Jun 162017
 
 June 16, 2017  Posted by at 10:02 am Finance Tagged with: , , , , , , , , , , ,  17 Responses »
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Pablo Picasso Dora Maar au chat 1941

 

‘It’s A ‘Scary’ Time With A Global Crisis On The Way’ (CNBC)
Angry Trump Decries Being Target Of Russia Probe (AFP)
Putin Comey Comment ‘Remark On Circus-like Russia Nonsense Gripping US’ (RT)
Theresa May Is Now Almost As Unpopular As Pre-Campaign Corbyn (YouGov)
UK Student Loan Debt Soars To More Than £100 Billion (G.)
UK Gov Still Hasn’t Submitted Brexit Papers For Talks Starting Monday (Ind.)
Germany, Austria Slam US Sanctions Against Russia (AP)
Debt Deal Gives Clarity To Markets – Greek FinMin Tsakalotos (AP)
Eurogroup Approves Greek Loans, Details Debt Relief, IMF To Join (K.)
IMF Won’t Fund Greek Bailout Until It Gets More Clarity On Debt Restructuring (CNBC)
Have The Greek Bailouts Worked? (BBC)
Greek Government Sabotages Its People With Water Privatization Scheme (Occupy)
Half of Athens’ Ambulances Are Out Of Action (AP)
Uptick In Migrant Arrivals Eyed With Concern By Greece’s Islanders (K.)

 

 

Louis Vuitton CEO knows it; where’s the rest?

‘It’s A ‘Scary’ Time With A Global Crisis On The Way’ (CNBC)

A financial crisis could be just around the corner, according to the chief executive of LVMH, who has described the global economic outlook as “scary”. “For the economic climate, the present situation is…mid-term scary,” Bernard Arnault told CNBC Thursday. “I don’t think we will be able to globally avoid a crisis when I see the interest rates so low, when I see the amounts of money flowing into the world, when I see the stock prices which are much too high, I think a bubble is building and this bubble, one day, will explode.”

Arnault, who is responsible for the world’s largest luxury goods company, couldn’t say whether the crash would be imminent or within the next few years, but he insisted that almost a decade on from the global financial crisis of 2008, one was due. “There has not been a big crisis for almost ten years now and since I’ve had a business I have seen crises more than every ten years, so be careful.” Longer term, however, Arnault said he was “optimistic”, pointing to advances in technology and innovation, which he said would stimulate the economy.

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The echo chamber expands.

Angry Trump Decries Being Target Of Russia Probe (AFP)

President Donald Trump responded angrily to reports he is under criminal investigation Thursday, deriding a “witch hunt” against him led by some “very bad” people. Trump responded to reports he is personally being investigated for obstruction of justice with a characteristic scorched earth defense: claiming mistreatment of historic proportions and calling into question the probity of his accusers. “You are witnessing the single greatest WITCH HUNT in American political history – led by some very bad and conflicted people!” Trump said in an early morning tweet. Trump did not directly address the allegations that he is being probed for possibly obstructing justice – a potentially impeachable offense. Nor did he deny he has entered the miniscule ranks of sitting presidents who have become the subject of a criminal investigation.

“They made up a phony collusion with the Russians story, found zero proof, so now they go for obstruction of justice on the phony story. Nice,” he wrote. Trump’s young presidency has been battered by allegations — under investigation both by Congress and the FBI — that Russia interfered to sway the 2016 election in his favor, in possible collusion with Trump’s campaign team. The FBI probe, now in the hands of special prosecutor Robert Mueller, shifted its focus to allegations of obstruction in the days after Trump fired the agency’s then director James Comey on May 9. The new allegations against Trump center on his own admission that he fired Comey because of the Russia investigation, and suggestions he asked several top intelligence officials for their help altering the direction of the inquiry.

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“..that sounds very strange when a special service chief records a conversation with the commander-in-chief and then gives it to the media via his friend.”

Putin Comey Comment ‘Remark On Circus-like Russia Nonsense Gripping US’ (RT)

Russia wants ties with the US improved, but the American domestic political situation is close to hopeless and while the Russian door is open, no one is going to lose their breath waiting to hold it open, political analyst Adam Garrie said, commenting on Putin’s statement. On Thursday, President Vladimir Putin held his annual live marathon Q&A session with the public, titled: “Direct Line with the president.” During the session, he said Russia was ready to grant former FBI director James Comey asylum. “[Comey] suddenly said that he had recorded a conversation with the president, and then gave the recording of this conversation to the media via his friend. Well, that sounds very strange when a special service chief records a conversation with the commander-in-chief and then gives it to the media via his friend. Then what’s the difference between the FBI director and Mr. [Edward] Snowden? Then he is not the head of the special services, but a human rights advocate who defends a certain position,” Putin said.

Political analyst Adam Garrie described the parallel between Comey and Snowden as “brilliant.” “It was a masterful moment for Vladimir Putin,” he told RT. “With all the lies and disinformation about the Russian president in Western mainstream media, people forget that, like most intelligent men, he’s got a wonderful sense of humor, he can be very cheeky, he can be sarcastic.” “Like Snowden, who thought he was doing a public good, Comey said that he thought he was doing the same. Should things get hairy for Comey, the doors to Russia are equally open to him.

I thought that was a very important remark by Putin on the whole sort of circus-like element of the whole Russia nonsense that’s gripping and probably will grip for some time the pundits in Washington. It just makes it clear that the entire tone of Putin’s statements about America is that we [Russia] want to get on with having good relations. It’s crucial not just bilaterally, but to the wider world, if the two of the three major superpowers do have improved relations, but that the situation domestically in America is close to hopeless – so that while the Russian door is open, no one in Russia is going to lose their breath or their cool waiting to hold it open,” Garrie said.

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She has no authority to negotiate anything anymore. That is a much bigger problem than people seem to think.

Theresa May Is Now Almost As Unpopular As Pre-Campaign Corbyn (YouGov)

New YouGov research highlights just how badly the election campaign and result damaged the public’s view of both the Prime Minister and the Conservative party and how much it boosted Labour and its leader. In April, Theresa May had a healthy net favourability rating of +10. At the end of May, following the campaign and negative reception of the Conservative manifesto, it fell to -5. Following the election result it has plummeted to -34. The Prime Minister is currently about as unpopular as Jeremy Corbyn was in November last year, when he scored -35. Meanwhile, the Labour leader has experienced a remarkable turnaround in public perception. Having experienced increasingly worse favourability ratings since Theresa May took office last summer, Jeremy Corbyn sank to a low of -42 in late April, just after the election was called.

However, the public’s view of the Labour leader improved markedly over the campaign, reaching -14 in the last YouGov favourability survey before election day. Now, following the result, his net favourability score is +0 – meaning that as many people now have a favourable view of him as have an unfavourable view. [..] It is remarkable that there has been such a sharp turnaround for the leaders of the two main political parties. When the election was called, Theresa May was secure in her position and many were speculating over the future of the Labour leader. Now, the roles are reversed, with Jeremy Corbyn having silenced his critics and won over large sections of the public while the Prime Minister faces criticism from across the board.

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Burden the young. An idea with future.

UK Student Loan Debt Soars To More Than £100 Billion (G.)

Student loan debt in the UK has risen to more than £100bn for the first time, underlining the rising costs young people face in order to get a university education. Outstanding debt on loans jumped by 16.6% to £100.5bn at the end of March, up from £86.2bn a year earlier, according to the Student Loans Company. England accounted for £89.3bn of the total. “Lots of prospective and current university students will see these figures and worry about being part of an increasing pool of graduate debt,” said Jake Butler of at money advice website Save the Student. “As fees increase this number will only go up, as more and more money is lent out each year. There is some cause for concern here, mainly for the government, as it is now widely accepted that the majority of graduates will never pay off their whole student loan debt before it is wiped off 30 years after their graduation.”

Sorana Vieru, the vice-president for higher education at the National Union of Students, said student debt had risen to “eye-watering levels”. The rise in student debt has been driven partly by rules introduced in 2012, allowing universities in England to charge up to £9,000 a year in tuition fees. In the year ending 31 March 2012, student debt was less than half the current level, at £45.9bn. Jeremy Corbyn made younger voters a key focus of Labour’s election campaign, promising to scrap tuition fees for new university students. A strong turnout among 18- to 24-year-olds at last week’s election helped the party to win 262 seats, an increase of 30. Sebastian Burnside, a senior economist at NatWest, said student debt was rising at a faster pace than any other form of debt, and eclipsed credit card debt of £68bn. “These latest figures show student debt is becoming of greater priority with every passing year. Student debt is the fastest growing type of borrowing and is rapidly becoming economically significant.”

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Maybe May intends to blame the EU and gather Brits together against them?

UK Gov Still Hasn’t Submitted Brexit Papers For Talks Starting Monday (Ind.)

The British Government has still not sent papers outlining its opening position for Brexit talks to the European Union, despite negotiations beginning on Monday. EU sources told The Independent Brussels had sent its “positioning papers” to London four days ago and while similar documents were expected in return, nothing has arrived as Theresa May’s administration struggles to get on its feet. Brexit Secretary David Davis confirmed on Thursday that talks to pull Britain out of the EU will begin on Monday regardless, despite cabinet splits over how to approach them and Ms May’s withdrawal plans not even being cemented in a Queen’s Speech.

Chancellor Philip Hammond cancelled a speaking event in which he was expected to signal new softer Brexit proposals focusing on jobs, amid fears it might spark an internal row with other Tories demanding Ms May stick to her immigration-centred approach. It came as the Prime Minister confirmed that a Queen’s Speech would go ahead, but only on 21 June – two days later than originally planned. It is still unclear if she has locked in the support of the Northern Irish DUP to prop her up in the House of Commons and give her the majority she needs to pass a vote approving the agenda set out in the Queen’s Speech. Conservatives signalled that talks with the unionists could even continue beyond the start of Brexit talks and the Queen’s Speech, as Sinn Fein’s Gerry Adams warned that any deal struck could breach the Good Friday Agreement that brought peace to Northern Ireland.

On Monday this week, the EU sent to London its positioning papers, officially outlining its negotiating stance ahead of talks, and had expected similar documents to come back in good time before discussions begin. But with the EU’s papers arriving as Ms May staved off a cabinet coup, convinced backbenchers to support her and held talks about realigning Brexit plans, nothing had been sent back to Brussels by Thursday night. One source across the Channel said it was “unbelievable” that the UK had still not sent the “basic” papers for the start of negotiations, with just over three days left before they begin. They added: “The talks are beginning on Monday. There are no positioning papers yet. It’s a basic thing that should happen beforehand. It doesn’t bode well.”

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Haha, Gazprom.

Germany, Austria Slam US Sanctions Against Russia (AP)

Germany and Austria voiced sharp criticism Thursday of the latest U.S. sanctions against Moscow, saying they could affect European businesses involved in piping in Russian natural gas. The United States Senate voted Wednesday to slap new sanctions on key sectors of Russia’s economy and individuals over its interference in the 2016 U.S. election campaign and its aggression in Syria and Ukraine. The measures were attached to a bill targeting Iran. In a joint statement, Austria’s Chancellor Christian Kern and Germany’s Foreign Minister Sigmar Gabriel said it was important for Europe and the United States to form a united front on the issue of Ukraine, where Russian-based separatists have been fighting government forces since 2014.

“However, we can’t accept the threat of illegal and extraterritorial sanctions against European companies,” the two officials said, citing a section of the bill that calls for the United States to continue to oppose the Nord Stream 2 pipeline that would pump Russian gas to Germany beneath the Baltic Sea. Half of the cost of the new pipeline is being paid for by Russian gas giant Gazprom, while the other half is being shouldered by a group including Anglo-Dutch group Royal Dutch Shell, French provider Engie, OMV of Austria and Germany’s Uniper and Wintershall. Some Eastern European countries, including Poland and Ukraine, fear the loss of transit revenue if Russian gas supplies don’t pass through their territory anymore once the new pipeline is built.

Gabriel and Kern accuse the U.S. of trying to help American natural gas suppliers at the expense of their Russian rivals. They said the possibility of fining European companies participating in the Nord Stream 2 project “introduces a completely new, very negative dimension into European-American relations,” they said. In their forceful appeal, the two officials urged the United States to back off from linking the situation in Ukraine to the question of who can sell gas to Europe. “Europe’s energy supply is a matter for Europe, and not for the United States of America,” Kern and Gabriel said.

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It’s getting close to outright lying.

Debt Deal Gives Clarity To Markets – Greek FinMin Tsakalotos (AP)

Greece’s finance minister says financial markets now have “much greater clarity” about the future of Greece’s debts, which will help the country regain market access when its current bailout program ends next year. Speaking after a meeting of the eurozone’s 19 finance ministers, Euclid Tsakalots said the country can “look forward with much greater confidence.” As well as securing €8.5 billion in bailout funds, which will help Greece meet a big summer repayment, Tsakalotos won a promise on future measures to ease the country’s debt burden and possible IMF financial involvement in the coming year. Greece has relied on bailout money for seven years and hopes that it will be able to stand on its own feet when the bailout ends. Tsakalotos said one big benefit from the deal Thursday was that future debt repayments could be linked to Greece’s growth. In essence, that could mean payments could be postponed in the event of an adverse shock.

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No , there are no details on debt relief, that’s the whole story.

Eurogroup Approves Greek Loans, Details Debt Relief, IMF To Join (K.)

Greece’s international creditors agreed on Thursday to approve the disbursement of €8.5 billion in bailout loans and to detail medium-term debt relief measures following talks in Luxembourg. Describing the agreement as “a major step forward,” Eurogroup President Jeroen Dijsselbloem said the deal aimed to get Greece standing “on its own feet again,” noting that debt relief would be linked to the country’s growth rates, in line with a proposal that had been promoted by French officials. The deal also outlined the participation of the IMF in Greece’s third bailout with the Fund’s chief Christine Lagarde saying she would formally recommend the IMF’s participation with $2 billion on a standby basis.

As regards the debt relief aspect of the agreement, Lagarde remarked that it was not the best solution for Greece as it was only an agreement in principle but the “second best” solution. European Commissioner for Economic and Monetary Affairs Pierre Moscovici sought to focus on the positive aspects of the deal. “Tonight, Greece can see the light at the end of its long tunnel of austerity,” he said. “From tonight, the watchwords are jobs, growth and investment.” His comments were echoed by Greek Finance Minister Euclid Tsakalotos who, in a separate press conference, said the deal provided greater clarity, for both citizens and investors, “more light at the end of the tunnel.” A spokesperson for the European Central Bank, whose bond buying program Greece wants to join, described the Eurogroup agreement as “a first step towards securing debt sustainability.”

However it remained unclear whether the deal was adequate to pave the way for the ECB to buy Greek bonds or not. The breakthrough last night came after Athens appeared to have shifted its stance slightly from earlier in the week when tensions between Greece and Germany had peaked and two top government ministers had said publicly that Athens mistrusts German Finance Minister Wolfgang Schaeuble. Speaking from Thessaloniki, where he met Israeli and Cypriot leaders for talks on energy cooperation, Prime Minister Alexis Tsipras remarked to reporters, “The good guys win in the end.” Greek officials have insisted over the past week that Greece has won the right to debt relief.

“Greece has fulfilled its commitments and adopted the required reforms. Now it is time for the Europeans to comply with their commitments on debt relief,” President Prokopis Pavlopoulos said in comments published in Germany’s Handelsblatt. He appealed to Schaeuble to abandon his persistent opposition to Greek debt relief. “Anything else would not be worthy of a great European politician,” he said. “It is important for us that our creditors secure the viability of the debt. Otherwise the ECB cannot buy Greek state bonds,” he said, referring to the European Central Bank.

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But the article above said “IMF to join”!

IMF Won’t Fund Greek Bailout Until It Gets More Clarity On Debt Restructuring (CNBC)

The IMF wants Greek debt to become more sustainable before it channels funds into the country’s bailout program, the organization’s managing director Christine Lagarde told CNBC. “For us to engage and for us to participate financially, more needs to be clarified, defined and approved in terms of restructuring,” she said late on Thursday. “What we believe will be needed is a deferral of interests, an extension of maturity, and a mechanism by which there is an adjustment based on growth … this is where further discussion and negotiation is needed.” Lagarde was speaking in Luxembourg after European finance ministers approved a €8.5 billion loan for Athens that will enable the cash-strapped nation to meet a major July repayment deadline.

European countries have been shouldering the burden of Greece’s current €86 billion rescue fund — its third bailout package since 2010. The IMF financially contributed to Athens’ previous bailouts but refused to join the current pact because it believes Greece needed debt relief — something that European creditors aren’t comfortable with. The organization’s absence has been a thorn in the sides of heavyweight European countries, particularly Germany, who view IMF participation as a key credibility factor. For Berlin to continue backing euro zone loans to Athens, Germany’s parliament is now insisting on IMF contribution. On Thursday, the IMF agreed to offer Athens a standby arrangement of less than $2 billion but won’t be disbursing any of the funds until euro zone countries offer more detail on potential debt relief measures in 2018.

“I’ve always said that the (bailout) program walks on two legs: the leg of policies and the leg of debt sustainability,” Lagarde told CNBC on Thursday. Athens has proved its commitment to key structural reforms, which cover pensions, tax, serial procedures, and labor markets, but the second leg of the bailout program — debt restructuring — needs to be further clarified, she continued. “Progress has been made today, no question about it but more is needed.” Lagarde praised Thursday’s loan agreement, stating that Athens would now be protected from future crisis moments because its financial needs in terms of debt service will be low.

“It (Athens) will actually produce a primary surplus and it should be, in terms of liquidity and stability, in a fairly solid situation to develop its economy to cultivate growth, generate investment , and proceed with the privatization that they have agreed to complete.” On the matter of Brexit negotiations, the IMF chief advised European and U.K. officials to adopt a risk-averse approach. “What is more predictable, more certain, can be calibrated, can be anticipated, can be transitioned into, is going to be more reliable and safer for the people and the economy.” Circumstances were still too premature for the IMF to forecast future economic developments, she added.

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They have for Germnay, yes.

Have The Greek Bailouts Worked? (BBC)

As eurozone finance ministers meet in Brussels for crucial talks on Greece, Reality Check looks at whether the bailouts the country has received have secured Greece’s economic survival or just created unsustainable debt. Neither Greece nor its creditors would say they are happy with how it has worked out. In 2010, when the Greek debt crisis started, Greece received €110bn in bailout money. And in 2012, the country received a second bailout of €130bn. These loans, from the eurozone and the International Monetary Fund (IMF), were deemed necessary to stop Greece going bankrupt. In exchange, Greece was required to make deep public spending cuts, raise taxes and introduce fundamental changes to the public sector and labour legislation. In August 2015, the eurozone countries agreed to give Greece a third bailout, of up to €86bn, on the condition of further changes.

The next tranche of that bailout, which Greece needs in order to honour repayments due in July, is being discussed at the eurozone finance ministers’ meeting on Thursday. In 2010, they managed to keep Greece in the euro and prevented the collapse of the common currency. So, from the perspective of the eurozone as a whole, a chaotic “Grexit” did not happen. But seven years on, and many more billions of euros later, was this price worth paying, both from the point of view of Greece’s creditors and of the Greek people? It is impossible to know what the situation would be like now had Greece not received the bailouts, but the consequences of receiving them have been painful. For the Greek people, the bailouts and the austerity measures implemented with them have come at a huge cost.

• Unemployment remains staggeringly high: 22.5% of Greeks were unemployed in March 2017. And almost half of people under the age of 25 were out of work
• Those who do work, earn less. The minimum monthly wage at the beginning of the crisis was €863. It has now fallen to €684
• Pensioners have been hit particularly hard. Pension changes since 2010 mean 43% of pensioners now live on less than €660 a month, according to the Greek government
• Government spending on health was almost halved between 2010 and 2015, while the education budget was cut by 20%

Greece’s creditors, strongly influenced by Germany, demanded that Greece start spending less than it earned. In 2016, for the first time, Greece achieved this. The surplus is small, at €1.3bn or 0.7% of GDP. But this can hardly be seen as a success – the economy has shrunk and the overall debt pile is still going up, not down.

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Tsipras is not going to grow a pair anymore. Rule 1 for every country and society should be: Never give up your water.

Greek Government Sabotages Its People With Water Privatization Scheme (Occupy)

The “fire sale” privatization of Greece started in 2015, following the infamous Syriza referendum in which more than three-fifths of the Greek people voted to reject Troika-imposed bailout conditions – and yet their government, led by Alexis Tsipras, chose to accept the deal anyway. The privatization process reached its peak the next year, when the Greek government sold the public transport giant TrainOSE to the Italian company Ferrovie dello Stato Italiane S.p.A for 45 million euros. This happened after a very brief bidding period and despite considerable employee pushback, including a 24-hour strike that paralyzed the country. Now, a second round of fire sales is taking place ahead of the upcoming third bailout negotiations for Greece, whose current bailout package will expire in August 2018.

Since last year, the sale of the country’s roads, rights to the use of its ports, and other public sector resources have only yielded around €4 billion – a far cry from the projected €50 billion that were promised when the privatization plan was put in motion. At best, it will result in a 6 billion euro profit, nowhere near enough to cover the ailing Greek economy’s massive overhead spending. In 2016, under the EYATH initiative (representing Thessaloniki’s public sector water workers) and activists, Save Greek Water was launched in an attempt to curb the Syriza administration’s efforts to privatize public water reserves. The initiative enjoyed enormous support from the public and media, and seemed to curbing further efforts to move the privatization talks forward. That was until last December, when an article published by Stavroula Symeonidou, president of the Workers Union of DEYA of Drama, revealed that Greece’s public water sector was being purposefully sabotaged by its own government.

“…DEYAs are not financially dependent on the State/Central Government, therefore they do not, in any way whatsoever, contribute to the public debt… however they are equally restricted in (actually barred from) recruiting any new personnel, which means that over time their already limited resources will reach zero,” Symeonidou wrote. The article also warned about the danger of further levies being imposed on Greek farmers using public water sources like ground- and rainwater wells. This dire prediction came to pass last month, when an “irregular water source charge” was imposed on the major rural regions of the country, directly targeting farmers and households in the affected areas. According to a statement released by the Syriza administration, 2.5% of the proceeds from this levy will be invested in the interest of supporting the Greek public sector – but not the DEYA initiative. This is being seen as an obvious attempt to further hobble any resistance to privatization.

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Let me guess, this is part of making the country competitive again? This is criminal.

Half of Athens’ Ambulances Are Out Of Action (AP)

Greece’s financial woes have clobbered spending on state-provided health services, even as demand has spiked because fewer Greeks can pay for private treatment. Some of Athens’ ambulances have up to 1 million kilometers (620,000 miles) — nearly three times the distance to the moon — on the clock, and about half are idle because of a lack of spare parts. At night, fewer than 40 vehicles cover a population of more than 4 million. Paramedic Dimitris Dimitriadis says the service is obliged to respond to every call it receives, even if the callers are just taking advantage of a rule that patients brought to hospitals by ambulance jump the line for treatment. “But then you also get elderly people who can’t afford a taxi fare to the hospital, so they call an ambulance,” he said, driving toward a reported suicide in central Athens. Upon arrival, the crew was told that the injured person had been taken to a hospital by relatives.

Unions say rescuers do their best against the odds, focusing on getting urgent cases to emergency treatment within minutes of receiving a call. But other patients, who may still require hospital treatment, can end up waiting well over an hour. Athens ambulance workers’ union leader Giorgos Mathiopoulos says about 70 of the capital’s 140 ambulances are out of action, and the fleet needs to be doubled in size. “Up to 30% of the immobilized ambulances can’t be repaired” and many are stripped for parts to keep others going, Mathiopoulos said. “When we’re trying to get to an incident as fast as possible … and the ambulance has that many kilometers on the clock, it’s a worry.”

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Something’s going to break.

Uptick In Migrant Arrivals Eyed With Concern By Greece’s Islanders (K.)

Official data on Thursday showed an uptick in refugee and migrant arrivals from Turkey to Greece’s shores, increasing concerns among residents on the Aegean islands that have borne the brunt of the refugee crisis. A total of 151 people were reported as entering Greece in 24 hours on Thursday, 74 of whom landed on Chios, 54 on Lesvos and 23 on other islands, slightly above the 146 arrivals in the previous 24-hour period. According to official figures, the number of migrants and refugees that reached Greece between June 8 and Thursday morning came to 538, a significant rise from May when daily arrivals were in the double digits.

The upsurge is stoking fears on islands such as Chios that are already struggling to cope with thousands of refugees and migrants stranded by slow processing and deportation procedures. Residents of Chios held a rally on Thursday night to protest plans for a pre-departure facility on the island, where authorities said they will temporarily detain dozens of migrants who are not eligible for asylum before they are deported. Protesters say that the official line in favor of the facility, pointing to a decrease in arrivals on Lesvos since a similar center was opened there, are disproved by the uptick observed in recent days. A similar rally was also held on the island of Samos on Thursday.

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Nov 202016
 
 November 20, 2016  Posted by at 10:15 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Wynand Stanley Cadillac touring car at Yosemite in snow 1919

Peak & Decline of International Reserves: Massive Asset Deflation Ahead (SRSR)
“Developed Countries’ Currencies Solely Driven By Politics” (CNBC)
How A Universal Basic Income Would Transform Society (Agnos)
End London’s Role as a Clearing-House for Dirty Money (G.)
Europe’s Leaders To Force Britain Into Hard Brexit (O.)
Italy’s Crisis Turns into a Multi-Headed Hydra (DQ)
Italian Banks ‘Not Necessarily Bankrupt’ But Awfully Close (NYT)
‘Political Amateurs Are Conquering The World’ – Beppe Grillo (EN)
Bruegel Institute Chief: 4th Bailout Seems Inevitable for Greece (GR)
Slovenia Adds Water To Constitution As Fundamental Right For All (AFP)
EU Ministers At Odds Over Immigration, No Compromise In Sight (R.)
Pentagon and Intelligence Chiefs Urge Obama To Remove NSA Chief (WaPo)
Obama Claims He Cannot Pardon Snowden but He Knows That’s Not True (TD)

 

 

Causation and correlation of energy and economics are not nearly as clear as implied here, but the trends are interesting.

Peak & Decline of International Reserves: Massive Asset Deflation Ahead (SRSR)

The world is sitting at the edge of a massive deflationary cliff. Even though Central Banks are desperately trying to keep the world’s financial assets from plunging down into the great depression below, signs suggest they are losing the battle. One critical sign is the peak and decline of International Reserves. Hugo Salinas Price has been keeping an eye on International Reserves for quite some time. In his recent article, A Reversal In The Trend Of International Reserves, he stated the following:

International Reserves peaked on August 1, 2014, at $12.032 Trillion dollars, and as of October 28, 2016 they stood at $11.066 Trillion dollars. International Reserves stood at about $10 Trillion in 2011, but the rate of growth slacked off; the weekly increases in Reserves (which Bloomberg used to publish every Friday) stalled and became smaller, week by week. As mid-2014 came around, the increases were quite small. It was clear that the trend was for ever-smaller increases, and that could only mean that finally there would be no increase, which would be immediately followed by decreases in the total of International Reserves held by Central Banks. That is exactly what took place.

Hugo Salinas Price explains in the article, “that the increases of International Reserves take place when the Reserve Currency issuing countries effect payments to the rest of the world.” Basically, countries such as the United States that run trade deficits, exchange fiat money or Treasuries for goods from other countries. This shows up as an increase in International Reserves. Now, what is important to understand about the chart above is the timing of the PEAK & DECLINE of International Reserves. I had an email exchange with Mr. Salinas on what I believe was the leading factor in why the International Reserves peaked and declined. When I went back and looked at a five-year price chart of a barrel of oil (West Texas), I found a very interesting coincidence:

The price of a barrel of West Texas Crude fell below $100 starting at the beginning of August, 2014…. TO THE DATE. Even though the oil price had traded between $85-$100 over the past three years, it averaged over $95. However, by the end of 2014, it had fallen by more than half. This had a profound impact on International Reserves as the low oil price gutted the energy-commodity-goods producing countries. These are the countries that hold the majority of International Reserves. So, as the price of oil continued to stay below $50 a barrel, these countries had to sell Bonds and acquire cash to fund their own domestic account deficits. Thus, the peak and decline of International Reserves occurred right at the same time, the peak and decline of high oil prices. THIS IS NO COINCIDENCE.

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Free markets still exist in name though…

“Developed Countries’ Currencies Solely Driven By Politics” (CNBC)

The G10 currency market is driven solely by political events, one strategist told CNBC Friday. Dominic Bunning, FX Strategist at HSBC said that whereas a range of events had impacted the performance of G10 currency pairs, now it is only politics. “In G10, everything is driven by politics. We used to think about economics and cyclical stories and structural stories and balance of payments etc but now all we care about is politics,” Bunning said. He explained that if you have a strong political view then you make trading decisions on the basis of that. “If you think the euro zone is going to break up then by all means sell the euro,” Bunning said, while warning that he doesn’t have a strong view on euro.

On sterling however, Bunning said the weakness is likely to continue. “We still think there is a strong weakness in sterling even though it is relatively lower because the political outlook in the UK is very challenging.” The G10 currencies are the U.S. dollar, the euro, the pound, the yen, the Swedish krona, the Norwegian krone, the Australian dollar, the New Zealand dollar, the Swiss franc and the Canadian dollar. A number of these currencies have seen a lot of volatility since the start of the year owing to political uncertainties in their respective countries or on a global level. The biggest events this year have been the U.K.’s vote to leave the European Union and the U.S. presidential elections.

While sterling is down more than 16% since the Brexit vote on June 23, the euro has been on its worst losing streak since the currency arrived in 1999. The dollar, meanwhile, has been seeing some strength, rising to a 14-year high against a basket of currencies on the growing perception that the economic policies of U.S. President-elect Donald Trump will push up consumer prices. While traders are growing more bullish on the dollar, HSBC’s Bunning warned that it is not great for emerging market currencies. “You need to be selective in terms of your currency choices. I don’t think it’s a dollar bull run against everything but I do think if you look at the outlook for emerging market currencies, particularly the high-yield currencies at the moment, it is very hard to have a positive currency view.”

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Plenty of lofty ideals and ideas out there, but UBI, if it does at all, will happen only out of necessity.

How A Universal Basic Income Would Transform Society (Agnos)

No child’s dream is to make lots of money. We certainly aren’t born with any innate need for money itself. But at some point in our lives, we are introduced to money and the need to earn it. For many, it comes at a time when we are just beginning to learn about the world and what excites us. We start to open the doors to all of life’s possibilities, when the adult in the room says, “It’s really nice that you want to feed people in need, but what are you going to do to earn a living?” “You mean I can’t actually do what I really want to do?” we wonder. With a universal basic income (UBI) – where the government replaces all other forms of monetary assistance with a yearly stipend given to every adult of say, $20,000 per year – this would all change.

For the first time in human history, people would be able to make their childhood wishes a reality, instead of being forced to work in jobs they are aren’t passionate about just to survive. Today, humanity has the ability to create a world of sustainable abundance where everyone has access to everything they need and much of what they desire. But this requires a shift in long held societal views. Changing the view that money is a reward for hard work and private property is an extension of the self will be difficult. A shift in mindset is needed to see everyone as inherently worthy, rather than in terms of their ability to produce. For this reason, it is important to understand the philosophical justification for a UBI, as it reveals some of the deep underlying flaws of our capitalistic economy and the way it views human nature. Given these flaws, how we fund a UBI will go a long way toward the effectiveness of the shift in mindset from an age of ownership to an age of access.

Let us stop and imagine what we might do if we no longer had to work in order to meet our basic needs. Presently, we are all burdened with the stress that comes with knowing that failure to earn a living could result in social isolation. Imagine the psychological shift in knowing that no matter what happened, you would always have a roof over your head and food to eat without having to give away your precious time and energy. How would not having to work to survive change your day to day life? What would you do instead? A UBI has the potential to unleash unimaginable amounts of human time, energy, creativity, and passion that has the potential to radically transform society. Instead of everyone working to survive, people would have the means to pursue their own dreams, and to spend more quality time with their family, friends, and community.

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The Heart of Darkness.

End London’s Role as a Clearing-House for Dirty Money (G.)

The National Crime Agency says up to £90bn is laundered through the UK each year, while an estimated £120bn worth of UK property is owned by offshore shell companies. Some 75% of properties whose owners are under investigation for corruption made use of offshore corporate secrecy to hide their identities. And according to the director of the National Crime Agency, “the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK.” Those assets are far too often being extracted from developing nations desperately in need of tax revenues. A century on from Heart of Darkness, the Democratic Republic of the Congo still ranks near the bottom of the UN Human Development Index, with one in seven children dead before the age of five.

And, as in Conrad’s time, London’s imperial connections are helping to facilitate the exploitation of this asset-rich nation. Diamond and mineral wealth is being extracted by political elites, funnelled via London to old remnants of empire in the overseas territories, then repatriated via Kensington townhouses back to the UK. Our financial, accountancy and property agents are the beneficiaries, the people of the DRC and househunters of London the losers. [..] We are told that much of London’s success is because of its unimpeachable legal system and absence of corruption. But that is no good if, under the banner of the rule of law, we are also aiding and abetting exploitation. In Surrey mansions and Mayfair sit the lost wealth, the never-built hospitals and unopened schools of too many developing nations.

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“.. the only way to deal with Brexit is hard Brexit. Otherwise we would be seen to be giving in to a country that is leaving. That would be fatal.”

Europe’s Leaders To Force Britain Into Hard Brexit (O.)

European leaders have come to a 27-nation consensus that a “hard Brexit” is likely to be the only way to see off future populist insurgencies, which could lead to the break-up of the European Union. The hardening line in EU capitals comes as Nigel Farage warns European leaders that Marine Le Pen, leader of the Front National, could deliver a political sensation bigger than Brexit and win France’s presidential election next spring – a result that would mean it was “game over” for 60 years of EU integration. According to senior officials at the highest levels of European governments, allowing Britain favourable terms of exit could represent an existential danger to the EU, since it would encourage similar demands from other countries with significant Eurosceptic movements.

One top EU diplomat told the Observer: “If you British are not prepared to compromise on free movement, the only way to deal with Brexit is hard Brexit. Otherwise we would be seen to be giving in to a country that is leaving. That would be fatal.” The latest intervention by Farage will only serve to fuel fears in Europe that anti-EU movements have acquired a dangerous momentum in countries such as France and the Netherlands, following the precedent set by the Brexit vote. Ukip’s interim leader, who predicted both the vote for Brexit and Donald Trump’s US victory, said that while Le Pen was still more likely to be runner-up to an establishment candidate next May, she now had to be taken seriously as a potential head of state. “She will clearly win through to the second round. And after what has happened elsewhere, only a fool would say she would have no chance of winning overall. France is a deeply, deeply unhappy country. If she were to win, it would be game over for the EU.”

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“It’s a banking crisis, an economic crisis, a debt crisis, and a political crisis all rolled into one..”

Italy’s Crisis Turns into a Multi-Headed Hydra (DQ)

Bank stocks have surged just about everywhere since Trump’s election, with one exception: Italy. In the last month only one large Italian bank has seen its shares rise, and that’s the 500-year old bank at the center of Italy’s banking crisis, Monte dei Paschi di Siena, whose nearly worthless shares jumped to €0.24. Shares of Italy’s other large banks have suffered heavy losses. Over the past week alone, shares of Italy’s largest bank, Unicredit, plunged 15%, as did the shares of Banca Popular and UBI Banca. Shares of Italy’s second largest bank, Intesa Sanpaolo, fell just under 10%. The recent losses compound what’s been a miserable year for Italy’s banking stocks. The best performing stock is the investment bank Mediobanca, which is down a mere 24% for 2016. During the same period, Unicredit has shed over 60%, UBI Banca 65%, Banco Popolare 80%, and Monte dei Paschi 85%.

It’s not just banks’ shares that are flashing all the wrong signals. UniCredit’s five-year credit default swap surged to 221.2 basis points on Friday, meaning it now costs €221,200 to insure €10 million of UniCredit’s debt against default over five years. As with all major crises, Italy’s current predicament is a multi-headed hydra. It’s a banking crisis, an economic crisis, a debt crisis, and a political crisis all rolled into one, and all coming to a head at the same time. Italy’s economy has been in reverse ever since it joined the euro 17 years ago. Since 2007, its GDP has shrunk by a staggering 10%. In the meantime its public debt has continued to grow, reaching 135% of GDP today, the highest level of any Eurozone country with the exception of Greece. And now the yield on Italy’s 10-year bond is on the rise, hitting 2.09% on Friday in a NIRP world, its highest point in over 13 months.

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If Renzi loses the referendum next month, how much longer can this can be kicked?

Italian Banks ‘Not Necessarily Bankrupt’ But Awfully Close (NYT)

Victor Massiah has grown weary of talk that the Italian banking system is so threadbare and stuffed with terrible loans that it threatens Europe with another financial crisis. The mansion that serves as local headquarters for the bank he runs, UBI Banca, one of Italy’s largest lenders, does not feel like a place on the verge of running out of money. An inlaid marble fireplace sits in a conference room beneath wooden beams worthy of a castle. A statue of the Greek goddess Athena stands triumphantly over a staircase. “As you can see,” he says, sweeping a hand across the scene, “we’re not necessarily bankrupt.” Among policy makers alert for signs of the next financial disaster, Italy’s mountain of uncollectable bank debt is a subject discussed in tones ordinarily reserved for piles of plutonium.

