finland will take that step, for political reasons. But, at the same time, I have not the slightest doubt that Finnish growth and employment would recover if it did. A currency devaluation would be a much more powerful tool than the policy that the Finnish government is trying to implement right now: improving competitiveness through wage cuts.

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Overextended miners and producers face a lot of hurt.

• China’s Iron Ore, Steel Demand To Fall Further In 2016 (AFR)

China’s steel production will not recover next year, according to its official government forecaster, which believes demand for iron ore will decline by 4.2%. The report released on Monday by the China Metallurgical Industry Planning and Research Institute predicts steel production will fall 3.1% to 781 million tonnes in 2016, as economic growth continues to moderate. The forecast provides another round of bad news for Australian iron ore miners, which are already battling record low prices of around $US40 a tonne. China’s steel industry reached a long predicted turning point in 2015, as the economy slowed and over-supply in the property sector crimped demand for everything from machinery, to home appliances and cars.

This will see China’s steel consumption post its first annual decline since 1995, falling 4.8% this year, according to the government forecaster. The declines are set to continue next year with consumption falling by 3% to 648 million tonnes. “With a slowdown in steel for construction, machinery and vehicles we saw consumption decline for the first time in 20 years,” said the institute in its annual outlook report. The declines this year have been faster than the institute predicted. Monday’s downgrade to 2015 production was the third this year. It believes iron ore demand, which fell 0.4% in 2015, will decline by 4.2% in 2016 to around 1.07 billion tonnes.

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Everyday occurence.

• China’s Biggest Broker CITIC Can’t Locate Two Of Its Top Execs (Reuters)

CITIC Securities is not able to contact two of its top executives, China’s biggest brokerage said on Sunday, following media reports that they had been asked by authorities to assist in an investigation. CITIC said in a Hong Kong exchange filing it could not reach two of its most senior investment bankers, Jun Chen and Jianlin Yan. Chinese business publication Caixin said on Friday the pair had been detained, although it was not clear whether they were subjects of an investigation or merely being asked to assist with it. CITIC Securities is among Chinese brokerages facing investigation by the country’s securities regulator for suspected rule breaches. Some employees of CITIC Securities have returned to work after assisting with unspecified government investigations, the company said in the filing.

Chen is head of CITIC’s investment banking division, according to the company website, while Yan runs investment banking at the company’s overseas unit CITIC Securities International. Several high-profile brokerage executives have been investigated in mainland China as authorities looked for answers to explain a slump of more than 40% in stocks between June and August that they blamed in part on “malicious short-selling”. Executives at CITIC Securities have been investigated for insider trading and leaking information. Last month, CITIC said it was choosing a new chairman and incumbent Wang Dongming could not take part because of his age. However, the Financial Times reported that Wang had been forced out because of the scandal, citing people familiar with the matter.

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Yet another way to spell debt deflation.

• Falling Cattle Prices Put The Hurt On Kansas Ranchers, Feedlots (WE)

Tumbling cattle prices have left the mood of the state’s ranchers a lot more somber this year. The Kansas Livestock Association held its annual meeting at the Hyatt Regency Wichita this week and, on Friday, heard from Randy Blach, president of market analyst CattleFax. Blach’s message is that he knows 2015 has been a rough ride for ranchers as prices have plunged from their record highs a year ago. The reasons have been long in coming. Ranchers and feeders enjoyed a terrific year in 2013 and 2014 as beef and cattle prices skyrocketed. Herds had shrunk because of the drought, and prices hit record highs. High prices and the return of the rains caused ranchers to hold back large numbers of heifers to rebuild herds. Well, now the herds are largely rebuilt. And more steers are being sent to slaughter.

The effect has been dramatic in the second half of the year, Blach said, citing the slaughter price for cattle. “Last year at this time it was $174 a hundred (pounds),” he said. “Now, it’s $125. That’s a $50-a-hundred loss in a very short period of time.” In addition, the export market for beef has dropped significantly as the global economy, particularly in China, has slowed, and the dollar has risen 15 to 20% against foreign currencies. This year has already punished some of the middlemen in the chain. Kansas feedlots have seen steep losses in the second half. For the consumer, high prices will start to fall in grocery stores by mid-2016, Blach said. Shoppers will start seeing more quantity, variety and price specials. “It will start being pretty visible,” he said. And prices will remain down through the end of the decade, he said, rebuilding demand for beef.

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“..a prison where modern day Black men labor in the sun while guards patrol from horseback just as they did a century and a half ago.”

• Prison Labor In USA Borders On Slavery (AHT)

When slavery was abolished in the United States in 1865, the focus on free labor shifted from human ownership, to forced prison labor. This practice has been exploited for a very long time and the companies that prosper from it, the list of which includes American corporate giants like Wal Mart, McDonald’s, Victoria’s Secret and a long list of others, are generating huge revenues by people who are reportedly paid 2 cents to $1.15 per hour. According to the USUncut.com article, “These 7 Household Names Make a Killing Off of the Prison-Industrial Complex”, the list of companies benefiting from this questionable type of workforce is a real eye opener. The article reveals how prisoners work an average of 8 hours a day, yet they are paid roughly six times less than the federal minimum wage. Prison labor is an even cheaper alternative to outsourcing.

“Instead of sending labor over to China or Bangladesh, manufacturers have chosen to forcibly employ up to 2.4 million incarcerated people in the United States. Chances are high that if a product you’re holding says it is ‘American Made,’ it was made in an American prison.” It is also noteworthy that items that say “Made in China” are sometimes manufactured in Chinese prisons. According to the NPR article, “Made In China – But Was It Made In A Prison?”, there are few limits to the use of prison labor in Communist China, “Prisoners in China’s re-education-through-labor camps make everything from electronics to shoes, which find their way into U.S. homes.” This is an issue that potentially affects every American family, but squarely impacts the African-American community, where on any given day, more Black males are serving prison time than attending college.

The practice hearkens back to the brutal days of slavery in America’s deep South, in countless ways. An article published by The Atlantic this year, “American Slavery, Reinvented,” examines the Louisiana State Penitentiary called Angola, which was converted from a southern plantation into a prison, where modern day Black men labor in the sun while guards patrol from horseback just as they did a century and a half ago. The article explains that the prisoners who do not perform the labor as expected, will be severely punished, “…once cleared by the prison doctor, (the prisoners) can be forced to work under threat of punishment as severe as solitary confinement. Legally, this labor may be totally uncompensated; more typically inmates are paid meagerly—as little as two cents per hour—for their full-time work in the fields, manufacturing warehouses, or kitchens. How is this legal? Didn’t the Thirteenth Amendment abolish all forms of slavery and involuntary servitude in this country?”

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“..964,574 refugees had arrived in Germany by the end of November..”

• German States Slam New Refugee Boss For ‘Slow Work’ (DPA)

Ministers rushed to defend the new head of the national refugee authority from attacks by leaders of Germany’s federal states, saying he had only been in position a few weeks and needed time to make a difference. Rhineland-Palatinate minister-president Malu Dreyer said on the weekend that the Federal Office for Migration and Refugees (BAMF) was working too slowly and shouldn’t be taking weekends off during the crisis. On Monday, the Passauer Neue Presse (PNP) reported that 964,574 refugees had arrived in Germany by the end of November, based on figures the Interior Ministry gave in response to a parliamentary question. That’s more than four times as many as arrived in 2014, when the total for the whole year was 238,676. The BAMF still faces a backlog of 355,914 cases, the PNP reported.

But Chancellor Angela Merkel’s chief of staff Peter Altmaier – who has overall responsibility for refugees – leapt to the defence of BAMF boss Frank-Jürgen Weise on Sunday. Altmaier told broadcaster ARD on Sunday evening that Weise “has only been in office for a few weeks, and an unbelievable amount has been done in this time”. Altmaier said that in spite of massively increased numbers of asylum applications, the BAMF had managed to cut down the time it takes to make decisions. “That’s why I don’t think it’s productive when whoever it is thinks they can make political declarations off the backs of the workers” at the BAMF, he said. Labour Minister Andrea Nahles told broadcaster ZDF that things would really pick up at the BAMF after the new year, when 4,000 new officials would join the office. “Then there will be a big step forward,” she said.

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“Allies” fighting one another.

• US Alliance-Supported Groups In Syria Turn Guns On Each Other (Reuters)

Groups that have received support from the United States or its allies have turned their guns on each other in a northern corner of Syria, highlighting the difficulties of mobilizing forces on the ground against Islamic State. As they fought among themselves before reaching a tenuous ceasefire on Thursday, Islamic State meanwhile edged closer to the town of Azaz that was the focal point of the clashes near the border with Turkey. Combatants on one side are part of a new U.S.-backed alliance that includes a powerful Kurdish militia, and to which Washington recently sent military aid to fight Islamic State. Their opponents in the flare-up include rebels who are widely seen as backed by Turkey and who have also received support in a U.S.-backed aid program.

Despite the ceasefire, reached after at least a week of fighting in which neither side appeared to have made big gains, trust remains low: each side blamed the other for the start of fighting and said it expected to be attacked again. A monitoring group reported there had still been some firing. The fighting is likely to increase concern in Turkey about growing Kurdish sway near its border. It also poses a new challenge for the U.S.-led coalition which, after more than a year of bombing Islamic State in Syria, is trying to draw on Syrian groups to fight on the ground but finding many have little more in common than a mutual enemy. Azaz controls access to the city of Aleppo from the nearby border with Turkey. It also lies in an area coveted by Islamic State, which advanced to within 10 km of the town on Tuesday and took another nearby village later in the week.

The fighting pitched factions of the Free Syrian Army, supported by Turkey and known collectively as the Levant Front, against the YPG and Jaysh al-Thuwwar – both part of the Democratic Forces of Syria alliance backed by Washington. The Syrian Observatory for Human Rights, a Britain-based group that monitors the conflict in Syria, said Levant Front was supported in the fighting by the Ahrar al-Sham Islamist group and the al Qaeda-linked Nusra Front. Observatory director Rami Abdulrahman said the rebels had received “new support, which is coming in continuously” from Turkey, a U.S. ally in the fight against Islamic State. “Turkish groups against U.S. groups – it’s odd,” he said.

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Russia will act in careful ways. They’re not going to send troops into battle with Turkey.

• Iraq Could Ask Russia for Help After ‘Invasion’ by Turkish Forces (Sputnik)

The head of Iraq’s parliamentary committee on security and defense, Hakim al-Zamili, in an interview with Al-Araby Al-Jadeed, said that Baghdad could turn to Moscow for help after Turkey had allegedly breached Iraq’s sovereignty. Numerous reports suggest that on Friday Turkey sent approximately 130 soldiers to norther Iraq. Turkish forces, deployed near the city of Mosul, are allegedly tasked with training Peshmerga, which has been involved in the fight against Daesh, also known as ISIL. On Saturday, Baghdad described the move as “a serious violation of Iraqi sovereignty,” since it had not been authorized by Iraqi authorities.

“We may soon ask Russia for direct military intervention in Iraq in response to the Turkish invasion and the violation of Iraqi sovereignty,” Iraqi lawmaker al-Zamili said. Earlier, Hakim al-Zamili threatened Turkey with a military operation if the Turkish soldiers do not leave Iraq immediately The parliamentarian reiterated that Turkey sent troops into Iraqi territory without notifying the government. Iraqi Prime Minister Haider Abadi urged Ankara to immediately pull out its forces, including tanks and artillery, from the Nineveh province. Iraqi President Fuad Masum referred to the incident as a violation of international law and urged Ankara to refrain from similar activities in the future, al-Sumaria TV Channel reported.

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Debt Rattle November 23 2015

Nov 232015
 
 November 23, 2015  Posted by at 10:14 am Finance Tagged with: , , , , , , , , ,  5 Responses »


Kennedy and Johnson Dallas, Morning of November 22 1963

• Commodity Slump Deepens as Dollar Gains; European Stocks Slide (Bloomberg)
• Europe Warned On ‘Permanent’ Downturn Amid PMIs (CNBC)
• Euro Drops To Seven-Month Low As Draghi Feeds Bears (Bloomberg)
• Zinc Producers Keep Cutting Back, Yet Prices Keep Falling (Bloomberg)
• Barclays Bets On Stock Boom As World Money Growth Soars (AEP)
• Masters of the Finance Universe Are Worried About China (Bloomberg)
• Is the Surge in Stock Buybacks Good or Evil? (WSJ)
• You’re Not the Yuan That I Want (Bloomberg)
• UK Deficit Could Hit £40 Billion By 2020 On Ill-Advised Cuts (Guardian)
• Everything We Hold Dear Is Being Cut To The Bone. Weep For Our Country (Hutton)
• Five Years Into Austerity, Britain Prepares For More Cuts (Reuters)
• Save The Library, Lose The Pool: Britain’s Austere New Reality (Guardian)
• Greek Disposable Income Shrinks Twice As Fast As GDP (Kath.)
• Cut Oil Supply or Drop Riyal Peg? Saudis Face ‘Critical’ Choice (Bloomberg)
• Oil Deal of the Year: Mexico Set for $6 Billion Hedging Windfall (Bloomberg)
• London House Prices Have Nothing on Auckland (Bloomberg)
• We Still Haven’t Grasped That This Is War Without Frontiers (Robert Fisk)
• Yanis Varoufakis: Europe Is Being Broken Apart By Refugee Crisis (Guardian)
• Life After Schengen: What a Europe With Borders Would Look Like (Bloomberg)
• Greek Concerns Mount Over Refugees As Balkan Countries Restrict Entry (Guardian)
• Why Syrian Refugees Are Not A Threat To America (Forbes)

Can’t believe people would still seek to ignore this. It’s China grinding to a halt.

• Commodity Slump Deepens as Dollar Gains; European Stocks Slide (Bloomberg)

A slump in commodities deepened, with industrial metals and oil leading losses as the dollar extended gains. European equities retreated after the region’s equities posted their biggest weekly advance in four weeks. Crude extended its drop below $42 a barrel and copper fell to levels unseen since 2009 as comments from Federal Reserve officials about the prospect of a December rate increase bolstered the greenback. Nickel plunged 4.1% and gold declined, helping send the Bloomberg Commodity Index to a 16-year low. Russia’s ruble and the Australian dollar led commodity-producers’ currencies lower. The Stoxx Europe 600 Index slid, while the euro touched the weakest level in seven months against the dollar.

“This is not a really welcoming environment for risk taking,” said Tim Condon at ING in Singapore. “Liquidity is beginning to dry up as people are waiting for what happens in December with the Fed. Worries about China persist.” The greenback’s surge this year has weighed on material prices at the same time as demand slows in China, the world’s biggest commodity consumer. John Williams, president of the Fed Bank of San Francisco, said at the weekend that there was a “strong case” for a U.S. rate hike at the Fed’s last meeting of 2015. Agricultural commodities face a new headwind after Sunday’s election of Mauricio Macri as Argentina’s president, according to growers and analysts, who said the result heralds the end of punitive export taxes and may unleash an estimated $8 billion in shipments of stored crops.

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But wasn’t eurozone business activity supposed to be great?

• Europe Warned On ‘Permanent’ Downturn Amid PMIs (CNBC)

The economic downturn experienced by Europe and its after-effects, such as high unemployment and labor market weakness, could become a permanent fixture in the region, according to a leading think tank. “Europe continues to face the significant challenges of tackling unemployment, underemployment and inactivity,” the Institute for Public Policy Research (IPPR), a U.K.-based left-leaning think tank, said in its latest report on Monday. “The southern European economies in particular are still combating the effects of the sovereign debt crisis – high levels of joblessness and insecure or temporary work.” Across the rest of the continent, the IPPR said that workers could be left behind due to advances in automation and global competition which “act as more long-term headwinds blowing skill supply and demand out of alignment.”

Such headwinds, the IPPR added, “threaten to consolidate some of the medium-term effects of recession into more permanent features of the economy – a prospect that would be deeply alarming.” The 19-country euro zone bloc was plunged into a deep crisis and regional recession following the 2008 financial crisis. The most acute effect of the crisis was the widespread loss of jobs as a result of industry and business cutbacks and closures. The crisis hit southern euro zone countries more than their more prosperous northern counterparts with a number of countries, Greece, Portugal, Spain, Cyprus and Ireland, requiring bailouts of various magnitudes.

Despite a slow economic recovery in most of the euro zone over recent years, unemployment remains a problem and is stubbornly high in several countries. While Germany has the lowest rate of unemployment, at 4.5% in September, according to Eurostat, joblessness in Greece and Spain remains high, at 25%. in Greece (in July) and 21.6% in Spain. For young people aged 16-25, the statistics are even worse. The IPPR said that policymakers needed to respond “by minimizing the long-term erosion of skills as a result of recession, and investing to reshape and re-skill the labor force for the jobs of the future.”

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Wish he would go do just that. In the Arctic.

• Euro Drops To Seven-Month Low As Draghi Feeds Bears (Bloomberg)

The euro weakened to a seven-month low after futures traders added to bearish bets and ECB President Mario Draghi encouraged speculation his board will ease policy next week. Europe’s common currency dropped versus the majority of its 10 developed-market peers after Draghi said Friday the ECB will do what it must to raise inflation “as quickly as possible.” The Governing Council meets in Frankfurt on Dec. 3 for its next monetary-policy decision. Hedge funds ramped up wagers on dollar strength last week by the most since August 2014. The Australian dollar tumbled as copper and nickel prices plunged to multi-year lows. “It’s probably reasonable to think we can spend time down below $1.05 now,” for the euro, said Ray Attrill at National Australia Bank in Sydney. “It looks to me like we’re building up into a fairly classic sell the rumor, buy the fact.”

The euro slid 0.2% to $1.0623 at 6:46 a.m. in London Monday. It earlier touched $1.0601, the lowest since April 15. The shared currency traded at 130.83 yen after declining 0.9% to 130.77 at the end of last week. The dollar rose 0.3% to 123.17 yen. Japanese markets are shut for a holiday. The Aussie dollar dropped 0.8% to 71.79 U.S. cents, following a two-week, 2.8% advance. Copper fell through $4,500 for the first time since 2009, while nickel dropped to the lowest level since 2003 after Chinese smelters announced plans to cut production. “The commodity washout is weighing on Aussie sentiment,” Stephen Innes at foreign- exchange broker Oanda wrote.

New Zealand’s dollar weakened 0.7% to 65.17 U.S. cents. Swaps traders increased the odds the Reserve Bank will cut its benchmark interest rate next month to 55%, from 46% a week ago, according to data compiled by Bloomberg. “A mix of U.S. dollar strength and rising expectations of more RBNZ rate cuts” dragged the kiwi lower, said Elias Haddad, a currency strategist at Commonwealth Bank of Australia in Sydney. “The accumulation of unimpressive New Zealand economic data and declining dairy prices are weighing on short-term swap rates.” New Zealand’s currency will depreciate to 59 cents by the middle of next year, he said.

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Overcapacity bites.

• Zinc Producers Keep Cutting Back, Yet Prices Keep Falling (Bloomberg)

Zinc producers keep on cutting back and yet prices keep on falling. After Glencore cut a third of its supply last month to combat a rout, the price rallied 10% and the gains lasted a month. When producers in China did the same on Friday, the jump was smaller and got rolled back after a day. “The benefit of previous such announcements have been fleeting, and we are not expecting this occasion to be any different,” Australia & New Zealand Banking analyst Daniel Hynes said in a note on Monday. “The market is intently focused on slowing growth in manufacturing activity in China.”

The rapid rollback of zinc’s bounce, which followed the announcement by China suppliers of output cuts for 2016, signals supply curtailments by producers probably won’t be sufficient on their own to change the course of the rout in base metals. That tallies with the view from Goldman Sachs, which said in a note this month recent output cuts aren’t large enough to rescue prices, and that will require a substantial rise in Chinese demand. In addition to zinc, producers have also announced reductions in copper and aluminum. “If you look at the track record of these vaguely worded statements, unless there is a specificity to it, they are generally not fully carried through,” Ivan Szpakowski at Citibank in Hong Kong, said by phone on Monday. “The market is very suspicious.”

A group of 10 Chinese smelters – including Zhuzhou Smelter Group, the country’s top producer – said they planned to lower refined output 500,000 tons next year, according to a joint statement. That represents about 7% of China’s production and over 3.5% of world supply, according to ANZ. Still, prices fell on Monday as base metals sank. Zhuzhou Smelter hasn’t yet completed drafting its production plan for 2016, according to Liu Huichi, the company’s securities representative. The company is still working on meeting the production target for this year, Liu said by phone on Monday.

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Ambrose loves taking “the other side”, but ignores that a soaring money supply is meaningless if there’s no-one to spend it. And that means people, not companies buying their own stock.

• Barclays Bets On Stock Boom As World Money Growth Soars (AEP)

Barclays has advised clients to jump into world stock markets with both feet, citing the fastest growth in the global money supply in over thirty years and an accelerating recovery in China. Ian Scott, the bank’s global equity strategist, said the sheer force of liquidity will overwhelm the first interest rate rises by the US Federal Reserve, expected to kick off next month. Global equities rose by an average 15pc over the six months after the last three US tightening cycles began, on average, and Barclays argues that this time stocks are cheaper. The cyclically-adjusted price to earnings ratio (CAPE) for the world’s equity markets is currently 18, compared to 25.5 at the beginning of the last rate rise episode in 2004.

This is roughly 14pc below the CAPE average since 1980, though critics say earnings have been artificially inflated by companies borrowing a rock-bottom rates to buy back their own stock. Mr Scott said the growth of global M1 money – essentially cash and checking accounts – has surged to 11pc in real terms, led by China and the eurozone. This is higher than during the dotcom boom and the pre-Lehman BRICS boom. It is likely to ignite a powerful rally in equities nine months later if past patterns are repeated, although the lags can be erratic, and the M1 data gave false signals in the mid 1990s. Barclays said American stocks are trading at a 30pc premium to the rest of the world. This gap is likely to close as emerging markets – “the epicentre of negative sentiment” – come back from the dead.

The pattern of foreign fund flows into the reviled sector has triggered a contrarian buy-signal. Everything hinges on China where real M1 money has ignited after languishing for over a year. Floor space sold is growing at 20pc and house prices have stabilized. Simon Ward from Henderson Global Investors says real M1 is now surging in China at the fastest rate since the post-Lehman credit blitz, though money data is cooling in the US Chinese fiscal spending has jumped by 36pc from a year ago and bond issuance by local governments has taken off, drawing a line under the recession earlier this year. “A growth revival is under way and will gather strength into the first half of 2016,” he said.

[..] Sceptics abound. Nobody knows for sure what will happen to the most indebted countries if the Fed embarks on a serious tightening cycle. Dollar debts in emerging markets have jumped to $3 trillion, and much higher under some estimates. Private credit in all currencies has risen from $4 trillion to $18 trillion in a decade in these countries. Research by the Bank for International Settlements suggests that rate rises by the Fed ineluctably lifts borrowing costs everywhere.

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“..Singer wrote that the world could face a more severe scenario like a “global central bank panic.”

