Jan 292018
 January 29, 2018  Posted by at 8:02 pm Finance Tagged with: , , , , , , , , , , ,  5 Responses »

Lucien Hervé The Accuser, Delhi, India 1955


Tomorrow we have the State of the Union. Donald Trump will be gloating from ear to ear, but he’ll be subdued – by his standards. Expect perhaps $1 or even $1.5 trillion in infrastructure spending to be announced, plus an immigration plan that gives Democrats much of what they want in exchange for some of the things Trump wants, as well as more on trade surpluses and deficits. The Democrats will attempt to turn it into a circus of sorts by bringing guests, and they will fail.

What America needs right now is dialogue, but it’s only moving further away from it. Anything that’s wrong with anything or anyone gets blamed on Trump. By half the population. That’s nice and easy and convenient, but it doesn’t lead anywhere.

This pic, even though it features a very dumb question, says a lot about where the country stands, and it’s not standing pretty. Everybody’s just busy confirming their own opinions 24/7, egged on by networks, newspapers and social media. It’s like Moses split the nation.



Watched the Trump speech in Davos last week. He made all the points you would expect him to. No scandals, nothing anyone could blame him for. In fact, it’s true that the US economy is doing well, in Trump terms. They’re not my terms, because they laud stock markets that quit being actual markets the moment the Fed and it global brethren killed off price discovery. But in Trump terms a record S&P 500 is all you need to know, alongside low unemployment numbers, even if the latter have everything to do with underpaid shit jobs robbed of all benefits American workers once fought so hard for.

In Trump’s view, that’s a good thing. In mine, it’s a recipe for mayhem. I was watching CNN in the build-up to the speech, and Trump’s denial of the NYT report that he had intended to fire Special Counsel Robert Mueller was completely ignored. Like he never said it. At CNN, anonymous sources have -way- more credibility than the president. That’s a bit of a problem.

After the speech, all sorts of people were interviewed, and Joe Stiglitz of Nobel Memorial fame was one of them. He couldn’t muster anything better than that Trump is a bigot, a misogynist and a racist. That’s a terribly poor reaction to a speech like the one we saw and heard -which included not one word that would make any sane person think of these ‘topics’-, certainly from an economist.


The 1-year-old Donald Trump presidency has brought us a lot of new things, but none more significant than that Trump has been under investigation since day 1 (and even before that). This sets a dangerous precedent that will resound through US politics for a very long time to come, not least of all because today, one year into the presidency, none of the investigations has resulted in anything tangible, while they continue without a finish line in sight.

The problem with that is that if you can do it with one president, someone will do it with the next one and the next one after that as well. Which does great damage not to Trump, but to the entire US political system, and the Office of the President of the United States in particular. If the office cannot command sufficient respect on Capitol Hill to limit any such investigation to an absolute minimum, in deference to what it represents, why would anyone else, domestically or abroad, show such respect?

Obviously, some people may claim that the situation is unique, simply because it concerns Trump, but that argument doesn’t fly very far, because he was elected president, the culmination of a process that, given the powers endowed upon the office, should be close to sacred in the country. And if the very people (s)he must most closely work with, in the Senate and the House, are willing to subject a newly elected president to endless investigations without producing any results for a whole year, where and what are the limits?

It is at present of course all based on opaque accusations of the Trump campaign working with Russian intelligence to swing America’s election process in favor of the president. But to date, four different committees on Capitol Hill, plus Special Counsel Robert Mueller, have made nothing public that proves any such ‘collusion’. And Mueller’s investigation is not only unlimited in time, it’s also unlimited, in practical terms, in scope: whatever is deemed even possibly, perhaps, linked to collusion with Russia, goes.


The American empire was built, once it had acquired enough geopolitical, financial and military power, on invading countries and turning them into shithouses. It wasn’t and original idea, America wasn’t the first country to do it, but it’s certainly been no. 1 in applying the ‘tactic’ over the past 100 years and change. Which makes it curious that when its own elected president calls some countries shithouses, that is treated like the worst thing anybody could have said anytime in history. And racist too, allegedly.

The entire country was built on racism, and it’s still to his day almost exclusively run by white males. Much of the racism may be hidden by now, but it’s still very much there. Go look at Baltimore, Chicago, Milwaukee, and the long list of black kids killed by white cops. It’s not much use trying to claim that America is over its past. But Trump is singled out as a racist, though it’s unclear what would make him worse than others.

And on Martin Luther King Day, all Democrats and many Republicans fell over each other once again claiming they knew exactly what Dr. King stood for in his days, and what he would have said if he were alive today (the same they thermselves say). They don’t have a clue. The only way to honor MLK is to assume he would have been lightyears ahead of you. To assume he would have condemned all US foreign as well as domestic policy, and the likes of Bill Clinton, both George Bushes, Trump, and even Obama, wouldn’t even have had a remote chance of becoming president.


Allegedly Trump never said “shithole countries”, but instead talked about “shithouse countries”. Which would explain why he could say he never used the language he was quoted as having used (“Why are we having all these people from shithole countries come here?”) That a private conversation with lawmakers held in the Oval Office was leaked again within no time will not only frustrate Trump to no end, it also paints a dangerous picture of the future of US politics.

What used to be the exclusive domain of police officers and TV series, the catchy line “anything you say can and will be used against you”, no longer applies only to suspected criminals, from here on in it should be read to American presidents too. Trump and his successors will no longer be able to discuss policy in the White House, they must assume everything they say will be in the press within hours if not minutes. That is dangerous.

But let’s dig some more. And ask ourselves what is worse, let alone more racist: turning nations into shithouses or calling them that after the fact. Half the planet was encouraged to speak out in indignation at the use of the term, but where were all those Americans when the bombs and drones were unleashed upon Syria, Libya, Iraq? Where were the media?

Trump singled out Haiti and El Salvador. Two completely different ‘cases’. But also too complete basket cases (another word for shithouse) , compared to their potential. Haiti was the first slave colony to liberate itself, under black rule. That was in 1804, and if you know what Americans’ view of slaves and black people in general was back then, you can imagine how the former no. 1 global sugar producer was treated. By France, the country that had ruled it, but also by America. And you want to claim Haiti is not a shithouse country today? Go to Port-au-Prince and ask people living in the poor part of town how they feel about that.

As for African countries, the Congo is always a good example. The richest nation on the planet when it comes to natural resources, and one of the poorest when it comes to living standards. Long governed by a regime under Belgium’s King Leopold, matched in cruelty only perhaps by Germany in WWII, the Congo is still maintained as a hellhole to this day. So American and European conglomerates can dig up the metals and minerals almost for free. Not a shithole, a hellhole.

No, Trump is not going to solve that, but he didn’t make it what it is either. Generations of Americans did that. Yeah, we understand why they don’t want it named the way Trump has.

Perhaps the best illustration of how convoluted the entire issue quickly became after Trump said shithouse, which then became shithole, is this LA Times article, which starts out with the headline that Americans with African roots ‘should’ all be insulted, but then rapidly devolves into something else altogether, that insults them a lot more: the history of American involvement in their countries. Slavery, occupation, warfare, plunder.


For Black Americans, Trump’s ‘Shithole’ Comment Was An Insult To Their Histories

Kimberly Atkins, the Washington bureau chief of the Boston Herald, recently did a DNA test “that pretty much confirmed my heritage is 100% the result of the slave trade,” she wrote in a private message on Twitter. “Eighty-seven percent from western coastal African countries and 13% European, all migrated by way of the American South.”

She traced part of her heritage to an ancestor who fought in the Union during the Civil War to guarantee his freedom and the abolition of the U.S. slave trade. “My ancestors did not come from shithole countries,” she tweeted. “They were neither tired nor poor. They were forcibly brought here to live in a shithole created for them.”

Trump’s singling out of Haiti was particularly frustrating for descendants from the Caribbean nation, coming as the nation mourned the eighth anniversary of an earthquake that killed hundreds of thousands of residents.

“Haiti is not unacquainted with racists or white supremacists. We defeated our share of them in 1804 when we became the world’s first black republic,” Haitian American author Edwidge Danticat wrote in a post on Facebook, expressing her frustration that Haitians’ mourning was being diverted by an insult from Trump.

Danticat’s father came to Brooklyn, N.Y., to drive a taxicab “sometimes sixteen hours a day, so that my three brothers (two teachers and an IT specialist) and I could have a better life,” Danticat wrote.

Danticat added: “We are also the country that the United States has invaded several times, preventing us from consistently ruling ourselves. If we are a poor country, then our poverty comes in part from pillage and plunder.”

Clint Smith, a writer and PhD candidate at Harvard University specializing in sociology and education, said that he hoped that at least the president’s remarks would prompt a fuller conversation about past U.S. and European involvement with the countries Trump mentioned — countries still troubled by the legacy of colonial rule and military interventions.

“You can’t understand the economic conditions in which Haiti exists now without understanding the centuries and centuries of direct imperialism and violence and economic exploitation that the country experienced after the Haitian revolution of 1804,” Smith said. “We can’t have a real conversation about what is happening, why Salvadorans are coming here, without discussing how the U.S. contributed to the civil unrest in that country.”

The larger conversation, Smith said, “is not often enough taking into account the way that U.S. policy directly contributed to the condition in which so many of these so-called shitholes are currently existing.”


The woman who says “My ancestors did not come from shithole countries” says it best. Before the slave traders came to ship their ancestors to Brazil and later America, their countries were not shithouses. But they did become just that after, and many if not most still are now.

From a less echo chamber-confined point of view, this little thingy is priceless:



That points to an aspect of all this that we can not ignore: the media. There has a been a profound shirt in that field, and it happened fast, it turned on a dime. The first signs were already there before the Trump presidency, but it’s all been going going gone out of the park since. Media organizations (for lack of a better term) like the New York Times, the Washington Post, MSNBC and CNN were anti-Trump from the get-go, but it was when they found out their attitude was commercially very interesting that they really went for it.

And in a way, that made sense; they all had big problems trying to adapt their business models to the internet age. Then they found that publishing one after another anti-Trump piece brought them tons of new subscribers and advertisement revenue. Also for their internet presence. One stone, two birds.

The problem is that all that revenue and readership comes from one half of America, and excludes the other half. You know beforehand that anything these firms publish about Trump will be biased, and not a little bit. Much of it is based on anonymous sources, not exactly a sign of solid journalism. But it sells. And they have a business to run. We get it.

For those outside of the echo chamber, however, they have become largely unreadable and unwatchable. It’s obvious by now that someone like me, who asks a few questions and doesn’t feel comfortable in an echo chamber, will almost of necessity be ‘accused’ of being a Trump supporter. Absolute nonsense, but that’s echo chambers for you. They’re deafening and they lead to brain damage in case of long term occupancy.

Perhaps even worse are social media, where untold numbers of people revel in the notion that many others think like them, and let that carry them away to ‘heights’ they would never have thought possible. In the case of Trump, many allow themselves to call him names -in writing- they never would have dared use before, but they see echoed back to them on Twitter and Facebook et al.

That their often insults of Trump in effect show their disrespect for America’s political system would never occur to them. It’s an us against them battle, and they feel greatly emboldened by the 24/7 presence of those that are like-minded. It’s entirely unclear where this is going in the future, but it should be obvious it won’t be anywhere pretty.

Neither Bob Mueller nor those 4 committees on Capitol Hill have presented anything of substance as of now, but it’s crystal clear that Donald Trump is not being considered innocent until proven guilty. Which not only goes straight against, and into the heart of, American values and principles of justice, it also doesn’t even begin to address the real problem.

The real problem, and it’s not new at all, is that both US political parties might as well be run by Tony Soprano. The presence inside party leadership of people like Steve Wynn is ridiculous, but so is that of John Podesta. That is undoubtedly blindingly obvious for a vast majority of Americans, but it’s not what they focus on. They focus on Trump instead, on the still contagious obsession with impeaching him, even though many understand that wouldn’t solve any of the underlying issues.


And then Trump gets to present great economic numbers tomorrow. The numbers are mostly fake, but they’re the same ones that the echo chamber media also use, so they’ll have to tackle him somewhere else. They’ll come up with something, don’t worry. Their audience will just wait to be fed the usual pre-chewed bite-size fare anyway.

America needs a dialogue. But all it has left is loud, echoing, deafening, monologues. And plenty shithouse counties and cities and neighborhoods within its own borders as well. For which, too, it’s useless to blame Trump. He’s just the logical conclusion of years of blindness, ignorance, greed, stupidity and neglect. All of which, as long as everyone focuses on him, are guaranteed to continue.

Trump is not what’s wrong with America. Rather, what is wrong with America is what has given it Trump. Someone asked God for a sign and He said: here you are.



Little shithouses for you and me



Sep 132017
 September 13, 2017  Posted by at 9:18 am Finance Tagged with: , , , , , , , , , ,  8 Responses »

Sergio Larraín Valparaiso Chile 1963


Greece Property Value Review A Hard Task (K.)
Creditors Set To Increase Pressure On Athens (K.)
US Threatens To Cut Off China From SWIFT If It Violates North Korea Sanctions (ZH)
Yuan Fixing Takes Center Stage, Again (BBG)
Cryptocurrency Chaos As China Cracks Down On ICOs (R.)
JPMorgan’s Dimon Says Bitcoin ‘Is A Fraud’ (R.)
America’s Fiscal Doomsday Machine (Stockman)
IMF Is Resisting A Moratorium On Barbuda’s Sovereign Debt Repayments (Ind.)
UK’s High Street Banks Are Accident Waiting To Happen (G.)
We Must Repeal The Authorization For The Use Of Military Force (Rand Paul)
Democrats Fought For 25 Years Over Single-Payer. Now Many Back Sanders (Sirota)
China Plans Nationwide Use Of Ethanol Gasoline By 2020 (R.)
Capitalism Can’t Save The Planet – It Can Only Destroy It (Monbiot)



As EU President Juncker this morning unveils his vision of more Europe all the time, here’s what Europe is really like:

42% of Greek mortgage loans are non-performing. Today’s sale prices are 70-80% lower than in 2008. And that’s before 200-300,000 homes will be forced onto the market this fall.

Greece Property Value Review A Hard Task (K.)

The government is facing a daunting task in adjusting the so-called objective values (the property rates used for tax purposes) to market levels by the end of the year, as its bailout agreement dictates. The huge slump in transactions and the forced sales of properties due to their owners’ debts do not lead to any safe conclusions for the values per area. One in four sales are conducted with prices that lag the objective value by 60-70%, and the prices of 2008 by 70-80%. The Finance Ministry must overcome all the obstacles to bring to Parliament all the necessary adjustments and regulations.

Moreover, once the objective values are brought in line with market rates, the government will have to maintain the same amount of revenues from the Single Property Tax (ENFIA) either by raising the tax’s rates or by introducing a new tax in the form of the old Large Property Tax. Furthermore, once the objective values are reduced by 40-50% to match the going prices, banks’ may see problems with their capital adequacy, as lenders will incur losses by having to revise the collateral they get. Mortgage loans in Greece amount to €59.44 billion, of which 42%, or €25.4 billion are nonperforming.

Read more …

Forget about more Europe, or you’ll wind up with a whole lot less Europe.

Creditors Set To Increase Pressure On Athens (K.)

Technical experts representing the country’s creditors started visiting the country’s ministries in Athens on Monday, paving the way for the third bailout review, which has long ceased to be viewed as a simple matter and is increasingly burdened with problems. Pressure for a satisfactory conclusion to the review will grow with the planned visit on September 25 of Eurogroup chief Jeroen Dijsselbloem, who will meet with Greek Finance Minister Euclid Tsakalotos. Responding to a question by Kathimerini, Dijsselbloem’s spokesman said that the head of the Eurogroup will discuss eurozone issues and certainly the progress of the adjustment program. Government officials estimate that the discussion on the course of the review and the Greek program may be combined with the expiry of Dijsselbloem’s mandate at the Eurogroup chair at year-end.

The Dutch minister – whose last visit in Athens and his meeting with his counterpart at the time, Yanis Varoufakis, was quite eventful – would obviously like to leave on a positive note in regards to the Greek program. It has been rumored that he may seek another office in the eurozone. Sources from Brussels also say that the top European Commission’s top representative, Declan Costello, will also be coming to Athens in the next few days. In addition to the main cluster of 113 prior actions, of which 95 should be implemented by year-end, the creditors have expressed their objections and doubts about recent legislative moves made by the government, such as the labor law passed last Thursday.

Sources say that the creditors have also expressed concerns about clauses related to the reduced value-added tax on agricultural supplies, the opening up of closed professions, as well as the civil service. A large number of the 95 prior actions the government must implement in record time have a high degree of difficulty, and government officials believe this may require revisions on family benefits, the operation of the sell-off hyperfund and its subsidiaries, the opening up of the energy market, etc.

Read more …

How would the US pay for all the shiny trinkets?

US Threatens To Cut Off China From SWIFT If It Violates North Korea Sanctions (ZH)

In an unexpectedly strong diplomatic escalation, one day after China agreed to vote alongside the US (and Russia) during Monday’s United National Security Council vote in passing the watered down North Korea sanctions, the US warned that if China were to violate or fail to comply with the newly imposed sanctions against Kim’s regime, it could cut off Beijing’s access to both the US financial system as well as the “international dollar system.” Speaking at CNBC’s Delivering Alpha conference on Tuesday, Steven Mnuchin said that China had agreed to “historic” North Korean sanctions during Monday’s United Nations vote. “We worked very closely with the U.N. I’m very pleased with the resolution that was just passed. This is some of the strongest items. We now have more tools in our toolbox, and we will continue to use them and put additional sanctions on North Korea until they stop this behavior.”