Its banks seem at once too big to fail and eminently capable of doing so, menacing the global economy. For years, Italian lenders have muddled through, hoping time would cure their afflictions. But Italy’s economy has been terminally weak, not growing at all over a recent 13-year stretch. Bad loans have festered. Good loans have deteriorated. Italy’s problems are Europe’s problems. Nearly one-fifth of all loans in the Italian banking system are classified as troubled, a toll worth €360 billion, at the end of last year, according to the International Monetary Fund. That represents roughly 40% of all the bad loans within the countries sharing the euro. In recent weeks, the world’s focus has shifted to Germany’s largest lender, Deutsche Bank, on fears that it could be forced to seek a rescue.

But if Deutsche has become the crisis of the moment, Italy is the perpetual threat that could, at any moment, present the world with an unpleasant surprise potent enough to send legions of officials descending on Rome to try to contain the damage. The Italian government has sought to spend more money to spur the economy. But European leaders, led by Germany, have enforced rules limiting budget deficits. And Italian banks have held tight to cash and are reluctant to lend, starving an already anemic economy of capital. All of which leaves Italy and Europe, and to some extent the global economy, with a formidable conundrum. Europe may never regain economic vigor so long as Italy’s banks are a slow-motion emergency. But Italy’s banks cannot get healthy without growth. And Italy’s economy can’t grow without healthy banks.

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One of the few thinking men left in Europe.

> ‘Political Amateurs Are Conquering The World’ – Beppe Grillo (EN)

euronews “Beppe Grillo, our meeting takes place at a time that, without undue exaggeration, can be labelled ‘historic’. That’s to say, the election of Donald Trump to the presidency of the United States. What’s your take on that?” Beppe Grillo, Leader of the Five Star Movement “It’s an extraordinary turning point. This corn cob – we can also call Trump that in a nice way – doesn’t have particularly outstanding qualities. He was such a target for the media, with such terrifying accusations of sexism and racism, as well as being harassed by the establishment – such as the New York Times – but, in the end, he won. “That is a symbol of the tragedy and the apocalypse of traditional information. The television and newspapers are always late and they relay old information.

They no longer anticipate anything and they’re only just understanding that idiots, the disadvantaged, those who are marginalised – and there are millions of them – use alternative media, such as the Internet, which passes under the radar of television, a medium people no longer use. “With Trump, exactly the same thing has happened as with my Five Star Movement, which was born of the Internet: the media were taken aback and asked us where we were before. We gathered millions of people in public squares and they marvelled. We became the biggest movement in Italy and journalists and philosophers continued to say that we were benefitting from people’s dissatisfaction. We’ll get into government and they’ll ask themselves how we did it.”

euronews “There is a gap between giving populist speeches and governing a nation.” Beppe Grillo “We want to govern, but we don’t want to simply change the power by replacing it with our own. We want a change within civilisation, a change of world vision. “We’re talking about dematerialised industry, an end to working for money, the start of working for other payment, a universal citizens revenue. If our society is founded on work, what will happen if work disappears? What will we do with millions of people in flux? We have to organise and manage all that.”

euronews “Do you think appealing to people’s emotions is enough to get elected? Is that a political project?” Beppe Grillo “This information never ceases to make the rounds: you don’t have a political project, you’re not capable, you’re imbeciles, amateurs… “And yet, the amateurs are the ones conquering the world and I’m rejoicing in it because the professionals are the ones who have reduced the world to this state. Hillary Clinton, Obama and all the rest have destroyed democracy and their international policies. “If that’s the case, it signifies that the experts, economists and intellectuals have completely misunderstood everything, especially if the situation is the way it is. If the EU is what we have today, it means the European dream has evaporated. Brexit and Trump are signs of a huge change. If we manage to understand that, we’ll also get to face it.”

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Europe’s MO. Keep squeezing.

Bruegel Institute Chief: 4th Bailout Seems Inevitable for Greece (GR)

Bruegel Institute Chief Zsolt Darvas said that there are two possible solutions for Greece’s debt problems following 2018. One is huge debt restructuring or a fourth bailout program for the country. Speaking with Greek daily Ta Nea, the Hungarian economist said that even if Greece has the expected development for 2017-2018, debt will still be at a high rate. He does not believe that Greece will be able to borrow from the markets at a reasonable rate under the current circumstances. Darvas expects to see some form of debt restructuring within a time framework to bond maturation, along with a lowering or freezing of interest rates. He said that this per se may still not be enough for Greece to avoid a fourth bailout program.

Regarding investments, Darvas said that the height of Greece’s debt is not helping draw investors. Another problem is the excessive bureaucracy. The OECD indexes also show Greece’s weaknesses. When asked about U.S. President Barack Obama’s support for debt relief for Greece, Darvas said that he fears that Obama cannot influence European decisions regarding Greece. In the past, there were no results when he or other members of the government called for debt relief. He considers this unlikely to change. He does not believe that there will be any decision regarding debt relief until after the German elections.

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Every country, every society, should make protection of basic needs their number one priority. They are indeed ‘not a market commodity’.

Slovenia Adds Water To Constitution As Fundamental Right For All (AFP)

Slovenia has amended its constitution to make access to drinkable water a fundamental right for all citizens and stop it being commercialised. With 64 votes in favour and none against, the 90-seat parliament added an article to the EU country’s constitution saying “everyone has the right to drinkable water”. The centre-right opposition Slovenian Democratic party (SDS) abstained from the vote saying the amendment was not necessary and only aimed at increasing public support. Slovenia is a mountainous, water-rich country with more than half its territory covered by forest.

“Water resources represent a public good that is managed by the state. Water resources are primary and durably used to supply citizens with potable water and households with water and, in this sense, are not a market commodity,” the article reads. The centre-left prime minister, Miro Cerar, had urged lawmakers to pass the bill saying the country of two million people should “protect water – the 21st century’s liquid gold – at the highest legal level”. “Slovenian water has very good quality and, because of its value, in the future it will certainly be the target of foreign countries and international corporations’ appetites. “As it will gradually become a more valuable commodity in the future, pressure over it will increase and we must not give in,” Cerar said.

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Only Greece and Italy need worry about this now. The rest can sit pretty. It’ll cost them the EU though.

EU Ministers At Odds Over Immigration, No Compromise In Sight (R.)

European Union interior ministers were at odds on Friday over how to handle immigration, with heated discussions between states who want more burden sharing and those who oppose any kind of obligatory relocation. “We are looking for compromises but at the moment they are not there,” said Thomas De Maiziere of Germany, which last year took in about 900,000 migrants and refugees. The ministers disagreed over a proposal by the EU’s current chair Slovakia on reforming the bloc’s asylum system, which collapsed last year as 1.3 million refugees and migrants from the Middle East and Africa reached Europe and member states quarrelled over how to handle the influx.

Overall, the arrivals have decreased from last year but they continue unabated in Italy and tens of thousands of people are still stuck in Greece and Italy, sometimes in dire conditions. Despite agreeing last year to relocate 160,000 people from Italy and Greece, eastern European countries, including Slovakia, Poland and Hungary, have refused to take any in. “We cannot pretend that the quotas as we know them now are working,” said Robert Kalinak of Slovakia. “The 160,000 is only a very small part of the million that came to Europe last year and we only relocated less than 10,000 people. Even those who were for this system were not successful. We want to come up with a system that would be effective.”

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The mess below the surface.

Pentagon and Intelligence Chiefs Urge Obama To Remove NSA Chief (WaPo)

The heads of the Pentagon and the nation’s intelligence community have recommended to President Obama that the director of the National Security Agency, Adm. Michael S. Rogers, be removed. The recommendation, delivered to the White House last month, was made by Defense Secretary Ashton B. Carter and Director of National Intelligence James R. Clapper Jr., according to several U.S. officials familiar with the matter. Action has been delayed, some administration officials said, because relieving Rogers of his duties is tied to another controversial recommendation: to create separate chains of command at the NSA and the military’s cyberwarfare unit, a recommendation by Clapper and Carter that has been stalled because of other issues.

The news comes as Rogers is being considered by President-elect Donald Trump to be his nominee for director of national intelligence to replace Clapper as the official who oversees all 17 U.S. intelligence agencies. In a move apparently unprecedented for a military officer, Rogers, without notifying superiors, traveled to New York to meet with Trump on Thursday at Trump Tower. That caused consternation at senior levels of the administration, according to the officials, who spoke on the condition of anonymity to discuss internal personnel matters. [..] Carter has concerns with Rogers’s performance, officials said. The driving force for Clapper, meanwhile, was the separation of leadership roles at the NSA and U.S. Cyber Command, and his stance that the NSA should be headed by a civilian.

[..] Rogers, 57, took the helm of the NSA and Cyber Command in April 2014 in the wake of revelations by a former intelligence contractor of broad surveillance activities that shook public confidence in the agency. The contractor, Edward Snowden, had secretly downloaded vast amounts of digital documents that he shared with a handful of journalists. His disclosures prompted debate over the proper scale of surveillance and led to some reforms. But they also were a black eye for an agency that prides itself on having the most skilled hackers and cybersecurity professionals in government. Rogers was charged with making sure another insider breach never happened again. Instead, in the past year and a half, officials have discovered two major compromises of sensitive hacking tools by personnel working at the NSA’s premier hacking unit: the Tailored Access Operations. One involved a Booz Allen Hamilton contractor, Harold T. Martin III, who is accused of carrying out the largest theft of classified government material.

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Even if he would pardon Snowden, Manning, Assange, what would their lives look like?

Obama Claims He Cannot Pardon Snowden but He Knows That’s Not True (TD)

In a big interview with the German media outlet Der Spiegel, President Obama was asked about his interest in pardoning Ed Snowden in response to the big campaign to get him pardoned. Obama’s response was that he could not, since Snowden has not been convicted yet: ARD/SPIEGEL : Are you going to pardon Edward Snowden? Obama:” I can’t pardon somebody who hasn’t gone before a court and presented themselves, so that’s not something that I would comment on at this point. I think that Mr. Snowden raised some legitimate concerns. How he did it was something that did not follow the procedures and practices of our intelligence community. If everybody took the approach that I make my own decisions about these issues, then it would be very hard to have an organized government or any kind of national security system.

At the point at which Mr. Snowden wants to present himself before the legal authorities and make his arguments or have his lawyers make his arguments, then I think those issues come into play. Until that time, what I’ve tried to suggest – both to the American people, but also to the world – is that we do have to balance this issue of privacy and security. Those who pretend that there’s no balance that has to be struck and think we can take a 100-percent absolutist approach to protecting privacy don’t recognize that governments are going to be under an enormous burden to prevent the kinds of terrorist acts that not only harm individuals, but also can distort our society and our politics in very dangerous ways. And those who think that security is the only thing and don’t care about privacy also have it wrong.”

This is simply incorrect – as is known to anyone who remembers the fact that Gerald Ford pardoned Richard Nixon before he had been indicted. And it appears that the President knows this. Because, as the Pardon Snowden campaign points out, Obama pardoned three Iranian Americans who had not yet stood trial. That happened this year. So for him to say it’s impossible to pardon someone who hasn’t gone before the court is simply, factually, historically wrong. And there’s a Supreme Court ruling that makes this abundantly clear. 150 years ago, in the ruling on Ex Parte Garland, the Supreme Court stated: “The power of pardon conferred by the Constitution upon the President is unlimited except in cases of impeachment. It extends to every offence known to the law, and may be exercised at any time after its commission, either before legal proceedings are taken or during their pendency, or after conviction and judgment. The power is not subject to legislative control.”

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‘Old’ media write their own death warrant.

The Real Fake News List (Liberty Report)

We’ve seen the make-shift “fake news” list created by a leftist feminist professor. Well, another fake news list has been revealed and this one holds a lot more water. This list contains the culprits who told us that Iraq had weapons of mass destruction and lied us into multiple bogus wars. These are the news sources that told us “if you like your doctor, you can keep your doctor.” They told us that Hillary Clinton had a 98% chance of winning the election. They tell us in a never-ending loop that “The economy is in great shape!” This is the real Fake News List (and it’s sourced):

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Aug 302016
 
 August 30, 2016  Posted by at 8:19 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Wynand Stanley Ice-packed Buick motor stunt, San Francisco 1922

Banks Get Ready For ‘Economic Nuclear Winter’ (CNBC)
The “Devastating” Truth Behind America’s Record Household Net Worth (ZH)
We Have Passed The Peak Of The Bubble (Maloney)
Oil Discoveries at 70-Year Low (BBG)
House Price Gloom In Canada A Lesson For Australia (AFR)
Unemployed Italians Lead Europe in Abandoning Job Hunt (BBG)
Apple Facing Back Taxes Running Into Billions Over Ireland Deal (G.)
Life After Community Death: A Food Bank (G.)
Judge: Kim Dotcom Can Livestream Legal Fight Against The US (AP)
60% Of South Asia’s Groundwater Too Contaminated To Use (AFP)
China Regulator To Curb News That Promotes ‘Western Lifestyles’ (R.)
EU Seeks To Protect Greek Statistics Office From Its Own Government (BBG)
Greek GDP Contraction In First Half 2016 Was Worse Than Thought (Kath.)
Turkey Warns Refugee Deal To Collapse Unless EU Grants Visa-Free Travel (Kath.)
6,500 Migrants Rescued Off Libya Coast Overnight By Italian Coastguard (AFP)

 

 

Beautiful Brexit as the bubble burster.

Banks Get Ready For ‘Economic Nuclear Winter’ (CNBC)

The first half of 2016 has been a roller-coaster for financial markets. A combination of uncertainties surrounding the U.K.’s vote to leave the European Union and weaker-than-expected corporate earnings results across the region means a tough second half looms. European banks, in particular, have had a very tough six months as the shock and volatility around Brexit sent banking stocks south. Major European banks like Deutsche Bank and Credit Suisse saw their shares in free-fall after the referendum’s results were announced. In the U.K., RBS was the worst-hit, with its shares plunging by more than 30% since June 24. The current uncertainty over when the U.K. will start the process of quitting the EU has banks on tenterhooks. But a source told CNBC that banks are “preparing for an economic nuclear winter situation.”

Speaking on the condition of anonymity due to the sensitive nature of the topic, a source from a major investment bank told CNBC that financial services firms have put together a strategy in place that takes into account the worst-case scenario that could happen by the end of this year. “This could mean triggering Article 50, referendum in other European nations leading to a break-up of the euro or sterling hitting below $1.20 or lower. The banks are ready for anything now,” the source said. The source further explained that the challenge in 2016 is nothing compared to when the Lehman Brothers collapsed in 2008 and the banking sector is this time a lot more resilient. “Markets hate uncertainty and the events this year have unfortunately created a lot of mystery around what is going to happen next.”

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It’s all a bubble.

The “Devastating” Truth Behind America’s Record Household Net Worth (ZH)

Every quarter, as part of its Flows of Funds statement, the Fed releases a detailed breakdown of America’s assets and liabilities, of which the most interesting section is the one dealing with US household wealth and debt, and most importantly, their net worth. The last such release in June showed that as of March 31, total US household assets rose decidedly above $100 trillion, hitting an all time high $102.6 trillion, offset by $14.5 trillion in liabilities, resulting in $88.1 trillion in household net worth. It is worth noting that of this $100+ trillion in assets, 69% was in the form of financial assets (stocks, mutual funds, pensions, deposits, etc), and only $31.5 trillion was real, tangible assets including $26 trillion worth of real estate.

[..] as Pedro da Costa points out, when one looks beneath the surface, a “devastating” picture emerges: US inequality like no-one has seen it before. To help with this peek behind the scenes, we look at the latest, just released CBO report on Trends in Family Wealth, which shows that far from equitable, US wealth has never been so skewed. The picture in question:

Here are the CBO report’s summary findings: In 2013, aggregate family wealth in the United States was $67 trillion (or about four times the nation’s gross domestic product) and the median family (the one at the midpoint of the wealth distribution) held approximately $81,000, the Congressional Budget Office estimates. For this analysis, CBO calculated that measure of wealth as a family’s assets minus its debt. CBO measured wealth as marketable wealth, which consists of assets that are easily tradable and that have value even after the death of their owner. Those assets include home equity, other real estate (net of real estate loans), financial securities, bank deposits, defined contribution pension accounts, and business equity. Debt is nonmortgage debt, including credit card debt, auto loans, and student loans, for example.

But to get to the stunning punchline, one has to read The section on How Is the Nation’s Wealth Distributed? Here is the answer: In 2013, families in the top 10% of the wealth distribution held 76% of all family wealth, families in the 51st to the 90th percentiles held 23%, and those in the bottom half of the distribution held 1%. Average wealth was about $4 million for families in the top 10% of the wealth distribution, $316,000 for families in the 51st to 90th percentiles, and $36,000 for families in the 26th to 50th percentiles. On average, families at or below the 25th percentile were $13,000 in debt.

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“These people are just absolutely dangerous. They are going to drag the entire world economy down.”

We Have Passed The Peak Of The Bubble (Maloney)

What the central banks are doing has never worked and they keep on trying – you just hit that nail a little bit harder each time because it isn’t working. They have these theories and they think that the theory is correct that this – and no matter what the results are they say well, we just didn’t do enough of it. Japan has been trying this for 30 years now and it hasn’t worked. These people are just absolutely dangerous. They are going to drag the entire world economy down. You talked about the helicopter money that is now happening in Europe and so on. That is going to be coming to the United States soon. Coming to a Central Bank near you. It always has damaging results. They don’t look at this. It is a huge wealth transfer.

The immorality of an entity and everywhere I go I take a look at – when I would go speak in Singapore or Australia, New Zealand, Malaysia, Colombia, Peru doesn’t matter – Russia – everywhere I go I take a look, I go on the websites of the central bank for that country and I start gathering information. I haven’t found a central bank that is part of the government. They are all private. Here is a private entity that is allowed to create currency and now they are buying bonds from corporations? They can buy stocks. When they write a check and they buy something, currency is created and it enters circulation. A very large portion of it is Fanny Mae and Freddy Mac stuff. It is the mortgage backed securities. And so that means that they own real estate. This private corporation is able to counterfeit and purchase real estate legally. The morality of this is insane.

Keynesian economics isn’t even remotely plausible. But it’s what is taught all over the world. They don’t understand fundamental economics. This is the problem that we have: all economies on the planet are being run by economists that don’t understand economics. The purchasing power that is contained in currency is basically the agreement that we have as a society that we are all going to use that currency and we trust that currency and we store hours of our lives. We trade hours of our lives for currency. We work. That is the purchasing power. Then that currency measures the goods and services in a society. The true wealth.

They think that they can actually print wealth. When they print new units of currency, the only way it can get purchasing power is the moment that it is spent in the circulation – it has to steal it from somewhere else because it is empty when it comes into existence. There is no work that went into it. There are no hours of life traded for it. There is no product or service that it represents until it is spent in circulation and then it steals that purchasing power from all other units of currency. It is fraud. It is theft. They can’t actually stimulate an economy. All they can do is warp it. They can steal purchasing power from some areas of the economy and transfer it to another area of the economy pushing that area into a bubble. It is very, very disruptive.

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“EIA estimates that global oil demand will grow from 94.8 million barrels a day this year to 105.3 million barrels in 2026. “ I do not.

Oil Discoveries at 70-Year Low (BBG)

Explorers in 2015 discovered only about a tenth as much oil as they have annually on average since 1960. This year, they’ll probably find even less, spurring new fears about their ability to meet future demand. With oil prices down by more than half since the price collapse two years ago, drillers have cut their exploration budgets to the bone. The result: Just 2.7 billion barrels of new supply was discovered in 2015, the smallest amount since 1947, according to figures from consulting firm Wood Mackenzie. This year, drillers found just 736 million barrels of conventional crude as of the end of last month. That’s a concern for the industry at a time when the U.S. EIA estimates that global oil demand will grow from 94.8 million barrels a day this year to 105.3 million barrels in 2026.

While the U.S. shale boom could potentially make up the difference, prices locked in below $50 a barrel have undercut any substantial growth there. New discoveries from conventional drilling, meanwhile, are “at rock bottom,” said Nils-Henrik Bjurstroem at Oslo-based consultant Rystad Energy. “There will definitely be a strong impact on oil and gas supply, and especially oil.” Global inventories have been buoyed by full-throttle output from Russia and OPEC. They’ve flooded the world with oil despite depressed prices as they defend market share. But years of under-investment will be felt as soon as 2025, Bjurstroem said. Producers will replace little more than one in 20 of the barrels consumed this year, he said.

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We rapidly get used to seeing bubbles as new normal.

House Price Gloom In Canada A Lesson For Australia (AFR)

A commodity economy with record-breaking property prices, fuelled by ultra-low interest rates and Chinese buyers, raises taxes on foreign homebuyers. While the scenario is eerily similar to Australia, it is actually Canada and early signs are the property market is rapidly cooling. The unravelling could offer insight for Australians contemplating the state of the expensive local real estate market. A record one in five Canadians expect house prices to fall. The number of property price pessimists has nearly doubled since a 15% foreign buyer tax on Vancouver homes took effect on August 2. In the first two weeks since the tax came into effect, home sales fell 51% in the metropolitan area, the Real Estate Board of Greater Vancouver said.

Nanos Research chairman Nik Nanos told The Australian Financial Review that real estate was the “canary in the mine” for the Canadian economy and the foreign acquirer tax has had an immediate “chill” effect on confidence. “If we see a significant slide in confidence in real estate there will be an immediate negative knock-on effect on the Canadian economy because right now there is no energy [oil] economy to fall back on,” he said. The price of Canada’s biggest export, oil, has crashed over the past two years, much like iron ore and coal prices in Australia. Like Sydney and Melbourne, real estate prices in Canada’s most-liveable cities have surged in recent years.

A combination of low borrowing costs, strong demand, limited housing supply because of red tape and, anecdotally, foreign buyers mainly from China seeking to park their money in perceived safe havens offshore, pushed up values. Vancouver house prices soared 30% in the year ended May 31, and prices shot up 15% in Canada’s biggest city of Toronto. The median price for detached houses in Vancouver jumped to $C1.6 million.

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And you think this Union can stay together?

Unemployed Italians Lead Europe in Abandoning Job Hunt (BBG)

Going from the final quarter of 2015 through March of this year, 37% of unemployed Italians gave up their job search, while only 13% landed new work and a full half found their status unchanged. On the opposite end of the scale, very few Greeks – just 1% – gave up their job hunt while only 4% found new employment in the economically hard-pressed nation.

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Deductible from its US taxes.

Apple Facing Back Taxes Running Into Billions Over Ireland Deal (G.)

Apple could face back taxes running into billions with the European commission expected to rule against the company on Tuesday over its arrangements with the Irish government. A ruling by Margrethe Vestager, the European competition commissioner, could make Apple liable for billions of euros. Irish officials expect the commission to declare the arrangements unlawful under state aid rules. A decision against Apple and Ireland after a two-year investigation would rebuff US efforts to persuade the commission to drop its interest amid warnings about retaliation from Washington. The commission has been investigating whether Apple’s tax deals with Ireland, which have allowed the company to pay very little tax on income earned throughout Europe, amounted to state aid.

The commission opened a formal inquiry in September 2014 after publishing preliminary findings suggesting deals between Apple and Ireland in 1991 and 2007 involved state aid that was incompatible with the EU’s internal market. Apple and Ireland have denied repeatedly that they have a special deal. Tim Cook, Apple’s chief executive, has called the investigation “political crap” and said his company and Ireland would appeal against a ruling that Apple received state aid. The investment bank JP Morgan has warned that if the commission requires Apple to retroactively pay the Irish corporate tax rate of 12.5% on the pre-tax profits it collected via Ireland it could cost the company as much as $19bn.

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Of course I can’t read a story like this about a food bank in Britain without thinking about the project you and I are supporting in Greece -all over Greece. Where conditions are much worse still. I hope the Brits who read this realize that.

Life After Community Death: A Food Bank (G.)

I never expected to leave a food bank feeling optimistic. To visit a kitchen serving hundreds of free summer-holiday meals to kids who might otherwise go hungry – and come away pondering the lessons Westminster, and especially Jeremy Corbyn’s Labour party, should learn. But then, until last week, I hadn’t met the two women who run the Neo cafe. To understand what an achievement Neo is, you have to see what it’s up against. There’s the area, for a start: Birkenhead, now practically a byword for social deprivation. In parts of this town the life expectancy for baby boys is lower than in North Korea. Since the Brexit vote there’s been a boom in hand-waving commentary on “left-behind” Britain.

The columnists and studio guests should come here for a day, and see what their talking points look like as lived experience. Industrial decline? The once great shipbuilder Cammell Laird still clings on, but many of the other big employers have been wiped out. Insecure work? The usual features of an exploitative jobs market are all present, from zero-hours contracts and temp agencies to, most of all, low wages. And of course austerity, from benefit sanctions to multimillion pound cuts at Wirral council. Impose such conditions on a family and you create misery. Push them across an entire community and you get breakdown.

Widespread economic insecurity produces social instability. Relationships fail. Colin, a twentysomething on temp work, describes how his partner had to move out because “I couldn’t make my pay packet feed two”. Stop-start work makes planning budgets hard enough – it makes planning families impossible. Neighbours move in then move out, so you never know who’s living next door – and you’d all rather leave. One grandmother, Wendy, remembers how she cried on being offered a council house in Rock Ferry, the patch of town that’s home to Neo. Then Anne and Trish chip in with other problems: druggies and no-go areas, so that a kid from this estate can’t go to that one. Here, the horizons have shrunk so far that the neighbourhood can seem like a trap.

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Good. Let’s hear it.

Judge: Kim Dotcom Can Livestream Legal Fight Against The US (AP)

Internet entrepreneur Kim Dotcom will be allowed to livestream his legal bid to halt his extradition to the United States, a New Zealand judge ruled Tuesday. Dotcom and three of his colleagues are appealing a December lower-court decision which allows them to be extradited to the U.S. to face conspiracy, racketeering and money-laundering charges. If found guilty, they could face decades in jail. Dotcom’s lawyer Ira Rothken told AP he was pleased with the decision. “It provides everybody in the world with a seat in the gallery of the New Zealand courtroom,” Rothken said. “It’s democracy at its finest.” Rothken said the livestreaming would begin Wednesday on YouTube. He said there would be a 20-minute delay to prevent any evidence that was protected by the court from becoming public. The appeal is expected to last six weeks.

Justice Murray Gilbert, the New Zealand judge hearing the appeal, had asked other media about Dotcom’s request and didn’t receive any objections. Rothken said the U.S. had opposed the plan on the basis it could taint a potential jury pool and could cede court control over evidence. December’s lower-court ruling came nearly four years after the U.S. shut down Dotcom’s file-sharing site Megaupload, which prosecutors say was widely used by people to illegally download songs, television shows and movies. Megaupload was once one of the internet’s most popular sites. Prosecutors say it raked in at least $175 million and cost copyright holders more than $500 million. But Dotcom and colleagues Mathias Ortmann, Bram van der Kolk and Finn Batato argue they can’t be held responsible for people who chose to use the site for illegal purposes.

Rothken said the lower-court judge made an error of law in his ruling, and that broad safe-harbor provisions protect internet service providers from the types of charges his clients face.

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750 million people. Add China’s polluted water, and you get well over a billion.

60% Of South Asia’s Groundwater Too Contaminated To Use (AFP)

60% of the groundwater in a river basin supporting more than 750 million people in Pakistan, India, Nepal and Bangladesh is not drinkable or usable for irrigation, researchers have said. The biggest threat to groundwater in the Indo-Gangetic Basin, named after the Indus and Ganges rivers, is not depletion but contamination, they reported in the journal Nature Geoscience. “The two main concerns are salinity and arsenic,” the authors of the study wrote. Up to a depth of 200m (650ft), some 23% of the groundwater stored in the basin is too salty, and about 37% “is affected by arsenic at toxic concentrations”, they said.

The Indo-Gangetic basin accounts for about a quarter of the global extraction of groundwater – freshwater which is stored underground in crevices and spaces in soil or rock, fed by rivers and rainfall. Fifteen to twenty million wells extract water from the basin every year amid growing concerns about depletion. The new study – based on local records of groundwater levels and quality from 2000 to 2012 – found that the water table was in fact stable or rising across about 70% of the aquifer. It was found to be falling in the other 30%, mainly near highly populated areas.

Read more …

Xi trying to assert power he doesn’t have.

China Regulator To Curb News That Promotes ‘Western Lifestyles’ (R.)

China will crack down on social and entertainment news that promotes improper values and “Western lifestyles”, the country’s broadcasting regulator said, the latest effort at censorship in an already strictly regulated media environment. President Xi Jinping has embarked on an unprecedented drive to censor media that do not reflect the views of Communist Party leaders. Authorities have already issued rules limiting “foreign-inspired” television shows and put tougher penalties on the spread of rumors via social media. Social and entertainment news must be dominated by mainstream ideologies and “positive energy”, the official Xinhua news agency said late on Monday, citing the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT).

News content should not make improper jokes, defile classics, or “express overt admiration for Western lifestyles”, the regulator said in a circular, according to Xinhua. “They should also avoid putting stars, billionaires or Internet celebrities on pedestals”, and not advocate overnight fame or hype family disputes, Xinhua said. China’s legislature this week is also reviewing a draft law that would require film industry workers to maintain excellent “moral integrity”, after recent cases in which celebrities had been arrested for drug offences and prostitution, Xinhua said in a separate report. Xi has been explicit that media must follow the party line, uphold the correct guidance on public opinion and promote “positive propaganda”. The term “positive energy” is a catch phrase that has been favored by China’s propaganda and internet authorities under Xi, referring to content that is morally uplifting and patriotic.

Read more …

A curious case of Brussels intervention. There’s nary a soul in Greece who doubts that Georgiou greatly exaggerated the Greek budget deficit in 2009 in order to make an EU bailout inevitable. Now the EU wants to label Greece’s scrutiny of this as “political interference in administrative matters”. But matters such as these can be investigated in simple ways: an objective look at the numbers. That’s not politics, but accounting. Thing is, if Georgiou did this, it was in collusion with the EU.

EU Seeks To Protect Greek Statistics Office From Its Own Government (BBG)

Greece’s finance chief said the next international aid payout to the country may be delayed as the European Union stepped up warnings about domestic political meddling in the Greek state. Finance Minister Euclid Tsakalotos raised the possibility of the government in Athens failing to qualify on time for a €2.8 billion disbursement due in September from the euro area. That’s what remains of a €10.3 billion tranche that finance ministers approved in principle three months ago. “If there is a delay, it’ll be days not weeks,” Tsakalotos told Bloomberg News in Brussels on Monday before a meeting with EU Economic Affairs Commissioner Pierre Moscovici. “Part of the reason for the meeting is to discuss the process to ensure there aren’t delays.”

Slipping timetables have been a regular feature of loan payouts to Greece since it first turned to the euro area and the IMF for a rescue in 2010. Now in it’s third bailout, the country faces continued creditor warnings about backsliding on overhauls that are a condition for aid. The European Commission sent the latest salvo to Athens, saying on Monday that criticism of the former head of Greece’s statistical agency by allies of Prime Minister Alexis Tsipras risks undermining the credibility of Greek fiscal data. The commission, the EU’s executive arm, said the Greek government must push ahead under its aid program with commitments to curb political interference in administrative matters.

“The commission has long urged the implementation of the pillar of the program related to the modernization of the Greek state and public administration,” Margaritis Schinas, chief spokesman at the 28-nation body, told reporters in Brussels. “This also includes the need to depoliticize the Greek administration.” The political controversy centers on Andreas Georgiou, who faces felony charges in Greece for reporting a 2009 budget deficit that was more than five times the EU limit and that unleashed the euro-area debt crisis. The EU has vouched for data submitted by the Hellenic Statistical Authority under Georgiou from 2010 to 2015 and validated by EU statistics office Eurostat.

Greek Minister of State Nikos Pappas, Tsipras’s closest aide, asked publicly in early August whether Georgiou inflated the spending gap to force the country into a rescue. Avgi, a newspaper affiliated with Tsipras’s anti-austerity Syriza party, labeled Georgiou an “executioner” in an Aug. 4 editorial.

Read more …

And the Troika ensures it can only go downhill from here.

Greek GDP Contraction In First Half 2016 Was Worse Than Thought (Kath.)

The contraction of the Greek economy in the first half of the year has turned out to be greater than originally estimated. The revised data released on Monday by the Hellenic Statistical Authority (ELSTAT) recorded a bigger drop in GDP on an annual basis, which will make it even more difficult for the government to meet the fiscal targets set for this year. Using previously unavailable data, ELSTAT has now calculated that first quarter GDP declined by 1% and not 0.8% year-on-year, while in the April-June period it fell by 0.9% and not 0.7% as originally thought.

That was the fourth consecutive quarter with a GDP contraction. Consumer spending fell 1.9% in the second quarter on an annual basis, exports of goods and services contracted 11.4% (with goods increasing 2.98% and exports dropping 26.5%), while imports declined 7.1%. Gross capital investments posted a 7% increase. On a quarterly basis, consumer expenditure dropped 0.2% from the first quarter, investment rose 1%, exports fell 1% and imports shrank 0.4%, ELSTAT data showed.

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Any attempt at granting visa-free travel now would break up the EU.

Turkey Warns Refugee Deal To Collapse Unless EU Grants Visa-Free Travel (Kath.)

In an interview with Kathimerini published on Tuesday, Turkish Foreign Minister Mevlut Cavusoglu has warned the EU that if it doesn’t grant Turkish citizens via-free travel to Europe by October “at the latest,” then Ankara will not continue implementing a deal struck in March with Brussels to stem the flow of migrants to Europe. “Despite the fact that irregular migration in the Aegean is now under control, we do not see the EU keen on delivering its promises,” he said, insisting that Turkey cannot continue on its own to stop irregular migration toward the EU while the latter does not assume its obligations. “We expect visa liberalization for Turkish citizens at the latest in October 2016,” said Cavusoglu, who was on an unofficial visit to Crete yesterday and held talks with his Greek counterpart Nikos Kotzias, stressing the potential to further develop Greek-Turkish relations.

Visa liberalization was one of the conditions set by Turkey to sign up to the agreement, which was criticized by human rights groups, to stop the influx of migrant arrivals to Europe which reached more than a million last year. “We did our share in this cooperation… We have prevented new loss of lives and crushed migrant smuggling rings.” The EU missed a deadline late June for the granting of visa-free travel for Turks, saying it had not met all 72 pre-conditions set by Brussels to grant visa-fee travel. The EU also demanded Ankara review its anti-terrorism law. Ankara refused, saying it is critical in its fight against Islamic State and Kurdish militants.

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Numbers are rising again. This will stop only when we stop bombing and squeezing these people.

6,500 Migrants Rescued Off Libya Coast Overnight By Italian Coastguard (AFP)

Around 6,500 migrants were rescued off the coast of Libya, the Italian coastguard said, in one of its busiest days of life-saving in recent years. Dramatic images of one operation showed about 700 migrants crammed onto a fishing boat, with some of them jumping off the vessel in life jackets and swimming towards rescuers. A five-day-old baby was among those rescued along with other infants and was airlifted to an Italian hospital, according to Doctors Without Borders (MSF), which took part in operations.

“The command centre coordinated 40 rescue operations” that included vessels from Italy, humanitarian organisations as well as the EU’s border agency Frontex, saving 6,500 migrants, the coastguard wrote on Twitter. “We’ve been particularly busy today,” a spokesman for the Italian coastguard told AFP. On Sunday more than 1,100 migrants were rescued in the same area. The total number of arrivals in Italy this year now stands at 112,500, according to the UN’s refugee agency and the coastguard, slightly below the 116,000 recorded by the same point in 2015.

Read more …

Aug 212016
 
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Dorothea Lange Home of rural rehabilitation client, Tulare County, CA 1938

 

Our by now regular contributor Dr. Nelson Lebo III, the New Englander ‘lost’ in New Zealand, sent me another article, and it’s great (well, in my view). His title for the article may put some people on the wrong foot, but I think that’s alright.

I’ve been to New Zealand a few times, and Nicole of course has even moved there, so I was aware of how poorly constructed many homes are -and often made of wood-, but I’d never heard of ‘curtain banks’. Still, they exist all over the country. Turns out, lots of New Zealand homes are so damp and moldy that curtains can literally save lives, and certainly make them more comfortable/bearable. But many people are too poor to be able to afford curtains. Hence the curtain banks. I’d be curious to know if similar initiatives exist anywhere lese on the planet. Do let me know.

Nelson’s second ‘bank’ is made of/filled with water. Agriculture, in particular the one-trick pony of the dairy industry, has caused the land to deteriorate so badly that water washes off the hillsides and the land without natural barriers like trees and shrubs left to stop and naturally regulate it. In other words, there is no ‘water bank’ or ‘stream bank’ left. I really like Nelson’s comparing this velocity of water to the velocity of money in a financial system.

 

 

Dr. Nelson Lebo III: Banks…what is there to say that hasn’t already been said? If you read the Automatic Earth, if you watch Max Keiser, if you’ve followed The Crash Course, there is no comment about financial institutions I can make that would add to the critique. That’s not my gig anyway. My gig is to offer realistic, achievable, grass roots, no-excuses alternatives to the dominant neoliberal consumerist paradigm. One approach I’ve gravitated toward over the years goes by the name of permaculture.