• Masters of the Finance Universe Are Worried About China (Bloomberg)

David Tepper says a yuan devaluation may be coming in China. John Burbank warns that a hard landing there could spark a global recession. Tepper, the billionaire owner of Appaloosa Management, said last week at the Robin Hood Investor’s Conference that the Chinese yuan is massively overvalued and needs to fall further. His comments follow similar forecasts from some of the biggest hedge fund managers, including Crispin Odey, founder of the $12 billion Odey Asset Management, who predicts China will devalue the yuan by at least 30%. The money managers are losing faith in China’s ability to revive its economy, which suffers from rising nonperforming loans and falling exports, after the surprise 1.9% currency devaluation in August and global market rout that followed.

The investors made their dire forecasts after shares of U.S.-traded Chinese companies, which their funds sold in the third quarter, began to rebound in October. “The downside scenario for China seems more intimidating than ever before,” billionaire Dan Loeb wrote on Oct. 30 to investors at Third Point, which manages $18 billion. “The new question is not whether but how severe the slowdown of the world’s foremost growth machine will be.” Goldman Sachs on Thursday echoed the managers’ concerns, saying the biggest risk to a rebound in emerging-market assets next year is a “significant depreciation” of the yuan. Policy makers, facing a stronger dollar and slower growth, may let the currency decline, which would ripple through emerging markets, strategists led by Kamakshya Trivedi wrote. “In our view, the fallout from such a shift is the primary risk,” the analysts said.

[..] Elliott Management’s Paul Singer also warned about global contagion from China’s decline. Singer told investors in an October letter that emerging market countries are “choking” on U.S. dollar-denominated debt that was extended due to low interest rates and monetary stimulus. He said many emerging economies, which are in recession, are “scared to death” about even a 25 basis-point increase in U.S. interest rates. While “muddling along” is still an option, Singer wrote that the world could face a more severe scenario like a “global central bank panic.” He said that policy makers will probably “double down on monetary extremism” in response to deteriorating economies in emerging markets and China.

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It’s about discounting the future as much as you can. Faustian.

• Is the Surge in Stock Buybacks Good or Evil? (WSJ)

Corporate stock buybacks are climbing toward a post-financial-crisis high this year, furthering the debate about the use of hundreds of billions of dollars in company cash to enhance quarterly earnings reports. Stock repurchases boost earnings per share, even if total earnings don’t change, by reducing the number of shares. Analysts and investors typically track per-share earnings, not overall earnings. Buybacks have drawn criticism from some fund managers including Larry Fink, chief executive of BlackRock, which oversees $4.5 trillion in assets. He has said some companies invest too much in buybacks and too little in longer-term business growth. Repurchases also have become a political issue. Democratic presidential candidate Hillary Clinton has called for more-frequent and fuller disclosure of them by the companies involved, even as some activist investors push for more buybacks as a way of returning cash to investors.

In the year’s first nine months, U.S. companies spent $516.72 billion buying their own shares, with third-quarter reports still not complete, according to Birinyi Associates. That is the highest amount for the first three quarters since the record year of 2007, the year before the financial crisis. It leaves this year on track for a post-2007 high if fourth-quarter buybacks hold up. Buybacks can have a significant impact on earnings, as was illustrated this quarter by companies including Microsoft, Wells Fargo, Pfizer and Express Scripts. Microsoft turned a decline in total earnings into a per-share gain by repurchasing a little more than 3% of its shares in the past 12 months. Its total third-quarter earnings were down 1.3% from a year earlier, but per-share earnings rose 3.1%, according to FactSet.

For Wells Fargo, a 0.6% increase in total earnings became a 2.9% gain in earnings per share after buybacks. At Pfizer, a 2% overall earnings gain became a 5.3% per-share jump. Express Scripts, a large drug-benefits manager, turned a 2.8% overall gain into a 12.4% per-share increase. Apple Inc. is by far the biggest buyback spender this year, with $30.22 billion, followed by Microsoft, Qualcomm and AIG. This year isn’t on pace to surpass 2007 in total buybacks. But Birinyi’s data show that announcements of planned future buybacks are the highest for any year’s first 10 months, more even than in 2007. “If companies execute their plans, we are looking at a record amount being deployed over the next couple of years,” said Birinyi analyst Robert Leiphart.

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“No one’s ever suggested including the loonie in the SDR.”

• You’re Not the Yuan That I Want (Bloomberg)

In its ongoing quest for glory and global influence, China appears to have won a notable victory. The IMF is set to anoint the renminbi – the “people’s currency,” also known by the name of its biggest unit, the yuan – as one of the world’s reserve currencies along with the dollar, pound, euro and yen. For those who fear (or hope) that China will eventually transform the postwar economic order, this appears to be the first step toward dethroning the dollar. The IMF’s decision, however, is mere political theater. The yuan will now be included among the basket of currencies that make up its so-called Special Drawing Rights. As the IMF itself notes, “the SDR is neither a currency, nor a claim on the IMF.” Holders simply have the right to claim the equivalent value in one or more of the SDR’s component currencies. Central banks and investors won’t suddenly be required or even explicitly encouraged to use the yuan.

Indeed, all that’s changed is that it’s now clear that the IMF isn’t blocking the yuan from becoming a true global reserve currency: China is. To the contrary, the IMF appears to be doing everything it can to help China. SDR currencies are meant to be “freely usable,” which the IMF defines as “widely used to make payments for international transactions” and “widely traded in the principal exchange markets.” The yuan’s champions note that the currency has grown from being used in less than one% of international payments in September 2013 to 2.5% in October – among the top five globally. This simple metric, however, enormously overstates the yuan’s influence. Globally, it’s still barely used more than the Canadian and Australian dollars. No one’s ever suggested including the loonie in the SDR.

True, China is the world’s second-largest economy and its biggest trading nation. Yet at the same time, more than 70% of payments made in yuan still go through Hong Kong, primarily due to its strategic location as a shipping and trading hub for the mainland. All but 2% of yuan-denominated letters of credit are issued to Hong Kong, Macau, Singapore, and Taiwan to facilitate trade with China. Even in Asia, the yuan isn’t accepted as collateral for derivatives trading and similar financial transactions. Instead it’s used almost exclusively for trade in physical goods where China is one of the counterparties. Nor is the currency widely traded in financial markets. Hong Kong, the largest center of yuan deposits outside of China, holds less than 900 billion renminbi, or about $140 billion.

That’s $40 billion less than Coca-Cola’s market cap (and barely a fifth the value of Apple’s). The entirety of yuan deposits held outside of China still amounts to less than the market capitalization of the Thai stock market. This isn’t the result of prejudice against China, but deliberate policy. Take the oft-cited statistic that 2% of global reserves are already held in renminbi. Virtually all yuan reserves are held under swap agreements with the People’s Bank of China, rather than as physical currency. That means China’s central bank maintains control over the currency and its pricing and can refuse transactions if needed, as it did last week when it ordered banks to halt renminbi lending offshore. While other central banks have significant latitude to engage in onshore renminbi purchases, they face restrictions on using the currency outside China.

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As Greece and Britain show us, yes you CAN cut a society to death.

• UK Deficit Could Hit £40 Billion By 2020 On Ill-Advised Cuts (Guardian)

George Osborne could be forced to borrow billions of pounds more than forecast by 2020 if he sticks with spending cuts that will damage hit economic growth, according to a report by City University. With only days to go before the chancellor’s autumn statement, the report said the Treasury has underestimated the impact of welfare and departmental spending cuts on the broader economy and especially cuts to public sector investment. Without a boost to public infrastructure, private sector businesses will limit their own investment plans, leading to lower productivity and depressed GDP growth over the next four years. By 2020 the government will be forced to report a £40bn deficit instead of the planned £10bn surplus, the report concludes, undermining Osborne’s fiscal charter, which dictates that governments borrow only in times of distress.

The study by two academics from City University comes only days before the chancellor is expected to tell parliament that he plans to achieve a budget surplus by 2020 from a mixture cuts to departmental spending, welfare and from higher tax receipts, especially income tax and national insurance. But he is already off track in the current 2015/16 year after a run of poor figures for the public finances. Last week the Office for National Statistics reported that higher government spending and lower corporation tax receipts than expected in October had sent borrowing to highest for that month since 2009. Richard Murphy, an academic at City University who has advised the Labour leader Jeremy Corbyn, said the £50bn gap in borrowing is likely because the Treasury will repeat the same mistakes it made between 2010 and 2015, when the coalition government borrowed £160bn more than predicted.

He said the government planned to ignore a detailed study by the IMF that showed cuts to public expenditure during the recovery from a financial crash can result in lower growth, depressed tax receipts and the need for higher borrowing. The analysis of the multiplier effect from spending cuts shows that far from allowing private consumption and investment to accelerate, it remains modest at best, limiting growth and tax receipts. Murphy said: “The very low multiplier the Treasury uses assumes that cuts in government spending will stimulate growth. That’s an assumption, and not a fact. “It is one the IMF now disagree with. And the result of basing policy on that multiplier is we have more cuts than we need, lower growth in the UK economy as a result, lower earnings for most households and so lower tax revenues – which actually makes balancing the government’s books harder,” he added.

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The world view of a handful crazed rich sociopaths is ruining an entire formerly proud nation.

• Everything We Hold Dear Is Being Cut To The Bone. Weep For Our Country (Hutton)

Last Thursday, my wife was readmitted to hospital nearly two years after her first admission for treatment for acute lymphoblastic leukemia. She is very ill, but the nursing, always humane and in sufficient numbers two years ago, is reduced to a heroic but hard-pressed minimum. She has been left untended for hours at a stretch, reduced to tearful desperation at her neglect. The NHS, allegedly a “protected” public service, is beginning to show the signs of five years of real spending cumulatively not matching the growth of health need. Between 2010 and 2015, health spending grew at the slowest (0.7% a year) over a five-year period since the NHS’s foundation. As the Health Foundation observed last week, continuation of these trends is impossible: health spending must rise, funded if necessary by raising the standard rate of income tax.

There will be tens of thousands of patients suffering in the same way this weekend. Yet my protest on their behalf is purposeless. It will cut no ice with either the chancellor or his vicar on earth, Nick Macpherson, permanent secretary at the Treasury. Their twin drive to reduce public spending to just over 36% of GDP in the last year of this parliament is because, as Macpherson declares more fervently than any Tory politician, the budget must be in surplus and raising tax rates is impossible. Necessarily there will be collateral damage. It is obviously regrettable that there are too few nurses on a ward, too few police, too few teachers and too little of every public service. but this is necessary to serve the greater cause of debt reduction. To reduce the stock of the public debt to below 80% of GDP and not pay a penny more in income or property tax, let alone higher taxes on pollution, sugar, petrol or alcohol, is now our collective national purpose.

Everything – from the courts to local authority swimming pools – is subordinate to that aim. Not every judgment George Osborne makes is wrong. He is right to advocate the northern powerhouse, to spend on infrastructure, to stay in the EU, radically to devolve control of public spending to city regions in return for the creation of coherent city governance and to sustain spending on aid and development. It is hard to fault raising the minimum wage or to try to spare science spending from the worst of the cuts. But the big call he is making is entirely misconceived. There is no economic or social argument to justify these arbitrary targets for spending and debt, especially when the cost of debt service, given low interest rates and the average 14-year term of our government debt, has rarely been lower over the past 300 years.

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But £12 billion more for the military.

• Five Years Into Austerity, Britain Prepares For More Cuts (Reuters)

After laying off nearly half its staff over the last five years, scaling back street cleaning and relying on volunteers to work at some of its libraries, the London borough of Lewisham is getting ready for what could be much more painful spending cuts. Officials in Lewisham’s town hall, like those across the country, know they will have to shoulder much of finance minister George Osborne’s renewed push to fix Britain’s budget. Osborne is due to announce on Wednesday the details of a new spending squeeze which, according to International Monetary Fund data, ranks as the most aggressive austerity plan among the world’s rich economies between now and 2020. It is also a gamble by Osborne, a leading contender to be the next prime minister, that voters can stomach more cuts.

He rejects accusations that his insistence on a budget surplus by the end of the decade is a choice, saying Britain needs fiscal strength to fight off future shocks to the economy. As in the first five years of his austerity push – which Osborne originally hoped would wipe out the budget deficit – he plans to spare Britain’s health service, schools and foreign aid budget from his new cuts and will increase defense spending. That means that cuts for unprotected areas of government, such as local councils, will be all the deeper. Kevin Bonavia, a councilor who oversees Lewisham’s budget, said the borough had just agreed to merge computing teams with another one on the other side of London as it seeks to make more savings in its back-office operations and protect services.

But voters are likely to notice the cuts more in the years ahead than they have done so far. Rubbish bins may no longer be emptied weekly. Delivery of cooked meals could be replaced with help for people in need to do their own online shopping. Lewisham will also have to find savings in the way it provides social care for the elderly and children, which accounts for the lion’s share of its spending. “We are always trying to rationalize. But we have to do it at pace now, and when you do it at pace, you can make mistakes,” Bonavia, a member of the opposition Labour Party, said.

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You read that right: £12 billion more for the military

• Save The Library, Lose The Pool: Britain’s Austere New Reality (Guardian)

On a weekday morning in Blakelaw, two miles from the heart of Newcastle, the scene inside a community centre suggests a perfect example of what David Cameron used to call the “big society”. Local women have gathered for a “coffee and conversation” session, while people nearby are cutting flyers for a residents’ association’s Christmas fair. Meanwhile, an effervescent 36-year-old councillor called David Stockdale is discussing plans to bring a key amenity into community ownership. The prime minister would presumably balk at his terminology: Stockdale proudly talks about a “socialist post office”. Since March 2013, the Blakelaw neighbourhood centre has been run as a not-for-profit local partnership, raising money and rising to the challenges presented by austerity.

When the library that extends off the foyer was threatened with closure, the partnership took over its funding. About six months after Newcastle city council cut all money for youth services, the partnership appointed a full-time youth worker. For all Stockdale’s collectivist passions, if you believe wonders can result from the enforced retreat of the state, what happens here might hint at a positive case study – but scratch the surface and it is a lot more complicated. The coffee-and-conversation women say the weekly sessions are pretty much all the area’s pensioners have left: cuts in council grants stopped the exercise classes and local history group. Doreen Jardine, chair of the residents’ association, says that in the past she had enough money from the council to organise up to seven annual coach trips for local children. She’s now down to two.

And while Stockdale extols self-organisation, he also wonders how his area has reached this point. “This is one of the most deprived communities in Newcastle,” he says. “Can you imagine what we could be doing if we didn’t have to meet the costs of running our library? We run this thing on a shoestring, with the goodwill of a lot of people. And it’s difficult.” It is my fourth journalistic visit to Newcastle in three years. The last time I was here, in November 2014, I talked to people anxious about the city’s fate, and pieced together the story of local austerity with the city’s Labour leader, Nick Forbes.

The council was in the midst of a £100m programme of cuts to be spread from 2013 to 2016. Its projections pointed to additional cuts in 2016-17 of £30m then £20m the next year – and Forbes suggested by that point the financial position would be impossible. “By 2017-18,” he told me, “our estimate is that we will have less than £7m to spend on everything the city council does, above and beyond adult and children’s social care. So it’s completely untenable.” Now, in the buildup to George Osborne’s spending review, the position seems even tougher. The projected cuts for 2017-18 have gone up by £20m, and thanks chiefly to Osborne’s failure to pay down the deficit by his original deadline, another £30m is set to follow in 2018-19.

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That sinking feeling persists.

• Greek Disposable Income Shrinks Twice As Fast As GDP (Kath.)

Despite the major decline in disposable incomes, Greece remains among the most expensive countries in Europe in dozens of products and services. For instance, a kilogram of flour in Spain costs €1.03, while in Greece it costs €1.25. An iPhone 6s, with a capacity of 16 gb costs €789 in Greece against €739 in Germany, Portugal and Austria, €749 in France and €770 in Italy, all of them countries with a considerably higher per capita income than Greece.

While prices have started declining marginally in this country since 2013, disposable incomes started shrinking from 2008 by an average rate of 6.7% every year, according to figures collected by the Organization for Economic Cooperation and Development (OECD): This stands nowadays at €17,448 per household, far below the OECD member-state average of €24,339 per year. That means Greece ranks only 27th among the OECD’s 36 member-states in terms of people’s disposable income, way below fellow countries of the European south, such as Portugal, Spain and Italy. In practice the disposable income in Greece appears to have shrunk in the last seven years at a rate almost twice as big as the country’s economic contraction rate.

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Cutting production is not on the table. They simply can’t.

• Cut Oil Supply or Drop Riyal Peg? Saudis Face ‘Critical’ Choice (Bloomberg)

The longer oil languishes, the more pressure builds on Saudi Arabia to abandon its currency peg. Contracts used to speculate on the riyal’s exchange rate in the next 12 months climbed to a 13-year high on Thursday, before trimming the increase a day later, according to data compiled by Bloomberg. Six-month agreements rose to near the highest in seven years on Friday. Saudi Arabia is pumping oil at a record level this year, leading OPEC’s effort to defend market share even as oil trades near the lowest level in six years. That’s forced the kingdom to tap savings and sell debt to make up for a plunge in revenue and defend its 30-year-old peg to the dollar. For Bank of America Corp., the country may face a choice next year: cut production to help boost prices or adjust the riyal’s rate to stem a decline in foreign reserves.

“A depeg of the Saudi riyal is our number one black-swan event for the global oil market in 2016, a highly unlikely but highly impactful risk,” BofA strategists led by Francisco Blanch in New York wrote in a Nov. 19 report. “It is a lot easier politically to implement a modest supply cut at first than allow for a full-blown currency devaluation.” One-year forward points for the riyal jumped 167.5 points to 525 on Thursday, before falling to 455 a day later. That reflects expectations for the currency to weaken about 1.2% to 3.7962 per dollar in the next 12 months. Six-month agreements rose on Friday to 152.5, near the highest level since 2008. Weak global growth and inflation as well as a strong dollar will remain a “huge” headwind for dollar-based commodity prices, BofA said. Brent crude closed last week at $44.66 per barrel, down 44% from a year earlier.

Still, Saudi Arabia’s reserves are hardly depleted. While net foreign assets fell to a near three-year low in September as the government drew down financial reserves accumulated over the past decade, they’re among the highest in the region at $646.9 billion. The country’s peg survived low oil prices in the 1990s and revaluation pressure resulting from surging prices in the late 2000s, Shaun Osborne at Scotiabank wrote last week. Pressure may also build on the Chinese yuan amid declining reserves at central banks across the world and with expected U.S. interest-rate increases, BofA said. A meltdown of the yuan may ultimately force Saudi Arabia’s hand because of the “very high sensitivity” of commodities to the currency, the bank said.

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Betting against your own resources is the only way to make money.

• Oil Deal of the Year: Mexico Set for $6 Billion Hedging Windfall (Bloomberg)

Mexico is set to get a record payout of at least $6 billion from its oil hedges this year, according to data compiled by Bloomberg. The Latin American country locks in oil sales as a shield against price declines through a series of financial deals with banks including Goldman Sachs, JPMorgan and Citigroup. For 2015, Mexico guaranteed sales at almost $30 a barrel higher than average prices over the past year. The 2015 payment, due next month, is set to surpass the record from 2009, when the Mexican government said it received $5.1 billion after prices plunged with the global financial crisis. The country’s crude has fallen by almost half over the hedging period so far this year. Crude sales historically cover about a third of the government budget.

“The windfall is huge,” said Amrita Sen, chief oil analyst at Energy Aspects Ltd., a London-based consulting company. “This gives Mexico breathing space.” The hedge, which runs from Dec. 1 to Nov. 30, covered 228 million barrels at $76.40 each for the Mexican oil basket, according to government documents and statements. With less than two weeks to the end of the program, the basket has averaged $46.61 a barrel over the period. The difference would result in a payment of around $6.8 billion, not including fees. The final figure could vary from the Bloomberg estimate as some details of the hedge aren’t public and oil prices will change over the next two weeks. The Mexican oil basket fell on Nov. 18 to $33.28 a barrel – its lowest since December 2008.

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“People are sick of seeing these people in the paper who made a million after just mowing the lawn three times,” said Wetzell, the realtor in Devonport.”

• London House Prices Have Nothing on Auckland (Bloomberg)

Even with its mold-streaked bathroom and kitchen without a sink, the duplex in bayside Auckland attracted a frenzied bidding war. Now it’s one of the city’s newest million-dollar government-built houses. The two-bedroom, brick cottage on Kerr Street on the city’s inner north shore fetched NZ$1.04 million ($685,000) at an auction in September, netting the vendor, New Zealand’s government, double a valuation used for taxes. Long symbols of economic disadvantage, homes built by the state last century for low-income tenants are on a tear, thanks to their typically generous land sizes and proximity to the city.

The changing fortunes of these modest dwellings — loved and derided by New Zealanders for their functionality over style — reflect a fervor that’s spurred Auckland’s biggest property boom in two decades. The average house price in New Zealand’s largest city is now higher than London’s. “It’s like the supermarket before it closes on Christmas Day — everyone thinks they’d better get in or they’ll miss out,” said Carol Wetzell, a realtor at Barfoot & Thompson in Devonport, the agency that sold the 82-year-old Kerr Street home. State homes, particularly those built from local timber in a wave of government-led construction in the 1940s, are regarded as iconic — products of a time when the government was determined to ensure no one lived in squalor.

Prime Minister John Key was raised in a state house in Christchurch by his widowed immigrant mother, and the Auckland municipal government plans to create a NZ$1.5 million sculpture of one on the city’s waterfront. Now, with house prices up 24% in Auckland in the past year alone, the government can count more than 650 state homes, or “staties,” worth at least NZ$1 million in its Auckland property portfolio, according to data obtained by Bloomberg News via a freedom of information request. Among the most valuable listed by property researcher CoreLogic: a two-bedroom home in the leafy, inner-city suburb of Westmere with a rotting clapboard facade. With the prospect of sea views if renovated, plus space for a tennis court and swimming pool, it’s valued at NZ$2.2 million.

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Blowback for the west’s handling of the Middle East in the past 150 years.

• We Still Haven’t Grasped That This Is War Without Frontiers (Robert Fisk)

[..] Isil’s realisation that frontiers were essentially defenceless in the modern age coincided with the popular Arab disillusion with their own invented nations. Most of the millions of Syrian and Afghan refugees who have flooded into Lebanon, Turkey and Jordan and then north into Europe do not intend to return- ever – to states that have failed them as surely as they no longer – in the minds of the refugees – exist. These are not “failed states” so much as imaginary nations that no longer have any purpose. I only began to understand this when, back in July, covering the Greek economic crisis, I travelled to the Greek-Macedonian border with Médecins Sans Frontières. In the fields along the Macedonian border were thousands of Syrians and Afghans.

They were coming in their hundreds through the cornfields, an army of tramping paupers who might have been fleeing the Hundred Years War, women with their feet burned by exploded gas cookers, men with bruises over their bodies from the blows of frontier guards. Two of them I even knew, brothers from Aleppo whom I had met two years earlier in Syria. And when they spoke, I suddenly realised they were talking of Syria in the past tense. They talked about “back there” and “what was home”. They didn’t believe in Syria any more. They didn’t believe in frontiers. Far more important for the West, they clearly didn’t believe in our frontiers either.

