May 162015
 
 May 16, 2015  Posted by at 10:19 am Finance Tagged with: , , , , , , , , , , ,  5 Responses »


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 »


NPC Walker Hill Dairy, Washington, DC 1921

The Shocker Crushing The Economy Revealed (Zero Hedge)
China’s Economy: Hard Landing Or Welcome Rebalancing? (Guardian)
The Risks Behind China’s Silk Road Growth Gamble (CNBC)
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 »


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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Mar 262015
 
 March 26, 2015  Posted by at 8:25 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »


Jack Delano Residents of rooming house for rail workers, Clinton, Iowa 1943

US Economy Heads Toward Zero Growth in Q1 (WolfStreet)
US Home Prices Are Surging 13 Times Faster Than Wages (Bloomberg)
UK Household Debt Soars By 9% To Hit A Record £239bn (Independent)
ECB Bond Buying To Continue Till Inflation Reaches 2%: Draghi (WSJ)
Europe Blocks Desperate Greek Attempt To Stay Afloat (Telegraph)
Eurozone Said to Give Greece Five Days to Deliver Plan (Bloomberg)
Greek Central Bank Governor Stournaras Says Grexit Isn’t An Option (WSJ)
A Murky, Sloppy Muddle: How Greece’s Exit From Euro Could Happen (Bloomberg)
Athens Raids Public Health Coffers In Hunt For Cash (FT)
Greek Government Takes Desperate Measures In Battle To Stay Afloat (Guardian)
How Low Can Interest Rates Go? (BBC)
US Risks Epic Blunder By Treating China As An Economic Enemy (AEP)
China’s European Shopping Spree Shows No Signs Of Slowing (Ind.)
US Couldn’t Corral AIIB Due To Soaring Chinese Investments In Europe (Atimes)
Putin Security Council Slams Obama Attempts At “New World Order” (Zero Hedge)
The Central Banker Who Saved the Russian Economy From the Abyss (Bloomberg)
Banking Enclave of Andorra Shaken by US Accusations (Bloomberg)
Meet The Kagans: A Family Business Of Perpetual War (Robert Parry)
After a Twelve Year Mistake in Iraq, We Must Just March Home (Ron Paul)
We’re Treating Soil Like Dirt. It’s A Fatal Mistake (Monbiot)
No One Must Go Thirsty: Water In Public Hands Is A Right (Beppe Grillo)

Want to bet the ‘real’ number will be way above zero?

US Economy Heads Toward Zero Growth in Q1 (WolfStreet)

The consistency with which nearly every report on the US economy has deteriorated over the last few months is astonishing. Only the jobs report has been spared that sharp downdraft. So we blame the weather, which in parts of the US was truly atrocious, while in other parts, particularly in California, it was gorgeous. Too gorgeous. This is supposed to be our rainy season, but every day the sun is out as we’re heading into our fourth year of drought. Yet the drought isn’t what keeps people from shopping or companies from ordering equipment. So out here, we’re baffled when the weather gets blamed. Today’s durable goods report for February was another shot at this wobbly edifice of the US economy.

New orders for manufactured durable goods dropped by 1.4%, the Census Bureau reported. It was the third decrease in four months. Transportation equipment fell 3.5%, also the third decrease in four months. Excluding transportation, new orders – “core” durable goods – fell 0.4%, down for the fifth month in a row. And Core Capital Goods New Orders, considered an important gauge of business spending, fell 1.4%, down for the sixth month in a row. The weather is really hard to blame for this, so folks blamed the strong dollar and slack demand in the US and globally. The data was bad enough to push the Atlanta Fed’s GDPNow model of the US economy down another step toward zero growth in the first quarter.

The Atlanta Fed started the model in 2011 to offer a more immediate picture where the economy is headed. It takes into account economic data as released and adjusts its GDP forecast for the quarter as it goes. The model is volatile. It reacts to incoming monthly data that are themselves volatile and subject to sharp revisions. So a few strong releases for March could turn this thing around on a dime. But we’re still dealing with the reality of January and February; the data has been crummy, and the Atlanta Fed’s “nowcast” is increasingly depicting an economy that is losing its struggle with growth.

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SO what exactly did the Fed purchase $1 trillion in mortgage-backed securities for? Riddle me that.

US Home Prices Are Surging 13 Times Faster Than Wages (Bloomberg)

For most people, buying a home is no cheap venture. That’s especially the case when the growth in U.S. home prices is beating wage increases 13 to 1. Wages climbed by 1.3% from the second quarter of 2012 to the second quarter of 2014, compared to a 17% increase in home prices around that time, according to a new report from RealtyTrac. The real-estate data provider used the Labor Department’s weekly earnings data to measure wage growth, while home prices were derived from sales-deed data in December 2014 and compared to December 2012 on the hypothesis that a change in average wages would take at least six months to affect home prices.

Using localized earnings data, RealtyTrac also found that 76% of housing markets posted increases in home prices that exceeded the wage growth there during that time frame. How could this happen? Enter the investor. In many markets, the housing recovery has “largely been driven over the last two years by buyers who are not as constrained by incomes – namely the institutional investors coming in and buying up properties as rentals, and international buyers coming in and buying, often with cash,” Daren Blomquist, vice president at RealtyTrac and author of the report, said in an interview.

For demand from traditional buyers to improve, “either wages are going to need to go up or prices are going to need to at least flatten out and wait for wages to catch up,” he said. “You might say the third alternative is interest rates go down so you give people more buying power with their wages, but interest rates are about as low as they can go.” The trend illustrates the limited impact of the Federal Reserve’s decision to include mortgage-backed securities in its unprecedented asset-buying program. The Fed bought more than $1 trillion of those securities to prop up the housing market after it collapsed and helped trigger the worst recession in the post-World War II era.

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How Britain fell back in love with debt.

UK Household Debt Soars By 9% To Hit A Record £239bn (Independent)

The average UK household is set to hold close to £10,000 in unsecured debt by the end of 2016, according to a leading accountancy firm. The forecast, by PricewaterhouseCoopers, was made after 2014 saw a sharp rise in unsecured debt, which bounced back to an all-time high of £239bn. The 9% rise in borrowing last year brings the average to close to £9,000, but PwC reckons that will grow. That would mean households will be closing in on the £10,000 figure if trends continue. The household debt to income ratio is projected to reach 172% by 2020, exceeding its previous peak set before the financial crisis. It includes mortgages and other debt secured on property.

Most banks all but ceased lending during the 2007/2008 shock. While mortgage lending is more strictly controlled than it was, the tap has gradually loosened when it comes to unsecured debt. PwC’s Precious Plastic: How Britons fell back in love with borrowing, published today, finds that most consumers are confident that they can manage their debt, with fewer worried about job security and pay rises as the economy improves. But the report says that despite consumers’ confidence, affordability will increasingly be called into question as the debt to income ratio steadily increases over coming years.

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To get inflation to 2%, people would need to massively raise spending. They won’t.

ECB Bond Buying To Continue Till Inflation Reaches 2%: Draghi (WSJ)

The European Central Bank will purchase large amounts of public and private debt for at least 18 months and until it is convinced that inflation will stabilise near annual rates of 2%, the bank s president Mario Draghi has said, underscoring the ECB’s willingness to flood the eurozone with freshly minted money far into the future. In testimony to European parliament, Mr Draghi also urged Greece to commit to fully honouring its debt obligations. Its government also must be specific about areas of economic and fiscal reforms where it is in agreement with its international creditors and, where there is disagreement, how (the reforms) are going to be replaced has to be specified , he said.

Referring to the ECB s bond purchase program, now entering its third week, Mr Draghi said: We intend to carry out our purchases at least until end-September 2016, and in any case until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term. Mr Draghi’s testimony comes two weeks after the ECB launched a program to purchase more than €1 trillion in bonds mostly government debt by September 2016. The purpose of the program, known as quantitative easing, or QE, is to raise inflation rates closer to the ECB’s target of near 2%.

The ECB has said it would buy bonds at a monthly clip of €60 billion and that the purchases could even extend beyond September of next year. The Governing Council will take a holistic perspective when assessing the path of inflation. It will evaluate the likelihood for inflation not only to converge to levels that are closer to 2%, but also to stabilise around those levels with sufficient confidence thereafter, Mr Draghi said. Consumer prices were down 0.3% from year-ago levels in February, the third-straight decline on an annual basis.

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Say uncle first!

Europe Blocks Desperate Greek Attempt To Stay Afloat (Telegraph)

The Greek government will not receive €1.2bn in European rescue funds after officials ruled the Leftist government had no legal claims on the cash. Athens requested a return of the funds it said were erroneously handed to creditors from Greece’s own bank recapitalisation fund, the Hellenic Financial Stability Facility (HFSF). The transfer was originally arranged by the previous Greek administration. But eurozone officials have blocked the claim, saying it is “legally impossible” transfer the money back to the debt-stricken country. “There was agreement that, legally, there was no over payment from the HFSF to the EFSF,” said a fund spokesman. Germany’s finance ministry was also reluctant to allow the release, claiming there was “no reason” to make the transfer.

The decision is a further blow to the Greek government’s attempts to stay afloat over the next few weeks. Athens has been scrambling to make repayments to its creditors and continue to pay wages and pensions. The government now faces another €2.4bn cash squeeze in April, including a €450m loan repayment to the IMF on April 9. As part of its efforts to stay solvent, the Leftist government has also requested a €1.9bn transfer of profits held by the European Central Bank, from the holdings of Greek government bonds. So far, the ECB has rebuffed all Greek pleas to alleviate their cash squeeze. The central bank has moved to officially ban the country’s banks from increasing their holdings of short-term government debt.

Greek banks are being kept alive through the provision of an expensive form of emergency liquidity (ELA) which is rapidly being used up as capital flees the country. The ECB decided to incrementally raise the limit on ELA to €71bn – a bigger hike than in previous weeks.
Speaking in London on Wednesday, the ECB’s chief economist Peter Praet declined to comment on the Bank’s actions, saying it was important to exercise “verbal restraint” in moments of crisis. Worsening deposit flight has placed the squeeze on Greek lenders, who are only eligible for ELA as long as they are deemed to be solvent. Mr Praet said the country’s banks remained counterparties in their operations with the ECB, suggesting they remained healthy enough to continue receiving ELA.

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One plan after another.

Eurozone Said to Give Greece Five Days to Deliver Plan (Bloomberg)

Greece has until Monday to show how it will follow through on reform commitments after the euro area ruled out speedy access to aid funds, three officials said following a conference call of finance ministry deputies. The euro zone’s other 18 members were adamant on Wednesday’s call that Greece needs to deliver specific plans to see any more bailout cash, the officials said. Prime Minister Alexis Tsipras needs to show that Greece can rebuild trust in its promises, they said. Finance deputies left the door open to €1.2 billion that has been allocated to aid the banking system, as the deputies concluded that Greece can’t tap those funds on a technicality.

As a result, Greece will have to show it will move ahead with the changes its creditors are seeking to get the bank-aid money or other bailout funds. Greece won some financial breathing room Wednesday when the European Central Bank raised the ceiling for Emergency Liquidity Assistance to Greek banks by more than €1 billion to more than €71 billion, according to two people with knowledge of the decision who asked not to be named. The ECB’s move alleviates some near-term cash needs in the banking system while keeping pressure on Tsipras to find a longer-term solution. European officials have said that Greece could default on its obligations within weeks unless there’s a breakthrough.

Greece needs to act faster so its actions can be more effective, Eurogroup Chairman Jeroen Dijsselbloem, who heads the euro-area finance ministers’ group, said in Rotterdam on Wednesday. “The main problem is the same in every country in Europe: getting things done.” Monday will be a test of whether Greece can convince its peers that it will meet their demands for an economic overhaul, the officials said. Once Greece submits its next documents, they’ll need to be reviewed by the country’s official creditors and then the finance ministry deputies in the first few days of next week, ahead of Easter holidays, one of the officials said.

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Oh, yes it is.

Greek Central Bank Governor Stournaras Says Grexit Isn’t An Option (WSJ)

Bank of Greece Governor Yannis Stournaras said Wednesday that ditching the euro and exiting the single currency union is “not an option” for Greece. Mr. Stournaras told an audience at the London School of Economics that a Greek exit–dubbed “Grexit” in financial markets–risks triggering another severe downturn in the stricken Mediterranean economy. Greece has already improved its global competitiveness by driving down wages and prices, he said, and growth is returning. “Grexit would deliver no benefit, but a lot of pain,” Mr. Stournaras said. Quitting the eurozone would probably lead to even deeper austerity than Greece already has implemented, he said, while the adoption of an alternative currency would risk fueling runaway inflation.

His remarks come a day after the ECB instructed Greece’s biggest banks to refrain from taking on anymore short-term Greek government debt, adding to the pressure on Prime Minister Alexis Tsipras’s leftwing government in Athens to reach a deal with creditors over the terms of the nation’s €240 billion bailout package. Mr. Tsipras was elected in January on a pledge to reverse many of the budget cuts and other economic reforms demanded by Greece’s creditors in exchange for financial aid. But he has struggled to persuade lenders led by Germany and the IMF to back down, raising the specter of a disorderly Greek exit from the eurozone.

Greece now has just weeks to secure a deal to unlock billions of euros in badly needed funds to keep paying public-sector salaries and service the nation’s debts. Mr. Stournaras said Greece’s government has a unique opportunity to implement bold economic reforms and forge a durable recovery. “This is in my view a historical opportunity which should not be missed,” he said. He added that he’s more optimistic that Mr. Tsipras’s government is serious about reform than he was a month ago.

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Scenario’s.

A Murky, Sloppy Muddle: How Greece’s Exit From Euro Could Happen (Bloomberg)

With the fight to keep Greece in the euro now in its sixth year, everyone is running out of patience. More importantly, Prime Minister Alexis Tsipras’s government in Athens is running out of money. While bond yields suggest investors expect Greece to stay in the euro, economists such as UniCredit Bank AG’s Erik Nielsen say it may be just a matter of time before he’s forced to print a new currency. Adopting the euro was always supposed to be a one-way ticket, so there is no legal precedent or political roadmap for an exit. If you’re waiting for a formal announcement of a clear resolution, you may be waiting a long time.

Next steps for Greece range from retaining the euro to catastrophic divorce; half-measures like having multiple currencies circulate, with aid recycled to repay foreign-currency debts, are also in the cards. Equally unclear is who would tell the world – and how – that Greece has entered an economic afterlife. Possible messengers include Tsipras, the ECB, EU President Donald Tusk and European Commission President Jean-Claude Juncker, among others.

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Strip mining.

Athens Raids Public Health Coffers In Hunt For Cash (FT)

Greece’s government has raided the coffers of its public health service and the Athens metro as it widens a hunt for funds to keep itself afloat and service debts. Athens faces a €1.7bn bill for wages and pensions at the end of the month and then a €450m loan payment to the IMF on April 9. Greek government and eurozone officials believe Athens does not have funds to cover both. In another constraint on Greece’s ability to raise cash, the ECB decided to impose stricter curbs on the issuance of short-term government debt. EU officials expressed hope that a marathon Monday night meeting between Alexis Tsipras and Angela Merkel, would spark long-stalled talks over economic reforms Greece must implement to unlock €7.2bn in frozen bailout aid.

Athens has promised to deliver a list of reforms to eurozone authorities by Monday. But officials cautioned that the list would still have to be agreed with bailout inspectors before eurozone authorities could make progress on any deal to free up new funding. Though Mr Tsipras discussed his reform plans with Ms Merkel on Monday night, there were few signs that talks in Athens with bailout inspectors had become more active following the Berlin meeting. “The big ‘if’ is that they seem to move at such a glacial pace,” said an official. Greek authorities have also been seeking €1.2bn in funding that they believe was wrongly taken out of the country’s bank recapitalisation fund by eurozone authorities.

But EU officials said a quick decision on the matter was unlikely and even if Athens was awarded the cash it could only go towards bank rescues, not general government coffers. In the absence of progress, some EU officials were accelerating their preparations in case Athens runs out of cash before it agrees a reform programme. In Brussels, European Commission officials have begun looking again at EU law governing capital controls in case the growing uncertainty, or a non-payment to the IMF, spurs a renewed run on bank deposits.

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“They are scraping the bottom of the barrel for everything they can find.”

Greek Government Takes Desperate Measures In Battle To Stay Afloat (Guardian)

The Greek government is resorting to increasingly desperate measures to keep afloat amid dire warnings the debt-stricken country could go bust within weeks. In a balancing act not seen by any European administration in recent times, the cash-strapped coalition has sequestered the reserves of public bodies, seized EU subsidies destined for farmers and postponed all payments for state supplies in the scramble to continue servicing its debt and paying salaries and pensions. Pension funds have been raided to raise money for Treasury bill auctions. “It is clear we are reaching the end and very soon won’t be able to pay,” former finance minister, Stefanos Manos, said. “They are scraping the bottom of the barrel for everything they can find.”

To cover the credit crunch, corporations in which the state has a majority stake, including the Athens Metro, have been tapped. The scheme of repo transactions – where government bonds are used for short-term borrowing requirements – is believed to have raised upwards of €600m in recent weeks. Earlier this month the leftist-led coalition suspended some €300m of EU subsidies for farmers to help pay €1.7bn in public sector wages and pensions due next week. Greek subsidiaries of multinationals have also been approached for loans.

The last-resort measures came as Deutsche Bank warned that Athens was at risk of being pushed into default on 9 April when it must meet a €450m debt repayment to the International Monetary Fund. The precarious state of Athens’ finances has been exacerbated by a precipitous decline in tax revenues – more than €1bn below target since January – said the bank’s economists. Deposit flight has also ratcheted up the pressure. More than €20bn has fled the country since the beginning of the year as savers rush to withdraw funds, worried about Greece’s ability to remain in the euro. “The risk of capital controls continues to rise,” noted the Deutsche report.

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“..the nearer Bank Rate approaches zero, the bigger the squeeze on the profits banks earn from borrowing and lending.”

How Low Can Interest Rates Go? (BBC)

The Bank of England’s website says that the “effective lower bound” for the interest rate it sets, Bank Rate, is the current rate of 0.5%. This is the level, according to the Bank, “below which it cannot be set” – the lowest practicable official interest rate. But on this important issue the website is behind the thinking of the Bank of England’s Monetary Policy Committee, which sets Bank Rate as its main tool to keep inflation on target. Because just over a month ago, the Bank’s governor said that if low inflation were to begin to depress expectations of inflation and wage growth, the MPC could “cut Bank Rate further towards zero”.

And with inflation well below the 2% target at zero, the Bank’s chief economist, Andy Haldane, has said – as a personal rather than institutional view – that there is a meaningful chance that Bank Rate will be cut. So what has happened to demonstrate to the Bank that 0.5% is not the practicable minimum. Partly it is the example of central banks – the European Central Bank and those of Switzerland, Sweden and Denmark – whose official rates are negative: banks that place funds with them are having interest deducted from their deposits, rather than receiving interest. Their rates are less than zero. The other contributor to the fall in the effective lower bound is the recovery of Britain’s banks.

This matters because the nearer Bank Rate approaches zero, the bigger the squeeze on the profits banks earn from borrowing and lending. Think of it this way. Competition between banks should bring down the interest rate on loans when Bank Rate is cut towards zero. But savings rates would be kept by competition above zero. So the gap between the interest rate paid and received by banks would narrow: the profits on this most basic of banking activities would fall. Also the windfall received by banks from all those interest-free deposits the banks hold would be significantly cut.

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“China must recycle its trade surpluses and its $3.8 trillion reserves by one means or another. It can buy US Treasuries, Bunds, or Gilts, perpetuating a global bond bubble.”

US Risks Epic Blunder By Treating China As An Economic Enemy (AEP)

The United States has handled its economic diplomacy with shocking myopia. The US Treasury’s attempt to cripple the Asian Infrastructure Investment Bank (AIIB) before it gets off the ground is clearly intended to head off China’s ascendancy as a rival financial superpower, whatever the faux-pieties from Washington about standards of “governance”. Such a policy is misguided at every level, evidence of what can go wrong when a lame-duck president defers to posturing amateurs in Congress on delicate matters of global geostrategy. Washington has enraged Britain by trying to browbeat Downing Street into boycotting the project. It has forced allies and friendly countries across the Far East to make a fatal choice between the US and China that none wished to make, and has ended up losing almost everybody. Germany, France, and Italy are joining. Australia and South Korea may follow soon.

The AIIB is exactly what the world needs. China must recycle its trade surpluses and its $3.8 trillion reserves by one means or another. It can buy US Treasuries, Bunds, or Gilts, perpetuating a global bond bubble. It can make surgical investments abroad to acquire technology for its champions and pursue a narrow national interest. Or it can recycle the money in concert with other members of the AIIB – with a start-up capital of $50bn – for sewage projects, clean energy, ports, roads, and railways in Asia, helping to plug a $700bn shortfall in infrastructure investment that the World Bank is too small to cover and which is of collective benefit to the world. Britain recycled its surpluses in the 19th Century by building the world’s railways.

America did so in the 1950s through the Marshall Plan. China must do likewise, and it is hard to see why the AIIB is considered such a villainous variant. American officials castigated Britain for breaking ranks and embracing the project, as if it were kowtowing to an enemy. “We are wary about a trend of constant accommodation of China, which is not the best way to engage a rising power,” one US official told the Financial Times. One is left breathless at the historical folly of such a view in any case. As Henry Kissinger told Caixin magazine this week, the greater danger is that the US fails to accommodate the rise of China in an enlightened fashion, repeating errors made by the status quo powers faced with a prickly Germany before the First World War.

There are echoes of the Korean War in this Atlantic spat, though thankfully the stakes are less violent today. Britain tried to restrain General Douglas MacArthur and Washington’s hawks as they sent US forces charging through North Korea to the Yalu River and the Manchurian border in 1950, warning that it would force China to respond. MacArthur’s contemptuous riposte was to liken British reflexes to the betrayal of Czechoslovakia at Munich, of “desiring to appease the Chinese Communists by giving them a strip of Northern Korea.” The British experts were right. China threw four armies across the Yalu. America had arrogantly stumbled into a shooting war with the Chinese revolution, a cataclysmic mistake.

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More strip mining.

China’s European Shopping Spree Shows No Signs Of Slowing (Ind.)

A planned takeover of the Italian tyre maker Pirelli by ChemChina is the latest in a string of Chinese acquisitions in Europe, topping up total foreign investment from China worth $18 billion in 2014, double 2013. Pirelli, the world’s fifth largest tyre maker, will be in Chinese hands after ChemChina confirmed a $7.7 billion bid on Sunday. The deal will give Pirelli a slice of the Chinese tyre market and could see its global market share rise to 10%. It’s one of the biggest European acquisitions by a Chinese company yet. But that’s unlikely to be the case for long. Chinese investors have shown increasing interest in Europe as a centre for investment in the last year, spurred on by the cheap euro and the opportunity to invest in legacy brands.

“Chinese investment in Europe has become much more diverse in recent years and is now extending into all parts of Europe.” said Thomas Gilles, Chairman of the EMEA-China Group at Baker & McKenzie. “What we’re seeing is the maturing and normalization of Chinese investment processes in line with the international economy.” The UK is top of the list. Last year, Chinese investors acquired several billion-dollar British investments. Pizza Hut went for a cool £940 million ($1.4 billion), while property bought by Chinese firms includes Chiswick Park for £875 million ($1.3 billion) and 10 Upper Bank Street for £497 million ($740 million).

Last week it emerged that a Chinese company backed by billionaire Guo Guangchang is looking acquire 18 buildings in Berlin’s Potsdamer Platz square, in what could be the biggest German property sale since 2007. Last year France sold Peugeot for £740 million ($1.1 billion).

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“.. the yuan has increased in value against the Euro almost 25% in one year..”

US Couldn’t Corral AIIB Due To Soaring Chinese Investments In Europe (Atimes)

Stopping a stampede isn’t easy – as that old cowpoke Uncle Sam’s discovering as more European nations bolt to join China’s Asian Infrastructure Investment Bank (AIIB). The weak Euro’s drawing a conga line of Chinese investments to Europe. The money’s being plunked down not only in “typical” Chinese sectors of historic interest like resources or transportation. It’s focusing geographically across the entire European opportunity and capability spectrum. The uplifting effects of this investment hasn’t been lost on the European countries who are now eager to climb aboard China’s AIIB. Ever since Europe embarked on their QE, and China has maintained stability in the yuan.

As we have noted, this is viewed as pre-condition for the non-convertible yuan to join the IMF’s SDR currency basket later this year. And the yuan has increased in value against the Euro almost 25% in one year – a trend likely to continue through the year with the long-term policies of the respective central banks likely to stay in place for the foreseeable future. According to the EU Observer: “Even before the crisis, these flows surged, tripling from less than US$1 billion per year in 2004-8 to roughly $3 billion in 2009-10. As the Eurozone crisis kicked in, Chinese investment tripled again to $10 billion in 2011. And last year, Chinese investors doubled their money in Europe to a record $18 billion.”

Chinese capital’s typically poking around for each European country’s relative market advantages. In the UK as with many foreign investors, the Chinese have focused on prime property, while in Germany they look for advanced technology. “The UK is the top destination for Chinese investment at $5.1 billion, followed by Italy at $3.5 billion,” the Observer said. As the capital needs of Southern Europe grow, Chinese capital has focused on privatisations and distressed opportunities, from the Greek ports connecting to their new Silk Road to Europe, to Portugal’s Espirito Santo Bank and Spain’s real estate foreclosures.

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They’re on to us.

Putin Security Council Slams Obama Attempts At “New World Order” (Zero Hedge)

Moscow – which may or may not have to nuke Denmark – says the US has adopted a national security strategy that is decidedly anti-Russian. Although attempts to prove how “isolated” Putin truly is on the geopolitical stage haven’t fared very well of late (what with Russian bombers refueling at former U.S. air bases and Putin plotting Eurasian currency unions) and although Washington’s experience with China’s AIIB membership drive seems to indicate it may be the US that is in fact isolated, The Kremlin doesn’t think The White House is likely to give up on its attempts to ostracize Russia any time soon. From a Russian Security Council statement entitled “About The US National Security Strategy”:

In the long term, the United States, in cooperation with its allies will continue the policy of political and economic isolation of Russia, including limiting its ability to export energy and the displacement of all markets for military products, while making it difficult for the production of high-tech products in Russia.

Putin’s security council then proceeds to deliver a remarkably accurate description of Washington’s foreign policy aims including the desire to show off NATO military capabilities (on full display along the Russian border currently), installing puppet governments and propping them up with financial and military support (which is precisely what’s going on now in Ukraine as the US is set to provide military assistance and also financial assistance via a Ukrainian bond issue back by the full faith and credit of the US government), and preserving US hegemony by taking unilateral action across the globe at Washington’s behest (something the US does all the time):

The Strategy emphasizes the US desire to proceed with the formation of a new global economic order. A special place in this order should take a Trans-Pacific Partnership and transatlantic trade and investment partnership that will enable the US central position in the free trade zones, covering two-thirds of the world economy. The armed forces are considered as the basis of US national security and military superiority is considered a major factor in the American world leadership. While maintaining the continuity of the plans to use military force unilaterally and anywhere in the world, as well as to maintain a military presence abroad…

Significant efforts by the US and its allies will be directed to the formation of anti-Russian policy states, with which Russia has established partnership relations, as well as to reduce Russian influence in the former Soviet Union. Continue the policy of preserving the global dominance of the United States, increasing the combat capabilities of NATO, as well as to strengthen the US military presence in the Asia-Tihokeanskom region. Military force will continue to be considered as the primary means of ensuring national security and interests of the United States. Becoming more widespread to eliminate unwanted US political regimes acquire advanced technology “color revolutions” with a high probability of their application in relation to Russia.

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“Russia would no longer fight the market. Speculators needed a cold shower, she said.”

The Central Banker Who Saved the Russian Economy From the Abyss (Bloomberg)

Panic reached the inner sanctum of the Russian central bank. It was Dec. 16 – the day Russian traders would later christen Black Tuesday – and the ruble was in a freefall.“Intervene! Intervene!” a central bank official shouted. Governor Elvira Nabiullina watched the currency on her tablet screen react to her emergency rate increase. No, she said, not this time: Russia would no longer fight the market. Speculators needed a cold shower, she said. That daring decision, related by two people with knowledge of the meeting, has begun to pay off for Nabiullina, 51, and her patron, President Vladimir Putin. Despite sanctions meant to punish Russia for its foray into Ukraine a year ago, the ruble has stabilized. Since Black Tuesday, when it plunged to a record low, the ruble has rebounded 19% against the dollar, the most among 24 emerging-market currencies.

Russia still confronts a painful recession brought on by the collapse in oil, and many of its banks are hurting. But for now, at least, the economy has stepped back from the abyss. Finance Minister Anton Siluanov last week declared the worst was over. Inside the central bank, near Red Square, the lull passes for victory. Nabiullina no longer has to squander foreign-exchange reserves in vain attempts to prop up the ruble. Now she faces the equally daunting task of binding up the wounded economy. While her central bank is nominally independent, analysts agree Putin is ultimately in charge. Yet Nabiullina has emerged as a power in her own right, with a direct line to the president.