In response, Andrew Ross Sorkin countered that “we haven’t been able to move the needle on China, which seems to be the real mover on this, in terms of being able to apply the real pressure. What do you think the issue is? What is the problem?” The stunner was revealed in Mnuchin’s answer: “I think we have absolutely moved the needle on China. I think what they agreed to yesterday was historic. I’d also say I put sanctions on a major Chinese bank.That’s the first time that’s ever been done. And if China doesn’t follow these sanctions, we will put additional sanctions on them and prevent them from accessing the U.S. and international dollar system. And that’s quite meaningful.”

And to underscore his point, the Treasury Secretary also said that “in North Korea, economic warfare works. I made it clear that the President was strongly considering and we sent a message that anybody that wanted to trade with North Korea, we would consider them not trading with us. We can put on economic sanctions to stop people trading.” In other words, to force compliance with the North Korean sanctions, Mnuchin threatened Beijing with not only trade war, but also a lock out from the dollar system, i.e. SWIFT, something the US did back in 2014 and 2015 when it blocked off several Russian banks as relations between the US and Russia imploded. Of course, whether the US would be willing to go so far as to use the nuclear option, and pull the dollar plug on its biggest trade partner, in the process immediately unleashing an economic depression domestically and globally is a different matter.

So far Washington has been reluctant to impose economic sanctions on China over concerns of possible retaliatory measures from Beijing and the potentially catastrophic consequences for the global economy. Washington runs a $350 billion annual trade deficit with Beijing, while the PBOC also holds over $1 trillion in US debt. Ironically, the biggest hurdle to the implementation of the just passed sanctions may be the president himself. “We think it’s just another very small step, not a big deal,” Trump told reporters at the start of a meeting with Malaysian Prime Minister Najib Razak. “I don’t know if it has any impact, but certainly it was nice to get a 15-to-nothing vote, but those sanctions are nothing compared to what ultimately will have to happen,” said Trump who has vowed not to allow North Korea to develop a nuclear ballistic missile capable of hitting the United States.

Read more …

Xi demands peace for the Party Congress. Brokerages have been told: no holidays during Congress.

Yuan Fixing Takes Center Stage, Again (BBG)

China’s yuan fixing is back in focus, with a run of surprises moving the market in recent days. The central bank set its reference rate – which limits onshore moves to 2% on either side – at a weaker than expected level for the third day in a row Wednesday. The rates, and the removal of a reserve requirement rule on the trading of foreign-exchange forwards, are fueling bets that authorities want to limit gains after the onshore yuan surged more than 4% against the dollar in the three months through Sept. 7. The People’s Bank of China set Wednesday’s fixing at 6.5382 per dollar, compared with the average forecast of 6.5355 in a Bloomberg survey of 19 traders and analysts. The authorities have had greater opportunity to sway the fixing either way since May, with the introduction of a “counter-cyclical factor” to the rate-setting mechanism.

“The PBOC still wants a relatively stable yuan,” said Nathan Chow at DBS. “Even if it strengthens or weakens, the pace needs to be controlled, and in an orderly and gradual manner. This will be easier for exporters to manage risks. The market expectation is that there should be no big changes or surprises before the party congress next month.” The yuan’s rally began to falter on Friday as the removal of the reserve rule made it less expensive to bet on yuan declines. The monetary authority weakened Tuesday’s fixing by the most in eight months following an overnight surge in a gauge of the greenback, pushing the onshore spot rate lower.

Read more …

“There are a lot of companies raising a lot of money for not very good ideas..”

Cryptocurrency Chaos As China Cracks Down On ICOs (R.)

China’s move last week to ban initial coin offerings (ICO) has caused chaos among start-ups looking to raise money through the novel fund-raising scheme, prompting halts, about-turns and re-thinks. China is cracking down on fundraising through launches of token-based digital currencies, targeting ICOs in a market that has ballooned this year in what has been a bonanza for digital currency entrepreneurs. The boom has fueled a jump in the value of cryptocurrencies, but raised fears of a potential bubble. “This is not unlike the dotcom bubble of 2000,” said a partner at a venture capital fund in Shanghai, who didn’t want to be named because of the issue’s sensitivity. “There are a lot of companies raising a lot of money for not very good ideas, and these will eventually be weeded out. But even from the big dotcom bust, you still have gems.”

“One of the reasons regulators stepped in was that the ICO fever extended beyond the traditional crypto community. The timing was an attempt to pre-empt this before it goes into a much broader mass market in China,” the partner said. Investors in China contributed up to 2.6 billion yuan ($394 million) worth of cryptocurrencies through ICOs in January-June, according to a state-run media report citing National Committee of Experts on Internet Financial Security Technology data. Pre-ICO roadshows featuring elaborate standing room-only presentations at 5-star hotels drew a diverse crowd, including grandmothers – a likely tipping point for regulators. The hype and subsequent crackdown came as China focuses on economic and social stability ahead of next month’s congress of the Communist Party, a once-in-five-years event.

Beijing is also waging a broader campaign against fraudulent fundraising and speculative investment, which analysts attribute to China’s underdeveloped financial regulation and lack of legitimate investment options. While several start-ups said the exuberance had got out of control and they had expected Beijing to act, they said last week’s move panicked investors and caused confusion.

Read more …

Worse than tulip bulbs.

JPMorgan’s Dimon Says Bitcoin ‘Is A Fraud’ (R.)

Bitcoin “is a fraud” and will blow up, Jamie Dimon, chief executive of JPMorgan Chase, said on Tuesday. Speaking at a bank investor conference in New York, Dimon said, “The currency isn’t going to work. You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart.” Dimon said that if any JPMorgan traders were trading the crypto-currency, “I would fire them in a second, for two reasons: It is against our rules and they are stupid, and both are dangerous.” Dimon’s comments come as the bitcoin, a virtual currency not backed by any government, has more than quadrupled in value since December to more than $4,100.

[..] “It is worse than tulips bulbs,” Dimon said, referring to a famous market bubble from the 1600s. JPMorgan and many of its competitors, however, have invested millions of dollars in blockchain, the technology that tracks bitcoin transactions. Blockchain is a shared ledger of transactions maintained by a network of computers on the internet. Dimon said such uses will roll out over coming years as it is adapted to different business lines. Financial institutions are hoping blockchain can be adapted to simplify and lower the costs of processes such as securities settlement, loan trading and international money transfers. Dimon predicted big losses for bitcoin buyers. “Don’t ask me to short it. It could be at $20,000 before this happens, but it will eventually blow up.” he said.

Read more …

From Reagan’s Budget Director.

America’s Fiscal Doomsday Machine (Stockman)

Maybe the Democrats did win the 2016 election. Or at least the the Deep State and its accomplices among the beltway political class, K-Street lobbies and the media did. That’s because the media won a giant victory against something they deplore and despise more than anything else — the public debt ceiling. They sanctimoniously admonish that it’s a relic of the nation’s fiscally benighted past. They operate on a belief that this is an episodic tendency to threaten America’s credit and to offer Capitol Hill an opening to grandstand about the fiscal verities is a blight on orderly governance. So the Donald’s latest burst of impetuosity — agreeing with Sen. Schumer to permanently abolish the public debt ceiling — has descended on the beltway like manna from heaven.

Not Barack Obama, Bill Clinton, Jimmy Carter or even the Great Texas Porker, Lyndon Johnson, dared to utter the thought of it — at least not in polite company. Suddenly, and notwithstanding all the good he has done disrupting the status quo, the Donald has become the foremost enemy of America’s very financial survival. The Federal budget is a Fiscal Doomsday Machine. The depository of American wars and entitlements have run rampant. Under the pile drivers of a global empire and the retiring baby boom, it is rapidly propelling the nation toward fiscal catastrophe. That grim outcome is virtually guaranteed if the only remaining safety brake — the debt ceiling — is summarily abolished. Due to entitlements, debt service and the slow pipeline of appropriated spending there is no such thing as an annual Federal budget or accountability for how much Uncle Sam spends and borrows.

Instead, the $4.1 trillion that Congressional Budget Office (CBO) projects the Federal government will spend in FY 2018, and the $563 billion it will borrow, reflects the dead hand of the past. Entitlements and other mandatory spending alone is projected to reach $2.566 trillion or 63% of total FY 2018 outlays. Another $307 billion will be required for interest on the nation’s $20 trillion public debt, while upwards of half the $1.22 trillion for so-called “discretionary” or appropriated programs also reflects funds appropriated years ago. Altogether, $3.5 trillion, or 85% of outlays, will be essentially baked into the cake before a single Congressional vote is taken on anything regarding the FY 2018 budget.

Read more …

They just want to lend more.

IMF Is Resisting A Moratorium On Barbuda’s Sovereign Debt Repayments (Ind.)

The IMF is resisting putting a moratorium on Barbuda’s sovereign debt repayments in the wake of the devastation left by Hurricane Irma on the tiny Caribbean island. Barbuda is said to have lost around 90% of its structures in the wake of the storm and the national repair and reconstruction bill has been estimated at $150m. The prime minister of Antigua and Barbuda, Gaston Browne, has also said that around half or the island’s population of 1,600 is now homeless. Yet Antigua and Barbuda have debt with the IMF of around $15.8m and a coalition of US faith institutions have been calling on the Fund to pause the repayments of states battered by the hurricane. However, the IMF’s special representative to the UN, Christopher Lane, reportedly suggested late last week that the Fund would rather lend more money to the island, rather than stop collecting the repayments due.

“Our general view is that we’d rather put new money in than to have moratoria,” he said, according to Court House News. Stressing that were technical and political difficulties in simply stopping the debt collection he said: “We borrow money from our members who lend. So we’d have to get agreement from the lending parties.” “We might borrow money from the United States and loan that to Antigua. If we don’t get paid back on time, we’d have to make an arrangement with the source of the funds themselves. It gets a bit arcane, but there’s a number of constraints on how we operate. We’re like a bank. We borrow and lend.”

In a letter to the IMF managing director Christine Lagarde on 7 September the Jubilee USA network wrote: “We invite the IMF to implement an immediate moratorium on debt payments for countries severely impacted by the Category 5 storm until they have rebuilt and recovered.” “For example, the nation of Antigua and Barbuda has almost $3m in debt payments due to the Fund today and a debt payment moratorium could immediately be put into rebuilding Barbuda where almost the entire population is homeless.” The group also urged that further IMF reconstruction payments to Barbuda, and other affected islands, should be in the form of grants, rather than loans.

Read more …

All major banks are.

UK’s High Street Banks Are Accident Waiting To Happen (G.)

The UK’s high street banks are an accident waiting to happen and could struggle in another financial crisis, according to a report published on Wednesday to mark the 10th anniversary of the run on Northern Rock. The report criticises the annual health checks – stress tests – that have been conducted by the Bank of England since the crisis and concludes that the methodology used by Threadneedle Street is flawed and the tests not gruelling enough. [..] Kevin Dowd, a professor of finance and economics at Durham University and a long-standing critic of the stress tests, said the Bank does not use the correct measures to assess the health of the banking system. Dowd is also a senior fellow at the Adam Smith Institute, a rightwing thinktank. His analysis – which the Bank of England has previously rejected – focuses on the health check of the major lenders published last November.

Those tests were based on a number of hypothetical scenarios including house prices falling and the global economy contracting by 1.9%. Royal Bank of Scotland failed the test and Barclays and Standard Chartered would both have struggled to cope. Dowd argued that the scenarios were “hardly doomsday” and disputes the way banks’ capital strength is measured. “The stress tests are about as useful as a cancer test that cannot detect cancer. They seek to demonstrate a financial resilience on the part of UK banks that simply isn’t there,” said Dowd in the report. “Our banking system is an accident waiting to happen.” The Bank uses the value of assets as calculated by the banks rather than their value on the markets which, he argued, would give a more accurate assessment of their financial health. “It is disturbing that 10 years on from Northern Rock, the best measures of leverage – those based on market values – indicate that UK banks are even more leveraged than they were then,” said Dowd.

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“American warfare in 7 different countries..”

We Must Repeal The Authorization For The Use Of Military Force (Rand Paul)

As Congress takes up the 2018 National Defense Authorization Act (NDAA), I will insist it vote on my amendment to sunset the 2001 and 2002 Authorizations for the Use of Military Force. Why? Because these authorizations to use military force are inappropriately being used to justify American warfare in 7 different countries. Sunsetting both AUMFs will force a debate on whether we continue the Afghanistan war, the Libya war, the Yemen war, the Syria war, and other interventions. Our military trains our soldiers to be focused and disciplined, yet the politicians who send them to fight have for years ignored those traits when developing our foreign policy. The result? Trillions spent in seemingly endless conflicts in every corner of the globe, while we find ourselves 16 years into the war in Afghanistan wondering what our purpose there even is any more, or if we’ll ever bring our troops home.

If we don’t get this rudderless foreign policy under control now, we’ll still be asking the same questions another 16 years down the road. It’s time to demand the policymakers take their own jobs as seriously as the men and women we ask to risk it all for our nation. Doing so means restoring constitutional checks and balances. Congress has no greater responsibility than defending our country, and the Founders entrusted it with the power of declaring war because they wanted such a weighty decision to be thoroughly debated by the legislature instead of unilaterally made by the Executive branch. Yet Congress has largely abdicated its role anyways, and its sidekick status was plainly evident when former President Obama proposed a new AUMF for the fight against ISIS while insisting he really had all the authority he needed – it being more of a “wouldn’t it be nice” afterthought than an acknowledgement of any required step.

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Not a lot of insight into what’s wrong with US Democrats.

Democrats Fought For 25 Years Over Single-Payer. Now Many Back Sanders (Sirota)

When U.S. Sen. Bernie Sanders’ introduces his Medicare-for-All legislation on Wednesday, advocates of a single-payer, government-sponsored health care hope it will be the end of a bitterly fought policy battle that has roiled the Democratic Party for generations. Since Democratic President Harry Truman first proposed a government-sponsored universal health care system in 1945 — and since a Democratic president and Democratic congress first enacted Medicare and Medicaid in the mid-1960s — progressives have hoped that the United States would follow other industrialized countries by guaranteeing health care to all citizens. Indeed, many of the original proponents of Medicare hoped the system would ultimately be expanded to cover the entire country — as former Social Security commissioner Robert Ball wrote, “We expected Medicare to be a first step toward universal national health insurance.”

And although the intervening years saw the rise of Republican President Ronald Reagan, who derided “socialized medicine,” some Democrats continued to champion the idea. The party’s 1992 presidential contender Jerry Brown ran for the White House promising to support single-payer. But when Bill Clinton defeated him and won the presidency, the Clinton administration opted to back health care reforms that preserved the existing private insurance system — even as Hillary Clinton made favorable comments about single-payer. A generation later, Barack Obama also retreated from single-payer, and instead pushed the Affordable Care Act, which subsidizes the private insurance system.

Now, things appear once again to be shifting. Even as Sanders has declared that his Medicare-for-All bill is not a litmus test, Democrats from across the party’s ideological spectrum are flocking to his legislation. On the progressive side, Democratic senators such as Elizabeth Warren (MA), Jeff Merkley (OR) and Al Franken (MN) have signed onto the legislation. Within the party establishment, former Vice President Al Gore has expressed support, as has conservative former Sen. Max Baucus — one of the architects of the Affordable Care Act whom single-payer advocates saw as a nemesis. With polls showing rising support for government-sponsored health care, the party’s long civil war over the issue may be over, potentially allowing a more unified party to campaign on Medicare-for-All in 2018.

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China has hardly enough land to feed its people.

China Plans Nationwide Use Of Ethanol Gasoline By 2020 (R.)

China plans to roll out the use of ethanol in gasoline nationally by 2020, state media reported on Wednesday citing a government document, as Beijing intensifies its push to boost industrial demand for corn and clean up choking smog. It’s the first time the government has set a targeted timeline for pushing the biofuel, known as E10 and containing 10% corn, across the world’s largest car market, although it has yet to announce a formal policy. Mandates requiring that a minimum amount of biofuel must be blended into fuel for the nation’s cars, similar to the United States and Brazil, are currently set at a provincial level. “This news has greatly boosted confidence inside the industry,” said Michael Mao, analyst with Sublime China Information, adding that without government support ethanol would likely be too expensive to survive in the market.

Shares in biofuel producers rallied on the news, with Shandong Longlive Bio-Technology Co surging 10%, on track for its biggest one-day gain since December 2015. Major producer COFCO Biochemical Anhui Co, a listed unit of state-owned grains trader COFCO, was up almost 6%. A renewed effort to promote the nation’s fledging biofuels industry will be a further blow to major oil producers. On Saturday, the government said it has begun studying when to ban the production and sale of cars using traditional fuels. The news comes after the government said late last year it would aim to double ethanol output by 2020 amid growing pressure to whittle down mountains of ageing corn in state warehouses.

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Some good points, but needs much more work.

Capitalism Can’t Save The Planet – It Can Only Destroy It (Monbiot)

There was “a flaw” in the theory: this is the famous admission by Alan Greenspan, the former chair of the Federal Reserve, to a congressional inquiry into the 2008 financial crisis. His belief that the self-interest of the lending institutions would lead automatically to the correction of financial markets had proved wrong. Now, in the midst of the environmental crisis, we await a similar admission. We may be waiting some time. For, as in Greenspan’s theory of the financial system, there cannot be a problem. The market is meant to be self-correcting: that’s what the theory says. As Milton Friedman, one of the architects of neoliberal ideology, put it: “Ecological values can find their natural space in the market, like any other consumer demand.” As long as environmental goods are correctly priced, neither planning nor regulation is required.

Any attempt by governments or citizens to change the likely course of events is unwarranted and misguided. But there’s a flaw. Hurricanes do not respond to market signals. The plastic fibres in our oceans, food and drinking water do not respond to market signals. Nor does the collapse of insect populations, or coral reefs, or the extirpation of orangutans from Borneo. The unregulated market is as powerless in the face of these forces as the people in Florida who resolved to fight Hurricane Irma by shooting it. It is the wrong tool, the wrong approach, the wrong system. There are two inherent problems with the pricing of the living world and its destruction. The first is that it depends on attaching a financial value to items – such as human life, species and ecosystems – that cannot be redeemed for money. The second is that it seeks to quantify events and processes that cannot be reliably predicted.