Permaculture has been around for decades. You’ve probably heard of it but do you know what it is? Yeah, that’s the problem. My observations are that the eco design methodology known as permaculture suffers in two fundamental ways: a confusing name and dogmatic application by inexperienced converts. The name is the name – no changing it at this point – and there is no antidote for dogma. But for a general audience of readers I’d like to lay out the ethics and practice of permaculture in the clearest ways possible – by using concrete examples.

 

Example One: The Permaculture Ethics

When engaging with permaculture as a design methodology, practitioners are bound to follow a simple code of ethics: care for the environment; care for people; and, share surplus resources. I appreciate this ethical code because it helps distinguish a permaculturist from anyone else who may be involved in some aspect of the ‘sustainability movement’ such as an organic farmer, recycler, green builder, eco-entrepreneur or local currency advocate.

This is not to say that a permaculturist cannot engage in all of these (indeed they do), but that anyone who practices one or more than these is not necessarily engaging with the permaculture ethics. Think of large-scale organic farms in California that truck in “certified organic” inputs and ship out bags of lettuce thousands of miles to the East Coast. Not permaculture.

People may take a permaculture course or buy a permaculture book for various reasons, but these do not necessarily make them a practicing permaculturist. I like to make the point that the difference between a permaculturist and a survivalist is 100 cases of baked beans and a gun. If you ain’t sharing, it ain’t permaculture.

I also appreciate the ethics because they are an integral part of the design process. In other words, the ethics can be used to help shape a larger project. An example of this is the ‘curtain bank’ that we recently opened in our community.

 

 

Those unfamiliar with curtain banks can be forgiven as many developed countries around the world have decent standards for housing that include high performance windows and central heating. But most of the New Zealand housing stock has been variously described as “sub-standard”, “abysmal”, “horrid”, and “a joke.” Mind you, that’s a bad joke instead of a funny one.

The majority of homes in this country are so cold that curtains must be used as a serious way to reduce heat loss. It is not uncommon for overnight indoor temperatures to drop into the mid-single-digits Celsius and daytime indoor temperatures to barely reach double-digits. I’ve heard stories of frost on the inside of windowpanes.

To add insult to injury, we also suffer from wealth and income inequality that make the purchase of new or even second-hand curtains out of reach for many families. As a result curtain banks have popped up in cities around the nation to redistribute second-hand curtains free of charge.

 

Applied Permaculture Ethics

Sharing surplus resources : People of means replace their curtains for various reasons, but most often for aesthetic ones. If the curtains are still in good condition and free of mould, they can be dropped off at the curtain bank, which makes them available for other households. Like any bank it accepts deposits and grants withdrawals. No fees. No contracts. No interest rates.

While traditional banks have the privilege to ‘lend money into existence’ we cannot lend curtains into existence, although it would be nice. We rely on donations from good people in our community to be passed on to other good people in our community. Which brings us to the next ethic.

Caring for people : It’s no secret that there is a link between sub-standard housing and illness in New Zealand. Sadly, most of the housing in our city is cold and/or damp. These unhealthy homes are especially hard on children and seniors. Many lack adequate curtaining.

Getting properly installed curtains, insulating blinds and window blankets into as many homes as possible helps make the occupants more comfortable and healthier. This is straight up caring for people by addressing some fairly basic needs.

Care for the earth : Improving the ‘thermal envelope’ of a home is the best way to save the energy required for heating and cooling. Saving energy is generally considered good for the environment by reducing carbon emissions or reducing the number of rivers dammed or even reducing the number of solar panels that need to be manufactured.

In these ways curtain banks tick all of the boxes for the permaculture ethics.

 

Example Two: Applied Eco-Design

The other example I’ll share is a direct application of eco-design: imitating nature to develop or reestablish robust ecological systems. The latter of these is sometimes called ‘regenerative design’.

Most of New Zealand is plagued by a legacy of bad farming practices most easily described as overgrazing steep slopes and allowing stock to foul streams.

We took possession of our small farm two years ago and have been working persistently to – dare I say it – ‘heal the land.’ Currently we are in the process of reestablishing a wetland and protecting the streams from stock. Additionally, we are planting native trees and poplar poles on steep hillsides to prevent slips, reduce erosion and provide bee fodder.

We are doing all this because that’s what nature wants. In other words, that’s the way the land was 1,000 years ago (less the non-native poplars) and given enough time that’s what it would revert to after the permanent removal of large hooved mammals. Our work just speeds up the process and allows for a continued agricultural function, which we are still figuring out.

All of this work is supported by our amazing Regional Council, which offers expert advice, low-cost poplar poles, and matching funding for fencing and native plantings. I cannot speak highly enough of these programmes. Horizons Regional Council does a fantastic job of looking at the big picture and applying holistic solutions. Unlike most government bodies and agencies, they get it.

 


Lake Horowhenua Planting Day

 

Forests and wetlands play important roles in moderating seasonal water flows across large land areas. In other words they store water high on the landscape during wet periods and release it slowly during dry periods. It works like a bank by accepting deposits and granting withdrawals.

Much of the farmland in our region suffers from extreme weather on both ends – wet and dry. Neither is good for stock, nor good for farmers, nor good for water quality, nor good for anyone living downstream. It’s a lose-lose-lose-lose situation and the reasons are clear: not enough trees on hillsides and streamsides. That’s basically it.

The solution is to build resilient waterways by imitating nature. Projects like ours are the best way that landowners and supportive communities can directly address the extreme weather events associated with a volatile changing climate.

The restoration work on our farm will help – to a tiny degree – everyone who lives and works downstream and downriver from us by keeping water out of the system during peak rain events. This is critical to our community that already faces tens of millions of dollars in repair bills from the last two major rain events that occurred just 13 months apart.

Given enough farmers with enough will and enough government assistance there is no reason we could not fence off all the streams in our region and plant all the steep hillsides to appropriate species. It’s much cheaper than cleaning up over and over again after serial flood events.

 

Alternative Banking

So what this is all about is developing alternative banking systems – stream banks and curtain banks among others – and getting communities involved. This is what resilience is all about (see also Resilience is The New Black and Climate, Energy, Economy: Pick Two)

This is the heart and soul of permaculture design thinking, and it is the best way to address the two biggest issues facing humanity: wealth inequality and climate change.

When I dip my toe into the financial news media on occasion I hear this phrase: “the velocity of money” as it pertains to the “health of the economy.”

I thought of the phrase the other day while meeting with a client on managing storm water on their large rural property after they had already done everything wrong. Yes, they had done absolutely everything wrong and I was trying to get them to understand that channelizing water only makes it go faster and cause more damage. The damage was obvious after the last major rain event – that’s why they called me in for an assessment.

As I explained the biological – rather than engineering – solutions, I felt we were going around in circles because they did not really want to hear what I had to say. They just wanted to be rid of the water. Sorry, but that’s not an option without over half a million dollars to spend on massive underground drains, which don’t solve the problem but simply pass it on to everyone downstream. And besides, they don’t have the money anyway.

Finally, I simply said, “The only possible solution is to slow the water and spread the water. It’s the only way to stop the damage.”

And that has me thinking. Should we apply the same approach to dollars?

I reckon a critical piece of the puzzle for neglected rural economies like ours is to slow and spread the flow of money as much as possible before it inevitably drains back to the major centres of power and wealth.

 

 

Dorothea Lange wrote about the photograph at the top, back in November 1938:

“Home of rural rehabilitation client, Tulare County, California. They bought 20 acres of raw unimproved land with a first payment of 50 dollars which was money saved out of relief budget (August 1936). They received a Farm Security Administration loan of $700 for stock and equipment. Now they have a one-room shack, seven cows, three sows, and homemade pumping plant, along with 10 acres of improved permanent pasture. Cream check approximately 30 dollars per month. Husband also works about ten days a month outside the farm. Husband is 26 years old, wife 22, three small children. Been in California five years. ‘Piece by piece this place gets put together. One more piece of pipe and our water tank will be finished’. From Shorpy.

 

 

Feb 132016
 
 February 13, 2016  Posted by at 10:09 am Finance Tagged with: , , , , , , , , ,  6 Responses »
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DPC New Orleans milk cart1903

Abenomics Is In Poor Health After Nikkei Slide, And It May Be Terminal (G.)
Yen’s Best Two-Week Run Since 1998 Just the Start (BBG)
The World’s Hottest Trade Has Suddenly Turned Ice-Cold (CNBC)
Credit Default Swaps Are Back As Investors Look For Panic Button (BBG)
‘Austrians Need Constitutional Right to Pay in Cash’ (BBG)
The Shipping Industry Is Suffering From China’s Trade Slowdown (BBG)
China Central Bank: Speculators Should Not Dominate Sentiment (Reuters)
America’s Big Banks Are Fleeing The Mortgage Market (MW)
Large Increase in Debts Held by Americans Over Age 50 (WSJ)
The Eurozone Crisis Is Back On The Boil (Guardian)
Schäuble Says Portugal Debt Woes Trump ‘Strong’ Deutsche Bank (BBG)
European Banks Are In The Eye Of A New Financial Storm (Economist)
150,000 Penguins Die After Giant Iceberg Renders Colony Landlocked (Guardian)
Four Billion People Face Severe Water Scarcity (Guardian)
Merkel Turns to ‘Coalition of Willing’ to Tackle Refugee Crisis (BBG)
EU Is Poised To Restrict Passport-Free Travel (AP)
80,000 Refugees Arrive In Europe In First Six Weeks Of 2016 (UNHCR)

It was terminal when it began.

Abenomics Is In Poor Health After Nikkei Slide, And It May Be Terminal (G.)

Not long ago, Shinzo Abe was being heralded for the early success of his grand design to bring Japan out of a deflationary spiral that had haunted the world’s third-biggest economy for two decades. Soon after Abe became prime minister in December 2012, the first two of the three tenets of his ‘Abenomics’ programme – monetary easing and fiscal stimulus – were having the desired effect. In the first year of the programme, the Nikkei index jumped nearly 60%, and the strong yen, the scourge of the country’s exporters, finally ceded ground to the US dollar. And in April 2013 came the appointment of Haruhiko Kuroda, a Bank of Japan governor who shared Abe’s zeal for deflation busting through ever looser monetary policy.

But by Friday, at the end of a dismal week for the Nikkei share index, market volatility caused by renewed fears over the health of the global economy has left Abe’s prescription for economic recovery in jeopardy. While, as some suggest, it is too early to read the last rites for Abenomics, few would disagree that its symptoms are in danger of becoming terminal. There is damning evidence for that claim; enough, in fact, for Abe to reportedly summon key economic advisers on Friday to discuss a way out of the impasse. Japanese shares registered their biggest weekly drop for more than seven years after shedding 4.8% for the Nikkei s lowest close since October 2014. That took the index below the 15,000 level investors regard as a psychological watershed, and erased all the gains made since the Bank of Japan made the shock decision in October 2014 to inject 80tn yen into the economy.

To compound the problem, another pillar of Abenomics – a weak yen – is also crumbling, with the Japanese currency rising to its strongest level for more than a year on Friday. The intention was for a weak yen to push up corporate earnings and help generate inflation by raising import prices; instead, companies are now cutting earnings forecasts as speculation mounts that Japan will again intervene to rein in the yen’s surge. In recent weeks, slumping oil costs and soft consumer spending – the driving force behind 60% of Japan’s economic activity – have brought inflation to a halt. Official data released last month showed that Japan’s inflation rate came in at 0.5% in 2015, way below the Bank of Japan’s 2% target, as the government struggled to convince cautious firms to usher in big wage rises to stir spending and drive up prices.

In response, the Bank of Japan extended the deadline for achieving its 2% inflation target to the first half of the fiscal year 2017, from its previous estimate of the second half of fiscal 2016. In fairness, Abe is partly the victim of factors beyond his control, namely China’s slowdown, weak overseas demand and plunging oil prices. The problem for Abe and Kuroda is that they are quickly running out of options: witness how the market boost from last week’s surprise decision to adopt negative interest rates ended after a couple of days with barely a whimper. By the time Japan hosts G7 leaders this summer, Abe could be forced to concede defeat in his principal aim of dragging Japan out of deflation and boosting growth.

But higher share prices and a weaker yen were only part of the scheme. He has barely started to address the structural reforms comprising the “third arrow” of Abenomics: a shrinking and ageing workforce and the urgent need to boost the role of women in the economy. Next year, he is expected to introduce a highly controversial increase in the consumption tax – a move that will help Japan tackle its public debt and pay for rising health and social security costs, but which could also dampen consumer spending, the driving force behind 60% of the economy. He may be inclined to disagree after a month of upheaval that also saw the resignation of his economics minister, but Abe’s troubles may be only just beginning.

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When you lose the currency war.

Yen’s Best Two-Week Run Since 1998 Just the Start (BBG)

When the going gets tough, foreign-exchange traders turn to the yen. Japan’s currency may extend its biggest two-week rally since 1998 as investors continue to seek out refuge assets amid market turmoil, according Citigroup Inc. State Street Global Advisors Inc., which oversees about $2.4 trillion, says it’s buying yen and selling dollars as the tumult gripping financial markets bolsters the Japanese currency’s appeal. “We’re not counting on the market mood shifting any time soon,” said Steven Englander at Citigroup. Citigroup, world’s biggest foreign-exchange trader according to Euromoney magazine, expects haven currencies including the yen, euro and Swiss franc to appreciate in the near term, even though it said investors are being overly pessimistic about the prospects for economic growth in the U.S. and monetary stimulus elsewhere.

The yen has defied predictions to weaken this year while its biggest counterpart, the dollar, has upended forecasts for gains. Currency traders are questioning the idea that the U.S. economy is strong enough for the Federal Reserve to raise interest rates while central bankers in Tokyo and Frankfurt consider adding to stimulus. Japan’s currency rose 3.2% this week to 113.25 per dollar, adding to last week’s 3.7% gain. Its strength contrasts with a median forecast for the currency to drop to 123 against the dollar by the end of the year. Global equities fell into a bear market this week, and commodities declined, amid growing signs that central-bank policy tools were losing their stimulative effects. Fed Chair Janet Yellen signaled financial-market volatility may delay rate increases as the central bank assesses the impact of recent turmoil on domestic growth.

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“In 2009, the ETF enjoyed average daily volume of just 10,000 to 20,000 shares. By 2012, about 200,000 shares were being traded each day. The DXJ rallied tremendously in the next half a year, and by mid-2013 was seeing about 7 million to 8 million shares trade daily..”

The World’s Hottest Trade Has Suddenly Turned Ice-Cold (CNBC)

An international trade that once looked like a no-brainer has turned into a major headache. The WisdomTree Japan Hedged Equity Fund (DXJ), which combines a long position on Japanese stocks with a short position on the Japanese yen, sounds like a niche product. But as that trade played out beautifully over the past few years, with Japanese stocks soaring as the yen tanked, the ETF has become downright mainstream. In 2009, the ETF enjoyed average daily volume of just 10,000 to 20,000 shares. By 2012, about 200,000 shares were being traded each day. The DXJ rallied tremendously in the next half a year, and by mid-2013 was seeing about 7 million to 8 million shares trade daily, a pace it has maintained up to the present.

The product plays into a popular macro thesis: Expansive policies from the Bank of Japan should help Japanese stocks and hurt the yen. This trend indeed played out powerfully for a time, leading the DXJ to nearly double from November 2012 to June 2015. But the good times didn’t last. In the eight months after hitting that June peak, the ETF lost nearly all of its gain, falling back to its lowest level in more than three years. This as both legs of the trade failed, with Japanese stocks sliding and the yen strengthening amid a global sell-off in risk assets. What may make this especially frustrating is that Japanese monetary authorities haven’t exactly given up on their plan to send the yen lower in order to foster long-dormant inflation and to boost exports.

To the contrary, the BOJ has introduced a negative interest rate policy — which utterly failed in halting the yen’s rise. In fact, the currency is enjoying its best week in years.

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Omen.

Credit Default Swaps Are Back As Investors Look For Panic Button (BBG)

As markets plunge globally, investors are seeking refuge in an all-but-forgotten place. Trading volumes in the credit-default swaps market — where banks and fund managers go to hedge against losses on corporate and government debt — have surged. Transactions tied to individual entities doubled in the four weeks ended Feb. 5 to a daily average of $12 billion, according to a JPMorgan analysis of trade repository data. The volume of contracts on benchmark indexes in the market increased two-fold during that period to an average of $87 billion a day. The growth could represent a shift. The credit derivatives market has contracted for almost a decade, after loose monetary policies triggered a big rally in assets including corporate bonds, which made investors less eager to protect against the worst.

Regulators have also urged banks to curb their risk taking, reducing the appetite for at least some dealers to trade the instruments. Now, stock markets are selling off and junk bond prices are plunging, increasing investor demand for protection. “The surge we’ve seen in trading is likely to stay with us for the foreseeable future,” said Geraud Charpin at BlueBay Asset Management, which has traded more credit-default swaps on individual credits in the past three months. “The credit cycle has turned, so there’s more appetite to go short and buy protection.” Risk measures fell on Friday after soaring this week to the highest levels since at least 2012 in the U.S., and 2013 in Europe. The cost of insuring Deutsche Bank’s subordinated debt dropped from a record after the German lender said it planned to buy back about $5.4 billion of bonds to allay investor concerns about its finances. The bank’s shares have lost about a third of their value this year.

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The EU just gets crazier by the day. But currency in circulation is way up.

‘Austrians Need Constitutional Right to Pay in Cash’ (BBG)

Austrians should have the constitutional right to use cash to protect their privacy, Deputy Economy Minister Harald Mahrer said, as the EU considers curbing the use of banknotes and coins. “We don’t want someone to be able to track digitally what we buy, eat and drink, what books we read and what movies we watch,” Mahrer said on Austrian public radio station Oe1. “We will fight everywhere against rules” including caps on cash purchases, he said. EU finance ministers vowed at a meeting in Brussels on Friday to crack down on “illicit cash movements.” They urged the European Commission to “explore the need for appropriate restrictions on cash payments exceeding certain thresholds and to engage with the ECB to consider appropriate measures regarding high denomination notes, in particular the €500 note.” Ministers told the commission to report on its findings by May 1.

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“..orders for new vessels dropped 40% in 2015 [..] The demolition rate for unwanted vessels jumped 15%.”

The Shipping Industry Is Suffering From China’s Trade Slowdown (BBG)

When business slows and owners of ships and offshore oil rigs need a place to store their unneeded vessels, Saravanan Krishna suddenly becomes one of the industry’s most popular executives. Krishna is the operation director of International Shipcare, a Malaysian company that mothballs ships and rigs, and these days he’s busy taking calls from beleaguered operators with excess capacity. There are 102 vessels laid up at the company’s berths off the Malaysian island of Labuan, more than double the number a year ago. More are on the way. “There’s a huge demand,” he says. “People are calling us not to lay up one ship but 15 or 20.” Shipbuilders, container lines, and port operators feasted on China’s rise and the global resources boom.

Now they’re among the biggest victims of the country’s slowdown and the worldwide decline in demand for oil rigs and other gear amid the oil price plunge. China’s exports fell 1.8% in 2015, while its imports tumbled 13.2%. The Baltic Dry Index, which measures the cost of shipping coal, iron ore, grain, and other non-oil commodities, has fallen 76% since August and is now at a record low. Shipping rates for Asia-originated routes have dropped, too, and traffic at some of the region’s major ports is falling. In Singapore, the world’s second-largest port, container traffic fell 8.7% in 2015, the first decline in six years. Volumes at the port of Hong Kong, the fourth-busiest, slid 9.5% last year. Beyond Asia, the giant port of Rotterdam in the Netherlands recorded a dip in containerized traffic for the year. Globally, orders for new vessels dropped 40% in 2015, to $69 billion, according to Clarksons Research. The demolition rate for unwanted vessels jumped 15%.

Just a few years ago, as the global economy improved and oil prices rose, many companies ordered more fuel-efficient ships. There were more than 1,200 orders for bulk carriers that transport iron ore, coal, and grain in 2013, compared with just 250 last year, according to Clarksons. Many of the ships ordered are now in operation, says Tim Huxley, chief executive officer of Wah Kwong Maritime Transport Holdings, a Hong Kong-based owner of bulk carriers and tankers. “You have a massive oversupply,” he says. The damage is especially severe in China, the world’s leading producer of ships. New orders for Chinese shipbuilders fell by nearly half last year, according to the Ministry of Industry and Information Technology. In December, Zhoushan Wuzhou Ship Repairing & Building became the first state-owned shipbuilder to go bankrupt in a decade.

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Beijing wants monopoly on sentiment.

China Central Bank: Speculators Should Not Dominate Sentiment (Reuters)

Speculators should not be allowed to dominate market sentiment regarding China’s foreign exchange reserves and it was quite normal for reserves to fall as well as rise, central bank governor Zhou Xiaochuan was quoted as saying on Saturday. China’s foreign reserves fell for a third straight month in January, as the central bank dumped dollars to defend the yuan and prevent an increase in capital outflows. In an interview carried in the Chinese financial magazine Caixin, Zhou said yuan exchange reform would help the market be more flexible in dealing with speculative forces. There was a need to distinguish capital outflows from capital flight, and tight capital controls would not be effective for China, he said. China has not fully liberalized its capital account.

Zhou added that there was no basis for the yuan to keep depreciating, and China would keep the yuan basically stable versus a basket of currencies while allowing greater volatility against the U.S. dollar. The government also needed to prevent systemic risks in the economy, and prevent “cross infection” between the stock, debt and currency markets, he said. The comments come after China reported economic growth of 6.9% for 2015, its weakest in 25 years, while depreciation pressure on the yuan adds to the case for the central bank to take more economic stimulus measures over the near-term. A slew of economic indicators has sent mixed signals to markets at the start of 2016 over the health of China’s economy. Activity in the services sector expanded at its fastest pace in six months in January, a private survey showed on Feb. 3, while manufacturing activity fell to the lowest since August 2012.

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“..the four largest commercial banks will “downsize or exit entirely from the business of originating and servicing residential mortgages.”

America’s Big Banks Are Fleeing The Mortgage Market (MW)

When it comes to residential mortgages, big banks are waving the white flag. Banks originated 74% of all mortgages in 2007, but their share fell to 52% in 2014, the most recent data available from the Mortgage Bankers Association. And it could go even lower. But even at these levels, the big bank backtrack is reshaping a lending landscape that’s already undergone seismic shifts since the housing bubble burst. While there’s widespread agreement that banks should have been reined in — and perhaps punished — after playing a major role in the housing bubble that helped tank the economy, the past few years have been tough for banks’ mortgage businesses. They now face a regulatory environment so strict that many are afraid to lend, even to customers with the most pristine credit.

They’re still paying up for misdeeds done during the bubble. There’s essentially no private bond market to whom to sell mortgages. And fighting those battles on behalf of their least-profitable divisions means residential lending just isn’t worth it for many banks. “We can’t make money in the business,” BankUnited CEO John Kanas said when he announced a mortgage retreat on a January earnings call. “We realized that this was the lowest-margin, most volatile business we had and we decided that we should exit.” Of the top 10 originators in 2015, banks lent 28.6% of all mortgages, according to data from Inside Mortgage Finance. That’s about half their share in 2012, when banks among the top 10 originators accounted for 54.4% of all mortgages.

For many analysts, that step is only natural. “The fact is that the cost of capital and compliance has convinced many bankers that making home loans to American families is not worth the risk,” said Chris Whalen, a long-time bank analyst now with Kroll Bond Rating Agency, in a speech early in February. Whalen expects the four largest commercial banks will “downsize or exit entirely from the business of originating and servicing residential mortgages.”

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Boomers. They’re supposed to be the richest Americans. “..the aggregate debt of the average Baby Boomer has soared 169% since 2003..”

Large Increase in Debts Held by Americans Over Age 50 (WSJ)

Americans in their 50s, 60s and 70s are carrying unprecedented amounts of debt, a shift that reflects both the aging of the baby boomer generation and their greater likelihood of retaining mortgage, auto and student debt at much later ages than previous generations. The average 65-year-old borrower has 47% more mortgage debt and 29% more auto debt than 65-year-olds had in 2003, according to data from the Federal Reserve Bank of New York released Friday. The result: U.S. household debt is vastly different than it was before the financial crisis, when many younger households had taken on large debts they could no longer afford when the bottom fell out of the economy.

The shift represents a “reallocation of debt from young [people], with historically weak repayment, to retirement- aged consumers, with historically strong repayment,” according to New York Fed economist Meta Brown in a presentation of the findings. Older borrowers have historically been less likely to default on loans and have typically been successful at shrinking their debt balances. But greater borrowing among this age group could become alarming if evidence mounted that large numbers of people were entering retirement with debts they couldn’t manage. So far, that doesn’t appear to be the case. Most of the households with debt also have higher credit scores and more assets than in the past.

“Retirement-aged consumers’ repayment has shown little sign of developing weakness as their balances have grown,” according to Ms. Brown. The data were released in conjunction with the New York Fed’s quarterly report on household debt, that aggregates millions of credit reports from the credit-rating agency Equifax. The report was launched in 2010 to track the changing debt behaviors of U.S. households after the financial crisis. For the last two years, household debts have been slowly rising, although they remain well below where they were in 2008. That trend continued in the final quarter of 2015, with overall household indebtedness rising by $51 billion to $ 12.1 trillion.

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Timber!

The Eurozone Crisis Is Back On The Boil (Guardian)

Greece is back in recession. Italy is barely growing. Portugal expanded but only at half the expected rate. The message could hardly be clearer: the next phase of the eurozone crisis is about to begin. On the face of it, the performance of the eurozone economy in the final three months of 2015 looks solid if unspectacular, with growth as measured by GDP up by 0.3%. But scratch beneath the surface and the picture looks far less rosy. The beneficial impacts of the European Central Bank’s quantitative easing programme have started to wear off, as has the effect of the big drop in oil prices in the second half of 2014. The eurozone peaked in the second quarter of 2015 and the trend was starting to weaken even before the recent turbulence on the financial markets.

Three individual countries bear closer examination. The first is Germany, for which growth of 0.3% in the fourth quarter of 2015 and 1.4% for the year as a whole is as good as it gets. Exports – the mainstay of the German economy – are going to face a much more challenging international climate in 2016, particularly with the euro strengthening on the foreign exchanges. Finland is noteworthy, not just because it is officially back in recession after two successive quarters of negative growth and still has a smaller economy than it did when the financial crisis erupted in 2008, but because its performance is worse than that of Denmark and Sweden, two Scandinavian EU members not in the single currency.

But by far the most worrying country is Greece, where a crumbling economy and the attempts to impose even more draconian austerity is leading, unsurprisingly, to violent protests on the streets. A contraction in growth makes it even harder for Greece to achieve the already ridiculously ambitious deficit and debt reduction targets set for it by its creditors, and on past form that will lead sooner or later (sooner in this case) to a fresh financial crisis and the imposition of further austerity measures. After six months out of the headlines, Greece is coming back to the boil. The danger is that other weak countries on the eurozone’s periphery – most notably Italy and Portugal – suffer from contagion effects.

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He’s trying so hard to boost Deutsche confidence it’ll backfire. People are going to say: ‘let’s see what you got’.

Schäuble Says Portugal Debt Woes Trump ‘Strong’ Deutsche Bank (BBG)

The volatile Portuguese bond market is more alarming than plunging confidence in Deutsche Bank AG, Europe’s largest lender, according to German Finance Minister Wolfgang Schaeuble. Even as a global rout in stocks has driven down European bank shares by 27% this year, Schaeuble warned on Friday after a meeting of EU finance ministers in Brussels that Portugal doesn’t have enough “resilience.” “Portugal must do everything to counter uncertainty in financial markets,” he said. The German finance minister’s comments come after the yield on Portugal’s 10-year bond fluctuated in a range of 143 basis points this week, the largest five-day swing since July 2013. Prime Minister Antonio Costa, who was sworn in at the end of November, has rolled back reform measures introduced during the nation’s bailout program that ended in 2014.

Deutsche Bank, which issued a statement Friday reassuring investors it has enough reserves to service debt obligations, “has sufficient capital and is well positioned,” Schaeuble said. In an effort to allay anxieties, the Frankfurt-based lender announced plans to buy back about $5.4 billion of bonds in euros and dollars Friday. The move comes after the cost of insuring its senior debt via credit-default swaps rose to the highest since 2011. Deutsche Bank isn’t alone as confidence in banks’ abilities to return profits in a low interest rate environment is waning. Global banks including Citigroup, Bank of America, Credit Suisse and Deutsche Bank have all plunged more than 32%. European finance ministers, when asked about the negative sentiment around European banks, remained upbeat, citing confidence in the safeguards put in place after Lehman Brothers went under in 2008. “We have taken precautions to make banks more resilient after the lessons from the financial and banking crisis,” Schaeuble said.

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The chain is as strong as…

European Banks Are In The Eye Of A New Financial Storm (Economist)

If the start of the year has been desperate for the world’s stockmarkets, it has been downright disastrous for shares in banks. Financial stocks are down by 19% in America. The declines have been even steeper elsewhere. Japanese banks’ shares have plunged by 36% since January 1st; Italian banks’ by 31% and Greek banks’ by a horrifying 60%. The fall in the overall European banking index of 24% has brought it close to the lows it plumbed in the summer of 2012, when the euro zone seemed on the verge of disintegration until Mario Draghi, the president of the ECB, promised to do “whatever it takes” to save it. The distress in Europe encompasses big banks as well as smaller ones. It has affected behemoths within the euro area such as Société Générale and Deutsche Bank – both of which saw their shares fall by 10% in hours this week – as well as giants outside it such as Barclays (based in Britain) and Credit Suisse (Switzerland).

The apparent frailty of European banks is especially disappointing given the efforts made in recent years to make them more robust, both through capital-raising and tougher regulation. Euro-zone banks issued over €250 billion ($280 billion) of new equity between 2007, when the global financial crisis began, and 2014, when the ECB took charge of supervising them. Before taking on the job, it combed through the books of 130 of the euro zone’s most important banks and found only modest shortfalls in capital. Some of the recent weakness in European banking shares arises from wider worries about the world economy that have also driven down financial stocks elsewhere. A slowdown in global growth is one threat. Another is that the negative interest rates being pursued by central banks to try to prod more life into economies will further sap banks’ profits.

A retreat in Japanese bank shares turned into a rout following such a decision in late January. Investors in European banks fret not just about lacklustre growth but also a possible move deeper into negative territory by the ECB in March. On February 11th Sweden’s central bank cut its benchmark rate from -0.35% to -0.5%, prompting shares in Swedish banks to tumble. But the malaise of European banking stocks has deeper roots. The fundamental problem is both that there are too many banks in Europe and that many are not profitable enough because they have clung to flawed business models. European investment banks lack the deep domestic capital markets that give their American competitors an edge. Deutsche, for instance, has only just resolved to hack back its investment bank in the face of a less hospitable regulatory environment following the financial crisis.

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What to say?

150,000 Penguins Die After Giant Iceberg Renders Colony Landlocked (Guardian)

An estimated 150,000 Adelie penguins living in Antarctica have died after an iceberg the size of Rome became grounded near their colony, forcing them to trek 60km to the sea for food. The penguins of Cape Denison in Commonwealth Bay used to live close to a large body of open water. However, in 2010 a colossal iceberg measuring 2900sq km became trapped in the bay, rendering the colony effectively landlocked.Penguins seeking food must now waddle 60km to the coast to fish. Over the years, the arduous journey has had a devastating effect on the size of the colony. Since 2011 the colony of 160,000 penguins has shrunk to just 10,000, according to research carried out by the Climate Change Research Centre at Australia’s University of New South Wales. Scientists predict the colony will be gone in 20 years unless the sea ice breaks up or the giant iceberg, dubbed B09B, is dislodged.

Penguins have been recorded in the area for more than 100 years. But the outlook for the penguins remaining at Cape Denison is dire. “The arrival of iceberg B09B in Commonwealth Bay, East Antarctica, and subsequent fast ice expansion has dramatically increased the distance Adélie penguins breeding at Cape Denison must travel in search of food,” said the researchers in an article in Antarctic Science. “The Cape Denison population could be extirpated within 20 years unless B09B relocates or the now perennial fast ice within the bay breaks out” “This has provided a natural experiment to investigate the impact of iceberg stranding events and sea ice expansion along the East Antarctic coast.” In contrast, a colony located just 8km from the coast of Commonwealth Bay is thriving, the researchers said. The iceberg had apparently been floating close to the coast for 20 years before crashing into a glacier and becoming stuck.

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The next trigger for mass migrations.

Four Billion People Face Severe Water Scarcity (Guardian)

At least two-thirds of the global population, over 4 billion people, live with severe water scarcity for at least one month every year, according to a major new analysis. The revelation shows water shortages, one of the most dangerous challenges the world faces, is far worse previously than thought. The new research also reveals that 500m people live in places where water consumption is double the amount replenished by rain for the entire year, leaving them extremely vulnerable as underground aquifers run down. Many of those living with fragile water resources are in India and China, but other regions highlighted are the central and western US, Australia and even the city of London. These water problems are set to worsen, according to the researchers, as population growth and increasing water use – particularly through eating meat – continues to rise.

In January, water crises were rated as one of three greatest risks of harm to people and economies in the next decade by the World Economic Forum, alongside climate change and mass migration. In places, such as Syria, the three risks come together: a recent study found that climate change made the severe 2007-2010 drought much more likely and the drought led to mass migration of farming families into cities. “If you look at environmental problems, [water scarcity] is certainly the top problem,” said Prof Arjen Hoekstra, at the University of Twente in the Netherlands and who led the new research. “One place where it is very, very acute is in Yemen.” Yemen could run out of water within a few years, but many other places are living on borrowed time as aquifers are continuously depleted, including Pakistan, Iran, Mexico, and Saudi Arabia. Hoekstra also highlights the Murray-Darling basin in Australia and the midwest of the US. “There you have the huge Ogallala acquifer, which is being depleted.”

He said even rich cities like London in the UK were living unsustainably: “You don’t have the water in the surrounding area to sustain the water flows” to London in the long term. The new study, published in the journal Science Advances on Friday, is the first to examine global water scarcity on a monthly basis and at a resolution of 31 miles or less. It analysed data from 1996-2005 and found severe water scarcity – defined as water use being more than twice the amount being replenished – affected 4 billion people for at least one month a year. “The results imply the global water situation is much worse than suggested by previous studies, which estimated such scarcity impacts between 1.7 billion and 3.1 billion people,” the researchers concluded. The new work also showed 1.8 billion people suffer severe water scarcity for at least half of every year.

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Making deals with Turkey while blaming Greece is just plain wrong on many different levels.

Merkel Turns to ‘Coalition of Willing’ to Tackle Refugee Crisis (BBG)

German Chancellor Angela Merkel is turning to a subgroup of European Union members to tackle the region’s refugee crisis as the bloc as a whole bickers over how to handle the biggest influx of migrants into Europe since World War II. Merkel plans to meet again with a “coalition of the willing” in Brussels ahead of an EU summit in the city next week. Turkish Prime Minister Ahmet Davutoglu will attend the talks, which have taken place at previous EU gatherings. Turkey is the main country from which migrants enter the EU. “This doesn’t have to do with a permanent distribution mechanism but rather a group of countries that are willing to consider” taking refugees once the illegal trafficking has been stopped, Merkel said Friday at a Berlin press conference with her Polish counterpart Beata Szydlo.

“We will then report quite transparently to all 28 member states where things stand.” Merkel traveled earlier this week to Turkey to discuss the crisis with Davutoglu. Merkel said on Monday the only way to end the flood of illegal migration across the Aegean Sea from Turkey into Greece was to replace it with a legal avenue. That would involve the EU resettling allotments of mostly Syrian refugees directly from Turkey in return for Turkey halting the flow of migrants, she said. The chancellor has thus far failed to secure a wider EU deal to share in housing and caring for those who have already reached the bloc.

Germany, which took in more than 1 million refugees last year, has pushed to implement a quota system to distribute migrants among EU members – something that a number of the bloc’s states, in particular in the east, argue should only be done on a voluntary basis. “For Poland, a permanent mechanism of relocating migrants is currently not acceptable,” Szydlo said at the press conference with Merkel. “I think we will continue talking about this. But I want to stress that Poland wants to actively participate in solving the migrant crisis because it’s very important for the EU as a whole.”

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They’re too thick to see that this means the end of the union.

EU Is Poised To Restrict Passport-Free Travel (AP)

EU countries are poised to restrict passport-free travel by invoking an emergency rule to keep some border controls for two more years because of the migration crisis and Greece’s troubles in controlling its border, according to EU documents seen by AP. The switch would reverse a decades-old trend of expanding passport-free travel in Europe. Since 1995, people have been able to cross borders among Schengen Area member countries without document checks. Each of the current 26 countries in the Schengen Area is allowed to unilaterally put up border controls for a maximum of six months, but that time limit can be extended for up to two years if a member is found to be failing to protect its borders.

The documents show that EU policy makers are preparing to make unprecedented use of an emergency provision by declaring that Greece is failing to sufficiently protect it border. Some 2,000 people are still arriving daily on Greek islands in smugglers’ boats from Turkey, most of them keen to move deeper into Europe to wealthier countries like Germany and Sweden. A European official showed the documents to the AP on condition of anonymity because the documents are confidential. Greek government officials declined to comment on the content of documents not made public. In Brussels on Friday, EU nations acknowledged that the overall functioning of Schengen “is at serious risk” and said Greece must make further efforts to address “serious deficiencies” within the next three months.