Nabiullina isn’t afraid to speak up. When aides urged Putin to impose capital controls last year, she fought against the move and pushed for a freely floating ruble, according to people with knowledge of the matter. Putin heeded her advice — and then let Nabiullina sort out the details. “It was a historic moment because she convinced Putin to accept a market solution to a problem that threatened the whole banking system,” UBS AG Russia Chairman Rair Simonyan said. Russia might well have veered into economic isolation, he said. What Nabiullina came up with turned out to be one of the biggest financial gambles of Putin’s 15-year rule. First she raised interest rates to punishingly high levels, lifting the benchmark rate to 17% from 10.5% in one stroke. Then she stepped back from intervening on the currency market.

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“..a primary money-laundering concern..”

Banking Enclave of Andorra Shaken by US Accusations (Bloomberg)

Juan Ovelar made a quick decision when he heard the U.S. government had accused his Andorran bank of money-laundering, and immediately withdrew most of his funds. “I’m worried that everyone will do the same as I did and there will be a knock-on effect that could affect other banks,” said Ovelar, 27, a computer expert from Argentina, in an interview outside the headquarters of Banca Privada d’Andorra in the capital Andorra La Vella. The U.S. Treasury named Banca Privada d’Andorra, the country’s fourth-largest bank, a “primary money-laundering concern” on March 10. That led to its seizure by Andorran authorities, the arrest of the chief executive officer and a run on customer funds at the lender’s Spanish unit.

The bank’s fate sent tremors through Andorra, a 181-square-mile (469 km2) Catalan-speaking microstate in the eastern Pyrenees with an economy based on skiing, tax-free shopping and banking. The scandal raises risks for its financial industry, which makes up almost a fifth of the €1.8 billion economy and is too big to be bailed out by the state, said Xavier Puig, a professor at Barcelona’s Universidad Pompeu Fabra. Customers lined up at the bank’s branches to take out their money after it limited cash withdrawals to 2,500 euros a week, starting March 16. The bank’s new management, appointed by local regulators, imposed the limit after international banks severed credit lines, a person with knowledge of the situation said.

Andorra’s government is trying to convince international banks to open credit lines so customers won’t be cut off from funds, said the person, who asked not to be identified because the talks are private. Options under consideration for the bank include the sale of assets or liquidation, the person said, adding that officials are seeking a quick solution to limit the effect on other banks. “The government is acting quickly to find a solution because the consequences can be very serious,” said Puig. “They need to amputate this part so that the gangrene doesn’t extend to the rest of the body.” Fitch Ratings put the three largest Andorran banks on watch for a possible downgrade on Monday because of “potential spill-over effects.”

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A comprehensive overview of behind the scenes US war mongering.

Meet The Kagans: A Family Business Of Perpetual War (Robert Parry)

Neoconservative pundit Robert Kagan and his wife, Assistant Secretary of State Victoria Nuland, run a remarkable family business: she has sparked a hot war in Ukraine and helped launch Cold War II with Russia – and he steps in to demand that Congress jack up military spending so America can meet these new security threats. This extraordinary husband-and-wife duo makes quite a one-two punch for the Military-Industrial Complex, an inside-outside team that creates the need for more military spending, applies political pressure to ensure higher appropriations, and watches as thankful weapons manufacturers lavish grants on like-minded hawkish Washington think tanks.

Not only does the broader community of neoconservatives stand to benefit but so do other members of the Kagan clan, including Robert’s brother Frederick at the American Enterprise Institute and his wife Kimberly, who runs her own shop called the Institute for the Study of War. Robert Kagan, a senior fellow at the Brookings Institution (which doesn’t disclose details on its funders), used his prized perch on the Washington Post’s op-ed page on Friday to bait Republicans into abandoning the sequester caps limiting the Pentagon’s budget, which he calculated at about $523 billion (apparently not counting extra war spending). Kagan called on the GOP legislators to add at least $38 billion and preferably more like $54 billion to $117 billion.

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“..the greatest strategic disaster in US history.”

After a Twelve Year Mistake in Iraq, We Must Just March Home (Ron Paul)

Twelve years ago last week, the US launched its invasion of Iraq, an act the late General William Odom predicted would turn out to be “the greatest strategic disaster in US history.” Before the attack I was accused of exaggerating the potential costs of the war when I warned that it could end up costing as much as $100 billion. One trillion dollars later, with not one but two “mission accomplished” moments, we are still not done intervening in Iraq. President Obama last year ordered the US military back into Iraq for the third time. It seems the Iraq “surge” and the Sunni “Awakening,” for which General David Petraeus had been given much credit, were not as successful as was claimed at the time.

From the sectarian violence unleashed by the US invasion of Iraq emerged al-Qaeda and then its more radical spin-off, ISIS. So Obama sent the US military back. We recently gained even more evidence that the initial war was sold on lies and fabrications. The CIA finally declassified much of its 2002 National Intelligence Estimate on Iraq, which was the chief document used by the Bush Administration to justify the US attack. According to the Estimate, the US Intelligence Community concluded that:

‘[W]e are unable to determine whether [biological weapons] agent research has resumed…’ And: ‘the information we have on Iraqi nuclear personnel does not appear consistent with a coherent effort to reconstitute a nuclear weapons program.’

But even as the US Intelligence Community had reached this conclusion, President Bush told the American people that Iraq, “possesses and produces chemical and biological weapons” and “the evidence indicates that Iraq is reconstituting its nuclear weapons program.” Likewise, Defense Secretary Donald Rumsfeld’s “bulletproof” evidence that Saddam Hussein had ties with al-Qaeda was contradicted by the National Intelligence Estimate, which concluded that there was no operational tie between Hussein’s government and al-Qaeda. Even National Security Advisor Condolezza Rice’s famous statement that the aluminum tubes that Iraq was purchasing “are only really suited for nuclear weapons programs, centrifuge programs,” and “we don’t want the smoking gun to be a mushroom cloud,” was based on evidence she must have known at the time was false. According to the NIE, the Energy Department had already concluded that the tubes were “consistent with applications to rocket motors” and “this is the more likely end use.”

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“..soil in allotments contains a third more organic carbon than agricultural soil and 25% more nitrogen..”

We’re Treating Soil Like Dirt. It’s A Fatal Mistake (Monbiot)

Imagine a wonderful world, a planet on which there was no threat of climate breakdown, no loss of freshwater, no antibiotic resistance, no obesity crisis, no terrorism, no war. Surely, then, we would be out of major danger? Sorry. Even if everything else were miraculously fixed, we’re finished if we don’t address an issue considered so marginal and irrelevant that you can go for months without seeing it in a newspaper. It’s literally and – it seems – metaphorically, beneath us. To judge by its absence from the media, most journalists consider it unworthy of consideration. But all human life depends on it. We knew this long ago, but somehow it has been forgotten. As a Sanskrit text written in about 1500BC noted: “Upon this handful of soil our survival depends. Husband it and it will grow our food, our fuel and our shelter and surround us with beauty. Abuse it and the soil will collapse and die, taking humanity with it.”

The issue hasn’t changed, but we have. Landowners around the world are now engaged in an orgy of soil destruction so intense that, according to the UN’s Food and Agriculture Organisation, the world on average has just 60 more years of growing crops. Even in Britain, which is spared the tropical downpours that so quickly strip exposed soil from the land, Farmers Weekly reports, we have “only 100 harvests left”. To keep up with global food demand, the UN estimates, 6m hectares (14.8m acres) of new farmland will be needed every year. Instead, 12m hectares a year are lost through soil degradation. We wreck it, then move on, trashing rainforests and other precious habitats as we go. Soil is an almost magical substance, a living system that transforms the materials it encounters, making them available to plants.

That handful the Vedic master showed his disciples contains more micro-organisms than all the people who have ever lived on Earth. Yet we treat it like, well, dirt. The techniques that were supposed to feed the world threaten us with starvation. A paper just published in the journal Anthropocene analyses the undisturbed sediments in an 11th-century French lake. It reveals that the intensification of farming over the past century has increased the rate of soil erosion sixtyfold. Another paper, by researchers in the UK, shows that soil in allotments – the small patches in towns and cities that people cultivate by hand – contains a third more organic carbon than agricultural soil and 25% more nitrogen. This is one of the reasons why allotment holders produce between four and 11 times more food per hectare than do farmers.

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Bravo.

No One Must Go Thirsty: Water In Public Hands Is A Right (Beppe Grillo)

“Why is the water bill so high? In the last few years, have you ever tried to understand why something that should be a right is now something that makes a big hole in your savings? Someone would like to ruin the results of the 2011 referendum, in which a massive majority of the Italian people said “no” to every law that could place the handling of public water into private hands. However, in Italy, strange things are happening: water is cut off indiscriminately and without warning on a regular basis, the price of water has gone up by 95.8% in the last few years, the profits of the municipal companies are no longer being reinvested to reduce leakage but to maximise profits. Basically, those who are now managing water resources are today thinking more about making profits, rather than about providing a service.

The money we are paying in water bills is going to enrich the shareholders with generous dividends. This is a camouflaged privatisation and it is going against what was expressed as the will of the people. The 5 Star MoVement is taking to the European Parliament one of its historical battles: that of defending one of its five stars, keeping water in public hands. The proposal is simple: NO ONE MUST GO THIRSTY The World Health Organization has done the calculations: for an individual’s minimum needs between 50 and 100 litres of water a day are required. This amount must be guaranteed for all. This is why the 5 Star MoVement is proposing a service that provides a guaranteed minimum water supply for each person. It’s not acceptable to get rich by trading in water. That’s the message from the European citizens that have signed a petition asking European institutions NOT to privatise water.

1 million 800 thousand signatures for the first example of direct democracy in Europe. The Commission’s response has been disappointing because it hasn’t put forward any new legislative proposal. The principles contained in its communication are sacred but these need to be reinforced with laws, not just words. Furthermore, as regards the dreaded liberalization of public water, the Commission has underlined that it is up to the member States to make the laws. in particular, it has emphasised that the supply of water is the responsibility of the local authorities within the member State, and it is up to them to make the decisions as to whether to manage the supply directly, indirectly or by using private suppliers.

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 March 23, 2015  Posted by at 8:49 am Finance Tagged with: , , , , , , , ,  7 Responses »


Gottscho-Schleisner Fishing boat at Fulton Market Pier, NY 1933

World Faces 40% Water Shortfall In 15 Years: UN (MarketWatch)
Liquidity Crisis Could Spark The Next Financial Crash (Telegraph)
Strong Dollar Hammers Profits at US Multinationals (WSJ)
How Europe And US Stumbled Into Spat Over China-Led Bank (CNBC)
Lagarde Says IMF ‘Delighted’ To Co-operate With China-Led AIIB Bank (BBC)
US to Seek Collaboration With China-Led Investment Bank (WSJ)
France Is Europe’s ‘Big Problem’, Warns Mario Monti (Telegraph)
Draghi Cheerleads for Economy as Greek Risk Looms Over Euro Area (Bloomberg)
Greece And Germany Move Towards Crossroads Of The Eurozone (Guardian)
Greece’s Leader Warns Merkel Of ‘Impossible’ Debt Payments (FT)
Tsipras Letter To Merkel: The Annotated Text (FT)
Greek Ministers Set For Charm Offensives In Moscow, Beijing (Kathimerini)
Asleep At The Euro-Wheel (Al-Jazeera)
Greek Government Forced To Cooperate With Technocrats (Kathimerini)
OPEC Won’t Bear Burden Of Propping Up Oil Price – Saudi Minister (Reuters)
Shell Oil Drilling In Arctic Set To Get US Government Permission (Guardian)
US Spies Feel ‘Comfortable’ In Switzerland, Afraid Of Nothing: Snowden (RT)
Great Barrier Reef: Scientists Call For Scrapping Of Coal Projects (Guardian)
China Top Weather Scientist Warns On Climate Change Devastation (SR)
The Men Who Uncovered Assyria (BBC)

In just 15 years! Wrap your head around that!

World Faces 40% Water Shortfall In 15 Years: UN (MarketWatch)

As the global economy grows, the world is going to get a lot more thirsty in 2030 if steps aren’t taken to cut back on fresh water use now, the United Nations says. At current usage rates, the world will have 40% less fresh water than it needs in 15 years, according to the United Nations World Water Assessment Program in its 2015 report, which came out ahead of the U.N.’s World Water Day on Sunday. “Strong income growth and rising living standards of a growing middle class have led to sharp increases in water use, which can be unsustainable, especially where supplies are vulnerable or scarce and where its use, distribution, price, consumption and management are poorly managed or regulated,” the report said.

Factors driving up demand for water include increased meat consumption, larger homes, more cars and trucks on the road, more appliances and energy-consuming devices, all staples of middle -class life, the report noted. Population growth and increased urbanization also contribute to the problem. Water demand tends to grow at double the rate of population growth, the report said. The global population is expected to grow to 9.1 billion people by 2050, up from the current 7.2 billion. More people living in cities also put strain on water supplies.

The report estimates that 6.3 billion people, or about 69% of the world’s population, will be living in urban areas by 2050, up from the current 50%. The biggest drain on water resources is agriculture, which uses about 70% of the world’s fresh water supplies. Tapping into groundwater supplies to make up for surface-water deficits strains resources. The report said that 50% of the world relies solely on groundwater to meet basic daily needs and that 20% of the world’s aquifers are already over-exploited.

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“..liquidity in the US credit markets has dropped by about 90% since 2006..”

Liquidity Crisis Could Spark The Next Financial Crash (Telegraph)

[..].. it is the corporate bond market where worries about trading conditions are most acute. The ultra-loose monetary policies pursued by the Fed, the Bank of England and the European Central Bank has resulted in a torrent of bond issuance in recent years from companies seeking to capitalise on rock bottom interest rates. “Now is the perfect time to borrow if you’re a company,” says Gary Jenkins, a credit strategist at LNG Capital. European and British companies, excluding banks, sold a combined $435.3bn of investment-grade debt last year, and $458.5bn in 2013, according to Dealogic. The level of issuance is much greater than before the financial crisis. In 2005, for example, $155.7bn was raised from corporate bond sales and $139.8bn the year before that.

Companies issuing riskier, high-yield debt have been similarly prolific. Last year, European businesses sold $131.6bn of so-called junk bonds, up from $104.4bn in 2013, the Dealogic data show. In 2005, they issued $20.4bn. At the same time that issuance in the primary market has grown, trading of company bonds by investors in the secondary market has dried up, a liquidity shortage that ironically has been caused by regulators’ attempts to avert a repeat of the crisis that shook the financial system in 2008. “Bank regulation is generally a good thing, but one of the unintended consequences has been the reduction in market liquidity,” says John Stopford, co-head of multi-asset investing at Investec Asset Management.

“And that could come back to haunt us. People need to be aware of that risk and be prepared for it.” Unlike shares, which are traded on exchanges, bonds are typically traded over-the-counter and investment banks traditionally played a key role in facilitating the buying and selling of bonds issued by companies. But the regulatory crackdown on proprietary trading and increasingly stringent capital requirements, which have hit market-making activities, have forced banks to retreat from the market. “Tighter bank regulation makes it more expensive for banks to hold bond inventories, which reduces their desire to provide liquidity to the market,” says Stopford. As a result, it has become much harder for investors to trade corporate debt.

“If you’re working a €50m block of bonds, there’s no way you’re going to get a price. So instead you have to chip away and sell €2m to €3m per day,” according to Andy Hill, ICMA’s director of market practice and regulatory policy. “A few years ago, you would go to your favoured bank with a large block, they would show you a price, they would take it onto their balance sheet, hedge it and then trade out of it. Banks can’t do that any more.” The impact of the fall-back by banks on trading has been dramatic. According to the Royal Bank of Scotland, liquidity in the US credit markets has dropped by about 90pc since 2006. Jenkins at LNG Capital says that the poor liquidity has prompted some fund managers to alter their investment behaviour altogether and buy and hold bonds until maturity, rather than selling them on and booking the gains.

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“..companies that generate more than 50% of sales outside the U.S. are expected to post an earnings decline of 11.6% in the first quarter..”

Strong Dollar Hammers Profits at US Multinationals (WSJ)

The soaring dollar is crunching profits at giant U.S. multinationals, prompting Wall Street analysts to make their deepest cuts to earnings forecasts since the financial crisis and boosting the appeal of smaller, domestically focused companies. The dollar has jumped 12% in 2015 against the euro and is up 27% from a year ago. The WSJ Dollar Index, which measures the dollar against a basket of currencies, is up 5.3% this year. The dollar’s surge against the euro has been driven by an aggressive ECB monetary-easing program that has come as the U.S. central bank is preparing to raise interest rates. Analysts, citing the dollar’s strength as a key factor, are predicting that profits at S&P 500 firms for the first quarter will show their biggest annual decline since the third quarter of 2009.

As a result, investors are keeping a continued bias toward U.S.-based stocks that do less business abroad, such as shares of small companies that tend to be more domestically focused, and on companies outside the U.S. that stand to benefit from a weakening of their home currency as the dollar strengthens, particularly European manufacturers. “What is remarkable is the speed with which the dollar has accelerated, and that speed brings with it some complications,” said Anwiti Bahuguna, senior portfolio manager on Columbia Management’s global asset allocation team, which oversees $68 billion. “The dollar strength is moving at a much, much faster pace than you’ve seen in history.”

Many investors say the dollar’s rise is behind the relatively strong performance of smaller-company stocks, which are often more domestically focused than large-company stocks. The Russell 2000 index of small-capitalization shares is up 5.1% this year and 10% in the last six months. That compares with gains in the S&P 500 index of 2.4% in 2015 and 4.9% over six months. The dollar’s jump has come as the ECB embarked on a new, aggressive easing of monetary policy. Investors expect the Fed to respond to a healthier U.S. economy by raising rates later this year, though many analysts are expecting later, slower increases following Wednesday’s dovish Fed policy statement. [..]

Goldman Sachs expects the euro to fall another 12% against the dollar over the next 12 months. [..] According to FactSet, companies that generate more than 50% of sales outside the U.S. are expected to post an earnings decline of 11.6% in the first quarter when results start rolling in next month. Companies that generate less than half of sales outside the U.S. are expected to post flat earnings for the quarter. Companies in the S&P earned 46% of their sales outside the U.S. in 2014, according to S&P Dow Jones Indexes. By contrast, 19% of sales for Russell 2000 companies comes from outside the U.S., according to Bank of America Merrill Lynch.

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“Sour grapes over the AIIB makes America look isolated and hypocritical..”

How Europe And US Stumbled Into Spat Over China-Led Bank (CNBC)

Sometimes geopolitical shifts happen by accident rather than design. Historians may record March 2015 as the moment when China’s checkbook diplomacy came of age, giving the world’s number two economy a greater role in shaping global economic governance at the expense of the United States and the international financial institutions it has dominated since WWII. This month European governments chose, in an ill-coordinated scramble for advantage, to join a nascent, Chinese-led Asian Infrastructure Investment Bank (AIIB) in defiance of Washington’s misgivings. British finance minister George Osborne, gleeful at having seized first-mover advantage, stressed the opportunities for British business in a pre-election budget speech to parliament last week.

“We have decided to become the first major western nation to be a prospective founding member of the new Asian Infrastructure Investment Bank, because we think you should be present at the creation of these new international institutions,” he said after rebuffing a telephone plea from U.S. Treasury Secretary Jack Lew to hold off. The move by Washington’s close ally set off an avalanche. Irked that London had stolen a march, Germany, France and Italy announced that they too would participate. Luxembourg and Switzerland quickly followed suit. The trail of transatlantic and intra-European diplomatic exchanges points to fumbling, mixed signals and tactical differences rather than to any grand plan by Europe to tilt to Asia.

That is nevertheless the way it is seen by some in Washington and Beijing. As recounted to Reuters by officials in Europe, the United States and China who spoke on condition of anonymity because of the sensitivity of the subject, the episode reveals the paucity of strategic dialogue among what used to be called “the West”. It also highlights how the main European Union powers sideline their common foreign and security policy when national commercial interests are at stake. China’s official Xinhua news agency reflected Beijing’s delight. “The joining of Germany, France, Italy as well as Britain, the AIIB’s maiden G7 member and a seasoned ally, has opened a decisive crack in the anti-AIIB front forged by America,” it said in a commentary. “Sour grapes over the AIIB makes America look isolated and hypocritical,” it said.

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Thrilled, I tell ya… Couldn’t be happier!

Lagarde Says IMF ‘Delighted’ To Co-operate With China-Led AIIB Bank (BBC)

International Monetary Fund chief Christine Lagarde has said the IMF would be “delighted” to co-operate with the China-led Asian Infrastructure Investment Bank (AIIB). The AIIB has more than 30 members and is envisaged as a development bank similar to the World Bank. Mrs Lagarde said there was “massive” room for IMF co-operation with the AIIB on infrastructure financing. The US has criticised the UK and other allies for supporting the bank. The US sees the AIIB as a rival to the World Bank, and as a lever for Beijing to extend its influence in the region.

The White House has also said it hopes the UK will use “its voice to push for adoption of high standards”. Countries have until 31 March to decide whether to seek membership of the AIIB. As well as the UK, other nations backing the venture include New Zealand, Germany, Italy and France. Mrs Lagarde, speaking at the opening of the China Development Forum in Beijing, also said she believed that the World Bank would co-operate with the AIIB, China established the Asian lending institution in 2014 and has put up most of its initial $50bn (£33.5bn) in capital.

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Wankers ‘R ‘Us: “Co-financing projects with existing institutions like the World Bank or the Asian Development Bank will help ensure that high quality, time-tested standards are maintained.”

US to Seek Collaboration With China-Led Investment Bank (WSJ)

The Obama administration, facing defiance by allies that have signed up to support a new Chinese-led infrastructure fund, is proposing the bank work in a partnership with Washington-backed development institutions such as the World Bank. The collaborative approach is designed to steer the new bank toward economic aims of the world’s leading economies and away from becoming an instrument of Beijing’s foreign policy. The bank’s potential to promote new alliances and sidestep existing institutions has been one of the Obama administration’s chief concerns as key allies including the U.K., Germany and France lined up in recent days to become founding members of the new Asian Infrastructure Investment Bank.

The Obama administration wants to use existing development banks to co-finance projects with Beijing’s new organization. Indirect support would help the U.S. address another long-standing goal: ensuring the new institution’s standards are designed to prevent unhealthy debt buildups, human-rights abuses and environmental risks. U.S. support could also pave the way for American companies to bid on the new bank’s projects. “The U.S. would welcome new multilateral institutions that strengthen the international financial architecture,” said Nathan Sheets, U.S. Treasury Under Secretary for International Affairs. “Co-financing projects with existing institutions like the World Bank or the Asian Development Bank will help ensure that high quality, time-tested standards are maintained.”

Mr. Sheets argues that co-financed projects would ensure the bank complements rather than competes with existing institutions. If the new bank were to adopt the same governance and operational standards, he said, it could both bolster the international financial system and help meet major infrastructure-investment gaps. No decision has been made by the new Chinese-led bank about whether it will partner with existing multilateral development banks, as the facility is still being formed, though co-financing is unlikely to face opposition from U.S. allies.

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“We’ve seen that the strong axis is no longer so strong.”

France Is Europe’s ‘Big Problem’, Warns Mario Monti (Telegraph)

France has become Europe’s “big problem”, according to the former prime minister of Italy, who warned that anti-Brussels sentiment and the rise of populist parties in the Gallic nation threatened to blow the bloc’s Franco-German axis apart. Mario Monti – who was dubbed “Super Mario” for saving the country from collapse at the height of the eurozone debt crisis – said France’s “unease” with the single currency had already created tensions between Europe’s two largest economies. “In the last few years we have seen France receding in terms of actual economic performance, in terms of complying with all the European rules, and above all in terms of its domestic public opinion – which is turning more and more against Europe,” he told The Telegraph.

France’s strained relationship with Brussels has been borne out through its persistent defiance of EU budget targets and the rise of Marine Le Pen’s far-right Front National party, “France is the big problem of the European Union because the whole construct has been leveraged on the foundation of a solid Franco-German entente. If it isn’t there then there is a poor destiny for Europe,” said Mr Monti. “We’ve seen that the strong axis is no longer so strong.” Jens Weidmann, the president of Germany’s Bundesbank, recently attacked the EU’s decision to give France extra time to sort out its budget. Mr Weidmann said countries such as France, which has failed to meet a 3pc deficit target for several years, should not be allowed to “perpetually put off” belt-tightening.

Mr Monti said Germany’s willingness “to exercise certain responsibilities” as the bloc’s hegemon had eased the eurozone’s problems. The respected economist, whose technocratic government was swept into power in 2011, also said the anti-Brussels sentiment in France was greater than many believed. “I’m always struck when I participate in debates in France – even the elite is so uneasy about the governance of the eurozone. “I would not be surprised to hear this tone in Athens or in Lisbon, but I’m very surprised to hear this in Paris.” France will vote in local elections on Sunday. A recent poll conducted by Le Figaro newspaper put Ms Le Pen’s party out in the lead, with 30pc of the vote.

In a warning to France, Mr Monti said: “Maybe you forgot, but we all remember that France was the country that wanted the euro, not Germany. “Germany reluctantly accepted the euro to get approval of the other countries for its reunification process. It would have much rather kept to the Deutsche Mark. It was France who insisted to have the single currency and now it’s so uneasy with it.” Mr Monti, a Brussels veteran who is currently president of Bocconi University, also said the “humiliating” diktats of the so-called “troika” had caused more damage to the Greek economy and should not continue.

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Draghi is an ancient Bulgarian word for spin doctor. Which was old-Hungarian for BS.

Draghi Cheerleads for Economy as Greek Risk Looms Over Euro Area (Bloomberg)

Mario Draghi can gauge this week whether his optimism in the economy is well-founded. From business confidence in Germany to manufacturing in France and consumer spending in Italy, a smattering of data from across the 19-nation euro area will provide a glimpse at the state of the recovery. The ECB president, who has become more upbeat on the economy since announcing his quantitative-easing program two months ago, will get a chance to present his view on Monday when he addresses the European Parliament in Brussels. His words will come only days after protesters vented their anger outside the ECB’s new headquarters in Frankfurt over the institution’s perceived role in imposing fiscal austerity and economic hardship throughout Europe.

With unemployment still near record highs and strong support for populist parties like Greece’s Syriza threatening to tear apart the currency bloc, pressure is building on Draghi to ensure that monetary stimulus reaches beyond banks’ balance sheets. “Draghi will continue to cheerlead the effects of the ECB’s QE but warn that you need reforms to make the recovery extended and long-lasting,” said Thomas Harjes, senior European economist at Barclays Plc in Frankfurt. “There is still a significant amount of discontent in states that saw a surge in unemployment, and for this to change you really need a turn in employment dynamics.”

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Helena Smith is quite good from Athens.

Greece And Germany Move Towards Crossroads Of The Eurozone (Guardian)

When the red carpet is rolled out for Alexis Tsipras in Berlin on Monday, the euro debt drama will come to a potentially decisive turning point. His host will be none other than Angela Merkel, Europe’s mother, its powerbroker par excellence and the queen of austerity, defender of the very policies the left-wing firebrand has vowed to dismantle. For many, it will be the long anticipated moment of truth. There has been much that is familiar on the great Greek crisis train. For those on board, it has been a rollercoaster ride, one that seems to have arrived at the place it began. In five years of recession and austerity, seeing their country argue with creditors and bargain over reforms, Greeks have had an added sense of deja vu. Athens, in many ways, is still where it was when the crisis exploded in late 2009.

Merkel’s olive branch could change that. European solidarity is on the line but so, too, is the future of Greece and the single currency bloc to which it belongs. Historians will see a meeting of minds or deduce that the euro crisis ultimately crashed on the buffers of immovable object meeting irresistible force. The stakes could not be higher. Speculation of a Greek default and exit from the eurozone has resurfaced with a vengeance. And in Greek-German relations – amid renewed talk of war reparations and Nazi crimes – the climate couldn’t be worse. So bad have bilateral ties become that, on Sunday, Manolis Glezos, the second world war hero and symbol of national resistance, appealed to both countries for calm and logic to prevail.

Toxic nationalism – the affliction the European Union was created to quell – was, he said, at risk of once again rearing its ugly head. “I am worried by the climate of division, intolerance and hostility that some are seeking to create between,” said the 92-year-old adding that Greeks in no way blamed today’s Germans for the atrocities of the Third Reich. As an icon of the left – and leading Euro MP of Tsipras’ radical left Syriza party – the plea was seen as a direct message to the Greek premier.

The anti-austerity leader flies into Berlin as the crisis moves from the chronic stage back into the acute. Money and time for Athens is running out. Greece is faced with some €1.6 billion in debt repayments by the end of March with another €2 billion maturing next month. There are real – and growing concerns – that with cash reserves drying up, the government will have to issue IOUs to pay pensions and public sector salaries next week. The euro zone’s weakest link has never been more dependent on Teutonic goodwill.

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“He blames ECB limits on Greece’s ability to issue short-term debt as well as eurozone bailout authorities refusal to disburse any aid before Athens adopts a new round of economic reforms.”