They just walked across European frontiers with the same indifference as they crossed from Syria to Turkey or Lebanon. The creators of the Middle East’s borders found that their own historically created national borders also had no meaning to these people. They wanted to go to Germany or Sweden and intended to walk there, however many policemen were sent to beat them or smother them with tear gas in a vain attempt to guard the national sovereignty of the frontiers of the EU. The West’s own shock – indeed, our indignation – that our own precious borders were not respected by these largely Muslim armies of the poor was in sharp contrast to our own blithe non-observance of Arab frontiers.

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No, Europe is being broken apart by the EU.

• Yanis Varoufakis: Europe Is Being Broken Apart By Refugee Crisis (Guardian)

Europe’s stumbling response to the refugee crisis is the result of the divisions caused by the six-year monetary crisis which has fragmented the continent and turned nations against each other, former Greek finance minister Yanis Varoufakis has told the Guardian. With thousands of migrants travelling to Europe from Africa, the Middle East and south Asia, Varoufakis said the future of the European Union was threatened by the worst such crisis since 1945. European leaders have agreed a plan to share 120,000 refugees through a quota system, but countries on the Balkan route have begun refusing people of certain nationalities as part of a backlash against migrants in the wake of the Paris attacks. The issue has become symbolic of Europe’s inability to act together.

Countries such as Britain were gripped by “moral panic” at the sight of refugees camped out at Calais, Varoufakis said, while countries such as Hungary had erected razor-wire fences to prevent migrants getting in. “Take a glance at events in Europe over the last 10-15 years ever since monetary union. The project has failed spectacularly,” said Varoufakis, who quit his job in July after failing to win the deal on debt relief that he believed was necessary for the Greek economy to turn the corner. “Europeans are a people divided by a common currency. The euro crisis has fragmented Europe, turning Greeks against Germans, Irish against Spanish etc. “It makes it hard for the EU to function as a political entity, as a unified entity. The centrifugal force of monetary union has made it harder to deal with the refugee crisis. In a sense, it is the straw that has broken the camel’s back.”

Varoufakis, speaking during a short speaking tour of Australia, admitted that he did not have the solution to the refugee crisis. “I don’t have the answer. The numbers of people are very large. But if someone knocks on my door at three in the morning, scared, hungry and having been shot at, as a human it is my moral duty to let them in and give them a drink and feed them. And then ask questions later. Anything else is an affront to European civilisation. “From a European perspective, we have a lot to answer for. Countries such as Iraq and Syria are creations of western imperialism and the cynicism of the west’s treatment of the region in the past has caused a backlash. “The invasion of Iraq was a great example of the inanity of the west. Syria and Iraq were very fragile states but by creating the rupture, it propelled a shockwave.”

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Back to the future.

• Life After Schengen: What a Europe With Borders Would Look Like (Bloomberg)

Continental Europeans have gone so long – two decades – without internal border controls that the younger generation doesn’t know what life is like with them. For a glimpse of the past, and the fortress mentality setting in after the Paris terrorist attacks, look no further than France’s frontier with Luxembourg. Five days after the Paris murder spree, the highway into Luxembourg resembled a truck parking lot, with a two-hour wait as the police stopped and, occasionally, searched. “What a pain in the neck,” said Alban Zammit, 43, a shaven-headed French truck driver who travels back and forth across the border with cargoes ranging from batteries to sacks of sugar. “Is it just to give people the impression of increased security?”

To grasp the economic toll in the time-is-money society, imagine commuters and truckers lining up for passport checks every morning to take the George Washington Bridge or Lincoln Tunnel from New Jersey into Manhattan. Rush hour is slow enough as it is. Luxembourg is central to the border-free story. The Grand Duchy is at the heart of Europe, and every day its population of 550,000 swells by 157,000 commuters taking the train or bus, or driving or carpooling in from bedroom communities in France, Germany and Belgium. Schengen, a Luxembourg town just across the Moselle river from where Germany meets France, was the site of the signing of the open-borders treaty in 1985. Border controls were fully abolished in 1995, initially between seven countries.

Now passport-free travel is the norm between 26 European countries, with the island nations of Britain and Ireland as the notable exceptions. Some 400 million people live in the zone that makes travel within Europe like travel between American states, with only signs like “Bienvenue en France” to denote a change of country. The European Commission guesstimates that there are 1.25 billion cross-border journeys annually, but the unsupervised nature of the system makes the true number unknowable. Incantations such as “Schengen is the greatest achievement of European integration” – intoned by the European Union’s home affairs commissioner, Dimitris Avramopoulos, on Wednesday – are now coupled with the fear that the system will be rolled back, and in the worst case abolished.

Before the Paris attacks, five countries had temporarily reimposed passport controls to cope with the unprecedented wave of refugees from the Middle East. France followed suit as the Europe-wide manhunt got under way for the Paris culprits. Brief suspensions are nothing new, and are foreseen during security scares and for countries staging big events like the Group of Seven summit in southern Germany in June or the European soccer championship in Poland in 2012. But never before has there been so much pressure for a wholesale tightening of the system.

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Wonder what Christmas they will have,

• Greek Concerns Mount Over Refugees As Balkan Countries Restrict Entry (Guardian)

Concerns are mounting in Greece that the country could have to deal with thousands of trapped migrants and refugees, after border crossings to Balkans countries to the north were abruptly closed. Macedonia’s decision to prohibit entry to anyone not perceived to be from wartorn countries such as Syria, Afghanistan and Iraq has ignited concern that the EU’s weakest member may be left picking up the pieces. “The nightmare scenario has started to develop where Greece is turned from a transit country to a holding country due to the domino effect of European nations closing their borders,” said Dimitris Christopoulos, vice-president of the International Federation for Human Rights. “There is no infrastructure in place to handle people being stuck here,” he told the Guardian.

An estimated 3,600 Europe-bound migrants were stranded on the Greek side of the frontier on Sunday. “More and more are arriving all the time,” said Luca Guanziroli, field officer with the United Nations refugee agency in the border village of Idomeni. “There is a lot of anxiety, a lot of tension.” Labouring under its worst crisis in modern times, debt-stricken Athens is ill-placed to deal with any emergency that might put more burden on a fragile state apparatus. As spontaneous protests erupted at the weekend, the government dispatched its junior interior minister for migration, Yiannis Mouzalas, to Idomeni to hold talks with local officials. One said: “We are very worried. We can hardly cope, and that’s just waving them [refugees] through.”

Those affected by the ban – mainly Iranians, north Africans, Pakistanis and Bangladeshis – demonstrated within spitting distance of Macedonian border guards on Saturday, shouting “we are not terrorists” and “we are not going back”. The UNHCR said it was wrong to profile people on the basis of nationality. “You cannot assume that they are all economic migrants,” said Guanziroli. “You cannot assume that a lot of them aren’t persecuted in their own countries.” Macedonia is not the only state to tighten border controls. In the wake of the Paris attacks, many nations along Europe’s refugee corridor – in the western Balkans and further north – have also restricted access to those not thought to be fleeing war. “This business of placing restrictions and erecting fences to keep terrorists out when terrorists are already in their countries makes no sense whatsoever,” said Ketty Kehayiou, a UNHCR spokeswoman in Athens. “Profiling by nationality defies every convention.”

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“..some of the attackers were French citizens, so they could have come to New York without needing a visa.”

• Why Syrian Refugees Are Not A Threat To America (Forbes)

The days following the Paris attacks have seen a backlash against Syrian refugees. The governors of 31 states have refused to accept Syrian refugees, citing security fears. But the numbers don’t back them up. Here are a few powerful statistics. Only 2% of Syrian refugees admitted to America are males of military age. 50% are children, and 25% are above the age of 65, according to the the U.S. Committee for Refugees and Immigrants. There are very few Syrian refugees in the United States. Since Oct. 1 2012, a total of 2,128 of the world’s four million Syrian refugees have been resettled across the United States, with 4,900 more in the pipeline. That’s hardly the unmanageable torrent some Republicans are fearfully describing. Six of the states that are refusing to accept refugees have not had a single refugee settle there since 2012.

For comparison, the U.S. State Department issues visas to tens of thousands of tourists and students each year. They go through some security checks, but they avoid the stringent refugee screening process. It takes at least four years for refugees to be approved to enter the U.S.. The United Nations High Commissioner For Refugees (UNHCR) puts refugees through its own two-year screening process before referring them to the U.S.. The American screening process takes about another two years as well. Lavinia Limon, the chief executive officer of USCRI points out that that’s a long time for undercover terrorists to wait. ”It seems to me that terror networks are better funded than to keep someone in a refugee camp for four years to hope that they’ll be the half of 1% that will get to come in,” she said.

“That’s not very efficient!” She pointed out that some of the attackers were French citizens, so they could have come to New York without needing a visa. Once they get that UNHCR referral, refugees are vetted by a high number of American agencies. Lee Williams of USCRI names a few. “We know they go through the CIA, the FBI, the national counter-terrorism database, and the Department of Defense,” he said. Then they’re vetted by “agencies with acronyms that none of us know about,” he added, describing the process as a “black box.” It works, for the most part.

Since 9/11 just three refugees out of the 784,000 admitted have been arrested on terrorism charges. Two weren’t planning an attack on American soil, and the plans of the third were “barely credible,” according to the Migration Policy Institute. None of the three were Syrian. Once the refugees get to America, they’re placed in one of 300 resettlement sites by one of nine resettlement agencies. The goal of these agencies is to get the refugees to self-sufficiency as quickly as possible, Simon said. 85 percent of family groups are self-sufficient four months after they arrive.

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Debt Rattle November 14 2015

Nov 142015
 
 November 14, 2015  Posted by at 10:11 am Finance Tagged with: , , , , , , , , , , ,  14 Responses »


Unknown Paris 1900

• Calm Broken as US Stocks Post Worst Week Since August Selloff (Bloomberg)
• Nomi Prins Warns: “It’s All Coming To An End” (KWN)
• Albert Edwards: The Global Economy Will Be Thrown Into Chaos (ZH)
• Ten Ex-Deutsche Bank, Barclays Traders Charged in Euribor Probe (Bloomberg)
• 3 Accused Euribor Rate Manipulators Members of ECB Crisis Focus Group (ZH)
• Central Bankers Are Heroes: OECD’s Gurria (CNBC)
• China’s Yuan Takes Leap Toward Joining IMF Currency Basket (Reuters)
• VW Said to Seek as Much as €20 Billion in Bridge Funds (Bloomberg)
• How GM’s Bailout Became China’s Bonanza (Bloomberg)
• Portuguese Revolution Falls Far Short (Paul Craig Roberts)
• EU Commissioner’s Dire Warning: “The Only Alternative To Europe Is War” (ZH)
• Greece Says Turkey Turning Blind Eye To Refugee Smugglers (AFP)
• Greece Warns EU To Hold Turkey To Account On Refugee Crisis (Kath.)
• World’s Largest Ocean Cleanup Operation One Step Closer To Launch (Guardian)
• Monstrous Wave Of Paris Attacks Underlines France’s Year Of Terror (RT)
• Let Mercy For Refugees Be The Response To The Paris Attacks (Margaret Corvid)
• The Annihilation Of Nature (Woods Inst.)

People still pretending there are functioning markets.

• Calm Broken as US Stocks Post Worst Week Since August Selloff (Bloomberg)

You have to go back to August’s selloff to find a week as bad as this one for U.S. equities. Catalysts that drove the S&P 500’s 12% summer tumble, from interest rate dread to a commodities rout, surfaced again after being sidelined during October’s surge. Signs of slowing growth from China to Europe rekindled concern that weakness could spread to America as the Federal Reserve prepares to tighten monetary policy. While equities are nowhere near their August lows, the weekly slump raised concern that the S&P 500’s six-week rally went too far, too fast. Volatility jumped after an October lull, with a measure of price swings surging 40%.

Bank of America says shares are more likely to decline before New Year’s amid weak consumer earnings and the specter of higher borrowing costs. “For the next month and a half I think there may be more downside than upside risk to stocks,” Savita Subramanian at Bank of America said by phone. “The market is going to be more skittish about seeing the first Fed rate hike. We’re not going to get there without a little more volatility.” The S&P 500 Index fell 3.6% in the five days, sliding below its average price for the past 100 days for the first time in three weeks. The decline snapped a run of six weekly gains, the longest rally of the year that included an 8.3% surge in October.

The Chicago Board Options Exchange Volatility Index jumped above 20 for the first time since August, when it touched a four-year high. For Subramanian, who in October lowered her year-end target for the S&P 500 to 2,000 from 2,100, the list of worries is tallying up. Weak corporate earnings and the prospect for higher rates will keep a lid on gains through the remainder of the year, she said in an interview with Bloomberg. “Earnings are not coming in particularly great for sectors like consumer stocks, and on top of that you’ve got the Fed in December,” Subramanian, head of U.S. equity and quantitative strategy, said by phone. “Those all kind of conspire against near-term gains.”

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“And so that keeps the artificial game in play through the middle or fall of 2016..”

• Nomi Prins Warns: “It’s All Coming To An End” (KWN)

Today Nomi Prins, the keynote speaker who recently addressed the Federal Reserve, IMF and the World Bank, warned King World News “It’s all coming to an end.” Eric King: “Nomi, we went through a round of terror in 2008, and certainly China just went through that again recently when their stock market crashed along with the emerging markets, but when does this whole global Ponzi scheme finally come unraveled?” Nomi Prins: “We are seeing small unravelings all the time. Brazil is doing badly, Mexico is struggling, currencies around the world relative to the dollar are hurting, which means relationships of imports to exports and money coming into those countries are hurting.

China has had problems but its central bank has been big enough and strong enough to boost it at least somewhat back up again. The United States is in complete denial in terms of what the economic indicators are said to be vs what they actually are and how the markets themselves are being continually buoyed either by the Federal Reserve or the Fed’s associations with some of the big banks in terms of continuing to buy Treasury bonds… “The ECB is still on a mission, and as of the November 12th announcement from Mario Draghi, an even stronger mission to continue to infuse those markets with artificial money and perhaps even enhance their quantitive easing program. So you ask, ‘When is this all coming to an end?’

It is all coming to an end, but you have all these actors trying to prop up different pieces of it (the global financial system) and so that’s why there is all this enhanced volatility and you have so many ups and downs (in global markets). (The end will come) when there are no more creative concepts on the part of these central banks to provide the artificial stimulus to the markets. And that could be the middle or the end of 2016, only because one big central bank in play has already committed to doing their part of it (with enhanced stimulus). And so that’s why we continue to have enhanced volatility to the downside in global markets that is also met with intervention, which is unprecedented. But it (the stimulus) does exist and we have to recognize that, as unprecedented and bizarre as it is, and there are indications that it will continue.

And so that keeps the artificial game in play through the middle or fall of 2016. But in the core of markets and economies things are not stable, which is why all of these (volatile) movements are happening. If anything was stable for real, the Federal Reserve would have raised rates years ago, the ECB wouldn’t have needed to come up with another round of quantitative easing, the People’s Bank of China wouldn’t need to reduce the reserve requirements to their financial institutions in order to give them more money to play with — none of that would be happening. So we are in a state of deterioration. The timing of an eventual implosion has to do with when the big banks have nothing left to counteract the artificial markets coming apart that they themselves have created.

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“The rotten fruit of the Fed’s seemingly innocuous inaction will now be clear to onlookers as it is ripped to shreds on the battlefield by the powerful credit monster.”

• Albert Edwards: The Global Economy Will Be Thrown Into Chaos (ZH)

SocGen’s permarealist, Albert Edwards, has been the one person who for the past decade has firmly held the belief that a “deflationary Ice Age” is upon the world – courtesy of an unmanageable debt load – no matter what central banks do. There is, of course, one way to short circuit said Ice Age, and it involves paradropping money in an act of terminal fiat desperation (the outcome is always hyperinflation) onto the general population, something which as we reported last Friday is already in the works courtesy of first Adair Turner and the IMF, and soon all other “very serious people”.

Keep an eye on Japan as this is where said paradropping will be attempted first as Ben Bernanke suggested back in 2003 when he said to “consider for example a tax cut for households and businesses that is explicitly coupled with incremental Bank of Japan purchases of government debt – so that the tax cut is in effect financed by money creation.” But before we get there, here is a snapshot of where, according to Edwards, we are now and why “there” is getting very close. In his latest note he says, quite simply, that it is now too late to put the “Orc-like monster” of excess debt and declining cash flows back in the bottle, and why “the global economy will be thrown into chaos.”

The deeply held wish of central bankers not to de-rail the fragile economic recovery is on display for all to see as they grasp at the slightest excuse for their continued inaction. The UK’s central bank governor, Mark Carney, exceeded all dovish expectations recently in his latest rate flip-floppery. But what is this? The Fed has finally summoned up its courage and looks set to raise rates next month. It is, however, already too late. Having delayed way beyond the point when it might typically have raised rates in previous cycles, it has allowed an Orc-like monster to incubate, hatch and emerge into the sunlight, snarling and ready to do battle.

Free Fed money has led to an unprecedented corporate credit binge of excess spending, especially on share buybacks. This is even bigger than it was at the time of the 2000 technology and telecom bubble. The rotten fruit of the Fed’s seemingly innocuous inaction will now be clear to onlookers as it is ripped to shreds on the battlefield by the powerful credit monster. The global economy will be thrown into chaos.

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And each single one is named…

• Ten Ex-Deutsche Bank, Barclays Traders Charged in Euribor Probe (Bloomberg)

U.K. prosecutors charged 10 former Deutsche Bank and Barclays employees with manipulating a benchmark interest rate, including high-profile trader Christian Bittar, with an 11th facing indictment as soon as next week. Six traders from Deutsche Bank employees and four from Barclays were charged with conspiracy to manipulate the Euribor benchmark, the Serious Fraud Office said in a statement Friday. Another trader listed anonymously in court documents may also be charged, according to three people familiar with the case. Alongside Bittar, those linked to Deutsche Bank are Andreas Hauschild, Joerg Vogt, Ardalan Gharagozlou, Achim Kraemer and Kai-Uwe Kappauf. Former Barclays employees Colin Bermingham, Carlo Palombo, Philippe Moryoussef and Sisse Bohart also face charges.

The SFO won the first conviction by trial tied to benchmark manipulation in August, when former UBS trader Tom Hayes was found guilty of rigging the London interbank offered rate and sentenced to 14 years in prison. Banks and other financial institutions have paid about $9 billion in fines tied to Libor and other key rates. One other person has pleaded guilty in the Libor probe. Lawyers for Bittar, Hauschild and Moryoussef said they will contest the allegations. Lawyers for the other eight either declined to comment or didn’t immediately respond to requests for comment. The nine men and one woman are scheduled to appear in a London magistrates court on Jan. 11.

Documents distributed in the case have listed an unidentified 11th trader that will be charged, according to people familiar with the matter who declined to be named because the prosecution isn’t public. The trader could be charged as soon as next week, one of the people said. Other than Bermingham, the 10 defendants named by the SFO all live outside Britain, according to an SFO spokeswoman. Bittar and Moryoussef live in Singapore, Bohart in Denmark and Palombo in the U.S. and Italy, while the remaining five are in Germany. All have been notified they face charges. No extradition requests have been made and all appearances will be voluntary at present, the SFO said.

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The riggers work for the ECB! Oh, what a tangled web.

• 3 Accused Euribor Rate Manipulators Members of ECB Crisis Focus Group (ZH)

[..] we find out that the ECB – the same ECB where policymakers like to meet with banks and asset managers before major policy meetings, actually had three of the traders accused of gaming Euribor by Britain’s Serious Fraud Office on Friday in a group that helped the the bank craft its response to the financial crisis! From Reuters:

The documents on the ECB website show that former Barclays euro money market desk head Colin Bermingham and Joerg Vogt and Ardalan Gharagozlou from Deutsche Bank – three of 10 people charged by the SFO on Friday – were part of the central bank’s Money Market Contact Group at the height of the crisis. The group regularly met and held conference calls as the central bank scrambled to stabilise markets that were threatening to push debt-strained Greece, Portugal, Ireland and even Italy and Spain out of the euro in 2010 and 2011.

Amusingly, the 10 people charged include Deutsche Bank’s Christian Bittar who can’t seem to get away from his title as rate rigger par excellence (although that’s not the term Anshu Jain used, that’s the spirit of a conversation the ex-Deutsche CEO once had about Bittar with a colleague back in the good ol’ days). Here’s Bloomberg:

U.K. prosecutors charged 10 former Deutsche Bank and Barclays employees with manipulating a benchmark interest rate, including high-profile trader Christian Bittar, with an 11th facing indictment as soon as next week. Six traders from Deutsche Bank employees and four from Barclays were charged with conspiracy to manipulate the Euribor benchmark, the Serious Fraud Office said in a statement Friday. Another trader listed anonymously in court documents may also be charged, according to three people familiar with the case. Alongside Bittar, those linked to Deutsche Bank are Andreas Hauschild, Joerg Vogt, Ardalan Gharagozlou, Achim Kraemer and Kai-Uwe Kappauf. Former Barclays employees Colin Bermingham, Carlo Palombo, Philippe Moryoussef and Sisse Bohart also face charges.

Ok, so the ECB was regularly communicating with three traders who are now charged with manipulating Euribor. Here’s what Francesco Papadia, head of market operations at the ECB during the financial and euro zone debt crises has to say about the group: “They helped understand what was going on beyond what you see on the screens.” If you follow financial markets and that doesn’t strike you as hilarious, then check your pulse. That is, we bet they did “help the ECB what was going on behind the screen”, after all, they were the ones colluding to fix the market! In any case, we’ll have to see what the time frames were here and if there was any overlap between when the allegations stem from and when this ECB committee operated (it’s probably a better bet that the manipulation took place before the euro debt crisis), but in any case, we’ll close with the following amusing quote for now: “The ECB plays no role in the setting of the Euribor rate,” the ECB said in a statement. Are you guys sure about that?…

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The lunatics and the asylum: “We’ve got to get all cylinders of the growth engine firing again. There is no room for complacency..”

• Central Bankers Are Heroes: OECD’s Gurria (CNBC)

“Super” Mario Draghi’s nickname is very much justified, according to Angel Gurria, the secretary-general of the Organisation for Economic Co-operation and Development (OECD), who has called on governments to do more to tackle the global growth slowdown. “Central bankers have been the heroes of this story since this financial and economic crisis hit in 2008, but the problem is they have run out of room. It’s time for the governments,” Gurria told CNBC Friday. The most influential central banks in the Western world, the U.S. Federal Reserve, European Central Bank (of which Draghi is president) and the Bank of England, have been running ultra-low interest rates and quantitative easing programs for years in some cases, to try and handle the fallout from the credit crisis.

With the Fed likely to become the first to signal a return to more normal monetary policy by raising rates, potentially as early as December, Gurria gave the central bank his blessing – although he said it should have started sooner. On Monday, the OECD cut its forecast for global growth to around 2.9% this year – well below its long-term average – citing a further sharp downturn in emerging market economies and world trade. Gurria, who was speaking at the G-20 summit of the heads of the world’s largest advanced and emerging economies, said: “The issue is about getting growth and trade back. It’s very ominous that trade is growing at about 2% when the world economy is growing at 2.9%. There’s only five years in the last 50 at which trade has grown at a rate lower than the world GDP and there has always been a recession following that.” “We’ve got to get all cylinders of the growth engine firing again. There is no room for complacency,” he added.