[..] A system that depends on growth can survive only if we progressively lose our ability to make reasoned decisions. After our needs, then strong desires, then faint desires have been met, we must keep buying goods and services we neither need nor want, induced by marketing to abandon our discriminating faculties, and to succumb instead to impulse. [..] Continued economic growth depends on continued disposal: unless we rapidly junk the goods we buy, it fails. The growth economy and the throwaway society cannot be separated. Environmental destruction is not a byproduct of this system: it is a necessary element.

Illustration: Sebastien Thibault

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Aug 012017
 August 1, 2017  Posted by at 6:43 pm Finance Tagged with: , , , , , , , , ,  2 Responses »

Jackson Pollock The Deep 1943



The western world is mired in a mile-deep political crisis and nary a soul seems to notice, or rather: everyone just sees their own little preferred echochamber tidbits of it. Which is not a good thing, because that crisis is bound to trigger other bigger crises that are much more damaging. And I’m sorry to say it, but Donald Trump is not your main problem. Not even close.

The main problem is the collapse of western political systems. While that is what brought Trump to power in the first place, he didn’t cause the collapse. The collapse is also what ‘gave you’ Brexit, and Trump didn’t cause that either. Moreover, in the next step, on the far end of all this, Trump may well be the only thing standing between you and CIA warfare. I know, who wants to hear that, right?! Who’s ready for that next step?

But it’s not that crazy. Trump was the one who stopped the CIA from arming Syrian ‘rebels’, which are just a bunch of extremists gathered by that same CIA in its attempts to unseat Assad, and who Trump saw laughingly beheading a child. And who was it that had previously, and enthusiastically, decided to support these crazies? The US Republican and Democratic parties, in unison, while Obama was president and Hillary slash Joe Biden was Secretary of State. Remember the Chelsea Manning footage of videogame-like drone killings? What did Obama do about that?

Still, that’s not where the core of the demise of our political systems lies. Though it does gave us a flavor of their priorities. The core can be found in economic issues. In both president Bush II and president Obama bailing out banks while letting people’s incomes and wealth tank, and not sueing any banker for anything at all. Obviously, the same scenario played out in Britain as well. And in many other nations.


Now look at the parties themselves. Trump is not a Republican, but he took over the party with hardly any opposition. The only people the GOP could come up with to run against Trump were a full dozen full-blown yokels. And today, they still have no credible leadership. The healthcare vote last week, if we look at it separate from its merits, showed us that the same yokeldom is still in charge. Embarrassing doesn’t cover the feeling.

The Democrats are in the same conundrum. They have no credible candidates either. It’s Hillary or nothing. Which adds up to nothing. And then there’s a whole slew of suspicious ‘operatives’, Rice, Wasserman-Schultz et al, who make the picture even worse, and may soon find themselves on the wrong end of an investigation. Who’s going to vote for that bunch?

Yes, there’s Bernie Sanders, but he will never be allowed near the top as long as these other folk are there (and sorry, but he’s too old too). And there’s the core of the problem: both parties have been run by the same clique for ages, and you can only be part of it if you vote and agree with them (the made men model). Which in turn is why they don’t get the votes. And why Trump could become president. Who pledged to limit their terms and shut the revolving doors but still hasn’t.

That, too, is reflected one on one in Britain. If Theresa May is the best you can come up with as a leader, you have a queen-size problem. And Labour’s Jeremy Corbyn has a long way to go anywhere at all yet, especially since he refuses to change his anti-EU stance and all the media are against what the people voted for. Though as far as I can see, the problem with Brexit is not so much the issue itself, but the utter incompetence with which it’s being handled. Which is staggering. You feel like asking for these people’s IDs to check their age.

The only thing I ever see discussed is how much Brexit is going to cost. As if voting for Brexit was always about money only. But the EU is about a lot more. Steve Keen presented it the other day in a much different way. He said that -paraphrased- the UK was the country perhaps hardest hit of all by neoliberalism, and that’s why people voted Brexit. And that Brexit could be its way out of the whole neoliberal austerity nightmare, if used well. Let’s talk about that instead.


But the Tories are not going to interpret Brexit that way. They will instead use it for more austerity, and more neoliberal policies. What they do at the moment is they try and push through as many of those policies as they can, and to cement them in laws and deals with the EU, who will love that. That way when May is voted out of office, Corbyn or whoever will be faced with a whole parade of things (s)he can no longer change or adapt. Fait accompli.

What everyone who is sick of these people, and of the policies, should do, is what Emmanuel Macron did in France: start a new party. Because France suffers from the same disease: the old guard doesn’t represent anyone but themselves anymore. Not that Macron is necessarily such a great alternative, but he has pointed the way to go, the way out of the staleness and the stalemate.

When you look at the US, all these senators and congresspeople talk more to lobbyists than they talk to anyone else. They’re all so beholden to financial backers and campaign funding, they have nothing left for their voters. They get votes, the ones they do still get, through tens of millions worth of slick TV ads in which they promise things they will never deliver. They paint shiny pictures and regurgitate lofty narratives. But they’ve been found out. Enter Trump stage left.

This happens all over the place. Japan PM Shinzo Abe is the latest trophy to be added, and to join Holland, Italy, France, the US etc., in the list of ‘traditional’ parties and politicians being voted, if not out, then certainly down, way down. You can’t run a country in the midst of a crisis like that. The old guard has a solution for that too: they deny the crisis, and their respective housing bubbles, and claim their countries are in a recovery. Which, wouldn’t you know, they claim to have, themselves, cleverly engineered for their people.


All that’s needed in both the UK and US are credible alternatives, and for the ruling classes to be cut down to size. But all we see are voices that derive their identity from pointing out what’s wrong with ‘the others’, be it Trump or Hillary, May or Corbyn. And in the case of Trump, anyone he’s ever talked to.

But now that even the WaPo has declared the Russian collusion story bogus, albeit without identifying its own role in developing that story, maybe it’s time for more pressing matters. Maybe brighter people on all sides of all spectrums can now build their identities on actual policies. And then discuss them, in all due respect, with others who do the same from their point of view.

Because make no mistake about it, with countries essentially ungovernable, as many are, as the US and UK are these days, risks of things like wars emerging ‘out of nowhere’ increase exponentially. If Trump must spend half his time talking about one story after another about someone maybe having met someone who may or may not be not 100% on the up and up, he doesn’t have enough time left to talk to Putin or Xi.

And really, that’s what the American president, any American president, should be doing right now. That alone would be a full-time day-job. Because alphabet soup ingredients like the CIA have created potential mayhem in so many locations around the globe, any one of them might blow anytime now.

Venezuela, North Korea, Ukraine, Iran, Syria, it’s a list that is impossible to complete. How about Bolivia, where Evo Morales once again has called for independence from the IMF and World Bank. The two-party, two pronged, two forked-tongued US political class, and its CIA handlers, don’t like that sort of thing. Not one bit.


Sure, you can argue that perhaps it’s Trump who’s most likely to start a war, but the evidence so far doesn’t point to that. The evidence points to all sorts of Shakespearean antics in the Oval Office, I told you!, plenty of Scaramouches, but not that one, not trigger-happiness. That’s all the other guys and gals, lest you forget. The evidence points to a two-party war machine, which hopes to be able to do its thing while you wallow in your self-righteous attitudes about Trump and Priebus and Scaramucci and Don Jr.

You want war? Denounce Trump. You don’t? Think again.

The risk of all this is that Da Donald will see no other way to stay in the White House than to start a war, somewhere, anywhere. Even the New York Times will declare him the greatest president since the last one who went to battle.

The risk embedded within that risk is that neither he nor anyone else will have any idea where it may lead. The risk is that the CIA, perhaps more than ever, will decide US -foreign- policy. And believe you me, that’s not what we should want. None of us.



Mar 152017

Otto Dix The Triumph of Death 1934


Yes, austerity really kills real people, and it kills the societies they live in. Let’s try and explain this in simple terms. It’s a simple topic after all. Austerity is a mere left-over from faith-based policies derived from shoddy economics, and economics is a shoddy field to begin with. The austerity imposed on and in several countries and their economies after 2008, and the consequences it has had in these economies, cannot fail to make you wonder what level of intelligence the politicians have who did the imposing, as well as the economists who advised them in the process.

We should certainly not forget that the people who make these decisions are never the ones affected by them. Austerity hurts the poor. For those who are living comfortably -which includes politicians and economists that “matter”-, austerity at worst means eating and living somewhat less luxuriously. For the poor, taken far enough, it will mean not eating at all, not being able to afford clothing, medical care, even housing. Doing without 10% of very little hits much harder than missing out on 10% of an abundance.

And even then there are differences, for instance between countries. The damage done to British housing, education and health care by successive headless chicken governments is very real, and it will require a huge effort to restore these systems, if that is possible at all. Still, if the British have any complaints about the austerity unleashed upon them, they should really take a look at Greece. As this graph of households having a hard time making ends meet makes painfully clear:



Britain ‘only’ suffers from economically illiterate politicians and economists. Greece, on top of that, has to cope with a currency it has no control over, and with the foreign -dare we say ‘occupying’?- powers that do. A currency that is geared exclusively to the benefit of the richer Eurozone nations. The biggest mistake in building the EU, and the Eurozone in particular, is that the possibility has been left open for the larger and richer nations to reign over the smaller and poorer almost limitlessly. These things only become clear when things get worse, but then they really do.

This ‘biggest mistake’ predicted the end of the ‘union’ from the very moment it was established; all it will take is time, and comprehension. Eurozone rules say a country’s public debt cannot exceed 60% and its deficit must remain less than 3%. Rules that have been broken left right and center, including by the rich, Germany, France, who were never punished for doing so. The poor are.

These limits are completely arbitrary. They come from the text books of the same clueless cabal of economists that the entire Euro façade is based on. The same cabal also who now demand a 3.5% Greek budget surplus into infinity, the worst thing that can happen to an already impoverished economy, because it means even more money must flow out of an entity that already has none.

But let’s narrow our focus to austerity itself, and what makes it such a disaster. And then after that, we’ll take it a step further. We can blame economists for this mess, and hapless politicians, but that’s not the whole story; in the end they’re just messenger boys and girls. First though, here’s what austerity does. Let’s start with Ed Harrison talking about some revealing data that Matt Klein posted on FT Alphaville about comparing post-2008 Greece to emerging economies:

Europe’s Delusional Economic Policies

Here’s how Matt put it: “Greece had a very different post-crisis experience: it never recovered. By contrast, all the other countries were well past their pre-crisis peak after this much time had elapsed. On average, Argentina, Brazil, Indonesia, Thailand, and Turkey have outperformed Greece by more than 40 percentage points after nine years.”

.. unlike those countries, Greece lacked the ability to use the exchange rate as a shock absorber. So while Brazil and Greece faced the same type of downturn in dollar terms – about 45% in GDP per person – Brazilian living standards only deteriorated about 2%, compared to 26% in Greece. The net effect is that Greece had a relatively typical crisis in dollars but an unprecedently painful one in the terms that matter most”.

[..] Greece doesn’t have its own currency so the currency can’t depreciate. Greece must use the internal devaluation route, which makes its labor, goods and services cheaper through a deflationary path – and that is very destructive to demand, to growth, and to credit.

[..] it’s not about reforms, people. It’s about growth. And the euro – and the policies tied to membership – is anti-growth, particularly for a country like Greece that is forced to hit an unrealistic 3.5% primary surplus indefinitely.


Another good report came from the WaPo at about the same time Ed wrote his piece, some 4 weeks ago. After Matt Klein showing how hard austerity hit Greece compared to emerging economies, Matt O’Brien shows us how austerity hit multiple Eurozone countries, compared to what would have happened if they had not cut spending (or introduced the euro). It is damning.

Austerity Was A Bigger Disaster Than We Thought

Cutting spending, you see, shouldn’t be a problem as long as you can cut interest rates too. That’s because lower borrowing costs can stimulate the economy just as much as lower government spending slows it down. What happens, though, if interest rates are already zero, or, even worse, you’re part of a currency union that means you can’t devalue your way out of trouble? Well, nothing good.

House, Tesar and Proebsting calculated how much each European economy grew — or, more to the point, shrank — between the time they started cutting their budgets in 2010 and the end of 2014, and then compared it with what actually realistic models say would have happened if they hadn’t done austerity or adopted the euro.

According to this, the hardest-hit countries of Greece, Ireland, Italy, Portugal and Spain would have contracted by only 1% instead of the 18% they did if they hadn’t slashed spending; by only 7% if they’d kept their drachmas, pounds, liras, escudos, pesetas and the ability to devalue that went along with them if they hadn’t become a part of the common currency and outsourced those decisions to Frankfurt; and only would have seen their debt-to-GDP ratios rise by eight percentage points instead of the 16 they did if they hadn’t tried to get their budgets closer to being balanced.

In short, austerity hurt what it was supposed to help, and helped hurt the economy even more than a once-in-three-generations crisis already had.

[..] the euro really has been a doomsday device for turning recessions into depressions. It’s not just that it caused the crisis by keeping money too loose for Greece and the rest of them during the boom and too tight for them during the bust. It’s also that it forced a lot of this austerity on them. Think about it like this. Countries that can print their own money never have to default on their debts – they can always inflate them away instead – but ones that can’t, because, say, they share a common currency, might have to.

Just the possibility of that, though, can be enough to make it a reality. If markets are worried that you might not be able to pay back your debts, they’ll make you pay a higher interest rate on them – which might make it so that you really can’t.

In other words, the euro can cause a self-fulfilling prophecy where countries can’t afford to spend any more even though spending any less will only make everything worse.

That’s actually a pretty good description of what happened until the ECB belatedly announced that it would do “whatever it takes” to put an end to this in 2012. Which was enough to get investors to stop pushing austerity, but, alas, not politicians. It’s a good reminder that you should never doubt that a small group of committed ideologues can destroy the economy. Indeed, it’s the only thing that ever has.



So those are the outcomes, But what’s the theory, where does the “small group of committed ideologues” go so wrong? Let’s go really basic and simple. Last week, Britsh economist Ann Pettifor, promoting her new book “The Production of Money: How to Break the Power of Bankers”, said this to Vogue:

Politicians who advocate for austerity measures—cutting spending—like to say that the government ought to run its budget the way women manage our households, but unlike us, the government issues currency and sets interest rates and so on, and the government collects taxes. And if the government is managing the economy well, it ought to be expanding the numbers of people who are employed and therefore paying income tax and tax on purchases—purchases that turn a profit for businesses which then hire more employees, and on and on it goes. That’s called the multiplier effect, and for 100 years or so, it’s been well understood. And it’s why governments should invest not in tax breaks for wealthy people, but in initiatives like building infrastructure.

Around the same time, Ann wrote in the Guardian:

[..] the public are told that cuts in spending and in some benefits, combined with rises in income from taxes will – just as with a household – balance the budget. Even though a single household’s budget is a) minuscule compared to that of a government; b) does not, like the government’s, impact on the wider economy; c) does not benefit from tax revenues (now, or in the foreseeable future); and d) is not backed by a powerful central bank. Despite all these obvious differences, government budgets are deemed analogous (by economists and politicians) to a household budget.

[..] If the economy slumps (as in 2008-9) and the private sector weakens, then like a see-saw the public sector deficit, and then the debt, rises. When private economic activity revives (thanks to increased investment, employment, sales etc) tax revenues rise, unemployment benefits fall, and the government deficit and debt follow the same downward trajectory. So, to balance the government’s budget, efforts must be made to revive Britain’s economy, including the indebted private sector.

In other words, when faced with economic hard times, a government should not cut spending, it should increase it -and it can-. Because cutting spending is sure to make things worse. At the same time of course, this is not an option available to Greece, because it has ceded control of its currency, and therefore its economy, to a largely unaccountable and faceless cabal that couldn’t care less what happens in the country.

All they care about is that the debts the banks in the rich part of the eurozone incurred can be moved onto someone else’s shoulders. Which is where -most of- Greece’s crisis came from to begin with. And so, yes, Germany and Holland and France are sitting sort of pretty, because they prevented a banking crisis from happening at home; they transferred it to Greece’s pensioners and unemployed youth. The ‘model’ of the Eurozone allows them to do this. Coincidence? Bug or feature?



Oh, and it’s not only Greece, though it’s by far the hardest hit. Read Roberto Centeno in the Express below. Reminds me of Greeks friends saying: “In 2010, we were told we had €160 billion or so in debt, and we needed a bailout. Now we have over €600 billion in debt, they say. How is that possible? What happened? What was that bailout for?”

‘Spain Is Ruined For 50 Years’

A leading Spanish economist has hit out at the ECB saying “crazy” loans will ruin the lives of the population for the next 50 years. And it is only a matter of time before the Government is forced to default as a debt bubble and low wages effectively forge the worst declines in “living memory”. Leading economist Roberto Centeno, who was an advisor to US president Donald Trump’s election team on hispanic issues, says the country has borrowed €603 billion that it cannot conceivably pay back. And he says Spanish politicians including Minister of Economy Luis de Guindos are “insulting their intelligence” after doing back door deals with the ECB. In a blog post Mr Centeno says there needs to be audits so the country can understand the magnitude of its debt mountain.

He said Spain was “moving steadily towards the suspension of payments which is the result of out of control public waste, financed with the largest debt bubble in our history, supported by the ECB with its crazy policy of zero interest rate expansion and without any supervision.” The expert added the doomed situation will “lead to the ruin of several generations of Spaniards over the next 50 years”. [..] He said the country is currently suffering from a “third world production model”. He added: “We have a third world production model of speculators and waiters, with a labour market where the majority of jobs created are temporary and with remunerations of €600, the largest wage decline in living memory. “And all this was completed with a broken pension system and an insolvent financial system.”