Greece’s Leader Warns Merkel Of ‘Impossible’ Debt Payments (FT)

Alexis Tsipras, the Greek prime minister, has warned Angela Merkel that it will be “impossible” for Athens to service its debt obligations if the EU fails to distribute any short-term financial assistance to the country. The warning, contained in a letter sent by Mr Tsipras to the German chancellor and obtained by the Financial Times, comes as concerns mount that Athens will struggle to make pension and wage payments at the end of this month and could run out of cash before the end of April. The letter, dated March 15, came just before Ms Merkel agreed to meet Mr Tsipras on the sidelines of an EU summit last Thursday and invited him for a one-on-one session in Berlin, scheduled for Monday evening. In the letter, Mr Tsipras warns that his government will be forced to choose between paying off loans, owed primarily to the IMF, or continue social spending.

He blames ECB limits on Greece’s ability to issue short-term debt as well as eurozone bailout authorities refusal to disburse any aid before Athens adopts a new round of economic reforms. Given that Greece has no access to money markets, and also in view of the spikes in our debt repayment obligations during the spring and summer…it ought to be clear that the ECB’s special restrictions when combined with disbursement delays would make it impossible for any government to service its debt, Mr Tsipras wrote. He said servicing the debts would lead to a sharp deterioration in the already depressed Greek social economy a prospect that I will not countenance. With this letter, I am urging you not to allow a small cash flow issue, and a certain institutional inertia, to not turn into a large problem for Greece and for Europe, he wrote. [..]

Mr Tsipras’s five-page letter is particularly critical of the ECB, which he said had forbidden Greek banks from holding more short-term government debt than they did when they requested an extension of the current bailout last month — a cap that has prevented Athens from relying on Treasury bills to fill its urgent cash needs because Greek banks have become nearly the only buyer of such debt. The Greek prime minister insisted the ECB should have returned to “the terms of finance of the Greek banks” that existed immediately following his government’s election — when ECB rules were more lenient — once the deal to extend Athens’ €172bn bailout through June was agreed last month.

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When I read this, I’m thinking: why bother any longer?

Tsipras Letter To Merkel: The Annotated Text (FT)

The letter starts off by referring to a February 20 agreement by the eurogroup – the committee of all 19 eurozone finance ministers which is responsible for overseeing the EU’s portion of Greece’s €172bn bailout. That was the meeting where ministers ultimately agreed to extend the Greek bailout into June; it was originally to run out at the end of February, and the prospect of Greece going without an EU safety net had spurred massive withdrawals from Greek bank deposits, which many feared was the start of a bank run. The letter’s first paragraph also refers to a February 18 letter sent by Yanis Varoufakis, the Greek finance minister, to Jeroen Dijsselbloem, the Dutch finance minister who chairs the eurogroup. A copy of that letter can be found here. Its purpose was to formally request an extension of the existing bailout, something Tsipras had resisted since coming into office.

Dear Chancellor, I am writing to you to express my deep concern about developments since the 20th February 2015 Eurogroup agreement, which was preceded two days earlier by a letter from our Minister of Finance outlining a number of issues that the Eurogroup ought to resolve, issues which I consider to be important, including the need:

(a) To agree the mutually acceptable financial and administrative terms the implementation of which, in collaboration with the institutions, will stabilise Greece’s financial position, attain appropriate fiscal surpluses, guarantee debt stability and assist in the attainment of fiscal targets for 2015 that take into account the present economic situation.

This is a fancy way of saying that the two sides can’t agree on what reform measures must be adopted before Greece can get some of the €7.2bn remaining in the existing bailout and Tsipras wants the terms clarified quickly.

(b) To allow the European Central Bank to re-introduce the waiver in accordance with its procedures and regulations.

Given the economic climate, Greek banks have needed to borrow from the ECB at extremely cheap rates since they frequently can’t raise money for their day-to-day operations on the open market. But the ECB needs collateral for these loans, and one of the forms of collateral has always been government bonds owned by the banks. Well, as Greece’s fiscal situation deteriorates, those bonds are worth less and less – until, in the view of many central bankers, they’re too risky to accept as collateral at all. That’s been the situation for Greek bonds for a while, but up until Tsipras was elected, the ECB had a waiver in place allowing the central bank to accept the bonds as collateral since Athens was part of a bailout that was aimed at getting its finances back on track. Within days of Tsipras forming a government, the ECB withdrew the waiver, arguing that Athens was no longer committed to completing the bailout. Tsipras wants the wavier reinstated, since Greek banks are now relying on more expensive emergency loans from the Greek central bank instead of the ECB’s normal lending window.

(c) To commence work between technical teams on a possible new Contract for Recovery and Development that the Greek authorities envisage between Greece, Europe and the International Monetary Fund, to follow the current Agreement.

Greece will need a third bailout once the current programme ends in June, and here Tsipras is asking for talks on a new rescue to begin.

(d) To discuss means of enacting the November 2012 Eurogroup decision regarding possible further debt measures and assistance for implementation after the completion of the extended Agreement and as a part of the follow-up Contract.

Seemingly forgotten by everyone but the Greek government (and a few pesky reporters), in November 2012 eurozone finance ministers agreed to grant Athens additional debt relief if the government achieved a primary budget surplus (meaning that it takes in more than it spends, when interest on debt is not counted). Well, Greece reached a primary surplus in 2013. And no debt relief has been agreed. Tsipras is asking for this to happen in the third bailout programme.

Based on the in-principle acceptance of this letter and its content, the President of the Eurogroup convened the 20th February meeting which reached a unanimous decision expressed in a communiqué. The latter constitutes a new framework for the relationship between Greece, its partners, and its institutions.

This may appear a rhetorical flourish, but it gets to something deeper that continues to plague the relationship: Tsipras regards the February 20 agreement as a break from what came before; other eurozone leaders, particularly in Germany, regard it as simply an extension of the existing bailout programme.

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Sell your physical assets to Moscow and Beijing? You’d be crazy to do that.

Greek Ministers Set For Charm Offensives In Moscow, Beijing (Kathimerini)

The government is said to be trying to bring Moscow and Beijing to the negotiation table for the privatization of Piraeus and Thessaloniki ports, the Thrassio transit center and rail service operator TRAINOSE in order to secure financial support. These are projects of high added value for the Greek economy and will be at the focus of top-level visits to Russia and China by Greek officials in the coming weeks. What is at issue is whether they will be conceded via international tender – as the government has said they will – or through bilateral agreements, which are allowed between European Union members and third countries but are subject to EU competition rules. Prime Minister Alexis Tsipras is due to visit Moscow on April 8 escorted by National Defense Minister Panos Kammenos, who will return to the Russian capital nine days later.

Their agenda, besides energy and defense issues, will include Russian interest in the port of Thessaloniki and in TRAINOSE. Meanwhile, while Beijing has repeatedly stated its desire for a strong and united eurozone, with Greece obviously a member, sources say that it is reluctant to risk harming ties with the EU by intervening in the Greek-European discourse. Deputy Prime Minister Yiannis Dragasakis, Foreign Minister Nikos Kotzias and State Minister Nikos Pappas will be visiting China with his in mind. The Greek mission is departing for Beijing on Tuesday on a five-day visit, but it is not yet known whether the Greek ministers will be able to meet with Chinese Premier Li Keqiang, in a rapidly deteriorating international climate for Greece.

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“It would involve national governments and banks bypassing the ECB’s undemocratic, supra-national stranglehold and so the ECB wants nothing to hear of it. Sadly, it appears that Greece’s new top finance ministers are willing to comply with the ECB’s dominance..”

Asleep At The Euro-Wheel (Al-Jazeera)

In this battle, as Berlin-based Greek blogger “Techiechan” observes, the Alexis Tsipras administration with the aid of Finance Minister Yanis Varoufakis so far succeeded on two points: they have introduced a slither of transparency to the notoriously opaque European way of doing political business and have exposed to an international public the dominance of the German government in European affairs, as an account of a meeting of top euro area officials by US economist James Galbraith proves. But this, in turn, has led to a stronger backlash against Greece with most Germans for the first time wanting it to leave the euro area. Surprisingly, on the extremely sensitive subject of Nazi-era war reparations, which Schauble dismisses as a ploy, certain German politicians have broken rank and want to come to an agreement with Greece.

The Greek government is less keen on making as concrete calculations when it comes to solving its side of the crisis and Tsipras’s brave rhetoric of refusing to succumb to what he calls “blackmail” is not enough. Unless the government finds ways around the ECB’s “nein” stance towards lending to Greece’s main banks and at the same time miraculously kick-starts income collection (taxes and social security contributions from those who so far have were not paying, from so-called oligarchs to professional and regional pressure groups), it might run out of money in the coming weeks. Greece might not leave the euro zone but default inside it, given its obligations, foreign and domestic.

Is there a way out? On the level of unconventional but common sense solutions to get Greece’s economy going, Richard Werner, a German academic with immense private-sector experience who has lived through Japan’s withering and South East Asia’s blooming, has proposed what he calls “Enhanced Debt Management”. There is a hitch, though. It would involve national governments and banks bypassing the ECB’s undemocratic, supra-national stranglehold and so the ECB wants nothing to hear of it. Sadly, it appears that Greece’s new top finance ministers are willing to comply with the ECB’s dominance, as an editorial they co-authored for the Financial Times illustrates.

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They should refuse.

Greek Government Forced To Cooperate With Technocrats (Kathimerini)

The agreement reached at a mini EU summit with Greek Prime Minister Alexis Tsipras and other high-level EU officials, could mark the beginning of a more constructive engagement between the government and official lenders. This should become obvious in the next 10 days or so because failure to do so may bring about unpleasant consequences, including a credit crunch. Greece bought some time at the recent meeting but the clock is ticking. The government has to present a full list of structural reforms to the lenders in the next few days, something that could have been done in previous weeks. The reforms will be evaluated and hopefully approved by the Eurogroup so that a portion of the €7.2 billion earmarked for Greece under the second adjustment program can be disbursed.

Government officials are hopeful of smoother cooperation with the technocrats of the so-called Brussels Group, comprised of senior officials from the European Commission, the IMF, the ECB and the ESM (European Stability Fund), who are on a fact-finding mission in Athens. However, third-party observers who are aware of the review process and the fundamental weaknesses of the Greek civil service are not that optimistic. Although communication between the two sides may be restored, helping reduce the frustration of the technical teams of the Brussels Group, the speed with which ministry officials and others can respond to queries about data remain a big question mark. Unless the Greek side has done some homework and is ready to deliver the figures requested, the observers say they would be surprised by a response in such a short period of time.

If they are right, the review process will not be completed before we get well into April and Greece will not even be able to get the €1.9 billion it is hoping for from the return of income from bonds held by the ECB by then. Politics aside, the observers also point out that the Greek side has underestimated the role of the technocrats involved in the review process. According to them, their role is not limited to mere fact-finding but extends to producing policy proposals sent to their superiors for approval or modifications if the Greek side objects. As far as we know, such engagement between the two sides has not taken place yet for fiscal and other data.

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“We tried, we held meetings and we did not succeed because countries (outside OPEC) were insisting that OPEC carry the burden and we refuse that OPEC bears the responsibility..”

OPEC Won’t Bear Burden Of Propping Up Oil Price – Saudi Minister (Reuters)

OPEC will not take sole responsibility for propping up the oil price, Saudi Arabia’s oil minister said on Sunday, signalling the world’s top petroleum exporter is determined to ride out a market slump that has roughly halved prices since last June. Last November, Organization of the Petroleum Exporting Countries kingpin Saudi Arabia persuaded members to keep production unchanged to defend market share. The move accelerated an already sharp oil price drop from peaks last year of more than $100 per barrel that was precipitated by an oversupply of crude and weakening demand. Since the oil price collapse, top OPEC exporter Saudi Arabia has said it wants non-OPEC producers to cooperate with the group. But Saudi oil minister Ali al-Naimi said on Sunday that plan had so far not worked.

“Today the situation is hard. We tried, we held meetings and we did not succeed because countries (outside OPEC) were insisting that OPEC carry the burden and we refuse that OPEC bears the responsibility,” Naimi told reporters on the sidelines of an energy conference in Riyadh. “The production of OPEC is 30% of the market, 70% from non-OPEC…everybody is supposed to participate if we want to improve prices.” Earlier, OPEC governor Mohammed al-Madi said it would be hard for oil to reach $100-$120 per barrel. Oil prices recovered since January to over $60 a barrel, but have fallen again in recent days following a bigger than expected crude stock build in the United States that fueled concerns of an oversupply in the world’s largest oil consumer.

Benchmark Brent crude settled at $55.32 a barrel on Friday. Oil companies, including U.S. shale producers, have slashed spending and jobs since the price of oil fell, and may face another round of spending cuts to conserve cash and survive the downturn. Naimi repeated on Sunday that politics played no role in the kingdom’s oil policy. Some producers such as Iran, a political regional rival of Saudi Arabia, have criticised Riyadh for its stance on maintaining steady production. “There is no conspiracy and we tried to correct all the things that have been said but nobody listens,” Naimi said. “We are not against anybody, we are with whoever wants to maintain market stability and the balance between supply and demand, and (with regards to) price the market decides it.”

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Desperation squared.

Shell Oil Drilling In Arctic Set To Get US Government Permission (Guardian)

The US government is expected this week to give the go-ahead to a controversial plan by Shell to restart drilling for oil in the Arctic. The green light from Sally Jewell, the interior secretary, will spark protests from environmentalists who have campaigned against proposed exploration by the Anglo-Dutch group in the Chukchi and Beaufort seas off Alaska. Jewell will make a formal statement backing the decision as soon as Wednesday, the earliest point at which her department can rubber-stamp an approval given last month given by the Bureau of Ocean Energy Management (BOEM).

The US Interior Department had been forced to replay the decision-making process after a US federal court ruled last year, in a case brought by environmental groups, that the government had made mistakes in assessing the environmental risks in the drilling programme. However, the BOEM, an arm of Jewell’s department, has backed the drilling after going through the process again, despite revealing in its Environmental Impact Statement “there is a 75% chance of one or more large spills” occurring. A leading academic, Prof Robert Bea, from the engineering faculty at the University of California in Berkeley, who made a special study of the Deepwater Horizon accident, has raised new concerns that the recent slump in oil prices could compromise safety across the industry as oil producers strive to cut costs.

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And just about anywhere else too.

US Spies Feel ‘Comfortable’ In Switzerland, Afraid Of Nothing: Snowden (RT)

US spies operate in Switzerland without much fear of being unmasked, because Swiss intelligence, though knowledgeable and very professional, poses no threat to them, former NSA contributor Edward Snowden told Swiss TV. “The reason that made Switzerland so interesting as the capital of espionage – particularly Geneva – has not changed,” Snowden said in an interview to Darius Rochebin on RTS, a Swiss broadcaster. The two spoke at the International Film Festival and Forum on Human Rights on March 5. The transcript of the interview waspublished in le Temps, a Swiss French-language newspaper, this Saturday.

“There have always been international headquarters, the United Nations, WTO, WHO, ICRC [in Geneva]. There are representations of foreign governments, embassies, international organizations, NGOs … A number of organizations, and all of them are in one city [Geneva]!” According to Snowden, other Swiss cities have also been “affected” by US spies. “You have exceptional flows of capital and money in Zurich. You have bilateral agreements and international trade in Bern,” he said. The ex-NSA man recalled the time he was working in Geneva as an undercover US agent. He said the Americans weren’t afraid of Swiss intelligence. “Swiss services were not considered as a threat. [They] are also very knowledgeable and very professional. But they are small in numbers.”

Snowden compared Swiss intelligence to spying agencies in France, saying they respected French spies who are known to be “sophisticated and aggressive.” He drew examples of CIA operations concerning weapons of mass destruction, adding that people “involved in nuclear proliferation” were violating the law in Switzerland, Germany and neighboring countries. And unfortunately, “political influence” was seen in these cases, which “rose to the highest level in the government.” “That’s why representatives of the US government, even when they violate the Swiss laws, have a certain level of comfort, knowing that there will be no consequences,” Snowden concluded.

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WIth the present OZ gov in charge, forget it.

Great Barrier Reef: Scientists Call For Scrapping Of Coal Projects (Guardian)

Australia’s leading coral reef scientists have called for huge coalmining and port developments in Queensland to be scrapped in order to avoid “permanent damage” to the Great Barrier Reef. The Australian Coral Reef Society (ACRS) report, compiled by experts from five Australian universities and submitted to the United Nations, warns that “industrialising the Great Barrier Reef coastline will cause further stress to what is already a fragile ecosystem.” The report notes that nine proposed mines in the Galilee Basin, in central Queensland, will produce coal that will emit an estimated 705m tonnes of carbon dioxide at capacity – making the Galilee Basin region the seventh largest source of emissions in the world when compared to countries.

Climate change, driven by excess emissions, has been cited as the leading long-term threat to the Great Barrier Reef. Corals bleach and die as water warms and struggle to grow as oceans acidify. “ACRS believe that a broad range of policies should be urgently put in place as quickly as possible to reduce Australia’s record high per capita carbon emissions to a much lower level,” the report states. “Such policies are inconsistent with opening new fossil fuel industries like the mega coalmines of the Galilee Basin. Doing so would generate significant climate change that will permanently damage the outstanding universal value of the Great Barrier Reef.”

As well as calling for a halt to the Galilee Basin mines, which have broad support from the Queensland and federal governments, the scientists urge a rethink on associated plans to expand the Abbot Point port, near the town of Bowen. The expansion would make Abbot Point one of the largest coal ports in the world, requiring the dredging of 5m tonnes of seabed to facilitate a significant increase in shipping through the reef. The report warns dredging will have “substantial negative impacts on surrounding seagrass, soft corals and other macroinvertebrates, as well as turtles, dugongs and other megafauna.” Research has shown that coral disease can double in areas close to dredging activity.

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Luckily the US has Sen. Imhofe…

China Top Weather Scientist Warns On Climate Change Devastation (SR)

By the end of our century, climate change could have many detrimental effects – including reduced agricultural output, prolonging droughts and damaging major infrastructure projects in China alone, according to Zheng Guogang, the country’s top weather scientist. Guogang made his statement to the Xinhua News Agency. While China has decided to cut emissions of greenhouse gasses and has also promoted an app exposing factories that are the biggest causes of air pollution, the government has abstained from discussions on the causes and effects of climate change. A documentary about the nation’s pollution problem called “Under the Dome,” was banned in China this week.

While Guogang’s statements indicate that the nation is willing to admit it has a problem, they have shied away from allowing the public to participate in the debate of what’s to be done about it. “To face the challenges from past and future climate change, we must respect nature and live in harmony with it. We must promote the idea of nature and emphasize climate security,” read the statement. Guogang maintained that global warming is a threat for major Chinese infrastructures, like their power station, the Three Gorges Dam, also the world’s largest.

As they have in the past, Chinese weather officials provided weather-related educational materials for schoolchildren, with supplements on how to plan for natural disasters. However, they have become more vocal about the impact of global warming and its impact on China. The country is publicly acknowledging that its rapidly moving economy is greatly affecting the environment. “By the end of the 21st century, there will be higher risks of extreme high temperatures, floods and droughts in China,” the China Meteorological Administration said last week in a statement. “The population growth and wealth accumulation in the 21st century is projected to have superposition and amplification effects on the risks of weather and climate disasters.”

China leads the world in its emissions of greenhouse gasses, overtaking the U.S. in 2006, and currently expects that its rate of carbon emissions will peak by the year 2030. It still has yet to reveal its goals for reducing greenhouse gases. Along with the U.S., it resolved to set carbon-emission limits this November. Like many other countries, however, China’s government said it needs to maintain its own economic development, that moving to alternative energy may impact the jobs of many of its citizens: “It is the basic right of the people to pursue a moderately comfortable life and improve their living standards. We need to balance many factors and move on step by step.”

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A fantastically fascinating story, set against the pillaging of ancient sites by IS.

The Men Who Uncovered Assyria (BBC)

Two of the ancient cities now being destroyed by Islamic State lay buried for 2,500 years, it was only 170 years ago that they began to be dug up and stripped of their treasures. The excavations arguably paved the way for IS to smash what remained – but also ensured that some of the riches of a lost civilisation were saved. In 1872, in a backroom of the British Museum, a man called George Smith spent the darkening days of November bent over a broken clay tablet. It was one of thousands of fragments from recent excavations in northern Iraq, and was covered in the intricate cuneiform script that had been used across ancient Mesopotamia and deciphered in Smith’s own lifetime.

Some of the tablets set out the day-to-day business of accountants and administrators – a chariot wheel broken, a shipment of wine delayed, the prices of cedar or bitumen. Others recorded the triumphs of the Assyrian king’s armies, or the omens that had been divined by his priests in the entrails of sacrificial sheep. Smith’s tablet, though, told a story. A story about a world drowned by a flood, about a man who builds a boat, about a dove released in search of dry land. Smith realised that he was looking at a version of Noah’s Ark. But the book was not Genesis.

It was Gilgamesh, an epic poem that had first been inscribed into damp clay in about 1800BC, roughly 1,000 years before the composition of the Hebrew Bible (the Christian Old Testament). Even Smith’s tablet, which had been dated to some point in the 7th Century BC, was far older than the earliest manuscript of Genesis. A month or so later, on 3 December, Smith read out his translation of the tablet to the Society for Biblical Archaeology in London. The Prime Minister, William Gladstone, was among those who came to listen. It was the first time an audience had heard the Epic of Gilgamesh for more than 2,000 years.

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Mar 142015
 
 March 14, 2015  Posted by at 7:50 am Finance Tagged with: , , , , , , , ,  1 Response »


Wyland Stanley General Motors exhibit, San Francisco 1939

Why The Dollar Is Rising As The Global Monetary Bubble Craters (David Stockman)
American Mystery Story: Consumers Don’t Spend Even In Booming Job Market (BBG)
Surprise: US Economic Data Have Been the World’s Most Disappointing (Bloomberg)
Why We’re At Risk Of A QE Trap: Richard Koo (CNBC)
Roubini Greek Doom Scenario Is So Bad It May Keep the Euro Intact (Bloomberg)
Merkel’s Office Denies ‘Private Feud’ Between Greece And Germany (Guardian)
Power Struggle in Brussels and Berlin over Fate of Greece (Spiegel)
Tsipras Reaches Out to Euro Region Amid Spat With Germany (Bloomberg)
Schism Between Germany And Greece Grows Wider By The Day (Guardian)
US Seeks Billions From Global Banks For Currency Manipulation (Bloomberg)
The Fed Gives A Giant F##k You to Working Class Americans (Beversdorf)
Oil Plunges On Bloated US Supply (CNBC)
Shale Producer Whiting Draws Exxon, Others as Suitors (Bloomberg)
The Coming Chinese Crackup (WSJ)
Japan’s Orwellian Politics About Ukraine (Eric Zuesse)
Hillary’s Email Mess Gets Messier (Pam Martens)
For David Brooks, The Rich Are People, the Poor Are Numbers (Matt Taibbi)
California Has About One Year Of Water Left. Will You Ration Now? (NASA)

“Won’t you make money shorting the doomed dollar? Heavens no! At least not any time soon.”

Why The Dollar Is Rising As The Global Monetary Bubble Craters (David Stockman)

Contra Corner is not about investment advice, but its unstinting critique of the current malignant monetary regime does not merely imply that the Wall Street casino is a dangerous place for your money. No, it screams get out of harms’ way. Now! Yet I am constantly braced with questions about the US dollar and its impending demise. The reasoning seems to be that if America is a debt addicted dystopia—-and it surely is—- won’t the US dollar sooner or later go down in flames as the day of reckoning materializes? Won’t you make money shorting the doomed dollar? Heavens no! At least not any time soon. The reason is simply that the other three big economies of the world—Japan, China and Europe—are in even more disastrous condition.

Worse still, their governments and central banks are actually more clueless than Washington, and are conducting policies that are flat out lunatic—–meaning that their faltering economies will be facing even more destructive punishment from policies makers in the days ahead. Indeed, Draghi, Kuroda and the commissars of red capitalism in Beijing make Janet Yellen and Stanley Fischer (Fed Vice-Chairman) appear to be slightly sober. So as trite as it sounds, the US dollar is the cleanest dirty shirt in the laundry. And on a relative basis, its is going to look even cleaner as two decades of monetary madness around the world finally hit the shoals. You have to start with a stark assessment of the other three major economies.

To hear the Wall Street analysts and economists tell it, Japan, China and Europe are just variants of the US economy with different mixes of pluses and minuses, experiencing somewhat different stages of the economic cycle and obviously shaped by their own diverse brands of domestic politics and economic governance. Yet despite these surface difference, the non-US big three economies are held to be just part of a global economic convoy heading for continued economic growth, rising living standards and higher stock market prices. Actually, not so. Japan is a bankrupt old age colony. China is the most monumental credit and construction Ponzi in human history. Europe is a terminal victim of socialist welfare and statist dirigisme. All three are attempting to defer the day of reckoning via a resort to a final spasm of money printing and central bank manipulation that is so desperate and crazy that it can only end in disaster.

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See: The American Story Is A Mystery Only to Economists

American Mystery Story: Consumers Don’t Spend Even In Booming Job Market (BBG)

It’s an American mystery story: More people have jobs and extra pocket money from lower gas prices, but they aren’t buying as much as economists expected. The government’s count of how much people shelled out at retailers fell in February for a third consecutive month. Payrolls are up 863,000 over the same period. The chart below shows retail sales and payrolls generally move in the same direction, until now. The divergence could portend lower levels of economic growth if Americans’ usually reliable penchant to spend is less than what it once was.


YoY growth in U.S. retail and food services sales (red) against YoY change in non-farm payrolls (blue).
Sources: Bureau of Economic Analysis, Bureau of Labor Statistics

“The expenditures that add up to gross domestic product are coming in a lot softer than employment,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC. “Why would retailers be hiring if sales are falling? Why would they be boosting hours if sales are falling and why would they be paying more?” Also, take a look at the household saving rate. It’s gone up as gas prices fell:

Ben Herzon, a senior economist at Macroeconomic Advisers, isn’t that worried yet. As usual, the data is quirky. First, he notes, “it was crazy cold in February.” Aside from stocking up on milk in the snowstorm, staying indoors was probably a more attractive option for most shoppers. Purchases at online retailers in February showed a 2.2% increase, the largest since March 2014. In the region from the Mississippi River to the East Coast, Americans in 23 states lived through a “top-10-coldest February” in National Oceanic and Atmospheric Administration data back to the start of 1895. Herzon notes that lower gas prices also depressed the count in prior months. The government is adding up dollars spent, so fewer dollars to fill a gas tank results in lower sales.

That even bleeds into narrower measures of retail sales because grocery stores such as Safeway, Wal-Mart and Sam’s Club also sell gasoline. Herzon is counting on a March rebound. There won’t be the weather to blame anymore, and gas prices have rebounded off their lows of late January and early February. The average price of a gallon of unleaded gas $2.45 Wednesday compared with $2.06 Feb. 1, according to AAA. “Payroll employment has been great, and it is generating a lot of labor income that you think would be spent,” Herzon said. “March should be a rebound. Our story would be wrong if it doesn’t happen.”

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How wrong Bloomberg usually is.

Surprise: US Economic Data Have Been the World’s Most Disappointing (Bloomberg)

It’s not only the just-released University of Michigan consumer confidence report and February retail sales on Thursday that surprised economists and investors with another dose of underwhelming news. Overall, U.S. economic data have been falling short of prognosticators’ expectations by the most in six years. The Bloomberg ECO U.S. Surprise Index, which measures whether data beat or miss forecasts, fell to the lowest since 2009, when the nation was in the deepest recession since the Great Depression. There’s been one notable exception to the gloom, and it’s a big one: payrolls. The economy added 295,000 jobs in February and 1.3 million over four months, a reflection of a healthier labor market in which the unemployment rate has fallen to the lowest in almost seven years.

Most everything else? Blah. This month alone, personal income and spending, manufacturing as measured by the Institute for Supply Management, auto sales, factory orders, and retail sales have all come in a bit weak. Citigroup keeps economic surprise indexes for the world, and its scoreboard shows the U.S. is most disappointing relative to consensus forecasts, with Latin America and Canada next, as of March 12. Emerging markets were supposed to be hurt by falling oil prices but are now delivering positive surprises. U.S. policymakers frequently talk about weakness in Europe and China, though both are exceeding expectations. And there’s one rub. The surprise shortfall in the U.S. doesn’t necessarily mean the world’s largest economy is in dire straights. It’s just falling short of some perhaps overly elevated expectations.

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“When no one is borrowing money, monetary policy is largely useless..”

Why We’re At Risk Of A QE Trap: Richard Koo (CNBC)

The problem with central banks’ massive bond-buying programs is that if consumers and businesses fail to borrow money to stimulate economic growth, the policy is rendered mostly “useless,” one Nomura economist said Friday. The U.S. and U.K. embarked on asset-purchase, or QE programs, following the 2007-2008 global financial crisis. Japan joined the QE club in 2013 and the ECB began its 1 trillion euro ($1.06 trillion) bond-buying stimulus this week. “Both the U.S. and Europe are facing the same problem– which is that we are in a situation where the private sector in any of these economies is not borrowing money at zero interest rates or repairing balance sheets following what happened in the crisis,” Richard Koo, Chief Economist at Nomura, told CNBC on the side lines of the Ambrosetti Spring Workshop in Italy.