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How much of Beijing’s control over its currency will this take away?

• China’s Yuan Takes Leap Toward Joining IMF Currency Basket (Reuters)

China’s yuan moved closer to joining other top global currencies in the IMF’s benchmark foreign exchange basket on Friday after Fund staff and IMF chief Christine Lagarde gave the move the thumbs up. The recommendation paves the way for the Fund’s executive board, which has the final say, to place the yuan on a par with the U.S. dollar, Japanese yen, British pound and euro at a meeting scheduled for Nov. 30. Joining the Special Drawing Rights (SDR) basket would be a victory for Beijing, which has campaigned hard for the move, and could increase demand for the yuan among reserve managers as well as marking a symbolic coming of age for the world’s second-largest economy. Staff had found the yuan, also known as the renminbi (RMB), met the criteria of being “freely usable,” or widely used for international transactions and widely traded in major foreign exchange markets, Lagarde said.

“I support the staff’s findings,” she said in a statement immediately welcomed by China’s central bank, which said it hoped the international community would also back the yuan’s inclusion. Staff also gave the green light to Beijing’s efforts to address operational issues identified in a report in July, Lagarde said. The executive board, which represents the Fund’s 188 members, is seen as unlikely to go against a staff recommendation and countries including France and Britain have already pledged their support for the change. This would take effect in October 2016, during China’s leadership of the Group of 20 bloc of advanced and emerging economies. China has rolled out a flurry of reforms recently to liberalize its markets and also help the yuan meet the IMF’s checklist, including scrapping a ceiling on deposit rates, issuing three-month Treasury bills weekly and improving the transparency of Chinese data.

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Sales down 5.3%. Cash evaporating.

• VW Said to Seek as Much as €20 Billion in Bridge Funds (Bloomberg)

Volkswagen is working with banks to put together as much as €20 billion in short-term bridge financing to show that the automaker has adequate liquidity to weather the emissions cheating crisis, two people familiar with the matter said. VW does not need the money currently and is seeking extra funds to create a financial cushion, said the people, who asked not to be identified discussing private talks. The automaker will begin meeting with about a dozen prospective banks on Monday at its headquarters in Wolfsburg, Germany, to go over the proposed funding, which it aims to have in place before the end of the year, the people said.

“We have always considered that a well-diversified portfolio of funding tools gives us the necessary flexibility to offer appropriate and competitive financing options for our customers as well as our industrial investment needs,” Volkswagen said in an e-mailed statement. “It is perfectly normal that we are in a constructive ongoing dialog.” The scandal has spread since Volkswagen first admitted in September to cheating on diesel pollution tests. The carmaker will need to recall as many as 11 million diesel vehicles worldwide and admitted earlier this month that another 800,000 cars had unexplained inconsistencies in carbon dioxide output. By 2017, the price tag of VW’s emissions woes will probably reach about €25 billion, Barclays estimated on Friday.

“It makes perfect sense” to shore up financing, said Sascha Gommel at Commerzbank. “In order to protect their rating, they need to show that liquidity will never become an issue for them, because then you have a vicious circle. If the ratings agencies think you won’t have cash and they downgrade you, then your funding gets more expensive.” Volkswagen has the equivalent of €2.57 billion in bonds maturing this year, €14.3 billion next year and €13.5 billion in 2017. The company said earlier Friday it has put bond financing on hold because it needs time to update its documentation to reflect potential fines and penalties. Thus far, the automaker has set aside €6.7 billion to recall diesel cars and estimated the economic risk of the CO2 irregularities at another €2 billion.

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Bailed out by workers losing their jobs…

• How GM’s Bailout Became China’s Bonanza (Bloomberg)

During the 2012 election, President Barack Obama held up his bailout of General Motors as a model in the fight against China’s growing manufacturing dominance, telling voters that the auto rescue would reverse the industry’s multi-decade trend of outsourcing. A single election cycle later, the question of government support for automakers has all but disappeared from the political discourse, yet Detroit is back to sending jobs out of the industrial Midwest. And now GM is leading the way on Chinese outsourcing, announcing it will become the first U.S. firm to import a vehicle made in China to the U.S. It’s about time taxpayers ask what their $50 billion rescue really bought them. Starting next year, GM will import between 30,000 and 40,000 Buick Envision crossovers annually from a plant in Shandong Province.

That won’t make the Envision one of GM’s best-selling models, but it will greatly outsell the only other Chinese-import car on the market, the Volvo S60L. More importantly, GM’s pioneering Chinese import will likely help break down the consumer stigma attached to Chinese cars, leading the way for other automakers to follow suit. If a bailed-out company can get away with selling Chinese cars in the U.S., there’s no doubt that the rest will try too. The Envision is just the tip of GM’s Chinese iceberg: though the firm has not announced further plans to import other vehicles from Asia, it is increasingly making China a hub for new vehicle development and global exports. The next generation of GM’s small- and medium-sized vehicles will be offered with a new engine and high-tech dual-clutch transmission co-developed with its Chinese partner, the Shanghai Automobile Industry Corporation.

The two companies are also jointly creating an entire family of small vehicles to be exported from China to markets around the world. Taxpayers aren’t the only ones GM appears to be abandoning. The United Auto Workers is incensed by the Envision decision. As union vice president Cindy Estrada told the Detroit Free Press in August when the rumors of the plan surfaced, “after the sacrifices made by U.S. taxpayers and the U.S. workforce to make General Motors the profitable quality company it is today, UAW members are disappointed with the tone-deaf speculation that the Envision would be imported from China.” Yet given that the UAW has a new wage-raising contract nearing ratification, it can be argued that the union may have brought some of this disappointment upon itself.

But perhaps it is in Canada, where the government spent $10 billion rescuing G.M. and Chrysler, where anger is most justified. With GM’s “vitality commitment” – made to protect jobs in Canada as a condition of its bailout – expiring at the end of next year, the automaker has already decided to cut 1,000 jobs from its Oshawa, Ontario, plant when production of the Chevrolet Camaro ends there next week. GM has hinted that more outsourcing could follow. And as a new Liberal government is taking power in Ottawa, GM is pushing for “more amenable” subsidies than the $750 million in loans that had been offered by the outgoing Conservatives. If new Prime Minister Justin Trudeau doesn’t bow to GM pressure – turning those loans into grants that it need not repay – the automaker may well pull even more jobs from a country that stood by it at its darkest hour.

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“..the right-wing Portuguese president, Anibal Cavaco Silva, a creature of Washington and the big banks..”

• Portuguese Revolution Falls Far Short (Paul Craig Roberts)

The austerity imposed on the Portuguese people by the 1% has resulted in the election of a coalition government of socialists, communists, and a “left bloc.” In the 20th century, socialism and the fear of communism humanized Europe, but beginning with Margaret Thatcher the achievements of decades of social reforms have been rolled back throughout Europe as bought-and-paid for governments have given all preference to the One%. Public assets are being privatized, and social pensions and services are being reduced in order to make interest payments to private banks. When the recent Portuguese vote gave a majority to the anti-austerity bloc, the right-wing Portuguese president, Anibal Cavaco Silva, a creature of Washington and the big banks, announced that the leftwing would not be permitted to form a government, just as the senior British general announced that a Labour Government formed by Jeremy Corbyn would not be permitted to form.

True to her word, Anibal reappointed the austerity prime minister, Passos Coelho. However, the unity of the socialists with the communists and the left bloc swept Coelho from office and the president had to recognize a new government. The new government means that for the first in a long time there is a government in Portugual that possibly could represent the people rather than Washington and the One%. However, if the new government leaves the banks in charge and remains committed to the EU, the current president, previous prime minister, and previous finance minister, Maria Luis Albuquerque, will continue to work to overthrow the people’s will as occurred in Greece. The new Portuguese government cannot escape austerity without nationalizing the banks and leaving the EU. The failure of the Greek government to bite the bullet resulted in the Greek government’s acceptance of the austerity that it was elected to oppose.

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No, it’s the EU itself that means war.

• EU Commissioner’s Dire Warning: “The Only Alternative To Europe Is War” (ZH)

While the saying goes “good fences make good neighbors,” it appears the leadership of The EU is starting to get frustrated with the lack of acquiescence among some of the ‘union’s’ newer or more marginal members. In a somewhat stunning statement, following ongoing and contentious meetings to discuss solutions to the migrant ‘problem’, EU Commissioner Timmermanns appeared to warn disagreeable member states, “There is an alternative to everything. I believe in EU cooperation because of all other forms in history have been tried to help Europeans get on better, and with the exception of this one, all other forms have led to war – so let’s stick to this one.” As Elsevier reports (via Google Translate),

European leaders read the last few days the alarm about the survival of the European Union (EU). Prague said Commissioner Frans Timmermans (PvdA) Friday that the EU is only one alternative: war. “The only alternative to the EU is war,” said Timmermans Friday gave a speech at a conference in Prague, said a reporter for The Times of London who attended the speech. Timmermans is the way Europe responds to the migration crisis’ the biggest threat to the EU ever. The Commissioner underlined that countries should cooperate better when it comes to border controls. “Migration is part of life, but we must lead these movements together in the right direction,” said Timmermans.

Matching words Timmermans in the alarmist tone that European leaders were heard in recent days about the survival of the EU. Earlier this week, Timmermans at the House of Europe Lecture in Amsterdam that he fears for the survival of the EU. “I do not optimistic about doing that, because I’m just not.

The current migration crisis is the European ideal of free movement shaking on its foundations. EU President Donald Tusk said that the EU is engaged in “a race against the clock.” “But we are determined to win this race,” said Tusk. “As I warned earlier, the only way not to dismantle the Schengen ensure proper management of the external borders of the EU.” The EU appears to be unable to curb migration flows. Because the borders are not guarded, seeing more and more countries are forced to protect their own borders. Even the welcoming Sweden went on Thursday to intensive checks on the southern border.

Remember when Hank Paulson waved the “Mutual Assured Destruction” card in the face of the U.S. with his infamous “blank check” three page term sheet? Now, it’s Europe’s turn. What’s worse, however, for things to devolve this much, it confirms that the European ‘Union’ is rapidly disintegrating, much more than the recent surge in barbed wire fences around European nations will demonstrate, and as Timmermanns warns, that means war.

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Much more than a blind eye.

• Greece Says Turkey Turning Blind Eye To Refugee Smugglers (AFP)

Greece’s migration minister on Friday said refugee smuggling in Turkey was conducted in “broad daylight” as he called on the EU to step up relocation plans. “The entries (from Turkey) are happening in an organized fashion,” junior interior minister for migration Yiannis Mouzalas told a news conference. “It is happening in broad daylight, with villages gathering around to watch the refugees being put in boats by the traffickers. There is no secrecy in this,” he said, citing evidence from Turkish media and the Greek coastguard. Greek PM Alexis Tsipras will travel to Turkey next week to press the country’s leaders to take a stronger stance against refugee traffickers.

Turkey “is spending a lot of money, it is holding three million refugees on its soil, but we believe it has the ability and it must acquire the will to stop the flows from its coasts,” Mouzalas said. Greece has been overwhelmed this year by a migration crisis unseen in Europe since the Second World War. The United Nations on Friday said over 800,000 people have crossed the Mediterranean to Europe this year, with over 3,400 dying in the attempt. EU states put together a scheme to share out some 160,000 people inside the bloc, but fewer than 2,000 relocation places have been found so far. And the program is already threatened by undue inflexibility, Mouzalas said.

“One EU country said it was prepared to accept 12 people. We wanted to send 14 as they were a family, and the country did not accept the extra two. Such cancellations could cancel out the substance of relocation,” he said. Greece has pledged to find accommodation for 20,000 refugees by January. Another 20,000 will be temporarily housed in rented flats under a UN scheme, Mouzalas said. And registration centres on Greek islands created with EU funds, known as hotspots, will provide short-term accommodation for over 6,500 people, he said. “If (registration) procedures go smoothly people will stay 48-72 hours” before moving to the mainland, the minister said.

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The EU just throws $3 billion in taxpayer money at Erdogan and hope something sticks.

• Greece Warns EU To Hold Turkey To Account On Refugee Crisis (Kath.)

Greece has warned the European Union to obtain specific commitments from Turkey ahead of putting together a €3 billion fund for Ankara to help tackle the refugee crisis. The key role of Turkey in the process of stemming the flow of refugees and migrants was discussed on Friday during the second and last day of a summit in Malta. According to sources, Greek Prime Minister Alexis Tsipras stressed to his EU counterparts that Brussels has to make it clear what it will be getting in return for providing Turkey with emergency funding and assistance. For instance, Tsipras said that in return for receiving new equipment for its coast guard, Turkey should be made to prove that it is cracking down on human-trafficking gangs.

The Greek premier said that if the EU is going to provide money for the construction of reception centers on Turkish soil, then Ankara has to commit to allowing the relocation of refugees to take place directly from these camps. Also, Tsipras said that if the EU is going to lift visa restrictions on Turkish citizens, Ankara’s readmission agreement with Greece should be upgraded to a pact between Turkey and the EU. It is expected that these will be some of the key points that Tsipras will raise when he visits Ankara next week, ahead of an EU-Turkey summit in Brussels on November 29. Tsipras held a meeting with Foreign Minister Nikos Kotzias in Athens on Friday to begin preparation for the upcoming trip to Turkey.

Alternate Minister for Immigration Policy Yiannis Mouzalas said that Greece has no plans to create more spaces at relocation camps on the eastern Aegean islands beyond those needed as part of Athens’s commitment to the EU for the relocation scheme. Mouzalas said that those refugees who will be included in the transfer process would be moved on from the islands to the mainland. He said the government plans to have reception centers capable of holding 2,000 arrivals on Lesvos, 1,500 on Samos, 1,000 on Chios, 1,000 on Kos and around 800 on Leros.

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Of course private citizens have to do this. Governments are too busy.

• World’s Largest Ocean Cleanup Operation One Step Closer To Launch (Guardian)

A crowdfunded 100km-long boom to clean up a vast expanse of plastic rubbish in the Pacific is one step closer to reality after successful tests of a scaled-down prototype in the Netherlands last week. Further trials off the Dutch and Japanese coasts are now slated to begin in the new year. If they are successful, the world’s largest ever ocean cleanup operation will go live in 2020, using a gigantic V-shaped array, the like of which has never been seen before. The so-called ‘Great Pacific garbage patch’, made up largely of tiny bits of plastic trapped by ocean currents, is estimated to be bigger than Texas and reaching anything up to 5.8m sq miles (15m sq km). It is growing so fast that, like the Great Wall of China, it is beginning to be seen from outer space, according to Jacqueline McGlade, the chief scientist of the UN environmental programme (Unep).

“We have to admit that there has been a market failure,” she told the Guardian. “Nevertheless, we have to create a market success that brings in new forms of chemistry and technology.” The Ocean Cleanup project aims to do the technology part with a floating barrier as long as the Karman line that reaches from the sea to outer space. Sea currents and winds will be used to passively funnel plastic debris into an elbow made of vulcanised rubber where it can be concentrated for periodic collection by vessels. Sub-sea buoys at depths of up to 30 metres would anchor the contraption in depths of up to 4.5km. Sea currents flowing beneath its booms would allow fish to escape, while hoovering up 42% of the Pacific’s plastic soup. At least, that is the plan.

“Everything is unknown so everything is a potential problem,” said Lourens Boot, the programme’s chief engineer, who has previously worked on offshore oil and gas rigs. “The risk matrix is big, but one by one we are tackling those risks.” One of the biggest has been finance. Charles Moore, the racing boat captain who discovered the floating vortex in 1997, once said that the cost of a cleaning operation would “bankrupt any country”. But around half the scheme’s initial €30m (£20m) budget has now been raised through online donations and wealthy sponsors. In the long term, the project plans to finance itself with a major retail line of ocean plastic fashion wear.

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Quite a list.

• Monstrous Wave Of Paris Attacks Underlines France’s Year Of Terror (RT)

Waves of deadly attacks have held France in a constant state of stress, anger and grief over the past 12 months, as the country has faced a series of deadly assaults and terror acts by radicalized Islamists and jihadists. It all started just before Christmas on December 20, 2014, in the largest suburb of the city of Tours, in Central France, when an attacker of Burundian origin, shouted “Allahu Akbar” [God is great] before attacking officers at a police station with a knife. The assailant, identified as Bertrand Nzohabonayo, injured three policemen before officers took him down. The following day, on December 21, a man in the French city of Dijon run over 11 pedestrians in five areas of the city. The driver – who also shouted “Allahu Akbar” – was arrested. Authorities later stated that the attacker ploughed into passers-by because he suffered from severe psychiatric problems.

On the third day after the initial attack, a man in a white van rammed over ten pedestrians at a Christmas market in the French city of Nantes. The driver is said to have stabbed himself and officials said he appeared to be in an unstable metal condition. One civilian died in those attacks. The spate of attacks forced the French government to heighten security by deploying 300 soldiers onto the country’s streets. In early January, the French nation was in state of horror after a series of five terrorist attacks, which took place in and around Paris. The four attacks killed at least 20 people and wounded dozens more, before three of the assailants were killed by special forces. The fourth terrorist remains at large.

The intimidation of the French public began on January 7, after two gunmen, identified as Cherif and Said Kouachi, attacked the headquarters of the satirical newspaper Charlie Hebdo, over the publication’s depiction of the Prophet Mohammed. Twelve people, including two police officers, were killed in the onslaught, while eleven others were injured. The suspects fled the scene. Hours after the Charlie Hebdo attack, a third assailant, Amedy Coulibaly, shot a 32-year-old man who was out for a run in a park near Coulibaly’s home. On January 8, the same attacker shot and killed a municipal police officer in a suburb of Paris. A street sweeper was also wounded in that attack. The following day, on January 9, the Charlie Hebdo attackers, Cherif and Said Kouachi, attacked a signage production company in Dammartin-en-Goele, taking hostages on premises.

At the same time, Coulibaly, entered a kosher supermarket at Porte de Vincennes killing four people and taking the rest of the people in the store hostage. To neutralize the attackers, French special forces conducted simultaneous raids in Dammartin and at Porte de Vincennes, killing three terrorists. The fourth suspect, believed to be Coulibaly’s wife is still on the run. January’s atrocities became the deadliest act of terrorism in France since 1961, when a bomb on a Strasbourg–Paris train took the lives of 28 people. Following Charlie Hebdo attacks, the French government announced the creation of 2,680 new positions in the French military and intelligence agencies. The €425 million program was unrolled with the sole purpose to monitor a population of approximately 3,000 people with any possible connections to terrorist groups abroad. Furthermore, the government deployed some 122,000 police, military and gendarmes to provide security across France.

But terror in France did not stop there. On June 26, 2015 a French Muslim of North African descent, Yassine Salhi, decapitated his employer before driving his van into gas cylinders at a gas factory near Lyon. This caused an explosion and injured two other people. Prior to ramming his van in an effort to destroy the factory, Salhi placed his boss’s decapitated head on a fence along with two Jihadist black flags. The suspect was arrested after being taken down by the firefighters that rushed to the scene. That attack on the factory near Lyon coincided with a number of other Islamist terrorist attacks that have taken place in Tunisia and Kuwait. Finally, before the monstrous wave of attacks on Friday, a Thalys train traveling from Amsterdam to Paris via Brussels was attacked by an assailant who opened fire in a carriage before being subdued by off duty US servicemen aboard the train. Four people were injured but luckily none fatally.

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It’s one approach.

• Let Mercy For Refugees Be The Response To The Paris Attacks (Margaret Corvid)

There have been horrible, disgusting terrorist attacks in France this night, with over 120 dead already reported. In response, premier François Hollande has declared a state of emergency for the first time since the Second World War. The media are subject to state control, gendarmes can enter any private home, and the borders are shut. The borders that have been the last hope for so many refugees crowding the camps of Calais and elsewhere, the borders that are so important to the women, children and men shivering in the rain, their feet rotting, have been closed by a frightened France. Probably the rest of Europe will follow suit. I hope not. A handful of terrorists—maybe French nationals, maybe not—blew up a crowd in a stadium with grenades, killed diners and walkers and concert-goers with guns and suicide bombs, traumatizing Paris to its core.

And what Hollande has done in response is to close the borders, the lifeline to the many suffering people fleeing war in Syria—even before we know for sure who the murderers are, or what their aims were. Reports claim the terrorists fought in Syria’s name. But if they did, and if they were ISIS, then the tens of thousands of refugees shivering in camps hate and fear them as much as the friends and families of the dead of Paris do. The refugees huddling in France, Germany, Turkey, Greece, and elsewhere are not the terrorists. They are fleeing the same terrorists—fleeing death, torture and destruction, trusting their lives to crumbling boats, washing up on shore hated, beaten, half-dead—and we are forsaking them.

I am a member of a Facebook group where people organize aid for the refugee camp in the northern seafront town of Calais. Now a shanty town of a full 6,000 refugees, such aid has never been more needed. Shoes are rotting on the feet of the camp’s dwellers as the weather worsens, food and medical care are scarce, and graves are rapidly filling. The lifesavers in the camp are not the government or the UN refugee groups—they are ordinary people connecting with tiny charities to bring desperately needed wood, food, medicine, blankets, water. Closing the borders as the terrifying war continues in Syria will not punish the terrorists; it will only cause more needless suffering and death, including to innocent children.

Why is Hollande using the refugees as hostages, condemning them with his border closure to a death that is slower but no less certain than that of a head chopped by a guillotine, or that of a concert-goer blown up by a grenade? He only helps the terrorists. ISIS and those in the West who hate the refugees want the same thing: martial law, state control of discourse, the spreading of Islamophobia, and a global atmosphere of suspicion and discord. In such a world, ISIS gets its youthful cannon fodder—those disaffected by the climate of hate and brutal racism—and the Front Nationales, the Ukips, all the soft and hard white supremacists of the world, get their white utopia, where a refugee child cannot migrate but guns and money can.

Tonight, Paris mourns, and the world mourns with Paris. I mourn, and my anguish at needless death drives these words. Forsake vengeance. Open the borders, Hollande. Open them even further than the painful trickle that they allowed before, and let mercy be the response to horror. Open them, Cameron. Let those people fleeing for their lives through the borders—through all the borders—fly all the way through to peace and safety in whatever countries they wish to reach. Open the borders, Obama, and let those people through, those people just like us, just like the diners and concert-goers of Paris, who are trying to save their lives.

If they all die of illness and exposure in their tents, fighting starvation, sickness, fire, fear or hate, it will neither save a single life from terrorism, nor avenge a single soul. Even if terrorists slip in among the refugees, each one of them who dies, each day they are locked down, will make more terrorists, watered by the tears of grief of their families and friends. No high-security level can ever end the threat of terrorism. Only mercy can do that; only the mercy of refuge, of acting like the just countries we believe ourselves to be—rather than what the terrorists believe us to be—can make us safe.

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A thousand times faster than the natural rate. We’ll kill it all. Or at least enough to make the earth hostile to our own species.

• The Annihilation Of Nature: Human Extinction of Birds and Mammals (Woods Inst.)