European inspectors visited Greek border sites in November and gave Athens until early May to upgrade the border management on its islands. Two draft assessments forwarded to the Greek government in early January indicated Athens was making progress, although they noted “important shortcomings” in handling migrant flows. But with asylum-seekers still coming at a pace ten times that of January 2015, European countries are reluctant to dismantle their emergency border controls. And if they keep them in place without authorization, EU officials fear the entire concept of the open-travel zone could be brought down. A summary written by an official in the EU’s Dutch presidency for a meeting of EU justice and home affairs ministers last month showed they decided that declaring Greece to have failed in its upgrade was “the only way” for Europe to extend the time for border checks.

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“..more than in the first four months of 2015..”

80,000 Refugees Arrive In Europe In First Six Weeks Of 2016 (UNHCR)

Despite rough seas and harsh winter weather, more than 80,000 refugees and migrants arrived in Europe by boat during the first six weeks of 2016, more than in the first four months of 2015, the UN Refugee Agency, UNHCR, announced today. In addition it said more than 400 people had lost their lives trying to cross the Mediterranean. However, despite the dangers over 2,000 people a day continue to risk their lives and the lives of their children attempting to reach Europe. Comparable figures for 2015 show such numbers only began arriving in July. “The majority of those arriving in January 2016, nearly 58%, were women and children; one in three people arriving to Greece were children as compared to just 1 in 10 in September 2015,” UNHCR’s Chief spokesperson Melissa Fleming told a press briefing in Geneva.

Fleming added that over 91% of those arriving in Greece come from the world’s top ten refugee producing countries, including Syria, Afghanistan and Iraq. “Winter weather and rough seas have not deterred those desperate enough to make the journey, resulting in near daily shipwrecks,” she added. When surveyed upon arrival, most of them cite they had to leave their homeland due to conflict. More than 56% of January arrivals to Greece were from Syria. However, UNHCR stressed that solutions to Europe’s situation were not only eminently possible, but had already been agreed by States and now urgently needed to be implemented. Stabilization is essential and something for which there is also strong public demand.

“Within the context of the necessary reduction of dangerous sea arrivals, safe access to seek asylum, including through resettlement and humanitarian admission, is a fundamental human right that must be protected and respected,” Fleming added. She said that regular pathways to Europe and elsewhere were important for allowing refugees to reach safety without putting their lives in the hands of smugglers and making dangerous sea crossings. “Avenues, such as enhanced resettlement and humanitarian admission, family reunification, private sponsorship, and humanitarian and refugee student/work visas, should be established to ensure that movements are manageable, controlled and coordinated for countries receiving these refugees,” Fleming added.

Vincent Cochetel, UNHCR’s Director Bureau for Europe, added that faced with this situation, UNHCR hoped that EU Member States would implement at a faster pace all EU-wide measures agreed upon in 2015, including the implementation of hotspots and the relocation process for 160,000 people already in Greece and Italy and the EU-Turkey Joint-Action Plan. “If Europe wants to avoid the mess of 2015, it must take action. There is no plan B,” he also told the briefing.

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Aug 142015
 
 August 14, 2015  Posted by at 10:42 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle August 14 2015
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G. G. Bain Katherine Stinson, “the flying schoolgirl,” Sheepshead Bay Speedway, Brooklyn 1918

Greek Parliament Approves Bailout Deal (Guardian)
Greek Bailout On A Tightrope – Again (CNBC)
China Halts Yuan Devaluation With Slight Official Rise Against US Dollar (AFP)
The Economic Wizards Of Beijing Have Feet Of Clay After All (Guardian)
China Denies Currency War As Global Steel Industry Cries Foul (AEP)
China and the Danger Of An Open Currency War (Paul Mason)
China’s Devaluation Becomes Japan’s Problem (Pesek)
Why The Yuan May Deck Singapore Property Stocks (CNBC)
Greece Creditors Raise ‘Serious Concerns’ About Spiralling Debt (Guardian)
Greece To Get €6 Billion In Bridge Loans If No Agreement At Eurogroup (Reuters)
Greece Crisis Proves The Need For A Currency Plan B (John Butler, Cobden)
Greeks Taste Breadth Of Bailout In Loaf And Lotion Rules (Guardian)
European Union Backs IMF View Over Greece – Then Ignores It (Guardian)
Total U.S. Auto Lending Surpasses $1 Trillion for First Time (WSJ)
Surge in Global Commercial Real-Estate Prices Stirs Bubble Worries (WSJ)
Glencore: World Of Big Mining Agog At Huge Fall (Guardian)
The Junk Bond Market ‘Is Having A Coronary’: David Rosenberg (CNBC)
‘I Will Leave Politics And Return To Comedy’: Beppe Grillo (Local.it)
World without Water: The Dangerous Misuse of Our Most Valuable Resource (Spiegel)
Greece Sends Cruise Ship To Ease Kos Migrant Crisis (Guardian)
Mediterranean: Saving Lives at the World’s Most Dangerous Border (Spiegel)

Talk about a Pyrrhic victory.

Greek Parliament Approves Bailout Deal (Guardian)

After a tumultuous, often ill-tempered and at times surreal all-night debate, Greek MPs voted early on Friday to approve a new multibillion euro bailout deal aimed at keeping their debt-stricken country afloat. With his ruling leftist Syriza party apparently heading for a formal split over the €85bn package, prime minister Alexis Tsipras needed the support of the opposition to win parliament’s backing for the bill in a 9.45am vote which the government eventually won by a comfortable margin. But controversial former finance minister Yanis Varoufakis voted against the punishing terms of the deal, along with a large number of Syriza rebels angered by what they said was a sell-out of the party’s principles and a betrayal of its promises, leaving Tsipras severely weakened.

Tsipras told MPs before the vote that the rescue package was a “necessary choice” for the nation, saying it faced a battle to avert the threat of a bridge loan – which he called a return to a “crisis without end” – that Greece may be offered instead of a full-blown bailout. The draft bailout must now be approved by other eurozone member states at a meeting of finance ministers in Brussels on Friday afternoon, and ratified by national parliaments in a number of countries – including Germany, which remains sceptical – before a first tranche can be disbursed that will allowing Greece to make a crucial €3.2bn payment to the ECB due on 20 August. The Athens parliament did not start debating the 400-page text of the draft bailout plan until nearly 4am after parliamentary speaker Zoe Konstantopoulou, a Syriza hardliner, ignored Tsipras’s request to speed up proceedings and instead raised a lengthy series of procedural questions and objections.

[..] On the left, former energy minister Panayiotis Lafazanis, who leads a rebel bloc of around a quarter of Syriza’s 149 MPs, pledged to “smash the eurozone dictatorship”, while in her concluding pre-vote remarks, Konstantopoulou announced: “I am not going to support the prime minister any more.” Earlier, the government spokeswoman, Olga Gerovasili, conceded divisions within the leftist party, which swept to victory in January’s elections on a staunch anti-austerity platform, were now so deep that a formal split was probably inevitable. Tsipras could call fresh elections as early as next month.

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Time for Dijsselbloem to screw up one last time.

Greek Bailout On A Tightrope – Again (CNBC)

Greece’s third bailout is back in the hands of euro zone finance ministers, who are meeting Friday to discuss whether to go ahead with the deal – or delay it. The baton has been passed on to Brussels after the Greek government, which had debated the reforms that need to be introduced to secure the much needed funds through the night, secured enough votes to pass the bailout bill. However, further uncertainty was heaped on the bailout process with reports from Reuters that left-wing prime minister Alexis Tsipras seeking a vote of confidence from the parliament after August 20. The Eurogroup of finance ministers will be meeting in Brussels to debate the latest developments.

“It’s obvious we have to sign (a bailout deal) and we have to implement this agreement,” Kostas Chrysogonos, a Syriza member of the European parliament (MEP) told CNBC Friday following the Greek vote, saying that he hoped a deal would be completed at the Eurogroup meeting later today. A confidence vote was the last thing Greece needed right now, he added, so soon after Tsipras was elected in January. “I’m hopeful that many of the dissenters will resign their parliamentary seats…and the confidence vote will be enough to gain the confidence of the parliament for this government. It’s obvious that the last thing that we need right now is a general election, a country that stands at the edge of default cannot afford the luxury of having a second general election within eight months.”

Although the country and its international lenders and those overseeing the program have agreed technical details, a political agreement in the euro zone by member state governments is now necessary before any aid is release. But that is easier said than done with tensions running high both in Greece and Germany, Greece’s largest euro zone lender, over the bailout. This raises the possibility that the bailout deal could be delayed and Greece issued a bridging loan to tide it over. In Greece, members of parliament debated the third bailout package through the night after a long delay to the proceedings due to procedural objections saw the plenary session only get underway at 2am local time (midnight London time).

The vote on the bailout deal finally started at 7.30 London time with the government securing enough votes – 222 votes to 64 – to get the bailout approved. Tensions were running high in the Greek parliament, with high profile members of the ruling Syriza party, including former finance minister Yanis Varoufakis and parliamentary speaker Zoe Konstantopoulou, opposing the deal which involves more austerity, spending cuts and reforms. After the bailout was voted through the Greek parliament, Reuters, quoting a government official, said that Tsipras will seek a confidence vote in the Greek parliament after the August 20 deadline for payment to the ECB. A government spokesman told CNBC that he could not confirm the Reuters report but was expecting a statement shortly.

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Wait till Monday.

China Halts Yuan Devaluation With Slight Official Rise Against US Dollar (AFP)

China’s central bank has raised the value of the yuan against the US dollar by 0.05%, ending three days of falls in a surprise series of devaluations. The daily reference rate was set at 6.3975 yuan to $1.0, from 6.4010 the previous day, the China Foreign Exchange Trade System said. That was also slightly stronger than Thursday’s close of 6.3982 yuan. The higher fixing for the yuan came after the People’s Bank of China (PBoC) sought to reassure financial markets by pledging to seek a stable currency after a shock devaluation of nearly 2% on Tuesday.

The cut, and two subsequent reductions, rattled global financial markets – raising questions over the health of the world’s second-largest economy and sparking fears of a possible currency war. Beijing said the move was the result of switching to a more market-oriented method of calculating the daily reference rate which sets the value of the yuan, also known as the renminbi (RMB). Previously authorities based the rate on a poll of market-makers, but will now also take into account the previous day’s close, foreign exchange supply and demand and the rates of major currencies. The yuan is still only allowed to fluctuate up or down 2% on either side of the reference rate.

“Currently there is no basis for the renminbi exchange rate to continue to depreciate,” PBoC assistant governor Zhang Xiaohui said on Thursday. “The central bank has the ability to keep the renminbi basically stable at a reasonable and balanced level,” she said. Speaking earlier this week another PBoC official said the central bank could directly intervene in the market, after reports it bought yuan on Wednesday to prop up the unit. “The central bank, if necessary, is fully capable of stabilising the exchange rate through direct intervention in the foreign exchange market,” PBoC economist Ma Jun said.

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“..the deputy governor of its central bank was forced to hold a press conference at which he insisted this was all part of a grand plan.”

The Economic Wizards Of Beijing Have Feet Of Clay After All (Guardian)

The economic wizards of Beijing have feet of clay after all. That’s the growing sense after China’s currency fell for a third day and the deputy governor of its central bank was forced to hold a press conference at which he insisted this was all part of a grand plan. Zhang Xiaohui didn’t quite say “devaluation, what devaluation?” just as Jim Callaghan never quite said “crisis, what crisis?” during the Winter of Discontent. Both men were intent on showing that their governments were fully in control even though they were not. For UK politicians in the 1970s this was a familiar sensation; for China’s mandarins it is an entirely new experience. Over the past 30 years, the technocrats in Beijing have attained an almost mythical status.

Decade after decade of rapid growth has transformed China into the world’s second biggest economy, slashing poverty at the same time. There was much admiration – and not a little envy – in the west for the way in which communist party officials quickly lifted China out of recession following the financial crisis of 2008. The fact that policymaking was so opaque added to the mystique. But those golden days are now over. Beijing wanted to rebalance the Chinese economy, to make growth less focused on exports and more reliant on consumer spending. It wanted slower but more sustainable growth that gradually took the heat out of overvalued property and share prices.

This is proving difficult. Official figures understate the speed at which the economy is slowing. As fears of a hard landing have increased, policymakers have started to panic. Beijing botched attempts at shoring up the stock market, a move that was unnecessary given that the fall of 30% had been preceded by a rise of 150%. Now the attempts to reduce the value of the yuan are being conducted in an equally ham-fisted fashion. It won’t really wash that the events of this week are a carefully thought-out liberalisation plan that will persuade the IMF to include the yuan in its reserve assets known as special drawing rights.

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“China’s share of global steel output has rocketed from 10pc to 50pc over the last decade.” American and European steel industries can say goodbye.

China Denies Currency War As Global Steel Industry Cries Foul (AEP)

Chinese steelmakers are preparing to flood the global market with cut-price exports as they take advantage of this week’s shock devaluation of the yuan, setting off furious protests from struggling competitors in Europe and the US. It is the first warning sign of a deflationary wave of cheap products from China after the central bank, the People’s Bank of China, abandoned its exchange rate regime, letting the currency fall in the steepest three-day drop since the country emerged as an economic powerhouse. The yuan has fallen 3.3pc against the dollar. Steel mills in the Chinese industrial hub of Hebei have already begun to trim prices of rebar mesh-wires used for building by between roughly $5 and $10 to $295, citing the devaluation as a fresh chance to offload excess stocks of steel.

Europe’s steel lobby Eurofer warned that there would be “very real competitiveness impacts” for European steel firms, already battling for their lives with wafer-thin margins. America’s United Steelworkers accused China of predatory practices.”It is time for China to live by the rules or face the consequences,” said the union’s international president, Leo Gerard. The US steel group Nucor called the devaluation the “latest attempt to support Chinese industry at the expense of producers in the rest of the world who have to earn their cost of capital to survive.” Indian tyre-makers have issued their own warnings, fearing a fresh rush of cheap imports from China. They are already grappling with a 100pc surge in shipments over the last year as the recession in China’s car industry displaces excess supply.

The anger is a foretaste of what China may face if this week’s devaluation is the start of a concerted effort to gain market share in a depressed global economy. Yet it is far from clear whether Beijing really has such an intention. The People’s Bank of China insisted on Thursday that the drop in the yuan was a one-off effect as the country shifts to a more market-friendly exchange regime, essentially a managed float. It described the sudden drop as “irrational” and said reports of a plot to drive down the yuan by 10pc were “nonsense”. China’s share of global steel output has rocketed from 10pc to 50pc over the last decade. It has installed capacity of 1.1bn tonnes a year that it cannot possibly absorb as the Chinese economy shifts away from heavy industry.

It now has 340m tonnes of excess capacity, which has driven down global steel prices by 40pc since early 2014. “This overcapacity alone is more than double the EU’s steel demand, and China is now exporting record quantities to Europe as a result,” said Eurofer.

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“..another way of looking at QE is as an undeclared currency war – which is exactly how China sees it.”

China and the Danger Of An Open Currency War (Paul Mason)

China has stunned the world by devaluing its currency twice in two days. Or rather it has stunned that naive part of the world that believed China’s economy was okay, that its Communist Party was en route to being some kind of team player in the global economy, and that the words “currency war” were just scaremongering. Here’s what’s happened, and why it matters. China’s economy, which grew at 9% and above per year in the period of rapid industrialisation in the 2000s, has slowed to 7%. Because the entire control system of the conomy is based on one bureaucrat lying to/competing with another, nobody really knows whether the Chinese growth figures are correct – but there’s been a clear slowdown.

That, in turn, caused a stock market slump last month – after more than a year of ordinary Chinese people pouring money into shares. So the government tried to contain by ordering state owned stockbrokers to buy RMB 120bn worth of shares, setting a stock market “target level” reminiscent of the old Soviet grain targets. Now, with growth continuing to falter, the Chinese government has devalued its own currency again in a bid to boost exports. At the same time – as a concession to its trade rivals – it has promised to “take more notice of the markets” when setting interest rates in future. Since it re-entered the global economy, China has pegged its currency, the renminbi, against the dollar – refusing to let it trade freely and to find a market rate.

Under pressure from America and Japan, which say China’s currency is too cheap and gives it an unfair trade advantage, China allowed the RMB gradually to rise against other currencies. This was seen as a first step towards the RMB becoming convertible, and ultimately emerging as a rival global currency to the dollar. Now that policy has been reversed. The context is, first, the tit-for-tat stimulus measures that the world’s major economies have been taking. Europe has launched a massive programme of quantitative easing; Britain’s QE programme remains in place and Japan is reliant on more and more dollops of printed money to buy state debt and keep the economy going. When states or currency unions print money on this scale the side effect is to weaken the value of their currency and boost exports. So another way of looking at QE is as an undeclared currency war – which is exactly how China sees it.

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Abenomics can still get uglier than it already was.

China’s Devaluation Becomes Japan’s Problem (Pesek)

Among the clearest casualties of China’s devaluation is the Bank of Japan. The chances were never high that Governor Haruhiko Kuroda was going to be able to unwind his institution’s aggressive monetary experiment anytime soon. But the odds are now lower than even skeptics would have previously believed. The real question, though, is what China’s move means more broadly for Abenomics. A sharply devalued yen, after all, is the core of Prime Minister Shinzo Abe’s gambit to end Japan’s 25-year funk. Abenomics is said to have three parts, but monetary easing has really been the only one. Fiscal-expansion was neutered by last year’s sales-tax hike, while structural reform has arrived only in a brief flurry, not the avalanche needed to enliven aging Japan and get companies to raise wages.

China’s devaluation tosses two immediate problems Japan’s way. The first is reduced exports. As Beijing guides its currency even lower, as surely it will, the yen will rise on a trade-weighted basis. And Bloomberg’s Japan economist Yuki Masujima points out that trade with China now contributes 13% more to Japanese GDP than the U.S., traditionally Tokyo’s main customer. “Given China’s rise to prominence, the yen-yuan exchange rate now has far greater influence on Japan than the yen-dollar rate,” Masujima says. The other problem is psychological. Japanese households have long lamented their rising reliance on China, a developing nation run by a government they widely view as hostile.

But the BOJ was glad to evoke China’s 7% growth – and the millions of Chinese tourists filling shopping malls across the Japanese archipelago – to convince Japanese consumers and executives that their own economy was in good shape. Now, the perception of China as a growth engine is fizzling, exacerbating the exchange-rate effect. “To the extent that the depreciation reflects weakness in China, then that weakness – rather than the depreciation per se – is a problem for Japan,” says Richard Katz, who publishes the New York-based Oriental Economist Report. It’s also a problem for Abe, whose approval ratings are now in the low 30s thanks to his unpopular efforts to “reinterpret” the pacifist constitution to deploy troops overseas. The prospect that Abe will enrage Japan’s neighbors by watering down past World War II apologies at ceremonies this weekend marking the 70th anniversary of the end of the wary is further damping support at home.

The worsening economy, which voters hoped Abe would have sorted out by now, doesn’t help. Inflation-adjusted wages dropped 2.9% in June, a sign Monday’s second-quarter gross domestic product report for the may be truly ugly. It’s an open question whether such an unpopular leader can push painful, but necessary, structural changes through parliament. “Already,” Katz says, “Abe has backpedaled on many issues to avoid further drops.” After 961 days, all Abenomics has really achieved is a sharply weaker yen, modest steps to tighten corporate governance and marketing slogans asking companies to hire more women.

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Think leverage, shadow banking, and fill in the blanks.

Why The Yuan May Deck Singapore Property Stocks (CNBC)

Singapore’s property shares, already on the back foot from expectations of rising interest rates, have taken a beating since China devalued its currency on Tuesday and more pain may be on the cards. “Given that the majority of property stocks with China exposure do not hedge the currency exposures of their incomes and balance sheets, a weaker renminbi suggests that both asset values and earnings/dividends would be negatively affected,” analysts at JPMorgan said in a note Wednesday. “Book values and dividend per unit (DPU) would be affected.” Singapore real-estate investment trusts (S-REITs) are also likely to take a hit as the moves Tuesday and Wednesday by the People’s Bank of China to push down the Chinese currency also caused the Singapore dollar to weaken.

“The weakening Singapore dollar would result in upward pressure on interest rates,” it said, estimating that every 100 basis point rise in interest rates pushes S-REITs’ DPU down by 2.7% because of increased costs. Singapore property shares with China exposure based on earnings and assets under management include CapitaLand Retail Trust China, Global Logistic Properties, CapitaLand and City Developments, JPMorgan noted. Those shares are down 1.2-5.5% so far this week, after a bit of a recovery Thursday. Singapore may not be alone in feeling property pain from China. In Hong Kong, Wharf, Cheung Kong Property and Hang Lung all have significant China exposure, noted Patrick Wong at BNP Paribas.

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The spiralling debt is a direct consequence of the conditions those same creditors force upon Greece.

Greece Creditors Raise ‘Serious Concerns’ About Spiralling Debt (Guardian)

Greece’s European creditors have underlined the temporary nature of the country’s surprise return to growth by warning that they have “serious concerns” about the spiralling debts of the eurozone’s weakest member. The economic news came as Greece’s parliament met in emergency session on Thursday to ratify a new bailout deal, although it was unclear whether the multibillion-euro agreement had the vital backing of Germany. The three European institutions negotiating a third bailout package with the government in Athens said that the Greek economy had plunged into a deep recession from which it would not emerge until 2017. According to an analysis completed by the EC, the ECB and the eurozone bailout fund, Greece’s debts will peak at 201% of GDP in 2016.

The study says that Greece’s debt burden can be made more bearable by waiving payments until the economy has recovered and then giving Athens longer to pay. However, it opposes the idea of a so-called “haircut” – or reducing the size of the debt. It is a course of action the International Monetary Fund, which joined the three European institutions in negotiating the latest bailout, thinks may be necessary for Greece’s debts to become sustainable.

“The high debt to GDP and the gross financing needs resulting from this analysis point to serious concerns regarding the sustainability of Greece’s public debt,” said the analysis, adding that far-reaching reforms were needed to address the worries. It forecasts that the Greek economy will contract by 2.3% this year and a further 1.3% in 2016 before returning to 2.7% growth in 2017. Greece’s debt to GDP ratio will peak next year but will still be 175% in 2020 and 160% in 2022. The IMF views a debt to GDP ratio above 120% as unsustainable.

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Greece doesn’t want a bridge loan.

Greece To Get €6 Billion In Bridge Loans If No Agreement At Eurogroup (Reuters)

Greece could get €6.04 billion in bridge financing if euro zone finance ministers cannot agree on the planned third bailout for Athens when they meet on Friday, according to German newspaper Bild, citing a European Commission proposal for the meeting. That proposal says the bridge loans should run for a maximum of three months, Bild said in an advance copy of an article due to be published on Friday. Eurozone finance ministers are due to meet in Brussels on Friday to discuss a third financial rescue that Greece has negotiated with its creditors.

Greek Finance Minister Euclid Tsakalotos expressed his opposition on Thursday to Greece taking another temporary loan to meet its immediate debt repayments, calling on lawmakers to approve a new, three-year bailout deal. “I think whatever everyone’s stance on the euro and on whether this is a good or bad accord, there must be no one who is working towards a bridge loan,” he told a parliamentary committee. Athens must make a €3.2 billion debt payment to the ECB on Aug. 20.

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Cobden Partners was proposed to Varoufakis right after the January election as an advisor. Syriza opted for Lazard instead.

Greece Crisis Proves The Need For A Currency Plan B (John Butler, Cobden)

The recent Greek capitulation under pressure from other euro member countries, led by Germany, demonstrates that euro members have de facto ceded sovereignty over fiscal policy to the EU. While this arrangement may be acceptable to some countries, perhaps even Greece, it will be resisted by others. However, as the Greek failure also demonstrates, any eurozone country wishing to restore fiscal sovereignty, or restructure some of their debt, or implement any policy or set of policies that runs afoul of the preferences of certain Eurogroup finance ministers will have near-zero negotiating leverage if they fail to plan, credibly and in advance, for the introduction of a viable alternative currency.

Without this critical card to play, the country in question will be held hostage by the now politicised ECB. Its domestic banking system and financial markets will be shut down, the economy will grind to a halt and the government will face either a humiliating retreat or full capitulation. Former Greek finance minister Yanis Varoufakis has now revealed much of the detail of the recent negotiations, capitulation and attempts to vilify him personally for acting insubordinately or even in a treasonous manner at the 11th hour. However, it is entirely understandable that, once Varoufakis became aware of the degree to which his country’s banks and national finances had been taken hostage by the ECB and EU institutions, he sought some flexibility in order to strengthen Greece’s negotiating position.

Alas, this was much too little, and way too late. In retrospect, it is now obvious that Varoufakis and his colleagues should have set about developing a credible alternative currency plan prior to entering into any negotiations around either debt reduction or fiscal reforms. Had they done so, when the ECB suspended further increases in the ELA, forcing the banks and financial markets to close, Greece would have been able to roll out a temporary plan which, in the event that subsequent negotiations were indeed to fail, could easily have become permanent. Moreover, the very existence of such a plan would have greatly strengthened Greece’s hand to the point where negotiations may well have succeeded.

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Summary: Foreign corporations will take over everything.

Greeks Taste Breadth Of Bailout In Loaf And Lotion Rules (Guardian)

Vouldis, 33, whose bakery was founded 22 years ago by his parents in the southern Athens suburb of Kallithea, and is one of 15,000 local bakeries in Greece, said: “If a supermarket can call itself a bakery and present frozen loaves as fresh, that’s cheating customers . And if we sell by the kilo – which we’ve been supposed to be doing since Easter, actually, but no one does – customers will end up spending more on their bread. Bakers will have far more opportunity to play around with their prices. “Neighbourhood bakeries are the heart of a community; it’s wrong to make things harder for them than they already are. And it’s unacceptable to have international institutions saying, you’re stupid, you don’t know how to run your business, here’s how you must do it.”

Stefanidi meanwhile was concerned at the bailout powers’ insistence that anyone should be allowed to own a pharmacy: at present, Greek law limits their ownership to pharmacists. The way the OECD and the international creditors saw it, far too many laws protected Greece’s 11,000 pharmacies – a quantity, per head of the population, about double that for France or Spain, and more than 15 times Denmark’s total. Many of the rules were scrapped last year despite a European court upholding Greece’s view that it was perfectly entitled to legislate on the matter since its supreme court had ruled that pharmacies were not pure commercial enterprises but also fulfilled a vital social function.

The rule that no district can have more than one pharmacy per 1,000 people will stay. But the regulation stipulating that over-the-counter medicines may only be sold at licensed pharmacies is soon to be scrapped; and the ownership restriction could be gone next week if the bailout package is approved. “It’s crazy,” said Konstantinos Lourantos, president of the Panhellenic Pharmaceutical Association, in his pharmacy in the Athens suburb of Nea Smyrni. “Anyone will be able to open a pharmacy now. Anyone. In all Europe, only in Slovenia and Hungary is this allowed. Even in Germany, a licensed pharmacist must own at least 51% of a pharmacy.”

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There will be no real debt relief, not if Germany has its way. It’ll just be toying with margins, unacceptable for the IMF.

European Union Backs IMF View Over Greece – Then Ignores It (Guardian)

The good news for the IMF, which has been saying for ages that Greece’s debts are unsustainable, is that European lenders now seem to agree. There are “serious concerns” about the sustainability of the country’s debts, the three European institutions negotiating the latest bailout said on Thursday. They think Greece’s debts will peak at 201% of GDP in 2016, which is roughly what the IMF said a month ago when it projected a high “close to 200% of GDP in the next two years”. So what should be done? Unfortunately, that is where unanimity seems to break down.

The IMF’s view of the options in July was blunt. First, there could be “deep upfront haircuts” – in other words, a portion of Greece’s debts to eurozone lenders would be written off, which, reading between the lines, seemed to be the IMF’s first preference. Second, there was the politically-impossible policy of eurozone partners making explicit transfers to Greece every year. Or, third, Greece could be given longer to repay, an approach likely to be more palatable to European leaders. But this option came with a heavy qualification from the IMF: “If Europe prefers to again provide debt relief through maturity extension, there would have to be a very dramatic extension with grace periods of, say, 30 years on the entire stock of European debt, including new assistance.”

Is Europe ready to be “very dramatic,” as the IMF defined it? Almost certainly not – at least not in Germany. Thursday’s European report spoke about extending repayment schedules but it seems highly unlikely that 30 years would be acceptable in Berlin. If that’s correct, the IMF’s willingness to cough up its €15bn-€20bn contribution to the latest €85bn rescue package must be in serious doubt. The fund’s guidelines say loans can only be advanced when there is a clear path back to debt sustainability, usually defined as borrowings being less than 120% of GDP. On Thursday’s European analysis, Greece would still be at 160% even in 2022.

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Subprime is all America has left.

Total U.S. Auto Lending Surpasses $1 Trillion for First Time (WSJ)

With the recession now six years behind in the nation’s rearview mirror, lending for automobiles has sharply accelerated: Around $119 billion in auto loans were originated in the second quarter of this year, a 10-year high, according to figures from the Federal Reserve Bank of New York released Thursday. Auto lending has climbed steadily during the past four years, helping sales of U.S. autos and light trucks completely recover their losses from the recession. In May, consumers purchased vehicles at an annual pace of 17.6 million, the highest since June 2005. Americans have now racked up more than $1 trillion in both auto-loan debt and student-loan debt, which surpassed $1 trillion for the first time in 2013.

The overall indebtedness of U.S. borrowers remains lower than before the recession, owing to declines in home-loan and credit-card balances. But with low gas prices, a growing number of jobs, and an aging automotive fleet, many people have found it an opportune time to get a new vehicle. “A lot of the gain we’ve seen is from light trucks, SUVs, cross-overs, minivans and pickup trucks,” said David Berson, chief economist at Nationwide Insurance in Columbus, Ohio. “Because gasoline prices have come down, it makes it less expensive to run the vehicles that use more fuel” and frees up consumers’ budgets to put toward more cars or higher car loan payments. Auto lending and credit-card lending used to trade spaces as the second- and third-largest categories of U.S. household debt, after mortgages.

Both were surpassed by student loans in 2010. Since 2011, auto loans have rapidly outgrown credit cards. Today, household credit-card balances stand at $703 billion, about the same as four years ago. Auto lending and mortgages offered a study in contrast over the past five years. Both types of debt fell in the recession; from 2008 to 2010 the total stock of auto loans declined by more than $100 billion. Mortgage balances dropped by more than $800 billion. “There was some tightening in auto-loan standards after the financial crisis, but by many measures it’s returned basically to where it was pre-recession,” said Wilbert van der Klauw, a New York Fed economist. “That’s quite a contrast to mortgage underwriting, which remains significantly tighter than before the recession.”

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Spot the zombie.

Surge in Global Commercial Real-Estate Prices Stirs Bubble Worries (WSJ)

Investors are pushing commercial real-estate prices to record levels in cities around the world, fueling concerns that the global property market is overheating. The valuations of office buildings sold in London, Hong Kong, Osaka and Chicago hit record highs in the second quarter of this year, on a price per square foot basis, and reached post-2009 highs in New York, Los Angeles, Berlin and Sydney, according to industry tracker Real Capital Analytics. Deal activity is soaring as well. The value of U.S. commercial real-estate transactions in the first half of 2015 jumped 36% from a year earlier to $225.1 billion, ahead of the pace set in 2006, according to Real Capital. In Europe, transaction values shot up 37% to €135 billion ($148 billion), the strongest start to a year since 2007.

Low interest rates and a flood of cash being pumped into economies by central banks have made commercial real estate look attractive compared with bonds and other assets. Big U.S. investors have bulked up their real-estate holdings, just as buyers from Asia and the Middle East have become more regular fixtures in the market. The surging demand for commercial property has drawn comparisons to the delirious boom of the mid-2000s, which ended in busts that sunk developers from Florida to Ireland. The recovery, which started in 2010, has gained considerable strength in the past year, with growth accelerating at a potentially worrisome rate, analysts said. “We’re calling it a late-cycle market now,” said Jacques Gordon at LaSalle Investment.

While it isn’t time to panic, Mr. Gordon said, “if too much capital comes into any asset class, generally not-so-good things tend to follow.” Regulators are watching the market closely. In its semiannual report to Congress last month, the Federal Reserve pointed out that “valuation pressures in commercial real estate are rising as commercial property prices continue to increase rapidly.” Historically low interest rates have buoyed the appeal of commercial real estate, especially in major cities where economies are growing strongly. A 10-year Treasury note is yielding about 2.2%. By contrast, New York commercial real estate has an average capitalization rate—a measure of yield—of 5.7%, according to Real Capital.

By keeping interest rates low, central banks around the world have nudged income-minded investors into a broad range of riskier assets, from high-yield or “junk” bonds to dividend-paying stocks and real estate. Lately money has been pouring into commercial property from all directions. U.S. pension funds, which got clobbered in the aftermath of the crash, now have 7.7% of their assets invested in property, up from 6.3% in 2011, according to alternative-assets tracker Preqin. Foreign investors also have been stepping on the gas. China’s Anbang Insurance in February paid $1.95 billion for New York’s Waldorf-Astoria, a record price for a U.S. hotel. Another Chinese insurer, Sunshine Insurance in May purchased New York’s glitzy Baccarat Hotel for more than $230 million, or a record $2 million per room.

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Big Mining is in for a Big Surprise.

Glencore: World Of Big Mining Agog At Huge Fall (Guardian)

How do you make a £2bn fortune from commodities? Answer: start with a £6bn fortune. Ivan Glasenberg, chief executive of Glencore, won’t be laughing. Those numbers are the value of his shareholding in the mining and commodity-trading company at flotation in 2011 and now. Yes, Glencore’s share price really has fallen by two-thirds, from 530p to 180p, since it came to market with a fanfare. Among London’s big miners, only Anglo-American has done worse. This week alone the fall has been 10% as the China-inspired rout has run through commodity markets and mining stocks. Glencore is being whacked harder than the likes of BHP Billiton and Rio Tinto for a simple reason – relative to earnings, it has a lot more debt.

Analysts predict borrowings will stand at about $48bn when the company reports half-year numbers next week, which is a hell of a sum even for a business making top-line (before interest and tax) earnings of $10bn-$12bn. Bold borrowings aren’t quite what they seem, it should be said, because Glencore’s marketing division holds a stockpile of commodities as inventories that can be turned into cash. Viewed that way, net debt might be nearer $30.5bn at year-end, estimates JP Morgan Cazenove.

But here’s the rub: Glencore might have to go ahead and turn some of that stock into cash if its wants to save its BBB credit rating. “At spot commodity prices, we calculate net debt needs to fall $16bn by year-end 2016 to safeguard Glencore’s BBB credit rating,” says JP Morgan. Preservation of BBB is a financial priority, Glencore said in March, for the sound reason that a healthy rating is vital to keep funding costs low in the trading-cum-marketing division. It’s a financial challenge caused by the plunge in prices that is undermining profits on the other side of Glencore – the mining operation concentrated on the old Xstrata assets, which are skewed towards copper and coal.

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All ‘markets’ are about to have one of those.

The Junk Bond Market ‘Is Having A Coronary’: David Rosenberg (CNBC)

The biggest trouble sign for stocks may be bonds. High-yield bonds, specifically, often are seen as an effective proxy for movements in the equity market. If that’s the case, trends in junk are pointing to a rocky road ahead. Average yields for low-rated companies have jumped to 7.3% and spreads between such debt and comparable duration Treasurys have widened dramatically, according to David Rosenberg at Gluskin Sheff. History suggests that fallout in stocks is not far behind. “If you think the equity market is heading for a spot of trouble here, the high-yield bond market is having a coronary,” Rosenberg said in his daily market analysis Thursday.

Rosenberg points out that the average yield is the highest since mid-December and has risen 120 basis points—1.2 percentage points—just since June. Spreads are at 580 basis points, a level hit only twice in the last three years. His caution on junk reflects sentiment heard from a number of other market analysts who believe the troubles in the high-yield market, which has led fixed income performance with 7% annualized returns over the past 10 years, are a bad sign. Since the most recent lows in June, spreads have widened a full percentage point. “In other words, this move in high-yield spreads is on par with what we have seen when we have previously had a 9% correction in equities or what would be about the same as the S&P 500 now correcting to 1,910,” he said.

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“I am going to withdraw from the movement because I’m very old and I have a large family.”

‘I Will Leave Politics And Return To Comedy’: Beppe Grillo (Local.it)

Beppe Grillo, the leader of Italy’s anti-establishment Five Star Movement (M5S), said he plans to leave politics and return to his old job as a comedian. In a TV interview with La7 on Tuesday afternoon, Grillo said: “I am going to withdraw from the movement because I’m very old and I have a large family.” Grillo has distanced himself from the party recently, with some of its members seen as rising political stars. Luigi Di Maio, who at 29 is the youngest deputy president of the lower house in Italian history, is quickly becoming the new face of the Five Star Movement. While Grillo said that he’s “here for now” and that “the movement is my life”, he hinted that the party perhaps no longer needed to use his personality as a springboard for media coverage.

“Once people understand that I am not the undisputed leader of M5S, that I am not in charge and that they are not voting for Grillo but for an idea that I have been part of – then I can return to my job, which is making people laugh and showing them things they don’t know,” he said. The Five Star Movement’s leader has not yet given any clear indications as to when he will be stepping down. His spokesperson told The Local that the leader has not resigned. The comedian is working on a new show that he hopes to launch at the end of this year, after delaying it because of political commitments. A return to TV might also be on the cards. Reports last week suggested he could return to Italy’s national broadcaster Rai, but Grillo was uncertain. “I don’t know, I’m open to anything,” he said.