“When no one is borrowing money, monetary policy is largely useless,” he added. In the run-up to the launch of QE in the euro zone, loans to the private sector, which are a gauge of economic health, contracted. Data published late last month showed that the volume of loans to private firms and households fell by 0.1% on year in January, compared with a 0.5% drop in December. According to Koo, major central banks are holding reserves far in excess of levels they need because of the monetary stimulus. This has not led to a rise in private sector spending because big economies are struggling with a balance sheet recession – a situation where companies are focused on paying down debt rather than spending or investing – increasing the risk of QE trap.

“In a national economy if someone is saving money, you need someone to borrow money and this is the part that is missing. They [central banks] are pumping money but no one is borrowing, so you get negative interest rates and all sorts of distortions,” Koo said. He added that instead of looking to raise interest rates, the U.S. Federal Reserve should first focus on reducing its balance sheet which stands at over $4 trillion. The Fed, which meets next week, is widely expected to raise rates this year against a backdrop of improving economic data. “They [Fed policy makers] should not rush into a rate rise; they should reduce the balance sheet when people are not worried about inflation,” Koo said.

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Roubini’s scenario? Anyone could have told you this.

Roubini Greek Doom Scenario Is So Bad It May Keep the Euro Intact (Bloomberg)

Nouriel Roubini isn’t called “Dr. Doom” for nothing. He tends to be a glass half-empty kind of guy who worries a lot about looming crises. But in an interesting twist, when it comes to Greece, the economic professor’s not that concerned. Here’s why: the doomsday scenario he envisions if the country exited the euro zone is so bleak for the whole region that policy makers both in Athens and across Europe will never let it happen. It’s true other analysts are speculating that officials in Germany and other EU countries are more willing now to entertain the idea of a Greek exit, but that’s not how Roubini sees it.

Borrowing costs would soar for nations such as Italy and Spain and Europeans would race to withdraw cash from their bank accounts, according to Roubini, a professor at NYU’s Stern School of Business. Even Germany – Greece’s main nemesis as it negotiates a new financial aid package from European leaders — recognizes this risk, he said in a Bloomberg Television interview Friday. “It doesn’t make sense to have a Greek exit,” he said. “There would be massive contagion.” While bond buyers are selling Greek bonds, they seem complacent about the risk to the rest of the euro region and have been pouring money into debt of Italy, Spain and Portugal, sending yields on those nations’ debt to record lows.

Spanish and Italian 10-year bonds are yielding just 1.2%. Greek debt, meanwhile, has been falling. Yields on Greece’s 10-year bonds rose to 10.7% Friday from 8.6% on Feb. 24. Rates on its 3-year notes have climbed to 19% from 12.4%. So, maybe investors are right to dismiss concerns that a Greek exit would infect all of Europe, even as the nation with one-quarter of its working-age population unemployed faces very real deadlines for making debt payments. While Greece made a €350 million loan repayment to the International Monetary Fund Friday, it faces another financial hurdle on March 20, when the government has to pay the IMF another €346 million and refinance €1.6 billion of treasury bills.

Tensions have risen between Greece and Germany since the election of Prime Minister Alexis Tsipras on Jan. 25. Tsipras won on a platform of ending the austerity his Syriza party blames Chancellor Angela Merkel for pushing. Roubini says that, even though Germany has been vocal about its displeasure with Greece’s antics, everyone understands the potential consequences of failing to keep the region intact – which is why it won’t unravel. Dr. Doom almost sounds a little optimistic.

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“If one country leaves this union, the markets will immediately ask which country is next. And that could be the beginning of the end.”

Merkel’s Office Denies ‘Private Feud’ Between Greece And Germany (Guardian)

The spokesman of the German chancellor, Angela Merkel, has denied a “private feud” has broken out between Berlin and Athens, as the radical Syriza government battles to avoid leaving the single currency – a risk euro-watchers have dubbed “Grexident”. As Athens rushes to implement economic reforms and convince its creditors to extend emergency funding, Steffen Seibert, Merkel’s official spokesman, insisted Greece’s economic future should not be reduced to a face off between the two nations. “I neither see a private feud nor do I view the whole issue of Greece and how it solves its problems as a bilateral German-Greek topic”, he said, reiterating that Merkel wants Greece to stay inside the single currency.

Tensions between Greece and Germany have been running high, after Syriza rekindled a row over war reparations to the Greek people earlier this week. On Friday, France’s economics minister, Pierre Moscovici, said in a German magazine interview that a Greek exit from the euro would be a “catastrophe”, despite some analysts having sought to play down the consequences. “All of us in Europe probably agree that a Grexit would be a catastrophe – for the Greek economy, but also for the euro zone as a whole,” he told Der Spiegel. “If one country leaves this union, the markets will immediately ask which country is next. And that could be the beginning of the end.”

Greece has been granted a four-month window to implement economic reforms after striking a last-minute deal with its creditors to extend its €240bn bailout. Yanis Varoufakis, Syriza’s controversial finance minister, insisted his party would be able to satisfy the 20 February agreement – even if that means delaying some of its election promises. “We have a commitment, all of us, to reach an agreement by 20 April,” he told reporters on the sidelines of a conference in Italy. “If this means that, for the next few months that we have negotiations, we suspend or we delay the implementation of our [election] promises, we should do precisely that in the context to build trust with our partners,” he said. However, he is likely to face pressure from within his own party to live up to the anti-austerity rhetoric of the election campaign.

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Must read from Der Spiegel. Watch Juncker. I’ve said it before, he will play a role.

Power Struggle in Brussels and Berlin over Fate of Greece (Spiegel)

Many in the ECB are aware that they are operating at the very fringes of legality. French Executive Board member Benoît Coeuré issued a public warning a few days ago that the ECB is not allowed to finance the Greek government. Doing so, he said, is illegal. Draghi, said an official in Berlin, “could cut Greece off at any moment.” But, the official added, he doesn’t dare. Which means it is up to the politicians to find the way forward. And finding that path has become dependent on the ongoing conflict between Juncker and the EU member states, led by the chancellor. It has long been apparent that the Commission president wants to prevent a Grexit at all costs, at least since he received the Greek prime minister in Brussels five weeks ago as though welcoming a long lost friend.

Two weeks after that, Economic and Financial Affairs Commissioner Pierre Moscovici presented a plan that looked more like a package for growth than like strict requirements for Greece. Greek Finance Minister Yanis Varoufakis had nothing but praise for the paper. The other Euro Group finance ministers weren’t nearly as enthusiastic. In the end, the Moscovici paper proved largely irrelevant, but it had, from Juncker’s perspective, had its effect. It was a demonstration of power; he had simply wanted to send a message to Merkel. The conflict between Brussels and Berlin is a fundamental one. Juncker is taking the position that Christian Democrats have supported for decades.

The European Union, in his view, is the answer to the horrors of the wars that destroyed Europe in the first half of the 20th century – and the Continent’s salvation, he believes, lies in further deepening the ties that bind the European Union together. It is no accident that he presented former German Chancellor Helmut Kohl’s book last fall. The book is called “Out of Concern for Europe,” and many have interpreted it as indirect criticism of Merkel’s approach to the EU. Though Merkel is a Christian Democrat herself, she has broken with the Kohl line. For her, Europe is not a matter of war and peace, but of euros and cents. Merkel has used the euro crisis to reduce the European Commission’s power and to return some of it to member-state capitals. From this perspective, she could be seen as a 21st century de Gaulle.

Juncker would like to get in her way and the Greece crisis is the instrument that has presented itself. “We have to keep the shop together,” Juncker has said repeatedly in background sessions with journalists in recent weeks. This Friday, Juncker received Tsipras in Brussels yet again, with the Greek prime minister also holding talks with European Parliament President Martin Schulz. Juncker entered office wanting to make the Commission, the European Union’s executive body, more powerful and more political — and thus far, he has been successful. He defanged the European Stability Pact, that German invention that was to prevent euro-zone member states from taking on too much debt. And he has ensured that France’s Socialist government receive an additional two years to reduce its budget deficit.

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Syriza is becoming a comedy act. Hard to predict.

Tsipras Reaches Out to Euro Region Amid Spat With Germany (Bloomberg)

Prime Minister Alexis Tsipras reached out to Greece’s creditors, saying he’ll iron out the kinks in relations with the rest of the euro area days after his government lodged a complaint about the German finance minister. Tsipras, speaking as his country met a loan repayment to the International Monetary Fund of about €350 million, said that Greece has already starting delivering the action required to release more bailout funding and that he expects the euro region to do its part. “We will solve all these misunderstandings,” Tsipras told reporters in Brussels on Friday before meeting with European Commission President Jean-Claude Juncker. The Greek people need to hear a “hope message,” he said.

Tsipras and his finance minister, Yanis Varoufakis, are negotiating with the euro region to release more funds from the country’s €240 billion bailout amid concern that his government could run out of cash at any moment. The Greece Public Debt Management Agency issued a payment order to be transferred to the IMF and the money will be deposited today, government spokesman Gabriel Sakellaridis said by telephone. Greek bonds fell, with the 10-year government bond yield gaining 29 basis points to 10.71% at 1:17 p.m in Athens. The Athens Stock Exchange dropped 1.1% to 785.53. The next financial hurdle comes on March 20, when the government has to pay the IMF another €346 millions and refinance €1.6 billion of treasury bills. That’s at the same time as EU leaders including Tsipras and German Chancellor Angela Merkel will be meeting for a two-day summit in Brussels.

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“Ya boo to that, says Jens Weidmann [..] See if I care, says Varoufakis.”

Schism Between Germany And Greece Grows Wider By The Day (Guardian)

It is the politics of the playground. The German finance minister, Wolfgang Schäuble, is accused of calling his Greek counterpart Yanis Varoufakis “foolishly naive” in his dealings with the media. Athens lodges a formal complaint with Berlin, saying a minister of a country that is a “friend and ally” cannot go around insulting a colleague. Ya boo to that, says Jens Weidmann, the president of Germany’s Bundesbank. Greece is losing the trust of its partners and it is only right that the ECB should think very hard about whether it wants to extend its exposure to the crisis-ridden country. See if I care, says Varoufakis. I have never had the trust of the German government. What matters is that I have the trust of the Greek people at a time when the ECB is “asphyxiating” the country.

This outbreak of undiplomatic language might sound funny, but it isn’t. The schism between Germany and Greece is growing wider by the day. Unless Berlin and Athens can come to an amicable agreement, something that looks increasingly less likely, there are only two possible outcomes: Greece capitulates or Greece leaves the euro. Schäuble clearly believes that Greece has no intention of going back to the drachma. Varoufakis has said as much, as has the new Greek prime minister, Alexis Tsipras. However, if Greece wants to remain inside the single currency, it is going to need the cooperation and financial support of the other members of the club, including Germany. Greece is going to have to do what it is told by the troika of the ECB, the EU and the IMF at some point, so it makes no sense for Athens to start dredging up memories of German occupation in the second world war.

Varoufakis is making it even more likely that the rest of the eurozone will play hardball with Greece. It is not clear if Schäuble really said the words “foolishly naive” – but that would be a fair judgment if the end result is abject capitulation to whatever the troika demands. But as the Labour peer Meghnad Desai points out in an OMFIF blog, there is a way out for the Syriza-led coalition. That is to call a referendum on the basis of who governs Greece. As Desai notes, Tsipras and Varoufakis could say they had underestimated how difficult it would be to end austerity and it was up to the Greek people whether they wanted year after year of externally-imposed pain or exit from the eurozone.

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Peanuts.

US Seeks Billions From Global Banks For Currency Manipulation (Bloomberg)

The U.S. Justice Department is seeking about $1 billion each from global banks being investigated for manipulation of currency markets, according to two people familiar with the talks. The figure is a starting point in settlement discussions, with some banks being asked for more and some less than $1 billion. One bank that has cooperated from the beginning is expected to pay far less, one of the people said. Penalties of about $4 billion are on the table, according to one of the people, though the number could change markedly. Banks are pushing back harder than in some previous negotiations, including those for mortgage-backed securities, and the final penalties could be lower, people close to the talks said.

The discussions, which have begun in earnest in recent weeks, could lead to settlements that would resolve U.S. accusations of criminal activity in the currency markets against Barclays, Citigroup, JPMorgan, RBS and UBS. The government has also said it is preparing cases against individuals. Prosecutors are also pressing Barclays, Citigroup, JPMorgan and the Royal Bank of Scotland to plead guilty, people familiar with the matter have said. In the worldwide investigation into currency-rigging, six banks have already agreed to pay regulators about $4.3 billion. The Justice Department’s move signals that investigations are giving way to wrangling over issues such as whether the banks plead guilty to antitrust or fraud charges, what behaviors the banks will admit to in settlement documents and how much they will pay.

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Hats off to Beversdorf.

The Fed Gives A Giant F##k You to Working Class Americans (Beversdorf)

I was shocked today by the absolute gaul of the Fed releasing a statement about Net Worth in America reaching record levels. Now I get that they are under extreme pressure to sell the story that everything is rainbows and butterflies. But surely they understand that working class Americans are going along with the story because they really don’t have any say in our nation’s policies anymore. That doesn’t mean they want it thrown in their faces that the Fed has spent 6 years now inflating the wealth of the top 10% so much that it actually lifts the total wealth of the nation’s citizens to record highs. The ugly reality is that the bottom 80% of Americans experienced none of that gain. That’s right a big ole goose egg.

And so when the Fed via its ass pamper boy, Steve Liesman, start banging on about the fact that some sliver of society is being handed extraordinary wealth while the working class has lost 40% of their net worth since 2007, well a big fuck you right back at ya bub! The Fed is very aware that the bottom 80% of Americans own less than 5% of US equity markets. And so the Fed is very aware that its manipulation of stock prices such that it creates immense unearned wealth to those in the markets doesn’t reach the bottom 80%. So why celebrate the results of the stock market price manipulation?? It is embarrassing that our policymakers are either that inconsiderate or that stupid to celebrate such a brutal dislocation between the haves and have nots.

I don’t know what one can even say about the Fed making a celebratory statement like that today. It is somewhat beyond words. And really paints the picture as to how little thought goes into the lives and well being of the bottom 80%. Just to give you something to compare and contrast the situation of the bottom 80% here in the US to counter the Fed’s celebration today. I want you to think about how lucky we are not being in one of the PIIGS nations of Europe. These are the nations that are essentially bankrupt and just hanging on by the kindness of the Troika.

So there it is. While the average net worth of Americans is 4th in the world pulled up by the top 10%, the median net worth of Americans comes in the 19th spot. Yep, behind Spain, Italy and Ireland so 3 of the 5 PIIGS nations. Meaning the bottom 80% in these broke ass barely hanging on nations have more wealth than the bottom 80% of us here in America. So I’d like to ask the Fed, is it that you just hate the working class here in America and thus like to torment them or are you truly that stuck up your own asses that you just cannot see the light? Celebrating the fact you did today is downright nasty you lowlife scoundrel pieces of shit. It’s akin to a family showing off and celebrating a new born baby at the funeral of another family’s child. It is just a very ugly thing to do. Even if it wasn’t meant to be malicious it looks very much like a giant FU.

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“The industry has been watching oil supplies surge to 80-year highs..”

Oil Plunges On Bloated US Supply (CNBC)

Oil prices plunged on the double whammy of a surging dollar and a new report that raised worries about a U.S. oil glut that could send crude dramatically lower. The drop in oil also slammed the stock market, reeling too from the stronger dollar. The Dow tumbled more than 145 points to 17,749, while the S&P 500 lost 12 points to 2053. West Texas Intermediate futures for April fell 4.7% to settle at $44.84 per barrel, and Brent, the international benchmark, was trading below $55 per barrel. For WTI, the closing low of the year was $44.45 per barrel on Jan. 28, though it touched an intraday low of $43.58 per barrel on Jan. 29.

Oil analysts have expected the market to challenge those lows on strong U.S. supply, and a report Friday from the International Energy Agency fed those fears. The IEA said U.S. production increased by 115,000 barrels a day in February and the growing inventories threaten to drive prices lower. Oil was also hurt by gains in the dollar. The dollar index rose to a 52-week high, crossing above 100. “This has been a building situation—the massive inventory increases of the past several weeks and the production level showing no sign of relenting despite the decline in the rig count,” said John Kilduff analyst and founder at Again Capital. “What’s setting us up for another selloff is that we’re hitting a slack demand period in between the winter heating fuel season and the summer driving season.”

The industry has been watching oil supplies surge to 80-year highs, and inventories at the Cushing, Oklahoma, delivery hub for WTI futures contracts continue to balloon. “There’s speculation the tanks in Cushing could get full or reach capacity,” said Kilduff. “If no further oil could get into that delivery point, it would send a ripple effect into the futures market and beyond. It could create a break.” He also said it could send cash prices lower across the U.S. and possibly globally. While some analysts expect to see $40 as a floor, other say it could be much lower if buyers don’t step up and the spiral is rapid. “If we test that low, going back to the $30s could be in the cards,” said Kilduff.

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Can’t be a good isgn that the largest Bakken producer must sell itself.

Shale Producer Whiting Draws Exxon, Others as Suitors (Bloomberg)

Whiting Petroleum, the North Dakota oil explorer, has attracted interest from Exxon Mobil and Continental Resources Inc. as it explores a sale of the entire company, people with knowledge of the situation said. Hess and Statoil are also looking at Denver-based Whiting. Whiting has set up a data room for potential buyers to evaluate the company’s financial information and asked them to submit bids next week, the people said. The discussions are ongoing and there’s no guarantee a deal will be reached. A potential deal for Whiting, the largest producer in North Dakota’s Bakken shale formation, may be the first in an anticipated pickup of merger activity for U.S. energy producers as they grapple with heavy debt and an oil selloff.

Continental, Exxon, Hess and Statoil are already among the 10 largest holders of acreage in the Bakken, a giant slab of oil-soaked rock that lies beneath Montana, North Dakota and parts of Canada, according to data compiled by Bloomberg. Consolidation is likely to pick up in the oil patch this year as larger U.S. and international buyers seek to “snatch up” valuable shale producers, according to a statement from Paulson & Co., which owns 8.1% of Whiting. Whiting is probably exploring a sale along with other strategic alternatives, including selling assets, raising debt and selling shares in order to address “investor liquidity concerns,” Phillip Jungwirth, an analyst with Bank of Montreal, wrote in a research note last week.

Bloomberg News reported in February that Whiting was exploring selling up to $700 million of oil and natural gas processing assets. “While some reports implied Whiting was a distressed seller, we don’t view this as the case,” Jungwirth wrote. “We’d expect interest in Whiting to come from larger Bakken peers that are looking to expand their footprint.” Buying a shale producer such as Whiting is cheaper than it has been at any time in recent years as companies used new technology to unlock a boom in North American supplies, flooding world markets and depressing prices. The value of reserves held by about 75 drillers based on their reserves fell by a median of 25% by the end of 2014 compared to the previous year, according to data compiled by Bloomberg.

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Tyler Durden ran this week-old piece, which I had also missed. Don’t miss.

The Coming Chinese Crackup (WSJ)

Predicting the demise of authoritarian regimes is a risky business. Few Western experts forecast the collapse of the Soviet Union before it occurred in 1991; the CIA missed it entirely. The downfall of Eastern Europe’s communist states two years earlier was similarly scorned as the wishful thinking of anticommunists—until it happened. The post-Soviet “color revolutions” in Georgia, Ukraine and Kyrgyzstan from 2003 to 2005, as well as the 2011 Arab Spring uprisings, all burst forth unanticipated, China-watchers have been on high alert for telltale signs of regime decay and decline ever since the regime’s near-death experience in Tiananmen Square in 1989.

Since then, several seasoned Sinologists have risked their professional reputations by asserting that the collapse of CCP rule was inevitable. Others were more cautious—myself included. But times change in China, and so must our analyses. The endgame of Chinese communist rule has now begun, I believe, and it has progressed further than many think. We don’t know what the pathway from now until the end will look like, of course. It will probably be highly unstable and unsettled. But until the system begins to unravel in some obvious way, those inside of it will play along—thus contributing to the facade of stability.

Communist rule in China is unlikely to end quietly. A single event is unlikely to trigger a peaceful implosion of the regime. Its demise is likely to be protracted, messy and violent. I wouldn’t rule out the possibility that Mr. Xi will be deposed in a power struggle or coup d’état. With his aggressive anticorruption campaign—a focus of this week’s National People’s Congress—he is overplaying a weak hand and deeply aggravating key party, state, military and commercial constituencies. The Chinese have a proverb, waiying, neiruan—hard on the outside, soft on the inside. Mr. Xi is a genuinely tough ruler. He exudes conviction and personal confidence. But this hard personality belies a party and political system that is extremely fragile on the inside.

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How much longer for Abe?

Japan’s Orwellian Politics About Ukraine (Eric Zuesse)

Yukio Hatayama, who during 2009 and 2010 had been the first and only non-LDP, or non-one-party-state, Prime Minister of Japan (and he was then quickly ousted by the LDP), said in Crimea on Tuesday, March 10th, that Japan should not be so totally controlled by the U.S. Government, and that, “It’s shameful that information from Japanese and Western media is one-sided.” Hatayama also praised “the happy, peaceful life in Crimea,” as opposed to the war-torn and economically collapsing Ukraine, which the IMF, EU and especially the U.S., keep lending money to pay Ukraine to bomb the residents in Ukraine’s strongly anti-fascist eastern area. Japan’s LDP Foreign Minister, Fumio Kishida, promptly dismissed the Hatayama statement by saying that it came from a “gaffe-prone” man. Telling the truth is a ‘gaffe.’

Mitsuhiro Kimura, leader of another small anti-U.S.-control-of-Japan party, travelled with Hatayama, and supported this initiative for increasing trade and cultural exchanges with Crimea and with Russia generally. He said that this visit was “historic,” and that “Maybe it will give us a chance to influence Japan’s foreign policies and change them.” The Agence France Presse report on this event referred to Kimura’s party as “the right-wing political group Issuikai,” implicitly suggesting thereby that opposition to U.S. control of Japan is “right-wing.” This propaganda effort aimed to insinuate that since the U.S. had defeated the fascist Government of Japan in 1945, the LDP, which the U.S. installed in Japan post-War, can only be the opposite of fascist.

On 17 May 2007, Britain’s conservative Economist had headlined “Japan’s Ultra-Nationalists: Old Habits Die Hard,” and it reported that Kimura was rabble-rousing, and that Japan’s Prime Minister Shinzo Abe said that Kimura and other “ultra-nationalist” politicians in Japan constituted a “threat to democracy.” The Economist also noted, however, ironically, that: “It was Mr Abe’s own grandfather, Nobusuke Kishi, who as prime minister cemented ties between the government, the uyoku dantai and the mob back in 1960, when he enlisted yakuza help against left-wing opponents of Japan’s alliance with America.“ Abe is considered, by the U.S. and its allies, to be “conservative,” instead of “far-right.”

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“The Department of State acknowledged receipt of the request but the AP has received nothing under that request after more than five years.”

Hillary’s Email Mess Gets Messier (Pam Martens)

There’s an old adage that goes: “never pick a fight with anyone who buys ink by the barrel.” It’s generally interpreted to mean don’t go to war with the press. That would surely include syndicated reporters working for the Associated Press, which says in a lawsuit filed yesterday that it has “one billion readers, listeners and viewers.” Despite the sage advice, Hillary Clinton is now in a full blown war with the press over how she became the Decider in Chief over which government emails would be preserved from her time as Secretary of State versus the tens of thousands that she elected to erase, ruling them to be about personal matters.

AP has filed its lawsuit against the U.S. Department of State because the Federal agency has defied the Freedom of Information Act and stonewalled AP reporters for as long as five years over requests for records pertaining to Hillary Clinton’s term as Secretary of State. The lawsuit suggests a Department of State flagrantly ignoring Federal FOIA laws. One section reads: “In early March 2015, Secretary Clinton confirmed reports that she used a personal email account, rather than a government account, for government business during her tenure at State. Although AP’s FOIA requests have been pending for years, State first asked Secretary Clinton to turn over emails from that personal account only last summer.

Secretary Clinton reportedly provided about 50,000 pages of printed emails to State late last year, and has said she wants those emails to be released to the public. State’s failure to ensure that Secretary Clinton’s governmental emails were retained and preserved by the agency, and its failure timely to seek out and search those emails in response to AP’s requests, indicate at the very least that State has not engaged in the diligent, good-faith search that FOIA requires.” Not only have Clinton’s emails been denied to AP reporters, but her daily calendar of appointments, record of phone calls and meetings have also been withheld for the past five years. All of this opacity is raising curiosity in the press as to just what might be hiding in these troves of unreleased documents.

The earliest request filed by the AP was by reporter Robert Burns on March 9, 2010, according to the lawsuit. Burns requested “a copy of Secretary of State Hillary Rodham Clinton’s daily calendar of appointments, phone calls, and meetings, from the first day of the Obama Administration to the present,” i.e., “from 1/20/2009 to [March 9, 2010].” The Department of State acknowledged receipt of the request but the AP has received nothing under that request after more than five years.

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Vintage Taibbi.

For David Brooks, The Rich Are People, the Poor Are Numbers (Matt Taibbi)

Everybody gets on famed New York Times columnist Thomas Friedman’s case for quoting cab drivers, but say this about Friedman: At least he talks to somebody outside his own house. The same can’t be said for his colleague on the Times editorial page, David Brooks, who with this week’s “The Cost of Relativism” column has written roughly his 10 thousandth odious article about how rich people are better parents than the poor, each one apparently written without the benefit of actually talking to any poor people. The column is a review of a new book by the academic Robert Putnam called Our Kids, about a widening gap in the way the children of different classes are raised in America.

Putnam begins his book by telling a story about his childhood in the Fifties in Port Clinton, Ohio, when both rich and poor children grew up in two-parent households where the fathers had steady jobs. Since, then, Putnam argues, deindustrialization has led to increasingly segregated communities for the wealthy on the one hand, and a sharp decline in stability for poor children on the other. Here’s Brooks describing the findings: Roughly 10% of the children born to college grads grow up in single-parent households. Nearly 70% of children born to high school grads do… High-school-educated parents dine with their children less than college-educated parents, read to them less, talk to them less, take them to church less, encourage them less and spend less time engaging in developmental activity.

Brooks then goes on to relate some of the horrific case studies from the book – more on those in a moment – before coming to his inevitable conclusion, which is that poor people need to get off the couch, stop giving in to every self-indulgent whim, and discipline their wild offspring before they end up leaving their own illegitimate babies on our lawns: Next it will require holding people responsible. People born into the most chaotic situations can still be asked the same questions: Are you living for short-term pleasure or long-term good? Are you living for yourself or for your children? Do you have the freedom of self-control or are you in bondage to your desires?

Brooks has devoted an extraordinary amount of his literary efforts over the years to this subject, focusing particularly on declining marriage rates among the poor. He wrote a piece last winter that ludicrously pooh-poohed the issue of income inequality, citing certain “behaviors” among the poor that “damage their long-term income prospects” and cause a “fraying” of the social fabric, single motherhood being an example.

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Dry.

California Has About One Year Of Water Left. Will You Ration Now? (NASA)

Given the historic low temperatures and snowfalls that pummeled the eastern U.S. this winter, it might be easy to overlook how devastating California’s winter was as well. As our “wet” season draws to a close, it is clear that the paltry rain and snowfall have done almost nothing to alleviate epic drought conditions. January was the driest in California since record-keeping began in 1895. Groundwater and snowpack levels are at all-time lows. We’re not just up a creek without a paddle in California, we’re losing the creek too. Data from NASA satellites show that the total amount of water stored in the Sacramento and San Joaquin river basins – that is, all of the snow, river and reservoir water, water in soils and groundwater combined – was 34 million acre-feet below normal in 2014.

That loss is nearly 1.5 times the capacity of Lake Mead, America’s largest reservoir. Statewide, we’ve been dropping more than 12 million acre-feet of total water yearly since 2011. Roughly two-thirds of these losses are attributable to groundwater pumping for agricultural irrigation in the Central Valley. Farmers have little choice but to pump more groundwater during droughts, especially when their surface water allocations have been slashed 80% to 100%. But these pumping rates are excessive and unsustainable. Wells are running dry. In some areas of the Central Valley, the land is sinking by one foot or more per year.

As difficult as it may be to face, the simple fact is that California is running out of water — and the problem started before our current drought. NASA data reveal that total water storage in California has been in steady decline since at least 2002, when satellite-based monitoring began, although groundwater depletion has been going on since the early 20th century. Right now the state has only about one year of water supply left in its reservoirs, and our strategic backup supply, groundwater, is rapidly disappearing. California has no contingency plan for a persistent drought like this one (let alone a 20-plus-year mega-drought), except, apparently, staying in emergency mode and praying for rain.