This book shows us the face of Earth’s sixth great mass extinction, revealing that this century is a time of darkness for the world’s birds and mammals. In The Annihilation of Nature: Human Extinction of Birds and Mammals, three of today’s most distinguished conservationists tell the stories of the birds and mammals we have lost and those that are now on the road to extinction. These tragic tales, coupled with eighty-three color photographs from the world’s leading nature photographers, display the beauty and biodiversity that humans are squandering. Gerardo Ceballos, Anne H. Ehrlich, and Paul R. Ehrlich serve as witnesses in this trial of human neglect, where the charge is the massive and escalating assault on living things.

Nature is being annihilated, not only because of the human population explosion, but also as a result of massive commercial endeavors and public apathy. Despite the well-intentioned work of conservation organizations and governments, the authors warn us that not enough is being done and time is short for the most vulnerable of the world’s wild birds and mammals. Thousands of populations have already disappeared, other populations are dwindling daily, and soon our descendants may live in a world containing but a minuscule fraction of the birds and mammals we know today. The Annihilation of Nature is a clarion call for engagement and action. These outspoken scientists urge everyone who cares about nature to become personally connected to the victims of our inadequate conservation efforts and demand that restoration replace destruction. Only then will we have any hope of preventing the worst-case scenario of the sixth mass extinction.

Read more …

Merkel Must Call Highest Level UN Emergency Summit Over Refugees

Nov 092015
 
 November 9, 2015  Posted by at 1:33 pm Finance Tagged with: , , , , , , , ,  7 Responses »


Giles Duley Afghan boy lands on Lesvos Nov 2015

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

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

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

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

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

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

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

Germany Imposes Surprise Curbs On Syrian Refugees

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Refugee Crisis Was Not Unexpected, Top UN Official Says

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

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

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

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

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

America’s Apathy About The Syrian Refugees

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

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

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

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

Europe Will Never Be The Same; Neither Will The World

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

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

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

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

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

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

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

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

Debt Rattle October 10 2015

Oct 102015
 
 October 10, 2015  Posted by at 9:46 am Finance Tagged with: , , , , , , , , , ,  5 Responses »


DPC Masonic Temple, New Orleans 1910

• Deutsche Bank: Tip of the Iceberg for Cutbacks at European Banks? (WSJ)
• Banks Take Spotlight As Earnings Season Heats Up (Reuters)
• Standard Chartered ‘To Cut 1,000 Senior Jobs’ (BBC)
• Margin Debt in Freefall Is Another Reason to Worry About S&P 500 (Bloomberg)
• China Is Becoming A Big Red Flag For US Stocks (MarketWatch)
• Buried In The Fed Minutes Is Another Downgrade To The US Economy (MarketWatch)
• BofA: Here’s The Precise Moment When We Should Have Known QE Went Wrong (BBG)
• Greek Debt Has Become Highly Unsustainable: IMF (Reuters)
• ECB Should Focus Asset-Backed Purchases on Periphery: Pimco (Bloomberg)
• The Hidden Debt Burden of Emerging Markets (Carmen Reinhart)
• US Hedge Fund Threatens Peru With Lawsuit Over Debt (BBC)
• Brazil: In A Hole And Still Digging (Ogier)
• War on Islamic State: A New Cold War Fiction (Nafeez Ahmed)
• Gene Patents Probably Dead Worldwide Following Australian Court Decision (ArsT)
• EU Gets Ready To Lock Up, Deport Migrants (CNBC)
• Greek Islands See Surge In Refugee Arrivals (Kath.)
• No Place Left To Die On Greece’s Lesbos For Refugees Lost At Sea (Reuters)

UniCredit, Credit Suisse, Standard Chartered and Deutsche Bank. Next!

• Deutsche Bank: Tip of the Iceberg for Cutbacks at European Banks? (WSJ)

Deutsche Bank’s warning that it expects a €6.2 billion third-quarter loss highlights a potentially bumpy financial-reporting season looming for European banks, as a slate of new chief executives confront concerns over profitability. Credit Suisse, Standard Chartered and Deutsche Bank, all under new chief executives, are among banks facing muted growth in their home markets and coping with more stringent regulation and capital requirements. Those issues, coupled with factors including uncertainty over China’s growth, U.S. interest rates and the slide in global commodities prices, have combined to depress profits for European banks. Meanwhile, U.S. rivals, most of which restructured fairly quickly following the global financial crisis, are now in growth mode, winning business away from European rivals, who have been slower to adapt.

European banks need to rethink quickly or risk losing more ground, according to analysts. Restructuring “remains top of the agenda” for Europe’s banks, analysts at Morgan Stanley wrote in a note this week, predicting U.S. banks once again would put in a better revenue performance this year in fixed income and equities and continue beating European rivals next year across investment banking. Deutsche Bank late on Wednesday took a multi-billion-dollar charge against assets in its investment bank and retail- and private-banking operations for the third quarter. It said the charge would materially impact third-quarter results, which it reports on Oct. 29. New CEO John Cryan on that day will announce a new strategy, widely expected to ratchet up the bank’s earlier attempts to cut costs and shed unwanted assets.

Credit Suisse Chief Executive Tidjane Thiam, who joined the bank in July, is expected to outline sharp investment banking cuts, as part of an effort to meet global capital rules and new Swiss bank-specific requirements. The bank is also thought to be readying a substantial capital increase to be unveiled alongside Mr. Thiam’s grand plan. A poll of investors by Goldman Sachs analysts found 91% expected the bank to raise more than 5 billion Swiss francs ($5.16 billion) in fresh capital. On Thursday, in response to an article in the Financial Times that reported that Credit Suisse planned to raise an amount in line with that figure, the bank said: “we are conducting a thorough assessment of Credit Suisse’s strategy, evaluating all options for the group, its businesses and its capital usage and requirements.”

Read more …

US banks are dropping too.

• Banks Take Spotlight As Earnings Season Heats Up (Reuters)

The financial sector, recently a weak performer in the stock market, will garner the majority of investor attention next week as a number of big banks post their quarterly results. Goldman Sachs, Bank of America, Wells Fargo, Citigroup and JPMorgan – the five biggest U.S. banks by market cap – are due to report results as the sector has trailed the market in recent weeks and earnings estimates have fallen. Financial companies are expected to show earnings growth of 8.4%, behind only telecoms and consumer discretionary companies in expected growth for the quarter. However, that growth is down from the 14.8% expected at the start of the quarter, and down by half from the 17.8% growth expected at the start of the year.

In the last 30 days, banks have seen their estimates steadily lowered, with Goldman the biggest victim. Its estimates for the quarter are down by 25% in that time period. While the broader market has recovered from losses sustained in the latter half of August, banks have struggled. The Fed’s decision not to raise rates, coupled with economic concerns and worries about trading revenues, have tethered shares of the big banks. The S&P 500 financials index has underperformed the broader market, and has slumped 5.6% this year so far, compared with a 2.2% decline in the S&P 500. In the last month, the S&P 500 has gained 2.2%, but the five biggest financial institutions are all flat or down.

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That’s 1000 senior staff who were no longer contributing any profits.

• Standard Chartered ‘To Cut 1,000 Senior Jobs’ (BBC)

Standard Chartered bank, a London-based lender that makes most of its profit in Asia, could cut up to 1,000 senior jobs, according to an internal memo sent to staff. The move from chief executive Bill Winters is meant to cut costs. The bank has grown very quickly since the financial crisis and some roles are now not needed, sources told the BBC. Standard Chartered said it had disclosed before “that there would be further personnel changes to come”. “We have already acted to reduce management layers, and a result will have up to 25% fewer senior staff,” the bank said in a statement. Mr Winters told staff in the memo that about a quarter of senior managers, of director level or above, would be cut. There are about 4,000 bankers in the grades affected by the decision.

The bank employs about 88,000 people in total. It has grown rapidly, from about 44,000 in 2005. Mr Winters took over from former diplomat Peter Sands in June and said he would simplify Standard Chartered with a “new management team and simpler organisational structure”. The bank has already shed some businesses, in Hong Kong, China and Korea, booking a gain of $219m and improving its capital position. Standard Chartered hired Mark Smith from Asia-focused rival HSBC to join as new chief risk officer. Mr Winters also cut the dividend to help the bank strengthen its capital base – a safety net protecting it from unexpected financial knocks. He has also not ruled out raising more capital if needed.

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Freefall? That little drop is nothing. Wait till it falls back to, say, 2010 levels. Margin debt levels simply indicate to what extent markets are casino’s.

• Margin Debt in Freefall Is Another Reason to Worry About S&P 500 (Bloomberg)

Most people get concerned about margin debt when it’s shooting up. To Doug Ramsey, the problem now is that it’s falling too fast. The CIO of Leuthold Weeden whose pessimistic predictions came true in August’s selloff, says the tally of New York Stock Exchange brokerage loans flashed a bearish sign when it slid more than 6% in July and August. The retreat took margin debt below a seven-month moving average that suggests demand for stocks is dropping at a rate that should give investors pause. For years, bull market skeptics have warned that surging equity credit portended disaster for U.S. shares, pointing to a threefold runup between the market low in March 2009 and the middle of this year. Ramsey, who says that surge was never strong enough to form the basis of a bear case, is now worried about how fast it’s unwinding.

“Margin debt contracting is a sign of loss of investor confidence and it’s confirmation of a lot of other evidence we have that we’ve entered a cyclical bear market,” Ramsey said in a phone interview. “We got a lot of traditional warning signs leading up to the high in terms of market action, and deteriorating breadth and margin debt is important to the supply-demand analysis.” Margin debt, compiled monthly by the NYSE, represents credit extended by brokerages for clients to buy stock. It hews closely to benchmark indexes such as the S&P 500, primarily because equity is used to back the loans and as its value rises, so does the capacity to lend. “There’s a natural progression of the two moving together,” Tim Ghriskey at Solaris Asset Management said. “We look at it as being predictive if it gets too extreme on either side.”

NYSE margin debt surged from $182 billion to $505 billion in the six years ended in June 2015, roughly tracing the trajectory of the S&P 500, which tripled over the period. The biggest gains came in 2013, with credit rising 35% as U.S. stocks climbed 30% for the best returns in 16 years. Since June, it’s been the other way around, with margin debt falling 6.3% to $473 billion at the NYSE’s last update, which covered August. The S&P 500 slid 4.4% at the end of that period as stocks entered a correction. To Ramsey, a decline as precipitous as that is more worrisome than the preceding run-up. “A lot of people intimated when we broke out to a new high in margin debt a couple years ago that it was out of control, but the%age change in margin debt from the low of 2009 was almost identical to the S&P’s,” Ramsey said. “Now that trend has rolled over.”

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Sudden plunges on over-optimistic models.

• China Is Becoming A Big Red Flag For US Stocks (MarketWatch)

China is fast becoming a major source of worry for the stock market again, after commentary from a number of U.S. companies this week warned that demand from the second-largest economy may have dropped sharply over the past month. That doesn’t bode well for the third-quarter earnings reporting season, which was already expected to be the worst quarter for U.S. companies in six years. Worries about a slowdown in China aren’t new. The more than 40% tumble in the Shanghai Composite and the devaluation of the yuan over the summer helped fuel the selloff on Wall Street in late August, when the S&P 500 index entered correction territory for the first time in about three years.

But those worries had been soothed somewhat, after the Chinese market stabilized in September, and following upbeat comments from some U.S. companies about how business in the country had improved. Nike helped spark some of that optimism in late September, after the blue-chip athletic apparel and accessories giant reported a 30% jump in sales in Greater China in its fiscal first quarter, which ended Aug. 31. But dire outlooks on China from Alcoa, Yum Brands and Nu Skin Enterprises this week could wipe away that optimism, especially considering how sudden the companies’ outlooks soured.

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“Over the last year, productivity has increased by just 0.7%, far below the long-run average of 2.2%. Why it is falling remains a puzzle.”

• Buried In The Fed Minutes Is Another Downgrade To The US Economy (MarketWatch)

A goal of a 4% economy? That objective, mentioned frequently in the 2016 presidential race, is getting farther away, according to the latest projections from the staff of the Federal Reserve. Minutes of the Fed’s Sept. 16-17 policy meeting disclose the Fed staff further trimmed its assumptions for the rates of productivity and potential growth over the medium term. The minutes did not specifically quantify the new forecast of the Fed’s in-house economists. The Fed staff’s view was already gloomy. A mistaken leak this summer by the U.S. central bank revealed, going into the Fed’s June policy committee meeting, the U.S. central bank’s staff penciled in potential growth averaging just 1.74% over 2015-2020, according to the document now on the Fed’s website. That’s down from an average growth rate of 3.1% over the past 50 years.

Ordinarily those forecasts would have been kept secret for five years. Fed officials – in other words, the people who get to vote on interest rates – think the economy can growth a little faster than the staff. They pencil in 2.0% for the economy’s long-run growth rate. Potential growth in the long run is a function of two things: population growth and productivity. Productivity is the secret sauce of the economy but it has dropped off sharply since the Great Recession. Over the last year, productivity has increased by just 0.7%, far below the long-run average of 2.2%. Why it is falling remains a puzzle. With trend growth so low, the economy is in a pickle. Even moderate gross domestic product in the range of 2.0-2.5% that the Fed expects can produce inflation. “It’s a bad place to be,” said Robert Brusca, chief economist at FAO Economics.

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It went wrong when it began.

• BofA: Here’s The Precise Moment When We Should Have Known QE Went Wrong (BBG)

“There’s no such thing as a free lunch” is an oft-quoted maxim in economics, and it seems like a maxim that could easily be applied to the Federal Reserve’s bond-buying program known as quantitative easing. In a new note titled “The real cost of QE,” Bank of America’s FX strategist Athanasios Vamvakidis takes a critical look at the U.S. central bank’s particular brand of unconventional monetary policy, and its changing relationship with financial markets. He contends that “excessive reliance on unconventional monetary policy” is not without side effects, many of which are only now being felt in markets.

At some point during Fed QE, the markets started reacting positively to bad news. In our view, this is when things started going wrong. Bad news became good news for asset prices, as markets expected more QE by the Fed. Asset prices were increasingly deviating from fundamentals, as the markets were trading the Fed instead of the economic reality. This was clearly not sustainable.

Vamvakidis argues that the market’s violent reaction to the Fed’s announcement in the spring of 2013 that it planned to “taper” its bond purchases was one sign that QE had already gone wrong.

We should have known something is wrong. The Fed “taper tantrum” could have been the first signal that QE had gone too far. The second warning may have been the across-the-board emerging markets sell-off that started in mid-2014, as QE tapering was coming to an end and the market started pricing Fed tightening, a sell-off that intensified substantially this year.

All of this doesn’t mean Vamvakidis believes QE should have never happened, of course. He does recognize that the Fed policy helped the U.S. avert another Great Depression in the aftermath of the financial crisis, but he doesn’t believe that bond-buying should be the first choice for action whenever something goes south in the economy. He calls the first round of QE “a necessity,” but is more skeptical of the Fed’s subsequent programs known as QE2 and QE3. Moreover, he notes that despite the continued expansion of balance sheets at a number of central banks around the world, monetary policy conditions have tightened and liquidity has fallen, as shown in the below BofAML chart:

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EU refuses to do anything in next 30 years?!

• Greek Debt Has Become Highly Unsustainable: IMF (Reuters)

Greece cannot deal with its public debt through reforms alone and needs a significant extension of grace periods and longer maturities from its European creditors, the head of the IMF’s European department said. The European Commission has forecast in May that Greek debt would reach more than 180% of its gross domestic product this year and euro zone governments, the main creditors of Greece, have promised to start debt relief talks later this year, once Athens implements agreed reforms. “We think that Greek debt… has become highly unsustainable,” Poul Thomsen told a news conference in Lima, on the sidelines of a meeting of the IMF. “We think that Greece cannot deal with its debt without debt relief. Greece cannot deal with debt just through reforms and adjustment,” he said.

Thomsen said that the discussion on how to provide debt relief to Greece has shifted from a nominal haircut on the stock of its debt to capping gross financing needs. The chairman of euro zone finance ministers told Reuters on Thursday that there was broad support for capping Greece’s financing needs at 15% of GDP annually. “What the exact targets should be, we will have to discuss, but there is no doubt in our mind that if Europe wants to go the route of providing relief by lengthening the grace period and lengthening the repayment period, we are looking at a significant lengthening of the grace period and significant lengthening of the repayment period,” Thomsen said.

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Too late now.

• ECB Should Focus Asset-Backed Purchases on Periphery: Pimco (Bloomberg)

The ECB should refocus its asset-backed securities purchase program on the countries most in need of its help, according to Pacific Investment Management Co. The ECB is too cautious in its acquisitions and should concentrate on buying bonds from nations with higher debt and deficits such as Spain and Portugal, Pimco money managers Felix Blomenkamp and Rachit Jain wrote in a note to investors. It has mainly bought notes secured by high-quality collateral, including prime mortgages and auto loans, from safer countries such as Germany, France and the Netherlands, they said.

Pimco is expanding on a similar call it made earlier this week for the ECB to concentrate on buying peripheral government bonds. The ECB is acquiring debt including asset-backed securities, which bundle individual loans into bonds that can transfer risk to investors from banks, to encourage lenders to offer more credit and stimulate Europe’s economy. “The ECB’s low risk appetite in ABS has guided its purchases primarily to select sectors in core countries, which in our view never really needed help to begin with,” they said. “ABSPP should be refocused to more specific sectors, especially in peripheral economies, where loan margins remain high and credit availability is scarce.”

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What to watch for going forward in EM: Derivatives and credit events.

• The Hidden Debt Burden of Emerging Markets (Carmen Reinhart)

[..] it was not until after the eruption of the 1994-1995 peso crisis that the world learned that Mexico’s private banks had taken on a significant amount of currency risk through off-balance-sheet borrowing (derivatives). Likewise, before the 1997 Asian financial crisis, the IMF and financial markets were unaware that Thailand’s central-bank reserves had been nearly depleted (the $33 billion total that was reported did not account for commitments in forward contracts, which left net reserves of only about $1 billion). And, until Greece’s crisis in 2010, the country’s fiscal deficits and debt burden were thought to be much smaller than they were, thanks to the use of financial derivatives and creative accounting by the Greek government.

So the great question today is where emerging-economy debts are hiding. And, unfortunately, there are severe obstacles to exposing them – beginning with the opaqueness of China’s financial transactions with other emerging economies over the past decade. During its domestic infrastructure boom, China financed major projects – often connected to mining, energy, and infrastructure – in other emerging economies. Given that the lending was denominated primarily in US dollars, it is subject to currency risk, adding another dimension of vulnerability to emerging-economy balance sheets. But the extent of that lending is largely unknown, because much of it came from development banks in China that are not included in the data collected by the Bank for International Settlements (the primary global source for such information).

And, because the loans were rarely issued as securities in international capital markets, it is not included in, say, World Bank databases, either. Even where data exist, the figures must be interpreted with care. For example, data collected on a project-by-project basis by the Global Economic Governance Initiative and the Inter-American Dialog could provide some insight into Chinese lending to several Latin American economies. For example, it seems that, from 2009 to 2014, total Chinese lending to Venezuela amounted to 18% of the country’s annual GDP, and Ecuador received Chinese loans exceeding 10% of its GDP.

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The blessings of modern-day trade deals. The debt is 30 years old…

• US Hedge Fund Threatens Peru With Lawsuit Over Debt (BBC)

A US hedge fund has threatened to sue Peru over bonds issued by the country’s former military regime. Hedge fund Gramercy purchased the defaulted debt at a discount in 2008 after other bondholders failed to reach a deal. Peru’s finance minister said the government would oppose any legal action outside its borders. Purchasing defaulted bonds on the cheap to make a profit in a settlement is a common hedge fund tactic. The country defaulted on the $5.1bn in bonds in the 1980s. Gramercy has threatened to bring a claim against Peru under a tribunal system established in a US-Peruvian trade deal. This type of action has been called “predatory” by groups in favour of sovereign debt relief plans. Argentina has been engaged in a prolonged court battle with hedge funds over bonds it defaulted on in 2005. This week Peru has played host to meetings of the World Bank and IMF. Among the topics discussed was how to help country’s restructure debt after a default to avoid drawn-out court battles.

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Brazil’s hole will get much deeper. How on earth can they stage a World Cup in 2018?

• Brazil: In A Hole And Still Digging (Ogier)

Brazil has long been hailed as the country of the future. But the decision last month by Standard & Poor’s to strip Latin America’s largest economy of its coveted investment grade status provided confirmation — if any were needed — of its fall from grace. “Brazil is going through its worst period,” says Nicola Tingas, chief economist at Acrefi, a credit association for non-banking institutions. “There is structural disorder, which goes beyond the mere economic cycle. It destroys capital. Confidence has been destroyed. The economy has been weakened.” For a long time, the resilience of the Brazilian economy had confused the most pessimistic economists and offered bright opportunities for high yield investors. Dilma Rousseff herself challenged such “pessimists” during the latest presidential campaign.

But a year after she won a second presidential term, Brazil is in a terrible mess. Debt financing costs have soared and Brazil’s CDS spreads became greater than Russia’s that month when they neared 400 points. “The fiscal deterioration is now faster than our baseline scenario and the political risks remain challenging,” said Shelly Shetty, head of Latin American sovereigns at Fitch Ratings, during Fitch’s global sovereigns conference in New York in September. Joaquim Levy, the embattled finance minister, has publicly admitted the scale of the problem. “Obviously, the house is not in order,” he said in Congress after the government presented a budget blueprint that included a R$30bn ($7.6bn) deficit in early September. This marked the beginning of the end of the fiscal credibility of the government, according to most observers.

“People were aware of the risk of a downgrade,” says Monica de Bolle, a researcher at the Peterson Institute in Washington “Under these circumstances, nobody could have sent a budget that includes a deficit just under the nose of the credit rating agencies. And even after the downgrade, the [Brazilian] government has kept adopting a form of ostrich policy.” Recession has now settled in. The official forecast is one of a severe GDP contraction of 2.44%. Figures were revised last month from 1.5%. Marcelo Carvalho, the BNP Paribas Latin America chief economist, has forecast a further 2% decline next year. “A recession that lasts for two consecutive years is a very rare occurrence in Brazil. We have data that span a hundred years and this only happened once before in the early 1930s, just after the Great Depression. So we now have a scenario that is similar, despite the fact the world economy is not as ugly as it was after the 1929 crisis,” he says.

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The flipside of the western narrative.

• War on Islamic State: A New Cold War Fiction (Nafeez Ahmed)

Russia is bombing “terrorists” in Syria, and the US is understandably peeved. A day after the bombing began, Obama’s Defence Secretary Ashton Carter complained that most Russian strikes “were in areas where there were probably not ISIL (IS) forces”. Anonymously, US officials accused Russia of deliberately targeting CIA-sponsored “moderate” rebels to shore-up the regime of Bashir al-Assad. Only two of Russia’s 57 airstrikes have hit ISIS, opined Turkish Prime Minister Ahmet Davutoglu in similar fashion. The rest have hit “the moderate opposition, the only forces fighting ISIS in Syria,” he said. Such claims have been dutifully parroted across the Western press with little scrutiny, bar the odd US media watchdog. But who are these moderate rebels, really?