Forecasting an unprecedented shock to the European financial model, Mr Centento is calling for an immediate audit despite a recent revelation that the ECB is failing in its supervisory role over Europe’s banks. He also claimed the Spanish government and European Union leaders have been manipulating figures since 2008. Mr Centento said: “We will require the European Commission and Eurostat to audit and audit the Spanish accounting system for serious accounting discrepancies that may jeopardise stability. “The gigantic debt bubble accumulated by irresponsible governments, and that never ceases to grow, will be the ruin of several generations of Spaniards. “The Bank of Spain’s debt to the Eurosystem is the largest in Europe. “The day that the ECB minimally closes the tap of this type of financing or markets increase their risk aversion, the situation will be unsustainable.”



But then it’s time to move on, courtesy of Michael Hudson, prominent economist, who should be a guest of honor, at the very least, at every Eurogroup meeting. You know, to give Dijsselbloem and Schäuble a reality check. Michael shines a whole different additional light on European austerity policies. This is from an interview with Sharmini Peries:

Finance as Warfare: IMF Lent to Greece Knowing It Could Never Pay Back Debt

MICHAEL HUDSON: You said the lenders expect Greece to grow. That is not so. There is no way in which the lenders expected Greece to grow. In fact, the IMF was the main lender. It said that Greece cannot grow, under the circumstances that it has now. What do you do in a case where you make a loan to a country, and the entire staff says that there is no way this country can repay the loan? That is what the IMF staff said in 2015.

It made the loan anyway – not to Greece, but to pay French banks, German banks and a few other bondholders – not a penny actually went to Greece. The junk economics they used claimed to have a program to make sure the IMF would help manage the Greek economy to enable it to repay. Unfortunately, their secret ingredient was austerity.

[..] for the last 50 years, every austerity program that the IMF has made has shrunk the victim economy. No austerity program has ever helped an economy grow. No budget surplus has ever helped an economy grow, because a budget surplus sucks money out of the economy.

As for the conditionalities, the so-called reforms, they are an Orwellian term for anti-reform, for cutting back pensions and rolling back the progress that the labor movement has made in the last half century. So, the lenders knew very well that Greece would not grow, and that it would shrink.


So, the question is, why does this junk economics continue, decade after decade? The reason is that the loans are made to Greece precisely because Greece couldn’t pay. When a country can’t pay, the rules at the IMF and EU and the German bankers behind it say, don’t worry, we will simply insist that you sell off your public domain. Sell off your land, your transportation, your ports, your electric utilities.

[..] If Greece continues to repay the loan, if it does not withdraw from the euro, then it is going to be in a permanent depression, as far as the eye can see. Greece is suffering the result of these bad loans. It is already in a longer depression today, a deeper depression, than it was in the 1930s.

[..] when Greece fails, that’s a success for the foreign investors that want to buy the Greek railroads. They want to take over the ports. They want to take over the land. They want the tourist sites. But most of all, they want to set an example of Greece, to show that France, the Netherlands or other countries that may think of withdrawing from the euro – withdraw and decide they would rather grow than be impoverished – that the IMF and EU will do to them just what they’re doing to Greece.

So they’re making an example of Greece. They’re going to show that finance rules, and in fact that is why both Trump and Ted Malloch have come up in support of the separatist movement in France. They’re supporting Marine Le Pen, just as Putin is supporting Marine Le Pen. There’s a perception throughout the world that finance really is a mode of warfare.

Sharmini Peries: Greece has now said, no more austerity measures. We’re not going to agree to them. So, this is going to amount to an impasse that is not going to be resolvable. Should Greece exit the euro?

MICHAEL HUDSON: Yes, it should, but the question is how should it do it, and on what terms? The problem is not only leaving the euro. The problem really is the foreign debt that was bad debt that it was loaded onto by the Eurozone. If you leave the euro and still pay the foreign debt, then you’re still in a permanent depression from which you can never exit. There’s a broad moral principle here: If you lend money to a country that your statistics show cannot pay the debt, is there really a moral obligation to pay the debt? Greece did have a commission two years ago saying that this debt is odious. But it’s not enough just to say there’s an odious debt. You have to have something more positive.

[..] what is needed is a Declaration of Rights. Just as the Westphalia rules in 1648, a Universal Declaration that countries should not be attacked in war, that countries should not be overthrown by other countries. I think, the Declaration of International Law has to realize that no country should be obliged to impose poverty on its population, and sell off the public domain in order to pay its foreign creditors.

[..] the looming problem is that you have to pay debts that are so far beyond your ability to pay that you’ll end up like Haiti did after it rebelled after the French Revolution.

[..] A few years after that, in 1824, Greece had a revolution and found the same problem. It borrowed from the Ricardo brothers, the brothers of David Ricardo, the economist and lobbyist for the bankers in London. Just like the IMF, he said that any country can afford to repay its debts, because of automatic stabilization. Ricardo came out with a junk economics theory that is still held by the IMF and the European Union today, saying that indebted countries can automatically pay.

Well, Greece ended up taking on an enormous debt, paying interest but still defaulting again and again. Each time it had to give up more sovereignty. The result was basically a constant depression. Slow growth is what retarded Greece and much of the rest of southern Europe. So unless they tackle the debt problem, membership in the Eurozone or the European Union is really secondary.

There is no such question as “why did austerity fail ‘in a particular case'”?. Austerity always fails. You could perhaps come up with a theoretical example in which a society greatly overspends and toning down spending might balance some things, but other than that, and nothing in what we see today resembles such an example, austerity can only work out badly. And that’s before, as Michael Hudson suggests, austerity is used as a means to conquer people and countries in a financial warfare setting.

This is because our economies (as measured in GDP) are 60-70% dependent on consumer spending. Ergo, when you force consumer spending down through austerity measures, GDP must and will of necessity come down with it. And if you cut spending, stores will close, and then their suppliers will, and they will fire their workers, which will further cut consumer spending etc. It doesn’t get simpler than that.

There is a lot of talk about boosting exports etc., but exports make up only a relatively small part of most economies, even in the US, compared to domestic consumption. As still is the case in virtually every economy, more exports will never make up for what you lose by severely cutting wages and pensions while at the same time raising taxes across the board (Greek reality). The only possible result from this is misery and lower government revenues, in a vicious circle, dragging an economy ever further down.

Since this is so obvious a 5-year old can figure it out in 5 minutes, the reason for imposing the kind of austerity measures that the Eurogroup has unleashed upon Greece must inevitably be questioned in the way professor Hudson does. If someone owes you a substantial amount of money, the last thing you want to do is make sure they cannot pay it back. You want such a person to have a -good- job, a source of income, that pays enough so that they can pay you back. Unless you have your eyes on their home, their car, their daughters, their assets.

What the EU and IMF do with Greece is the exact opposite of that. They’re making sure that Greece gets poorer every day, and the Greeks get poorer, ensuring that the debt, whether it’s odious or not -and that is a very valid question-, will never be paid back. And then they can move in and snap up all of the country’s -rich- resources on the cheap. But in the process, they create a very unstable country, something that may seem to be to their benefit but will blow up in their faces.

It’s not the first time that I say the EU and the US would be well advised to ensure Greece is a stable society, but they all continue to forcibly lead the cradle of democracy in the exact opposite direction.

The best metaphor I can think of is: Austerity is like bloodletting in the Middle Ages, only with a lower success rate.



Jun 302015
 June 30, 2015  Posted by at 10:32 am Finance Tagged with: , , , , , , , , , ,  2 Responses »

G. G. Bain The new Queensboro (59th Street) Bridge over the East River, NYC 1909

Who Will Dare Say Out Loud ‘Emperor Has No Clothes’? (Irish Times)
A New Mode of Warfare (Michael Hudson)
Greece Threatens Top Court Action To Block Grexit (AEP)
Alexis Tsipras Must Be Stopped: The Underlying Message Of Europe’s Leaders (G.)
Where Is My European Union? (Alex Andreou)
Milton Friedman Predicted Euro Would Be A Disaster (Vox)
The Awesome Gratuitousness of the Greek Crisis (Krugman)
Krugman’s Right: The Euro Was The Original Mistake, Vote No (Tim Worstall)
Stiglitz: Troika Caused Greek Recession, Has “Criminial Responsibility” (Time)
Europe’s Attack On Greek Democracy (Joseph Stiglitz)
As Crisis Deepens, Eurozone Critics Are Vocal (WSJ)
Europe’s Dream Is Dying In Greece (Gideon Rachman)
Will Syriza’s Last Desperate Gamble Pay Off? (Paul Mason)
A Fight Between The Greeks And Europe’s Cruel Capitalism (Chakrabortty)
A European Tyranny? (Jacques Sapir)
The Road To Grexit And Beyond (Wolfgang Münchau)
Greek BofA Strategist Sees Humanitarian Disaster Looming (Bloomberg)
Puerto Rico Has No Easy Path Out of Debt Crisis (WSJ)
China’s Stocks Post Biggest Gain Since 2009 as Volatility Soars (Bloomberg)

“The Pride of Europe”, just another story.

Who Will Dare Say Out Loud ‘Emperor Has No Clothes’? (Irish Times)

In a normal democracy, urgent questions are asked when the prime minister says things that are wildly untrue. Was he lying or deluded? Which of these possibilities is more alarming? If he was lying, had he never heard of Google? If he genuinely didn’t know what the Government has been up to, why is he in government? But we don’t bother to ask these questions about St Enda’s extraordinary epistle to the Athenians last week, when he urged Greece to follow Ireland : “in Ireland’s case we did not increase income tax; we did not increase VAT; we did not increase PRSI”. Each of these claims is flatly wrong: all three taxes were very substantially increased, both by the present and previous governments But this truth is utterly irrelevant. Why? Because we all know that the Taoiseach wasn’t making a statement about reality.

He was telling a story. At some point in our lives – usually when we’re three or four – we all ask the question: “Daddy, did this really happen or is it a makey-up story?” And once we know which is which, we’re okay with it. And by now, we’re more or less okay with the fact that Ireland’s primary presence on the European stage is as a makey-up story. We don’t live in a country; we live in a narrative, a tale with no more truth content than Cinderella and considerably less than “The Emperor’s New Clothes”. Our current story is called, according to the Minister for Foreign Affairs Charlie Flanagan, “the pride of Europe”. Of course this doesn’t mean that Europe is proud that we’ve almost doubled consistent child poverty, or that we keep centenarians for days on hospital trollies or that basic services like clinics for sufferers of rheumatic diseases are simply disappearing or that we’ve been left with unpayable public debt.

It surely doesn’t mean that Europe is proud that little Ireland was forced to bear the cost of a bank bailout put last week by Patrick Honohan, governor of the Central Bank, at €100 billion and rising. At the level of reality, it doesn’t actually mean anything at all. But that doesn’t mean that it’s a harmless fiction. “The Pride of Europe” is a makey-up story that is intended to take the place of the realities it displaces. It’s not a stand-alone narrative. It has an evil twin: Greece. It belongs to a particular genre of fiction: the morality tale. Ireland is the pride of Europe because it is the anti-Greece. We are good because we play along with the bigger stories of the euro zone crisis. Greece is evil because it stopped doing so.

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Nice take: “By going through the sham negotiations with The Institutions, Syriza gave Greeks enough time to protect what savings and cash they had..”

A New Mode of Warfare (Michael Hudson)

By going through the sham negotiations with The Institutions, Syriza gave Greeks enough time to protect what savings and cash they had – by converting these bank deposits into euro notes, automobiles and “hard assets” (even boats). Businesses borrowed from local banks where they could, and moved their money into eurozone banks or even better, into dollar and sterling assets. Their intention is to pay back the banks in depreciated drachma, pocketing a 30% capital gain. What commentators miss is that Syriza (at least its left) wants to be transformative. It wants to free Greece from the post-military oligarchy that evades taxes and monopolizes the economy. And it wants to transform Europe, away from ECB austerity to create a real central bank. In the process, it demands a clean slate of past bad debts.

It wants to reject the IMF’s austerity philosophy and refusal to take responsibility for its bad 2010-12 bailout. This larger, transformative picture is at the center of Syriza-left plans. I’m in Germany now, and have heard from Germans that the Greeks are lazy and don’t pay taxes. There is little recognition that what they call “the Greeks” are really the oligarchs. They have gained control of the old coalition Pasok/New Democracy parties, avoided paying taxes, avoided being prosecuted (New Democracy refused to act on the “Lagarde List” of tax evaders with nearly €50 billion in Swiss bank accounts), orchestrated insider dealings to privatize infrastructure at corrupt prices, and used their banks as vehicles for capital flight and insider lending. This has turned the banks into vehicles for the oligarchy.

They are not public institutions serving the economy, but have starved Greek business for credit. So one casualty apart from the credibility of the eurozone, the ECB and the IMF will be these banks. Syriza is positioning itself to provide a public option – public banks that will promote the economy, and a national Treasury that will spend government money INTO the economy, not drain it to pay the Troika for having bailed out French and other banks back in 2010-1.

The European popular press is as bad as the U.S. press in describing matters. It warns of “hyperinflation” if a central bank monetizes as much as one euro of government spending in the way that the U.S. Fed does, or the bank of England or any other real central bank. The reality is that nearly all hyperinflations stem from a collapse of foreign exchange as a result of having to pay debt service. That was what caused Germany’s hyperinflation in the 1920s, not domestic German spending. It is what caused the Argentinean and other Latin American hyperinflations in the 1980s, and Chile’s hyperinflation earlier.

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Might have to try The Hague.

Greece Threatens Top Court Action To Block Grexit (AEP)

Greece has threatened to seek a court injunction against the EU institutions, both to block the country’s expulsion from the euro and to halt asphyxiation of the banking system. “The Greek government will make use of all our legal rights,” said the finance minister, Yanis Varoufakis. “We are taking advice and will certainly consider an injunction at the European Court of Justice. The EU treaties make no provision for euro exit and we refuse to accept it. Our membership is not negotiable,“ he told the Telegraph. The defiant stand came as Europe’s major powers warned in the bluntest terms that Greece will be forced out of monetary union if voters reject austerity demands in a shock referendum on Sunday.

“What is at stake is whether or not Greeks want to stay in the eurozone or want to take the risk of leaving,” said French president Francois Hollande. Sigmar Gabriel, Germany’s vice-chancellor and Social Democrat leader, said the Greek people should have no illusions about the fateful choice before them. “It must be crystal clear what is at stake. At the core, it is a yes or no to remaining in the eurozone,” he said. Chancellor Angela Merkel – standing next to him after an emergency meeting of party leaders – was more oblique, but the message was much the same. She praised hard-liners in her own party and insisted that the eurozone cannot yield to any one country. “If principles are not upheld, the euro will fail,” she said.

The refusal to hold out an olive branch to Greece more or less guarantees that it will not repay a €1.6bn loan to the IMF on Tuesday, potentially setting off a domino effect of cross-default clauses and the biggest sovereign bankruptcy in history. Any request for an injunction against EU bodies at the European Court would be an unprecedented development, further complicating the crisis. Greek officials said they are seriously considering suing the ECB itself for freezing emergency liquidity for the Greek banks at €89bn. It turned down a request from Athens for a €6bn increase to keep pace with deposit flight. This effectively pulls the plug on the Greek banking system. Syriza claims that this is a prima facie breach of the ECB’s legal duty to maintain financial stability.

“How can they justify setting off a run on the Greek banking system?” said one official. Mr Varoufakis said Greece has enough liquidity to keep going until the referendum but acknowledged that capital controls introduced over the weekend were making life difficult for Greek companies. Money is being rationed by an emergency payments committee made up of the key agencies and the banks. “We are having to prioritize spending,” he said. The one-week closure of the Greek banks and the drastic escalation of the crisis over the weekend caught investors by surprise. Most had assumed that a deal was in the works.

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The mind of a psychopath.

Alexis Tsipras Must Be Stopped: The Underlying Message Of Europe’s Leaders (G.)

One day before Greece’s bailout ends and the country’s financial lifeline melts away, Europe’s big guns have lined up one after another to tell the Greeks unequivocally that voting no in Sunday’s referendum means saying goodbye to the euro. There was no mistaking the gravity of the situation now facing both Greece and Europe on Monday. Leaders were by turns ashen-faced, resigned, desperate and pleading with Athens to think again and pull back from the abyss. There were also bitter attacks on Alexis Tsipras, the young Greek prime minister whose brinkmanship has gone further than anyone believed possible and left the eurozone’s leaders reeling. One measure of the seriousness of the situation could be gleaned from the leaders’ schedules.

In Berlin, Brussels, Paris and London, a chancellor, two presidents and a prime minister convened various meetings of cabinet, party leaders and top officials devoted solely to Greece. The French president, François Hollande, was to the fore. “It’s the Greek people’s right to say what they want their future to be,” he said. “It’s about whether the Greeks want to stay in the eurozone or take the risk of leaving.” Athens insists that this is not what is at stake in the highly complicated question the Greek government has drafted for the referendum, but Berlin, Paris and Brussels made plain that the 5 July vote will mean either staying in the euro on their tough terms or returning to the drachma.

In what was arguably the biggest speech of his career, the president of the European commission, Jean-Claude Juncker, appeared before a packed press hall in Brussels against a giant backdrop of the Greek and EU flags. He was impassioned, bitter and disingenuous in appealing to the Greek people to vote yes to the euro and his bailout terms, arguing that he and the creditors – rather than the Syriza government – had the best interests of Greeks at heart. Tsipras had lied to his people, deceived and betrayed Europe’s negotiators and distorted the bailout terms that were shredded when the negotiations collapsed and the referendum was called, he said.