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Mar 082015
 
 March 8, 2015  Posted by at 1:21 pm Finance Tagged with: , , , , , , , , ,  1 Response »


DPC Sternwheeler Falls City, the levee, Vicksburg, Mississippi 1900

Austria Is Fast Becoming Europe’s Latest Debt Nightmare (Telegraph)
Tsipras: ‘We Don’t Want to Go on Borrowing Forever’ (Spiegel)
Eurogroup To Consider Greek Reform Proposals Amid Scramble For Funding (Kath.)
The ECB’s Lunatic Full Monty Treatment (Tenebrarum)
7 Things To Know About The ECB’s QE Game Plan (MarketWatch)
30 Years Of A Polarised Economy Have Squeezed Out The Middle Class (Observer)
Foreign Banks Tighten Lending Rules For China State-Backed Firms (Reuters)
China’s February Exports Surge 48.3% (CNBC)
Azerbaijan Should Be Very Afraid of Victoria Nuland (GR)
EU Won’t Be Pushed Into Confrontation Over Ukraine – Foreign Policy Chief (RT)
Why Do Russians Still Support Vladimir Putin? (New Statesman)
The Dark Undercurrents Of The War In The Ukraine (Saker)
‘Give Peace A Chance, Decide Sanctions Later’: EU Rethinks Russia (RT)
Layoffs And Empty Streets As Australia’s Boom Towns Go Bust (Reuters)
Venezuela To Get South American Help For Food Crisis (BBC)
Why Fresh Water Shortages Will Cause The Next Great Global Crisis (Guardian)
The Francis Miracle: Inside The Transformation Of The Pope And The Church (TIME)

The hills are alive with the sound of too little money.

Austria Is Fast Becoming Europe’s Latest Debt Nightmare (Telegraph)

Ah Austria, land of schnitzel, lederhosen, Mozart, alpine meadows and beer drinking. Less widely appreciated is its special place in the history of catastrophic banking crises. It was the failure of Creditanstalt, a Viennese bank founded in 1855 by Anselm von Rothschild, that arguably sparked the Great Depression, setting off an unstoppable chain reaction of bankruptcies throughout Europe and America. No-one would think that what happened last week at Austria’s failed Hypo Alpe-Adria Bank International falls into quite the same category; we are meant to be in the recovery phase of the latest global banking crisis, so this is more about re-setting the system than again bringing it to its knees, right? Well, make up your own mind. I suspect neither financial markets nor policymakers have yet caught onto the full significance of the latest turn of events.

In a nutshell, the Austrian government has had enough of funding the bank’s losses, and announced plans to “bail-in” external creditors to the tune of €7.6bn instead. As such, this marks a test case of new European rules to make creditors pay for failing banks. About time too, you might say. What took them so long? Only in this case, the bonds are notionally guaranteed by the Austrian state of Carinthia, which now theoretically becomes liable for the bail-in. It’s an echo of the mess Ireland got itself into at the height of the banking crisis, when it foolishly attempted to stem the panic by underwriting all Irish banking liabilities; the move very nearly ended up bankrupting the entire country. Hypo will bankrupt Carinthia. Essentially, what the Austrian government is doing is cutting loose an entire region, rather in the way the federal authorities in the US allowed Detroit to go bust a number of years ago.

It’s a mini-Greece going off in the heartlands of Europe. In Hypo’s case, the bail-in also threatens knock-on consequences for public bodies elsewhere, including Bayern Landesbank, a big holder of Hypo bonds which is owned by the German state of Bavaria, and the Munich based FMSW, which is again publicly underwritten. All this is just the tip of the iceberg; Europe is awash with interlinked banking and public liabilities, many of which will never be repaid and basically need to be written off. Massive creditor losses are in prospect. The European authorities had us all half convinced that Europe’s debt crisis was over. In truth, it may have barely begun.

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Good interview. Read.

Tsipras: ‘We Don’t Want to Go on Borrowing Forever’ (Spiegel)

SPIEGEL: Mr. Prime Minister, most of your European partners are indignant. They accuse you of saying one thing in Brussels and then saying something completely different back home in Athens. Do you understand where such accusations come from?
Tsipras: We say the same things in Germany as we do in Greece. But sometimes, problems can be viewed differently, depending on the perspective. (He points to his water glass.) This glass here can be described as being half full or half empty. The reality is that it is a glass filled half-way with water.

SPIEGEL: In Brussels, you have given up your demands for a debt haircut. But back home in Athens, you continue talking about a haircut. What does that have to do with perspective?
Tsipras: At the summit meeting, I used the language of reality. I said: Prior to the bailout program, Greece had a sovereign debt that was 129% of its economic output. Now, it is 176%. No matter how you look at that, it’s not possible to service that debt. But there are different ways to solve this problem: via a debt cut, debt restructuring or bonds whose payback is tied to growth. The most important thing, though, is solving the true problem: the austerity which has driven debt way up.

SPIEGEL: Are you a linguist or a politician? You told the Greeks that you got rid of the troika and sold it as a victory. But the European Commission, the International Monetary Fund (IMF) and the European Central Bank (ECB) are still monitoring your reforms. Now, they are simply called “the institutions.”
Tsipras: No, it isn’t a question of terminology. It has to do with the core of the issue. Every country in Europe has to work together with these institutions. But that is something very different than a troika that is beholden to nobody. Its officials came to Greece to strictly monitor us. Now, we are again speaking directly with the institutions. Europe has become more democratic because of this change.

SPIEGEL: What change? You still have to submit your reform plans to three “institutions” for approval.
Tsipras: The reforms won’t be approved by the institutions. They have a say in the process and establish a framework that applies to all in Europe. Previously, the situation was such that the troika would send an email telling the Greek government what it had to do. Our planned reforms are necessary, but we are deciding on them ourselves. They aren’t being forced onto us by anyone. We want to stop large-scale tax evasion and tax fraud more than anybody. Thus far, it has only been the low earners and not the wealthy that paid. We also want to make the state more efficient.

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Lots of emptiness.

Eurogroup To Consider Greek Reform Proposals Amid Scramble For Funding (Kath.)

Greece faces another tough Eurogroup summit Monday when a slew of reform proposals from Athens are to come under the microscope in Brussels, with the two sides apparently far from a compromise even as state coffers in Athens are close to emptying. Finance Minister Yanis Varoufakis is expected to face a barrage of questions from his eurozone counterparts on a series of proposals set out in an 11-page letter he sent to Eurogroup President Jeroen Dijsselbloem, which include the creation of a so-called fiscal council to generate budget savings, the revision of licensing for gaming and lotteries and the hiring of non-professionals, including students and tourists, as tax agents to help a foundering crackdown on tax evasion.

Sources suggested over the weekend that the proposals had met with skepticism from eurozone officials. In comments on Saturday on the sidelines of a conference in Venice, Varoufakis said he had received a response from Dijsselbloem. He added that Greece was keen to move forward with reforms but that the two sides must agree on “the process by which the reforms will be made more specific, implemented and evaluated so that they can be reviewed by the Eurogroup.” Varoufakis added that Greece’s reform program would be “discussed by technical teams that will convene shortly in Brussels.” Some eurozone officials appeared to be running out of patience. ECB governing council member Luc Coene said in an interview on Saturday that Greece must realize “there is no other way than to reform,” noting that Greeks had been sold “false promises.”

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“Perhaps the cupboards of the monetary bureaucrats are short a few plates and in need of a little pharmacological fine-tuning. Just saying.”

The ECB’s Lunatic Full Monty Treatment (Tenebrarum)

The belief that the market economy requires “steering” by altruistic central bankers, who make decisions influencing the entire economy based on their personal epiphanies, has rarely been more pronounced than today. Most probably it has actually never been stronger. It is both highly amusing and disconcerting that so many economists who would probably almost to a man agree that it would be a very bad idea if the government were to e.g. take over the computer industry and begin designing PCs and smart phones by committee, think that government bureaucrats should determine the height of interest rates and the size of the money supply.

We know of course that central banks are the major income source for many of today’s macro-economists, so it is in their own interest not to make any impolitic noises about these central planning institutions and their activities. Besides, most Western economists have not exactly covered themselves with glory back when the old Soviet Union still existed. Even in the late 1980s, Über-Keynesian Alan Blinder for instance still remarked that the question was not whether we should follow its example and adopt socialism, but rather how much of it we should adopt. The recent ECB announcement detailing its new “QE” program once again confirms though that there is nothing even remotely “scientific” about what these planners are doing. Common sense doesn’t seem to play any discernible role either. [..]

Leaving for the moment aside how sensible it is for the bond yields of virtually insolvent governments mired in “debt trap” dynamics to trade at less than 1.3%, one must wonder: what can possibly be gained by pushing them even lower? Does this make any sense whatsoever? Meanwhile, the ECB let it be known that it wouldn’t buy any bonds with a negative yield-to-maturity exceeding 20 basis points – the level its negative deposit rate currently inhabits as well. What a relief! What makes just as little sense is that the economic outlook presented by Mr. Draghi on occasion of his press conference was actually quite upbeat. To summarize: yields are at record lows, with about €2 trillion in European government bonds sporting negative yields to maturity. The economic outlook is said to be good.

The current slightly negative HICP rate is held to be a transitory phenomenon (it very likely will be). Needless to say, the arbitrary 2% target for “price inflation” makes absolutely no sense anyway. Not a single iota of wealth can be created by pushing prices up. Last but certainly not least, year-on-year money supply growth in the euro area has soared into double digits recently. And the conclusion from all this is that the central bank needs to boost its balance sheet by €1 trillion with a massive debt monetization program? Are these people on drugs? If not, then they should perhaps see a shrink. Perhaps the cupboards of the monetary bureaucrats are short a few plates and in need of a little pharmacological fine-tuning. Just saying.

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It’s no longer useful to view this from an investor point of view.

7 Things To Know About The ECB’s QE Game Plan (MarketWatch)

After years of discussion, months of urgent calls and weeks of preparation, the European Central Bank is about to write history—on Monday it will kick of its €1.1 trillion-euro, quantitative-easing program. Unlike its U.S., U.K. and Japanese central-bank peers, the ECB never resorted to sovereign QE at the height of the global financial crisis. Instead, it’s attempted an array of other extraordinary policy measures, including a negative deposit rate, programs to provide cheap funding to eurozone banks, and a less-powerful bond-buying program, often called “private QE,” focused on purchasing asset-backed securities and covered bonds. Now, as investors prepare for the launch of full-blown QE on March 9, here’s what we know about the program so far.

What’s the aim of the QE? Under quantitative easing, a central bank creates money electronically, which it then uses to buy securities, such as government bonds, from banks and other institutions. It’s hoped that these institutions will then use the new bank reserves to buy other assets, lowering interest rates and encouraging spending. The ECB hopes QE will revive growth and inflation in the eurozone. Despite repeated attempts to spur an economic recovery, the currency bloc is still grappling with painfully high unemployment, slow growth and negative inflation among its members.

Will the ECB buy government bonds with negative yields?Yes, but nothing that carries a yield below the ECB’s own deposit rate, which currently stands at negative 0.2%. The limit means that bonds currently yielding more than the deposit rate have room to fall further. Even before the big QE bazooka has been fired, yields for most eurozone countries have tanked. For Germany, France, Austria, Belgium, Holland and Finland borrowing costs for shorter-dated debt are now negative, meaning that bondholders essentially agree to pay issuers to hold their debt.

What will QE do to bond yields? Initially, sovereign QE and lower bond yields should march together hand in hand. As the ECB buys large quantities of government debt, bond prices should go up, which will send yields lower. On Friday, borrowing costs for Italy, Spain and Portugal dropped to record lows in anticipation of QE takeoff. However, big moves in the bond markets show much of the impact may have already been priced in. Longer-term, as the QE liquidity injection begins to work on the eurozone economy, and likely boost inflation and growth, bond yields should start to rise to reflect the stronger economy. The latest eurozone data indicate that the region may be turning a corner, leaving room for higher borrowing costs.

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London is a wasteland. It may be rich, but it’s still a wasteland. No there there.

30 Years Of A Polarised Economy Have Squeezed Out The Middle Class (Observer)

London has always been a city of extremes but the extent to which it has become polarised between rich and poor is laid bare in research that reveals a 43% decrease in middle-income households between 1980 and 2010. England is increasingly divided between the rich and the poor, with a 60% increase in poor households and a 33% increase in wealthy households. This has come at a time – 1980 to 2010 – when the number of middle-income households went down by 27%. But the trend is most marked in London, according to an analysis of census data by Benjamin Hennig and Danny Dorling of the School of Geography and the Environment at the University of Oxford.

Over the three decades, the capital has seen an 80% increase in poor households, an 80% increase in wealthy households – and a 43% decrease in middle households. Around 36% of London households are now classified as poor (up from 20% in 1980), while 37% are middle income (down from 65%). The largest%age point fall in households in the middle has been in Westminster, which saw its middle reduce from nearly three-quarters of all households to just one-third. The largest%age-point increase in wealthy households has been in Richmond-upon-Thames, where more than half of households are now wealthy, compared with a fifth in 1980. In contrast, in Newham, almost one in two households is now poor.

The researchers have drawn up maps of England according to wealth, described by Dorling as “fancy pie charts”. The polarising of wealth has been exacerbated in recent years, with economic growth having been slower than had been hoped, and wages in the middle failing to rise in parallel with the recovery. The economic divide between the beneficiaries of the property bubble and non-homeowners also continues to widen in the country as a whole, with upward pressure on land values. Dorling said: “This analysis shows that England is becoming more polarised, with an increase in households that are poor and those that are wealthy. The number of households in poverty has jumped by 60% since 1980, meaning that now almost three in 10 are poor.

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So more PBOC QE too?

Foreign Banks Tighten Lending Rules For China State-Backed Firms (Reuters)

Some banks are adopting stricter lending criteria for China’s state-owned enterprises (SOEs), demanding collateral from some companies they used to deem as safe as government debt, as Beijing tries to reform its bloated firms and the economy slows. Singapore’s DBS Group, which recently suffered a loss on a bad loan to an SOE-related firm it had assessed as risk-free, plans to launch a “decision grid” to assess the creditworthiness of SOEs, according to draft internal risk guidelines reviewed by Reuters. A banker at Taiwan’s Chang Hwa Commercial Bank said that from the beginning of this year his bank would only lend to state-owned Chinese companies that provide collateral, in recognition that SOEs were no longer risk free.

Such changes in policy suggest some foreign banks are preparing for a rise in defaults in the world’s second-largest economy, which is growing at its slowest pace in a quarter of a century and where the government is trying to make the state sector more efficient.
DBS will now lend more conservatively to SOEs seen as receiving less government support, as China plans to prioritize SOEs in strategic sectors. The January-dated DBS document said: “Not all SOEs receive the same degree of government support. It is our further belief that the differentiation of such support will widen in the future as the government continues to pursue market economy.” DBS will now divide SOEs into tiers according to their likely level of government support, with subsidiaries considered more risky than top-level holding companies.

Group companies that are not consolidated into the parent SOE’s financial statements will be evaluated as an ordinary borrower, the decision grid shows. DBS effectively acknowledges that lenders can no longer take for granted implicit support from above. “Compared to ordinary corporates, implicit support obtained from the parents of SOEs are subject to higher risks because of the risk of policy and people changes,” the document said. A DBS spokeswoman said: “It is still business as usual for us in China. With slower regional economic growth, we continue to be disciplined and watchful of risks in all the markets we operate in..”

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C’mon, admit it, you were due for a good laugh.

China’s February Exports Surge 48.3% (CNBC)

China’s exports surged 48.3% on year in February, sharply above analysts’ forecasts, potentially signaling stronger economic growth for its trade partners. Imports fell 20.5% for the period, according to data from China’s customs department. A Reuters poll had forecast exports would rise 14.2% and imports would fall 10%. For January and February combined – a common metric to help smoothe distortions from the Lunar New Year holiday period – exports rose 15% from a year earlier, while imports declined 20.2%. “The demand from the advanced economies bodes well,” ANZ said in a note Sunday, citing data showing shipments to the U.S. and European Union rose 40.3% and 36.6% on-year respectively.

But the bank noted that the jump in exports could be due to a base effect. “The February 2014 figures were extremely low as Chinese authorities cracked down the round-tripping trade flows,” it said. “We still see strong headwinds facing China’s exports this year,” ANZ said, citing weak export order PMI data. ANZ attributed the decline in imports to weak commodity demand compounded by sharp drops in commodity prices, citing as an example the 45.4% on year drop in the value of iron-ore imports, although the iron-ore import volume only fell 0.9%. As well, “Chinese commercial banks have significantly tightened the trade financing facilities for commodity traders,” ANZ said.

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“..it is not likely that she came to Baku with positive intentions, or even with a positive image of the country in her mind.”

Azerbaijan Should Be Very Afraid of Victoria Nuland (GR)

The US’ Assistant Secretary of State for European and Eurasian Affairs, Victoria Nuland, visited Baku on 16 February as part of her trip to the Caucasus, which also saw her paying stops in Georgia and Armenia. While Azerbaijan has had positive relations with the US since independence, they’ve lately been complicated by Washington’s ‘pro-democracy’ rhetoric and subversive actions in the country. Nuland’s visit, despite her warm words of friendship, must be look at with maximum suspicion, since it’s not known what larger ulterior motives she represents on behalf of the US government. [..]

Given the ideological context in which Nuland likely sees eye-to-eye on with her husband, plus her experience in instigating the Color Revolution in Ukraine, it is not likely that she came to Baku with positive intentions, or even with a positive image of the country in her mind. This is all the more so due to the recent scandal over Radio Free Europe/Radio Liberty. The US-government-sponsored information agency was closed down at the end of December under accusations that it was operating as a foreign agent. While the US has harshly chided the Azeri government for this, at the end of the day, it remains the country’s sovereign decision and right to handle suspected foreign agents as it sees fit. Azerbaijan’s law is similar to Russia’s, in that entities receiving foreign funds must register as foreign agents, and interestingly enough, both of these laws parallel the US’ own 1938 Foreign Agents Registration Act (FARA).

So why does the US feel that it reserves the sole right to register foreign agents and entities, and if need be, identify and punish those that are acting in the country illegally, but Azerbaijan is deprived of this exercise of sovereignty? The reason is rather simple, actually – it’s the US that is the most likely to use these foreign agents to destabilize and potentially overthrow governments (as in Ukraine most recently), whereas Azeri agents in America, should they even exist, are nothing more than an administrative nuisance incapable of inflicting any real harm on the authorities. This double standard is at the core of the US’ relations with all countries in the world, not just Azerbaijan, but it’s a telling example of the power and leverage Washington attempts to hold over Baku, which is seen most visibly by the blistering criticism leveled on the government after Radio Free Europe/Radio Liberty’s closing in compliance with the law.

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Too little too late. Fait accompli.

EU Won’t Be Pushed Into Confrontation Over Ukraine – Foreign Policy Chief (RT)

The EU is resisting calls from hotheads to supply arms to Ukraine, saying it won’t be pulled into a confrontation with Russia. Europeans cite the progress in implementing a ceasefire in eastern Ukraine between Kiev and local rebels. The idea of providing lethal aid to Kiev is popular among many NATO officials and American politicians. US House Speaker John Boehner and a bipartisan group of top lawmakers called on President Barack Obama to deliver the weapons. But Europeans are opposing the move, which would likely escalate tensions with Russia. “The European Union today is extremely realistic about developments in Russia. But we will never be trapped or forced or pushed or pulled into a confrontative [sic] attitude,” the EU’s Foreign Policy Chief Federica Mogherini told the media on Friday, following an informal meeting of EU foreign ministers in Riga, Latvia.

“We still believe that around our continent – not only in but around – cooperation is far better than confrontation. We still argue for that,” she added. Austrian Foreign Minister Sebastian Kurz said the EU’s goal in Ukraine is “a ceasefire, not an escalation.” Germany has been among the most vocal critics of sending arms to Ukraine and now German officials question the assessment of the situation in the country voiced by Kiev armament pundits. “The statements [on Ukraine] from our source do not fully coincide with the statements made by NATO and the US,” German FM Frank-Walter Steinmeier said after the conference. “We are interested in not allowing it to grow into a misunderstanding.” The German Spiegel magazine reported on Saturday that Chancellor Angela Merkel’s government suspects the US and NATO of trying to derail the EU’s mediation effort in Ukraine.

The Minsk ceasefire agreement between Kiev and rebels in eastern Ukraine was brokered last month by Germany, France and Russia. So far, it’s mostly holding, with both parties pulling some of their heavy weapons back from the front line, and OSCE monitors reporting a significant reduction in violence. The EU says it wants to increase the number of OSCE observers on the ground, doubling its current ceiling of 500. “The main point is obviously working to increase the number of selected and skilled people that can do the job,” Mogherini said. The more observers the tougher it would be to violate the conditions of the Minsk agreement with impunity. Kiev and its foreign backers, particularly in Washington, accuse Russia of propping up the rebel forces with weapons and troops. Moscow insists that it has no involvement in the armed conflict and has only delivered humanitarian aid to the ravaged areas.

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“86% of the respondents approve of Vladimir Putin as Russia’s president. When asked to name five or six politicians or government officials they trust, 59% responded: ”Putin”.”

Why Do Russians Still Support Vladimir Putin? (New Statesman)

The news of the assassination of Boris Nemtsov, a Russian opposition politician, dominated the news this weekend. It was possible to imagine – just for a day or two – that the charismatic Boris Nemtsov, who first entered the national political arena in Russia back in the Yeltsin days, had been a prominent figure without whom the opposition would struggle to have a say against Kremlin. Unfortunately, the truth is that Nemtsov was hardly a force to be reckoned with. However open his position on Putin was and however brave his last interview to the Moscow radio station Echo Moskvy was, just hours before his death, Boris Nemtsov was not important. Like any other opposition leader in Russia, he was a scribble on the margin of current affairs. The overwhelming majority of the Russian population supports the country’s president, Vladimir Putin.

A recent poll, conducted between 20-23 February 2015 among 1,600 Russians aged 18 or more in 46 different regions of Russia by an independent Russian not-for-profit market research agency Levada Centre for Echo Moskvy radio station, found that 54% of the population agreed that “[Russia] is moving in the right direction”. 86% of the respondents approve of Vladimir Putin as Russia’s president. When asked to name five or six politicians or government officials they trust, 59% responded: ”Putin”.

Let’s put aside the possibility of rigged polls because there is little to suggest Putin’s popularity is fake. Putin is respected, if not revered. He is referred to as batyushka, the holy father. Many Russians are particularly upset and angry about Nemtsov’s murder because western fingers are pointing at Putin. In their opinion, Nemtsov was most likely killed as a provocation to destabilise Russia and fuel hostility between Kremlin and the west. “With all due respect to the memory of Boris Nemtsov, in political terms he did not pose any threat to the current Russian leadership or Vladimir Putin, said presidential press secretary Dmitriy Peskov. “If we compare popularity levels, Putin’s and the government’s ratings and so on, in general Boris Nemtsov was just a little bit more than an average citizen.”

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Who’s “our son of a bitch“?

The Dark Undercurrents Of The War In The Ukraine (Saker)

The situation in the Ukraine is more or less calm right now, and this might be the time to step back from the flow of daily reports and look at the deeper, underlying currents. The question I want to raise today is one I will readily admit not having an answer to. What I want to ask is this: could it be that one of the key factors motivating the West’s apparently illogical and self-defeating desire to constantly confront Russia is simply revanchism for WWII? We are, of course, talking about perceptions here so it is hard to establish anything for sure, but I wonder if the Stalin’s victory against Hitler was really perceived as such by the western elites, or if it was perceived as a victory against somebody FDR could also have called “our son of a bitch“. After all, there is plenty of evidence that both the US and the UK were key backers of Hitler’s rise to power (read Starikov about that) and that most (continental) Europeans were rather sympathetic to Herr Hitler.

Then, of course and as it often happens, Hitler turned against his masters or, at least, his supporters, and they had to fight against him. But there is strictly nothing new about that. This is also what happened with Saddam, Noriega, Gaddafi, al-Qaeda and so many other “bad guy” who began their careers as the AngloZionists’ “good guys”. Is it that unreasonable to ask whether the western elites were truly happy when the USSR beat Nazi Germany, or if they were rather horrified by what Stalin had done to what was at that time the single most powerful western military – Germany’s? [..] for the western elites, [..] they must have known that their entire war effort was, at most, 20% of what it took to defeat Nazi Germany and that those who had shouldered 80%+ were of an ideology diametrically opposed to capitalism. Is there any evidence of that fear? I think there is and I already mentioned them in the past:

Plan Totality (1945): earmarked 20 Soviet cities for obliteration in a first strike: Moscow, Gorki, Kuybyshev, Sverdlovsk, Novosibirsk, Omsk, Saratov, Kazan, Leningrad, Baku, Tashkent, Chelyabinsk, Nizhny Tagil, Magnitogorsk, Molotov, Tbilisi, Stalinsk, Grozny, Irkutsk, and Yaroslavl.

Operation Unthinkable (1945) assumed a surprise attack by up to 47 British and American divisions in the area of Dresden, in the middle of Soviet lines.This represented almost a half of roughly 100 divisions (ca. 2.5 million men) available to the British, American and Canadian headquarters at that time. (…) The majority of any offensive operation would have been undertaken by American and British forces, as well as Polish forces and up to 100,000 German Wehrmacht soldiers.

Operation Dropshot (1949): included mission profiles that would have used 300 nuclear bombs and 29,000 high-explosive bombs on 200 targets in 100 cities and towns to wipe out 85% of the Soviet Union’s industrial potential at a single stroke. Between 75 and 100 of the 300 nuclear weapons were targeted to destroy Soviet combat aircraft on the ground.

But the biggest proof is, I think, the fact that none of these plans was executed, even though at the time the Anglosphere was safely hidden behind its monopoly on nuclear weapons (and have Hiroshima and Nagasaki not been destroyed in part to “scare the Russians”?). And is it not true that the Anglos did engage in secret negotiations with Hitler’s envoys on several occasions? (The notion of uniting forces against the “Soviet threat” was in fact contemplated by both Nazi and Anglo officials, but they did not find a way to make that happen.) So could it be that Hitler was, really, their “son of a bitch”?

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“We support sanctions that bring the other side to the negotiation table.. But we are against sanctions that are imposed simply because someone is angry.”

‘Give Peace A Chance, Decide Sanctions Later’: EU Rethinks Russia (RT)

The latest EU meeting has shown that many of its members are in no rush to extend the sanctions which were imposed on Russia last year following a US example, or to exert any more pressure on Moscow, as long as the Minsk ceasefire agreement is holding. Most foreign ministers at the EU two-day meeting in the Latvian capital expressed hopes that the latest Minsk agreement would be a success, and there would be no need to impose further sanctions on Russia. The meeting had a format of an informal discussion, where the ministers touched the topics of the Minsk agreements and the OSCE mission in Ukraine, as well as the possible stepping up of pressure on Russia to “promote peace.”

Scheduled ten days before an official summit in Brussels, the meeting has shown that the EU can’t yet agree even on the automatic extension of existing sanctions – a move that some of the hawkish states have been actively promoting. “In my opinion, we must not make any other steps, we have to give peace a chance. The extension could take place, but only if there is no improvement of the situation,” Spanish FM Jose Manuel Garcia-Margallo said, expressing his views after the meeting , according to Russian news agency RIA Novosti. The Spanish FM is heading to Moscow, during which he will not only discuss the Ukrainian crisis, but will also meet with the Russian Energy minister.

Meanwhile, Italian FM Paolo Gentiloni told reporters the he sees “encouraging signals” on the ground in eastern Ukraine, and so “at the moment we don’t need either new sanctions or automatic renewals.” Austrian Foreign Minister Sebastian Kurz shared the views of his Italian counterpart, saying that there is a “glimpse of hope” following the Minsk agreements: “We should do everything now to improve the situation and decide later whether that improvement really happened and we can reduce the sanctions, or, if we have to, extend them,” Kurz said. Greece has also spoke out against any new sanctions as long as Russia supports the Minsk agreements, with Greek Foreign Minister Nikos Kotzias saying the Greek experience suggests that “not every sanction is constructive” and can succeed. “We support sanctions that bring the other side to the negotiation table,” Kotzias told German ARD. “But we are against sanctions that are imposed simply because someone is angry.”

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Wait! Where have we heard this before? “Owner will throw in a brand new car..” “Just pick your favorite colour.”

Layoffs And Empty Streets As Australia’s Boom Towns Go Bust (Reuters)

When Probo Junio got a visa to work in Australia, he thought he had won a ticket to the good life. In 2013, the 45-year-old boilermaker left his hometown of Cebu in the Philippines, where he was getting paid about $10 a day, to work in Karratha in Western Australia for $30 an hour. Enough to support his relatives and build a new life Down Under. What Junio didn’t expect was that Australia’s booming resources industry would go bust less than two years later, taking his job, and leaving him just 60 days to find work or go home. “It’s very difficult because most of the companies don’t want 457 visa holders,” he said, referring to temporary permits for skilled workers.Across the country, people like Junio are falling victim to downsizing. Jobs, once plentiful and well paid, are scarce.