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Drill baby drill 2.0.

World without Water: The Dangerous Misuse of Our Most Valuable Resource (Spiegel)

California’s rivers and lakes are running dry, but its deep aquifers are also rapidly disappearing. The majority of the 40 million Californians are already drawing on this last reserve of water, and they are doing so with such intensity and without restriction that sometimes the ground sinks beneath their feet. The underground reservoir collapses. This in turn destabilizes bridges and damages irrigation canals and roads. This groundwater is thousands of years old, and it is not replenishing itself. Those who hope to win the race for the last water reserves are forced to drill deeper and deeper into the ground. The Earth may be a blue planet when seen from space, but only 2.5% of its water is fresh. That water is wasted, polluted and poisoned and its distribution is appallingly unfair.

The world’s population has almost tripled since 1950, but water consumption has increased six-fold. To make matters worse, mankind is changing the Earth’s climate with greenhouse gas emissions, which only exacerbates the injustices. When we talk about water becoming scarce, we are first and foremost referring to people who are suffering from thirst. Close to a billion people are forced to drink contaminated water, while another 2.3 billion suffer from a shortage of water. How will we manage to feed more and more people with less and less water? But people in developing countries are no longer the only ones affected by the problem. Droughts facilitate the massive wildfires in California, and they adversely affect farms in Spain.

Water has become the business of global corporations and it is being wasted on a gigantic scale to turn a profit and operate farms in areas where they don’t belong. “Water is the primary principle of all things,” the philosopher Thales of Miletus wrote in the 6th century BC. More than two-and-a-half thousand years later, on July 28, 2010, the United Nations felt it was necessary to define access to water as a human right. It was an act of desperation. The UN has not fallen so clearly short of any of its other millennium goals than the goal of cutting the number of people without this access in half by 2015. The question is whether water is public property and a human right. Or is it ultimately a commodity, a consumer good and a financial investment?

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They should send it to an English port.

Greece Sends Cruise Ship To Ease Kos Migrant Crisis (Guardian)

The Greek government has chartered a cruise ship to help deal with the refugee crisis on Kos, a day after more than 2,000 mainly Syrian refugees were locked inside a stadium on the island for more than a day with limited access to water. The vessel, which can fit up to 2,500 people, will function as a floating registration centre. Officials hope its presence will speed up the processing of about 7,000 refugees who are stranded on Kos after making the short boat journey from Turkey, and to whom the authorities have been previously unable to provide paperwork or housing. The move follows a disastrous attempt to register refugees inside an old stadium on Tuesday and Wednesday, which led to up to 2,500 mainly Syrian migrants trapped in the stadium grounds.

For more than 12 hours, much of it in temperatures of about 35C, migrants were without access to water or toilets. This led some to faint at a rate of one every 15 minutes, according to Médecins Sans Frontières, an aid agency providing medical support outside the stadium. By dawn on Thursday, the last migrants were finally released in calm circumstances witnessed by the Guardian, but some were literally bruised by the experience after clashes broke out on Wednesday between confused refugees and panicking police officers. Youssef, a 29-year-old Syrian banker, criticised the undignified nature of the process after being released early on Thursday morning. “I have a bachelor’s degree in accounting and an MBA,” he said. “It’s a shame to treat us like this.”

Registered migrants like Youssef are still stuck on Kos, with up to 5,000 others yet to be processed. The situation has led the Greek government to send a cruise liner, the Eleftherios Venizelos, to mitigate the fallout – as hundreds more refugees arrive every day. Kos’s mayor, Giorgos Kyritsis, who made the decision to use the stadium, denied that the ship would simply be yet another place of limbo for refugees. Kyritis said: “It’s not going to be used as a camp. As soon as it is filled with migrants, the ship with depart and another ship will come.”

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Médecins Sans Frontières is forced to do what Europe should be doing.

Mediterranean: Saving Lives at the World’s Most Dangerous Border (Spiegel)

The Mediterranean has become a crisis region, one where more than 2,000 people have died this year already – more than have lost their lives in attacks in Afghanistan. But of course that figure is misleading. It reflects only the number of recorded deaths. Who knows how many people have drowned without a trace? Nevertheless, no aid agencies are active in the region. They all wait on shore for the survivors to arrive. The business of saving lives is left to those who are the least prepared: navies and merchant vessels. Meanwhile, more and more refugees are embarking on the perilous journey across the Mediterranean – 188,000 so far this year. It’s hard to believe that a crisis area of this magnitude is empty of aid workers – unthinkable, Doctors Without Borders, or Médecins Sans Frontières, thought.

It is the biggest, best organized medical relief organization in the world. An army of survival. They are professionals for natural catastrophes and civil wars, and they are engaged in the fight against HIV, Ebola and measles. With a budget of €1.066 billion in 2014, MSF’s 2,769 international employees and 31,000 local helpers undertook some 8.3 million treatments. They calculate the need for help based on mortality rates – a cold, precise measurement. An emergency situation is considered acute when there is one death per day for every 10,000 people. Last year, at least 3,500 refugees died in the Mediterranean while 219,000 made it to Europe. That’s a mortality rate of around 10 per day, or one in 63. MSF, until now a land-based operation, has decided to set sail.

Never has the organization’s name been more fitting than right now, as it carries out its mission in a vast sea that has developed into the world’s deadliest border. Three boats have been in action since early summer. The Dignity 1, the Bourbon Argos and MY Phoenix, the smallest of the fleet. Together they have room for 1,400 refugees. It is the only real private rescue mission in the Mediterranean, and it is almost entirely funded by donations. Operating costs have already topped €10 million this year. Of that, Phoenix, jointly funded by MOAS, has cost €1.6 million thus far this year. MSF has rescued more than 10,000 people so far. By mid-2015, the mortality rate in the Mediterranean was one in 76. A small victory, but a victory nonetheless.

An estimated 15 to 20 boats carrying around 3,000 people set sail from Libya’s beaches every day. After a few hours, they call a contact person in Italy or they get in touch with the Maritime Rescue Coordination Centre (MRCC) in Rome directly. That’s if a navy vessel or a cargo ship doesn’t stumble across them first. Whoever is close by is obligated to come to the rescue. But what if no one is nearby to save them?

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May 232015
 
 May 23, 2015  Posted by at 10:31 am Finance Tagged with: , , , , , , , , , , ,  1 Response »
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G. G. Bain Hudson-Fulton celebration. Union League Club. New York. 1909

Our $58 Trillion Love Affair With Debt, In One Crazy Chart (CNBC)
Fed On Track To Hike Rates As Economic Headwinds Wane: Yellen (Reuters)
BRICS To Establish New Multi-Currency Financial Order (RT)
How ‘Mathiness’ Made Me Jaded About Economics (Bloomberg)
Jim Chanos Thinks China Could Be The Next Greece (MarketWatch)
Greece and Creditors Struggle for Elusive Deal (WSJ)
Eurozone Says No Greek Deal Without IMF (FT)
Yanis Varoufakis Is More Than His Clothes (AlJazeera)
How Politics Will Seal The Fate Of Greece (FT)
German Business Morale Weakens And Trade Dampens Q1 Growth (Reuters)
The Strikes Sweeping Germany Are Here To Stay (Guardian)
Bank Of England Secretly Investigates Financial Fallout Of Brexit (Guardian)
GM Inquiry Said to Find Criminal Wrongdoing (NY Times)
Ireland Says Yes To Same-Sex Marriage By Up To 2:1 Margin (Ind.ie)
‘March Against Monsanto’ in 38 Countries, 428 Cities (RT)
Bayer CEO: The World Needs An Antibiotics Bailout (Reuters)
California Accepts Offer By Farmers To Cut Water Usage By 25% (Guardian)
Attacks On The Last Elephants And Rhinos Threaten Entire Ecosystems (Monbiot)
Yet Another Antarctic Ice Mass Is Becoming Destabilized (WaPo)

The one area where the US sees actual growth.

Our $58 Trillion Love Affair With Debt, In One Crazy Chart (CNBC)

Those having a hard time finding growth in the U.S. economy are looking in the wrong places. Forget about real estate, technology or manufacturing: The real American growth industry is debt. While gross domestic product has lingered in the 2 to 2.5% growth range for years, the level of debt as measured through credit market instruments has exploded. As the nation entered the 1980s, there was comparatively little debt—just about $4.3 trillion. That was only about 1.5 times the size of gross GDP. Then a funny thing happened. The gap began to widen during the decade, and then became basically parabolic through the ’90s and into the early part of the 21st century.

Though debt took a brief decline in 2009 as the country limped its way out of the financial crisis, it has climbed again and is now, at $58.7 trillion, 3.3 times the size of GDP and about 13 times what it was in 1980, according to data from the Federal Reserve’s St. Louis branch. (The total debt measure is not to be confused with the $18.2 trillion national debt, which is 102% of GDP and is a subset of the total figure.) Of the total debt, nonfinancial debt leads the way at $41.4 trillion, which breaks down as household and nonprofits holding just shy of $13.5 trillion, nonfinancial business debt at $12 trillion and total government debt at $15.9 trillion.

Growth, such as it is, has been present in all debt categories: In the fourth quarter of 2014, when GDP was growing at just a 2.2% rate, business debt jumped 7.2%, federal government debt surged 5.4% and household debt rose 2.7%, with overall domestic nonfinancial debt up 4.7. So while many economists have bemoaned the 0.2% GDP growth in the first quarter and the dimming prospects for growth the remainder of the year, the debt engine is keeping things humming along—until, of course, the next crisis comes and we start all over again.

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What was it? 0.2% GDP growth in Q1? That can’t be the reason. The Fed made up its mind a long time ago.

Fed On Track To Hike Rates As Economic Headwinds Wane: Yellen (Reuters)

Federal Reserve Chair Janet Yellen was clearer than ever on Friday that the central bank was poised to raise interest rates this year, as the U.S. economy was set to bounce back from an early-year slump and as headwinds at home and abroad waned. Yellen spoke amid growing concern at the Fed about volatility in financial markets once it begins to raise rates, and a desire to begin coaxing skeptical investors toward accepting the inevitable: that a 6-1/2-year stretch of near-zero interest rates would soon end. In a speech to a business group in Providence, Rhode Island, Yellen said she expected the world’s largest economy to strengthen after a slowdown due to “transitory factors” in recent months, and noted that some of the weakness might be due to “statistical noise.”

The confident tone suggested the Fed wants to set the stage as early as possible for its first rate rise in nearly a decade, with Yellen stressing that monetary policy must get out ahead of an economy whose future looks bright. While cautioning that such forecasting is always highly uncertain, and citing room for improvement in the labor market, the Fed chief said delaying a policy tightening until employment and inflation hit the central bank’s targets risked overheating the economy. “For this reason, if the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target,” and begin normalizing monetary policy, Yellen told the Providence Chamber of Commerce.

In a speech in March, Yellen said only that a rate hike “may well be warranted later this year,” though the Fed was at the time giving “serious consideration” to making the move. Investors globally are attempting to predict when the Fed will modestly tighten policy. Most economists point to September, while traders in futures markets held firm on December. Ahead of a three-day U.S. holiday weekend, Treasury yields hit session highs after Yellen spoke on Friday, and short-term interest rate futures extended losses, hitting session lows. U.S. stocks were largely flat. “This is probably the most telegraphed Fed lift-off in some time,” said Bruce Zaro at Bolton Global. “I think they’re concerned about the market’s reaction – they don’t want to have a period of volatility that causes the market to react in a crash-type form.”

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At some point it will reach critical mass.

BRICS To Establish New Multi-Currency Financial Order (RT)

The new BRICS initiatives break the monopoly of existing western institutions over the financial order – a very important symbolic change, as it’s the first time a global financial institution is led by developing countries, said experts to RT. “If the new development bank experiment succeeds, it will show the world that the emerging countries can do and manage a multilateral economic institution by themselves,” Akshay Mathur, geo-economic fellow head of research at the Indian Council on Global Relations, told RT at the BRICS academic forum. While talking about the bank’s challenge to western-dominated financial system, he said that one of its goals is to stimulate lending to countries in local currencies for the new projects in that region.

“Right now the bank has clauses in its charter to encourage lending in local currencies. It can do it for lending in the new projects in the East, for Russian projects in the ruble,” he said. BRICS has already employed tools to move away from US dollar dominance, believes H.H.S. Viswanathan, Distinguished Fellow at India’s Observer Research Foundation. “A lot of trade between China and Russia is already taking place in local currencies. As far as India is concerned, it’s not that advanced, but in some areas – yes, we are using local currencies,” he said adding that the main advantage of the banks’ moving away from the dollar is that trading in local currencies reduces the operational cost.

Akshay Mathur also pointed out the potential risks the bank may face, cautioning that China, the largest of the five BRICS economies, could end up dominating the new financial institution. China has already shown notable success in internationalizing yuan. It is issuing foreign loans in its national currency and has currency swaps with 21 countries. “China is lending now more than the World Bank and the IMF combined in Africa and Latin America. So, what I mean about the risk of Chinese financial architecture is that we want to move to a more multilateral multi-currency equitable architecture, because now we have been moving from the risks of one currency to the risks of another,” he said.

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“..math is central to everything that economists do. But the way math is used in macroeconomics isn’t the same as in the hard sciences..”

How ‘Mathiness’ Made Me Jaded About Economics (Bloomberg)

Economics has a lot of math. In no other subject except mathematics itself will you see so many proofs and theorems. Some branches of econ, such as game theory, could legitimately be housed in university math departments. But even in fields such as macroeconomics, which ostensibly deal with real-world phenomena, math is central to everything that economists do. But the way math is used in macroeconomics isn’t the same as in the hard sciences. This isn’t something that most non-economists realize, so I think I had better explain.

In physics, if you write down an equation, you expect the variables to correspond to real things that you can measure and predict. For example, if you write down an equation for the path of a cannonball, you would expect that equation to let you know how to aim your cannon in order to actually hit something. This close correspondence between math and reality is what allowed us to land spacecraft on the moon. It also allowed engineers to build your computer, your car and most of the things you use. Some economics is the same way, especially in microeconomics, or the study of individuals’ actions — you can predict which kind of auction will fetch the highest prices, or how many people will ride a train. But macroeconomics, which looks at the broad economy, is different.

Most of the equations in the models aren’t supported by evidence. For example, something called the consumption euler equation is at the core of almost every modern macroeconomic model. It specifies a relationship between consumption growth and interest rates. But when researchers looked at real data on consumption growth and interest rates, they found that the equation gives exactly the wrong predictions! Yet it continues to be used as the core of almost every macro model. If you read the macro literature, you see that almost every famous, respected paper is chock full of these sort of equations that don’t match reality. This paper predicts that everyone will hold the same amount of cash. This paper predicts that people buy financial assets that only pay off if people are able to change the wage that they ask to receive.

These and many other mathematical statements don’t remotely correspond to observable reality, nor do they have any evidence in support of them. Yet they are thrown into big multi-equation models, and those models are then judged only on how well they fit the aggregate data (which usually isn’t very well). That whole approach would never fly in engineering. Engineering is something you expect to work. But macroeconomists often treat their models as simply ways, in the words of David Andolfatto, vice president of the Federal Reserve Bank of St. Louis, to “organize our thinking” about the world. In other words, macroeconomists use math to make their thoughts concrete, to persuade others, and to check the internal consistency of their (sometimes preposterous) ideas, but not to actually predict things in the real world.

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So do I: .

Jim Chanos Thinks China Could Be The Next Greece (MarketWatch)

China could be the next Greece and its debt woes may even exceed the European country’s in the next few years, predicts prominent hedge-fund manager Jim Chanos of Kynikos Associates. “I joke to my Chinese friends, somewhat half-seriously, another three-four years they are going to be like my homeland Greece,” said Chanos in an interview, which will air this weekend on Wall Street Week, a show hosted by Anthony Scaramucci, co founder of investment-management firm SkyBridge Capital. The perennial China bear pointed to China’s debt-to-GDP ratio of nearly 300% and projected that the ratio is likely to balloon to 400% over the next few years. Here’s an excerpt from the interview:

“The problem is the credit story,” Chanos said. “China’s banking system is bloated and it’s basically taking on more and more leverage.” Chanos declined to elaborate further when contacted for comments but he has been an unabashed critic of China’s debt-fueled economic growth and has been sounding alarm bells of possible hard landing for the world’s second largest economy for several years. A so-called hard landing can refer to a rapid economic slowdown that occurs typically as a government’s central bank is attempting to tighten fiscal policy and combat inflation. China’s total debt hit $28.2 trillion in 2014, equivalent to 280% of its gross domestic product, according to The Wall Street Journal. Chinese monetary officials earlier this month lowered interest rates to combat a worse-than-expected economic slowdown as companies and governments struggled under heavy debt. China’s GDP rose 7% in the first quarter, slowing from the 7.3% growth in the fourth quarter, the National Bureau of Statistics said in April.

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As I predicted, the June 5 date is no longer a stumbling block. The 16th looks darker, though.

Greece and Creditors Struggle for Elusive Deal (WSJ)

Greece and its lenders are casting around for ways to prevent the country from defaulting on debts to the International Monetary Fund in June, as negotiations to unlock bailout aid barely inch forward and the Athens government runs dangerously low on cash. Greece needs financial help in some form by mid-June in order to repay a series of IMF loans falling due, several officials from the country and its creditors said. The Greek government is expected to be able to cover pensions and public-sector wages in May, and it can probably scrape together enough cash to repay a €300 million IMF loan on June 5, these people said.

But three subsequent IMF payments totaling €1.25 billion due in mid-June pose a severe challenge to Athens’s bare treasury, the officials say, and could force the government to either take politically costly measures such as raiding pension funds or delay the payments and risk an unpredictable fallout at home and abroad. Missing an IMF payment would signal that Athens’s coffers are empty. That could spark heavy deposit withdrawals from Greek banks and force capital controls, deepening the country’s economic crisis, said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington.

The looming IMF payments are putting massive pressure on the government, led by the left-wing Syriza party, to agree by early June to the economic-overhaul demands of its creditors. The IMF itself, which is withholding fresh loans pending a deal on policy measures, wants tough pension cutbacks and labor deregulation, without which it believes Greece can’t achieve sustainable growth or solvency. Those measures are anathema to Syriza, elected in January on an antiausterity platform, leaving Greek Prime Minister Alexis Tsipras faced with only unappealing options. Signing the creditors’ terms and putting them to parliament could split his party. A referendum or elections would need time, which is fast running out, and could trigger uncertainty, bank runs and capital controls.

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The White House will be needed to get the IMF in line.

Eurozone Says No Greek Deal Without IMF (FT)

European leaders have told Greece there will be no deal to release desperately needed bailout aid without approval from the more hardline IMF, setting up a stand-off that could leave cash-strapped Athens without funds well into June. The message, delivered by Angela Merkel, the German chancellor, to Alexis Tsipras, her Greek counterpart, at a private meeting in Riga, Latvia’s capital, as well as by lower-level European officials to their Greek interlocutors, comes as the IMF has been weighing whether to withhold its €3.6bn portion of the €7.2bn bailout tranche Athens needs to avoid default. Eurozone and Greek negotiators have been pushing to complete a deal by the end of the month to free up bailout funds before the first in a series of loan repayments owed the IMF totalling €1.5bn falls due June 5.

But securing IMF approval for a bailout deal significantly complicates that timeline. IMF officials believe Mr Tsipras’s government has reversed many of the economic reforms the IMF had agreed with previous Greek governments and do not feel Athens will be able to hit budget targets that would allow its growing debt pile to be reduced quickly. IMF staff have told their board they would not disburse aid without a “comprehensive” deal that started to lower debt levels. They also want EU assurances that Greece will be able to pay its bills for the next 12 months, a demand that could require eurozone governments to commit to another bailout programme. “It has to be a comprehensive approach, not a quick and dirty job,” Christine Lagarde, IMF chief, said at an event in Rio de Janeiro on Friday..

Greek officials have told their eurozone counterparts they are worried about the IMF’s hardline stance and have argued their conditions are politically undeliverable, especially when it comes to the pension reforms, which remain the biggest stumbling block. The IMF has clashed with the European Commission over how tough a line to take, with the commission going so far as to moot cutting the IMF out of a deal. But German officials have bristled at the commission’s interventions and have made clear all three bailout monitors — the IMF, the commission and the ECB — must approve any deal. “The deal must be concluded with the three institutions,” Ms Merkel said at a gathering of leaders from the EU and former Soviet states on Friday. “There is very, very intensive work to be done.”

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“..when close to a solution, the EU goes back to the table with demands that make no sense in the current context..”

Yanis Varoufakis Is More Than His Clothes (AlJazeera)

As the media picked apart Varoufakis, from his smirk to his casual footwear, ugly stereotypes about Greeks resurfaced. In a German daily, the reporter wrote that while “the other finance ministers looked pale and tired, Varoufakis looked as if he had just come back from vacation.” The fallacy of hardworking northerners and lazy southerners should have been put to rest with the 20th century but is still around in 2015. The press briefings cited in most media — which come almost exclusively from unofficial, anonymous sources — said that the discussions that took place over the past few months were no better. They spoke of Greece having no viable proposals and of living in an alternative reality.

They accused Varoufakis of being an ideologue, as though German Chancellor Angela Merkel’s notion of “expansionary contraction,” which was used to justify the austerity dogma, wasn’t in and of itself an ideological intervention (let alone a contradiction in terms). They even complained that Varoufakis was lecturing them on macroeconomics. He was, in a way. “One of the great ironies of the Eurogroup is that there is no macroeconomic discussion. It’s all rules based, as if the rules are God given and as if the rules can go against the rules of macroeconomics,” Varoufakis said in The Irish Times, in response to a criticism by Ireland’s finance minister that he was “too theoretical.”

For now, Varoufakis, like Greece, enjoys too much unwanted attention. While support for Syriza is growing and the party is now leading with 21 percentage points over New Democracy, everyone from everyday supporters of the party (as recent polls have shown) to Greek businesses agrees that the negotiations have gone on too long. But it’s also becoming obvious that when close to a solution, the EU goes back to the table with demands that make no sense in the current context. Earlier this week The Wall Street Journal reported that German Finance Minister Wolfgang Schäuble “showed no willingness to compromise in the negotiations to unlock the final installment of Greece’s €245 billion bailout.”

And in late-night talks on Thursday, Greek Prime Minister Alexis Tsipras met with his counterparts from France and Germany; the atmosphere, Bloomberg reported, was convivial, but the team failed to reach an agreement to release additional bailout funds. We’re running out of time, as we’re only a few weeks before Greece is forced to default on billions of euros in debt repayments. Europe and the international media should stop talking about its finance minister’s clothes and address his nation’s needs and the ideas that he is putting on the table.

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Wait, who said that before? “The Greek crisis was always as much about politics as economics. Now it is all about politics.” I sure didn’t use the same ‘logic’, however: Greece Is Now Just A Political Issue .

How Politics Will Seal The Fate Of Greece (FT)

Forget debt ratios, fiscal balances, liquidity crunches and the rest. The EU and IMF technicians negotiating with Athens are going through the motions. The Greek crisis was always as much about politics as economics. Now it is all about politics. There are two theories of the Syriza government led by Alexis Tsipras. One presents a cast of bungling amateurs who have spent the past several months digging Greece into an ever deeper economic hole — all the while squandering the trust and goodwill of its eurozone partners. The other says the antics of Yanis Varoufakis, finance minister, are an elaborate political charade calculated to set Greece free from the shackles of merciless creditors.

The first hypothesis is the most popular. The preening and pirouetting, the interviews in glossy magazines, the undergraduate Marxism and love of the limelight — all point to a colossal failure on Mr Varoufakis’s part to grasp the depth of Greece’s plight or the sensitivities of its European partners. Along the way, tens of billions of dollars have drained from Greek banks as citizens stash their savings elsewhere. The conspiracy theory, though, also has its adherents. They start with the assumption that no one could be quite as witless as Syriza has often seemed. Mr Tsipras’s government knew from the outset that it could not reconcile its domestic promises with Greece’s international obligations.

The problem was that Greeks had voted at once for an end to austerity and to stay in the euro. A crisis had to be manufactured to show the government’s hand had been forced. By the Germans, of course. I lean towards the former theory, but it hardly matters. Even at this late hour it would be unwise to say that a deal with creditors is absolutely impossible. High-stakes politics occasionally demands that pigs are seen to fly. What strikes me, though, is how far the conversation in other capitals has moved on. The risk of contagion in the rest of the eurozone has long been discussed. The talk now is about the chaos that would descend on Greece after default and euro exit. Would it be manageable or would the EU be left with a failed state?

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More ‘logic’: “..in view of the long recovery the German economy already has behind it, it was normal that its growth rate would be weaker than the rest of the euro zone..”

German Business Morale Weakens And Trade Dampens Q1 Growth (Reuters)

German business morale deteriorated slightly in May for the first time in seven months though it remained at a high level overall, a leading survey showed, adding to signs of softening in Europe’s largest economy. Although growth levels remain decent, separate data published on Friday showed the slowing of the German economy during the first quarter was down to a drag from foreign trade, which had propelled the economy for much of the past decade. The Munich-based Ifo think tank said its business climate index, based on a monthly survey of 7,000 firms, edged down to 108.5 in May from 108.6 in April. That was slightly above the Reuters consensus forecast for 108.3, sending the euro to a day’s high against the dollar.

It comes after ZEW’s survey this week showed investor sentiment weakening and a purchasing managers’ survey (PMI) showed private sector expansion slowing. “With today’s GDP data, yesterday’s PMIs and now the Ifo, new doubts about the strength of the German economy could emerge again,” said Carsten Brzeski, economist at ING. “Germany is at the end of a very positive reform-growth cycle, which is artificially extended by external tailwinds,” he said, adding that in view of the long recovery the German economy already has behind it, it was normal that its growth rate would be weaker than the rest of the euro zone. The Ifo survey showed companies were more optimistic about the current situation than at any point since June 2014 but they became slightly more pessimistic about their future prospects.

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Germany is not used to inequality.

The Strikes Sweeping Germany Are Here To Stay (Guardian)

German strikes once seemed like German jokes: a contradiction in terms. But no more: this year, Europe’s largest economy is on course to set a new record for industrial action, with everyone from train drivers, kindergarten and nursery teachers and post office workers staging walkouts recently. The strike wave is more than a conjunctural blip: it is another facet of the inexorable disintegration of what used to be the “German model”. Good economic conditions play a part, but unions in the thriving export industries are not the ones that are striking these days. Strikes cluster in domestic services, especially the public sector, and indications are that they are here to stay.

In the old days, the powerful unions of the metalworkers set the pace for wage increases throughout the economy. But the last time IG Metall went on a nationwide strike was in 1984. In the 1990s, its members, in particular those in the large car factories, learned the hard way that manufacturing jobs could more easily than ever be moved abroad, to China or the formerly communist eastern Europe. International competition is now no longer just about market share, but also employment. It did not take long for the union leadership to notice this. Fear of unemployment, incidentally, accounts also for German manufacturing workers’ unwillingness to contribute to macroeconomic balance under European monetary union by pushing for higher wages in order to bring down the German export surplus.

Today, the action has shifted to services, where job export is more difficult. But other factors also account for the rise of industrial disorder. Since unification, public employers, in pursuit of fiscal consolidation, have broken up Germany’s peculiar public sector collective bargaining regime, which covered everyone from refuse collectors to professors and generated, essentially, the same yearly wage increases for all. Moreover, several occupations – including train drivers, teachers and postal workers – lost the uniquely German employment status of Beamter, of civil servants without a right to strike but with lifelong tenure and guaranteed pay raises in line with the rate of economic growth.

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How is this a big story? Of course the BoE studies Brexit.

Bank Of England Secretly Investigates Financial Fallout Of Brexit (Guardian)

Bank of England officials are secretly researching the financial shocks that could hit Britain if there is a vote to leave the European Union in the forthcoming referendum. The Bank blew its cover on Friday when it accidentally emailed details of the project – including how the bank intended to fend off any inquiries about its work – direct to the Guardian. According to the confidential email, the press and most staff in Threadneedle Street must be kept in the dark about the work underway, which has been dubbed Project Bookend. It spells out that if anyone asks about the project, the taskforce must say the investigation has nothing to do with the referendum, saying only that staff are involved in examining “a broad range of European economic issues” that concern the Bank.

The revelation is likely to embarrass the bank governor, Mark Carney, who has overhauled the central bank’s operations and promised greater transparency over its decision-making. MPs are now likely to ask whether the Bank intended to inform parliament that a major review of Britain’s prospects outside the EU was being undertaken by the institution that acts as the UK’s main financial regulator. Carney is also likely to come under pressure within the Bank to reveal whether there are other undercover projects underway.

Officials are likely to have kept the project under wraps to avoid entering the highly charged debate around the EU referendum, which has jumped to the top of the political agenda since the Conservatives secured an overall majority. Many business leaders and pro-EU campaigners have warned that “Brexit” would hit British exports and damage the standing of the City of London.

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More cooperative criminals?!

GM Inquiry Said to Find Criminal Wrongdoing (NY Times)

Justice Department investigators have identified criminal wrongdoing in General Motors’ failure to disclose a defect tied to at least 104 deaths, and are negotiating what is expected to be a record penalty, according to people briefed on the inquiry. A settlement could be reached as soon as this summer. The final number is still being negotiated, but it is expected to eclipse the $1.2 billion paid last year by Toyota for concealing unintended acceleration problems in its vehicles, said the people, who did not want to be identified because the negotiations weren’t complete. GM’s eagerness to resolve the investigation – a strategy that sets it apart from Toyota, which fought prosecutors – is expected to earn it so-called cooperation credit, one of the people said.

That credit could translate into a somewhat smaller penalty than if GM had declined to cooperate. Former GM employees, some of whom were dismissed last year, are under investigation as well and could face criminal charges. Prosecutors and GM are also still negotiating what misconduct the company would admit to. For more than a year, federal prosecutors in Manhattan and the F.B.I. have homed in on whether the company failed to comply with laws requiring timely disclosure of vehicle defects and misled federal regulators about the extent of the problems, the people who were briefed on the inquiry said. The authorities also examined whether GM committed fraud during its bankruptcy proceedings in 2009 by not disclosing the defect.

An agreement with the Justice Department, which could still fall apart, would represent a crucial step as GM tries to move past a scandal-laden year that tainted its reputation for quality and safety and damaged its bottom line. “We are cooperating fully with all requests,” the automaker said in a statement. “We are unable to comment on the status of the investigation, including timing.” In February 2014, the automaker began recalling 2.6 million Chevrolet Cobalts and other small cars with faulty ignitions that could unexpectedly turn off the engine, disabling power steering, power brakes and the airbags. The switch crisis prompted a wave of additional recalls by GM for various safety issues. All told, GM recalled more than 30 million vehicles worldwide last year – a record for the automaker.

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Is there any other choice?

Ireland Says Yes To Same-Sex Marriage By Up To 2:1 Margin (Ind.ie)

The same-sex marriage referendum will be comfortably passed, based on early tallies from across the country. The margin of victory is tipped to be heading towards a 2:1 majority. The high turnout favoured Yes campaigners as the efforts to get the vote out worked effectively, particularly among young voters. Few, if any locations, are showing a No vote winning the referendum. Even in traditionally conservative rural area, the vote is coming in at 50:50. Dublin will be strongly Yes, right across the city and county. But this trend is being matched in locations across the country.

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“Monsanto is a monopoly, and it’s acting like one. It’s basically controlling 90% of the seed market in the United States..”

‘March Against Monsanto’ in 38 Countries, 428 Cities (RT)

Hundreds of thousands of demonstrators in 428 cities are expected to turn out this weekend to protest agribusiness giant Monsanto. The third annual ‘March Against Monsanto’ seeks to highlight the company’s part in control of the food supply. The worldwide protest scheduled for May 23 is a continuation of growing awareness and opposition to industrial agriculture’s increasing consolidation of farming resources and methods, according to organizers. In 2013, the first March Against Monsanto garnered more than 2 million protesters in 436 cities across the world, according to a previous report by RT. Similar numbers were reported for last year’s demonstrations.

Monsanto’s track record has been scrutinized ever since it aided US warfare during the Vietnam war. Agent Orange was manufactured for the US Department of Defense primarily by Monsanto Corporation, the use of which is estimated to have killed and maimed around 400,000 while causing birth defects for 500,000 children. Scientific studies have linked the chemicals in Monsanto’s biocides to Parkinson’s disease, Alzheimer’s disease, autism, and cancer. “People are fed up. We should break up Monsanto,” Adam Eidinger of Occupy Monsanto told RT. “Monsanto is a monopoly, and it’s acting like one. It’s basically controlling 90% of the seed market in the United States. We wouldn’t let one cell phone company control 90% of the cell phones. But for some reason we let food be controlled.”

As the most powerful multinational biotech corporation today, Monsanto has drawn the ire of those within the movement for its firm grip on the global food chain. The company’s control and advancement of genetically modified organism (GMO) seeds is of prime concern. “In polls conducted by the New York Times, Washington Post, Consumer Reports, and many others, over 90% of respondents were in support of national GMO labeling – an initiative that has been defeated time and time again at the state level thanks to heavy spending by Monsanto-backed lobbying groups,” wrote March Against Monsanto in a news release.

Amid a wave of concern over genetically engineered foods sweeping through the US and around the world, major agribusiness and biotechnology conglomerates like Monsanto have spent immense amounts of cash to cloud the ‘right-to-know’ movement in the US. According to the Center for Food Safety, dozens of US states have in recent years considered labeling legislation and ballot initiatives while a handful have passed laws mandating GMO transparency. Vermont’s governor signed the nation’s first clean GMO-labeling requirement into law in 2014, to take effect in 2016, but a coalition of biotech firms filed a lawsuit to prevent that from happening. Other states have passed labeling laws, but with strings attached.

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These are the people who are instrumental in creating the problem, and now want us to pay them for a solution.

Bayer CEO: The World Needs An Antibiotics Bailout (Reuters)

German drugmaker Bayer expects the world’s largest economies to pool billions of euros in funding for the development of antibiotics against the growing threat of drug-resistant superbugs, its chief executive said on Friday. “I expect a multinational fund for antibiotics research. One country alone can’t shoulder it,” CEO Marijn Dekkers told Germany’s Der Spiegel magazine, according to an excerpt of an interview provided to Reuters on Friday. The funds were expected to be pledged during the June summit of the Group of Seven (G7) wealthy nations in Germany, he was quoted as saying. He mentioned reports that four new antibiotics would cost $22.4 billion to develop, saying that was “maybe a bit too much, but it will be really expensive”.

The World Health Organization has deemed the rising tide of drug-resistant bacteria, or so-called superbugs, as the “single greatest challenge in infectious diseases”. Germany’s health ministry has said Berlin would seek to address drug-resistant superbugs as part of the country’s presidency of the G7, leading up to the G7 summit in Bavaria in June. Governments should award development contracts for more antibiotics to pharmaceuticals companies, modelled on development contracts tendered to the defence industry, Dekkers told Der Spiegel. The pharma industry has argued that the private sector was being deterred from funding the development of new antibiotics because, to prevent the emergence of even more resistant bacteria, they would only be used when existing therapies have failed.

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A frist step. But nobody knows if it will be enough.

California Accepts Offer By Farmers To Cut Water Usage By 25% (Guardian)

California’s drought has produced a plot twist too singular even for Chinatown: farmers volunteering to give up a quarter of their water. Scores of farmers in the delta of the Sacramento and San Joaquin rivers made the unprecedented offer on Friday in a deal to stave off even steeper mandatory cuts. Agricultural players have fiercely guarded their water rights since the 19th century, rebuffing competing claims from cities and other rivals in the so-called water wars, a web of intrigues immortalised in Roman Polanski’s Chinatown. The film’s fictional farmers never countenanced voluntarily cutting their water use but as California endures a fourth year of drought growers in the delta calculated it was the lesser evil.

By promising to forfeit a quarter of this season’s water – by fallowing land or finding other measures to cut usage – they have averted harsher restrictions from state authorities. The State Water Board had warned it was days away from ordering some of the first cuts in more than 30 years to senior water rights holders. “This proposal helps delta growers manage the risk of potentially deeper curtailment, while ensuring significant water conservation efforts in this fourth year of drought,” State Water Board chair Felicia Marcus said in a statement.

“It allows participating growers to share in the sacrifice that people throughout the state are facing because of the severe drought, while protecting their economic well-being by giving them some certainty regarding exercise of the State Water Board’s enforcement discretion at the beginning of the planting season.” The agreement applies only to so-called riparian rights holders – farmers with direct access to streams. Those who participate can opt to reduce water diversions from streams by 25%, or fallow 25% of their land. In both cases, the reductions will be from 2013 levels.

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They threaten my mental sanity, too.

Attacks On The Last Elephants And Rhinos Threaten Entire Ecosystems (Monbiot)

Until 2008, conservationists, in some places at least, appeared to be winning. But in that year the number of rhinos killed in South Africa rose (from 13 in 2007) to 83. By 2011, the horrible tally had risen to 448. It climbed to 668 in 2012, 1004 in 2013 and 1215 in 2014. In the first four months of this year, 393 rhinos have been killed there, which is 18% more than in the same period last year. The reasons for this acceleration in the Great Global Polishing are complex and not always easy to tease out. But they appear to be connected to rising prosperity in Vietnam, the exhaustion of illegal stocks held by Chinese doctors and, possibly, speculative investment in a scarce and tangible asset during the financial crisis. Corruption and judicial failure help to keep the trade alive.