“I feel betrayed. The Greek people are very close to my heart. I know their hardship … they have to know the truth,” he said. “I’d like to ask the Greek people to vote yes … no would mean that Greece is saying no to Europe.” In a country where an estimated 11,000 people have killed themselves during the hardship wrought by austerity, Juncker offered unfortunate advice. “I say to the Greeks, don’t commit suicide because you’re afraid of dying,” he said.

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Great piece.

Where Is My European Union? (Alex Andreou)

Last winter, I stood outside the Opera House in the centre of Athens looking at the posters in the window. I was approached by a well-dressed and immaculately groomed elderly lady. I moved to the side. I thought she wanted to pass. She didn’t. She asked me for a few euros because she was hungry. I took her to dinner and, in generous and unsolicited exchange, she told me her story. Her name was Magda and she was in her mid-seventies. She had worked as a teacher all her life. Her husband had been a college professor and died “mercifully long before we were reduced to this state”, as she put it. They paid their tax, national insurance and pension contributions straight out of the salary, like most people.

They never cheated the state. They never took risks. They saved. They lived modestly in a two bedroom flat. In the first year of the crisis her widow’s pension top-up stopped. In the second and third her own pension was slashed in half. Downsizing was not an option – house prices had collapsed and there were no buyers. In the third year things got worse. “First, I sold my jewellery. Except this ring”, she said, stroking her wedding ring with her thumb. “Then, I sold the pictures and rugs. Then the good crockery and silver. Then most of the furniture. Now there is nothing left that anyone wants. Last month the super came and removed the radiators from my flat, because I hadn’t paid for communal fuel in so long. I feel so ashamed.”

I don’t know why this encounter should have shocked me so deeply. Poverty and hunger is everywhere in Athens. Magda’s story is replicated thousands of times across Greece. It is certainly not because one life is worth more than another. And yet there is something peculiarly discordant and irreconcilable about the “nouveau pauvres”, just like like there is about the nouveau riches. Most likely it shocked me because I kept thinking how much she reminded me of my mother. And, still, I don’t know whether voting “yes” or “no” will make life better or worse for her. I don’t know what Magda would vote either. I can only guess. What I do know, is that the encounter was the beginning of the end of my love affair with the European project. Because, quite simply, it is no longer my European Union.

It is Amazon’s and Starbucks’. It is the politicians’ and the IMF’s. But it is not mine. If belonging to the largest and richest trading bloc in the world cannot provide dinner for a retired teacher like her, it has no reason to exist. If a European Union which produces €28,000 of annual GDP for every single one of its citizens cannot provide a safety net for her, then it is profoundly wicked. If this is not a union of partners, but a gang of big players and small players, who cut the weakest loose at the first sign of trouble, then it is nothing. Each one of us will have to engage in an internal battle before Sunday’s referendum. I will be thinking of you, Magda, when I vote. It seems as honest a basis to make a decision as any.

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“Europe’s common market exemplifies a situation that is unfavorable to a common currency…”

Milton Friedman Predicted Euro Would Be A Disaster (Vox)

Milton Friedman might be best known today for his free-market political views. But some of his most important contributions to economics were in monetary policy. He explained the high inflation rates of the 1970s, and he was also an early and influential advocate of the system of floating exchange rates that we have today. So European policymakers would have done well to pay attention in 1997 when Friedman predicted that the euro would be a disaster. Eighteen years later, with Greece on the verge of a financial meltdown, his analysis looks prophetic:

Europe’s common market exemplifies a situation that is unfavorable to a common currency. It is composed of separate nations, whose residents speak different languages, have different customs, and have far greater loyalty and attachment to their own country than to the common market or to the idea of “Europe.” Despite being a free trade area, goods move less freely than in the United States, and so does capital.

The European Commission based in Brussels, indeed, spends a small fraction of the total spent by governments in the member countries. They, not the European Union’s bureaucracies, are the important political entities. Moreover, regulation of industrial and employment practices is more extensive than in the United States, and differs far more from country to country than from American state to American state. As a result, wages and prices in Europe are more rigid, and labor less mobile. In those circumstances, flexible exchange rates provide an extremely useful adjustment mechanism.

What Friedman means here is that if Greece still had the drachma, it could deal with its financial difficulties by devaluing the currency. A cheaper drachma would make Greek goods more attractive to foreigners, boosting exports and creating jobs. And a bit of inflation in Greece would help ease the country’s debt burden — not an ideal outcome, but better than the yearslong depression the country has suffered since the 2008 financial crisis. It’s much harder for an unemployed man in Greece to move to get a job in Germany than it is for somebody who loses his job in Pennsylvania to find work in Texas. So Greece’s unemployment rate has stayed disastrously high, even as other eurozone nations have enjoyed a robust recovery. Friedman concluded that the euro experiment would backfire:

The drive for the Euro has been motivated by politics not economics. The aim has been to link Germany and France so closely as to make a future European war impossible, and to set the stage for a federal United States of Europe. I believe that adoption of the Euro would have the opposite effect. It would exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues. Political unity can pave the way for monetary unity. Monetary unity imposed under unfavorable conditions will prove a barrier to the achievement of political unity.

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Now take that story to Washington, and tell them to wake up.

The Awesome Gratuitousness of the Greek Crisis (Krugman)

Barry Eichengreen asks himself why his influential analysis, suggesting that the euro was irreversible now appears wrong. Surely in a direct, mechanical sense what we’re seeing is the process I warned about five years ago: Think of it this way: the Greek government cannot announce a policy of leaving the euro — and I’m sure it has no intention of doing that. But at this point it’s all too easy to imagine a default on debt, triggering a crisis of confidence, which forces the government to impose a banking holiday — and at that point the logic of hanging on to the common currency come hell or high water becomes a lot less compelling. But doesn’t the ultimate cause lie in wild irresponsibility on the part of the Greek government? I’ve been looking back at the numbers, readily available from the IMF, and what strikes me is how relatively mild Greek fiscal problems looked on the eve of crisis.

In 2007, Greece had public debt of slightly more than 100% of GDP — high, but not out of line with levels that many countries including, for example, the UK have carried for decades and even generations at a stretch. It had a budget deficit of about 7% of GDP. If we think that normal times involve 2% growth and 2% inflation, a deficit of 4% of GDP would be consistent with a stable debt/GDP ratio; so the fiscal gap was around 3 points, not trivial but hardly something that should have been impossible to close. Now, the IMF says that the structural deficit was much larger — but this reflects its estimate that the Greek economy was operating 10% above capacity, which I don’t believe for a minute.

(The problem here is the way standard methods for estimating potential output cause any large slump to propagate back into a reinterpretation of history, interpreting the past as an unsustainable boom.) So yes, Greece was overspending, but not by all that much. It was over indebted, but again not by all that much. How did this turn into a catastrophe that among other things saw debt soar to 170% of GDP despite savage austerity? The euro straitjacket, plus inadequately expansionary monetary policy within the eurozone, are the obvious culprits. But that, surely, is the deep question here. If Europe as currently organized can turn medium-sized fiscal failings into this kind of nightmare, the system is fundamentally unworkable.

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The EU was the original mistake.

Krugman’s Right: The Euro Was The Original Mistake, Vote No (Tim Worstall)

It’s not exactly a secret that Paul Krugman hasn’t been a great fan of the euro over the years. In fact, most economists haven’t been great fans of it: it has always been the political classes urging it on. So, the question now becomes, with the situation in Greece, what should be done next? And the answer is almost certainly to encourage a no vote at the upcoming referendum. That would seal the idea that Greece just will not continue within the eurozone and at that point we would almost certainly see signs of life in the Greek economy once again. And that is actually the aim of whatever policy is followed now. The heck with European unity and all that jazz: the task is to get some growth back into that Greek economy, get people back to work. Seriously, a 50% youth unemployment rate is evidence of little else than all out economic war. So, let’s stop doing that and go and do something useful and sensible instead. Here’s the opening of Krugman’s column:

It has been obvious for some time that the creation of the euro was a terrible mistake. Europe never had the preconditions for a successful single currency — above all, the kind of fiscal and banking union that, for example, ensures that when a housing bubble in Florida bursts, Washington automatically protects seniors against any threat to their medical care or their bank deposits.

Yep, entirely so, and many economists (and others, like myself) have been saying this all along. It doesn’t and didn’t matter how much people praised this idea of ever more Europe, the currency, as designed, was simply not going to work over the area it was planned to introduce it over. And it’s worth noting that there really were many economists who were saying this. Here’s a quite gorgeous paper from the European Commission. It’s from 2009, and it’s a look back at what American economists were saying about the euro from 1989 to 2002. The tone is most fun: they’re dancing along, tooting their horns, shouting that well, the Yankees didn’t think it would work! And yet here we are in 2009 and we’ve still got our lovely euro!

The euro: It can’t happen, It’s a bad idea, It won’t last.
– US economists on the EMU, 1989 – 2002

Schadenfreude on those celebrating their own schadenfreude is so much fun, isn’t it? We should note that Krugman was on the right side in all of this. And he also asks the right question: well, what should be done next?

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Now make that stick.

Stiglitz: Troika Caused Greek Recession, Has “Criminial Responsibility” (Time)

A few years ago, when Greece was still at the start of its slide into an economic depression, the Nobel prize-winning economist Joseph Stiglitz remembers discussing the crisis with Greek officials. What they wanted was a stimulus package to boost growth and create jobs, and Stiglitz, who had just produced an influential report for the United Nations on how to deal with the global financial crisis, agreed that this would be the best way forward. Instead, Greece’s foreign creditors imposed a strict program of austerity. The Greek economy has shrunk by about 25% since 2010. The cost-cutting was an enormous mistake, Stiglitz says, and it’s time for the creditors to admit it.

“They have criminal responsibility,” he says of the so-called troika of financial institutions that bailed out the Greek economy in 2010 “It’s a kind of criminal responsibility for causing a major recession,” Stiglitz tells TIME in a phone interview. Along with a growing number of the world’s most influential economists, Stiglitz has begun to urge the troika to forgive Greece’s debt – estimated to be worth close to $300 billion in bailouts – and to offer the stimulus money that two successive Greek governments have been requesting. Failure to do so, Stiglitz argues, would not only worsen the recession in Greece – already deeper and more prolonged than the Great Depression in the U.S. – it would also wreck the credibility of Europe’s common currency, the euro, and put the global economy at risk of contagion.

So far Greece’s creditors have downplayed those risks. In recent years they have repeatedly insisted that European banks and global markets do not face any serious fallout from Greece abandoning the euro, as they have had plenty of time to insulate themselves from such an outcome. But Stiglitz, who served as the chief economist of the World Bank from 1997 to 2000, says no such firewall of protection can exist in a globalized economy, where the connections between events and institutions are often impossible to predict. “We don’t know all the linkings,” he says.

Many countries in Eastern Europe, for instance, are still heavily reliant on Greek banks, and if those banks collapse the European Union faces the risk of a chain reaction of financial turmoil that could easily spread to the rest of the global economy. “There is a lack of transparency in financial markets that makes it impossible to know exactly what the consequences are,” says Stiglitz. “Anybody who says they do obviously doesn’t know what they’re talking about.”

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On Europe’s democracy.

Europe’s Attack On Greek Democracy (Joseph Stiglitz)

The rising crescendo of bickering and acrimony within Europe might seem to outsiders to be the inevitable result of the bitter endgame playing out between Greece and its creditors. In fact, European leaders are finally beginning to reveal the true nature of the ongoing debt dispute, and the answer is not pleasant: it is about power and democracy much more than money and economics. Of course, the economics behind the program that the “troika” foisted on Greece five years ago has been abysmal, resulting in a 25% decline in the country’s GDP. I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece’s rate of youth unemployment, for example, now exceeds 60%.

It is startling that the troika has refused to accept responsibility for any of this or admit how bad its forecasts and models have been. But what is even more surprising is that Europe’s leaders have not even learned. The troika is still demanding that Greece achieve a primary budget surplus (excluding interest payments) of 3.5% of GDP by 2018. Economists around the world have condemned that target as punitive, because aiming for it will inevitably result in a deeper downturn. Indeed, even if Greece’s debt is restructured beyond anything imaginable, the country will remain in depression if voters there commit to the troika’s target in the snap referendum to be held this weekend.

In terms of transforming a large primary deficit into a surplus, few countries have accomplished anything like what the Greeks have achieved in the last five years. And, though the cost in terms of human suffering has been extremely high, the Greek government’s recent proposals went a long way toward meeting its creditors’ demands. We should be clear: almost none of the huge amount of money loaned to Greece has actually gone there. It has gone to pay out private-sector creditors – including German and French banks. Greece has gotten but a pittance, but it has paid a high price to preserve these countries’ banking systems. The IMF and the other “official” creditors do not need the money that is being demanded. Under a business-as-usual scenario, the money received would most likely just be lent out again to Greece.

But, again, it’s not about the money. It’s about using “deadlines” to force Greece to knuckle under, and to accept the unacceptable – not only austerity measures, but other regressive and punitive policies. But why would Europe do this? Why are European Union leaders resisting the referendum and refusing even to extend by a few days the June 30 deadline for Greece’s next payment to the IMF? Isn’t Europe all about democracy? In January, Greece’s citizens voted for a government committed to ending austerity. If the government were simply fulfilling its campaign promises, it would already have rejected the proposal. But it wanted to give Greeks a chance to weigh in on this issue, so critical for their country’s future wellbeing.

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Numbers are rising, but timing is way off.

As Crisis Deepens, Eurozone Critics Are Vocal (WSJ)

With Greece on the brink of leaving the eurozone and global financial markets panicked by that prospect, eurozone policy makers can’t have expected favorable reviews Monday for their recent efforts. So they won’t have been surprised as a queue of academics formed to detail their failings. The ECB’s decision not to expand the emergency liquidity assistance given to Greek banks came in for particularly harsh criticism, as long-time critics of the policies pursued by the Troika in which it is joined by the IMF and EC lined up to claim vindication. The most stinging attack on the ECB came from Charles Wyplosz, professor of international economics at the Graduate Institute, Geneva and a respected commentator on eurozone economic policy.

In a posting on the VoxEU blog run by the Centre for Economic Policy Research, Mr. Wyplosz argued the ECB had acted from political motives, and not for the first time. “No other central bank in the world tells its government what reforms it should conduct, nor how sharp should fiscal consolidating be,” he wrote. Mr. Wyplosz argued that one of the ECB’s key roles is to act as a lender of last resort to the eurozone’s banks, and in failing to do that it was “pushing Greece out of the eurozone.” “Politicians may debate about the wisdom of making Greece leave,” he wrote. “As non-elected officials, the people who sit on the Governing Board of the Eurosystem have no such mandate.”

Writing for Foreign Policy, the London School of Economics’ Philippe Legrain also saw the ECB’s decision as a “political move” in the service of “brutal power politics” that seeks to bypass democracy. “There is a chance that a resounding No vote in the referendum will bring the creditors to their senses,” Mr. Legrain wrote. “But if it doesn’t, default on the 3.5 billion euros due to the ECB on July 20 and leaving the euro is better than debt bondage.” Some U.S. observers joined the fray, penning unflattering assessments of the Troika’s track record. Writing for The Conversation, the University of California’s Barry Eichengreen was criticial of the Greek government’s decision to call a referendum as “a transparent effort to evade responsibility.”

But he had a harsher judgement to deliver. “Still, this incompetence pales in comparison with that of the European Commission, the ECB and the IMF,” Mr. Eichengreen wrote, arguing their key mistake was to deny a debt restructuring in 2010, and once again earlier this year.

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Already has.

Europe’s Dream Is Dying In Greece (Gideon Rachman)

The shuttered banks of Greece represent a profound failure for the EU. The current crisis is not just a reflection of the failings of the modern Greek state, it is also about the failure of a European dream of unity, peace and prosperity. Over the past 30 years Europe has embraced its own version of the “end of history”. It became known as the European Union. The idea was that European nations could consign the tragedies of war, fascism and occupation to the past. By joining the EU, they could jointly embrace a better future based on democracy, the rule of law and the repudiation of nationalism. As Lord Patten, a former EU commissioner, once boasted, the success of the union ensured that Europeans now spent their time “arguing about fish quotas or budgets, rather than murdering one another”.

When the Greek colonels were overthrown in 1974, Greece became the pioneer of a new model for Europe — in which the restoration of democracy at a national level was secured by a simultaneous application to join the European Economic Community (as it then was).
Greece became the 10th member of the European club in 1981. Its early membership of an EU that now numbers 28 countries is a rebuke to those who now claim it has always been a peripheral member. The model first established in Greece — democratic consolidation, secured by European integration — was rolled out across the continent over the next three decades. Spain and Portugal, which had also cast off authoritarian regimes in the 1970s, joined the EEC in 1986.

After the fall of the Berlin Wall, almost all the countries of the former Soviet bloc followed the Greek model of linking democratic change at home to a successful application to join the EU. For the EU itself, Greek-style enlargement became its most powerful tool for spreading stability and democracy across the continent. As one Polish politician put it to me shortly before his country joined the EU: “Imagine there is a big river running through Europe. On one side is Moscow. On the other side is Brussels. We know which side of the river we need to be on.” That powerful idea — that the EU represented good government and secure democracy — has continued to resonate in modern Europe. It is why Ukrainian demonstrators were waving the EU flag when they overthrew the corrupt government of Viktor Yanukovich in 2014.

The danger now is that, just as Greece was once a trailblazer in linking a democratic transition to the European project, so it may become an emblem of a new and dangerous process: the disintegration of the EU. The current crisis could easily lead to the country leaving the euro and eventually the union itself. That would undermine the fundamental EU proposition: that joining the European club is the best guarantee of future prosperity and stability. Even if an angry and impoverished Greece ultimately remains inside the tent, the link between the EU and prosperity will have been ruptured. For the horrible truth is dawning that it is not just that the EU has failed to deliver on its promises of prosperity and unity. By locking Greece and other EU countries into a failed economic experiment — the euro — it is now actively destroying wealth, stability and European solidarity.