Real estate prices in boom towns are sinking and even the notoriously high coffee prices in mining capital Perth have levelled off at under $4. Prices of iron ore and coal, the country’s two biggest export earners, have plunged during the last two years amid falling demand from China, in the wake of its economic slowdown. Just a few years ago, foreign workers were flooding into Australia, lured by huge pay as the resources industry scrambled to fill positions. Truck driving and cooking jobs offering $100,000 a year made headlines abroad. But those workers, like Junio, are now hard-pressed to find work, especially if they are on temporary visas. Even permanent residents have to take lower pay. “There is reality coming into the marketplace about salaries,” said John Downing, who runs global resources recruiting firm Downing Teal, adding that salary expectations have fallen 10% to 25%.

“For Lease” signs are everywhere in West Perth, the headquarters of many mining, oil and gas companies. “You could shoot a cannon down those streets,” said resources analyst Peter Strachan. “There’s nobody there.”Commercial vacancy rates in the city are near a 20-year high of 15% as resources companies downsize or shut down, said Joe Lenzo, of the Property Council of Australia. The real estate market has also been hit in the coal country of Queensland, across the continent. “Owner will throw in a brand new car,” read advertisements for houses in the coal-mining town of Moranbah. “Just pick your favorite colour.”

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There’s something very positive about South America.

Venezuela To Get South American Help For Food Crisis (BBC)

Foreign ministers from 12 South American nations gathering in Caracas have promised to help Venezuela overcome an ongoing shortage of food, medicine and other products. The regional Unasur bloc agreed with President Nicolas Maduro to provide items that have gone missing from many Venezuelan supermarkets. The shortage of staples has contributed to popular discontent. Unasur highlighted the importance of safeguarding democratic stability. “The idea is to get all the countries to support the distribution of staples,” said Ernesto Samper, Secretary-General of Unasur (Union of South American Nations). “We will work together with the Venezuelan authorities to strengthen the distribution networks in our countries so they help Venezuela,” said Mr Samper.

He criticised recent anti-government protests in Venezuela that descended into violence. The opposition must “express its opinions in a democratic, peaceful and lawful manner,” said Mr Samper. The Unasur ministers will meet opposition leaders and government officials in the next few days to seek guarantees that Venezuela will be able to hold free and fair elections later this year. Opposition leader Henrique Capriles told the AFP news agency on Tuesday that Mr Maduro could cancel the vote, which is scheduled for the second half of this year. “The government had never had such a large deficit [in the polls] heading into an election. Now it does. How does it change that? It rigs the game,” said Mr Capriles. Mr Maduro said the elections would go ahead as planned.

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“For us, water is [now] more important than oil.”

Why Fresh Water Shortages Will Cause The Next Great Global Crisis (Guardian)

Water is the driving force of all nature, Leonardo da Vinci claimed. Unfortunately for our planet, supplies are now running dry – at an alarming rate. The world’s population continues to soar but that rise in numbers has not been matched by an accompanying increase in supplies of fresh water. The consequences are proving to be profound. Across the globe, reports reveal huge areas in crisis today as reservoirs and aquifers dry up. More than a billion individuals – one in seven people on the planet – now lack access to safe drinking water. Last week in the Brazilian city of São Paulo, home to 20 million people, and once known as the City of Drizzle, drought got so bad that residents began drilling through basement floors and car parks to try to reach groundwater.

City officials warned last week that rationing of supplies was likely soon. Citizens might have access to water for only two days a week, they added. In California, officials have revealed that the state has entered its fourth year of drought with January this year becoming the driest since meteorological records began. At the same time, per capita water use has continued to rise. In the Middle East, swaths of countryside have been reduced to desert because of overuse of water. Iran is one of the most severely affected. Heavy overconsumption, coupled with poor rainfall, have ravaged its water resources and devastated its agricultural output. Similarly, the United Arab Emirates is now investing in desalination plants and waste water treatment units because it lacks fresh water.

As crown prince General Sheikh Mohammed bin Zayed al-Nahyan admitted: “For us, water is [now] more important than oil.” The global nature of the crisis is underlined in similar reports from other regions. In south Asia, for example, there have been massive losses of groundwater, which has been pumped up with reckless lack of control over the past decade. About 600 million people live on the 2,000km area that extends from eastern Pakistan, across the hot dry plains of northern India and into Bangladesh, and the land is the most intensely irrigated in the world. Up to 75% of farmers rely on pumped groundwater to water their crops and water use is intensifying – at the same time that satellite images shows supplies are shrinking alarmingly.

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“I look at . . . so many forests, all cut, that have become land . . . that can [no] longer give life..”

The Francis Miracle: Inside The Transformation Of The Pope And The Church (TIME)

It was probably inevitable that the first pope named Francis—inspired by a saint who preached to birds and gave pet names to the sun and the moon—has turned out to be a strong environmentalist. In fact, Francis has said that concern for the environment is a defining Christian virtue. (The young Jorge Bergoglio trained as a chemist, so he has a foundation to appreciate the scientific issues involved.) This element of the social gospel bubbled to the surface as early as his inaugural mass, when Francis issued a plea to “let us be ‘protectors’ of creation, protectors of God’s plan inscribed in nature, protectors of one another and of the environment.” St. Francis’s imprint on this pope is clearly strong. In unscripted comments during a meeting with the president of Ecuador in April 2013, he said, “Take good care of creation. St. Francis wanted that.

People occasionally forgive, but nature never does. If we don’t take care of the environment, there’s no way of getting around it.” The two previous popes were also environmentalists. The mountain-climbing, kayaking John Paul II was a strong apostle for ecology, once issuing an almost apocalyptic warning that humans “must finally stop before the abyss” and take better care of nature. Benedict XVI’s ecological streak was so strong that he earned a reputation as “the Green Pope” because of his repeated calls for stronger environmental protection, as well as gestures such as installing solar panels atop a Vatican audience hall and signing an agreement to make the Vatican Europe’s first carbon-neutral state. Francis is carrying that tradition forward.

Among other things, he told French President François Hollande during a January 2014 meeting that he is working on an encyclical on the environment. (An encyclical is considered the most developed and authoritative form of papal teaching.) The Vatican has since confirmed that Francis indeed intends to deliver the first encyclical ever devoted entirely to environmental issues. In a July 2014 talk at the Italian university of Molise, Francis described harm to the environment as “one of the greatest challenges of our times.” It’s a challenge, he said, that’s theological as well as political in nature. “I look at . . . so many forests, all cut, that have become land . . . that can [no] longer give life,” the pope continued, citing South American woodlands in particular. “This is our sin, exploiting the Earth. . . . This is one of the greatest challenges of our time: to convert ourselves to a type of development that knows how to respect creation.”

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Dec 182014
 
 December 18, 2014  Posted by at 11:43 am Finance Tagged with: , , , , , , , ,  3 Responses »


Lewis Wickes Hine News of the Titanic and possible survivors 1912

Fed Calls Time On $5.7 Trillion Of Emerging Market Dollar Debt (AEP)
Bankers See $1 Trillion of Investments Stranded in the Oil Fields (Bloomberg)
Oil Could Fall To $30 A Barrel: Emirates Boss (CNBC)
Oil-Led Slump Spurring Fastest Investor Exit Since 2008 (Bloomberg)
The Fracturing Energy Bubble Is the New Housing Crash (David Stockman)
Yellen Makes It Clear That Fed’s Patience on Rates Has Limits (Bloomberg)
Putin Says Russia Mustn’t Waste Reserves on Ruble as Economy Sinks (Bloomberg)
Putin Predicts Economy Will Recover In Two Years (WaPo)
Western Nations Want To Chain The Russian Bear And Have It Stuffed: Putin (RT)
Can Anybody Find Me … A Central Banker To Love? (Dmitry Orlov)
Traders Betting Russia’s Next Move Will Be to Sell Gold (Bloomberg)
Greece Faces Crisis On Rising Prospect Of Snap Election (CNBC)
EU’s Greek Drama Needs A Final Act (Bloomberg ed.)
$1.3 Trillion In Secret Cash Sneaked Out Of China In The Last 10 Years (Quartz)
Dark Pools in Spotlight as EU Moves to Bolster Markets (Bloomberg)
Uruguay Takes on London Bankers, Marlboro Mad Men and the TPP (Truthout)
Swiss National Bank Imposes Negative Interest Rate (Bloomberg)
The Fed Is Sitting On a $191 TRILLION Time Bomb (Phoenix)
2014 Warmest Year In Europe Since 1500s (FT)
‘Vast Stores’ Of World’s Oldest Water (BBC)

“World finance is rotating on its axis. The stronger the US boom, the worse it will be for those countries on the wrong side of the dollar”. [..] “Pimco’s Emerging Market Corporate Bond Fund bled $237m in November, and the pain is unlikely to stop as clients discover that 24% of its portfolio is in Russia.”

Fed Calls Time On $5.7 Trillion Of Emerging Market Dollar Debt (AEP)

The US Federal Reserve has pulled the trigger. Emerging markets must now brace for their ordeal by fire. They have collectively borrowed $5.7 trillion in US dollars, a currency they cannot print and do not control. This hard-currency debt has tripled in a decade, split between $3.1 trillion in bank loans and $2.6 trillion in bonds. It is comparable in scale and ratio-terms to any of the biggest cross-border lending sprees of the past two centuries. Much of the debt was taken out at real interest rates of 1% on the implicit assumption that the Fed would continue to flood the world with liquidity for years to come. The borrowers are “short dollars”, in trading parlance. They now face the margin call from Hell as the global monetary hegemon pivots. The Fed dashed all lingering hopes for leniency on Wednesday. The pledge to keep uber-stimulus for a “considerable time” has gone, and so has the market’s security blanket, or the Fed Put as it is called. Such tweaks of language have multiplied potency in a world of zero rates.

Officials from the Bank for International Settlements say privately that developing countries may be just as vulnerable to a dollar shock as they were in the Fed tightening cycle of the late 1990s, which culminated in Russia’s default and the East Asia Crisis. The difference this time is that emerging markets have grown to be half the world economy. Their aggregate debt levels have reached a record 175% of GDP, up 30percentage points since 2009. Most have already picked the low-hanging fruit of catch-up growth, and hit structural buffers. The second assumption was that China would continue to drive a commodity supercycle even after Premier Li Keqiang vowed to overthrow his country’s obsolete, 30-year model of industrial hyper-growth, and wean the economy off $26 trillion of credit leverage before it is too late.

These two false assumptions have blown up simultaneously, the effects threatening to feed on each other with wicked force. Russia’s Vladimir Putin could hardly have chosen a worse moment to compound his woes by tearing up the international rulebook and seizing chunks of territory from Ukraine, a country that gave up its nuclear weapons after a pledge by Russia in 1994 to uphold its sovereign borders. Stress is spreading beyond Russia, Nigeria, Venezuela and other petro-states to the rest of the emerging market nexus, as might be expected since this is a story of evaporating dollar liquidity as well as a US shale supply-glut. Turkey relies on imports for almost all its energy and should be a beneficiary of lower crude prices. Yet the Turkish lira has fallen 12% since the end of November. The Borsa Istanbul 100 index is down 20% in dollar terms. Indonesia had to intervene on Wednesday to defend the rupiah. Brazil’s real has fallen to a 10-year low against the dollar, as has the index of emerging market currencies. Sao Paolo’s Bovespa index is down 23% in dollars in three weeks.

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Hey!, that’s my line!

Bankers See $1 Trillion of Investments Stranded in the Oil Fields (Bloomberg)

There are zombies in the oil fields. After crude prices dropped 49% in six months, oil projects planned for next year are the undead – still standing upright, but with little hope of a productive future. These zombie projects proliferate in expensive Arctic oil, deepwater-drilling regions and tar sands from Canada to Venezuela. In a stunning analysis this week, Goldman Sachs found almost $1 trillion in investments in future oil projects at risk. They looked at 400 of the world’s largest new oil and gas fields — excluding U.S. shale – and found projects representing $930 billion of future investment that are no longer profitable with Brent crude at $70. In the U.S., the shale-oil party isn’t over yet, but zombies are beginning to crash it. The chart below shows the break-even points for the top 400 new fields and how much future oil production they represent. Less than a third of projects are still profitable with oil at $70. If the unprofitable projects were scuttled, it would mean a loss of 7.5 million barrels per day of production in 2025, equivalent to 8% of current global demand.

Making matters worse, Brent prices this week dipped further, below $60 a barrel for the first time in more than five years. Why? The U.S. shale-oil boom has flooded the market with new supply, global demand led by China has softened, and the Saudis have so far refused to curb production to prop up prices. It’s not clear yet how far OPEC is willing to let prices slide. The U.A.E.’s energy minister said on Dec. 14 that OPEC wouldn’t trim production even if prices fall to $40 a barrel. An all-out price war could take up to 18 months to play out, said Kevin Book, managing director at ClearView Energy, a financial research group in Washington. If cheap oil continues, it could be a major setback for the U.S. oil boom. In the chart below, ClearView shows projected oil production at four major U.S. shale formations: Bakken, Eagle Ford, Permian and Niobrara. The dark blue line shows where oil production levels were headed before the price drop. The light blue line shows a new reality, with production growth dropping 40%.

Even $75 Oil Crashes the Shale-Oil Party

The Goldman tally takes the long view of project finance as it plays out over the next decade or more. But the initial impact of low prices may be swift. Next year alone, oil and gas companies will make final investment decisions on 800 projects worth $500 billion, said Lars Eirik Nicolaisen, a partner at Oslo-based Rystad Energy. If the price of oil averages $70 in 2015, he wrote in an email, $150 billion will be pulled from oil and gas exploration around the world. An oil price of $65 dollars a barrel next year would trigger the biggest drop in project finance in decades, according to a Sanford C. Bernstein analysis last week.

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Yeah, that strong dollar again …

Oil Could Fall To $30 A Barrel: Emirates Boss (CNBC)

The airline industry is set to reap the benefits of lower oil prices, which could fall to as low as $30 a barrel, according to the chief executive of Emirates Airline. “I’ve always thought personally it go well down to 30 again, but we’ll see,” Tim Clark, president and CEO of Emirates Airline, told CNBC in an exclusive interview. “I’ve always said the realistic price for out-of-ground: $70. Should never, ever have been above that.” Although there may be significant volatility across asset classes in the short term, Clark said that a lower oil price would bring back confidence and investment for the aviation industry in the long term. “At the moment we’ve got all sorts of issues. This gives the global economy a fighting chance in the next 18 months to 2 years to get back on a reasonable footing,” he told CNBC.

However Clark argued the gains for Emirates Airlines in particular was currently limited by the strength of the dollar, which was having an impact on the firm’s ability to realize profits in countries like Russia and Australia. In November, the Dubai-based carrier reported a net profit of $514 million, up 8% from the same period last year. Of the $12 billion in revenues, fuel prices accounted for 38% of operating costs. “But if fuel falls to 50 or goes below – then of course the business will pick up. Much will depend how long it lasts,” he said. The International Air Transport Association this month revised its outlook for 2015, forecasting the industry to post global net profit of $25 billion, up from $19.9 billion this year.

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Everything must fall.

Oil-Led Slump Spurring Fastest Investor Exit Since 2008 (Bloomberg)

Investors are exiting commodities at the fastest pace in six years, betting a slump in prices isn’t over as corn, oil and gold drop close to their cost of production. Open interest in raw-material futures and options is down 5.9% since June, heading for the biggest second-half slump since 2008, exchange data show. U.S. exchange-traded products tracking metals, energy and agriculture saw net withdrawals of $563.9 million in 2014, marking the first two-year slump since the funds were created a decade ago. Commodities are under pressure from many sides. Collapsing oil prices are driving bearish sentiment because energy is used to produce or deliver almost everything, according to SocGen. Low inflation and higher interest rates create an “ugly scenario” for gold, says Bank of America. And weaker currencies in countries that produce everything from soybeans to iron ore mean supplies will continue to climb, Goldman Sachs predicts.

“Now is not a time to be overweighting commodities,” Sameer Samana, a senior international strategist at Wells Fargo Advisors LLC in St. Louis, which oversees $1.4 trillion, said in a Dec. 17 telephone interview. “For now, the outlook is still negative. It wouldn’t surprise us to see prices go down even further. We wouldn’t be taking any tactical positions.” The Bloomberg Commodity Index of 22 products slumped 13% this year, heading for a fourth straight annual drop that will be the longest since the gauge’s inception in 1991. Brent crude tumbled 45%, the biggest loss among the raw materials, after trading below $60 a barrel this week for the first time in five years. Crude, gasoline and heating oil led this year’s declines as an increase in U.S. drilling sparked a surge in output and a price war with producers in OPEC. About 65% of the $20 billion withdrawn from passive-commodities investment this year was driven by energy losses, Aakash Doshi, a Citigroup vice president, said in a Dec. 15 report.

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Not exactly a new comparison, but a thorough analysis, especially of the housing crash.

The Fracturing Energy Bubble Is the New Housing Crash (David Stockman)

Let’s see. Between July 2007 and January 2009, the median US residential housing price plunged from $230k to $165k or by 30%. That must have been some kind of super “tax cut”. In fact, that brutal housing price plunge amounted to a $400 billion per year “savings” at the $1.5 trillion per year run-rate of residential housing turnover. So with all that extra money in their pockets consumers were positioned to spend-up a storm on shoes, shirts and dinners at the Red Lobster. Except they didn’t. And, no, it wasn’t because housing is a purported “capital good” or that transactions are largely “financed” at upwards of 85% leverage ratios. None of those truisms changed consumer incomes or spending power per se. Instead, what happened was the mortgage credit boom came to a thundering halt as the subprime default rates became visible. This abrupt halt to mortgage credit expansion, in turn, caused the whole chain of artificial economic activity that it had funded to rapidly evaporate.

And it was some kind of debt boom. The graph below is for all types of mortgage credit including commercial mortgages, and appropriately so. After all, the out-of-control strip mall construction during that period, for example, was owing to the unsustainable boom in home construction – especially the opening of “new communities” in the sand states by the publicly traded homebuilders trying to prove to Wall Street they were “growth machines”. Soon Scottsdale AZ and Ft Myers FL were sprouting cookie cutter strip malls to host “new openings” for all the publicly traded specialty retail chains and restaurant concepts – along with those lined-up in a bulging IPO pipeline. These step-children of the mortgage bubble were also held to be mighty engines of “growth”. Jim Cramer himself said so – he just forgot to mention what happens when the music stops.

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“The second half of the year we are getting higher rates and the market has to price that in.”

Yellen Makes It Clear That Fed’s Patience on Rates Has Limits (Bloomberg)

Federal Reserve Chair Janet Yellen restored clarity to the central bank’s monetary policy plans, saying it was on course to raise interest rates, though not right away, after officials issued a statement that some Fed-watchers found confusing. Yellen told reporters following a two-day meeting that the Fed is likely to hold rates near zero at least through the first quarter. She also laid out the economic parameters that would need to be met for liftoff to begin later in the year and said that rates probably would be raised gradually thereafter. They may not return to more normal levels until 2017, she added. “The statement was a bit clumsy, while I thought Yellen was very clear,” said Eric Green, head of U.S. rates and economic research at TD Securities USA in New York, who formerly worked at the New York Fed. “The second half of the year we are getting higher rates and the market has to price that in.”

The dollar and yields on Treasury securities rose in response, as investors in those markets processed the likelihood of rate increases by the Fed. The greenback gained against most currencies, with the Bloomberg Dollar Spot Index increasing to almost a five-year high. Yellen’s comments came after a Federal Open Market Committee statement that former Fed official Robert Eisenbeis also called “clumsy.” With investors focused on whether policy makers would retain their stated intention to hold rates near zero for a “considerable time,” the FOMC instead tried to straddle keeping the phrase in and taking it out. The Fed said it can be “patient” in its approach to raising the benchmark lending rate from a range of zero to 0.25%, where it has been since December 2008. At the same time, policy makers said that language was “consistent” with their prior guidance that rates would be held near zero for a “considerable time” after they ended their asset purchases in October.

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He doesn’t even seem fazed.

Putin Says Russia Mustn’t Waste Reserves on Ruble as Economy Sinks (Bloomberg)

President Vladimir Putin said Russia shouldn’t waste currency reserves protecting the ruble as the country braces for a recession brought on by the collapse of the oil price and sanctions over the Ukraine conflict. “Under the most negative external economic scenario, this situation can last two years,” Putin said today at his annual press conference in Moscow. “If the situation is very bad, we will have to change our plans, cut some things.” The president criticized the central bank for not acting faster to support the ruble, which has dropped more than 40% since June as oil trades near a five-year low and sanctions over the Ukraine conflict hit the economy. Putin – who in his wide-ranging news conference with hundreds of reporters sparred with a Ukrainian journalist, reeled off statistics on the fall harvest and spoke about guiding gifted children – vowed to guide the country through the current crisis in the same way he steered Russia through the 2008 financial crisis.

The country’s reserves have declined by a fifth to $416 billion over the past year as the central bank tried in vain to defend the currency. Russia won’t force exporters to exchange revenue earned in foreign currency to prop up the ruble, he said. Putin, who has enjoyed near-record approval ratings since Russia annexed Ukraine’s Crimea peninsula in March, today accused the U.S. and European Union of using the Ukraine conflict as way to contain Russia as they have done since the end of the Cold War through the expansion of NATO, comparing the current situation to a new division akin to the Berlin Wall. “Our partners didn’t stop, they saw themselves as victors, an empire, and all others are vassals and have to be subdued,” Putin said. “The crisis in Ukraine should make our partners understand that it’s time to stop building walls.”

After an emergency meeting, the central bank announced the largest interest rate increase since Russia’s 1998 default in the early hours of Dec. 16, increasing the key rate by 6.5 percentage points to 17%. That failed to halt the slide in the ruble, which at one point during the day fell to a record of 80 per dollar, from 34 half a year ago. It rebounded 12% yesterday after the Finance Ministry pledged to use as much as $7 billion to support the currency. The Russian currency lost about 3% today to 62 rubles to the dollar. The central bank also announced steps yesterday to stabilize the banking system, including allowing lenders to use a third-quarter exchange rate – before the acceleration in the ruble’s decline – to value risk-weighted assets.

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“I believe about two years is the worst case scenario. After that, I believe growth is imminent.”

Putin Predicts Economy Will Recover In Two Years (WaPo)

Russian President Vladimir Putin, under pressure to show how to pull Russia out of its economic crisis, predicted Thursday the country will recover in two years at the most, despite a looming recession, a severely weakened ruble and growing fears about the country’s financial instability. Speaking at his annual year-end news conference, during which he took questions directly from the national and foreign press, Putin said the Russian central bank and the government were taking adequate measures to support the ruble. Putin’s news conference came as Russia suffers through its worst economic challenges since Putin came to power 15 years ago.

“Rates of growth may be slowing down, but the economy will still grow and our economy will overcome the current situation,” Putin said at the televised news conference. “I believe about two years is the worst case scenario. After that, I believe growth is imminent.” A steady depreciation of the ruble has been underway for the last several months, fueled by falling oil prices and Western economic sanctions over Russia’s involvement in Ukraine. But it turned into wild swings in the exchange rate over the past few days, with rates peaking at almost 80 rubles to the dollar Tuesday after the central bank dramatically raised interest rates. The ruble lost more ground against the dollar Thursday, more than 2% weaker on the day, despite central bank action to shore up the currency, which is around 45% down against the dollar this year.

Putin had been silent as the currency collapsed this week before recovering some ground. He acknowledged partly that Russia had helped to lay the groundwork for the current crisis, by having an economy that was not as diverse as it could have been. But in general, he blamed “external factors, first and foremost” for creating Russia’s situation – and continued to be defiant, blaming the West for intentionally trying to weaken Russia and foment problems, economic and otherwise, in the country. “No matter what we do they are always against us,” Putin said, one of a series of observations directed at how he said the West has been treating Russia.

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“.. even if “the Russian bear” started “sitting tight… and eating berries and honey,” this would not stop pressure being applied against the country.”

Western Nations Want To Chain The Russian Bear And Have It Stuffed: Putin (RT)

Western nations want to chain “the Russian bear,” pull out its teeth and ultimately have it stuffed, Russian President Vladimir Putin warned. He said anti-Russian sanctions are the cost of being an independent nation. Putin used the vivid metaphor of a “chained bear” during his annual Q&A session with the media in Moscow in response to a question about whether he believed that the troubles of the Russian economy were payback for the reunification with Crimea. “It’s not payback for Crimea. It’s the cost of our natural desire to preserve Russia as a nation, a civilization and a state,” Putin said. The president said that even if “the Russian bear” started “sitting tight… and eating berries and honey,” this would not stop pressure being applied against the country. “They won’t leave us alone. They will always seek to chain us. And once we are chain, they’ll rip out our teeth and claws. Our nuclear deterrence, speaking in present-day terms,” Putin said.

“As soon as this [chaining the bear] happens, nobody will need it anymore. They’ll stuff it. And start to put their hands on his Taiga [Siberian forest belt] after it. We’ve heard statements from Western officials that Russia’s owning Siberia was not fair,” he exclaimed. “Stealing Texas from Mexico – was that fair? And us having control over our own land is not fair. We should hand it out!” The West had an anti-Russian stance long before the current crisis started, Putin said. The evidence is there, he said, ranging from“direct support of terrorism in the North Caucasus,” to the expansion of NATO and the creation of its anti-ballistic missile system in Eastern Europe, and the way the western media covered the Olympic Games in Sochi, Putin said.

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“Putin said he knows who they are. I hope that they are wearing adult diapers. I wouldn’t be at all surprised if they get Khodorkovskied before too long.”

Can Anybody Find Me … A Central Banker To Love? (Dmitry Orlov)

Some people are starting to loudly criticize Putin for his inaction; but what can he do? Ideologically, he is a statist, and has done a good job of shoring up Russian sovereignty, clawing back control of natural resources from foreign interests and curtailing foreign manipulation of Russian politics. But he is also an economic liberal who believes in market mechanisms and the free flow of capital. He can’t go after the bankers on the basis of ideology alone, because what ideological differences are there? And so, once again, he is being patient, letting the bankers burn the old “wooden” ruble all the way to the ground, and their own career prospects in the process. And then he will step in and solve the ensuing political problem, as a political problem rather than as a financial one.

This strategy carries a very substantial opportunity cost. After all, if the central bank acted on behalf of regular Russians and their employers, it could take some very impressive and effective steps. For instance, it could buy out western-held Russian debt and declare force majeur on its repayment until financial sanctions against Russia are lifted. It could drop its interest rate for specifically targeted domestic industries—those involved in import replacement. And, most obviously, it could very effectively curtail the activities of well-connected financial insiders aimed at destroying the value of the ruble. Putin said he knows who they are. I hope that they are wearing adult diapers. I wouldn’t be at all surprised if they get Khodorkovskied before too long.

This conversion of an insoluble financial problem into a mundane political problem may take a bit of time, but once it has run its course the longer-term prognosis is still reasonably good. Russia has very low government debt, huge gold reserves, and in spite of the much lower price of oil its energy exports are still profitable. You see, at the wellhead Russian oil costs much less than shale oil in the US, or Canadian tar sands, or Norwegian off-shore oil, and so the Russian oil industry can survive a period of low oil prices, whereas these other producers may no longer be around by the time the price of oil recovers.

Because the ruble has dropped even more than oil, the Russian treasury is going to be flush with tax receipts, and won’t have to try to finance a budget deficit. The 18% or so of revenue that the Russian treasury gets from energy exports is significant, but even more significant are the remaining 82%, much of which come from payroll taxes (some of the lowest in Europe, by the way). And therein lies a bigger danger: that because of loss of access to western sources of financing due to the sanctions, coupled with central bank shenanigans with hiking rates instead of dropping them, Russia’s domestic economy will experience a severe downturn.

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Not impressed by the experts here. Russia’s access to dollars has been cut, and they need something to trade in. Moreover, they’ve seen this coming, hence the tripling of reserves over the past decade.

Traders Betting Russia’s Next Move Will Be to Sell Gold (Bloomberg)

Russia’s surprise interest-rate increase failed to stop the plummeting ruble. Another tool available to repair economic havoc caused by sanctions and falling oil prices: selling gold. Russia holds about 1,169.5 metric tons of the precious metal, the central bank said last month. That’s about 10% of its foreign reserves, according to the London-based World Gold Council. The country added 150 tons this year through Nov. 18, central bank Governor Elvira Nabiullina told lawmakers. The Bank of Russia declined to comment on its gold reserves. Russia’s cash pile has dropped to a five-year low as its central bank spent more than $80 billion trying to slow the ruble’s retreat. The currency’s collapse combined with more than a 40% tumble in oil prices this year is robbing Russia of the hard currency it needs in the face of sanctions imposed after President Vladimir Putin’s annexation of Crimea. A fall in gold prices signals that traders are betting that the country will tap its reserves, according to Kevin Mahn at Hennion & Walsh Asset Management.