The first Russian airstrikes hit the rebel-held town of Talbisah north of Homs City, home to al-Qaeda’s official Syrian arm, Jabhat al-Nusra, and the pro-al-Qaeda Ahrar al-Sham, among other local rebel groups. Both al-Nusra and the Islamic State have claimed responsibility for vehicle-borne IEDs (VBIEDs) in Homs City, which is 12 kilometers south of Talbisah. The Institute for the Study of War (ISW) reports that as part of “US and Turkish efforts to establish an ISIS ‘free zone’ in the northern Aleppo countryside,” al-Nusra “withdrew from the border and reportedly reinforced positions in this rebel-held pocket north of Homs city”.

In other words, the US and Turkey are actively sponsoring “moderate” Syrian rebels in the form of al-Qaeda, which Washington DC-based risk analysis firm Valen Globals forecasts will be “a bigger threat to global security” than IS in coming years. Last October, Vice President Joe Biden conceded that there is “no moderate middle” among the Syrian opposition. Turkey and the Gulf powers armed and funded “anyone who would fight against Assad,” including “al-Nusra,” “al-Qaeda in Iraq (AQI),” and the “extremist elements of jihadis who were coming from other parts of the world”. This external funding enabled Islamist factions to systematically displace secular Free Syria Army (FSA) leaders, culminating in the rise of IS. In other words, the CIA-backed rebels targeted by Russia are not moderates.

They represent the same melting pot of al-Qaeda affiliated networks that spawned the Islamic State in the first place. And they rose to power in Syria not in spite, but because of the US rubber-stamping the jihadist funnel through the so-called “vetting” process. This summer, for instance, al-Qaeda led rebels received accelerated weapons shipments in a US-backed operation to retake Idlib province from Assad. Notice here that the US priority was to rollback Assad’s forces from Idlib – not fight IS. Yet the brave Western press, so outspoken on Russian duplicity, somehow overlooked how this anti-ISIS coalition operation failed to target a single IS fighter.

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At least and at last one bit of good news.

• Gene Patents Probably Dead Worldwide Following Australian Court Decision (ArsT)

Australia’s highest court has ruled unanimously that a version of a gene that is linked to an increased risk for breast cancer cannot be patented. The case was brought by 69-year-old pensioner from Queensland, Yvonne D’Arcy, who had taken the US company Myriad Genetics to court over its patent for mutations in the BRCA1 gene that increase the probability of breast and ovarian cancer developing, as The Sydney Morning Herald reports. Although she lost twice in the lower courts, the High Court of Australia allowed her appeal, ruling that a gene was not a “patentable invention.” The court based its reasoning on the fact that, although an isolated gene such as BRCA1 was “a product of human action, it was the existence of the information stored in the relevant sequences that was an essential element of the invention as claimed.”

Since the information stored in the DNA as a sequence of nucleotides was a product of nature, it did not require human action to bring it into existence, and therefore could not be patented. Although that seems a sensible ruling, the pharmaceutical and biotechnology industry has been fighting against this self-evident logic for years. The view that genes could be patented suffered a major defeat in 2013, when the US Supreme Court struck down Myriad Genetics’ patents on the genes BRCA1 and the similar BRCA2. The industry was hoping that a win in Australia could keep alive the idea that genes could be owned by a company in the form of a patent monopoly. The victory by D’Arcy now makes it highly likely that other judges around the world will take the view that genes cannot be patented.

This is a result that will have major practical consequences, and is likely to save thousands of lives. In the past, holders of gene patents were able to stop other companies from offering tests based on them, for example to detect the presence of the BRCA1 and BRCA2 genes that were linked with a greater risk of breast and ovarian cancers. This patent monopoly allowed companies like Myriad to charge $3,000 (£2,000) or more for their own tests, potentially placing them out of the reach of those unable to afford this cost, some of whom might then go on to develop cancer because they were not aware of their higher susceptibility, and thus unable to take action to minimise their risks.

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The shameless EUs reponse to tragedy: lock ’em up.

• EU Gets Ready To Lock Up, Deport Migrants (CNBC)

European authorities have relocated its first group of migrants that have flocked to Europe as part of a bloc-wide plan to share the weight of the growing refugee crisis. However, those who fail to gain asylum may not be so lucky. A group of Eritrean refugees prepare to board a plane to travel to Sweden as part of a new programme of the European Union to relocate refugees at the Ciampino airport of Rome. Italy Friday sent 19 Eritrean men and women to Sweden as part of the first batch of migrants taking part in the relocation program. This, albeit small, start is part of the commitment made by EU member countries last month to relocate 160,000 asylum seekers throughout Europe over the next two years.

The agreement was reached in order to help alleviate pressure on countries like Italy and Greece, where over 470,000 migrants have landed since January alone, according to EU border agency Frontex. At the same time, however, Italy was deporting 28 Tunisians and 35 Egyptians back home. A press release by justice and interior ministers from across the EU Thursday revealed plans to ramp up deportations and prepare dedicated detention centers that would lock up migrants as a “last resort.” “When we talk about refugees, we need to also talk of those who are not refugees,” Dimitris Avramopoulos, European Commissioner for Migration, Home Affairs and Citizenship, said in a statement. “We need to be better and more effective, not just at helping people and offering refuge, but also at returning those who have no right to stay.”

“All of these actions have to go together,” he said. An expanded return program would see more migrants who fail to gain asylum status deported to their home countries. Ministers believe the move will deter migrants who lack legitimate asylum claims from making the journey to Europe, the statement explains. The €3.1 billion Asylum, Migration and Integration Fund will help finance the return program, along with the €800 million set aside for deportations by member states for the six years between 2014 and 2020. But EU countries should also be prepared to lock up migrants temporarily until they can safely return home , the statement adds.. “All measures must be taken to ensure irregular migrants’ effective return, including use of detention as a legitimate measure of last resort,” the press release stated.

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“All of a sudden, with the kind of weather that you have in the Balkans, this can be a tragedy at any moment..” Not can be, is, and has been for a long time.

• Greek Islands See Surge In Refugee Arrivals (Kath.)

The number of refugees arriving on Greek islands has risen from 4,500 a day in late September to 7,000 over the past week, the International Organization for Migration (IOM) said Friday, as a toddler was found dead off the coast of Lesvos in the eastern Aegean. Speaking ahead of a visit to Lesvos Saturday and a meeting with Prime Minister Alexis Tsirpas in Athens later in the week, UN High Commissioner for Refugees Antonio Guterres said asylum seekers appeared to be making a move before weather conditions deteriorate. “All of a sudden, with the kind of weather that you have in the Balkans, this can be a tragedy at any moment,” Guterres said. The IOM data came as a baby died after the motor of the rubber dinghy carrying him and another 56 people broke down off Levsos, the coast guard said Friday.

The 1-year-old boy, whose nationality was not reported, was found unconscious and taken to a hospital, where he was pronounced dead. Also Friday, sources said that a police officer who was photographed kicking a refugee in a temporary reception center on Lesvos had been identified. He is expected to be summoned to explain himself following an urgent investigation into the incident. Meanwhile, the UN refugee agency (UNHCR) welcomed the departure Friday of a first group of asylum seekers from Italy to Sweden under the EU’s relocation scheme and expressed hope that the Greek program will start soon. “We think it will be a slow start but will accelerate once the process functions,” UNHCR spokesperson Melissa Fleming said.

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Running out of nameless graves.

• No Place Left To Die On Greece’s Lesbos For Refugees Lost At Sea (Reuters)

He stood on the mud, crows cawing overhead, pointing at unmarked graves. “Here’s a mother with her baby. And here’s another young woman. Over there, that’s a 60-year-old man.” Buried beneath low mounds of earth, facing Mecca, lay Afghan, Iraqi and Syrian refugees who drowned this summer in the Aegean Sea trying to reach Europe in flimsy inflatable boats. Scanning the area, Christos Mavrakidis, a somber, hardened man who looks after one of the main cemeteries on Greece’s Lesbos island, listed the years of other deaths: “2013, 2014, 2015.” Now there is no room left in the narrow plot of land in the pauper’s section of St. Panteleimon cemetery, close to where the colonnaded tombs of wealthy Greeks are built in the classical Greek style, and flowers adorn lavish marble graves.

“Something must be done,” he said. “They are a lot. They are too many.” No one can say where the next bodies will be buried. Nearly half a million people, mostly Syrians, Afghans and Iraqis fleeing war and persecution, have made the dangerous journey to Europe this year. Almost 3,000 have died, the U.N. refugee agency estimates. Just 4.4 km off the Turkish coast, Lesbos, Greece’s third-biggest island and popular with tourists, is one of the preferred entry points for migrants into the EU. Arrivals surged in late summer to sometimes thousands a day as people rushed to beat autumn storms that make the Aegean Sea even more treacherous. The number of burials at St. Panteleimon has also risen. More than three dozen migrants are buried in a tiny, dusty plot on a hill overlooking the island. Four were buried there last week alone.

Some of the makeshift, earthen graves bear a small marble plaque with a name in paint or marker: “Saad 4-9-2015.” Others state simply: “Unknown 25-8-2015”; “Unknown 28-8-2015”; “No 14 5-1-2013”. The most recent graves lack any marking. Mavrakidis placed his hand over his mouth and nose, the air filled with what he called “the stench of death” rising from the open grave of a young Iraqi man whose body was exhumed that morning after his family managed to trace him through DNA. Many more dead have never been found. Locals say fishermen sometimes dump bodies back into the sea, like fish they are not permitted to catch, to avoid having to hand them over to the authorities and face questioning and bureaucracy.

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Greater Fools and Bigger Liars

Sep 272015
 
 September 27, 2015  Posted by at 5:15 pm Finance Tagged with: , , , , , , , , ,  4 Responses »


Harris&Ewing The Capitol in the snow 1917

Societies in decline have no use for visionaries
– Anaïs Nin

The moment we heard that John Boehner would resign, the first thing that came to mind was: the next one will be a Greater Fool and a Bigger Liar. For all of his obvious faultlines, Boehner is human. As was evident for all to see Thursday when the Pope -Boehner’s as Catholic as JFK and Jesus Christ- came to see ‘him’ in ‘his’ Senate. Even smiled reading that the Pope had asked Boehner to pray for him.

But Boehner was really of course just a man who through time increasingly became a kind of barrier between a president and his party on the one hand, and Boehner’s own, increasingly ‘out there’, party on the other. He moved from far right to the right middle just to keep the country going. In essence, that’s little more than his job, but just doing your job can get you some nasty treatment these days in the land of the free.

So now we’ll get a refresher course in government shutdown, though there’s no guarantee that Boehner’s successor will be enough of a greater fool to cut his/her (make that his) new-found career short by actually letting it happen. At least not before December.

The government shutdown is a threat like Janet Yellen’s rate hike, one which always seems to disappear right around the next corner, a process that eats away at credibility much more than participants are willing and/or able to acknowledge. Until it’s too late.

Now that it’s clear they lost on Obamacare, Republicans demand that funding for Planned Parenthood must stop, as the women’s group is accused of ‘improperly selling tissue harvested from aborted fetuses’, something it vehemently denies. And there we’re right back to the shadow boxing multi-millionaire tragic comedy act the US Congress has been for years now.

So yeah, by all means let it shut down. Thing is, as much as Boehner was always already a walking safety hazard, there’s guys waiting in the wings who’d love to end Obama’s presidency any which way they can. The official GOP viewpoint may be that Da Donald is a greater fool, but that view isn’t shared by the entire caucus. Again, so yeah, bring it on, like the rate hike, let’s see you do it.

It’s not a little ironic that one day after the Pope holds his hand, Boehner leaves a squabble behind that involves aborted fetuses. Where I come from, no accusations of people either eating babies or selling their tissue is taken serious, ever. We call that folklore.

Meanwhile, Anarchy In The US is a distinct possibility. It’s probably a good thing all these guys still have paymasters, wouldn’t want to have them make their own decisions. More irony: Boehner brought more donations into the GOP caucus than anyone else. They’ll miss him yet.

Also meanwhile, European and US exchanges were up on Friday as if no investor ever saw a Volkswagen in their lives. Even as there’s no escaping the idea that VW’s illegal drummings go way beyond the 11 million vehicles they themselves fessed up to, and the millions more from other carmakers. Where I come from, we call this endemic fraud.

This little graphic from T&E seems to indicate that VW was the least worst of the offenders. And it will be very hard for politicians to find a carpet left big enough to sweep this under. Class action lawsuits are being prepared for investors and car owners, and politics doesn’t trump courts, at least not everywhere.

Merkel and Hollande and all of their lower level minions will have to cut their losses and offer their carmakers to the vultures, or risk getting severely burned in the process. Or is it already too late? The German Green Party claims Merkel knew of the rigged emissions tests. For now, the government is in steep denial:

German Greens Claim Merkel Government Knew Emissions Tests Were Rigged

The German Green party has claimed that the German Government, led by Chancellor Angela Merkel, knew about the software car manufacturers used to rig emissions tests in the US. The Green party has said it asked the German Transport Ministry in July about the devices used to deceive regulators and received a written response as follows, the FT reports: “The federal government is aware of [defeat devices], which have the goal of [test] cycle detection.”

The Transport Ministry denied knowing that the software was being used in new vehicles, however. The timing of the questions has raised concerns over whether the German government knew about the activities at Volkswagen stretching back to 2009. “The federal government admitted in July, to an inquiry from the Greens, that the [emissions] measurement practice had shortcomings. Nothing happened,” said Oliver Krischer, a German Green party lawmaker.

That written response the Financial Times reports on either exists or it does not. Let’s see it. Simple. If it does exist, Merkel’s in trouble. Then again, the EU knew about the defeat device at least two years ago. It’s starting to look as if everyone was involved. And you can’t fire everyone.

EU Warned On Devices At Centre Of VW Scandal Two Years Ago

EU officials had warned of the dangers of defeat devices two years before the Volkswagen emissions scandal broke, highlighting Europe’s failure to police the car industry. A 2013 report by the European Commission’s Joint Research Centre drew attention to the challenges posed by the devices, which are able to skew the results of exhaust readings. But regulators then failed to pursue the issue — despite the fact the technology had been illegal in Europe since 2007. EU officials said they had never specifically looked for such a device themselves and were not aware of any national authority that located one.

Matthias Müller was announced as VW’s new head honcho. Now there’s a greater fool if ever you saw one. Who can possibly want that gig? His predecessor Winterkorn left the top post, but to date not the one as head of Porsche. Ergo, he presides over those who lead the internal investigation at the company. And even if Winterkorn is bought off and out, VW is still as big of a hornet’s nest as you can find. The company’s corporate -and legal- structure, which includes unsavorily close ties to the governments of both Lower Saxony -which owns 20% of the company, in (highly) preferred stock- and federal Germany, virtually guarantees it.

Nor does it stop there. Both the German and British governments now stand accused of perverting EU law on emissions. The Wall Street Journal asks how much the EU itself knew. Easy answer: plenty. Inevitable. Key words: spin doctors, damage control.

This morning’s Bild am Sonntag, which claims to be in the possession of an ‘explosive document’, reports first that a October 7 deadline has been handed VW by Berlin to ‘fix’ its problems, and second that engineering giant Bosch, which provided the -initial?!- “defeat device” software, warned VW as long as 8 years ago, in 2007, that the software was for internal testing purposes only. VW‘s own technicians “warned about illegal emissions practices” in 2011, the Frankfurter Allgemeine Sonntagszeitung cites an internal report as saying.

And that’s just the beginning. Or rather, the beginning may have been much earlier. Bloomberg writes, in an article called “Forty Years Of Greenwashing” that “On 23 July 1973, the EPA accused [Volkswagen] of installing defeat devices in cars it wanted to sell in the 1974 model year.” Great, now we have to wonder what Gerald Ford knew? Dick Nixon?

In perhaps an ill-timed effort to divert attention away from her car industry, Merkel dreams of more global power:

Germany Battles Past Ghosts as Merkel Urges Greater Global Role

Europe’s dominant country is stepping out from its own shadow. Seventy years after Germany’s defeat at the end of World War II, Chancellor Angela Merkel’s government is signaling a willingness to assume a bigger role in tackling the world’s crises without fear of offending allies like the U.S. Spurred into more international action by the refugee crisis, Merkel on Wednesday prodded Europe to adopt a “more active foreign policy” with greater efforts to end the civil war in Syria, the source of millions fleeing to safety. As well as enlisting the help of Russia, Turkey and Iran, Merkel said that will mean dialogue with Bashar al-Assad, making her the first major western leader to urge talks with the Syrian president.

Germany’s position as Europe’s biggest economy allowed Merkel and her finance minister, Wolfgang Schaeuble, to assume a leading role during the euro-area debt crisis centered on Greece, but the change in focus to beyond Europe’s borders is very much political. After decades of relying on industrial prowess – now under international scrutiny as a result of the Volkswagen scandal – globalization and the necessity to keep Europe relevant are opening up options for Merkel to make Germany a less reluctant hegemon.

Syria has spurred “a rethink in German foreign policy,” Magdalena Kirchner at the German Council on Foreign Relations in Berlin, said. “As the refugee crisis developed, the view took hold that this conflict can no longer be fenced off or ignored. With her stance on the crisis, Merkel may be prodding other European leaders toward a bigger international engagement.”

And Angela’s Germany tells the ECB to take a hike and grow a pair while they’re at it. For a country that spent the best part of the year telling Greece to stick to the law and the plan or else, that’s quite something.

ECB Faces Defiance on Bank Oversight as Germany Hoards Power

The ECB faces increasing defiance from euro-area governments reluctant to cede control over their lenders, highlighted by a German bill that chips away at the ECB’s supervisory powers. The Bundestag, the lower house of parliament, votes Thursday on an amendment to Germany’s banking act that would allow the Finance Ministry in Berlin to issue rules on banks’ recovery plans, risk management and internal decisions under a bill implementing European Union rules for winding down failing banks. The ECB, which assumed supervisory powers over euro-area banks last November, is considering complaining at the European Commission, asking the EU’s executive arm to take Germany to court over the legislation.

As for Angela and the refugee issue, no changes any faster than a frozen molasses flow. Germany announced it will spend €4 billion on refugees already in the country, but votes to stop who’s still coming. As if that’s a serious option. They’re going to do it with gunboats, no less. Agianst overloaded dinghies.

EU To Use Warships To Curb Human Traffickers

The EU will use warships to catch and arrest human traffickers in international waters as part of a military operation aimed at curbing the flow of refugees into Europe, the bloc’s foreign affairs chief has said. “The political decision has been taken, the assets are ready,” Federica Mogherini said on Thursday at the headquarters of the EU’s military operation in Rome. The first phase of the EU operation was launched in late June. It included reconnaissance, surveillance and intelligence gathering, and involved speaking to refugees rescued at sea and compiling data on trafficker networks. The operation currently involves four ships – including an Italian aircraft carrier – and four planes, as well as 1,318 staff from 22 European countries.

Beginning on October 7, the new phase will allow for the seizure of vessels and arrests of traffickers in international waters, as well as the deployment of European warships on the condition that they do not enter Libyan waters. “We will be able to board, search, seize vessels in international waters, [and] suspected smugglers and traffickers apprehended will be transferred to the Italian judicial authorities,” Mogherini said. “We have now a complete picture of how, when and where the smugglers’ organisations and networks are operating so we are ready to actively dismantle them,” she said.

Those 1,318 staff could be used to help and rescue refugees, who will keep coming. Another 17 drowned in the Aegean Sea this Sunday morning. That should be the no. 1 priority. Instead, Europe’s policy of death continues unabated. France started bombing Syria -again- and Putin can and will no longer be ignored when it comes to his sole Middle East stronghold. We’ve created a god-awful mess, and not even god’s alleged man-on-the-earth, the underwhelming Pope Francis, does more than stammer a few hardly audible scripted lines about it.

It’s all about power and money, and none of it is about people. In other ‘news’, China securitizes its markets in a pretty standard desperate greater fools’ last move. As I said earlier, Beijing’s Rocking the Ponzi.

China Becomes Asia’s Biggest Securitization Market

China’s fledging securitization market is soaring, as Beijing looks for new ways to ease lending to firms amid the country’s slowest period of economic growth in more than two decades. In the past few months, Chinese officials have laid out new rules to expand and quicken the process for car makers and other lenders to issue debt by bundling together pools of underlying loans. Issuance of asset-backed securities in the world’s second largest economy rose by a quarter in the first eight months of 2015—to $26.3 billion from $20.8 billion in the same period last year, according to data publisher Dealogic. Though the Chinese securitization market took flight just last year, it has already become Asia’s biggest, outpacing other, more developed markets like South Korea and Japan.

China’s new economic reality, no matter what Xi tells Obama, was revealed by China Daily. Imagine a company in the US, or an EU country, announcing 100,000 lay-offs in one go. For China, it’s the first of many, though not all may be publicly announced.

Chinese Mining Group Longmay To Cut 100,000 Coal Jobs (China Daily)

The largest coal mining group in Northeast China is cutting 100,000 jobs within the next three months to reduce its losses – one of the biggest mass layoffs in recent years. Heilongjiang Longmay Mining Holding Group Co Ltd, which has a 240,000 workforce, said a special center would be created to help those losing their jobs to either relocate or start their own businesses. Chairman of the group Wang Zhikui said the job losses were a way of helping the company “stop bleeding”. It also plans to sell its non-coal related businesses to help pay off its debts, said Wang.

In Japan, desperate fool Shinzo Abe moves on to Abenomics 2.0 with three entirely fresh but as yet unnamed new “arrows”. Here’s thinking Japan doesn’t need Abenomics 2.0, it needs Abe 2.0. Or tomorrow will be even worse than today.

Japan’s Abe Airs Abenomics 2.0 Plan For $5 Trillion Economy

Japan’s prime minister Shinzo Abe, fresh from a bruising battle over unpopular military legislation, announced Thursday an updated plan for reviving the world’s third-largest economy, setting a GDP target of 600 trillion yen ($5 trillion). Abe took office in late 2012 promising to end deflation and rev up growth through strong public spending, lavish monetary easing and sweeping reforms to help make the economy more productive and competitive.

So far, those “three arrows” of his “Abenomics” plan have fallen short of their targets though share prices and corporate profits have soared. “Tomorrow will definitely be better than today!” Abe declared in a news conference on national television. “From today Abenomics is entering a new stage. Japan will become a society in which all can participate actively.”

Participate actively in the downfall of both Abe and the nation, that is.

As for you yourself, unless you stop clinging to the silly notion of an economic recovery -let alone perpetual growth-, you too are a greater fool, the quintessential one. And until you do, you’re a bigger liar too. You lie to yourself. Just so others can lie to you too.

What is happening in today’s world is a total downfall, both economic and moral, and the two are closely intertwined. What’s more, though we’re blind to it, as Anaïs Nin said, “Societies in decline have no use for visionaries.” Our societies therefore end up with liars only. Nobody else gets a shot at the title. There’s no use for anything but lies.

All leaders, as we can see these days wherever we look, talk the talk but don’t walk the walk. Every single one of them schemes and lies and hides their acts from public scrutiny. Political leaders, corporate leaders, the lot. This behavior is so ubiquitous we’ve come to see it as inevitable, even normal.

Whether it’s the economy, climate, the planet, warfare, your future obligations, your pensions, the future of your children, nobody in power tells you the truth. Human life is fast losing the value we would like to tell ourselves we assign to it. We don’t, do we? Children drown in the Mediterranean every day, and we let them drown, it’s not just our leaders who do.