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Mason’s growing.

Will Syriza’s Last Desperate Gamble Pay Off? (Paul Mason)

But Syriza is different. Syriza is a coalition whose colours are red for socialism, green for ecology and purple for feminism. But it is primarily red. It was born out of Eurocommunism – when the communist parties of the west declared loyalty to parliamentary democracy instead of Moscow. Its most influential activists are aged 50 and above: people who have read all three volumes of Karl Marx’s Capital, plus the Grundrisse, Theories of Surplus Value and Friedrich Engels’ Anti-Dühring. A lot of them are MPs now, or special advisers: you’ll find them in greying huddles in their old haunts – the radical bars and cafes of Exarchia and Plaka. How this generation of Greek leftwingers broke out of isolation is of more than academic interest.

They have managed – for the first time in modern history – to form a government that defied the global finance system, and to do so with flair. Their strength was that they understood the significance of the youth revolts of 2008 and 2011. Some pitched their own tents in Syntagma Square and were tear-gassed out of it. But in the process, the party built something more official and resilient. Their weakness, it turns out, starts with Nicos Poulantzas. Poulantzas was a Greek intellectual of the new left who famously clashed with Ed Miliband’s father, Ralph, in 1969 over the nature of the capitalist state. Miliband said the state was “capitalist” because personally controlled by the business elite. Poulantzas said the state was structurally capitalist – independent of the will of individuals.

Poulantzas evolved a dual strategy for the Greek left in the 1970s: first, to encircle the state with social movements, which were not to be controlled by any party but allowed to become expressions of popular democracy. And at the same time, to enter the state, democratise it and use it to pursue social justice. Poulantzas killed himself in 1979, but his ideas guided the precursor organisation to Syriza. Not many people remember now, but the party’s predecessor, Synaspismos, joined a short-lived coalition government with the conservatives in 1988, and a national government thereafter. In the runup to its election victory, Syriza got a chance to execute the Poulantzas strategy of the march through the state: it won the Euro elections and the vital prefecture of Attica, where its candidate was protest veteran Rena Dourou. Then it won state power – but that has turned out differently.

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“.. large swaths of the continent have fallen under the rule of institutions that find it almost impossible to deal with democracy.”

A Fight Between The Greeks And Europe’s Cruel Capitalism (Chakrabortty)

The incompatibles here are about as big as you get: the Greek people on one side, busted economics on the other. The irony is that if anyone was going to marry those incompatibles it was Tsipras. Despite it all, Syriza remains committed to the single currency, in a country that before the crisis ranked as among the most euro-enthusiastic of all the members. As in other European countries where national poverty is still recalled by grandparents, the Greek elite treats membership of the single currency almost as a badge of first-world status. When he was still an academic, Yanis Varoufakis, the finance minister, spent years figuring out ways to make European monetary union viable.

Whatever insults the northern European press might hurl, Syriza’s leading policymakers are euro-believers who have been forced into disillusionment. Last week the government offered a compromise deal to Greece’s creditors. It was “austerian” and “recessionary” – those words came from Varoufakis, the man who wrote it. Yet it was not austere enough for the creditors, who reportedly quibbled over Syriza’s plans to tax the rich. That was the final rupture. Less idealistic people than Tsipras and Varoufakis might have guessed at this outcome. Since the euro crisis broke out in 2010, large swaths of the continent have fallen under the rule of institutions that find it almost impossible to deal with democracy.

Most important are the ECB– unelected and almost totally unaccountable – and Juncker’s European commission: neither directly nor even indirectly answerable to the Greeks, Portuguese, Irish and Spanish who have lost jobs, wages and benefits at its command. The informal Eurogroup meeting of eurozone finance ministers is about as close to democracy as the system gets. As Fritz Scharpf, former head of the Max Planck institute for the Study of Societies in Cologne, puts it: “The regime that has been established to rescue an over-extended and ill-designed monetary union is in fact jeopardising … democratic self-government in Europe.”

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Useful, but a bit all over the place. Translations get worse.

A European Tyranny? (Jacques Sapir)

The reaction of the Eurogroup which convened in Brussels on Saturday has consisted indeed in an action joining the most glaring illegality with the will to impose one’s views onto a sovereign State. In taking the decision to hold a reunion in the absence of a representative of the Greek state the Eurogroup has decided to exclude de facto Greece from the Euro. This constitutes evidently an abuse of power. We must here be reminded of several points which are not without consequences from the standpoint of the law as well as from the one of politics.

• There is no procedure presently in existence allowing to exclude a country from the Economic and Monetary Union (the real name of the « Eurozone »). If there can be separation, it can only occur in a common accord and on a friendly basis.

• The Eurogroup has no legal existence. It is only a « club » operating under cover of the European Commission and the European Council. This means that if the Eurogroup has committed an illegal action – and this seems to be the case – the responsibility for it is incumbent upon both of these institutions. The Greek government would therefore have grounds to attack the Commission and the Council both before the European Court of Justice as well as before the International Court in The Hague. Indeed, the European Union is at base an international organization. The rule in any international organization is the one of unanimity. True, the Treaty of Lisbon has foreseen mechanisms of a qualified majority, but these mechanisms do not apply to the Euro nor to the questions of fundamental relationships between the states.

• The coup de force – for this is what it is – which has been committed the Eurogroup, does not concern Greece alone. Other member countries of the European Union, think of Great Britain or Austria, could also sue before the European as well as the International court the de facto decision taken by the Eurogroup. In effect, the European Union rests on rules of law which apply to all. Any decision to violate these rules against one particular country constitutes a threat against all the members of the European Union.

We must therefore be clear. The decision taken by the Eurogroup could well signify, in time, the death of the EU. Either the European leaders, taking measure of the abuse of power which has been perpetrated, will decide to annul it or, if they persevere in this direction, they must expect an insurgency of the peoples, but also of the leaders of some of the states against the EU. One cannot see well how states which have just recovered their sovereignty, such as Hungary, the Czech Republic or Slovakia, could accept such practices.

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Parallell currency seems certain. How about today?

The Road To Grexit And Beyond (Wolfgang Münchau)

When a shock you predicted actually happens, it still feels like a shock. Alexis Tsipras was right to walk away. But it was a momentous decision nevertheless when the Greek prime minister rejected an offer that would have allowed it to pay its debt to the IMF and the ECB. What I am struggling to understand is why he suddenly decided to call a referendum on whether to accept a bailout for next Sunday. There might be some super-smart strategy behind this beyond my capacity to comprehend. The problem with the referendum is that the offer on which the Greek people are asked to vote is no longer on the table. And the programme to which it relates expires tomorrow at midnight. Why should the Greeks vote Yes to a package the creditors themselves no longer support?

By far the biggest tactical error committed over the weekend, however, was the rejection by eurozone finance ministers of a five-day extension of the Greek bailout programme to beyond the referendum. With that decision, they foreclosed the only way to keep the show on the road. They have unwittingly strengthened the political argument of the Greek prime minister. He will now be able to say: first the creditors wanted to destroy the Greek economy with their austerity programme. And now they are hoping to destroy Greek democracy. To see where all this might be going, it is instructive to go through the various scenarios, eliminate the implausible and see what is left. If the Greek referendum on Sunday goes ahead and concludes in a No vote, Grexit probably beckons.

If the result is a Yes, there will be initial confusion. A vote to accept the bailout may be interpreted as a vote in favour of remaining in the eurozone. In that case I would expect the Greek government — whoever that may be after a Yes vote — to maintain the regime of capital controls and introduce a parallel currency, denominated in euros. A parallel currency scenario could split into three directions: Grexit within a short time; a regime where Greece defaults but maintains the capital controls indefinitely; and a scheme where the controls are eventually lifted and Greece remains in the eurozone. The latter would require a resolution for the Greek banks. That would be the ideal scenario but it is hard to do. Since the eurozone lacks a true banking union, the only route to bank recapitalisation would be through another round of negotiations between Greece and its creditors.

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Big risk.

Greek BofA Strategist Sees Humanitarian Disaster Looming (Bloomberg)

Athanasios Vamvakidis, Bank of America’s head of European currency strategy, is in a difficult spot: He advises clients from London on how to make money – or at least minimize losses – as his homeland unravels. His view: Greek banks will soon exhaust cash supplies, leading to shortages of imports including medicine unless the ECB expands assistance, he said in an interview. A July 5 referendum on austerity measures probably will usher in August elections and a potential new government. Then “the earliest Greece will get any new funding is September or later – in the meantime, the economy will collapse,” Vamvakidis said. “On a personal level, this is a very bad situation. And the worst is still ahead of us.”

To prevent a crisis, the ECB will have to boost the Emergency Liquidity Assistance program long beforehand, continuing to ensure Greek lenders have enough cash on hand, the strategist said. “Otherwise, you’ll have a humanitarian disaster,” he said. “People will start to be affected when they can’t withdraw their paychecks, when you start to see shortages because Greece imports many of its products. For instance medications are imported, some food items are imported.” Greece imposed emergency capital controls for its financial system early Monday, closing banks and financial markets after the announcement of the referendum fueled concern the country will exit the euro. Over the weekend, citizens lined up at ATMs to withdraw savings. They are now limited to €60 in daily withdrawals.

The referendum probably will result in a “yes” vote to proposed reforms as most Greeks want to remain part of the euro, Vamvakidis said. A “no” vote could result in bank failures as the ECB closes its emergency liquidity facility, he said. Without more ECB help, “banks will run out of money soon,” he said. “Within the limits, we will need more euro notes in Greece.”

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Greece 2 or Detroit 2?

Puerto Rico Has No Easy Path Out of Debt Crisis (WSJ)

Its economy has been mired in recession for years. The public is fed up with austerity. Investors want big premiums to lend to a government deep in debt, with no ability to devalue its currency. Greece? Try Puerto Rico, the U.S. commonwealth whose long-simmering debt crisis—its $72 billion debt equals nearly 70% of its economic output, far more than any U.S. state—is about to come to a boil. The commonwealth’s governor, Alejandro García Padilla, is expected to lay out in a speech on Monday next steps that could include calls for significant concessions from the island’s creditors, according to people familiar with the matter. The change in course for the central government comes months after it commissioned former IMF officials to draft a long-term plan for the commonwealth’s finances, which is expected to offer a grim assessment.

Credit-rating companies this week expect the island’s electricity provider, which has borrowed $9 billion, to miss a payment to creditors, in what would be one of the largest municipal defaults ever. Things don’t get better after that. Analysts believe the central government will run out of cash as soon as July, which could lead to a government shutdown, employee furloughs and other emergency measures. “This is going to be painful for the next two to three years,” said Rep. Pedro Pierluisi, the island’s Democratic representative in the U.S. House, in an interview. “The government is facing serious cash-flow issues.” Many analysts have concluded the island has more debt than it can afford to repay given its listless economy.

“It’s a Sisyphean task,” said Richard Ravitch, the former New York lieutenant governor who steered New York City’s financial restructuring in the 1970s and is currently advising Detroit. So how did the U.S. end up with its own version of Greece? Puerto Rico’s problems date to the end of the Cold War, when the U.S. began closing military bases on the island, whose residents have American citizenship but don’t pay federal tax on their local income. The expiration of corporate tax breaks in 2006 prompted an exodus of pharmaceutical and other manufacturers, nudging the island into a deep recession. As the economy has worsened, migration to the U.S. mainland has accelerated, further shrinking the tax base. Puerto Rico’s population has fallen 4.7% since 2010 to 3.5 million, a period when the U.S. overall grew 3%.

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Grandmas on quaaludes.

China’s Stocks Post Biggest Gain Since 2009 as Volatility Soars (Bloomberg)

Chinese stocks rallied, sparking the benchmark index’s biggest intraday swing since 1992, on speculation the government will take steps to prevent bear-market losses from deepening. The Shanghai Composite Index rose for the first in four days, jumping 5.5% to 4,277.22 at the close, the most since March 2009. The gauge swung 432 points from the highs and lows, propelling a volatility measure to a seven-year peak. An industry group representing brokerages called on investors and fund managers to take responsibility to stabilize the market after a weekend interest-rate cut failed to stem a rout.

“After the recent correction, investors might think stocks are oversold and hope regulators will introduce further measures to support the market,” said Shen Zhengyang, an analyst at Northeast Securities Co. in Shanghai. “The fund industry association’s remarks on stocks might also have boosted investor confidence.” Speculation is growing that policy makers are preparing support measures after the Shanghai Composite plunged more than 20% from a June 12 peak amid surging valuations and concern record high levels of borrowing to buy stocks were unsustainable.

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Jul 222014
 July 22, 2014  Posted by at 6:28 pm Finance Tagged with: , , , ,  19 Responses »

Jack Delano. Engine taking on coal at Illinois Central Railroad yard, Chicago Nov 1942

Amidst the heightened media hysteria that expresses itself in claims of an “increasing burden of proof” of Putin and separatist involvement in the MH17 crash, where there is still no proof anywhere to be seen after 5 days, events are taking a sharp left (can’t bring myself to say ‘right’) turn towards a new, next, phase. Which promises to not be pretty. It’s, as we say, on.

With the earthly remains of the victims now outside the rebel controlled area, even the Dutch government starts talking about more, and more severe, sanctions against Russia. While, I can’t repeat this enough, there is no proof of any Russian involvement that has been shared by any ‘authority’, with either the media – who’ve proven they need no proof, since it just gets in the way of the story – or the public – who follow the “justified anger” of the herd -. Perhaps that alone should tell us plenty about what is going on behind the scene, and what that next phase is.

There’s a black irony in hearing the Dutch PM say that the victims’ bodies are now in ‘safe’ territory, i.e. that part of Ukraine which is under Kiev control. If there is once source of info that has proven to be beyond unreliable, since the February coup but certainly in the past 5 days, it’s the Kiev government.

Kiev’s claims about the ‘terrorists’ tampering with, if not desecrating, the bodies? The bodies are in reasonable to good state, declared the investigators yesterday (considering, of course, they fell 33,000 feet before they hit the ground). Tampering with the black boxes? They look fine, said the Malaysian colonel who took possession of them. But the accusations hover in the media-controlled air.

Here’s guessing you’d be hard pressed to find one inch of actual truth in any media report issued since Thursday by the Kiev government. Which is in place because “we” put it there and support it. Which ordered its army, less than 24 hours after the crash, to keep shelling the civilian population of parts of east Ukraine, knowing full well that might hamper the investigation of the crash.

No, the ‘terrorists’ don’t trust Kiev, for obvious reasons, and they don’t trust the US or EU for equally obvious reasons, since the latter put Yatsenyuk and Poroshenko in place, and these are the people who order the killing of their friends and families. There’s not that much difference between the Gaza strip and the people’s republic of Donetsk. Both get shot at an awful lot, both bury friends and loves ones on a daily basis, and both are trapped and cornered and have nowhere else to go. There is a point where ‘who started’ becomes an irrelevant question; most of us learn that when we’re 5-6 years old.

And I can’t leave out that the New Yorker quotes Joe Biden as saying that Putin “has no soul”. That is on exact over-the-top par with the proverbial age old accusations against those you’d want to wage war against: that they eat babies. It’s also nice and darkly funny because George W., when he met Putin, said he could “see into his soul”. Biden: stupid warhorse. Anyone who listens to another word he says: not very bright. Since time immemorial, people have painted off their – perceived – enemies as inhuman animals. Check: the separatists.

Before I get to that next phase I mentioned, first of all here’s a few statements and questions, as formulated by Ron Paul and the Russian military, that may serve as a way to tell truth from fantasy. I could ask a hundred more myself, but let’s have these things be asked and stated by others. And by all means, let’s have our governments answer them. How hard can it be? Or as Ron Paul puts it: Is it so hard to simply demand a real investigation? We don’t think Russia or the ‘rebels’ can be trusted to conduct an impartial investigation. They think the same about us. And how wrong are they in that, really?

Ron Paul: What the Media Won’t Report About MH17

Just days after the tragic crash of a Malaysian Airlines flight over eastern Ukraine, Western politicians and media joined together to gain the maximum propaganda value from the disaster. It had to be Russia; it had to be Putin, they said. President Obama held a press conference to claim – even before an investigation – that it was pro-Russian rebels in the region who were responsible. His ambassador to the UN, Samantha Power, did the same at the UN Security Council – just one day after the crash! While western media outlets rush to repeat government propaganda on the event, there are a few things they will not report.

  • They will not report that the crisis in Ukraine started late last year, when EU and US-supported protesters plotted the overthrow of the elected Ukrainian president, Viktor Yanukovych. Without US-sponsored “regime change,” it is unlikely that hundreds would have been killed in the unrest that followed. Nor would the Malaysian Airlines crash have happened.
  • They will not report that the post-coup government in Kiev has, according to OSCE monitors, killed 250 people in the breakaway Lugansk region since June, including 20 killed as government forces bombed the city center the day after the plane crash! Most of these are civilians and together they roughly equal the number killed in the plane crash. By contrast, Russia has killed no one in Ukraine, and the separatists have struck largely military, not civilian, targets.
  • They will not report that the US has strongly backed the Ukrainian government in these attacks on civilians, which a State Department spokeswoman called “measured and moderate.”
  • They will not report that neither Russia nor the separatists in eastern Ukraine have anything to gain but everything to lose by shooting down a passenger liner full of civilians.
  • They will not report that the Ukrainian government has much to gain by pinning the attack on Russia, and that the Ukrainian prime minister has already expressed his pleasure that Russia is being blamed for the attack.
  • They will not report how similar this is to last summer’s US claim that the Assad government in Syria had used poison gas against civilians in Ghouta. Assad was also gaining the upper hand in his struggle with US-backed rebels and the US claimed that the attack came from Syrian government positions. Then, US claims led us to the brink of another war in the Middle East. At the last minute public opposition forced Obama to back down – and we have learned since then that US claims about the gas attack were false.
  • Of course it is entirely possible that the Obama administration and the US media has it right this time, and Russia or the separatists in eastern Ukraine either purposely or inadvertently shot down this aircraft. The real point is, it’s very difficult to get accurate information so everybody engages in propaganda. At this point it would be unwise to say the Russians did it, the Ukrainian government did it, or the rebels did it.