“Russia is at a critical juncture and given the sanctions placed upon them and the rapid decline in oil prices, they may be forced to dip into their gold reserves,” Mahn said. “If it happens it will push gold lower.” “There are a number of ways that they could use their gold,” Robin Bhar, an analyst at SocGen in London, said today by phone. “They could use it as collateral for bank loans, or for loans from multi-lateral agencies. They could sell it directly in the market if they want to raise foreign-exchange” reserves, including to get more dollars, he said. If Russia decides to sell, the figures to confirm the move wouldn’t be available for a few months, Bhar said. Selling gold is usually “one of the last weapons” for central banks because some use the metal to help back their currencies, George Gero at RBC Capital Markets in New York, said in a telephone interview.

“They are probably still accumulating gold and keeping it for a bigger crisis,” he said. Russia has tripled its gold reserves since 2005, according to data compiled by Bloomberg. Its holdings compare with about 70% for the U.S. and Germany, the biggest bullion holders, the World Gold Council data show. “Russia has been adding to their gold through the turmoil, and it’s their reserve asset, so they would utilize it ultimately,” Michael Widmer, metals strategist at Bank of America Corp. in London, said in a phone interview. “Utilizing can mean a whole range of things. They could use it to raise cash, or use it as swap, or use it as collateral.”

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Time to hike up the fear campaign.

Greece Faces Crisis On Rising Prospect Of Snap Election (CNBC)

An early general election in Greece is looking more likely than ever after the first round of a snap presidential election failed to win the government support on Wednesday. Prime Minister Antonis Samaras’s preferred candidate for president – Stavros Dimas – failed to gain the required 200 votes in the first round of a snap presidential election, gaining only 160 votes. The result raises the chance of a general election, and there is a distinct possibility that the left-wing, anti-austerity party Syriza could win such a vote – potentially putting the country’s international bailout into jeopardy. Syriza currently holds a 3.6-percentage-point lead over the ruling conservatives, a poll published after the first round of a presidential vote on Wednesday showed, Reuters reported. “There’s no doubt that Syriza has had all the momentum politically in the last year to 18 months in Greece and the unpopularity of the bailout is something that is very (prevalent) with Greeks,” David Lea, senior analyst at Control Risks, told CNBC’s “Capital Connection” on Wednesday.

The party has always said it would scrap Greece’s tough austerity policies which were a condition of its two 240 billion euro ($296 billion) bailouts implemented by the International Monetary Fund, European Central Bank and European Commission. Greece is approaching the end of its bailout program, but still needs to implement further austerity measures in order to receive a last tranche of aid from lenders. There will be two further rounds of voting on December 23 and December 29, and if the Greek parliament fails to elect a new president in those votes, a general election will automatically be called. The number of votes a candidate needs drops to 180 in the final round on December 29, but with Greece’s political system as fractious as ever, it looks unlikely that Dimas will gain the support that he needs, analysts said. Lea said it was not “realistic” to expect that Dimas could gain enough votes in the presidential election.

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A load of baloney from Bloomberg’s editorial staff. That new editor in chief certainly hasn’t raised quality so far. Calling Syriza ‘neo-marxist’ is simply emptily leading and insinuating. There’s a lot of that at Bloomberg.

EU’s Greek Drama Needs A Final Act (Bloomberg ed.)

Judging from Wednesday’s vote in the Greek parliament, Prime Minister Antonis Samaras may not get the mandate he wants to keep economic austerity measures in place and avoid defaulting on the country’s debt. His would be the responsible path, but it’s easy enough to see why Greeks wouldn’t want to follow it. The dispute is haunting international investors again because the European Union in general, and Germany in particular, refuses to write off any part of Greece’s sovereign debt. Yet, as most economists acknowledge, the country can never emerge from under its current debt pile -now close to 180% of gross domestic product. And the prospect of endless years of austerity spent in the attempt is political poison. Samaras brought forward Wednesday’s vote for a new president, the first of three, as a vote of confidence. He is essentially daring members of parliament to reject his candidate, Stavros Dimas, because that would force new parliamentary elections – elections that the anti-austerity, neo-Marxist Syriza coalition might win.

Judging by this first vote, in which Dimas secured just 160 votes, it’s going to be an uphill struggle. To win in the third round later this month, Dimas will need 180 votes. Greece, Europe and the bond markets have been on this brink before. Yet each time the circumstances are a little different. For one thing, after six years of austerity policies mandated by the bailout agreement – which have shrunk output and real wages by 20% – the country is now exhausted. The Greek economy may be growing again, but 1 in 4 Greeks are still out of work, and more than 70% of them are long-term unemployed. Those are just numbers, of course, and Greece had certainly been living beyond its means. But what has austerity meant for ordinary Greeks? For one thing, they have gone without adequate health care. Budget cuts have slashed state spending on health by 25%, and on mental health, in particular, by half. Suicides have risen by 45%. HIV infections have increased 10-fold (as needle and condom programs have been reduced). And malaria has returned after 40 years.

With mainstream political parties offering more of the same austerity – even now that the government is running a primary budget surplus – many Greeks are looking to Syriza. It promises to boost spending, reverse the budget cuts, provide free electricity, and yet somehow avoid a formal default or a return to the drachma from the euro. The party says it will persuade international creditors to restructure Greece’s debt and fund Syriza’s spending spree. That’s nuts, of course, except for the restructuring part, which is exactly what Greece’s creditors should do. The country has already secured some debt relief, from private creditors, not to mention €240 billion in bailout loans from the EU and the IMF. Yet the bailout also rescued the German and French banks that loaned Greece money. So restructuring would not only be good for the euro area, but it would also fairly share more of the pain.

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“.. the government’s June 2013 crackdown on fake trade invoicing caused a seize-up in liquidity, pushing banks close to a meltdown.”

$1.3 Trillion In Secret Cash Sneaked Out Of China In The Last 10 Years (Quartz)

China’s capital account might be closed—but it’s not that closed. Between 2003 and 2012, $1.3 trillion slipped out of mainland China – more than any other developing country – says a report by Global Financial Integrity (GFI), a financial transparency group. The trends illuminate China’s tricky balancing act of controlling the economy and keeping it liquid. GFI says the most common way money leaks out in the developing world is through fake trade invoices. The other big culprit is “hot money,” likely due to corruption – which GFI gleans from inconsistencies in balance of payments data. In China, both activities have picked up since 2009. In fact, $725 billion – more than half of the outflows from the last decade – has left since 2009, just after the Chinese government launched its 4 trillion yuan ($586 billion) stimulus package.

Even after that wound down, the government encouraged investment to boost the economy, prodding its state-run banks to lend. Since loan officers dish out credit to the safest companies—those with political backing—this overwhelmingly benefited government officials and their cronies. That’s left small private companies so starved for capital that they’ll pay exorbitant rates for shadow-market loans, which a lot of China’s sketchy trade invoicing outflows likely sneaked back in to speculate on shadow finance and profit from the appreciating yuan. Corrupt officials, meanwhile, shifted their ill-gotten gains into overseas real estate and garages full of Bentleys. Those re-inflows inflate risky debt and had driven up the yuan’s value, threatening export competitiveness.

China’s leaders were not exactly happy about this, and in March its central bank drove down the value of the currency in order to discourage hot money speculation on the yuan’s appreciation. China’s policies leave it with few other options. To avoid the economic nosedive that likely would follow if the bad debt got written down, China’s leaders have the banks extending and re-extending loans, hoping to deleverage gradually. That requires an ever-ballooning supply of money, though. The slowing of China’s trade surplus and foreign direct investment inflows leaves the financial system dependent on new sources of money—like speculative inflows from fake trade invoicing. The danger of this is apparent already. For example, the government’s June 2013 crackdown on fake trade invoicing caused a seize-up in liquidity, pushing banks close to a meltdown.

Read more …

“If you play poker with all your cards showing, you can’t bluff.” Told you it was a casino …

Dark Pools in Spotlight as EU Moves to Bolster Markets (Bloomberg)

If you play poker with all your cards showing, you can’t bluff. Traders accustomed to operating in Europe’s dark pools, where buy and sell orders are hidden, say a transparency drive by regulators may similarly deprive them of the secrecy they need to shield their trades from competitors. That could drain the liquidity, and the life, from some of the region’s biggest markets, they say. The European Securities and Markets Authority plans to release draft standards as early as tomorrow that flesh out European Union law. Regulators say the rules, which seek to cap equity trading in dark pools and push more swaps trades on to regulated platforms, will make markets more resilient during crises and less prone to abuse. Some brokers counter that the move will backfire by making trading too expensive.

“The new transparency requirements in the non-equity markets have the capacity to introduce fundamental change to the way dealers do business,” said Peter Bevan, a financial regulation partner at law firm Linklaters LLP in London. “Pre-trade transparency is not such a novelty in the equity markets, but nevertheless there are important changes such as the availability of waivers for the so-called dark pools.” The push to shine light into dark pools is part of a broader overhaul of financial-market rules that takes effect in 2017. While the updated Markets in Financial Instruments Directive, known as MiFID II, has been approved, a host of technical details are still needed for its implementation.

The law expands market disclosure on multiple fronts. For equities, it seeks to cap dark-pool trading by forcing transactions on to recognized platforms and curbing an existing system of waivers from pre-trade transparency rules. These plans include a “double volume cap” that restricts how much traders can rely on two of the waivers. For over-the-counter derivatives, the EU rules will force trading in standard types of contacts on to regulated platforms and require traders to make public some price information before and after the trade. A system of waivers will apply to limit the scope of the disclosure rules, including exemptions for less often traded – known as illiquid – instruments and bulk orders.

Read more …

Uruguay has become an interesting nation.

Uruguay Takes on London Bankers, Marlboro Mad Men and the TPP (Truthout)

What the hell is happening in tiny Uruguay? South America’s second smallest country, with a population of just 3.4 million, has generated international headlines out of proportion to its size over the past year by becoming the first nation to legalize marijuana in December 2013, by welcoming Syrian refugees into the country in October 2014 and by accepting the first six US prisoners resettled to South America from the Guantánamo Bay prison on December 6, 2014. Outgoing President Jose Mujica, a colorful former Tupamaros rebel who was imprisoned and brutally tortured by the military during the era of the disappeared in the 1970s under US-supported Operation Condor in Uruguay, Chile, Argentina and other nations of the Southern Cone, is a favorite media subject and has been at the center of these actions.

Yet an even larger story with deeper historical roots and global implications is unfolding simultaneously in Uruguay with minimal media attention. Uruguay has spent the last decade quietly defying the new transnational order of global banks, multinational corporations and supranational trade tribunals and is now in a fight for its survival as an independent nation. It is a rich and important story that needs to be told. For the past 10 years, Uruguayans have been conducting a left-leaning experiment in economic and social democracy, turning themselves into a Latin American version of Switzerland in the process. Under the leadership of the left-leaning Broad Front party, the International Monetary Fund (IMF) reports that Uruguay has enjoyed annual economic growth of 5.6% since 2004, compared to 1.2% annual growth over the last five years in Switzerland.

The Swiss have decriminalized marijuana and gay marriage. Uruguay has legalized both. Prostitution is legal in both countries, and each provides universal health care. According to the Happy Planet Index, Uruguay has the same low per capita environmental footprint as Switzerland, with a similarly widespread sense of well-being among its people in spite of significantly lower per capita GDP. Yet unlike Switzerland, with its highly developed financial services sector and, until recently, safe haven tax policies for global capital, Uruguay has become a prime target for the wrath of multinational corporations and the London bankers who fund them.

Read more …

Switzerland feels quite cramped these days.

Swiss National Bank Imposes Negative Interest Rate (Bloomberg)

The Swiss National Bank imposed the country’s first negative deposit rate since the 1970s as the Russian financial crisis and the threat of further euro-zone stimulus heaped pressure on the franc. A charge of 0.25% on sight deposits, the cash-like holdings of commercial banks at the central bank, will be introduced as of Jan. 22, the Zurich-based institution said in a statement today. That’s the same day as the European Central Bank’s next decision. The SNB move follows Russia’s surprise interest-rate increase earlier this week and hints at the investment pressures that resulted after that decision failed to stem a run on the ruble. Combined with the imminent threat of quantitative easing from the ECB, Swiss officials acted at a time when the franc was stuck too close for comfort near its 1.20 per euro ceiling. [..]

“This is not the magic bullet, but will buy them time,” said Peter Rosenstreich, head of market strategy at Swissquote in Gland, Switzerland. “This will relieve pressure from the floor in the short term, but not in the long term.” “Over the past few days, a number of factors have prompted increased demand for safe investments,” the SNB said. “The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate.”

Read more …

But I still think a rate hike is exactly what’s coming.

The Fed Is Sitting On a $191 TRILLION Time Bomb (Phoenix)

Stocks are bouncing today because the Fed will wrap up its monthly FOMC meeting and make a public statement this afternoon. Stocks have been rallying into FOMC meetings for the last three years, so traders are now conditioned to buy stocks in anticipation of this. The prime focus for the markets is whether the Fed continues to state that it will raise rates after “a considerable time.” The reality is that the Fed cannot and will not raise rates anywhere near normal levels at any point because doing so would blow up the financial system. Let’s walk through this together. Currently, the US has over $17 trillion in debt. The US can never pay this off. That is not some idle statement… we issued over $1 trillion in NEW debt in the last eight weeks simply because we don’t have the money to pay off the debt that is coming due from the past.

Since we don’t have that kind of money, the US is now simply issuing NEW debt to raise the money to pay back the OLD debt. This is why the Fed NEEDS interest rates to be as low as possible… any slight jump in rates means that the US will rapidly spiral towards bankruptcy. Indeed, every 1% increase in interest rates means between $150-$175 billion more in interest payments on US debt per year. So the Fed wants interest rates low because it makes the US’s debt load much more serviceable. This is why the Fed keeps screwing around with language like “after a considerable time” despite the fact that rates should already be markedly higher based on the Taylor Rule as well as the state of the US economy: it’s all a ruse to pretend the Fed has a real choice in the matter.

However, there’s an even bigger story here. Currently US banks are sitting on over $236 trillion in derivatives trades. Of this, 81% ($191 TRILLION) are based on interest rates. Put another way, currently US banks have bet an amount equal to over 1,100% of the US GDP on interest rates. Guess which banks did this? The BIG FIVE: JP Morgan, CitiGroup, Goldman Sachs, and Bank of America. In other words… the Too Big To Fails… the very banks that the Fed has bailed out, and done everything it can to prop up. What are the odds that the Fed is going to raise rates significantly and risk blowing up these firms? Next to ZERO. Forget about the Fed’s language and its FOMC meeting. The real story is the $100 trillion bond bubble (more like the $200 trillion interest rate bubble based on bonds). When it breaks, it doesn’t matter what the Fed says or does.

Read more …

And globally.

2014 Warmest Year In Europe Since 1500s (FT)

Climate change is very likely to have helped make 2014 Europe’s warmest year since the 1500s, scientists have found. In a move that could eventually pave the way for law suits against companies burning fossil fuels, researchers at Oxford university found global warming had increased the risk of such a record being set by at least a factor of 10. Other teams working independently in The Netherlands and Australia said the odds had been boosted by 35 to 80 times. Though there are still two weeks of the year left, temperatures have already been so high in so many countries that 2014 is expected to be the hottest on record in Europe and globally. Climate scientists have said for decades the carbon dioxide emissions produced by burning coal, oil and gas are warming global temperatures. But until recently they have been reluctant to blame global warming for specific weather extremes.

This is starting to change as researchers deploy increasingly sophisticated computer models to compare the chances of such anomalies occurring with and without the influence of humans on the climate. Environmental lawyers are already watching developments in this emerging field of so-called climate attribution science closely, to see if it opens the way for legal action against large fossil fuel companies. “In the early 1900s, before global warming played a significant role in our climate, the chances of getting a year as warm as 2014 were less than 1-in-10,000. In fact, the number is so low that we could not compute it with confidence,” said Geert Jan van Oldenborgh, a climate scientist at KNMI, the Royal Netherlands Meteorological Institute. The institute calculated global warming made this year’s high temperatures in Europe at least 80 times more likely.

Read more …

Fascinating story.

‘Vast Stores’ Of World’s Oldest Water (BBC)

The world’s oldest water, which is locked deep within the Earth’s crust, is present at a far greater volume than was thought, scientists report. The liquid, some of which is billions of years old, is found many kilometres beneath the ground. Researchers estimate there is about 11m cubic kilometres (2.5m cu miles) of it – more water than all the world’s rivers, swamps and lakes put together. The study was presented at the American Geophysical Union Fall Meeting. It has also been published in the journal Nature. The team found that the water was reacting with the rock to release hydrogen: a potential food source. It means that great swathes of the deep crust could be harbouring life. Prof Barbara Sherwood Lollar, from the University of Toronto, in Canada, said: “This is a vast quantity of rock that we’ve sometimes overlooked both in terms of its ability to tell us about past processes – the rocks are so ancient they contain records of fluid and the atmosphere from the earliest parts of Earth’s history.

“But simultaneously, they also provide us with information about the chemistry that can support life. “And that’s why we refer to it as ‘the sleeping giant’ that has been rumbling away but hasn’t really been characterised until this point.” The crust that forms the continents contains some of the oldest rocks on our planet. But as scientists probe ever deeper – through boreholes and mines – they’re discovering water that is almost as ancient. The oldest water, discovered 2.4km down in a deep mine in Canada, has been dated to between one billion and 2.5bn years old. Prof Chris Ballentine, from the University of Oxford, UK, said: “The biggest surprise for me was how old this water is. The water reacts with the rocks to create hydrogen – a potential food source for life. “That water is down there is no surprise – water will percolate down into the rock porosity. “But for it to be preserved and kept there for so long is a surprise. “So when you think about what’s down beneath your feet, it’s more exciting than just some rock.”

Read more …

May 222014
 
 May 22, 2014  Posted by at 10:49 am Earth Tagged with: , , ,  14 Responses »


Dorothea Lange Sons of Negro tenant farmer, Granville County, North Carolina July 1939

This is the second installment of Nicole’s series on food security.

Nicole Foss: In part one of this series, we looked at finance as a major causal factor in the development of food insecurity. The boom and bust cycles that result from over-financialization are, however, only one aspect of a food crisis already present for many, and looming for many more in the years to come. Finance can, and does, generate artificial scarcity, initially through the manipulation of land and commodities for profit and, and latterly by over-reaching itself and crashing the human operating system, with tremendous negative impact on the supply of all goods and services. Food is one of the vital factors that will be substantially affected in a financial crash where connecting producers and consumers will be extremely difficult due to lack of money in circulation.

The inherent instability of our human operating systems is only one of a large number of limiting factors for food production and distribution. The very real scarcity coming as a result of limiting factors grounded in the physical world is far more serious in the longer term. While we can make changes capable of addressing both human and physical limits, we are highly unlikely to do so in a timeframe, or on a scale, that would prevent us from experiencing the consequences of of over-shooting our natural carrying capacity. Nevertheless, whatever we can achieve in the time available will be an improvement.

This series is not meant to be a comprehensive assessment of each limiting factor in relation to food supply, but an overview of vulnerability in its many forms, clarifying the imperative for re-engineering our food systems. Given the extent of the over-stretch of the current model, the possibility of rapid collapse in response to very predictable system shocks is uncomfortably high. We are at risk of cascading system failure. We cannot expect facilitation of this transition to come from the top down, however – far from it. The larger scale centralized human construct, highly over-stretched and inflexible, can only be expected to look after itself and defend the status quo at the expense of decentralization initiatives. Meaningful change will have to come from the bottom up, one local initiative at a time.

There is a considerable urgency to making this transition to a human-scale food system. While many are generally aware that our current means of producing and distributing food is unsustainable, few seem to realize that what cannot continue will not continue, that the limits are already being reached, and that the effects will most certainly be felt in our lifetimes, even in what are now wealthy countries. This is not an issue where we can continue business as usual and expect the impact to be felt only by distant populations or by subsequent generations. It will be one where we must take personal responsibility for change, both for our own benefit and that of society in general.

We are facing non-negotiable physical limits in terms of water and climate, which are the subject of this instalment, but also energy, soil fertility and carrying capacity, the subjects for the next part of the series. Our human systems for trade and agricultural regulation are frequently exacerbating the scope of the problems we face and will be covered subsequently. Ultimately we are going to have to face the root of the problem, which lies in the inherently expansionist nature of agriculture itself, as practiced not just in the industrial age, but from the dawn of the neolithic period. We will need to develop polycultural food production systems along permaculture lines if we are to avoid the worst consequences of over-reach. We will need to learn to live within limits.


Farming and Water

Fresh, clean water is the ultimate precious resource – the lifeblood of the planet – yet it is increasingly scarce in many places already and set be become far scarcer in the foreseeable future. Only a tiny percentage of the Earth’s fresh water is sufficiently accessible to be available for human use, and of that, agriculture consumes the lion’s share. It takes 1000 tons of water to grow a ton of wheat for instance.

Irrigated land is far more productive in the short term, allowing us to use the cheap energy we have had access to to expand the areas under cultivation and increase yields in order to feed our expanding population. However, in the longer term, irrigation leads to soil water-logging and salinization, as evaporation of mineralized water leaves salts behind in the soil. Land can be badly damaged and eventually abandoned, while new land is then subjected to the same treatment:

Although only 17% of all cropland is currently irrigated, it provides 40% of the world’s food….But much existing irrigated land is threatened by salinization — a build-up of salts in the soil. This lowers yields and can damage the land beyond economic repair. Salinization is reducing the world’s irrigated area by 1-2% every year, hitting hardest in the arid and semi-arid regions. “No one is really certain of the figures, but it seems that at least 8% of the world’s irrigated land is affected,” says FAO water expert Julián Martínez Beltrán. “In the arid and semi-arid regions, it’s somewhere around 25%.”

In this way, land is being consumed as a non-renewable resource. Needless to say, there is a finite supply of land available, and with irrigation damage occurring most quickly in the most water-stressed regions, the risk of food insecurity is compounded.

Some 60% of irrigation draws on surface water sources, but chronic over-use has led to major rivers no longer reaching the sea, destroying the health and productivity of formerly fertile delta lands which had previously been substantial food sources for local populations:

For six million years, the Colorado River ran its course from its soaring origins in the Rockies to a once-teeming two-million-acre delta, finally emptying 14 million acre-feet of fresh water into the Sea of Cortez. But now, a multitude of straws are drinking from the river….Indeed, the Colorado River has not reached the sea since 1998 but ends rather in a cracked and desolate expanse of barren mud flats and abandoned boats — a “dry river cemetery.”….

….Referred to as the Nile of North America, the Colorado River is the arid West’s lifeline. It provides water to more than 30 million Americans, including people in cities like Phoenix, Denver and Los Angeles. Over 100 dams and thousands of miles of canals divert the river to nearly every farm, industry and city within a 250-mile radius of its banks. It is one of the most diverted and dammed rivers in the world.

Dry Rivers are increasingly common worldwide.

Where irrigation depends on aquifers, draw-down often exceeds the natural recharge rate. We are depending on fossil water that is also effectively a non-renewable resource, and when the limit of feasible extraction is reached, whole regions are at risk of becoming unable to support either the human population or what remains of the existing ecosystem. Water tables are falling by several feet per year in many parts of the developing world dependent on groundwater sources, notably beneath rapidly growing urban centres with an insatiable demand for water, but also beneath agricultural regions:

Shijiazhuang, China — Hundreds of feet below ground, the primary water source for this provincial capital of more than two million people is steadily running dry. The underground water table is sinking about four feet a year. Municipal wells have already drained two-thirds of the local groundwater. Above ground, this city in the North China Plain is having a party. Economic growth topped 11% last year. Population is rising. A new upscale housing development is advertising waterfront property on lakes filled with pumped groundwater. Another half-built complex, the Arc de Royal, is rising above one of the lowest points in the city’s water table. “People who are buying apartments aren’t thinking about whether there will be water in the future,” said Zhang Zhongmin, who has tried for 20 years to raise public awareness about the city’s dire water situation….

….The North China Plain undoubtedly needs any water it can get. An economic powerhouse with more than 200 million people, it has limited rainfall and depends on groundwater for 60% of its supply….But scientists say [the aquifers] below the North China Plain may be drained within 30 years.

The same phenomenon is occurring under the major breadbaskets of the world, for instance the Punjab in India and the Ogallala Aquifer underlying the great plains of the US:

The Ogallala Aquifer, the vast underground reservoir that gives life to these fields, is disappearing. In some places, the groundwater is already gone. This is the breadbasket of America—the region that supplies at least one fifth of the total annual U.S. agricultural harvest. If the aquifer goes dry, more than $20 billion worth of food and fiber will vanish from the world’s markets. And scientists say it will take natural processes 6,000 years to refill the reservoir….

….With a liquid treasure below their feet and a global market eager for their products, farmers here and across the region have made a Faustian bargain—giving up long-term conservation for short-term gain. To capitalize on economic opportunities, landowners are knowingly “mining” a finite resource.

As with so many aspects of our human systems, short term gains trumps long term ability to provide that which sustains existence. Unfortunately, as the shared resource diminishes, competition over what remains intensifies, and the potential for conflict increases enormously. Resources previously used in common often become privatized and used for the exclusive benefit of a dominant group. The land grabs we discussed in relation to financial aspects of food insecurity are also reflections of this competition over water resources, and in fact are often water grabs in disguise:

Water grabbing refers to situations where powerful actors are able to take control of or divert valuable water resources and watersheds for their own benefit, depriving local communities whose livelihoods often depend on these resources and ecosystems. The ability to take control of such resources is linked to processes of privatisation, commodification and take-over of commonly-owned resources. They transform water from a resource openly available to all into a private good whose access must be negotiated and is often based on the ability to pay. Water grabbing thus appears in many different forms, ranging from the extraction of water for large scale food and fuel crop monocultures, to the damming of rivers for hydroelectricity, to the corporate takeover of public water resources….

….The causes of water grabbing are similar to those of ‘land grabbing’: the phenomenon whereby investors acquire or lease vast tracts of land, with negative socio-economic and environmental effects. An investor’s control of land usually comes with a corresponding control of water resources. Indeed, access to water could be the most valuable part of the deal. This is especially so given that host governments seek to entice investors by offering them concessions with regards to water use….

….Acquiring land in order to access and control water is especially relevant to countries facing water scarcity. Renewable water resources in the Gulf states for example are set to run out in the next three decades. The implications of this water scarcity are profound. Saudi Arabia, once a net exporter of wheat, intends to phase out domestic production of wheat by 2016 due to the depletion of fresh water reserves in the country. It seeks to compensate for this loss in domestic food production by acquiring farmland abroad, thereby transferring much of the pressure on water resources caused by agricultural production to other countries. This is a strategy likely to be pursued by other water deficit countries as they seek to ‘lock in’ access to water reserves and resolve their own water constraints by acquiring land abroad.

The problem is compounded by the use to which acquired land is put, as this use, generally by absentee land owners, does not reflect a condition of resource scarcity. Water resources, which may already be under stress as local populations rise, are all too often being rapidly squandered in the pursuit of short term profit, with the result that ecosystems are damaged or destroyed and local populations forced to migrate:

All of the land deals in Africa involve large-scale, industrial agriculture operations that will consume massive amounts of water. Nearly all of them are located in major river basins with access to irrigation. They occupy fertile and fragile wetlands, or are located in more arid areas that can draw water from major rivers. In some cases the farms directly access ground water by pumping it up. These water resources are lifelines for local farmers, pastoralists and other rural communities. Many already lack sufficient access to water for their livelihoods. If there is anything to be learnt from the past, it is that such mega-irrigation schemes can not only put the livelihoods of millions of rural communities at risk, they can threaten the freshwater sources of entire regions.

The concept of virtual water trade refers to the quantity of water effectively exported when countries export agricultural products, which consume local water resources. Importing countries can save water at the expense of exporting ones:

When a country imports one tonne of wheat instead of producing it domestically, it is saving about 1,300 cubic meters of real indigenous water. If this country is water-scarce, the water that is ‘saved’ can be used towards other ends. If the exporting country is water-scarce, however, it has exported 1,300 cubic meters of virtual water since the real water used to grow the wheat will no longer be available for other purposes.

In 2007, the global water trade was estimated to be some 567 billion litres, double that in 1986 as the water trade has become increasingly globalized.


Exporting virtual water becomes problematic where exporting nations are water scarce. The decision to export virtual water anyway is generally a matter of short term economic gain, either for wealthy foreign purchasers of land, as we have seen in Africa, or for large domestic land owners. For instance, Australia is the driest inhabited continent, but also, according to UNESCO, the largest net exporter of virtual water in the world, with agricultural exports feeding 60 million people worldwide. This is currently possible due to the availability of the necessary energy to supply the water when and where needed, but it is obviously unsustainable. Australia has only just established an independent agency tasked with monitoring and setting sustainable limits on water use.

Similarly, drought-stricken California uses artificially cheap water provided with temporarily affordable energy to export thirsty hay and rice crops to Japan:

In the Imperial Valley of California, a region drier than part of the Sahara Desert, farmers have found a lucrative market abroad for a crop they grow with Colorado River water: They export bales of hay to land-poor Japan….Container ships from Japan unload electronics and other goods in the Port of Long Beach, and the farmers fill up the containers with hay for the trip back across the Pacific. Since the containers would otherwise return empty, it ends up costing less to ship hay from Long Beach to Japan than to California’s Central Valley.