Children also get shot to bits in various theaters of war (or rather, invasion) in faraway countries that our leaders involve us in, our tax dollars pay for, and our media don’t show. What the European refugee crisis shows us is that there are no faraway countries anymore, or theaters of war. Our own technological advances have taken care of that. They’re on our doorstep. And sending in the military is only going to make it worse.

Our technological advances haven’t come with moral advances, quite the contrary, our morals turn out to be a thin layer of mere cheap veneer. What advances we’re making are the last death rattle of a society in decline, and a dying civilization. All we have left to look forward to from here on in is cats in a sack. And we owe that to ourselves.

Debt Rattle July 18 2015

Jul 182015
 
 July 18, 2015  Posted by at 10:26 am Finance Tagged with: , , , , , , , , ,  1 Response »


Harris&Ewing State, War & Navy Building, Washington DC 1917

• Those In Power Will Risk War And Civil Unrest To Preserve It (Martin Armstrong)
• Irish €14.3 Billion Payments To Bank Bondholders May Have Been Avoidable (TFM)
• Why Argentina Consistently, and Unapologetically, Refuses to Pay Its Debts (BBG)
• China Unleashes $483 Billion to Stem the Market Rout (Bloomberg)
• China Destroyed Its Stock Market In Order To Save It (Patrick Chovanec)
• Greece’s Tsipras Shakes Up Cabinet in Bid to Rebuild Government (Bloomberg)
• Wolfgang Schäuble, The Trust Troll (Steve Keen)
• Alice In Schäuble-Land: Where Rules Mean What Wolfgang Says They Mean (Whelan)
• Greece, Europe, and the United States (James K. Galbraith)
• The Euro Is A Disaster Even For The Countries That Do Everything Right (WaPo)
• Blame the Banks (The Atlantic)
• Greece’s Debt Can Be Written Off – Whatever Wolfgang Schäuble Says (Guardian)
• Greece And Europe: Is Europe Holding Up Its End Of The Bargain? (Ben Bernanke)
• Why Is Germany So Tough On Greece? Look Back 25 Years (Guardian)
• Greece Made The Wrong Choice (John Lloyd)
• The Greek Crisis Represents The Humiliation Of European Democracy (Andrea Mammone)
• The End Of Capitalism Has Begun (Paul Mason)
• The Freakish Year in Broken Climate Records (Bloomberg)

Absolutely must see Farage video.

• Those In Power Will Risk War And Civil Unrest To Preserve It (Martin Armstrong)

Nigel Farage may be the only practical politician these days because he came from the trading sector. He explains the Euro-Project and its failures. He makes it clear that the Greek people never voted to enter the euro, and explains that it was forced upon them by Goldman Sachs and their politicians. Nigel also explains that the Euro project idea that a trade and economic union would then magically produce a political union – the United States of Europe and eliminate war. He has warned that the idea of a political union would end European wars has actually turned Europe into a rising resentment in where there is now a new Berlin Wall emerging between Northern and Southern Europe.

The Euro project was a delusional dream for it was never designed to succeed but to cut corners all in hope of creating the United States of Europe to challenge the USA and dethrone the dollar, That dream has turned into a nightmare and will never raise Europe to that lofty goal of the financial capitol of the world. The IMF acts as a member of the Troika, yet has no elected position whatsoever. The second unelected member is Mario Draghai of the ECB. Then the head of Europe is also unelected by the people. The entire government design is totally un-Democratic and therein lies the crisis.

Not a single member of the Troika ever needs to worry about polls since they do not have to worry about elections. This is authoritarian government if we have ever seen one. The ECB attempts by sheer force to manipulate the economy with zero chance of success employing negative interest rates and defending banks as the (former?) Goldman Sachs man Mario Draghai dictates. Now, far too many political jobs have been created in Brussels. This is no longer about what is best for Europe, it is what is necessary to retain government jobs. The Invisible Hand of Adam Smith works even in this instance – those in power are only interested in their self-interest and will risk war and civil unrest to maintain their failed dreams of power.

Read more …

If true, a main argument for Greece.

• Irish €14.3 Billion Payments To Bank Bondholders May Have Been Avoidable (TFM)

The legal advisor to the former government has said it WOULD have been legally possible to burn the bondholders of Ireland’s banks, without customers having to lose their deposits. The advice from the former attorney general Paul Gallagher appears to contradict the claims of some former ministers. Ministers in the former administration have consistently claimed that it would have been impossible to ‘burn’ bondholders without also enforcing a haircut on deposits, because the two were considered legally equal. However today Mr Gallagher has said that although it would have been difficult, it was legally possible to break this link and enforce losses on bondholders without depositors also taking a hit.

He said this had also been accepted by the Troika – but that the lenders simply refused to allow any burden-sharing under the bailout programme, making the prospect obsolete. Unsecured senior bondholders were paid around €14.3 billion under the period of the bank guarantee – much of it as a result of the state’s huge investment in the banking sector. Mr Gallagher’s evidence seems to suggest that these payments could have been avoided without depositors also facing any losses, but for the Troika’s stance.

Read more …

If Argentina can do it…

• Why Argentina Consistently, and Unapologetically, Refuses to Pay Its Debts (BBG)

Argentina’s fight with foreign banks and bondholders is more than just business. It’s part of the national psyche, enshrined in a special museum at the business school at the University of Buenos Aires. The Museum of Foreign Debt is nothing fancy. There are a few flimsy panels plastered with grainy photos, dates, text, and graphs. Oh, but the saga portrayed on those panels! Banks, bond investors, and the International Monetary Fund flood crooked regimes with overpriced credit. The Argentine economy collapses, and the people suffer. International markets are roiled. It happens time and time again. The story has all the emotions of a good tango. Argentina has reneged on foreign debt obligations at least seven times, starting in 1827.

The latest was in July 2014, when Argentina defaulted rather than give in to pressure from Paul Singer of Elliott Management. The fight with Singer has been going on for a dozen years, and the term vulture investor—rather esoteric in much of the world—is now pretty much universally known in Argentina. It’s so much on people’s minds that Buenos Aires toy stores carry a homegrown board game called Vultures, packaged in a box depicting a pair of the birds picking at a pile of dollars. “We planted the anti-vulture flag in the world,” President Cristina Fernández de Kirchner said in a speech in mid-May. “We gave a name to international usury and despotism.” One May morning at the debt museum, guide Antonella Fagnano, a 21-year-old business major, describes Argentines’ attitude toward default.

She pauses by a black-and-white photo of the late General Jorge Videla, who led a 1976 coup that ushered in a seven-year dictatorship. Successive presidents in that period loaded up on foreign debt to finance, among other things, the 1982 Falklands War with the U.K. Today’s Argentina, Fagnano says, has no moral obligation to make good on debts like those. In fact, it would be wrong to pay. “Foreigners financed a lot of leaders, like these dictators. They didn’t do what they were supposed to do with the money, and left future generations the debt,” she says, shaking her head. “So, of course, you cannot allow that.” Fernandez is nearing the end of her term, and it doesn’t look like things will change under the next president. Daniel Scioli, the front-runner for October elections, vows to carry on the fight against paying the vultures in full.

Read more …

And counting.

• China Unleashes $483 Billion to Stem the Market Rout (Bloomberg)

China has created what amounts to a state-run margin trader with $483 billion of firepower, its latest effort to end a stock-market rout that threatens to drag down economic growth and erode confidence in President Xi Jinping’s government. China Securities Finance Corp. can access as much as 3 trillion yuan of borrowed funds from sources including the central bank and commercial lenders, according to people familiar with the matter. The money may be used to buy shares and provide liquidity to brokerages, the people said, asking not to be named because the information wasn’t public. While it’s unclear how much CSF will ultimately deploy into China’s $6.6 trillion equity market, the financing is up to 25 times bigger than the support fund started by Chinese brokerages earlier this month.

That’s probably enough to restore confidence among China’s 90 million individual investors, says Bocom International Holdings Co. The Shanghai Composite Index jumped 3.5 % on Friday, capping a two-week rally that’s turned it into one of the world’s best-performing equity gauges. “It doesn’t have to use up all the money, as long as it can make the rest of the market believe that it has enough ammunition,” said Hao Hong, a China strategist at Bocom International in Hong Kong. “It is a game of chicken. For now, it seems to be working.” CSF, founded in 2011 to provide funding to the margin-trading businesses of Chinese brokerages, has transformed into one of the key government vehicles to combat a 32 % selloff in the Shanghai Composite from mid-June through July 8.

At 3 trillion yuan, its funding would be about five times bigger than the new proposed bailout for Greece and exceed China’s 2.3 trillion yuan of regulated margin financing during the height of the stock-market boom last month. “What the authorities are demonstrating to the market is that if panic does take hold, they have the resources at their disposal to deal with that,” said James Laurenceson, the deputy director of the Australia-China Relations Institute at the University of Technology in Sydney. “Monetary authorities around the word regularly send the same signal in credit and foreign exchange markets.”

Read more …

“Chinese punters were borrowing in large sums, from both brokerages and more shadowy sources — like “umbrella trusts” and peer-to-peer lending websites — to buy shares, with the shares themselves as collateral.”

• China Destroyed Its Stock Market In Order To Save It (Patrick Chovanec)

During the Vietnam War, surveying the shelled wreckage of Ben Tre, an American officer famously remarked, “It became necessary to destroy the town to save it.” His comment came to epitomize the sort of self-defeating “victory” that undoes what it aims to achieve. Last week, China destroyed its stock market in order to save it. Faced with a crash in share prices from a bubble of its own making, the Chinese government intervened ruthlessly, and recklessly, to turn those prices around. Its heavy-handed approach seemed to work, for the moment, but only by severely damaging far more important goals and ambitions. Prior to the crash, China’s stock market had enjoyed a blissful disconnect from reality. As China’s economy slowed and corporate profits declined, share prices soared, nearly tripling in just 12 months.

By the peak, half the companies listed on the Shanghai and Shenzhen exchanges were priced above a preposterous 85-times earnings. It was a clear warning flag — one that Chinese regulators encouraged people to ignore. Then reality caught up. At first, when prices began to fall, the central bank responded by cutting interest rates and bank reserve requirements — measures to inject more money that had never failed to juice the market. But prices continued to fall. Then the government rallied the major brokerages to form a $19 billion fund to buy shares and waded directly into the market to buy stocks too. A few stocks rose, but most fell even further. The relentless crash was intensified by a new factor in Chinese markets: margin lending.

Chinese punters were borrowing in large sums, from both brokerages and more shadowy sources — like “umbrella trusts” and peer-to-peer lending websites — to buy shares, with the shares themselves as collateral. At the peak, according to Goldman Sachs, formal margin lending alone accounted for 12% of the market float and 3.5% of China’s GDP, “easily the highest in the history of global equity markets.” Margin loans served as rocket fuel for the market on its way up, but prices began to fall and borrowers received “margin calls” that forced them to liquidate their positions, pushing prices down further in a kind of death spiral.

Chinese regulators, who had been trying (ineffectually) to rein in risky margin lending, now suddenly reversed course. They waved rules requiring brokerages to ask for more collateral when stock prices fall and allowed them to accept any kind of asset — including people’s homes — as collateral for stock-buying loans. They also encouraged brokerages to securitize and sell their margin-lending portfolios to the public so that they could go out and make even more loans. All these steps knowingly exposed major financial institutions, and their customers, to much greater risk. Yet no one will borrow if no one is confident enough to buy, and the market continued to fall, wiping out nearly all its gains since the start of the year.

Read more …

The deal “has an ownership problem for Tsipras and the Greeks in general..”

• Greece’s Tsipras Shakes Up Cabinet in Bid to Rebuild Government (Bloomberg)

Greek Prime Minister Alexis Tsipras replaced some ministers in a cabinet reshuffle after almost a quarter of his lawmakers rejected measures he agreed on with creditors to keep the country in the euro. The prime minister’s office said Friday that Panagiotis Skourletis will replace Panagiotis Lafazanis, who heads the Left Platform fraction of Tsipras’s Syriza party, as energy minister. George Katrougalos will succeed Panagiotis Skourletis as labor minister. The Greek parliament in the early hours of Thursday backed the deal with creditors, needed to unblock further financing aid, with decisive votes from the opposition. With 38 of 149 Syriza lawmakers refusing to support further spending cuts and tax increases, that marked a blow for Tsipras, who came to power on an anti-austerity platform in January.

Tsipras told his associates after the parliament vote that he would be forced to lead a minority government until a final deal with creditors is concluded. The European Union finalized a €7.2 billion bridge loan to Greece on Friday that will help provide the debt-ravaged nation with a stop-gap until its full three-year bailout is settled. In all, 64 of the parliament’s 300 lawmakers voted against the bill. Half of the “no” votes came from Syriza, including from Lafazanis and former Finance Minister Yanis Varoufakis. Finance Minister Euclid Tsakalotos, called in by Tsipras to replace Varoufakis before the final bailout negotiations, discussed on Friday with Joseph Stiglitz, a Nobel-prize winning economist, about the difficulties expected in the implementation of the deal with Greece’s creditors.

The deal “has an ownership problem for Tsipras and the Greeks in general,” said Paolo Manasse, a professor of economics at the University of Bologna, Italy. “It’s a liberal program to be carried out by a radical-left premier and imposed on a country that’s just voted no in a referendum.”

Read more …

“To the Confidence Fairy we can now add the ‘Trust Troll’ : appease the Trust Troll, and all your macroeconomic ills will magically vanish.”

• Wolfgang Schäuble, The Trust Troll (Steve Keen)

Paul Krugman invented the term “confidence fairy” to characterize the belief that all that was needed for growth to resume after the Global Financial Crisis was to restore ‘confidence’. Impose austerity and the economy will not shrink, but will instead grow immediately, because of the boost to confidence:

.. don’t worry: spending cuts may hurt, but the confidence fairy will take away the pain. The idea that austerity measures could trigger stagnation is incorrect, declared Jean-Claude Trichet, the president of the European Central Bank, in a recent interview. Why? Because confidence-inspiring policies will foster and not hamper economic recovery. ( Myths of Austerity , July 1 2010)

To the Confidence Fairy we can now add the ‘Trust Troll’ : appease the Trust Troll, and all your macroeconomic ills will magically vanish. The identity of the Confidence Fairy was never revealed, but the identity of the Trust Troll is obvious. It‘s German Finance Minister Wolfgang Schäuble. Schäuble was clearly the primary architect of the Troika’s dictat for Greece. One only has to compare its language to that used by Schäuble in his OpEd in the New York Times three months ago (Wolfgang Schäuble on German Priorities and Eurozone Myths , April 15 2015). There he stated that ‘My diagnosis of the crisis in Europe is that it was first and foremost a crisis of confidence, rooted in structural shortcomings , and that the essential factor in ending the crisis was the restoration of trust:

The cure is targeted reforms to rebuild trust in member states finances, in their economies and in the architecture of the European Union. Simply spending more public money would not have done the trick nor can it now.

Compare this to the first line of the communique:

The Eurogroup stresses the crucial need to rebuild trust with the Greek authorities as a pre requisite for a possible future agreement on a new ESM programme.

The policies in the document match those in Schäuble’s OpEd as well. Schäuble called for:

.. more flexible labor markets; lowering barriers to competition in services; more robust tax collection; and similar measures.

The Troika’s document forces these measures upon Greece. These include ‘the broadening of the tax base to increase revenue’, ‘rigorous reviews of collective bargaining, industrial action and collective dismissals’ and ‘ambitious product market reforms’. At the same time, Greece is required to aim to achieve a government surplus equivalent to 3.5% of GDP -the opposite of ‘spending more public money’ which Schäuble rejected in his OpEd. Rather than debt reduction and rescheduling as even the IMF now calls for, “The Euro Summit acknowledges the importance of ensuring that the Greek sovereign can clear its arrears to the IMF and to the Bank of Greece and honour its debt obligations”.

This cannot in any sense be seen as an economic document, since an economic document would have to assess the feasibility of its proposals. Instead it simply states Schäuble s ideology: regardless of your economic circumstances, simply implement these (so-called) market-oriented reforms, restore trust, and your economy will grow. With the government debt that Greece currently labours under, this is a fantasy. Even if Greece were to pay a mere 3% on its debt, interest payments alone would absorb over 5% of GDP. To do that, and run a primary surplus of 3.5% of GDP in an economy where 25% of the population is unemployed is simply impossible.

Read more …

Karl Whelan makes much the same point as Steve Keen: “..the truth is it is really Grade-A concern trolling (“I’d love to help you guys but I can only do it if you leave the euro”) dressed up as legal argumentation.”

• Alice In Schäuble-Land: Where Rules Mean What Wolfgang Says They Mean (Whelan)

After trying his best to chuck Greece out of the euro last weekend, Germany’s finance minister Schäuble has continued to openly undermine the deal that was agreed by European leaders and endorsed by the Greek parliament. A key argument he has been putting forward is that a debt write-down for Greece “would be incompatible with the currency union’s rules” but that such a write-down would be possible if Greece left the euro. While this claim is being widely repeated in the German press, the truth is it is really Grade-A concern trolling (“I’d love to help you guys but I can only do it if you leave the euro”) dressed up as legal argumentation.

The rules of the EU and Eurozone are so byzantine that it is quite easy to make false claims about these rules and get away with it. However, I do not believe there is anything in the European Union or Eurozone rules that would preclude a debt write-down inside the euro. The basis for Schäuble’s argument appears to be Article 125.1 of the consolidated treaty on the functioning of the EU. Here is the article in full.

The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.

This is the article that used to be called “the no bailout clause”. However, it is nothing of the sort. It simply says that member states cannot take on the debts of another member state. This did not rule out member states “bailing out” other countries by making loans to them. And indeed, the European Court of Justice in its Pringle decision established that the European Stabilisation Mechanism bailout fund was consistent with Article 125. Also worth noting about Article 125 are all the things it doesn’t mention. It doesn’t rule out loans being member states and doesn’t discuss these loans being restructured. And it makes no mention whatsoever of the Eurozone. So there is simply no legal basis for the idea that Greek debt being written down is illegal while they remain in the Eurozone but is fine if they leave the euro.

It is conceivable that someone could still take a case to the ECJ objecting to a write-off on the grounds that the granting and write-off of loans to Greece would result in more debt for European countries and allowed Greece to pay off other creditors. So you could argue that this was effectively the same thing as the other member states assuming Greece’s other debt commitments. To my mind, this line of argumentation moves far away from the simple and clear language of Article 125.1. I also don’t see much in the Pringle decision to suggest the ECJ would uphold such a case. There would be even less case for a legal argument against an “effective write-off” involving postponing interest payments and principal payments for some very long period of time, such as 100 years.

So there is no “Eurozone rule” against a writing off Greek debt. Conversely, despite Schäuble’s enthusiastic support, the rules don’t allow for a euro exit. Rules it appears, mean whatever Mr. Schäuble wants them to mean.

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“After all, Poland, the Czech Republic, Croatia, and Romania (not to mention Denmark and Sweden, or for that matter the United Kingdom) are still out and will likely remain so—yet no one thinks they will fail or drift to Putin because of that.”

• Greece, Europe, and the United States (James K. Galbraith)

SYRIZA was not some Greek fluke; it was a direct consequence of European policy failure. A coalition of ex-Communists, unionists, Greens, and college professors does not rise to power anywhere except in desperate times. That SYRIZA did rise, overshadowing the Greek Nazis in the Golden Dawn party, was, in its way, a democratic miracle. SYRIZA’s destruction will now lead to a reassessment, everywhere on the continent, of the “European project.” A progressive Europe—the Europe of sustainable growth and social cohesion—would be one thing. The gridlocked, reactionary, petty, and vicious Europe that actually exists is another. It cannot and should not last for very long.

What will become of Europe? Clearly the hopes of the pro-European, reformist left are now over. That will leave the future in the hands of the anti-European parties, including UKIP, the National Front in France, and Golden Dawn in Greece. These are ugly, racist, xenophobic groups; Golden Dawn has proposed concentration camps for immigrants in its platform. The only counter, now, is for progressive and democratic forces to regroup behind the banner of national democratic restoration. Which means that the left in Europe will also now swing against the euro.

As that happens, should the United States continue to support the euro, aligning ourselves with failed policies and crushed democratic protests? Or should we let it be known that we are indifferent about which countries are in or out? Surely the latter represents the sensible choice. After all, Poland, the Czech Republic, Croatia, and Romania (not to mention Denmark and Sweden, or for that matter the United Kingdom) are still out and will likely remain so—yet no one thinks they will fail or drift to Putin because of that. So why should the euro—plainly now a fading dream—be propped up? Why shouldn’t getting out be an option? Independent technical, financial, and moral support for democratic allies seeking exit would, in these conditions, help to stabilize an otherwise dangerous and destructive mood.

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The story comes from everywhere now: non-euro countries fare much better than euro nations. Even in Germany, workers are being stiffed.

• The Euro Is A Disaster Even For The Countries That Do Everything Right (WaPo)

The euro might be worse for you than bankruptcy. That, at least, has been the case for Finland and the Netherlands, which have actually grown less than Iceland has since 2007. Iceland, you might recall, went bankrupt in 2008. Now, it’s true that Finland and the Netherlands have had their fair share of economic problems, but those should have been manageable. Neither country is a basket case, and both have done what they were supposed to do. In other words, they’ve followed the rules, and the results have still been a catastrophe. That’s because the euro itself is. Or, if you want to be polite, the common currency is “imperfect, and being imperfect is fragile, vulnerable, and doesn’t deliver all the benefits it could.” That was ECB chief Mario Draghi’s verdict on Thursday.

So what’s happened to them? Well, just your run-of-the-mill bad economic news. It’s only a slight exaggeration to say that Apple has kneecapped Finland’s economy. Its two biggest exports were Nokia phones and paper products, but, as the country’s former prime minister Alex Stubb has said, the iPhone killed the former and the iPad killed the latter. Now, the normal way to make up for this would be to cut costs by devaluing your currency, except that Finland doesn’t have a currency to devalue anymore. It has the euro. So instead it’s had to cut costs by cutting wages, which not only takes longer, but also causes more economic damage since you have to fire people to convince them to take pay cuts. The result has been a recession longer than anything in Finland’s living memory, longer even than its great depression in the early 1990s. It hasn’t helped, of course, that the rules of the euro zone have forced Finland’s government to cut its budget at the same time that all this has been happening.

It’s been a different kind of story in the Netherlands. Its goods are more than competitive abroad—its trade surplus is an absurd 10 % of economic output—but its domestic spending is a problem. The Netherlands had a huge housing bubble, fueled, in part, by the fact that interest payments are fully tax deductible, that has since deflated some 20%. That’s left Dutch households with a bigger debt burden than anyone else in the euro zone. On top of that, there’s been the usual austerity to keep its recovery from being much—or any—of one. Indeed, the Netherlands’ economy was slightly smaller at the end of 2014 than it was at the end of 2007. That’s a lot better than Finland, whose economy has shrunk 5.2% during that time, but it still lags the 1.1% growth Iceland has eked out.

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Excellent.