    Is it so hard to simply demand a real investigation?

The Russian military, which for western media are of course the devil incarnate, poses a number of questions:

10 More Questions Russian Military Pose To Ukraine, US Over MH17 crash

Russia has released military monitoring data, which shows Kiev military jets tracking the MH17 plane shortly before the crash – and posed yet another set of questions to Ukraine and the US over the circumstances of the tragedy. Military officials – chief of General Staff of the Armed Forces Lt. Gen. Andrey Kartopolov and chief of the Air Force Main Staff Lt. Gen. Igor Makushev – posed a number of questions to Kiev and Washington concerning the possible causes of the catastrophe in Eastern Ukraine that killed almost 300 people last Thursday.

1. Why did the MH17 plane leave the international corridor?

2. Was MH17 leaving the route a navigation mistake or was the crew following instructions by Ukrainian air traffic controllers in Dnepropetrovsk?

3. Why was a large group of air defense systems deployed to the militia-held area if the self-defense forces have no planes?

5. On the day of the crash Kiev increased activity on its Kupol-M1 9S18 radars, which are components of the Buk system in the area. Why?

6. What was a military plane doing on the route intended for civilian flights? Why was the military jet flying at almost the same time and the same altitude with a passenger plane?

8. Where did the launcher – from the video circulated by Western media and showing a Buk system being moved allegedly from Ukraine to Russia – come from? As the video was made on the territory controlled by Kiev, where was the launcher being transported? Where is it right now? Why are some of the missiles missing on the launcher? When was the last time a missile was launched from it?

10. Why haven’t US officials revealed the evidence supporting claims that the MH17 was shot down by a missile launched by the militia?

My own main question, if I had only the one, would be something like: Supposing it was the Ukrainian army who shot down the plane (even just accidentally), how would that affect statements from western media and politicians? For now, looking at what solid proof we have and what we don’t, it’s just as possible, and just as likely, as the ‘rebels’ having done it. Or the US army. Or Blackwater.

To what lengths do you think ‘we’ would go to cover up such an event if it had indeed happened? I think you can answer that for yourself.

And besides, even if the rebels were the ones who shot down the plane, and again there is not proof for that, that should probably be a reason to make sure the conflict between them and the US installed Kiev “government” is halted, so no-one there has any reason to ever fire on a plane again. Or on innocent women and children, for that matter. But no such initiative is apparently seen as useful. The reason for that leads us to ‘phase next’: economic warfare.

All the accusations and insinuations that have been uttered in increasing frequency and fever pitch lead into what has been prepared for years: break Putin’s, and Russia’s, power. It doesn’t matter what it takes, it doesn’t matter how many people have to die to achieve it, Putin controls oil and gas, just like Saddam did, and he therefore has to be brought down.

What better way to achieve that than to use a terrifying deadly event and, evidence be damned, blame it on the man you want to topple? And squeeze his financial wherewithal while you’re at it.

The US could invade Iraq and topple Saddam. They can’t do the same with Russia and Putin. So, economic warfare it is.

The main proponents of economic warfare are from the Anglo Saxon world and the Baltics. Australian PM Abbott increasingly sounds like he’s on the 180º wrong drugs. The ones UK PM Cameron takes are not much better. And the rest of Europe follows in their footsteps, not all all that eager, but too afraid of the soaring eagle looking for the fossils to power its empire.

Ambrose Evans-Pritchard, in his own unique – often erroneous – style, leads the information vanguard:

Russia Vastly Outgunned In Economic Showdown With West

The economic showdown unfolding between Russia and the West is almost entirely one-sided. The US has the power to bring Russia to its knees through hegemonic control over the world’s banking system, using an array of lethal financial weapons developed by a cell at the US Treasury, and already deployed against Iran and North Korea.

Richard Christopher Granville, from Trusted Sources, said the US “crossed the Rubicon” last week even before the apparent missile strike against Malaysia Airlines flight 17, imposing sanctions that effectively shut the energy trio of Rosneft, Novatek, and Gazprombank out of international finance. “The Americans have the power to throttle Russia unilaterally because no European or Western bank of any importance is going to defy the US after the fines imposed on BNP Paribas,” he said.

Good to note that the game was on way before the MH17 crash.

“What has been holding them back is fear of a damaging split between the US and Europe, since it is Europe that suffers the full blow-back from sanctions. This issue has been blown away completely by the crash. Europe’s leaders now have a duty to their own citizens to be tough,” he said. Mr Granville said the yawning gap that was building up last week between the two sides of the Atlantic has suddenly closed, making it much harder for Russian president Vladimir Putin to keep playing Europe off against America.

Europe’s anger over the apparent missile strike and the abuse of the crime scene has denied him his last trump card. Former Russian premier Mikhail Kasyanov told Bloomberg that any further escalation of sanctions to “tier 3” action against the whole financial sector will cause the economy to “collapse in six months”. [..]

Perhaps, but at the same time, let’s not forget that Europe’s anger is based on nothing but spin and allegations.

Europe remains starkly divided over calls for “tier 3” measures against key pillars of the Russian economy, with EU officials warning that any such action risks spinning out of control and suffocating Europe’s fragile economic recovery. While Britain’s David Cameron called for “a new range of hard-hitting economic sanctions”, the body language was very different in southern capitals.

Spain’s foreign minister, José Manuel García-Margallo, refused to criticise Mr Putin on Monday, and insisted that the EU should not prejudge the crash investigation. Mr Cameron said “tier 3” measures must be spread across the key sectors of finance, energy and Russian defence in order to share the pain. If it is restricted to financial sanctions, the City of London will suffer a disproportionate hit since it serves as Russia’s offshore hub for raising debt and issuing equity.

Mr. García-Margallo says what everyone should be saying, but has forgotten in the hunt for a guilty party. Many a lynching party in the southern US, and throughout the world through time, was conducted in that fashion.

France has so far refused to give up a €1.2 billion sale of Mistral warships to Russia. “Frankly, in this country, it would be unthinkable to fulfil an order like the one outstanding that the French have,” said Mr Cameron in the House of Commons. Germany’s Angela Merkel did not even mention further sanctions in her statement over the weekend, and will clearly resist any serious measures against Russian gas suppliers. Diplomats say Tuesday’s meeting of EU foreign ministers is likely to be a holding action with token gestures until there is more clarity on the crash. But that is small comfort for Russia.

The US has an arsenal of measures that it can roll out, and intends to do so to punish the Kremlin for redrawing Europe’s borders by force. The sanctions so far target long-term finance beyond 90 days maturity. This is slow suffocation. The International Energy Agency says Russia needs $750 billion of fresh investment over the next 20 years – and imported Western technology – just to stop oil and gas output declining.

Is it the Kremlin, or the White House, that has ‘redrawn Europe’s borders by force?” Or, in different words, does the US care one bit about European borders? Yeah, right. The goal is Russia’s fossil fuels. And Europe blindly follows the call to war, because people like Cameron know how vulnerable and “energy empty” their nations are. Nothing to do with any plane crash, that’s just a handy excuse that’s being played for all it’s worth.

The measures have frozen almost all Russian companies and banks out of the global capital markets. This matters because they owe most of Russia’s $715 billion in foreign currency debt. They cannot roll over $10 billion coming due each month. This is not yet a major problem. Russia’s oil giant Rosneft has $20 billion of cash reserves. Yet Moody’s issued a credit warning on the company on Monday, saying it must repay $26 billion by December next year, with peak repayment demands over this winter.

The longer the stand-off with the West goes on, the more serious it becomes. Sberbank said the government may have to step in with emergency funding for companies but this would eventually raise questions about the Russian state itself.

Does this perhaps tell us something about why Janet Yellen is on her way to taper QE and let the US dollar rise to super dollar status? A higher buck would greatly increase the pressure on Putin. Too late for that BRICS ‘banking union’.

The US can at any time tighten the noose. There are reports from Washington that it may soon start to use the nuclear option of money-laundering and terrorist laws to cut off all operational finance for targeted Russian companies, effectively preventing any major bank acting as a counter-party on any transaction. In extremis, this could paralyse much of Russia’s oil and gas industry, reducing it to cash transactions.

The great question is whether China would come to the rescue with loans and trade conduits in defiance of the Western world, if it is shown beyond doubt that Mr Putin’s proxy forces shot down an Asian airliner. “The Chinese will not cut him any slack,” said Mr Granville.

That last bit is the main issue: 5 days after the MH17 crash, nothing has been shown beyond doubt. All we’ve seen so far is innuendo. It would all be so much easier if the US shows us, and the media, the proof it claims to have. Nothing to date. So when Obama asks what the ‘rebels’ have to hide when they don’t give researchers – which as far as they know could well include CIA etc. – full access to the disaster scene, we all have the right to ask the US president what he has to hide in view of the fact that he hasn’t provided one piece of solid evidence.

Until he does, I would tend to lean towards economic, political and energy warfare as the underlying theme to the entire situation. But I’m open to being corrected by any and all proof America’s brilliant, highly sophisticated and powerful intelligence community has to offer.

There is a picture being painted before our eyes that is demonstrably false, simply because it relies on blaming parties for things our governments and media have not provided any proof for. And I’ll say it once more: the one thing we, at this time, do have proof of, is that painting such a fantasy picture demonstrates a grave lack of respect for the people who died, and for their loved ones.

Russia Vastly Outgunned In Economic Showdown With West (AEP)

The economic showdown unfolding between Russia and the West is almost entirely one-sided. The US has the power to bring Russia to its knees through hegemonic control over the world’s banking system, using an array of lethal financial weapons developed by a cell at the US Treasury, and already deployed against Iran and North Korea. Richard Christopher Granville, from Trusted Sources, said the US “crossed the Rubicon” last week even before the apparent missile strike against Malaysia Airlines flight 17, imposing sanctions that effectively shut the energy trio of Rosneft, Novatek, and Gazprombank out of international finance. “The Americans have the power to throttle Russia unilaterally because no European or Western bank of any importance is going to defy the US after the fines imposed on BNP Paribas,” he said.

“What has been holding them back is fear of a damaging split between the US and Europe, since it is Europe that suffers the full blow-back from sanctions. This issue has been blown away completely by the crash. Europe’s leaders now have a duty to their own citizens to be tough,” he said. Mr Granville said the yawning gap that was building up last week between the two sides of the Atlantic has suddenly closed, making it much harder for Russian president Vladimir Putin to keep playing Europe off against America. Europe’s anger over the apparent missile strike and the abuse of the crime scene has denied him his last trump card. Former Russian premier Mikhail Kasyanov told Bloomberg that any further escalation of sanctions to “tier 3” action against the whole financial sector will cause the economy to “collapse in six months”.

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Ron Paul: What the Media Won’t Report About MH17 (Ron Paul Inst.)

Just days after the tragic crash of a Malaysian Airlines flight over eastern Ukraine, Western politicians and media joined together to gain the maximum propaganda value from the disaster. It had to be Russia; it had to be Putin, they said. President Obama held a press conference to claim – even before an investigation – that it was pro-Russian rebels in the region who were responsible. His ambassador to the UN, Samantha Power, did the same at the UN Security Council – just one day after the crash! While western media outlets rush to repeat government propaganda on the event, there are a few things they will not report.

• They will not report that the crisis in Ukraine started late last year, when EU and US-supported protesters plotted the overthrow of the elected Ukrainian president, Viktor Yanukovych. Without US-sponsored “regime change,” it is unlikely that hundreds would have been killed in the unrest that followed. Nor would the Malaysian Airlines crash have happened.

• The media has reported that the plane must have been shot down by Russian forces or Russian-backed separatists, because the missile that reportedly brought down the plane was Russian made. But they will not report that the Ukrainian government also uses the exact same Russian-made weapons.

• They will not report that the post-coup government in Kiev has, according to OSCE monitors, killed 250 people in the breakaway Lugansk region since June, including 20 killed as government forces bombed the city center the day after the plane crash! Most of these are civilians and together they roughly equal the number killed in the plane crash. By contrast, Russia has killed no one in Ukraine, and the separatists have struck largely military, not civilian, targets.

• They will not report that the US has strongly backed the Ukrainian government in these attacks on civilians, which a State Department spokeswoman called “measured and moderate.”

• They will not report that neither Russia nor the separatists in eastern Ukraine have anything to gain but everything to lose by shooting down a passenger liner full of civilians.

• They will not report that the Ukrainian government has much to gain by pinning the attack on Russia, and that the Ukrainian prime minister has already expressed his pleasure that Russia is being blamed for the attack.

• They will not report that the missile that apparently shot down the plane was from a sophisticated surface-to-air missile system that requires a good deal of training that the separatists do not have.

• They will not report that the separatists in eastern Ukraine have inflicted considerable losses on the Ukrainian government in the week before the plane was downed.

• They will not report how similar this is to last summer’s US claim that the Assad government in Syria had used poison gas against civilians in Ghouta. Assad was also gaining the upper hand in his struggle with US-backed rebels and the US claimed that the attack came from Syrian government positions. Then, US claims led us to the brink of another war in the Middle East. At the last minute public opposition forced Obama to back down – and we have learned since then that US claims about the gas attack were false.

Of course it is entirely possible that the Obama administration and the US media has it right this time, and Russia or the separatists in eastern Ukraine either purposely or inadvertently shot down this aircraft. The real point is, it’s very difficult to get accurate information so everybody engages in propaganda. At this point it would be unwise to say the Russians did it, the Ukrainian government did it, or the rebels did it. Is it so hard to simply demand a real investigation?

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Draghi Cedes Euro Control to Yellen on Fed Rate Wagers (Bloomberg)

Mario Draghi’s ambitions to weaken the euro are at the mercy of Federal Reserve Chair Janet Yellen. The U.S. central bank chief sent the euro sliding below $1.35 last week for the first time since February when she said U.S. interest rates may rise sooner than investors expect. Her European Central Bank peer is having less impact: Draghi’s unprecedented decision to drop a key interest rate to below zero last month pushed the shared currency up 0.2% before Yellen’s speech. The euro is also losing its link with the continent’s bond market, as its correlation to the yield spreads of Italy, Spain and Portugal approaches zero. Dealers in euro-dollar, the world’s most-traded currency pair, say they’re increasingly influenced by the U.S. because they’ve assimilated the interest-rate cuts Draghi unveiled and concluded he has no further surprises in store.

The prospect of a Fed rate boost is also deemed more important than the conflict in the Gaza Strip and international anger over the downing of a Malaysian airliner last week in Ukraine. “The market is completely ignoring the European news,” Brad Bechtel, the managing director of Faros Trading LLC in Stamford, Connecticut, said yesterday in a phone interview. “So when the dollar moves, it’ll move, but anything European-specific is not enough. Euro-dollar is also seemingly ignoring all geopolitical noises, whether it’s Russia and Ukraine or Gaza.” Yellen’s testimony to lawmakers in Washington July 15-16 hastened the breakdown in the link between the euro and bonds, after appetite for European debt helped push the shared currency up by 4.2% in 2013, its biggest advance in six years.

“Euro-dollar is now moving as a function of the Fed,” Sebastien Galy, a senior currency strategist at Societe Generale SA in New York, said yesterday in a phone interview. “For the few years since 2010, euro-dollar moved because people were seeking to sell or buy a European risk premium in a very mechanical fashion” before that correlation collapsed, he said. A waning ability to influence the euro will prove frustrating for Draghi, who said July 14 that the relative strength of the 18-nation currency poses a risk to the economy. The exchange rate rose 0.1% that day.

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Carney in ‘Lap of the Gods’ as UK Rebalancing Drive Stalls (Bloomberg)

Mark Carney joined the Bank of England heralded as a superman. While he’s gone some way toward revolutionizing the three-century-old institution, there’s not much he can do to achieve a balanced recovery. The BOE governor is set to address an international audience of business representatives tomorrow in Glasgow, with Britain struggling to entrench a revival in exports as business investment and consumers drive the U.K. economy. The obstacles Carney faces are the sluggish euro-region economy and the drag of the strengthening pound. While European Central Bank President Mario Draghi is expanding stimulus, until Europe is ready to buy more from Britain the goal of a shift away from household spending may remain elusive. “It’s in the lap of the gods and Mario Draghi as to whether the bank can get the economy to rebalance the way it wants,” said Richard Barwell, an economist at Royal Bank of Scotland Group Plc and a former BOE official.

“We need much stronger domestic demand in the euro zone and there’s not much Carney can do about that. Given the choice between a beautifully balanced recovery that’s more tepid and the one they’ve got, they’ll take the one they’ve got.” The U.K. economy expanded 0.8% in the second quarter, according to a survey of economists before the July 25 report. That would match the pace of the first three months of the year and mark the point at which Britain has completely made up the output lost during the financial crisis. The report is a preliminary estimate and won’t include data on business investment, which jumped almost 11% in the first quarter from a year earlier, or net trade, which acted as drag on growth after exports climbed just 0.5%. Britain’s trade deficit stayed close to a record in May as manufacturers shipped fewer goods to EU nations, which buy half of all the British goods sold abroad.

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And then some.