Already, the western black rhino is extinct (the declaration was made in 2011). The northern white rhino has been reduced to five animals: a male at the end of its anticipated lifespan and four females, scattered between Kenya, the US and the Czech Republic. Similar stories can be told about some populations of elephants – in particular the forest elephants of west and central Africa. It’s not just these wonderful, enchanting creatures that are destroyed by poaching, but also many of the living processes of the places they inhabit. Elephants and rhinos are ecological engineers, creating conditions that hundreds of other species have evolved to exploit. As the paper in Science Advances notes, the great beasts maintain a constantly shifting mosaic of habitats through a cycle of browsing and toppling and trampling, followed by the regrowth of the trees and the other plants they eat.

They open up glades for other herbivores, and spaces in which predators can hunt. They spread the seeds of trees that have no other means of dispersal (other animals are too small to swallow the seeds whole, and grind them up). Many trees in Africa and Asia are distributed exclusively by megaherbivores. They transport nutrients from rich places to poor ones and in some places reduce the likelihood of major bushfires, by creating firebreaks and eating twigs and leaves that would otherwise accumulate as potential fuel on the ground. Many animal species have co-evolved with them: the birds that eat their ectoparasites, the fish that feed on hippos’ fighting wounds (some of these species, I believe, are now used for fish pedicures), the wide range of life that depends on their dung for food and moisture, on their wallows for habitats, on the fissures they create in trees for nesting holes.

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Crumbling stability all around.

Yet Another Antarctic Ice Mass Is Becoming Destabilized (WaPo)

The troubling news continues this week for the Antarctic peninsula region, which juts out from the icy continent. Last week, scientists documented threats to the Larsen C and the remainder of the Larsen B ice shelf (most of which collapsed in 2002). The remnant of Larsen B, NASA researchers said, may not last past 2020. And as for Larsen C, the Scotland-sized ice shelf could also be at potentially “imminent risk” due to a rift across its mass that is growing in size (though it appears more stable than the remainder of Larsen B). And the staccato of May melt news isn’t over, it seems.

Thursday in Science, researchers from the University of Bristol in Britain, along with researchers from Germany, France and the Netherlands, reported on the retreat of a suite of glaciers farther south from Larsen B and C along the Bellingshausen Sea, in a region known as the Southern Antarctic Peninsula. Using satellite based and gravity measurements, the research team found that “a major portion of the region has, since 2009, destabilized” and accounts for “a major fraction of Antarctica’s contribution to rising sea level.” The likely cause of the change, they say, is warmer waters reaching the base of mostly submerged ice shelves that hold back larger glaciers — melting them from below.

This has been a common theme in Antarctica recently — a similar mechanism has been postulated for melting of ice shelves in nearby West Antarctica (which contains vastly more ice, and more potential sea level rise, than does the Antarctic peninsula). “This is one of now three really quite substantial signals that we’ve seen from different parts of West Antarctica and the Antarctic peninsula that is all going in the same way,” said Jonathan Bamber of the University of Bristol, one of the paper’s authors. The other two are the losses of ice in the Larsen ice shelf region — where glaciers have sped up their seaward lurches following past ice shelf collapses — and in West Antarctica.

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May 162015
 
 May 16, 2015  Posted by at 10:19 am Finance Tagged with: , , , , , , , , , , ,  5 Responses »
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Lewis Wickes Hine Workers stringing beans in J.S. Farrand Packing Co, Baltimore 1920

The New Era Of Return-Free Risk (Reuters)
Global Asset Classes Suffer From a Highly Contagious Disease (Bloomberg)
US Farmers In ‘Dire Straits’: JPM Warns Of Liquidity Crunch (Zero Hedge)
Private Debt, Economic Stagnation and a Modern Debt Jubilee (Steve Keen)
China Backtracks on Deleveraging Local Government Debt (WSJ)
China Deleveraging Measures Create Perpetual Leverage Machine (Zero Hedge)
A Blueprint for Greece’s Recovery within a Consolidating Europe (Varoufakis)
Greek PM Tsipras Takes ‘Command’ Of Reform Talks (CNBC)
Tsipras Says He Won’t Cross Red Lines in Talks With Creditors (Bloomberg)
Greece Pays Public Sector Wages To Avert Fresh Economic Crisis (Guardian)
Home Is Where The Household Income Goes (Kathimerini)
Osborne Calls Emergency July Budget To Reveal Next Wave Of Austerity (Guardian)
Russia is a Product of WWII, In Terms of Demographics (Adomanis)
Poland Pays $250,000 To Alleged Victims Of CIA Rendition And Torture (Guardian)
Ukraine GDP Drops 17.6%, Prices Rise 61% (FT)
Anti-Poverty Crusader Leads Race To Be Barcelona’s Next Mayor (Guardian)
US Anger With RT Will Start World War Three – Emir Kusturica (Sputnik)
Food and Finance: Create A Revolution With Your Shopping Trolley (Berrino)
The Awful Truth About Climate Change No One Wants To Admit (Vox)
Without Universal Access To Water, There Can Be No Food Security (Guardian)

WIth today’s exteremely distorted asset prices, risk must get distorted too.

The New Era Of Return-Free Risk (Reuters)

U.S. and German government bonds are gyrating as they rarely do. Yields are shooting higher for no apparent reason, and sometimes falling back within hours for equally unclear motives. Such turbulence in the biggest and most liquid bond markets is ushering in a new era. The traditional concept of risk-free returns has been turned on its head. Ten-year Bund yields have multiplied by 16 times, to a high of 0.80% on May 7 from 0.05% on April 17. And German bond prices, which move inversely to yields, have suffered a larger drop than in 99% of the three-week periods of the last 25 years, UBS Wealth Management strategists calculate. Meanwhile, comparable U.S. yields have risen by more than a quarter in less than four weeks, peaking at 2.37%.

The brutal moves are creating what Jan Straatman, global chief investment officer at Lombard Odier Investment Managers, calls “return-free risk”. Investors have two problems as a result. The first is sharply practical. Safety has become expensive, or less safe. Holding cash in the form of a rock-solid currency, such as the Swiss franc, is punitive, since policy interest rates are close to zero, or even negative. Gold is supposed to be a solid store of value, but the price is in thrall to the dollar’s volatile exchange rate. And now U.S. and German government bonds are looking risky.

These days, the hunt for safety is not a big theme for most investors. They would rather take some risks in return for higher yields. But that brings up the second problem with the new era. High turbulence in supposedly safe bond markets complicates the pricing of risk. The standard asset pricing model relies on a benchmark risk-free interest rate. Riskier investments – from corporate bonds through shares to artworks – are supposed to promise a probable additional return in exchange for additional uncertainty and price volatility. The model is like a compass pointing in the direction of the right price. But this compass goes haywire when safe debt becomes extraordinarily volatile. Investors are left at sea.

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“And when they all convince themselves to be mega-long at the wrong price, the market inevitably cracks.”

Global Asset Classes Suffer From a Highly Contagious Disease (Bloomberg)

A trio of profitable trades over the past year – long U.S. dollar, long Treasuries, and long European equities – have taken a big hit in the second quarter of 2015. Over at Jefferies, chief market strategist David Zervos puts his finger on the source of these sell-offs: German debt. Zervos writes: “The Dollar, the U.S. bond market, and the European stock market have all recently become infected with a highly contagious disease. The source of this nasty fever appears to be coming from none other than the sleepy old German bond market.” The yield on 10-year German sovereign debt has spiked from below 0.1% in mid-April to 0.635% as of publishing. That’s the kind of move you’d expect to see about once every six decades.

Investors who bought bunds, Zervos argues, bet on the wrong horse following the introduction of quantitative easing by the ECB. “When QE begins folks sadly get excited about front running central bank duration purchases, and then they take a very rich asset and make it stupid rich,” he writes. “And when they all convince themselves to be mega-long at the wrong price, the market inevitably cracks.” The sell-off in bunds began at a time when European credit growth was beginning to turn up, the economy began to improve, and a pair of fixed income legends, Jeffrey Gundlach and Bill Gross, offered some very bearish commentary on German bonds. The sell-off also came at a time of extreme positioning in major markets.

According to Zervos, the toppling of this domino is currently rippling through other asset classes. He considers this a period in which all these popular trades will get hit as the market purges the good QE trades from the poor ones. “Right now we have to get through this nasty period of contagious spring fever in Europe, or what the Germans would call Frühjahrsmüdigkeit,” he writes. “I honestly don’t know how long this fever will last (or how to pronounce that crazy German word), but none of this nasty price action dissuades from believing in the long-term QE-induced reflationary trend for European risk assets.”

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US ag gets hit from many sides at once, from drought to credit drought.

US Farmers In ‘Dire Straits’: JPM Warns Of Liquidity Crunch (Zero Hedge)

Despite the government’s ‘advice’ to young debt-laden students, the tragedy of the American farmer continues with worryingly pessimistic views on the future of the industry. With farmland prices falling for the first time in almost 30 years, credit conditions are weakening dramatically and the Kansas City Fed warns that persistently low crop prices and high input costs reduced profit margins and increased concerns about future loan repayment capacity, and JPMorgan concludes, the industry is currently in dire straits with the potential for a liquidity crunch for farmers into 2016.

Not so long ago, US farmland – whose prices were until recently rising exponentially – was considered by many to be the next asset bubble. Then, almost overnight, the fairytale ended, and as reported in February, US farmland saw its first price drop since 1986. Looking ahead, very few bankers expect price appreciation and more than a quarter of survey respondents expect cropland values to decline further in the next three months. And now, The Kansas City Fed warns that Agricultural credit conditions are worsening rapidly…

Credit conditions in the Federal Reserve’s Tenth District weakened as farm income declined further in the first quarter of 2015. Persistently low crop prices and high input costs reduced profit margins and increased concerns about future loan repayment capacity. Funds were available to meet historically high loan demand, but loan repayment rates dropped considerably. Although profit margins in the livestock industry have remained stable, most bankers do not expect farm income or credit conditions to improve in the next three months.

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“..economic growth will remain low (and inequality will remain high) until the level of private debt is drastically reduced..”

Private Debt, Economic Stagnation and a Modern Debt Jubilee (Steve Keen)

This is the talk I gave at the 8th Subversive Festival in Zagreb on May 15th 2015. I start with the Queen of England’s question “If these things were so large, how come everyone missed them? Why did nobody notice it?” and then show how private debt was the missing ingredient in the models that conventional economists have, which is why they missed the crisis. I finish with the assertion that economic growth will remain low (and inequality will remain high) until the level of private debt is drastically reduced. I recommend a “Modern Debt Jubilee” as the way to do this.

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As we predicted many times, China is failing in its attempts to smother the shadow banking system, which is A) too big to fight and B) too crucial for the economy.

China Backtracks on Deleveraging Local Government Debt (WSJ)

China is reversing course on a major effort to tackle its hefty local government debt problem, marking a setback for a priority reform aimed at getting its financial house in order. The move could provide the economy with some short-term help. But it restores a backdoor way that enabled local governments to load up on debt in recent years, providing a drag on growth at a time when Beijing is looking for ways to rekindle it. According to an announcement made Friday by the State Council, China’s cabinet, the authorities relaxed controls on the ability of local governments to raise money by allowing them to tap government-sponsored financing companies—the very entities that have been blamed for a rapid run-up in China’s local debt load over the past few years.

The move undermines an October policy intended to prevent those financing firms from taking on new debt. It comes as China’s long push toward financial reform—part of its broader effort to make the economy rely less on big investments but more on consumer spending—increasingly bumps up against a more pressing national goal: boosting growth. “To transition to a consumer-led economy, China will have to push through painful reforms and accept recession,” said Geoffrey Barker at Asian Macro Fund in Hong Kong. “But at least for now, the government appears unwilling to do that.” The latest move comes as the world’s second-largest economy endures slower-than-expected growth. A barrage of monetary-easing measures since last year has proved insufficient to counter a real-estate downturn and flagging factory output.

Earlier this week, China reported a sharp drop-off in growth of investment in factories, buildings and other fixed assets in the first four months compared with a year ago, partly because local governments found credit hard to come by to invest in big projects due to Beijing’s crackdown on local borrowing. Now, by backtracking on the local-debt cleanup initiative, Beijing is resorting to greater stimulus efforts to meet GDP targets. “We take this as a significant policy easing signal,” said chief China economist Zhiwei Zhang at Deutsche Bank. The need to bolster growth gained urgency after an April tour by Premier Li Keqiang of China’s three Rust Belt provinces in the northeast, including Liaoning, Jilin and Heilongjiang, according to Chinese officials with knowledge of the leadership’s thinking.

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CHina is simply too addicted to debt to move away smoothly.

China Deleveraging Measures Create Perpetual Leverage Machine (Zero Hedge)

China is in a tough spot and it’s starting to show up in what look like contradictory policy decisions. The problem goes something like this. In the interest of curbing systemic risk and decreasing the percentage of total social financing (TSF) comprised of off-balance sheet financing, China has moved to rein in the shadow banking boom that helped fuel the country’s meteoric growth. The effort to deleverage a system laboring under some $28 trillion in debt is complicated by the fact that the export-driven economy is growing at the slowest pace in 6 years (and that’s if you believe the official numbers), a scenario which calls for some manner of stimulus.

Unfortunately, the yuan’s dollar peg has served to further pressure China’s exports while rising capital outflows (plus an IMF SDR bid) make currency devaluation an undesirable tool for boosting the economy. Beijing has thus resorted to slashing policy rates, cutting the benchmark lending rate three times in six months and RRR twice this year (and they aren’t done yet). This of course flies in the face of attempts to deleverage the system. That is, lowering real interest rates encourages more leverage, not less, but Beijing has little choice. It must walk the tightrope, because at some point, the deceleration in economic growth will become so readily apparent that China will no longer be able to stick to the (likely) fabricated 7% output figure.

As we discussed on Thursday, the country’s local government debt dilemma is a microcosm of the challenges facing the broader economy. Local governments used shadow banking conduits to skirt borrowing limits, accumulating a massive pile of high-yield debt in the process. The total debt burden for these localities sums to around 35% of GDP and because a non-trivial portion carries yields that are much higher than traditional muni bonds, the debt servicing costs have become unbearable. To remedy the situation, Beijing is implementing a debt swap program which allows local governments to swap their high-yielding loans for long-term bonds with lower coupons.

In order to create demand for the new issues, the PBoC is allowing banks that purchase the new bonds to post them as collateral for cash that can then be re-lent to the broader economy, presumably at a healthy spread. So while the program is designed to help local governments deleverage by cutting hundreds of billions from debt servicing costs, the PBoC’s move to allow the new LGBs to be pledged for cash by the purchasing banks, means that on net, the entire refi program will actually add leverage to the system as banks use the cash they receive from repoing their LGBs to make new loans.

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“The institutions have, over the years, relied on a process of backward induction..”

A Blueprint for Greece’s Recovery within a Consolidating Europe (Varoufakis)

[..] .. agreement on a new development model for Greece requires overcoming two hurdles. First, we must concur on how to approach Greece’s fiscal consolidation and our management of public debt. Second, we need a comprehensive, commonly agreed reform agenda that will underpin that consolidation path and inspire the confidence of Greek society on the one hand and our partners on the other. Beginning with fiscal consolidation, the issue at hand concerns the method. The institutions have, over the years, relied on a process of backward induction: They set a date (say, the year 2019) and a target for the ratio of nominal debt to national income (say, 120%) that must be achieved before money markets are deemed ready to lend to Greece at reasonable rates.

Then, under arbitrary assumptions regarding growth rates, inflation, privatization receipts, and so forth, they compute what primary surpluses are necessary in every year, going backwards to the present. The result of this method, in our government’s opinion, is an ‘austerity trap’. When fiscal consolidation turns on a pre-determined debt ratio to be achieved at a predetermined point in the future, the primary surpluses needed to hit those targets are such that the effect on the private sector undermines the assumed growth rates and thus derails the planned fiscal path. Indeed, this is precisely why previous fiscal-consolidation plans for Greece missed their targets so spectacularly.

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Greece is getting tired of the institutions.

Greek PM Tsipras Takes ‘Command’ Of Reform Talks (CNBC)

Greek Prime Minister Alexis Tsipras has taken control of the country’s reform talks with its international lenders at a “critical” point in the negotiations, Greek government sources told CNBC. The sources, who did not want to be named due to the sensitive nature of the discussions, told CNBC that the Greek prime minister had taken command of the negotiating process and was involved in discussions with the Brussels Group of the country’s creditors – the IMF, European Commission and ECB as well as the European Stability Mechanism.

The sources added that a teleconference held Thursday on the reforms were held at the prime minister’s office – an incident denied by the government’s official spokesman. The Athens government has been in debt deadlock with its international creditors since it came to power in late January. While the left-wing Syriza party was elected on an anti-austerity ticket, those holding the purse-strings on its multibillion-euro bailout are insisting on strict economic and welfare reforms. The sources added that Tsipras’ move to lead the talks was an attempt to show his commitment to finding a resolution to the country’s impasse with lenders.

Greece certainly needs a deal over reforms, which could release a vital €7.2 billion euros worth of aid from its second bailout program. The country has millions of euros worth of loan repayments to pay over the next few weeks and months to lenders and money is running out. The sources noted that Tsipras wanted to be more involved in the talks as they entered a “delicate and critical” phase, adding that the prime minister was focusing on the “political” side of the deal while Finance Minister Yanis Varoufakis and Euclid Tsakalatos (currently in charge of Greece’s negotiating team) had been looking after the “technical side.”

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“Tsipras’s mandate from the Greek people is the biggest stumbling block to a deal with the country’s creditors..” Huh? Where did democracy go?

Tsipras Says He Won’t Cross Red Lines in Talks With Creditors (Bloomberg)

Greece won’t cross its red lines in negotiations with international creditors just because time is pressing to close a deal, Prime Minister Alexis Tsipras said. “Those who think that our red lines will fade as time goes on would do well to forget it,” Tsipras said at a conference in Athens late Friday. “I want to assure the Greek people that there’s no way the government will back down on the issue of pension and wage cuts,” he said. “A deal must be reached but it must be mutually beneficial.” Tsipras will address the standoff in bailout negotiations on the sidelines of a meeting of European Union leaders to be held May 21-22 in Riga, Latvia. More than 110 days of talks between Greece and its creditors have failed to produce an agreement to unlock further aid and avert default.

The standoff has triggered a liquidity squeeze, pulling the country back into a recession and renewing doubts over Greece’s future in the euro area. “The bottom line is that pressure on Greek authorities to come to a deal is rising,” JPMorgan’s Barr and Mackie wrote in a note to clients Friday. “The pressures on central government cash flow, pressures on the banking system and the political timetable are all converging on late May-early June. At that point some form of interim deal will need to be struck” and “it’s clear that time is running out,” they said. Negotiations in the so-called Brussels Group of Greek and creditor institution representatives will continue over the weekend and into next week.

While Greece has found common ground with its creditors in areas including fiscal targets, a marginal change to the sales tax rate and tax administration reform, there are “still open issues” concerning labor market and pension system reforms, Tsipras said. Greece may seek an additional meeting of euro-area finance ministers by the end of May, Greek government spokesman Gabriel Sakellaridis said on May 14, as the cash crunch intensifies. It remains unclear how Tsipras will deal with the likely objection by the Left Platform section of his Syriza party to the content of any deal, Barr and Mackie said. “Even small countries can stand upright to confront imperialist pressures and threats,” Greek Energy Minister Panagiotis Lafazanis said today in Athens following a meeting with Venezuela’s ambassador to Greece. Lafazanis leads the Left Platform.

Tsipras’s mandate from the Greek people is the biggest stumbling block to a deal with the country’s creditors, Maltese Finance Minister Edward Scicluna said in an interview Friday.

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Wise.

Greece Pays Public Sector Wages To Avert Fresh Economic Crisis (Guardian)

Greece avoided another financial crisis by paying about €500 million in wages to public sector workers, but suffered another downgrade of its credit rating. “The mid-May payments of wages and pensions … were made within the scheduled time frame,” the finance ministry said. They had been due on Friday. The payment came as Greece remained locked in talks with its creditors in an effort to release €7.2bn of bailout funds to avoid a default and exit from the eurozone. In a sign the leftist Syriza government was preparing to compromise over some of the reforms demanded by Brussels and the IMF, it said it would push ahead with privatisation of its biggest port, Piraeus.

It is in talks with China’s Cosco Group, which manages two container piers at the port, about selling a majority stake. “We are in very advanced talks to expand this cooperation very soon in relation with the inclusion of a railway network as well,” the defence minister, Panos Kammenos, told an economic conference in Athens. The Greek prime minister, Alexis Tsipras, said his country was “very close” to reaching a vital deal with bailout lenders, but insisted there was “no possibility” of giving in to key demands including further cuts to pensions and wages.

Tsipras said the government had not abandoned its goal to try to persuade lenders to restructure Greece’s debt. “It appears that we have reached common ground with the institutions on a number of issues, and that makes us optimistic that we are really very close to an agreement,” Tsipras said, noting convergence on harmonised sales tax rates and tax administration reforms. “But several issues remain open … I want to reassure the Greek people that there is no chance or possibility for the Greek government to retreat on the issue of wages and pensions. Wage earners and pensioners have suffered enough.”

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28.1% of mortgages are non-performing.

Home Is Where The Household Income Goes (Kathimerini)

Owning or even renting a home has become a bane rather than a boon for Greeks – to say nothing of the taxes ownership and utilization of a property entail – as the latest Housing Europe report shows that Greece has the highest housing costs as a percentage of disposable income among all European Union states. The cost of maintaining a home comes to 37% for average households, soaring to 65% for those close to the poverty line, the annual study found. The respective average rates in the EU are 22.2% and 41%. The survey counts costs as rent for tenants or mortgage payments for owners, spending on heating, electricity, water and sewage, and telephony, as well as building maintenance and other expenditures.

The continual decline in household revenues – mainly through cuts to salaries and pensions – coupled with the steady increase in other costs such as power rates and heating oil, meanwhile, is putting an increasing number of households at serious risk. Denmark comes second on the list, with 30% of people’s disposable income going into the maintenance of their home, followed by Germany with 28%. Both of these countries, however, have a low rate of home ownership compared with Greece, so the cost of rent takes up a bigger chunk of housing expenditure. This also suggests that Greece’s high rate is due to the decline in incomes after the outbreak of the financial crisis and the spike in unemployment, rather than to an increase in expenditure.

According to the latest available data, from the 2011 census, the rate of people living in their own homes comes to 73.2%, while 21.7% live in rented properties. In Germany, home ownership amounts to just 45.4% and in Denmark it stands at 51%. According to EU data in 2012, Greece also had the highest share of people overburdened by housing costs at 33.1%. This country also tops other unenviable lists, as it has the highest rate of people with unpaid utilities (31.8%), as well as of mortgage borrowers with arrears and of tenants owing rent (both around 15%). The rate of bad loans has soared in recent years, with nonperforming mortgages climbing from 3.6% in 2008 to 28.1% of all mortgages in end-2014.

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Britons will take to the streets.

Osborne Calls Emergency July Budget To Reveal Next Wave Of Austerity (Guardian)

George Osborne will reveal how the government plans to cut £12bn from Britain’s welfare bill when he announces a fresh wave of austerity measures in his second budget in less than four months on 8 July. The chancellor said he wanted to make a start delivering on the commitments made in the Conservative party manifesto and pledged that his package would be a budget for “working people”. Announcing his decision in an article in the Sun, Osborne said he would provide details of how the government plans to eliminate the UK’s budget deficit – forecast to be £75bn this year – and run a surplus by the end of the parliament.

“On the 8th of July I am going to take the unusual step of having a second budget of the year – because I don’t want to wait to turn the promises we made in the election into a reality … And I can tell you it will be a budget for working people.” Treasury sources said the budget would address Britain’s poor productivity record, which has held back growth in living standards, and would also announce plans to create 3m new apprenticeships. However, the centrepiece of the package will be a fresh bout of austerity, with Osborne keen to get unpopular measures out of the way early in the parliament, in readiness for pre-election tax cuts once the public finances have improved.

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“In 1946 there were roughly 2.5 million children between the ages of 0 and 5 living in the Soviet Union. There should have been around 6.5 million.”

Russia is a Product of WWII, In Terms of Demographics (Adomanis)

The human costs of the war really do beggar belief. The first and most obvious costs are the people (primarily men between the ages of 19 and 40) who were actually killed in combat. And, as you might expect, these losses were positively enormous: in some age cohorts, fully half the men who should have been alive in 1946 were not. Somewhat surprisingly the biggest absolute and proportional losses seem to have fallen on those men who were roughly 30 years old when the war started. In most cinematic depictions of the war that I’ve seen the average rank and file soldier is presented as a fresh-faced recruit straight out of high school, but this evidently isn’t a particularly accurate presentation of what actually happened.

Another thing that was somewhat surprising was the relative paucity of losses among the female part of the population. The German occupation of the Baltics, Ukraine, and large sections of European Russia was famously barbaric. Civilians living in those areas were treated brutishly, often for a period of many years. Any number of films display in quite excoriating detail the horrific ways in which the Nazis treated the people whom they occupied. But unlike the entire generation of young men that was “missing” as a result of the war, from a demographic standpoint Soviet women were not impacted to nearly the same degree. Given what I had read about the egregious losses among civilians in places like Leningrad, Stalingrad, and Rostov this was unexpected.

But what really blew me away was the “unseen” demographic cost of the war: those children that would have been born had pre-war fertility patterns been sustained throughout the 1940’s. Here the losses are even more nightmarish than those suffered by young males of prime combat age. In 1946 there were roughly 2.5 million children between the ages of 0 and 5 living in the Soviet Union. There should have been around 6.5 million. These losses of four million lost births won’t show up anywhere on a monument or a casualty roster, but that doesn’t make them any less real. Indeed, from the standpoint of their impact on Russia’s future they were likely even more significant than the millions of young men who died in combat, permanently lowering Russia’s potential population.

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WIll there be more of these cases coming soon?

Poland Pays $250,000 To Alleged Victims Of CIA Rendition And Torture (Guardian)

Poland is paying a quarter of a million dollars to two terror suspects allegedly tortured by the CIA in a secret facility in this country – prompting outrage among many here who feel they are being punished for American wrongdoing. Europe’s top human rights court imposed the penalty against Poland, setting a Saturday deadline. It irks many in Poland that their country is facing legal repercussions for the secret rendition and detention programme which the CIA operated under then-President George W Bush in several countries across the world after the 9/11 attacks. So far no US officials have been held accountable, but the European court of human rights has shown that it does not want to let European powers that helped the programme off the hook.

The court also ordered Macedonia in 2012 to pay €60,000 to a Lebanese-German man who was seized in Macedonia on erroneous suspicion of terrorist ties and subjected to abuse by the CIA. The Polish foreign ministry said on Friday that it was processing the payments. However, neither Polish officials nor the US embassy in Warsaw would say where the money is going or how it was being used. For now, it remains unclear how a European government can make payments to two men who have been held for years at Guantánamo with almost no contact to the outside world. Even lawyers for the suspects were tight-lipped, though they said the money would not be used to fund terrorism.

The European court of human rights ruled last July that Poland violated the rights of suspects Abu Zubaydah and Abd al-Rahim al-Nashiri by allowing the CIA to imprison them and by failing to stop the “torture and inhuman or degrading treatment” of the inmates. It ordered Warsaw to pay €130,000 to Zubaydah, a Palestinian, and €100,000 to Nashiri, a Saudi national charged with orchestrating the attack in 2000 on the USS Cole that killed 17 US sailors. Poland appealed against the ruling but lost in February. The foreign minister, Grzegorz Schetyna, said at the time that “we will abide by this ruling because we are a law-abiding country”. The country apparently received millions of dollars from the United States when it allowed the site to operate in 2002 and 2003, last year’s report on the renditions program by the US Senate intelligence committee said in a section that appears to refer to Poland though the country name was redacted.

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Default.

Ukraine GDP Drops 17.6%, Prices Rise 61% (FT)

Crunch talks on Ukraine’s national debt hang in the balance after the finance minister warned creditors that “all options were on the table” as the economic outlook for the war-torn country worsens. Natalie Jaresko made the comments ahead of a restructuring deadline next month. They came as official figures showed Ukraine experienced an even deeper slump than expected in the first quarter, with gross domestic product shrinking 17.6% year on year. The central bank had previously estimated a 15% contraction. The scale of the slump deepened international concerns over the country’s economy. Figures showed inflation spiked to some 61% in April, because of sharp increases in utility tariffs on top of the weakness of the national currency, the hryvnia.

Ukraine’s government is struggling to convince creditors to accept a haircut as part of plans to restructure $23bn of debt. The atmosphere surrounding the talks has become increasingly acrimonious as both sides this week issued statements accusing the other of failing to engage “substantively” with the process. The stand-off over Ukraine’s debt restructuring, alongside the Greek debt crisis, leaves the international community facing potential default risks by two European countries. Analysts suggested Ms Jaresko’s reference to “all options being on the table” was a hint the government was prepared if necessary to impose a moratorium or suspension of debt servicing.

Failure to agree a restructuring with debtholders by June could put at risk the next tranche of a $17.5bn loan from the IMF. The loan is part of a broader $40bn assistance programme that includes $7.5bn in bilateral aid, but also assumes a $15bn debt restructuring over four years that Kiev says should include a haircut, reductions in the coupon, and maturity extensions. [..] In March, credit rating agency Moody’s announced that Ukraine’s chances of defaulting on its debt were “virtually 100 per cent”.

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Rajoy is not going to like this.

Anti-Poverty Crusader Leads Race To Be Barcelona’s Next Mayor (Guardian)

As one of the founders of the Mortgage Victims’ Platform, Ada Colau has spent the past six years battling the most visible scars of Spain’s economic crisis, from growing inequality to home evictions. Now the 41-year-old activist could become Barcelona’s next mayor. Polls have put Colau, and the Barcelona en Comú (Barcelona in Common) citizen platform she leads, in the top spot in the runup to Spain’s regional and municipal elections. A grassroots coalition of several political parties, including Podemos, and thousands of citizens and activists, Barcelona en Comú has become the brightest hope for the many in Spain pushing for democratic regeneration.

Crowd-funded and guided by a code of ethics composed by its members, the group promises to focus on job creation, combat growing inequality in the city and usher in a culture of transparency and anti-corruption measures in the city’s institutions. “We want to show that you can do politics another way,” Colau told the Guardian. “It’s a historic opportunity.” If they win, the group’s members have prepared a to-do list for its first months in power – what Colau calls “commonsense measures” – ranging from limiting her monthly salary to €2,200 to eliminating official cars and expense budgets for attending meetings. The details of any meetings involving city officials would be posted online, they say. The thorny issue of tourism will also be tackled, with an effort to design a more sustainable model for the city.

“Tourism is out of control,” said Colau, pointing to areas such as the historical centre that have become saturated with hotels and tourist apartments. Rents have rocketed as a result and neighbourhoods and small businesses have been pushed out of the area. “Everyone wants to see the real city, but if the centre fills up with multinationals and big stores that you can find in any other city, it doesn’t work,” she said. Colau’s voice rises with excitement as she muses about the possibility of being elected on 24 May. “What most excites us is the idea that Barcelona could become a world reference as a democratic and socially just city. Barcelona has the resources, the money and the skills. The only thing that has been missing to date has been the political will.”

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“CNN in direct transmissions assures that since the 1990s America has been leading humanitarian actions, and not wars, that from military planes fall angels and not bombs!”

US Anger With RT Will Start World War Three – Emir Kusturica (Sputnik)

World War Three will break out when the US finally tires of the RT TV channel, and decides to bomb it; in retaliation, Russia will destroy CNN, writes film director Emir Kusturica, in an article published on Thursday. “Everything is different to how it was during the Cold War! Because of that it is useless to talk about a return to how things used to be, and listen to Henry Kissinger scare us. In the meantime, China has become the strongest world economy, Russia has recovered from Perestroika, India is growing into a genie! Military experts don’t argue that Americans have the most organized army, but there remains the unsolvable puzzle for NATO generals, who have called one of the Russian rockets ‘SATAN.'”

“The devil never comes alone! At the same time with this rocket and numerous innovations, the TV Channel RT has also appeared among the Russian arsenal.” “The program is broadcast in English, and watched by around 700 million people in 200 countries. The secret success of this television is the smashing of the Hollywood-CNN stereotype of the good and bad guys, where blacks, Hispanics, Russians, Serbs are the villains, and white Americans, wherever you look, are OK!” “Congressman, and those in the State Department are continually upset by RT,” writes Kusturica, adding that the US Secretary of State is “the loudest.”

“Kerry and the congressmen are bothered by the fact that RT sends signals that the world is not determined by the fatalism of liberal capitalism, that the US is leading the world into chaos, that Monsanto is not producing healthy food, that Coca-Cola is ideal for cleaning automobile alloys and not for the human stomach, that in Serbia the percentage of people who die from cancer has risen sharply due to the 1999 NATO bombings, that the social map of America is falling from day to day, that the fingerprints of the CIA are on the Ukrainian crisis, and that BlackWater fired at the Ukrainian police, and not Maidan activists.”

In contrast, writes the film director, “CNN in direct transmissions assures that since the 1990s America has been leading humanitarian actions, and not wars, that from military planes fall angels and not bombs!” “As time goes on RT will ever more demystify the American Dream and in primetime will reveal the truth hidden for decades from the eyes and heart of average Americans, in their own homes, in perfect English, better than they use on CNN.”

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How sugar bankrupts societies.

Food and Finance: Create A Revolution With Your Shopping Trolley (Berrino)

When we think of health, most of the time we are thinking of treatments and about patients getting better. Basically we’re thinking about the effects of bad health. Hardly ever do we think of the causes. It’s really complicated to intervene on the causes. That means making changes to the economy that is making us sick. It means altering the very structure of the society in which we live. The air that we breathe, the food that we eat – these are the poisons that make us sick. The medical doctor can only treat the patient, and that is often the last hope, for instances for cases of tumours. The lawmaker should be protecting the citizens, and should be using preventative measures to safeguard health.

However this involves clashing with a variety of multinationals, with the effects of globalisation, with the criminal financial world that not doesn’t mind who it offends and doesn’t even know of the existence of ethics. And in the face of these obstacles, the medical doctor can do very little. The only true remedy is information. Prevent bad health by having access to information, and by your lifestyle. Any diabetes specialist will tell you that sugar is bad for you, but we are bombarded with advertisements for sweet snacks and sugary drinks. These are especially targeted at children who are the most vulnerable. Health care, food, and public spending are all interconnected.

from “Pappa Mundi“ by Francesco Galietti: “It could seem paradoxical, but the structural solution to the crisis in public financing is also linked to the solution of the food issue. In most of the Western World, the public spending that’s classed as “health care” is concentrated on the treatment of pathologies (diabetes, high blood pressure, cancers) and these are linked to the unrestrained consumption of sugars, fats, etc. This has been confirmed in the public consultation that took place in the first quarter of 2014 for the World Health Organization guidelines on the consumption of sugars. In the thoughtful report of a research project issued by their think-tank – the McKinsey Global Institute: obesity has become much more than a cultural problem or one due to the lack of knowledge about foods.

Today, the impact from obesity is roughly $2.0 trillion, or 2.8% of global GDP. This is the impressive figure combining falls in productivity, health-care costs and various types of investment to mitigate the impact. The order of magnitude is roughly equivalent to the global impact from armed violence, war, and terrorism.“ It then goes on to say: “Thus it is not surprising to witness the growing interest and the possible boom in the use of surrogate natural sugars (like stevia) by global giants like Coca-Cola and Pepsi. Nor is it surprising to see the outcry from the associations of sugar producers who are reluctant to take the blame for the excesses of individual people as well as for the gaping holes in national accounts … The more people get hold of the idea that unhealthy foods have negative repercussions even for the badly organised public finances, the more the producers of unhealthy foods will start to be targeted by national governments. “

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“Humans are subject to intense status quo bias. Especially on the conservative end of the psychological spectrum — which is the direction all humans move when they feel frightened or under threat..”

The Awful Truth About Climate Change No One Wants To Admit (Vox)

There has always been an odd tenor to discussions among climate scientists, policy wonks, and politicians, a passive-aggressive quality, and I think it can be traced to the fact that everyone involved has to dance around the obvious truth, at risk of losing their status and influence. The obvious truth about global warming is this: barring miracles, humanity is in for some awful shit. We recently passed 400 parts per million of CO2 in the atmosphere; the status quo will take us up to 1,000 ppm, raising global average temperature (from a pre-industrial baseline) between 3.2 and 5.4 degrees Celsius.

That will mean, according to a 2012 World Bank report, “extreme heat-waves, declining global food stocks, loss of ecosystems and biodiversity, and life-threatening sea level rise,” the effects of which will be “tilted against many of the world’s poorest regions,” stalling or reversing decades of development work. “A 4°C warmer world can, and must be, avoided,” said the World Bank president. But that’s where we’re headed. It will take enormous effort just to avoid that fate. Holding temperature down under 2°C would require an utterly unprecedented level of global mobilization and coordination, sustained over decades. There’s no sign of that happening, or reason to think it’s plausible anytime soon. And so, awful shit it is. [..]