• Blame the Banks (The Atlantic)

In buying various assets European banks were doing what banks are supposed to do: lending. But by doing so without caution they were doing exactly what banks are not supposed to do: lending recklessly. The European banks weren’t lending recklessly to only the U.S. They were also aggressively lending within Europe, including to the governments of Spain, Portugal, and Greece. In 2008, when the U.S. housing market collapsed, the European banks lost big. They mostly absorbed those losses and focused their attention on Europe, where they kept lending to governments—meaning buying those countries’ debt—even though that was looking like an increasingly foolish thing to do:

Many of the southern countries were starting to show worrying signs. By 2010 one of those countries—Greece—could no longer pay its bills. Over the prior decade Greece had built up massive debt, a result of too many people buying too many things, too few Greeks paying too few taxes, and too many promises made by too many corrupt politicians, all wrapped in questionable accounting. Yet despite clear problems, bankers had been eagerly lending to Greece all along. That 2010 Greek crisis was temporarily muzzled by an international bailout, which imposed on Greece severe spending constraints. This bailout gave Greece no debt relief, instead lending them more money to help pay off their old loans, allowing the banks to walk away with few losses.

It was a bailout of the banks in everything but name. Greece has struggled immensely since then, with an economic collapse of historic proportion, the human costs of which can only be roughly understood. Greece needed another bailout in 2012, and yet again this week. While the Greeks have suffered, the northern banks have yet to account financially, legally, or ethically, for their reckless decisions. Further, by bailing out the banks in 2010, rather than Greece, the politicians transferred any future losses from Greece to the European public. It was a bait-and-switch rife with a nationalist sentiment that has corrupted the dialogue since: Don’t look at our reckless banks; look at their reckless borrowing.

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Legalese.

• Greece’s Debt Can Be Written Off – Whatever Wolfgang Schäuble Says (Guardian)

A vote in the Greek parliament means little to Germany’s finance minister, Wolfgang Schäuble. The self-appointed guardian of the EU’s financial rulebook says Athens can vote as many times as it likes in favour of a deal that promises, even in the vaguest terms, to write off some of its colossal debts, but that doesn’t mean the rules allow it. In fact, as Schäuble delights in pointing out, any attempt at striking out Greek debt is, according to his advice, illegal. Yet Schäuble knows Greece’s debts are unsustainable unless some of them are written off – he has said as much on several occasions. So faced with its internal contradictions, he posits that the deal must fail and the poorly led Greeks exit the euro.

As a compromise, he repeated his suggestion on Tuesday that Greece leave the euro temporarily. Those who care more for maintaining the current euro currency bloc as a 19-member entity immediately spotted this manoeuvre as a one-way ticket with no way back for Greece. The Austrian chancellor, Werner Faymann, a centre-left social democrat, said Schäuble was “totally wrong” to create the impression that “it may be useful for us if Greece falls out of the currency union, that maybe we pay less that way”. Faymann, who has consistently taken a sympathetic line on Greece, showed his growing irritation at the German minister’s stance: “It’s morally not right, that would be the beginning of a process of decay … Germany has taken on a leading role here in Europe and in this case not a positive one.”

Greece and Faymann’s problem is that there are plenty of other forces at play pulling at the loose threads of the latest bailout deal. The IMF has said a big debt write-off is needed to prevent a proposed €86bn deal collapsing under the sheer weight of future liabilities and a reluctance in Greece to carry through reforms.

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Bernanke weighs in.

• Greece And Europe: Is Europe Holding Up Its End Of The Bargain? (Ben Bernanke)

This week the Greek parliament agreed to European demands for tough new austerity measures and structural reforms, defusing (for the moment, at least) the country’s sovereign debt crisis. Now is a good time to ask: Is Europe holding up its end of the bargain? Specifically, is the euro zone’s leadership delivering the broad-based economic recovery that is needed to give stressed countries like Greece a reasonable chance to meet their growth, employment, and fiscal objectives? Over the longer term, these questions are evidently of far greater consequence for Europe, and for the world, than are questions about whether tiny Greece can meet its fiscal obligations.

Unfortunately, the answers to these questions are also obvious. Since the global financial crisis, economic outcomes in the euro zone have been deeply disappointing. The failure of European economic policy has two, closely related, aspects: (1) the weak performance of the euro zone as a whole; and (2) the highly asymmetric outcomes among countries within the euro zone. The poor overall performance is illustrated by Figure 1 below, which shows the euro area unemployment rate since 2007, with the U.S. unemployment rate shown for comparison.

In late 2009 and early 2010 unemployment rates in Europe and the United States were roughly equal, at about 10% of the labor force. Today the unemployment rate in the United States is 5.3%, while the unemployment rate in the euro zone is more than 11%. Not incidentally, a very large share of euro area unemployment consists of younger workers; the inability of these workers to gain skills and work experience will adversely affect Europe’s longer-term growth potential. The unevenness in economic outcomes among countries within the euro zone is illustrated by Figure 2, which compares the unemployment rate in Germany (which accounts for about 30% of the euro area economy) with that of the remainder of the euro zone.

Currently, the unemployment rate in the euro zone ex Germany exceeds 13%, compared to less than 5% in Germany. Other economic data show similar discrepancies within the euro zone between the “north” (including Germany) and the “south.” The patterns illustrated in Figures 1 and 2 pose serious medium-term challenges for the euro area. The promise of the euro was both to increase prosperity and to foster closer European integration. But current economic conditions are hardly building public confidence in European economic policymakers or providing an environment conducive to fiscal stabilization and economic reform; and European solidarity will not flower under a system which produces such disparate outcomes among countries.

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How Wolfie asset-stripped East Germany.

• Why Is Germany So Tough On Greece? Look Back 25 Years (Guardian)

It was 25 years ago, during the summer of 1990, that Schäuble led the West German delegation negotiating the terms of the unification with formerly communist East Germany. A doctor of law, he was West Germany’s interior minister and one of Chancellor Helmut Kohl’s closest advisers, the go-to guy whenever things got tricky. The situation in the former GDR was not too dissimilar from that in Greece when Syriza swept to power: East Germans had just held their first free elections in history, only months after the Berlin Wall fell, and some of the delegates from East Berlin dreamed of a new political system, a “third way” between the west’s market economy and the east’s socialist system – while also having no idea how to pay the bills anymore.

The West Germans, on the other side of the table, had the momentum, the money and a plan: everything the state of East Germany owned was to be absorbed by the West German system and then quickly sold to private investors to recoup some of the money East Germany would need in the coming years. In other words: Schäuble and his team wanted collateral. At that time almost every former communist company, shop or petrol station was owned by the Treuhand, or trust agency – an institution originally thought up by a handful of East German dissidents to stop state-run firms from being sold to West German banks and companies by corrupt communist cadres. The Treuhand’s mission: to turn all the big conglomerates, companies and tiny shops into private firms, so they could be part of a market economy.

Schäuble and his team didn’t care that the dissidents had planned to hand out shares of companies to the East Germans, issued by the Treuhand – a concept that incidentally led to the rise of the oligarchs in Russia. But they liked the idea of a trust fund because it operated outside the government: while technically overseen by the finance ministry, it was publicly perceived as an independent agency. Even before Germany merged into a single state in October 1990, the Treuhand was firmly in West German hands. Their aim was to privatise as many companies as possible, as soon as possible – and if you were to ask most Germans about the Treuhand today they would say it achieved that objective. It didn’t do so in a way that was popular with the people of East Germany, where the Treuhand quickly became known as the ugly face of capitalism. It did a horrible job in explaining the transformation to shellshocked East Germans who felt overpowered by this strange new agency. To make matters worse, the Treuhand became a hotbed of corruption.

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“As for the future of the euro, it would no longer be the Greeks’ problem. What, they may say, has the euro done for us?”

• Greece Made The Wrong Choice (John Lloyd)

Former Greek Finance Minister Yanis Varoufakis has, as Macbeth put it, “strutted and fretted his hour upon the stage.” But he will still be heard some more. While Prime Minister Alexis Tsipras pleaded for support Wednesday for a European Union “rescue” plan in which he said he didn’t believe, Varoufakis was busy ripping it apart. In a widely circulated blog, Varoufakis boiled down his belief to this: Greece had been reduced to the status of a slave state. While his words were clearly driven by anger and spite, he’s not entirely out of line. The agreement is, as Tsipras said, a kind of blackmail. The economist Simon Tilford described it as an order to “acquiesce to all our demands or we will evict you from the currency union.”

Pensions will be cut further, labor markets liberalized, working lives extended, collective bargaining “modernized,” and hiring and firing made easier. For a government that takes its inspiration from Karl Marx, this is a neo-liberal dousing. There are few enthusiasts for the deal: the most important of the skeptics is the IMF, which called for the euro zone creditors to allow a partial write-off of its €300+ billion debt, or at least permit a repayment pause for 30 years. In an ironic twist, the IMF, the creditor the Tsipras government most despised, is now its (partial) friend. Skeptics have focused not just on the impossibility of debt repayment, but also on the deepening poverty that will result from the agreement.

Francois Cabeau, an economist in Barclays Bank, told the French daily Figaro that the economy would continue to shrink by between 6 and 8% a year. Because the Greek economy has so few sectors where significant value is added other than shipping and tourism, it depends heavily on consumption — which is being further cut, thus prompting a vicious cycle and a further immiseration of the poor, elderly and sick. These conditions validate Varoufakis’ analysis. Greece is a country so firmly under the unremitting pressure of its creditors and so tied to foreign demands, that it may soon resemble an East European communist state in the high tide of Soviet power. Like two of these states — Hungary in 1956, Czechoslovakia in 1968 — Syriza made a failed attempt at a revolt, and was crushed.

[..] So should it leave the euro zone? The objections to a Grexit are twofold: first, that its currency — presumably a newly issued drachma — would be walloped by an unfavorable exchange rate as a result. Foreign goods and foreign travel would be priced out of many families’ reach. At the same time, as euro zone leaders have warned continually, a Grexit would also shake the euro to its foundations — and though the remaining 18 members could be protected, a precedent would be set that this is a contingent currency, with membership dependent on national conditions. That it would be bad is certain: but how much worse than staying in and swallowing bitter medicine? As for the future of the euro, it would no longer be the Greeks’ problem. What, they may say, has the euro done for us?

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“The key (overlooked) question here is: Is this EU reflecting Europeans’ will? ”

• The Greek Crisis Represents The Humiliation Of European Democracy (Andrea Mammone)

Fears, disillusionment, uncertainty, and astonishment are mixed together by the hot wind blowing from Greece and the cold rain coming from some of Northern Europe. No, it is not a weather forecast. After the Greek referendum and the recent night-long negotiations, these are the feelings of many people across Europe. Even if the reality will probably be less apocalyptic, the truth is that democracy is being ridiculed around the EU. Some media from all around the world are, in fact, suggesting that Greece has been excessively humiliated and there is a strong attempt to force it out from the Eurozone. And this is not merely because one of the proposals from the summit stated that €50bn of Greek assets had to be handed over to an institution fundamentally controlled by Berlin.

These days Greece has been constantly at the centre of Europe’s microcosm. The “mother” of western democracy and inner culture, according to some, has to learn the lesson. It is a matter of mere power. They rejected austerity, potentially provoking another European downturn, and a default with unclear outcomes. Stories of poverty and unemployment are indeed in the eyes of everyone willing to see them. The situation is undermining the future of the European community. It is not simply opening the way for member states to be essentially pushed out by the strongest ones. Referring to the Greek early approach and a possible “exit”, EU Commission president Jean-Claude Juncker said that he could not “pull a rabbit out of a hat”. This is very true.

But early post-war politicians pulled many rabbits out when Europe had to be rebuilt after the war, and so one would expect a similar proficiency. This contemporary generation of European leaders might be instead remembered like the one leading to the disappearance of many transnational bonds established by Europeans. Europe is, then, really navigating with no compass. It has not a single voice. Socially, there seems to be no concern with people’s living standards. Politically, they lack any preoccupations with geo-politics, as some of the Mediterranean might fall under Putin’s influence. Budget and austerity are the main interests. As Pierre Moscovici, the socialist EU economic commissioner, in fact, put it, the “integrity” of the Eurozone has been saved with the novel agreement.

The key (overlooked) question here is: Is this EU reflecting Europeans’ will? Its image (and also Germany’s image) is seriously damaged even if all Greeks voted yes. For this reason the statement by the German European MP and chairman of the leading centre-right European People’s Party, Manfred Weber, that Europe is “based on solidarity, not a club of egoists” looks highly paradoxical, especially after what it is happening to Greece.

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From Mason’s upcoming new book. Lots of technohappiness.

• The End Of Capitalism Has Begun (Paul Mason)

The 2008 crash wiped 13% off global production and 20% off global trade. Global growth became negative – on a scale where anything below +3% is counted as a recession. It produced, in the west, a depression phase longer than in 1929-33, and even now, amid a pallid recovery, has left mainstream economists terrified about the prospect of long-term stagnation. The aftershocks in Europe are tearing the continent apart. The solutions have been austerity plus monetary excess. But they are not working. In the worst-hit countries, the pension system has been destroyed, the retirement age is being hiked to 70, and education is being privatised so that graduates now face a lifetime of high debt. Services are being dismantled and infrastructure projects put on hold.

Even now many people fail to grasp the true meaning of the word “austerity”. Austerity is not eight years of spending cuts, as in the UK, or even the social catastrophe inflicted on Greece. It means driving the wages, social wages and living standards in the west down for decades until they meet those of the middle class in China and India on the way up. Meanwhile in the absence of any alternative model, the conditions for another crisis are being assembled. Real wages have fallen or remained stagnant in Japan, the southern Eurozone, the US and UK. The shadow banking system has been reassembled, and is now bigger than it was in 2008. New rules demanding banks hold more reserves have been watered down or delayed. Meanwhile, flushed with free money, the 1% has got richer.

Neoliberalism, then, has morphed into a system programmed to inflict recurrent catastrophic failures. Worse than that, it has broken the 200-year pattern of industrial capitalism wherein an economic crisis spurs new forms of technological innovation that benefit everybody. That is because neoliberalism was the first economic model in 200 years the upswing of which was premised on the suppression of wages and smashing the social power and resilience of the working class. If we review the take-off periods studied by long-cycle theorists – the 1850s in Europe, the 1900s and 1950s across the globe – it was the strength of organised labour that forced entrepreneurs and corporations to stop trying to revive outdated business models through wage cuts, and to innovate their way to a new form of capitalism.

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“This El Niño hasn’t peaked yet, but by some measures it’s already the most extreme ever recorded for this time of year and could lead 2015 to break even more records than last year.”

• The Freakish Year in Broken Climate Records (Bloomberg)

The annual State of the Climate report is out, and it’s ugly. Record heat, record sea levels, more hot days and fewer cool nights, surging cyclones, unprecedented pollution, and rapidly diminishing glaciers.
The U.S. National Oceanic and Atmospheric Administration (NOAA) issues a report each year compiling the latest data gathered by 413 scientists from around the world. It’s 288 pages, but we’ll save you some time. Here’s a review, in six charts, of some of the climate highlights from 2014.

1. Temperatures set a new record It’s getting hot out there. Four independent data sets show that last year was the hottest in 135 years of modern record keeping. The map above shows temperature departure from the norm. The eastern half of North America was one of the few cool spots on the planet.

2. Sea levels also surge to a record The global mean sea level continued to rise, keeping pace with a trend of 3.2 millimeters per year over the last two decades. The global satellite record goes back only to 1993, but the trend is clear and consistent. Rising tides are one of the most physically destructive aspects of climate change. Eight of the world’s 10 largest cities are near a coast, and 40 % of the U.S. population lives in coastal areas, where the risk of flooding and erosion continues to rise.

3. Glaciers retreat for the 31st consecutive year Data from more than three dozen mountain glaciers show that 2014 was the 31st straight year of glacier ice loss worldwide. The consistent retreat of glaciers is considered one of the clearest signals of global warming. Most alarming: The rate of loss is accelerating over time.

4. There are more hot days and fewer cool nights Climate change doesn’t just increase the average temperature—it also increases the extremes. The chart above shows when daily high temperatures max out above the 90th %ile and nightly lows fall below the lowest 10th %ile. The measures were near their global records last year, and the trend is consistently miserable.

5. Record greenhouse gases fill the atmosphere By burning fossil fuels, humans have cranked up concentrations of carbon dioxide in the atmosphere by more than 40 % since the Industrial Revolution. Carbon dioxide, the most important greenhouse gas, reached a concentration of 400 parts per million for the first time in May 2013. Soon we’ll stop seeing concentrations that low ever again.
The data shown are from the Mauna Loa Observatory in Hawaii. Data collection was started there by C. David Keeling of the Scripps Institution of Oceanography in March 1958. This chart is commonly referred to as the Keeling curve.

6. The oceans absorb crazy amounts of heat The oceans store and release heat on a massive scale. Over shorter spans of years to decades, ocean temperatures naturally fluctuate from climate patterns like El Niño and what’s known as the Pacific Decadal Oscillation. Longer term, oceans are absorbing even more global warming than the surface of the planet, contributing to rising seas, melting glaciers, and dying coral reefs and fish populations. In 2015 the world has moved into an El Niño warming pattern in the Pacific Ocean. El Niño phases release some of the ocean’s stored heat into the atmosphere, causing weather shifts around the world. This El Niño hasn’t peaked yet, but by some measures it’s already the most extreme ever recorded for this time of year and could lead 2015 to break even more records than last year.

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Someone Pull The Plug or This Will End in War

Jul 102015
 
 July 10, 2015  Posted by at 7:58 am Finance Tagged with: , , , , ,  21 Responses »


Unknown Petersburg, Virginia. Group of Company B, U.S. Engineer Battalion 1864

I was going to write up on the uselessness of Angela Merkel, given that she said on this week that “giving in to Greece could ‘blow apart’ the euro”, and it’s the 180º other way around; it’s the consistent refusal to allow any leniency towards the Greeks that is blowing the currency union to smithereens.

Merkel’s been such an abject failure, the fullblown lack of leadership, the addiction to her right wing backbenchers, no opinion that seems to be remotely her own. But I don’t think the topic by itself makes much sense anymore for an article. It’s high time to take a step back and oversee the entire failing euro and EU system.

Greece is stuck in Germany’s own internal squabbles, and that more than anything illustrates how broken the system is. It was never supposed to be like that. No European leader in their right mind would ever have signed up for that.

Reading up on daily events, and perhaps on the verge of an actual Greece deal, increasingly I’m thinking this has got to stop, guys, there is no basis for this. It makes no sense and it is no use. The mold is broken. The EU as a concept, as a model, has failed and is already a thing of the past.

It’s over. And anything that’s done from here on in will only serve to make things worse. We should learn to recognize such transitions, and act on them. Instead of clinging on to what we think might have been long after it no longer is.

Whatever anyone does now, it’ll all come back again. That’s guaranteed. So just don’t do it. Or rather, do the one thing that still makes any sense: Call a halt to the whole charade.

As for Greece: Just stop playing the game. It’s the only way for you not to lose it.

There’s no reason why European countries couldn’t live together, work together, but the EU structure makes it impossible for them to do just that, to do the very thing it was supposed to be designed for.

Germany runs insane surpluses with the rest of the EU, and it sees that as a sign of how great a country it is. But in the present structure, if one country runs such surpluses, others will need to run equally insane deficits.

Cue Greece. And Italy, Spain et al. William Hague for once was right about something when he said this week that the euro could only possibly have ended up as a burning building with no exits. This is going to lead to war.

Simple as that. It may take a while, and the present ‘leadership’ may be gone by then, but it will. Unless more people wake up than just the OXI voters here in Greece.

And the only reason for it to happen is if the present flock of petty little minds in Berlin, Paris, London and Brussels try to make it last as long as they can, and call for even more integration and centralization and all that stuff. The leaders are useless, the structure is painfully faulty, and the outcome is fully predictable.

Europe has no leadership, it has a varied but eerily similar bunch of people who crave the power they’ve been given, but lack the moral sturctures to deal with that power. Sociopaths. That’s what Brussels selects for.

And Brussels is by no means the only place in Europe that does that. What about people like Schäuble and Dijsselbloem, who see the misery in Greece and loudly bang the drum for more misery? What does that say about a man? And what does it say about the structure that allows them to do it? At times I feel like the Grapes of Wrath is being replayed here.

It’s nice and all to claim you’re right about something, but if your being right produces utter misery for millions of others, you’re still wrong.

Greece is not an abstract exercise in some textbook, and it’s not a computer game either. Greece is about real people getting hurt. And if you refuse to act to alleviate that hurt, that defines you as a sociopath.

Germany now, and it took ‘only’ 5 months, says Greece needs debt relief but it also says, through Schäuble: “There cannot be a haircut because it would infringe the system of the European Union.” That’s exactly my point. That’s silly. And looking around me here in Athens for the past few weeks, it’s criminally silly. You acknowledge what needs to be done, and at the same time you acknowledge the system doesn’t allow for what needs to be done. Time to change that system then. Or blow it up.

I don’t care what people like Merkel and Schäuble think or say, once people in a union go hungry and have no healthcare, you have to change the system, not hammer it down their throats even more. If you refuse to stand together, you can be sure you’ll fall apart.

Get a life. Greece should just default on the whole thing, and let Merkel and Hollande figure out the alleged Greek debt with their own domestic banking sectors. They’re the ones who received all the money that Greece is now trying to figure out a payback schedule for.

Problem with that is of course that very banking sector. They call the shots. The vested interests have far too much power on all levels. That’s the crux. But that’s also the purpose for which a shoddy construct like the EU exists in the first place. The more centralized politics are, the easier the whole thing is to manipulate and control. The more loopholes and cracks in the system, the more power there is for vested interests.

Steve Keen just sent a link to an article at Australia’s MacroBusiness, that goes through the entire list of new proposals from the Syriza government, and ends like this:

Tsipras Has Just Destroyed Greece

This is basically the same proposal as that was just rejected by the Greek people in the referendum. There are some headlines floating around about proposed debt restructuring as well but I can’t find them. This makes absolutely no sense. The Tsipras Government has just:
• renegotiated itself into the same position it was in two months ago;
• set massively false expectations with the Greek public;
• destroyed the Greek banking system, and
• destroyed what was left of Greek political capital in EU.

If this deal gets through the Greek Parliament, and it could given everyone other than the ruling party and Golden Dawn are in favour of austerity, then Greece has just destroyed itself to no purpose. Markets are drawing comfort from the roll over but how Tsipras can return home without being lynched by a mob is beyond me. And that raises the prospect of any deal being held immediately hostage to violence.

Yes, it’s still entirely possible that Tsipras submitted this last set of proposals knowing full well they won’t be accepted. But he’s already gone way too far in his concessions. This is an exercise in futility.

It’s time to acknowledge this is a road to nowhere. From where I’m sitting, Yanis Varoufakis has been the sole sane voice in this whole 5 month long B-movie. I think Yanis also conceded that it was no use trying to negotiate anything with the troika, and that that’s to a large extent why he left.

Yanis will be badly, badly needed for Greece going forward. They need someone to figure out where to go from here.

Just like Europe needs someone to figure out how to deconstruct Brussels without the use of heavy explosives. Because there are just two options here: either the EU will -more or less- peacefully fall apart, or it will violently blow apart.

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