S&P Warns Europe Debt Market Near Pre-Crash Levels (CNBC)

European corporate debt markets have become “intoxicated” by monetary stimulus from central banks and “aggressive” transactions are in danger of reaching the excesses seen before the global financial crisis, ratings agency Standard & Poor’s has warned. “Artificially low interest rates not only encourage an inefficient allocation of capital but create the incentive for excessive speculation in financial markets that ultimately risk doing more harm than good when boom turns to bust,” Credit Analyst Paul Watters warned in S&P’s quarterly European corporate credit outlook on Monday afternoon. “The greater use of leverage and a growing number of aggressively structured transactions in the European leveraged finance market is reminiscent of some of the excesses of the 2006-2007 boom period.”

Concerns are centered on whether the right companies are benefiting from cheaply generating debt and whether they are using it in the most productive way. S&P believes that business confidence in Europe remains low, which is pushing companies to issue more debt at record-low rates than spending money on capital investment. Because companies are opting to borrow rather than invest, central bank policy is helpless in triggering a self-sustaining recovery in the region, the ratings agency added. Instead, S&P says that both the U.S. and Europe are showing trends of surging merger and acquisition volumes, high debt issuance and more leveraged buyouts. This points to an erosion of market discipline and a greater reliance on financial engineering to generate returns rather than fundamental growth. S&P adds that this to magnifies the risks in the financial world and says that the problems are even more pronounced in the U.S.

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We’ve all gotten used to this, tight?

Junk Bond Spreads At All-Time Low: UK Gilt Yields Lowest Since 1750 (Price)

They call them ‘junk bonds’ for a reason. They now constitute an offence against linguistic decency: ‘high yield’ no longer even is. Consider the chart below:

TPC1 They call them  junk bonds for a reason&
(The index in question is a benchmark for the broad high yield bond market.)

Not for nothing did the Financial Times report at the weekend that “Retail investors are getting increasingly nervous about high-yield bonds”.

TPC2 They call them  junk bonds for a reason&

In the entire history of the UK Gilt market, yields have never been as low. This suggests that Gilt buyers at current levels are unlikely to enjoy an entirely blissful investment experience. Just to round up this analysis of bond investor hyper-exuberance, consider this last chart, which puts interest rates (in this case, the UK base rate) in their historical context:

TPC3 They call them  junk bonds for a reason&
(*The Bank Rate has comprised variously the Bank Rate, Minimum Lending Rate, Minimum Band 1 Dealing Rate, Repo Rate and Official Bank Rate.)

There is one (inverse) correlation in investment markets that is pretty much iron-clad. If interest rates go up, bond prices go down. This is entirely logical, since the coupon payments on bonds are typically fixed. If interest rates rise, that stream of fixed coupon payments loses its relative attractiveness. The bond price must therefore fall to compensate fixed coupon investors. So now ask yourself a question: in what direction are interest rates likely to go next ?

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And counting.

China’s Debt Soars To 250% of GDP (CNBC)

China’s debt has soared to two and a half times its economy, Standard Chartered estimates, highlighting the difficulties Beijing faces in balancing growth with the risk of bubbles forming in its economy. Total financial credit has surged to 251% of gross domestic product from 147% at the end of 2008, the bank said. “The economy will continue to leverage up, and the market will remain concerned,” said Stephen Green, chief China economist at Standard Chartered. Since the financial crisis of 2008, China has relied heavily on credit to spur its high growth rates, but the alarming pace of credit growth has triggered worries for investors, especially as rapid build-ups in debt have signaled the onset of financial crises in other economies. As a result, policy makers in China have faced the difficult task of trying to slow economic growth to more sustainable levels without causing a hard landing scenario – when an economy rapidly shifts from growth to slow growth to no growth.

In recent months the government has implemented a number of easing measures designed to mildly stimulate the economy. Measures included cutting the reserve ratio requirements for banks which provided loans to the agricultural sector, for example. And their efforts appeared to have worked as second quarter growth for 2014 came in at a 7.5%, in line with the government’s annual target and up from 7.4% in the first quarter. But many analysts remain concerned about China’s growing level of credit and the risks it poses to the country’s economic health. “People have been ignoring a lot of risks out of China; look at the property market, look at how fast bad debts have been showing up in the financial system,” said David Cui, head of China equities at Bank of America Merrill Lynch. “Things have got so bad – it will probably take a financial crisis to cleanse the bad stuff out of the system – for the government to write off debt, to let banks raise more equity… and also severely reduce overcapacity,” he added.

China’s debt to GDP level is still lower than other major world economies, however. The U.S. had a total debt-to-GDP ratio of about 260% by the end of last year, while the U.K.’s ratio was at 277%. Japan topped the world table at 415%, according to Standard Chartered.

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Break it down!

Bank of Japan Majority Won’t Be Swayed by Kuroda Ideology (Bloomberg)

More than a year after securing support at the Bank of Japan for unprecedented monetary stimulus, Governor Haruhiko Kuroda has yet to persuade most board members that they have the power to achieve their inflation target. A majority of the nine members disagree with Kuroda’s view that flooding the economy with cash is sufficient to get stable 2% gains in consumer prices, according to people familiar with their thinking. Most conclude it cannot be done without government steps to raise Japan’s growth potential, they said, asking not to be named because the discussions are private. The ideological gap, masked in public remarks by most board members, underscores why some reflationist lawmakers are still pushing for legislation that would hold the BOJ responsible for delivering on its target. Debate may become more public should calls for expanded asset purchases escalate in face of inflation falling short of the goal next year.

“There may be some members who don’t get it, so we have to make sure the BOJ law is revised,” Liberal Democratic Party lawmaker Kozo Yamamoto, who has advised Prime Minister Shinzo Abe on economic policy, said in an interview in Tokyo last week. “The BOJ has to be held accountable.” Kuroda, 69, became central bank chief in March 2013 after having been a critic for years, when he had urged an inflation target and liquidity injections to end the deflation that became entrenched in Japan in the 1990s. Abe nominated Kuroda as the new BOJ governor weeks after surging to victory in a December 2012 election on a campaign platform of reflation. [..] The former Finance Ministry bureaucrat who led the Asian Development Bank for eight years arrived at an institution that had missed early signs that consumer price declines were heading for a sustained slump. He followed a succession of governors who had argued that the role of monetary policy in fueling inflation was limited.

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That’s all she does.

Yellen Encourages ‘Fully-Fledged Equity Bubble’: Jeremy Grantham (The Tell)

Jeremy Grantham blasts Janet Yellen and her predecessors at the Federal Reserve in his latest quarterly letter. The Fed chairwoman is “sticking faithfully” to the “clearly wrong” policies of Alan Greenspan and Ben Bernanke, writes Grantham, who is the founder of Boston-based money manager GMO and has a reputation for sniffing out market bubbles early. He says:

“She will not use interest rates to head off or curtail any asset bubbles encouraged by the extremely low rates that might appear. And history is clear: very low rates absolutely will encourage extreme speculation. But Yellen will, as Greenspan and Bernanke before her, attempt to limit only the damage any breaking bubbles might cause.”

Grantham criticizes Fed officials for not learning from history:

“I had thought that central bankers by now, after so much unnecessary pain, might have begun to compromise on this matter, but no such luck, at least in the case of the Fed. The evidence against this policy after two of the handful of the most painful burst bubbles in history is impressive. But not nearly as impressive as the unwillingness of academics to back off from closely held theories in the face of mere evidence.”

He said Yellen’s statements in early July have boosted the chances that the U.S. stock market will become completely bubbly:

“This affirmation of moral hazard – we will not move to stop bubbles, dear investors, but will help you out when things go badly wrong – should be of great encouragement to speculators and improve the odds of having a fully-fledged equity bubble before this current episode ends.”

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Tick tick tick.

Argentina Countdown to July 30 Deadline: Default or Boom (Bloomberg)

Argentina is set to default in less than two weeks unless it reaches a deal with holders of defaulted bonds or U.S. courts grant a delay to allow the nation to continue servicing restructured bonds. U.S. Judge Thomas Griesa blocked the country’s attempt to make a June 30 bond payment, saying it must also comply with an order to pay $1.5 billion to hedge funds and other holders of defaulted bonds that sued for full repayment. As the 30-day grace period winds down, here are three possible outcomes:

1) Argentina and Holdout Creditors Reach a Deal by July 30 A settlement with creditors holding untendered securities from the nation’s $95 billion default in 2001, including billionaire Paul Singer’s NML Capital and Aurelius Capital Management, would likely be the best scenario for investors. “Most importantly it would allow Argentina to regain access to international credit markets,” said Mauro Roca, a senior Latin America economist at Goldman Sachs Group Inc. in New York. “It would ease pressure on the peso and increase international reserves.”

2. Court Issues a Stay on Ruling as Negotiations Continue A suspension of the court ruling would allow officials to continue making payments on its performing bonds while giving them more time to seek an accord with holdouts. A delay in the ruling until year-end “would eliminate the risk of the RUFO clause, and the market would start pricing in a greater chance of a settlement,” Roca said. “It’d be very positive for the credit and would open a window in the market for corporate and provincial issuance.”

3. Argentina Can’t Reach a Deal, Court Doesn’t Grant Stay Argentina would default on its 2033 bonds if it can’t reach a deal or win a stay, sparking a selloff from the current 88.3 cents on the dollar, according to Stuart Culverhouse, the global head of research at Exotix Partners LLP in London. “It’s the least-expected scenario,” Culverhouse said.

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If you’re low enough in the pecking order: prison.

Foreign Exchange Traders Face Criminal Investigation (Guardian)

The Serious Fraud Office has launched a criminal investigation into alleged rigging of the £3tn-a-day foreign exchange markets. The move comes after around 15 authorities around the world said they were investigating allegations of collusion and price manipulation in the largely unregulated currency market – which the Bank of England governor, Mark Carney, has suggested could prove to be a bigger scandal than the manipulation of Libor, which has cost investment banks billions of pounds in fines imposed by regulators. In a statement on Monday, the UK’s anti-corruption agency confirmed: “The director of the Serious Fraud Office has today opened a criminal investigation into allegations of fraudulent conduct in the foreign exchange market.”

The allegations, which have yet to be proved, are thought to centre around traders from rival banks using internet chat rooms to collude in the fixing of benchmark prices, which are used as reference rates for trillions of dollars of investment and trade globally. Attention has focused on the benchmark price established at 4pm – ironically called the “fix” or the “fixing” – which is the price many clients request is used when they conduct foreign exchange trades, chiefly because it is considered to be transparent. Mark Taylor, the dean of Warwick Business School who was once a foreign exchange trader and senior economist at the Bank of England, said: “The manipulation of the ‘London 4pm Fix’ doesn’t just affect banks and traders, but the man in the street as well, as it is our pension and insurance funds that could be swindled out of millions of pounds by this.

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Best of what is left.

Detroit Retirees Back Pension Cuts By A Landslide (AP)

A year after filing for bankruptcy, Detroit is building momentum to get out, especially after workers and retirees voted in favor of major pension changes just a few weeks before a judge holds a crucial trial that could end the largest public filing in U.S. history. Pension cuts were approved in a landslide, according to results filed shortly before midnight Monday. The tally from 60 days of voting gives the city a boost as Judge Steven Rhodes determines whether Detroit’s overall strategy to eliminate or reduce $18 billion in long-term debt is fair and feasible to all creditors. Trial starts Aug. 14. “I want to thank city retirees and active employees who voted for casting aside the rhetoric and making an informed, positive decision about their future and the future of the city,” said Kevyn Orr, the state-appointed emergency manager who has been handling Detroit’s finances since March 2013.

General retirees would get a 4.5% pension cut and lose annual inflation adjustments. They accepted the changes with 73% of ballots in favor. Retired police officers and firefighters would lose only a portion of their annual cost-of-living raise. 82% in that class voted “yes.” Support for the pension changes triggers an extraordinary $816 million bailout from the state of Michigan, foundations and the Detroit Institute of Arts. The money would prevent the sale of city-owned art and avoid deeper pension cuts. The judge, however, still must agree. Anthony Sabino, a bankruptcy expert who teaches business law at St. John’s University in New York, said results of the voting are a big win for the city. “It will pave the way for a confirmation hearing. Detroit will be able to move forward, not with absolute financial certainty but far more than Detroit has enjoyed in decades,” he said.

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Yay! They can buy you up with Monopoly money!

Millionaire Hunters Lure Rich Chinese to Australia (Bloomberg)

Call him the Chinese millionaire hunter. Berrick Wilson is one of at least 30 fund managers who have jumped into the business of luring China’s wealthy to Australia using a new visa program that helps Chinese invest abroad. Wilson has flown to China three times this year from the Melbourne headquarters of investment firm KordaMentha Pty. He’s looking for millionaires to invest at least A$5 million ($4.7 million) and qualify for residency, which gets around China’s restrictions on converting currency and sending it abroad. “The interest is increasing by the day,” said Wilson, who planned to make his fourth trip this week to corral Chinese investors into the firm’s commercial real estate fund targeted at $100 million and aiming for a 9% annual return. Referrals in Shanghai, Beijing and Shenzhen have netted miners, property developers and agribusiness entrepreneurs, he said. The flow of money into Australia could reach as much A$10 billion a year, according to law firm Baker & McKenzie LLP.

More than 1,000 people, almost all from China, have applied so far, and more are expected after Canada canceled a similar program in February amid a flood of applications. The number also may be boosted by a government review to hasten approvals. More than 60 funds have been started to capture the money, including by the largest banks in Australia. “These are not your usual equity or private-equity type of investors,” said Bill Fuggle, a partner at Baker & McKenzie in Sydney who advises immigrants on the process and asset managers on compliance with visa rules. “Fund managers need to visit China and convince them of investing not just for a visa, but in turn to preserve their wealth and improve their lifestyle.” Australia’s Significant Investor Visas, which are similar to U.S. EB-5 visas that come with a $500,000 investment minimum and a requirement to create jobs, are designed to attract overseas capital and eventually allow permanent residency in the country.

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If you can’t find them, make them. It’s like how the music indusry changed from bands showing up in all sorts of corners, to studios making the bands.

FBI Entrapped Suspects In Almost All High-Profile Terrorism Cases In US (RT)

A new report by Human Rights Watch accuses the FBI of using sting operations to entrap informants, creating terrorists out of law-abiding individuals and targeting American Muslims in the agency’s counterterrorism investigations. The Justice Department and the FBI have targeted American Muslims in “abusive” counterterrorism sting operations based on religious and ethnic identity, according to the new report from HRW and Columbia University Law School’s Human Rights Institute. The study found that many of the over 500 terrorism-related cases since the War on Terror began in 2001 have alienated the communities that the government should rely on to prevent terrorism.

“This is a number that sounds really big, and it makes it sound like Americans are being kept safe from terrorism attacks,” Andrea Prasow, deputy Washington director for HRW, said in a video released with the report. “But we found that in a lot of these cases, people were prosecuted who never would have committed a terrorist attack in the first place, if it weren’t for the involvement of the FBI.” The 214-page report, Illusion of Justice: Human Rights Abuses in US Terrorism Prosecutions’, focuses on 27 of those cases, including the Rezwan Ferdaus and the Newburgh Four cases, which RT has covered. HRW used some of RT’s footage in its video. “The theory behind some of these cases is that these people are terrorists-in-waiting: If the FBI hadn’t shown up and taken them down the path of committing this terrorist act, Al-Qaeda would instead,” Prasow said. “But we don’t have evidence of that actually happening.”

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Who needs a job when you have a toaster?

Half of Europe’s Jobs Threatened by Machines in Echo of US Risk (Bloomberg)

If you think the euro area has a hiring problem now with double-digit unemployment, wait until the future hits. 54% of jobs in the 28-member European Union are at risk of advances in computerization, according to a study by economist Jeremy Bowles published by Bruegel, a Brussels-based research organization. Inspired by research from Carl Frey and Michael Osborne of Oxford University, Bowles sought to calculate how many jobs were prone to technological advances across Europe. His number-crunching came up with 40% to more than 60%, depending on the country. That compares with the September 2013 finding of Frey and Osborne that 47% of Americans in 2010 ranked in the risky category, meaning their roles could possibly be automated over the next decade or two.

Northern countries such as the U.K., Germany and France have a computerization risk level similar to that in the U.S., found Bowles, who works at the International Growth Centre based at the London School of Economics. Bowles said it was unsurprising that those in peripheral economies such as Italy will suffer the most given Frey and Osborne’s findings that developments in machine learning and mobile robotics will hurt low-wage, low-skill sectors previously immune from technological breakthroughs. That said, the effect may be moderated by the fact such countries have historically adopted technology more slowly than their neighbors, he said. “If we believe that technology will be able to overcome traditional hurdles among non-routine cognitive tasks then we must equip the next generation of workers with skills that benefit technology rather than being threatened by it,” said Bowles.

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The World Just Had Its Hottest June On Record (AP)

The globe is on a hot streak, setting a heat record in June. That’s after the world broke a record in May. The National Oceanic and Atmospheric Administration announced Monday that last month’s average global temperature was 61.2 degrees, which is 1.3 degrees higher than the 20th century average. It beat 2010’s old record by one-twentieth of a degree. While one-twentieth of a degree doesn’t sound like much, in temperature records it’s like winning a horse race by several lengths, said NOAA climate monitoring chief Derek Arndt. And that’s only part of it. The world’s oceans not only broke a monthly heat record at 62.7 degrees, but it was the hottest the oceans have been on record no matter what the month, Arndt said.

“We are living in the steroid era of the climate system,” Arndt said. Arndt said both the June and May records were driven by unusually hot oceans, especially the Pacific and Indian oceans. Heat records in June broke on every continent but Antarctica, especially in New Zealand, northern South America, Greenland, central Africa and southern Asia. The United States had only its 33rd hottest June. All 12 of the world’s monthly heat records have been set after 1997, more than half in the last decade. All the global cold monthly records were set before 1917. And with a likely El Nino this year — the warming of the tropical Pacific which influences the world’s weather and increases global temperatures — it is starting to look like another extra warm year, said University of Arizona climate scientist Jonathan Overpeck.

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