The sad fact is that no one has much incentive to break the bad news. Humans are subject to intense status quo bias. Especially on the conservative end of the psychological spectrum — which is the direction all humans move when they feel frightened or under threat — there is a powerful craving for the message that things are, basically, okay, that the system is working like it’s supposed to, that the current state of affairs is the best available, or close enough. To be the insisting that, no, things are not okay, things are heading toward disaster, is uncomfortable in any social milieu — especially since, in most people’s experience, those wailing about the end of the world are always wrong and frequently crazy.

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Access to water will decline sharply going forward.

Without Universal Access To Water, There Can Be No Food Security (Guardian)

Ensuring universal access to water is vital in order to address food security and improve nutrition, yet recognition of the links between water and food are too often missed. A major report on water for food security and nutrition, launched on Friday by the high-level panel of experts on food security and nutrition (HLPE), is the first comprehensive effort to bring together access to water, food security and nutrition. This report goes far beyond the usual focus on water for agriculture. Safe drinking water and sanitation are fundamental to human development and wellbeing. Yet inadequate access to clean water undermines people’s nutrition and health through water-borne diseases and chronic intestinal infections.

The landmark report, commissioned by the committee on world food security (CFS), not only focuses on the need for access, it also makes important links between land, water and productivity. It underlines the message that water is integral to human food security and nutrition, as well as the conservation of forests, wetlands and lakes upon which all humans depend. Policies and governance issues on land, water and food are usually developed in isolation. Against a backdrop of future uncertainties, including climate change, changing diets and water-demand patterns, there has to be a joined-up approach to addressing these challenges.

There are competing demands over water from different sectors such as agriculture, energy and industry. With this in mind, policymakers have to prioritise the rights and interests of the most marginalised and vulnerable groups, with a particular focus on women, when it comes to water access. There is vast inequality in access to water, which is determined by socio-economic, political, gender and power relations. Securing access can be particularly challenging for smallholders, vulnerable and marginalised populations and women.

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Apr 142015
 
 April 14, 2015  Posted by at 7:51 pm Finance Tagged with: , , , , , , , ,  3 Responses »
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NPC Walker Hill Dairy, Washington, DC 1921

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Citi Analysts Call The ‘End Of The Iron Age’ (CNBC)
Shale Oil Boom Could End in May After Price Collapse (Bloomberg)
Scrap Fossil Fuel Subsidies, Bring In Carbon Tax – World Bank Chief (Guardian)
The New Militarism: Who’s The Real Enemy? (Ron Paul)
Optimising The Eurozone (Frances Coppola)
Greece Prepares For Debt Default If Talks With Creditors Fail (FT)
Why Europe Needs to Save Greece (Anders Borg)
Greece, The Euro’s Greatest “Success” (Constantin Xekalos)
Ackman Says Student Loans Are the Biggest Risk in the Credit Market (Bloomberg)
Chavez’s Ghost Haunts Spanish Budget Rebels Podemos in Polls (Bloomberg)
Anti-Euro Finnish Party Gets Ready to Rule as Discontent Brews (Bloomberg)
The Power of Lies (Paul Craig Roberts)
She’s Back! (Jim Kunstler)
Greenpeace’s Midlife Crisis (Bloomberg)
The Real Reason Californians Can’t Water Their Lawns (Bloomberg)
Italy Rescues Nearly 6,000 Migrants In A Single Weekend (Guardian)

“..why the consumer has literally gone into hibernation..”

The Shocker Crushing The Economy Revealed (Zero Hedge)

We are grateful to Alexander Giryavets at Dynamika Capital for pointing us to something which is far more troubling than even the Atlanta Fed’s collapse in Q1 GDP tracking: namely the latest Credit Managers Index for the month of March which “deteriorated significantly over the last two months and current readings stand at the recessionary levels not seen since 2008.” To be sure, we have previously shown the collapse in consumer debt as reported by the Fed, which as we noted, just suffered its worst month for revolving credit since December 2010 and explains “why the consumer has literally gone into hibernation – it has nothing to do with the weather, and everything to do with the unwillingness to “charge” purchases, which in turn is a clear glimpse into how the US consumer sees their financial and economic future.”

It turns out it may not have been just a matter of demand: apparently something very dramatic has been happening in February and especially in March. Instead of spoiling the punchline, we will leave it to the National Association of Credit Managers to explain what happened: From the latest NACM Credit Managers Index: We now know that the readings of last month were not a fluke or some temporary aberration that could be marked off as something related to the weather. There is quite obviously some serious financial stress manifesting in the data and this does not bode well for the growth of the economy going forward. These readings are as low as they have been since the recession started and to see everything start to get back on track would take a substantial reversal at this stage. The data from the CMI is not the only place where this distress is showing up, but thus far, it may be the most profound.

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“..house prices are declining at 6% a year, compared with double digit growth a year ago..”

China’s Economy: Hard Landing Or Welcome Rebalancing? (Guardian)

The worse-than-expected trade data from China on Monday was the latest evidence of the struggleBeijing faces in achieving a soft landing for the world’s second-largest economy. Before the Great Crash of 2008, China’s role as the world’s manufacturing powerhouse, shipping cut-price goods from shoes to smartphones out across the world, seemed like the economic equivalent of alchemy: turning the sweat and toil of hundreds of millions of workers into gold. But seven years later, with eurozone policymakers resorting to quantitative easing to kickstart demand, and US interest rates still at zero, being saddled with a growth model that relies on selling cheap products to the west no longer looks like such a winning strategy.

Global trade growth remains well below the levels that pre-crisis trends would have predicted. Beijing has made clear that after initially cushioning the slowdown with a massive fiscal stimulus, it is now aiming to engineer a shift to a more sustainable growth model, from a dependence on investment and exports towards consumption. On that basis, the sharp decline in exports is to be welcomed as a sign that the rebalancing is working. But some analysts believe it is the latest sign that something is badly amiss. Erik Britton, of City consultancy Fathom, says its analysis, based on rail freight, electricity production and bank lending, suggests growth is running at closer to 3% than the 7% or so suggested by official GDP data.

“China is in a hard landing now,” he says. “They have faced a situation where their previous growth model is not working.” He points out that house prices are declining at 6% a year, compared with double digit growth a year ago — similar to the kind of reversal that plunged the US into the sub-prime mortgage crisis. Furthermore, banks are saddled with non-performing loans and industries are struggling to tackle overcapacity. He believes China will eventually have to accept a drastic depreciation in the renminbi, of perhaps 25%, in order to regain competitiveness and prevent a crash.

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“.. the proposed projects could end up “little more than a series of expensive boondoggles..”

The Risks Behind China’s Silk Road Growth Gamble (CNBC)

China is betting on a massive infrastructure and cross-border trade initiative to cushion the economy as it transitions to a period of slower, more sustainable growth, but experts warn the program could do more harm than good. Years in the making, the ‘One Belt, One Road’ (OBOR) initiative is composed of two primary projects: the “Silk Road Economic Belt” and “21st Century Maritime Silk Road,” a network of road, rail and port routes that will connect China to Central Asia, South Asia, the Middle East, and Europe. President Xi Jinping hopes the plan will spur more regionally balanced growth as annual GDP hovers at a 24-year low. However, OBOR is unlikely to resolve Beijing’s long-term growth problem as it doesn’t address domestic consumption, noted Bank of America in a recent report.

“OBOR tries to export China’s savings and import foreign demand, so it represents a continuation of China’s old growth model (which had brought China to its current predicament in the first place),” it said. “We suspect that many local governments may leverage off OBOR for a new round of infrastructure spending…This, while helpful in holding up short-term investment, will delay the long overdue rebalancing toward consumption in China,” it added. Some of the countries participating in the OBOR scheme have large current account deficits and unfavorable economic fundamentals, making them high-risk borrowers, BoFAML pointed out. This means Beijing is taking on greater default risk by providing them with capital and financing projects in those nations.

“For example, China swaps renminbi for country Z’s currency at the current exchange rate. If country Z uses the funds to buy Chinese rail equipment and China doesn’t immediately spend currency Z to purchase goods from country Z, China would be exposed to the risk of partial default if currency Z depreciates,” the bank said. The Center for Strategic and International Studies (CSIS) agrees. In a note this week, it stated that borrowers’ failure to pay back loans, or businesses’ inability to recoup their investments could place additional stress on the Chinese economy. Beijing’s past difficulties investing in infrastructure abroad, especially through bilateral arrangements, suggest that the proposed projects could end up “little more than a series of expensive boondoggles,” CSIS remarked.

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“The real challenge for this market is that it still has lots of supply coming..”

Citi Analysts Call The ‘End Of The Iron Age’ (CNBC)

Oversupply and a lack of demand growth has led some market analysts to speculate that iron ore prices will never recover to former levels, and warn of a divergence in different base metals going forward. The price of iron ore is now just over $47 a ton, according to The Steel Index (TSI), which measures a benchmark of 62-percent ore. This is its lowest level since the TSI started compiling spot market prices in 2008, according to Reuters. On Monday, analysts at Citi slashed their forecasts for the price of the metal and now expect iron ore to average $45 a ton in 2015 and $40 a ton in 2016. These are downgrades of 23% and 36.6%, respectively. “We believe the upside in the sector is now capped, however the downside is being protected by dividend yield. We think it is going to be a tough 1-2 years for the mining sector until we clear surplus capacity in the bulk commodity prices,” Heath Jansen, metals and mining analyst at Citi, said in a note Monday morning.

Another analyst, Colin Hamilton, head of global commodities research at Macquarie, explained that iron prices needed to fall in lower in the short term to clear an oversupply that isn’t prevalent in other commodity markets. “The real challenge for this market is that it still has lots of supply coming,” Hamilton, who has also downgraded is forecasts for iron ore prices, told CNBC. Caroline Bain, senior commodities economist at Capital Economics, highlighted in a note last week that iron ore output grew by 9% in 2014, while copper mine supply grew by just over 1%. She added that low-cost iron ore producers in Australia and Brazil were continuing to ramp up output despite the fall in prices, and said she believed this would boost iron ore supply again this year.

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“..If it’s fast, if it’s steep, there could be a big jump in the market.”

Shale Oil Boom Could End in May After Price Collapse (Bloomberg)

The shale oil boom that pushed U.S. crude production to the highest level in four decades is grinding to a halt. Output from the prolific tight-rock formations such as North Dakota’s Bakken shale will decline 57,000 barrels a day in May, the Energy Information Administration said Monday. It’s the first time the agency has forecast a drop in output since it began issuing a monthly drilling productivity report in 2013. Deutsche Bank, Goldman Sachs and IHS have projected that U.S. oil production growth will end, at least temporarily, with futures near a six-year low. The plunge in prices has already forced half the country’s drilling rigs offline and wiped out thousands of jobs. The retreat in America’s oil boom is necessary to correct a supply glut and rebalance global oil markets, according to Goldman.

“We’re going off an inevitable cliff” because of the shrinking rig counts, Carl Larry, head of oil and gas for Frost & Sullivan LP, said by phone from Houston on Monday. “The question is how fast is the decline going to go. If it’s fast, if it’s steep, there could be a big jump in the market.” West Texas Intermediate crude for May delivery climbed 27 cents Monday to settle at $51.91 a barrel on the New York Mercantile Exchange. Prices are down 50% from a year ago. The decline in domestic production will come just as U.S. refineries start processing more oil following seasonal maintenance, easing the biggest glut since 1930. The withdrawal from U.S. oil stockpiles is expected to bring relief to a market that’s seen prices drop by more than $50 a barrel since June.

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But the industry is going to say they already have it so hard..

Scrap Fossil Fuel Subsidies, Bring In Carbon Tax – World Bank Chief (Guardian)

Poor countries are feeling “the boot of climate change on their neck”, the president of the World Bank has said, as he called for a carbon tax and the immediate scrapping of subsidies for fossil fuels to hold back global warming. Jim Yong Kim said awareness of the impact of extreme weather events that have been linked to rising temperatures was more marked in developing nations than in rich western countries, and backed for the adoption of a five-point plan to deliver low-carbon growth. Speaking to the Guardian ahead of this week’s half-yearly meeting of the World Bank in Washington DC, Kim said he had been impressed by the energy of the divestment campaigns on university campuses in the US, aimed at persuading investors to remove their funds from fossil fuel companies.

“We have a whole new generation that is interested in climate change”, he said as he predicted that putting taxes on the use of carbon would trigger a wave of clean technology which would lift people out of poverty in the developing world while preventing the global temperature from rising by more than 2C above pre-industrial levels. Kim said it was crazy that governments increased the use of coal, oil and gas by providing subsidies for consumers. He said that in low and middle-income countries, the richest 20% received six times as much from fossil fuel subsidies as the poorest 20%. He added: “We need to get rid of fossil fuel subsidies now.”

Kim insisted that the recent fall in energy prices meant there had never been a better time to reduce the payments made by governments to help people with their fuel bills. Politicians around the globe currently spend around $1tn (£680bn) a year subsidising fossil fuels, but Kim said: “Fossil fuel subsidies send out a terrible signal: burn more carbon.”

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“.. the real enemy is the taxpayer..”

The New Militarism: Who’s The Real Enemy? (Ron Paul)

Militarism and military spending are on the rise everywhere as the new Cold War propaganda seems to be paying off. The new “threats” that are being hyped bring big profits to military contractors and the network of think tanks they pay to produce pro-war propaganda. Here are just a few examples: The German government announced last week that it would purchase 100 more “Leopard” tanks — a 45-percent increase in the country’s inventory. Germany had greatly reduced its inventory of tanks as the end of the Cold War meant the end of any threat of a Soviet ground invasion of Europe. The German government now claims these 100 new tanks, which may cost nearly half a billion dollars, are necessary to respond to the new Russian assertiveness in the region. Never mind that Russia has neither invaded nor threatened any country in the region, much less a NATO member country.

The US Cold War-era nuclear bunker under Cheyenne Mountain, Colorado, which was all but shut down in the 25 years since the fall of the Berlin Wall, is being brought back to life. The Pentagon has committed nearly a billion dollars to upgrading the facility to its previous Cold War-level of operations. U.S. defense contractor Raytheon will be the prime beneficiary of this contract. Raytheon is a major financial sponsor of think tanks like the Institute for the Study of War, which continuously churn out pro-war propaganda. I am sure these big contracts are a good return on that investment.

NATO, which I believe should have been shut down after the Cold War ended, is also getting its own massively expensive upgrade. The Alliance commissioned a new headquarters building in Brussels, Belgium, in 2010, which is supposed to be completed in 2016. The building looks like a hideous claw, and the final cost — if it is ever finished — will be well over one billion dollars. That is more than twice what was originally budgeted. What a boondoggle! Is it any surprise that NATO bureaucrats and generals continuously try to terrify us with tales of the new Russian threat? They need to justify their expansion plans!

So who is the real enemy? The Russians? No, the real enemy is the taxpayer. The real enemy is the middle class and the productive sectors of the economy. We are the victims of this new runaway military spending. Every dollar or euro spent on a contrived threat is a dollar or euro taken out of the real economy and wasted on military Keynesianism. It is a dollar stolen from a small business owner that will not be invested in innovation, spent on research to combat disease, or even donated to charities that help the needy.

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Europe will never be like the US.

Optimising The Eurozone (Frances Coppola)

[..] there is evidently far greater convergence of unemployment rates in the USA than there is in the Eurozone. So if neither is an OCA, why would this be? There are a number of reasons.

Firstly, the USA is a federation. Each state has its own government, but there is also a fully functional fiscal authority at federal level with tax and spending powers. Automatic fiscal stabilisers – unemployment benefit and income taxes – are harmonised across the federation (states have their own unemployment insurance programmes, but these must comply with federal guidelines). There are also federal-level programmes for other major government expenditures such as pensions, education, healthcare and defence. In contrast, the Eurozone has no federal fiscal authority with tax and spending powers. Automatic stabilisers operate at state, not federal, level and there is little attempt to harmonise them – indeed attempts to harmonise tax rates are met with fierce resistance from member states. Similarly, budgets for pensions, education, healthcare and defence are set by the individual states without reference to each other, although Brussels now supervises member state budgets to ensure compliance with fiscal rules.

Secondly, the USA is a transfer union. Richer states support poorer ones by means of federal fiscal transfers. States can borrow on their own account, and they can – and do – go bankrupt. But because of federal programmes and fiscal transfers, living standards tend to be maintained even in states that completely foul up their budgets. In contrast, the Eurozone has little in the way of fiscal transfers: there is development aid to poorer regions, and systematic help for farmers in the Common Agricultural policy, but that’s about all. The lack of federal programmes and fiscal transfers means that living standards can fall catastrophically when states make a mess of their finances (see Greece) or suffer local economic shocks (see Cyprus), while lack of fiscal harmonisation coupled with free movement of capital means that states are vulnerable to “sudden stops” even if they are fiscally responsible (see Spain).

Thirdly, the USA has a monetary authority with a dual mandate. The Fed is responsible for maintaining both price stability and full employment. Consequently, high unemployment can be fought with monetary stimulus as well as fiscal measures. In contrast, the ECB is only responsible for price stability. Provided that inflation is under control, the ECB has no reason to do anything at all about high unemployment. Consequently, the ECB has maintained far tighter monetary conditions than the USA over the last few years despite considerably higher unemployment. This has seriously hampered the efforts of member states, particularly in the distressed periphery, to reduce unemployment.

Finally, the USA – although not an OCA – has a common language and free movement of people both in theory and practice (though parts of the USA can be unfriendly to migrants, as anyone who has read Steinbeck will know). The ease with which people can migrate within the US to find work is a primary cause of the convergent unemployment rates.

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This was presented like some big news thing; it’s not.

Greece Prepares For Debt Default If Talks With Creditors Fail (FT)

Greece is preparing to take the dramatic step of declaring a debt default unless it can reach a deal with its international creditors by the end of April, according to people briefed on the radical leftist government’s thinking. The government, which is rapidly running out of funds to pay public sector salaries and state pensions, has decided to withhold €2.5 billion of payments due to the IMF in May and June if no agreement is struck, they said. A Greek default would represent an unprecedented shock to Europe’s 16-year-old monetary union only five years after Greece received the first of two EU-IMF bailouts that amounted to a combined €245 billion. The warning of an imminent default could be a negotiating tactic, reflecting the government’s aim of extracting the easiest possible conditions from Greece’s creditors, but it nevertheless underlined the reality of fast-emptying state coffers.

Default is a prospect for which other European governments, irritated at what they see as the unprofessional negotiating tactics and confrontational rhetoric of the Greek government, have also begun to make contingency plans. In the short term, a default would almost certainly lead to the suspension of emergency European Central Bank liquidity assistance for the Greek financial sector, the closure of Greek banks, capital controls and wider economic instability. Although it would not automatically force Greece to drop out of the eurozone, a default would make it much harder for Alexis Tsipras, prime minister, to keep his country in the 19-nation area, a goal that was part of the platform on which he and his leftist Syriza party won election in January.

Germany and Greece’s other eurozone partners say they are confident that the currency area is strong enough to ride out the consequences of a Greek default, but some officials acknowledge it would be a plunge into the unknown. Greece’s finance ministry on Monday reaffirmed the government’s commitment to striking a deal with its creditors, saying: “We are continuing uninterruptedly the search for a mutually beneficial solution, in accordance with our electoral mandate.” In this spirit, Greece resumed technical negotiations with its creditors in Athens and Brussels on Monday on the fiscal measures, budget targets and privatisations without which the lenders say they will not release funds needed to pay imminent debt instalments.

The government is trying to find cash to pay €2.4 billion in pensions and civil service salaries this month. It is due to repay €203m to the IMF on May 1 and €770 million on May 12. Another €1.6 billion is due in June. The funding crisis has arisen partly because €7.2 billion in bailout money due to have been disbursed to Greece last year has been held back, amid disagreements between Athens and its European and IMF creditors over politically sensitive structural economic reforms.

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“Whether or not the Greeks are deserving of assistance, it is in Europe’s interest to help them..”

Why Europe Needs to Save Greece (Anders Borg)

The fundamental problem underlying Greece’s economic crisis is a Greek problem: the country’s deep-rooted unwillingness to modernize. Greece was subject to a long period of domination by the Ottoman Empire. Its entrenched political and economic networks are deeply corrupt. A meritocratic bureaucracy has not emerged. Even as trust in government institutions has eroded, a culture of dependency has taken hold. The Greeks, it can be argued, have not earned the right to be saved. And yet a Greek exit from the euro is not the best option for either Greece or for the European Union. Whether or not the Greeks are deserving of assistance, it is in Europe’s interest to help them. The OECD, the EC, the IMF, and the World Bank have emphasized, in report after report, the fundamental inability of Greece’s economy to produce long-term sustainable growth.

The country’s education system is sub-par and underfunded. Its investments in research and development are inadequate. Its export sector is small. Productivity growth has been slow. Greece’s heavy regulatory burden, well described by the World Bank’s indicators on the ease of doing business, represents a significant entry barrier in many sectors, effectively closing off entire industries and occupations to competition. As a result, Greece’s economy struggles to reallocate resources, including workers, given the rigidity of the labor market. After Greece was allowed to enter the eurozone, interest-rate convergence, combined with inflated property prices, fueled an increase in household debt and caused the construction sector to overheat, placing the economy on an unsustainable path.

In the years before the beginning of the financial crisis, current-account deficits and bubbly asset prices pushed annual GDP growth up to 4.3%. Meanwhile, public spending rose to Swedish levels, while tax revenues remained Mediterranean. In the eight years that I served on the EU’s Economic and Financial Affairs Council, I worked alongside seven Greek ministers, every one of whom at some point admitted that the country’s deficit numbers had to be revised upward. Each time, the minister insisted that it would never happen again. But it did. Indeed, the pre-crisis deficit for 2008 was eventually revised to 9.9% of GDP – more than 5% higher than the figure originally presented to the Council. And yet, as bad as Greece’s economy and political culture may be, the consequences of the country’s exit from the euro are simply too dire to consider. In the end, such an outcome would be the result of a political decision, and the European values at stake in that decision trump any economic considerations.

(Anders Borg, a former Swedish finance minister, is Chair of the World Economic Forum’s Global Financial System Initiative.)

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“..when the Germans were there during the occupation in the Second World War, the people lived exactly like they are living now.”

Greece, The Euro’s Greatest “Success” (Constantin Xekalos)

Greece is a social disaster zone. 3 million people are without guaranteed healthcare, 600,000 children are living under the breadline and more than half of them are unable to meet their daily nutritional needs. 90% of families living in the poorer areas rely on food banks and feeding schemes for survival, and unemployment is approaching 30%, with youth unemployment approaching 60%. These are not just numbers, they are real people. In order to show their faces and tell their stories, writer and documentary film maker from Crete and now living in Florence, Constantin Xekalos, decided to make a documentary film entitled: “Greece, the Euro’s greatest success “. In today’s Passaparola he talks about this documentary film and about the suffering of the Greek people that he has encountered in his personal experience. Today it is all happening, but is Italy next?

“Good day to everyone, my name is Constantin Xekalos. I was born in Crete many years ago. I now live in Florence and I will explain why I created this documentary that is doing the rounds on the Web, namely “ Greece, the Euro’s greatest success ” taken from Monti’s statements while he was Prime Minister. My decision was sparked by an Albanian family that was in serious difficulty and was going to Crete in November to pick olives with two tiny children in tow and facing serious financial difficulties. When I saw that the official media was never saying what they should be saying, I said to myself: “do something with your friends in order to report the reality of what Europe is doing”. I shared this idea of mine with a number of friends and bit by bit we formed a group of 5 people, then a sixth person joined us and we got going.

The healthcare tragedy in Greece When we made this documentary it was said that 1/3 of the Greek population, (more than 3 million people,) were without any guaranteed healthcare. In the interim that number has grown. They have been abandoned. If you go to a hospital, obviously a public one, they will treat you and they will accept you if it is an emergency, but if you are admitted, you then have to pay. If you are unable to pay, they send the bill to the Receiver of Revenue’s office and they take it from there. If you have no money, they start with foreclosure, even your home , even if it is your only home!

This is crime against society that is totally unacceptable. In an advanced and so-called democratic Country that is part of the western world, things like this are totally inconceivable, absurd and unacceptable. I repeat, this is crime against society that we absolutely cannot accept! If you are ill, democracy guarantees the treatment you need, otherwise it should be called by some other name. When a child is not guaranteed the nutrition he/she needs, a mere helpless child, or elderly people that are no longer able to look after themselves, then that is no longer democracy. Some of the older Greeks were telling me that when the Germans were there during the occupation in the Second World War, the people lived exactly like they are living now.

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“..there’s no way students are going to pay it back..”

Ackman Says Student Loans Are the Biggest Risk in the Credit Market (Bloomberg)

Bill Ackman says the biggest risk in the credit market is student loans. “If you think about the trillion dollars of student loans we have outstanding, there’s no way students are going to pay it back,” Ackman, who runs $20 billion Pershing Square Capital Management, said today at 13D Monitor’s Active-Passive Investor Summit in New York. The balance of student loans outstanding in the U.S. – also including private loans without government guarantees – swelled to $1.3 trillion as of the second quarter 2014, based on data released by the Federal Reserve in October. The rising level has prompted investors and government officials to draw parallels to the subprime mortgage market before housing collapsed starting in 2006.

About $100 billion of federal student loans are in default, 9% of outstanding balances, according to a Treasury Borrowing Advisory Committee update on student lending trends released in November. Ackman, 48, said “young people are the kind of people that protest” and predicted that one administration or another will forgive student debt. The investor, who last year trounced other money managers with a 40% gain in his public fund, said at the conference he doesn’t like fixed income markets generally because of very low U.S. interest rates and that investors should be wary of aggressive lending terms.

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Not a main issue.

Chavez’s Ghost Haunts Spanish Budget Rebels Podemos in Polls (Bloomberg)

After a meteoric rise before this year’s Spanish election, anti-austerity party Podemos is finding the past might now be catching up with the future. Leader Pablo Iglesias and senior party officials have been embroiled in allegations for the past three months over their ties to the former Venezuelan government of Hugo Chavez. Podemos’s support slipped for a third month to 22% in a Metroscopia poll published on Sunday from a peak of 28% in January. The controversy is forcing Iglesias, who says he worked as an adviser to the Venezuelan government before entering Spanish politics, to decide where he takes the party now.

Embracing the radical label, like his ally in Greece, Prime Minister Alexis Tsipras, may limit Podemos’s broader appeal, while reshaping the policy program toward the mainstream risks alienating some of the activists who’ve powered the party’s rise. “If you want to support Venezuela, it’s very difficult to reach the center of the political spectrum,” said Jose Ignacio Torreblanca, head of the Madrid office of the European Council on Foreign Relations. “The bigger issue is how this will affect Podemos’s grassroots support and its political affinities on its journey toward the center.” Opponents of Podemos including former Prime Minister Jose Maria Aznar said the links with the socialist Chavez undermine Spanish democracy.

YouTube videos of Podemos leaders extolling the virtues of Chavismo have spread across Spain, just as the economy in Venezuela gets hit by falling oil prices and the inflation rate edges toward 70%. Iglesias, his deputy, Inigo Errejon, and Juan Carlos Monedero, the party’s head of policy, studied revolutionary movements in Latin America as part of their academic work and went on to advise governments there, in particular Venezuela. Between 2006 and 2007, Iglesias worked for Chavez’s office in Caracas and led classes on “ideology and constitutional law,” according to his resume. Monedero also worked with Chavez, who died in 2013. Podemos denied reports that the party had received financing from Venezuela in a March 2 statement.

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Europe’s going to wish Syriza were their biggest problem.

Anti-Euro Finnish Party Gets Ready to Rule as Discontent Brews (Bloomberg)

The anti-euro The Finns party, which eight years ago got just 4% of the vote, is now dressing itself up for Cabinet seats as Finnish voters are set to oust the government after four years of economic failure. The Finns, whose support is based on equal parts of anti-euro, anti-immigrant and anti-establishment sentiment, have captured voters on the back of the euro-area’s economic crisis and a home-grown collapse of key industries. In the 2011 election, during the height of the euro crisis, it shocked the traditional parties by winning 19% of the vote. “We can’t be ignored, because a strong majority government won’t be possible without us,” Timo Soini, the party leader, said in a phone interview April 9.

Europeans are seeing their political landscape shifting with the emergence of non-establishment parties from Greece in the south to Finland in the north. In the Hellenic nation, anti-austerity Syriza grabbed power in January elections and in Spain, where an election is due this year, its ally Podemos has topped polls. Almost a third of voters expect The Finns party to be part of government, according to a March 13 survey by the Foundation for Municipal Development.

The country is struggling to emerge from a three-year recession after key industries such as its papermakers have buckled amid slumping demand and Nokia Oyj lost in the smartphone war, cutting thousands of jobs. The government has raised taxes and lowered spending, adding to unpopularity, and on top of that have been bailout costs for Greece and Portugal, among others, which have eroded finances for Finland, still top-rated at Fitch Ratings and Moody’s Investors Service. “Our stance will be very tight, no matter what,” Soini said. “Nothing is forcing Finland to participate in these bailout policies. If we don’t want to take part, we can refuse.”

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Nice history lesson.

The Power of Lies (Paul Craig Roberts)

It is one of history’s ironies that the Lincoln Memorial is a sacred space for the Civil Rights Movement and the site of Martin Luther King’s “I Have a Dream” speech. Lincoln did not think blacks were the equals of whites. Lincoln’s plan was to send the blacks in America back to Africa, and if he had not been assassinated, returning blacks to Africa would likely have been his post-war policy. As Thomas DiLorenzo and a number of non-court historians have conclusively established, Lincoln did not invade the Confederacy in order to free the slaves. The Emancipation Proclamation did not occur until 1863 when opposition in the North to the war was rising despite Lincoln’s police state measures to silence opponents and newspapers. The Emancipation Proclamation was a war measure issued under Lincoln’s war powers. The proclamation provided for the emancipated slaves to be enrolled in the Union army replenishing its losses.

It was also hoped that the proclamation would spread slave revolts in the South while southern white men were away at war and draw soldiers away from the fronts in order to protect their women and children. The intent was to hasten the defeat of the South before political opposition to Lincoln in the North grew stronger. The Lincoln Memorial was built not because Lincoln “freed the slaves,” but because Lincoln saved the empire. As the Savior of the Empire, had Lincoln not been assassinated, he could have become emperor for life.cAs Professor Thomas DiLorenzo writes: “Lincoln spent his entire political career attempting to use the powers of the state for the benefit of the moneyed corporate elite (the ‘one-percenters’ of his day), first in Illinois, and then in the North in general, through protectionist tariffs, corporate welfare for road, canal, and railroad corporations, and a national bank controlled by politicians like himself to fund it all.”

Lincoln was a man of empire. As soon as the South was conquered, ravaged, and looted, his collection of war criminal generals, such as Sherman and Sheridan, set about exterminating the Plains Indians in one of the worst acts of genocide in human history. Even today Israeli Zionists point to Washington’s extermination of the Plains Indians as the model for Israel’s theft of Palestine. The War of Northern Aggression was about tariffs and northern economic imperialism. The North was protectionist. The South was free trade. The North wanted to finance its economic development by forcing the South to pay higher prices for manufactured goods. The North passed the Morrill Tariff which more than doubled the tariff rate to 32.6% and provided for a further hike to 47%. The tariff diverted the South’s profits on its agricultural exports to the coffers of Northern industrialists and manufacturers. The tariff was designed to redirect the South’s expenditures on manufactured goods from England to the higher cost goods produced in the North.

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Hillary and the Three Stooges.

She’s Back! (Jim Kunstler)

[..] what does the flight of Hillary say about party politics in this land? That a more corrupt and sclerotic dominion has hardly been glimpsed since the last Bourbons cavorted in the halls of Versailles? Hence, my view that America will witness a very peculiar spectacle leading up to and perhaps beyond the 2016 election: the disintegration of seeming normality against a background of mounting disorder and insurrection. Hillary will go on caw-cawing platitudes about togetherness, diversity, and recovery while the economy sinks to new extremes of unravelment, and the anger of a swindled people finally boils over.

Neither party shows even minimal competence for understanding the actual crises facing this land, and indeed the project of techno-industrial civilization itself. If the people don’t overthrow them, and grind their pretenses underfoot, then events surely will. In the trying months leading up to the presidential election of 2016, Americans will witness the death of their “energy independence” fantasy — actually a meme concocted by professional propagandists. The shale oil “miracle” will go up in a vapor of defaulting junk bonds. Violence will escalate through North Africa and the Middle East, threatening the world oil supply more generally. I would give a low-percentage chance of survival to King Salman of Saudi Arabia, and to the Saud part of Arabia more particularly as civil war among the rival clans breaks out there, with an overlay of Islamic State mischief seeding even greater chaos, and the very likely prospect of sabotage to the gigantic oil terminal at Ras Tanura on the Persian Gulf.

In comparison, the fiasco of Benghazi will look like a mere Three Stooges episode. If a third party were to arise in all this turmoil, it might not be savior brigade, either. In 1856 the Republicans welled up as the Whigs expired in sheer purposelessness and the Democrats romanced slavery. The nation had to endure the greatest convulsion in its lifetime to get to the other side of that. This time, I’m not at all sure we’ll get to the other side in one piece.

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Greenpeace’s crisis is its corporate culture.

Greenpeace’s Midlife Crisis (Bloomberg)

Greenpeace’s account of its mission to board and occupy an enormous oil-drilling rig in the middle of the Pacific evoked a familiar image of daring environmental activists confronting determined opposition from a corporate titan. The six people who used ropes and harnesses last week to scale the Royal Dutch Shell rig from inflatable rafts dodged “jets of water from high-powered hoses aimed at them by the rig’s crew.” There was only one problem: The encounter involved no hoses. In fact, as a later clarification from Greenpeace made clear, the activists met no resistance at all. It was a small but telling slip-up for Greenpeace, which has been mired in an internal debate over how far to go to capture the public’s attention at a time when its traditional stunts often seem familiar.

Many corporate targets are now savvy enough to avoid the confrontations that hand Greenpeace camera-ready scenes to generate publicity and support. “It’s no longer maybe the mind-blowing tactics that it was in the ’70s or ’80s to go out and take some pictures,” says Laura Kenyon, a Greenpeace campaigner who participated in the latest effort to shadow the Artic-bound Shell rig across the Pacific. “People now expect things from Greenpeace.” It seems scaling a moving oil rig in the middle of an ocean isn’t enough to guarantee attention. The activists managed to spend almost a week aboard Shell’s Polar Pioneer before departing over the weekend. In that time Kenyon’s colleagues set up camp, unfurled a “Save the Arctic” banner, and shot videos of themselves. Shell made no physical attempt to dislodge the Greenpeace team—some crew members could be seen waving to them.

Shell sought a restraining order to keep the activists away, and a federal judge in Alaska granted the measure on April 11. Procter & Gamble was similarly unruffled last year when a Greenpeace team, including one in a tiger suit, used zip lines to hang a banner between two of the company’s Cincinnati office towers in a bid to draw attention to the use of palm oil from rain forests in shampoos. A local police officer rapped on a window and calmly asked the activists when they would be done. Later, in a sign of just how far corporate targets can take nonconfrontational tactics, P&G even persuaded prosecutors to reduce the charges against the activists from felony vandalism and burglary to misdemeanor trespassing.

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Highly debatable. Why should they water lawns in the first place? Why have lawns? It’s not as if they’re living in (New) England.

The Real Reason Californians Can’t Water Their Lawns (Bloomberg)

In response to the ongoing drought, California Governor Jerry Brown has set limits on urban water use—ordering cuts of as much as 25%. Cities across the state will stop watering highway median strips and rip up grass in public places. Golf courses and cemeteries will turn on the sprinklers less frequently, and water rates might rise. In many ways, this is an odd response to a water problem that’s largely about agriculture. But in that, California is a microcosm of an increasing proportion of the world: underpriced water used mainly for agriculture driving shortages that have nasty side effects on urban areas. The difference between California and the world’s poorest regions is that the side effects aren’t browning fairways but diarrhea, dehydration, and tens of thousands of deaths. California has plenty of water for the people who live there—it’s the crops and gardens that are the problem.

Agriculture accounts for about 80% of the state’s water use. The state’s urban residents consume an average of 178 gallons of water per day, compared with 78 gallons in New York City, in large part because of how much they spray on the ground: Half of California’s urban consumption is for landscaping. The big problem with the 90% of California’s water used on soil is that it’s frequently provided below cost and according to an arcane distribution formula. Angelenos do pay more for their water than New Yorkers—at 150 gallons per person per day, a recent water pricing survey suggests they would pay $99 a month for a family of four, compared with $63 in New York. But they’d use less on the garden if water were priced to reflect long-term cost.

And thanks to a skewed system of water rights and underpricing, many of California’s farms are idling land while others are devoted to water-hungry crops like almonds, using wasteful systems. A little under one-half of California farms still use inefficient forms of flood irrigation. The struggle California faces is increasingly common around the world. By 2030, without greater water efficiency, as much as a third of the world’s population will live in areas where water needs will be as much as 50% above accessible, reliable supply. Fixing the problem isn’t that complex: A McKinsey study of water use in India, for example, suggests that about a third of the gap between 2030 water demand and current supply in that country could be met by measures that actually save money—steps like avoiding over-irrigation and introducing no-till farming. The most expensive of measures required would involve costs below one cent per hundred gallons of water. The impact on food costs would be marginal.

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And 1,300 more just yesterday.

Italy Rescues Nearly 6,000 Migrants In A Single Weekend (Guardian)

Italy’s coastguard and navy have rescued nearly 6,000 migrants since Friday, as warm weather and improving sea conditions prompted an even higher number of boats than usual to set off from north Africa. Rescue operations are still under way and at least nine migrants have died after their boat capsized about 80 miles off the coast of Libya, according to reports on Monday morning. About 144 people were saved in that operation. Concerns have already been raised about the logic and morality of Europe’s decision to cut back maritime rescue operations in the Mediterranean last autumn. The EU is expected to announce a review of its policies in early May. The new arrivals bring the total number of migrants who have entered Italy to more than 15,000 since the start of the year, according to the International Organisation for Migration (IOM), which tracks the figures closely.

It was the second weekend in a row in which huge numbers of migrants were rescued crossing the Sicilian channel. The majority of the operations this month have been performed by the Italian coastguard and navy and some commercial ships in international waters, rather than the European-backed Triton mission that patrols waters within 30 miles of the Italian coast. Triton replaced a far more ambitious programme conducted by Italy, the Mare Nostrum mission, at the end of last year. Mare Nostrum was a one-year programme that cost Italy about €9m a month, compared with Triton’s budget of €2.9m, and carried out search and rescue missions over a 27,000 square-mile area. Refugee advocate groups have pointed to this year’s migrant death toll of about 480, compared with 50 at the same time last year, as a sign of Triton’s inability to cope with the scale of the migration crisis.

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Apr 022015
 
 April 2, 2015  Posted by at 9:39 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »
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Marion Post Wolcott Negro woman carrying laundry between Durham and Mebane, NC 1939

The Committee To Destroy The World (Michael Lewitt)
Our Current Illusion Of Prosperity (Mises Inst.)
Economic Inequality: It’s Far Worse Than You Think (Scientific American)
Burning Down The House: Land, Water & Food (Eastwood)
The Warren Effect: Here Is A Bluff That Needs To Be Called (Esquire)
Companies Go All-In Before Rate Hike, Issue Record Debt In Q1 (Zero Hedge)
Shanghai Traders Make Trillion-Yuan Stock Bet With Borrowed Cash (Bloomberg)
Greek Defiance Mounts As Alexis Tsipras Turns To Russia And China (AEP)
Greece Threatens Default As Fresh Reform Bid Falters (Telegraph)
China’s Fuel Demand to Peak Sooner Than Oil Giants Expect (Bloomberg)
The Saudis Are Losing Their Lock on Asian Oil Sales (Bloomberg)
Reckoning Arrives for Cash-Strapped Oil Firms Amid Bank Squeeze (Bloomberg)
Appalachia Miners Wiped Out by Coal Glut That They Can’t Reverse (Bloomberg)
World Dairy Prices Slide 10.8% On Supply Concerns (NZ Herald)
CFTC Charges Kraft, Mondelez With Manipulating Wheat Futures (MarketWatch)
Brazil’s Richest Man May Reap $5.6 Billion in Kraft-Heinz Merger
The Cuban Money Crisis (Bloomberg)
California Orders Mandatory Water Cuts Of 25% Amid Record Drought (WSJ)

Absolute must read. And then a second time.

The Committee To Destroy The World (Michael Lewitt)

Last month, the world mourned the death of beloved actor Leonard Nimoy. Mr. Nimoy, of course, was renowned for his portrayal of the iconic character Mr. Spock on the 1960s television series Star Trek. One of the most memorable Star Trek inventions was the transporter that allowed human beings to be beamed through space and time like light and energy. Investors expecting central bankers to solve the world’s economic problems might as well believe that Janet Yellen is capable of beaming them straight into the Marriner S. Eccles Building in Washington, D.C. Their failure to acknowledge that the Fed is failing to generate sustainable economic growth while contributing to income inequality and crushing debt burdens is inexplicable.

Central banks that purport to be promoting financial stability are actually undermining it – with the able assistance of regulators who have drained liquidity from the world’s most important markets. Negative interest rates on $3 trillion of European debt are an obvious sign of policy failure, yet the policy elite stands mute. Actually that’s not correct – the cognoscenti is cheering on Mario Draghi as he destroys the European bond markets just as they celebrated Janet Yellen’s demolition of the Treasury market. Negative interest rates are not some curiosity; they represent a symptom of policy failure and a violation of the very tenets of capitalist economics. The same is true of persistent near-zero interest rates in the United States and Japan.

Zero gravity renders it impossible for fiduciaries to generate positive returns for their clients, insurance companies to issue policies, and savers to entrust their money to banks. They are a byproduct of failed economic policies, not some clever device to defeat deflation and stimulate economic growth. They are mathematically doomed to fail regardless of what economists, who are merely failed monetary philosophers practicing a soft social science, purport to tell us. The fact that European and American central banks are following the path of Japan with virtually no objection represents one of the most profound intellectual failures in the history of economic policy history.[..]

Christopher Whalen, one of the best bank analysts on Wall Street, argued that global banks face trillions of bad off-balance sheet debts that must eventually be resolved (i.e. written off) and are dragging on economic growth. These debts include everything from loans by German banks to Greece to home equity loans in the U.S. for homes that are underwater on their first mortgage. Banks and governments refuse to restructure (i.e. write off) these bad debts because doing so would trigger capital losses for banks and governments. As Mr. Whalen explains, “the Fed and ECB have decided to address the issue of debt by slowly confiscating value from investors via negative rates, this because the fiscal authorities in the respective industrial nations cannot or will not address the problem directly.”

But in addition to avoiding the bad debt problem, these policies are causing further economic damage by depressing growth and starving savers. Per Mr. Whalen: “ZIRP and QE as practiced by the Fed and ECB are not boosting, but instead depressing, private sector economic activity. By using bank reserves to acquire government and agency securities, the FOMC has actually been retarding private economic growth, even while pushing up the prices of financial assets around the world.”

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“Massive layoffs in the energy sector are now a certainty. Few realize that most of the gains in employment in the US since 2008 have been in shale states. Yet the carnage is not over.”

Our Current Illusion Of Prosperity (Mises Inst.)

President Obama and Fed Chair Janet Yellen have been crowing about improving economic conditions in the US. Unemployment is down to 5.5% and growth in 2014 hit 2.2%. Journalists and economists point to this improvement as proof that quantitative easing was effective. Unfortunately, this latest boom is artificial and has been built by adding debt on top of debt. Total household debt increased 2.5% in 2014 — the highest level since 2010. Mortgage loans increased 1.5%, student loans 6.6% while auto loans increased a hefty 9.6%. The improving auto sales are built mostly on a bubble of sub-prime borrowers. Auto sales have been brisk because of a surge in loans to individuals with credit scores below 620. Since 2010, such loans have increased over 100% and have gone from 20% of originations in 2009 to 27% in 2013.

Yet, auto loans to individuals with strong credit scores, above 760, have barely budged over the last year. Subprime consumer borrowing climbed $189 billion in the first eleven months of 2014. Excluding home mortgages, this accounted for 41% of total consumer lending. This is exactly the kind of lending that got us into trouble less than a decade ago, and for many consumers, this will only end in tears. But we need to ask ourselves: is the current boom built on sound foundations? In other words, do we have sharp increases in productivity or real wage growth? Productivity increased less than 1% on average in the last three years and real wages have flat lined or declined for decades. From mid-2007 to mid-2014, real wages declined 4.9% for workers with a high school degree, dropped 2.5% for workers with a college degree and rose just 0.2% for workers with an advanced degree.

Is the boom being built on broad base investment in plant and equipment? The current average age of working plants and equipment in the US is one of the oldest on record. Meanwhile, it is now clear that the shale boom was an illusion of prosperity. Oil prices have dipped below $50 with some analysts calling for $20 oil by the end of the year. This is a drop from over $100 from last year. Many shale outfits need oil above $65 just to break even. Massive layoffs in the energy sector are now a certainty. Few realize that most of the gains in employment in the US since 2008 have been in shale states. Yet the carnage is not over. Induced by low interest, investment banks loaned over $1 trillion to the energy industry. The impact on the financial sector is still to be felt.

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Do read.

Economic Inequality: It’s Far Worse Than You Think (Scientific American)

In a candid conversation with Frank Rich last fall, Chris Rock said, “Oh, people don’t even know. If poor people knew how rich rich people are, there would be riots in the streets.” The findings of three studies, published over the last several years in Perspectives on Psychological Science, suggest that Rock is right. We have no idea how unequal our society has become. In their 2011 paper, Michael Norton and Dan Ariely analyzed beliefs about wealth inequality. They asked more than 5,000 Americans to guess the%age of wealth (i.e., savings, property, stocks, etc., minus debts) owned by each fifth of the population. Next, they asked people to construct their ideal distributions. Imagine a pizza of all the wealth in the United States. What%age of that pizza belongs to the top 20% of Americans?

How big of a slice does the bottom 40% have? In an ideal world, how much should they have? The average American believes that the richest fifth own 59% of the wealth and that the bottom 40% own 9%. The reality is strikingly different. The top 20% of US households own more than 84% of the wealth, and the bottom 40% combine for a paltry 0.3%. The Walton family, for example, has more wealth than 42% of American families combined. We don’t want to live like this. In our ideal distribution, the top quintile owns 32% and the bottom two quintiles own 25%. As the journalist Chrystia Freeland put it, “Americans actually live in Russia, although they think they live in Sweden. And they would like to live on a kibbutz.” Norton and Ariely found a surprising level of consensus: everyone — even Republicans and the wealthy—wants a more equal distribution of wealth than the status quo.

This all might ring a bell. An infographic video of the study went viral and has been watched more than 16 million times. In a study published last year, Norton and Sorapop Kiatpongsan used a similar approach to assess perceptions of income inequality. They asked about 55,000 people from 40 countries to estimate how much corporate CEOs and unskilled workers earned. Then they asked people how much CEOs and workers should earn. The median American estimated that the CEO-to-worker pay-ratio was 30-to-1, and that ideally, it’d be 7-to-1. The reality? 354-to-1. Fifty years ago, it was 20-to-1. Again, the patterns were the same for all subgroups, regardless of age, education, political affiliation, or opinion on inequality and pay. “In sum,” the researchers concluded, “respondents underestimate actual pay gaps, and their ideal pay gaps are even further from reality than those underestimates.”

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Can man stop himself?

Burning Down The House: Land, Water & Food (Eastwood)

I’m sure when Talking Heads wrote “Burning Down The House” that they didn’t exactly have financial collapse and environmental degradation in mind. Although with a verse like “Hold tight wait till the party’s over. Hold tight we’re in for nasty weather. There has got to be a way. Burning down the house” it’s hard not to see that song as strangely prophetic. What we are now doing to the planet and to human society is exactly that – burning down the house while we are still living in it. Everyone needs fuel, especially during a bitter winter, but only a mad man starts deconstructing the house in order to burn bits of it in the stove or fireplace. Almost as mad as that is stealing bits of other people’s houses to burn, but that at least is not soiling your own doorstep – well not at first.

In a world of limited resources and limited space we’ve now reached the point where raiding our neighbours’ houses is the same thing as raiding our own house, because the net effect is the same – disaster on an unprecedented level. Of course it’s easier to live in denial and keep on cannibalising the world’s vital resources at an ever-increasing rate and pretend that it’s business as usual, but in reality it is anything but that. The alarm bells from commentators from all sectors: science, economics, religion etc. are getting louder and more frequent, better argued and with the raw data to back it up, but we are still not listening. Of course, the alarm bell was being rung fifty or more years ago by people such as Admiral Hyman Rickover in 1957, the now retiring Lester Brown and the late Rachel Carson (author of Silent Spring).

Nobody really listened that well back then, although governments paid lip-service to these troublesome do-gooders. Now we know that what they said was entirely true, that we are headed for disaster and yet will still only get the tired old lip-service, as before or Koch Brother inspired denial. The evidence is clearly there that we are depleting all of our resources far too quickly, especially the land we use to produce food and draw raw materials from. In part a consequence of this, the fresh water supplies that are even more vital are also being depleted way too fast. Devastation of the land, especially deforestation exacerbates water loss and soil erosion. Couple this with increased damming of rivers, pollutant run-off into rivers, fracking and mining and you’ve a recipe for a water crisis, which will, in turn, lead to a food crisis.

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Amen.

The Warren Effect: Here Is A Bluff That Needs To Be Called (Esquire)

Let us be quite definite about this. Any Democratic politician who thinks this is a bad situation – or, worse, will not stand by a Democratic colleague in this situation – is not worth the hankie to blow Joe Lieberman’s nose.

Representatives from Citigroup, JPMorgan, Goldman Sachs and Bank of America, have met to discuss ways to urge Democrats, including Warren and Ohio Senator Sherrod Brown, to soften their party’s tone toward Wall Street, sources familiar with the discussions said this week. Bank officials said the idea of withholding donations was not discussed at a meeting of the four banks in Washington but it has been raised in one-on-one conversations between representatives of some of them. However, there was no agreement on coordinating any action, and each bank is making its own decision, they said.

My god, what a prodigious bluff. Also, my god, what towering arrogance? These guys own half the world and have enough money to buy the other half, and they’re threatening the party still most likely to control the White House because they don’t like the Senator Professor’s tone? Her tone? Sherrod Brown’s tone? These are guys who should be worried about the tone of the guard who’s calling them down to breakfast at Danbury and they’re concerned about the tenderness of their Savile Row’d fee-fees? Honkies, please.

The tensions are a sign that the aftermath of the 2008 financial crisis – the bank bailouts and the fights over financial reforms to rein in Wall Street – are still a factor in the 2016 elections. Citigroup has decided to withhold donations for now to the Democratic Senatorial Campaign Committee over concerns that Senate Democrats could give Warren and lawmakers who share her views more power, sources inside the bank told Reuters.

Tensions? These are the guys who should have spent the last six years going door to door apologizing to every American for blowing up the world economy and then buying up the splinters. That is, they should have been going door-to-door to apologize to all those Americans who still have doors they can call their own. Call this. Do it now. Tell them their money is no good here any more. Give these brigands the 86 the way any respectable saloonkeeper gives the heave to a chronic deadbeat who’s run up an unpayable tab. Show the country in simple (and not necessarily civil) words what these people really are.

Demonstrate, speech by speech, that they have no loyalty to the political entity that is the United States of America, that they are stateless gombeen bastards who would sell this country’s democracy off like a subprime mortgage to put another ten bucks into their pockets. They are threatening the people whom they still should be thanking for saving them from themselves. And Senator Professor Warren is only their most conspicuous target. Don’t kid yourselves, this is a message they’re sending to every politician, up and down the line, national and local. Don’t cross us. We own you. There is only one response for a democratic people to make to this ongoing gross obscenity. Bring it, motherfkers. Bring your lunch. And your lawyers.

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What could possibly go wrong?

Companies Go All-In Before Rate Hike, Issue Record Debt In Q1 (Zero Hedge)

It should come as no surprise that Q1 was a banner quarter for corporate debt issuance as struggling oil producers tapped HY markets to stay afloat, companies scrambled to max out the stock-buyback-via-balance-sheet re-leveraging play before a certain “diminutive” superwoman in the Eccles Building decides to do the unthinkable and actually hike rates, and there was M&A. As we discussed last week, rising stock prices have tipped investors’ asset allocation towards equities even as money continues to flow into bonds, meaning that yet more money must be funneled into fixed income for rebalancing purposes, which ironically drives demand for the very same debt that US corporates are using to fund the very same buy backs that are driving equity outperformance in the first place. Put more simply: the bubble machine is in hyperdrive. Not only did Q1 mark a record quarter for issuance, March supply also hit a record at $143 billion, tying the total put up in May of 2008. Here’s more from BofAML:

1Q set records for both supply and trading volumes in high grade, as new issue supply volumes reached $348bn, up from the previous record of $310bn in 1Q- 2014, whereas trading volumes averaged 15.6bn per day, up from the previous record of $14.3bn during the same quarter last year… Issuance in March totaled $143bn and it tied with May 2008 and September of 2013 for the highest monthly supply on record going back to at least 1998. September of 2013 was the month when the record $49bn VZ deal was priced… Supply in March was supported by low interest rates (encouraging opportunistic issuance on the supply side and supporting investor demand by diminishing interest rate risk concerns) and a busy M&A-related calendar. Some of these trends will continue in April, although investors are becoming more concerned about the Fed hiking cycle…

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The China casino.

Shanghai Traders Make Trillion-Yuan Stock Bet With Borrowed Cash (Bloomberg)

Shanghai traders now have more than 1 trillion yuan ($161 billion) of borrowed cash riding on the world’s highest-flying stock market. The outstanding balance of margin debt on the Shanghai Stock Exchange surpassed the trillion-yuan mark for the first time on Wednesday, a nearly fourfold jump from just 12 months ago. The city’s benchmark index has surged 86% during that time, more than any of the world’s major stock gauges. While the extra buying power that comes from leverage has fueled the Shanghai Composite Index’s rally, it’s also sending equity volatility to five-year highs and may accelerate losses if a market reversal forces traders to sell.

Margin debt has increased even after regulators suspended three of the nation’s biggest brokers from adding new accounts in January and said securities firms shouldn’t lend to investors with less than 500,000 yuan. “It’s like a two-edged sword,” said Wu Kan, a money manager at Dragon Life Insurance Co. in Shanghai, which oversees about $3.3 billion. “When the market starts a correction or falls, it will increase the magnitude of declines.” In a margin trade, investors use their own money for just a portion of their stock purchase, borrowing the rest from a brokerage. The loans are backed by the investors’ equity holdings, meaning that they may be compelled to sell when prices fall to repay their debt.

Chinese investors have been piling into the stock market after the central bank cut interest rates twice since November and authorities from the China Securities Regulatory Commission to central bank Governor Zhou Xiaochuan endorsed the flow of funds into equities. Traders have opened 2.8 million new stock accounts in just the past two weeks, almost on par with Chicago’s entire population. The outstanding balance of the margin debt on China’s smaller exchange in Shenzhen was 493.8 billion yuan on March 31. That puts the combined figure for China’s two main bourses at the equivalent of about $241 billion. In the U.S., which has a stock market almost four times the size of China’s, margin debt on the New York Stock Exchange was about $465 billion at the end of February.

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Strong effort by Ambrose. He manages to look behind the obvious veil: “When Warren Buffett suggests that Europe might emerge stronger after a salutary purge of its weak link in Greece, he confirms his own rule that you should never dabble in matters beyond your ken.”

Greek Defiance Mounts As Alexis Tsipras Turns To Russia And China (AEP)

Two months of EU bluster and reproof have failed to cow Greece. It is becoming clear that Europe’s creditor powers have misjudged the nature of the Greek crisis and can no longer avoid facing the Morton’s Fork in front of them. Any deal that goes far enough to assuage Greece’s justly-aggrieved people must automatically blow apart the austerity settlement already fraying in the rest of southern Europe. The necessary concessions would embolden populist defiance in Spain, Portugal and Italy, and bring German euroscepticism to the boil. Emotional consent for monetary union is ebbing dangerously in Bavaria and most of eastern Germany, even if formulaic surveys do not fully catch the strength of the undercurrents. This week’s resignation of Bavarian MP Peter Gauweiler over Greece’s bail-out extension can, of course, be over-played. He has long been a foe of EMU.

But his protest is unquestionably a warning shot for Angela Merkel’s political family. Mr Gauweiler was made vice-chairman of Bavaria’s Social Christians (CSU) in 2013 for the express purpose of shoring up the party’s eurosceptic wing and heading off threats from the anti-euro Alternative fur Deutschland (AfD). Yet if the EMU powers persist mechanically with their stale demands – even reverting to terms that the previous pro-EMU government in Athens rejected in December – they risk setting off a political chain-reaction that can only eviscerate the EU Project as a motivating ideology in Europe. Jean-Claude Juncker, the European Commission’s chief, understands the risk perfectly, warning anybody who will listen that Grexit would lead to an “irreparable loss of global prestige for the whole EU” and crystallize Europe’s final fall from grace.

When Warren Buffett suggests that Europe might emerge stronger after a salutary purge of its weak link in Greece, he confirms his own rule that you should never dabble in matters beyond your ken. Alexis Tsipras leads the first radical-Leftist government elected in Europe since the Second World War. His Syriza movement is, in a sense, totemic for the European Left, even if sympathisers despair over its chaotic twists and turns. As such, it is a litmus test of whether progressives can pursue anything resembling an autonomous economic policy within EMU. There are faint echoes of what happened to the elected government of Jacobo Arbenz in Guatemala, a litmus test for the Latin American Left in its day. His experiment in land reform was famously snuffed out by a CIA coup in 1954, with lasting consequences. It was the moment of epiphany for Che Guevara, then working as a volunteer doctor in the country.

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Believe it or not, this thing will have to reach a conclusion soon.

Greece Threatens Default As Fresh Reform Bid Falters (Telegraph)

The Greek government has threatened to default on its loans to the International Monetary Fund, as Athens continued its battle to convince creditors for a fresh injection of bail-out cash. Greece’s interior minister told Germany’s Spiegel magazine, his country would not respect a looming €450m loan repayment to the fund on April 9, without a release of much-needed bail-out funds. “If no money is flowing on April 9, we will first determine the salaries and pensions paid here in Greece and then ask our partners abroad to achieve consensus that we will not pay €450 million to the IMF on time,” said Nikos Voutzis. The cash-strapped government has struggled to keep up with its wage and pensions obligations having agreed a bail-out extension on February 20.

Athens insists it has enough money to last it until the middle of April, but a final agreement on any deal is unlikely to be secured before the end of the month. A Greek government spokesperson later denied the reports of a deliberate default, saying the country still hoped for a “positive outcome” to its debt negotiations. The comments came as the eurozone’s working group discussed a new 26-page plan of reforms from Athens on Wednesday. Aiming to generate an estimated €6bn in 2015, Athens has pledged a range of revenue-raising measures including cracking down on tax evasion, carrying out an audit on overseas bank transfers, and introducing a “luxury tax”. The document also warned brinkmanship on the part of the eurozone meant the “viability” of the currency union was now “in question.”

“It is necessary now, without further delay to turn a corner on the mistakes of the past and to forge a new relationship between member states, a relationship based on solidarity, resolve, mutual respect,” said the proposal. The Leftist government has continually fallen short of creditor demands, who hold the purse strings on €7.2bn in bail-out cash the government requires over the next three months. However, the latest blueprint is unlikely to satisfy lenders as it lacks details on labour market liberalisation or pensions reforms. Previous privatisations of the country’s assets were also described as a “spectacular” failure, generating far less in revenues for the state than first envisaged..

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Wrong on purpose?

China’s Fuel Demand to Peak Sooner Than Oil Giants Expect (Bloomberg)

China’s biggest oil refiner is signaling the nation is headed to its peak in diesel and gasoline consumption far sooner than most Western energy companies and analysts are forecasting. If correct, the projections by China Petroleum & Chemical, or Sinopec, a state-controlled enterprise with public shareholders in Hong Kong, pose a big challenge to the world’s largest oil companies. They’re counting on demand from China and other developing countries to keep their businesses growing as energy consumption falls in more advanced economies. “Plenty of people are talking about the peak in Chinese coal, but not many are talking about the peak in Chinese diesel demand, or Chinese oil generally,” said Mark C. Lewis at Kepler Cheuvreux. “It is shocking.”

Sinopec has offered a view of the country that should serve as a reality check to any oil bull. For diesel, the fuel that most closely tracks economic growth, the peak in China’s demand is just two years away, in 2017, according to Sinopec Chairman Fu Chengyu, who gave his outlook on a little reported March 23 conference call. The high point in gasoline sales is likely to come in about a decade, he said, and the company is already preparing for the day when selling fuel is what he called a “non-core” activity. That forecast, from a company whose 30,000 gas stations and 23,000 convenience stores arguably give it a better view on the market than anyone else, runs counter to the narrative heard regularly from oil drillers from the U.S. and Europe that Chinese demand for their product will increase for decades to come.

“From 2010 to 2040, transportation energy needs in OECD32 countries are projected to fall about 10% while in the rest of the world these needs are expected to double,” Exxon Mobil said in a December report on its view of the future. “China and India will together account for about half of the global increase.” Exxon expects most of that growth to be driven by commercial transportation for heavy-duty vehicles, specifically ships, trucks, planes and trains that run on diesel and similar fuels. BP’s latest public projection for China, released in February, sounds a similar note. “Energy consumed in transport grows by 98%. Oil remains the dominant fuel but loses market share, dropping from 90% to 83% in 2035.”

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“Asian-Pacific refiners are forecast to add 5.4 million barrels a day of capacity in the next five years..”

The Saudis Are Losing Their Lock on Asian Oil Sales (Bloomberg)

Ships carrying oil from Mexico docked in South Korea this year for the first time in more than two decades as the global fight for market share intensifies. Latin American producers are providing increasing amounts of heavy crude to bargain-hungry Asian refiners in a challenge to Saudi Arabia, the world’s largest exporter and the region’s dominant supplier. “By diversifying, more Asian refiners will be able to reduce the clout that Saudi Arabia has on the market,” said Suresh Sivanandam, a refining and chemical analyst with Wood Mackenzie Ltd. in Singapore. “They will be getting more bargaining power for sure.”

The U.S., enjoying a surge of light oil from shale formations, has raised imports of heavy grades from Canada, displacing crude from nations such as Mexico and Venezuela. That’s boosting South American deliveries to Asia even after Saudi Arabia cut prices for March oil sales to the region, its largest market, to the lowest in at least 14 years. The shale boom also has transformed the flow of oil to Asia. South Korea received its first shipment of Alaskan crude in at least eight years as output from Texas and North Dakota displaces oil that fed U.S. refineries for years. The country was one of the first to receive a cargo of the ultralight U.S. crude known as condensate after export rules were eased.

Petrobras and partner operators are also shipping to Asia and were scheduled to load nine tankers bound for the region in March, according to Energy Aspects, as Latin American oil’s discount to Middle East benchmark Dubai widens to almost double the average of the past year. Asian-Pacific refiners are forecast to add 5.4 million barrels a day of capacity in the next five years, according to Gaffney, Cline & Associates, a petroleum consultant.

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“April is a crucial month for the industry because it’s when lenders are due to recalculate the value of properties that energy companies staked as loan collateral.” Calculations until now are stil based on $90 oil.

Reckoning Arrives for Cash-Strapped Oil Firms Amid Bank Squeeze (Bloomberg)

Lenders are preparing to cut the credit lines to a group of junk-rated shale oil companies by as much as 30% in the coming days, dealing another blow as they struggle with a slump in crude prices, according to people familiar with the matter.
Sabine Oil & Gas became one of the first companies to warn investors that it faces a cash shortage from a reduced credit line, saying Tuesday that it raises “substantial doubt” about the company’s ability to continue as a going concern. About 10 firms are having trouble finding backup financing, said the people familiar with the matter, who asked not to be named because the information hasn’t been announced. April is a crucial month for the industry because it’s when lenders are due to recalculate the value of properties that energy companies staked as loan collateral.

With those assets in decline along with oil prices, banks are preparing to cut the amount they’re willing to lend. And that will only squeeze companies’ ability to produce more oil. “If they can’t drill, they can’t make money,” said Kristen Campana at Bracewell & Giuliani LLP’s finance and financial restructuring groups. “It’s a downward spiral.” Sabine, the Houston-based exploration and production company that merged with Forest Oil Corp. last year, told investors Tuesday that it’s at risk of defaulting on $2 billion of loans and other debt if its banks don’t grant a waiver. Publicly traded firms are required to disclose such news to investors within four business days, under U.S. Securities and Exchange Commission rules.

Some of the companies facing liquidity shortfalls will also disclose that they have fully drawn down their revolving credit lines like Sabine, according to one of the people. The credit discussions are ongoing and a number of banks may opt to be more lenient, giving companies more time to prepare for bigger cuts later in the year, the people said. Credit lines for some of the companies may be reduced by as little as 10%, they said. The companies are among speculative-grade energy producers that were able to load up on cheap debt as crude prices climbed above $100 a barrel. The borrowing limits are tied to reserves, the amount of oil and gas a company has in the ground that can profitably be extracted based on its land holdings. With oil prices plunging below $50 from last year’s peak of $107 in June, some are now fighting to survive.

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Commodities have been overvalued for a long time, due to crazy expectations for China growth.

Appalachia Miners Wiped Out by Coal Glut That They Can’t Reverse (Bloomberg)

Douglas Blackburn has been crawling in and out of the coal mines of Central Appalachia since he was a boy accompanying his father and grandfather some 50 years ago. The only time that Blackburn, now a coal industry consultant, remembers things being this bad was in the 1990s. Back then, he estimates, almost 40% of the region’s mines went bankrupt. “It’s a similar situation,” said Blackburn, who owns Blackacre, a Richmond, Va consulting firm. Now, like then, the principal problem is sinking coal prices. They’ve dropped 33% over the past four years to levels that have made most mining companies across the Appalachia mountain region unprofitable. To make matters worse, there’s little chance of a quick rebound in prices. That’s because idling a mine to cut output and stem losses isn’t an option for many companies.

The cost of doing so – even on a temporary basis – has become so prohibitive that it can put a miner out of business fast, Blackburn and other industry analysts say. So companies keep pulling coal out of the ground, opting to take a small, steady loss rather than one big writedown, in the hope that prices will bounce back. That, of course, is only adding to the supply glut in the U.S., the world’s second-biggest producer, and driving prices down further. It’s become, in essence, a trap for miners. “You have this really perverse situation where they keep producing,” James Stevenson at IHS said in a telephone interview. “You’re just shoveling coal into this market that’s oversupplied.” Companies will dig up at least 17 million tons more coal than power plants need this year, Morgan Stanley estimates. Coal is burned at the plants to generate electricity. That’s creating the latest fossil fuel glut in the U.S., joining oil and natural gas.

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I was just sent this. Don’t know enough about it, I must admit. The article suggests that prices are still 11% higher than 3 months ago. That would seem to mean they rose 20% or so in 2015. It doesn’t make much sense to me right now.

World Dairy Prices Slide 10.8% On Supply Concerns (NZ Herald)

International dairy prices continued to reverse gains made early this year at this morning’s GlobalDairyTrade (GDT) auction, putting downward pressure on Fonterra’s $4.70 a kg farmgate milk price forecast and raising concerns about next season’s likely payout. The GDT price index fell by 10.8% compared with the last sale a fortnight ago, when prices dropped by 8.8%. Big falls were recorded for the key products of wholemilk powder – down 13.3% to US$2,538 a tonne, skim milk powder – down 9.9% to US$2,467/tonne. Wholemilk prices are now just 11% higher than than they were by the end of 2014. ANZ rural economist Con Williams said that with milk powder making up the bulk of New Zealand’s product mix, the GDT result suggested a payout of $4.50-4.70 a kg this year.

The largest price falls at the auction were generally seen in the longer-dated contracts, up to 6 months out – into the new season. “While these prices remain higher than those for the end of this season, the curve has flattened, suggesting less price recovery is now anticipated – not boding well for next year’s payout,” Williams said. The fall comes as the New Zealand season enters its final phase, with about 80% of production now out of the way. Most of the price weakness was put down to better-than-expected supply, with the effects of this year’s drought being offset by rain in many parts of the country.

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Warren!

CFTC Charges Kraft, Mondelez With Manipulating Wheat Futures (MarketWatch)

The Commodity Futures Trading Commission on Wednesday charged Kraft Foods and Mondelez Global with manipulating wheat futures and cash wheat prices. The CFTC says that, in response to high cash wheat prices in summer 2011, the two companies developed and executed in early December 2011 a strategy to buy $90 million of wheat futures they didn’t intend on receiving. The companies expected the market would react to their “enormous” long position in futures by lowering cash prices, the CFTC said. They later earned more than $5.4 million in profits, according to the CFTC’s complaint. The agency says litigation is continuing against the companies and it is seeking disgorgement and civil monetary penalties.

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“3G, co-founded by Lemann, eliminated more than 7,000 Heinz jobs in 20 months..”

Brazil’s Richest Man May Reap $5.6 Billion in Kraft-Heinz Merger

Brazil’s richest man Jorge Paulo Lemann may add more than $5 billion to his personal fortune after ketchup maker H.J. Heinz merges with Kraft Foods. Heinz, controlled by Lemann’s 3G Capital and Warren Buffett’s Berkshire Hathaway, agreed last week to buy the macaroni-and-cheese maker Kraft in a cash-and-stock deal. Heinz’s 51% of the combined company will be worth about $45 billion, valuing Lemann’s stake at about $9.6 billion, said Kevin Dreyer, a portfolio manager at Gabelli Equity. Lemann has invested about $4 billion through 3G Capital, according to data compiled by Bloomberg.

“A combination of synergies from the deal and the sprinkling of the magic 3G dust is giving Kraft a higher valuation than it would otherwise have,” Dreyer said in a phone interview from New York. “3G has a track record of drastically expanding margins. There’s an expectation they’ll achieve the number they put in and then some.” 3G, co-founded by Lemann, eliminated more than 7,000 Heinz jobs in 20 months after taking the company over with Berkshire Hathaway. Buffett defended the job reductions his partners at 3G have taken when they buy businesses during a March 31 interview on CNBC.

The share price of Kraft, which surged 36% the day of the deal, can be used to estimate the future value of closely held Heinz, Dreyer said. His calculation takes into account the ketchup maker’s special dividend payment and assumes a market capitalization of about $87 billion for the new company. 3G owns 48% of Heinz, co-founder Alex Behring told reporters March 25. The buyout firm contributed $4.25 billion to Heinz in 2013 and another $4.8 billion in the Kraft deal. Lemann hasn’t disclosed his personal stake in Heinz. His investments in publicly traded companies show he tends to have a larger stake than Brazilian 3G partners Marcel Telles and Carlos Alberto Sicupira..

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Multiple currencies. Looks inevitable for Greece too.

The Cuban Money Crisis (Bloomberg)

The currency crisis starts about 75 feet into Cuba. I land in the late afternoon and, after clearing customs, step into the busy arrivals hall of Havana’s airport looking for help. I ask a woman in a gray, military-like uniform where I can change money. Follow me, she says. But she doesn’t turn left, toward the airport’s exchange kiosk. Called cadecas, these government-run currency shops are the only legal way, along with banks, to swap your foreign money for Cuba s tourist tender, the CUC. Instead, my guide turns right and only comes clean when we reach a quiet area at the top of an escalator. The official rate is 87 for a hundred, she whispers, meaning CUCs to dollars. I’m giving you 90. So it’s a good deal for you.

I want to convert $500, and she doesn’t blink an eye. Go in the men’s room and count your money out, she instructs. I’ll do the same in the ladies room. The bathroom is crowded, with not one but two staff and the usual traffic of an airport in the evening. There s no toilet paper. In an unlit stall I try counting to 25 while laying $20 bills on my knees. There’s an urgent knock, and under the door I see high heels. I’m still counting, I say. She’s back two minutes later and pushes her way into my stall. We trade stacks, count, and the tryst is over. For my $500, I get 450 CUCs, the currency that’s been required for the purchase of almost anything important in Cuba since 1994. CUCs aren’t paid to Cubans; islanders receive their wages in a different currency, the grubby national peso that features Che Guevara’s face, among others, but is worth just 1/25th as much as a CUC.

Issued in shades of citrus and berry, the CUC dollarized, tourist-friendly money has for 21 years been the key to a better life in Cuba, as well as a stinging reminder of the difference between the haves and the have-nots. But that’s about to change: Cuba is going to kill the CUC. Described as a matter of fairness by President Raul Castro, the end of the two-currency system is also the key to overhauling the uniquely incompetent and centrally planned chaos machine that is the Cuban economy.

Even in Cuba there are markets, and the effects of Castro’s October announcement of a five-step plan for phasing out the CUC are already rippling out to every wallet in the country. The government has issued notifications and price conversion charts, and introduced new, larger bills to supplement the low-value national peso. Over the next year, the CUC will be invalidated what Cuban economists call Day Zero and then, in steps four and five, the regular Cuban peso will become exchangeable and be floated against a basket of five currencies: the yuan, the euro, the U.S. dollar, and two others to be named later.

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But still in complete denial: “..the governor’s action won’t mean mandatory rationing for households.”

California Orders Mandatory Water Cuts Of 25% Amid Record Drought (WSJ)

California Gov. Jerry Brown ordered unprecedented mandatory water cuts across the Golden State after the latest measurements show the state’s mountain snowpack – which accounts for roughly a third of California’s water supply – has shrunk to a record low of 5% of normal for this time of year. The Democratic governor took the action on Wednesday after accompanying state surveyors into the Sierra Nevada mountains to manually verify electronic readings that show an average snow water equivalent of 1.4 inches, the lowest ever recorded on April 1. “Today we are standing on dry grass where there should be five feet of snow,” the governor said. “This historic drought demands unprecedented action.”

Gov. Brown directed the State Water Resources Control Board to implement mandatory water reductions of 25%. Details on how the cuts would be implemented weren’t immediately released, although the governor said in his order that reductions would fall hardest in water districts that haven’t adequately followed his voluntary calls for conservation last year. According to monthly surveys of water use, conservation levels have varied widely around the state. In general, reductions have been lower in Southern California than the rest of the state, in part because of the region’s concentration of estate-sized lots homes and golf courses. A spokesman for the state water control board, which has already ordered limits in outdoor lawn watering, said the governor’s action won’t mean mandatory rationing for households.

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