“Everything is done for economics,” said Ronnie Leimgruber, an Imperial Valley hay grower who is expanding into the export market. “Japan cannot get hay cheaper. The freight is cheaper from Long Beach than from anywhere else in the world.” Water is cheap for valley farmers, too: urban rates there are four times as high. It costs only $100 to irrigate an acre of hay in the desert for a year. But what makes economic sense to farmers may not be rational behavior for California in the third year of a severe drought, say some conservationists. At the very least, they contend, the growing state debate over water allocation should take into account the exports of crops such as hay and rice — two of the most water-intensive crops in the West — because they take a toll on local rivers and reservoirs.

“This is water that is literally being shipped away,” said Patrick Woodall, research director at Food and Water Watch, an international consumer advocacy group with headquarters in Washington, D.C. “There’s a kind of insanity about this. Exporting water in the form of crops is giving water away from thirsty communities and infringing on their ability to deal with water scarcity.”

Increasingly, limits are going to be reached and hard choices are going to have to be made. The current pursuit of individual or corporate economic benefit at the expense of rational resource use cannot continue where the resources in question are increasingly limited and therefore subject to competing interests. Those competing interests will increasingly make themselves know in a highly socially disruptive manner destined to force change.

Competition over water access is already inflaming regional tensions in areas of water scarcity, with unequal provision reflecting relative power. The powerless may be prevented, by lack of sufficient water, from growing food at all, cementing a state of dependency where the powerful hold hostage the ability to provide basic essentials:

Published Monday by the Ramallah-based human rights organization Al-Haq, “Water for One People Only: Discriminatory Access and ‘Water-Apartheid’ in the Occupied Palestinian Territory”, reports that Israel has claimed up to 89% of an underground aquifer that is largely located in the West Bank, giving Palestinians only access to the remaining 11%. The water grab has fueled increased discrepancy in water usage in the region with the 500,000 Jewish settlers consuming approximately six times the amount of water used by the 2.6 million Palestinians living in the West Bank—with the discrepancy growing even greater when agricultural water use is accounted for.
“There is a grave injustice in the division of water, and the results have been catastrophic,” Tawfiq Salah, mayor of West Bank village al-Khader, told Al-Monitor….

….Writing about the report, Al-Monitor’s Jihan Abdalla quotes Musa, a Palestinian father of six, who had attempted to build a rainwater cistern in his field before the Israeli authorities quickly issued it with a demolition order. Abdalla continues: Musa says if they had access to sufficient, affordable water, his family would be able to live off their ancestral field, selling their grapes, olives and fruit in nearby markets. That, he says, is the reason why Israeli authorities prevent them from building a cistern, and why they do not have any running water. “They don’t want us to plant or grow anything, they just want us to have barely enough water for drinking and that’s it,” Musa says looking at the unfinished, empty hole in the ground.

It is not only in situations of long term ethnic conflict where actions such as collecting rainwater for self-sufficiency are seen as competing with established interests. In drought prone regions of the US southwest, precious water rights are considered to be threatened by domestic rainwater capture, even though the water captured would otherwise have been more likely to have evaporated than to have made its way to the fully allocated river:

The Rocky Mountain state uses a convoluted mix of first-come, first-serve water rights, some of which date back to the 1850s, and riparian rights that belong to the owners of land lying adjacent to water. A single person catching rain wouldn’t make a difference to water rights holders, according to Brian Werner of the Northern Colorado Water Conservancy District. But if everyone in Denver captured rain, he says, that would upset the state’s 150-year-old water-allocation system. The Colorado Department of Natural Resources estimates that 86% of water deliveries go to agriculture, which is already stressed by dwindling supplies. And because 19 states and Mexico draw water from rivers that originate in the Colorado Rockies, backyard water harvesting can have widespread implications….

….With water systems across the country already highly or fully appropriated, and with drought aggressively depleting supplies, Aiken predicts that legal battles over who owns the rain won’t go away anytime soon. Old water-allocation systems remain in direct conflict with a growing movement for DIY water conservation, including rainwater collection.

Bulk water transfers are being contemplated in a number of locations, but these are highly controversial as they would have significant environmental impacts. They are so highly capital and energy intensive that limits on those parameters may prevent this kind of development, although it would depend on which critical resource first became limiting in a given location. Both farms and cities, increasingly competing for water in arid regions, could prioritize water over money and energy if the latter remain available.

An illustration of the emerging tension between critical resources can be seen in relation to the water requirements of fracking for unconventional fossil fuels:

The move to tap petroleum-rich shale reserves in some of the country’s driest regions, including Colorado, may be setting up a battle between oil and water. The water is needed for hydraulic fracturing, a process that pumps millions of gallons of sand and water into a well to crack the hard shale and release oil and gas. Nearly half of the 39,294 reported “fracked” wells drilled in the U.S. since 2011 are in regions with high or extreme water stress, according to a report by Ceres, an investor and environmental-advocacy group….

….In Colorado, 86% of the state’s water is used by agriculture. Municipalities and industry use 7.4%. While oil and gas companies have created a small market for water, it hasn’t had a major impact on farms, said Bill Midcap, a spokesman for the Rocky Mountain Farmers Union. “There are cases where companies have bid up water to more than farmers can afford, but it is in a few cases,” Midcap said.

Over-use of water sources and inappropriate or uncontrolled land use has had a substantial impact on water quality in many regions, damaging both surface water sources and also the oceans into which those surface waters emerge. Both urban pollution and agricultural runoff have major impacts. Fertilizers and animals wastes from agricultural land wash into water courses, causing eutrophication – the nutrient enrichment of the water to an extent that allows algal blooms to form. As these decay, the available oxygen is consumed, suffocating the inhabitants of the river and creating dead zones at river mouths. For instance, the one at the mouth of the Mississippi is the size of New Jersey.

Of China’s 23,000 miles of large rivers, 80% are no longer able to support fish and aquatic ecosystems are on the brink of collapse. This will have a profound effect on food security is the world’s most populous country. Of course, food security is hardly the only issue with regard to rampant mis-use of water resources. Water-borne diseases are also going to prove to be strongly limiting factors in many places where more and more people have no access to safe drinking water.

Given the critical nature of water availability for drinking, for food security and for ecosystem health, a global water crisis represents a systemic threat.


Farming and Climate:

Climate change is already proving to be a factor in food insecurity, and is likely to have an increasing impact over time. The effects are complex, interacting with, and exacerbating, other factors, most notably the availability of water. Water will be affected by climate disruption through melting glaciers reducing surface water, increased evaporation, shifting rainfall patterns, droughts, an increasing number of extreme weather events and instances of coastal flooding. Where changes happen relatively quickly, they are much more difficult to adapt to, particularly in places where the local food system is already operating near a number of limits. This could easily lead to conflict:

“Battles over water and food will erupt within the next five to 10 years as a result of climate change,” said World Bank President Jim Yong Kim of the IPCC report. “The water issue is critically related to climate change. People say that carbon is the currency of climate change, water is the teeth. Fights over water and food are going to be the most significant direct impacts of climate change.”

Droughts have have had an increasing impact in recent years, with the shifting of of atmospheric jet stream patterns being a contributing factor. These upper level rivers of air guide low pressure systems and determine the storm track, with its attendant rainfall patterns. Where there are jet stream disturbances, weather patterns can be substantially altered:

Scientists expect the amount of land affected by drought to grow by mid-century—and water resources in affected areas to decline as much as 30%. These changes occur partly because of an expanding atmospheric circulation pattern known as the Hadley Cell—in which warm air in the tropics rises, loses moisture to tropical thunderstorms, and descends in the subtropics as dry air. As jet streams continue to shift to higher latitudes, and storm patterns shift along with them, semi-arid and desert areas are expected to expand.

For instance, the historic drought in California this past winter is a reflection of exactly this dynamic in action:

From November 2013 – January 2014, a remarkably extreme jet stream pattern set up over North America, bringing the infamous “Polar Vortex” of cold air to the Midwest and Eastern U.S., and a “Ridiculously Resilient Ridge” of high pressure over California, which brought the worst winter drought conditions ever recorded to that state. A new study published this week in Geophysical Research Letters, led by Utah State scientist S.-Y. Simon Wang, found that this jet stream pattern was the most extreme on record, and likely could not have grown so extreme without the influence of human-caused global warming. The study concluded, “there is a traceable anthropogenic warming footprint in the enormous intensity of the anomalous ridge during winter 2013-14, the associated drought and its intensity.”

California is a major food producing region, and the lack of water is already reducing production, with on-going effect.

Farmers in the state probably will leave as much as 500,000 acres unplanted, or about 12% of last year’s principal crops, because they won’t have enough water to produce a harvest, which will mean fewer choices and higher prices for consumers, said Mike Wade, executive director of the California Farm Water Coalition, a Sacramento-based group of farmers, water district managers and farm-related businesses. “Any job that’s associated with agriculture is hurting,” Wade said. While some farmers were able to conserve water in years past, they won’t get “any preferential treatment” over uses by municipalities, he said.

Extreme weather around the world is wreaking havoc with farmers and threatening global food production. Dry weather in China turned the world’s second-biggest corn grower into a net importer of the grain in 2010, and ranchers in Texas have yet to recover from a record dry spell three years ago. One in eight people in the world go hungry, some of which can be blamed on drought, according to the United Nations.

Although California is a relatively wealthy place, food security is affecting an increasing number of people as the financial bubble leaves more and more people behind, unable to keep up with a treadmill that keeps running faster and faster. As a result, the drought is impacting food security for the poorest residents:

The effects of California’s drought could soon hit the state’s food banks, which serve 2 million of its poorest residents. Fresh produce accounts for more than half the handouts at Bay Area food banks, but with an estimated minimum of 500,000 acres to be fallowed in California, growers will have fewer fruits and vegetables to donate.

With less local supply, food prices will spike, increasing as much as 34% for a head of lettuce and 18% for tomatoes, according to an Arizona State University study released last week. With fewer fields planted, there could be as many as 20,000 unemployed agricultural workers who will need more food handouts, especially in the Central Valley. And if urban food banks like those in Oakland and San Francisco can’t get produce from the valley, which grows a third of the nation’s fruits and vegetables, their transportation costs to haul in out-of-state produce will soar.

Jet stream fluctuations are now driving the development of dangerous heat conditions further inland, exacerbating persistent drought conditions reminiscent of the 1930s. In fact the US Department of Agriculture has recently issued what is effectively a dust bowl warning:

Meanwhile, US Department of Agriculture officials issued a warning Tuesday that conditions in the US Heartland were rapidly deteriorating along lines last seen during the infamous 1930s Dust Bowl as expectations for the US domestic winter wheat crop again fell after the USDA’s most recent agricultural tour.

Even prior to the extreme early May heatwave emerging over the Central US Sunday, Monday and Tuesday, the% of the US wheat crop in either good or excellent condition had fallen another 2% to 31% late last week. Meanwhile, crops listed as ‘very poor’ rocketed from an already abysmal 34% to 39% over the same period. The net result is that the US wheat crop is in its worst condition since at least 1996, according to findings by Commerzbank analysts.

For Oklahoma, at the epicenter of current agricultural harm and flash heatwaves, only 6% of the state’s entire wheat crop was listed as in either good or excellent condition. Department of Agriculture crop scouts described the Oklahoma situation in, perhaps, the starkest possible terms during their most recent report stating: “Producers in the Panhandle continued to experience high winds … and low moisture conditions similar to the Dust Bowl in the 1930s.” Overall, analysts now expect a US wheat crop of just 762 million bushels, the third lowest in 15 years despite record areas planted.

In other parts of the world, climate-driven changes in rainfall patterns over longer periods could have catastrophic effects where rain is highly seasonal and the food security of very large numbers of people depends on its regularity. For instance, the Indian summer monsoon is critical for farming in a country of over a billion people, but is predicted to be significantly affected in a future of rising temperatures:

Global warming could cause frequent and severe failures of the Indian summer monsoon in the next two centuries, new research suggests. The effects of these unprecedented changes would be extremely detrimental to India’s economy which relies heavily on the monsoon season to bring fresh water to the farmlands. The findings have been published November 6, in IOP Publishing’s journal Environmental Research Letters, by researchers at the Potsdam Institute for Climate Impact Research and Potsdam University….

….The Walker circulation usually brings areas of high pressure to the western Indian Ocean but, in years when El Niño occurs, this pattern gets shifted eastward, bringing high pressure over India and suppressing the monsoon, especially in spring when the monsoon begins to develop. The researchers’ simulations showed that as temperatures increase in the future, the Walker circulation, on average, brings more high pressure over India, even though the occurrence of El Niño doesn’t increase.

Unfortunately, surface water resources in both India and China will also be badly affected by the on-going melting of the Himalayan glaciers, with additive effect:

The world is now facing a climate-driven shrinkage of river-based irrigation water supplies. Mountain glaciers in the Himalayas and on the Tibet-Qinghai Plateau are melting and could soon deprive the major rivers of India and China of the ice melt needed to sustain them during the dry season. In the Ganges, the Yellow, and the Yangtze river basins, where irrigated agriculture depends heavily on rivers, this loss of dry-season flow will shrink harvests.

The world has never faced such a predictably massive threat to food production as that posed by the melting mountain glaciers of Asia. China and India are the world’s leading producers of both wheat and rice — humanity’s food staples. China’s wheat harvest is nearly double that of the United States, which ranks third after India. With rice, these two countries are far and away the leading producers, together accounting for over half of the world harvest.

The Intergovernmental Panel on Climate Change reports that Himalayan glaciers are receding rapidly and that many could melt entirely by 2035. If the giant Gangotri Glacier that supplies 70% of the Ganges flow during the dry season disappears, the Ganges could become a seasonal river, flowing during the rainy season but not during the summer dry season when irrigation water needs are greatest.

The combination of shifting seasonal rainfall, disappearing glacial meltwater, and the falling water tables already discussed adds up to a major predicament for Asian food security going forward:

Asia is home to some of the world’s biggest natural-disaster hot spots, and no other continent is more prone to the cumulative impact of droughts, flooding and large storms. This fragility is compounded by the region’s unmatched population size and density, and its concentration of people living in deltas and other low-lying regions.

The specter of a hotter, drier future for Asia can be seen in the degradation of watersheds, watercourses and other ecosystems, as well as in the shrinking forests and swamps and over-dammed rivers. Such developments undermine the region’s hydrological and climatic stability, fostering a cycle of chronic droughts and flooding. To make matters worse, Asia is likely to bear the brunt — as the report by the U.N. Intergovernmental Panel on Climate Change warns — of the global effects of extreme weather, rising seas and shortages of drinking water. Water wars may only be a matter of time.

Asia’s droughts are becoming longer and more severe, and the availability of water per capita is declining at a rate of 1.6% a year. This is a troubling trend for a region where agriculture alone guzzles 82% of the annual water supply. The rapid spread of irrigation since the 1960s has helped turn a continent once plagued by food shortages and famines into a food exporter. But it has also exacted a heavy toll on the environment and resources.

Higher temperature in many locations are also set to lead to substantially higher rates of evaporation, compounding the problem:

Sure, scientists expect the changing climate to bring on more drought. There’s going to be less rainfall in already arid regions, that’s fairly certain. And that alone would be bad news for denizens of the planet’s dry zones—in some places in North Africa, the American Southwest, India, and the Middle East, water shortages could well become an existential threat to civilization. But new research shows that evaporation may be more of a problem than previously thought: Climate change could dry out up to a third of the planet.

The study, published in the journal Climate Dynamics last month, estimates that climate change will cause reduced rainfall alone to dessicate 12% of the Earth’s land by 2100. But if evaporation is factored in, the study’s authors say that it will “increase the percentage of global land area projected to experience at least moderate drying by the end of the 21st century from 12 to 30%.”

“We know from basic physics that warmer temperatures will help to dry things out,” the study’s lead author, Benjamin Cook, a climate scientist with Columbia University and NASA’s Goddard Institute for Space Studies, said in a statement. “Even if precipitation changes in the future are uncertain, there are good reasons to be concerned about water resources.”

Writing in a 2011 literature review in the science journal Nature, the physicist Joe Romm elaborates on how increased heat and evaporation can lead to a vicious cycle: “Precipitation patterns are expected to shift, expanding the dry subtropics. What precipitation there is will probably come in extreme deluges, resulting in runoff rather than drought alleviation. Warming causes greater evaporation and, once the ground is dry, the Sun’s energy goes into baking the soil, leading to a further increase in air temperature.”

Disappearing soil moisture is likely to be a greater problem than previously thought, and the occasional downpour won’t sate year-round crops. As Columbia University notes, “An increase in evaporative drying means that even regions expected to get more rain, including important wheat, corn, and rice belts in the western United States and southeastern China, will be at risk of drought.”

Australia, already the driest continent, is set to become drier as a result of reduced rainfall and higher evaporation. While the continent  current produces a huge excess of food for export, it’s ability to continue doing so is likely to be substantially compromised in an increasingly arid future:

Australia emerged from a decade-long drought in 2009, which was said to be the worst in the country’s history. The report states the drought was estimated to have caused an 80% reduction in grain production and a 40% reduction in livestock production, and climate models predict that rainfall in southern and eastern Australia will continue to decrease as the century progresses.

Increasing aridity can lead to additional risks, notably the threat of wildfires. California is facing a potentially catastrophic fire season this year following on from its recent drought:

Even before this year’s drought, forest officials were reporting a longer fire season, and more catastrophic mega-fires, in California and other western states. Half of the worst fires in recorded Californian history have occurred since 2002. Climate change and land-use patterns are adding fuel to those fires. Higher temperatures, with recurring and intensifying droughts are drying out landscapes. Pest invasions, such as the pine bark beetle, have killed off stands of trees.

California’s state fire chief, Ken Pimlott, said: “We can’t recall when we have seen this level of fire activity early in this year. “This is usually the time of year when much of the state is greening up. We haven’t even got into the months that historically are the worst in California – late August, September and October – so that’s a big red flag right there.”

Similarly, Australia is facing increased risk of major conflagrations as climatic shifts cause further drying. There have been an increasing number of hot, dry and windy days over the last 30 years, amounting to greatly increased fire risk. The country only recently emerged from the worst drought in its history, which was accompanied by huge fires. Fire has always been a feature of the arid landscape, reflected in the fire tolerance of many trees, but not on the scale seen in recent years. These intense fires are a far bigger threat. They incinerate all before them and remove all the oxygen from the air as they pass by:

The 2009 Black Saturday bushfires in Victoria were also preceded by extreme fire danger conditions: a decade-long drought and a number of record hot years, all compounded by a heatwave in the week prior. The ferocity of these fires was unprecedented, and so severe were they that they broke the record for the Forest Fire Danger Index, and a new category – ”catastrophic” or ”code red” – was added. Worryingly, since 2009, we have experienced more days of ”catastrophic” fire danger, and this number will very likely increase in the future. Fire frequency and intensity is also predicted to increase in already fire-prone areas – areas in which a large proportion of the Australian population lives. We are now also seeing the season of bushfire weather lengthening from October to March, and this will continue to extend in future….

….So, while bushfires are part of the Australian story, more intense and frequent bushfires are part of the Australian climate change story. The current environment in which we experience bushfires is changing. The lengthened bushfire season, and increased frequency and intensity of heatwaves, mean that the overall risk of bushfires in Australia has amplified.

Bushfires are capable of wiping out areas of food production. This is of particular concern for tree crops which take many years to re-establish. Intense fires can also cause soil damage.

Apart from the problem of too little water, climate change can also lead to too much. Flooding can inflict enormous damage on food production, often in areas where food insecurity is already prevalent:

The impact of extreme weather events on food production and consumption are well documented. For example, extreme floods in Pakistan in 2010 destroyed an estimated two million hectares of crops, killed 40% of the livestock in affected areas, and delayed the planting of winter crops, causing the price of basic foods such as rice and wheat to rocket. As a consequence, an estimated eight million people reported eating less food and less nutritious food over an extended period of time.

Increasingly intense storms can bring deluges, but also damaging winds and storm surges high enough to cause serious coastal flooding. For instance, Typhoon Haiyan, which hit the Philippines in late 2013 was the most powerful to make landfall since records began, with winds reaching 310km/h. While one cannot say definitively that any one event is caused by climate change, warmer air and oceans, leading to greater evaporation and therefore more moisture in unstable air masses, would be expected to raise the probability of increasingly intensity of storm events. Storms draw their energy from warm water, and their impact is enhanced by rising sea levels, the disappearance of protective coastal wetlands and coastal over-development.

Storms threaten not only land crops, but also the biologically diverse and highly productive coastal food production relied upon by so many people. Some 95% of marine food production originates from coastal ecosystems, but damage to mangrove forests and coastal wetlands destroys spawning and feeding grounds for fisheries.

Increasing temperature, even in the absence of acute threats such as drought, wildfires and severe storms, are capable of lowering crops yields, particularly for grains:

Warmer temperatures may make many crops grow more quickly, but warmer temperatures could also reduce yields. Crops tend to grow faster in warmer conditions. However, for some crops (such as grains), faster growth reduces the amount of time that seeds have to grow and mature. This can reduce yields (i.e., the amount of crop produced from a given amount of land).

Yield declines are expected to be significant as heat and aridity increase:

“Almost everywhere you see the warming effects have a negative affect on wheat and there is a similar story for corn as well. These are not yet enormous effects but they show clearly that the trends are big enough to be important,” Lobell said. Wheat is the first big staple crop to be affected by climate change, because it is sensitive to heat and is grown around the world, from Pakistan to Russia to Canada. Projections suggest that wheat yields could drop 2% a decade….

….Declines in crop yields will register first in drier and warmer parts of the world but as temperatures rise two, three or four degrees, they will affect everyone. In the more extreme scenarios, heat and water stress could reduce yields by 25% between 2030 and 2049.

In addition, seasonal boundaries, and therefore vegetation zones, are shifting, which is making it far more difficult to produce food in the ways people have traditionally done in a given area:

Paul Roberts has been producing wine in Friendsville in Garrett County for 17 years. Last year, for the first time, his growing season began in March — six weeks earlier than the historical timeline. It was “unprecedented,” he said. For farmers and gardeners, climate change is making the art of coaxing a flower to blossom or fruit to grow precarious and unpredictable….

….A midwinter thaw or an early frost can kill many plants and ruin crops. With increasingly extreme and unpredictable weather due to climate change, plants’ health is at the whim of the weather. An early warm spell triggers fresh growth that is vulnerable to frost, Roberts said. When the growing season starts early, it means more nights for him to worry about the temperature dropping below freezing and damaging his crops….

…The mismatch of pollinators’ and plants’ schedules also threatens plants’ ability to reproduce and produce food. Plants and insects respond to changes in hours of sunlight and temperature. But if a pollinator emerges during an early temperature spike, the plants it pollinates may not be in blossom. Crops rely heavily on insects such as bees, whose populations have struggled in recent years.

Very rapid change can destabilize ecosystems in this way, as climate sensitivities for different species can vary. As prime growing temperatures shift to higher latitudes, they may no longer coincide with suitable soils and nutrients. In addition insect and plant pests may thrive without cold winters to control their populations. Novel pests may also invade with shifting temperature and humidity. Over time, land use patterns are expected to change as ecosystems shift:

Vegetation around the world is on the move, and climate change is the culprit, according to a new analysis of global vegetation shifts led by a University of California, Berkeley, ecologist in collaboration with researchers from the U.S. Department of Agriculture Forest Service….“This is the first global view of observed biome shifts due to climate change,” said the study’s lead author Patrick Gonzalez, a visiting scholar at the Center for Forestry at UC Berkeley’s College of Natural Resources. “It’s not just a case of one or two plant species moving to another area. To change the biome of an ecosystem, a whole suite of plants must change.”…

….Some examples of biome shifts that occurred include woodlands giving way to grasslands in the African Sahel, and shrublands encroaching onto tundra in the Arctic. “The dieback of trees and shrubs in the Sahel leaves less wood for houses and cooking, while the contraction of Arctic tundra reduces habitat for caribou and other wildlife,” said Gonzalez, who has served as a lead author on reports of the Intergovernmental Panel on Climate Change (IPCC). “Globally, vegetation shifts are disrupting ecosystems, reducing habitat for endangered species, and altering the forests that supply water and other services to many people.”

Important shifts with major implication for food security are happening not just on land, but also in the oceans. Climate change is compounding the impact of fish stocks collapsing due to over-fishing. Oceans are warming. This translates into rising sea levels due to thermal expansion, combined with the effect of melting glaciers and ice sheets. Ocean currents are being altered as temperature changes in the atmosphere drive changes in wind patterns and therefore surface currents, and ice melting changes the ocean density profile. As thermohaline circulation in the oceans provides nutrients through upwelling, changes have the potential to cause much damage to marine ecosystems by starving the base of the food chain.

Changes in ocean heat flow have the potential to alter the climate on land as well. For instance, a weaker Gulf Stream would be expected to cause substantial cooling in northern Europe. Cold periods in Europe’s past have been associated with a weaker Gulf Stream, and climate change is predicted to pose a risk this may happen to a greater extent:

“The strength of the Gulf Stream was about 10% weaker during the Little Ice Age,” David Lund, of the Massachusetts Institute of Technology/Woods Hole Oceanographic Institution, told Reuters. He and two colleagues studied sediment cores off Florida and the Bahamas, and found evidence of a weaker flow that may have contributed to the Little Ice Age from about 1200-1850, when Alpine glaciers grew and London’s Thames River froze. “The possibility of abrupt changes in Gulf Stream heat transport is one of the key uncertainties in predictions of climate change for the coming centuries,” the scientists wrote in the journal Nature.

In addition, ocean acidification, as the oceans absorb CO2 from the atmosphere, is also impacting at the base of the food chain, affecting the millions of small organisms increasingly unable to form their carbonate shells:

Ocean acidification is sometimes called “climate change’s equally evil twin,” and for good reason: it’s a significant and harmful consequence of excess carbon dioxide in the atmosphere that we don’t see or feel because its effects are happening underwater. At least one-quarter of the carbon dioxide (CO2) released by burning coal, oil and gas doesn’t stay in the air, but instead dissolves into the ocean. Since the beginning of the industrial era, the ocean has absorbed some 525 billion tons of CO2 from the atmosphere, presently around 22 million tons per day….

….When carbon dioxide dissolves in seawater, the water becomes more acidic and the ocean’s pH (a measure of how acidic or basic the ocean is) drops. Even though the ocean is immense, enough carbon dioxide can have a major impact. In the past 200 years alone, ocean water has become 30% more acidic—faster than any known change in ocean chemistry in the last 50 million years. Scientists formerly didn’t worry about this process because they always assumed that rivers carried enough dissolved chemicals from rocks to the ocean to keep the ocean’s pH stable. (Scientists call this stabilizing effect “buffering.”) But so much carbon dioxide is dissolving into the ocean so quickly that this natural buffering hasn’t been able to keep up, resulting in relatively rapidly dropping pH in surface waters. As those surface layers gradually mix into deep water, the entire ocean is affected….

….Reef-building corals craft their own homes from calcium carbonate, forming complex reefs that house the coral animals themselves and provide habitat for many other organisms. Acidification may limit coral growth by corroding pre-existing coral skeletons while simultaneously slowing the growth of new ones, and the weaker reefs that result will be more vulnerable to erosion. This erosion will come not only from storm waves, but also from animals that drill into or eat coral. By the middle of the century, it’s possible that even otherwise healthy coral reefs will be eroding more quickly than they can rebuild.

Coral bleaching, as a result of environmental stressors such as rising temperature and increasing acidification, is an indicator that highly productive marine ecosystems are under threat. Marine food webs can collapse, with reefs dying and top predators over-fished, leaving the simple organisms such as sea urchins and jellyfish to proliferate unchecked. This is a tragedy in its own right, but will inevitably have knock-on consequences for human food security as well, as so many people either make, or supplement, their living from the sea.

While specific climate impacts are only probabilistically predictable over the longer term, there is every reasons to think that these impacts are going to exacerbate the the problem of food security.


The Bottom Line

Water will be in increasingly short supply as more and more people attempt to provide for themselves in regions where the supply is diminishing and resources are being used at far greater than replacement rate. Climate change is expected to accentuate water shortages in many ways, as well as having destabilizing effects on ecosystems forced to shift latitude or altitude rapidly. The potential for conflict is already increasing, as we saw in part one of this series in relation to food prices. Water and climate change are going to add to the pressure, and this is likely to precipitate some very unfortunate situations.

Our relentless human expansion is running up against hard, non-negotiable limits to food security, which is already threatened in so many places. Our current extractive methods amount to a draw down of natural capital, allowing us to feed (most of) ourselves today, but in highly wasteful ways which are already compromising our ability to feed ourselves and our descendants tomorrow. Those in a position to do so chase short term economic gain at the expense of burning through non-renewable resources in ways which clearly make no sense with respect to any logic other than short term economic benefit. Those at the other end of the financial food chain also prioritize what could, in a sense, be called short term gain, but for them is in fact a matter of short term survival.

The next part of this series will address the equally pressing issues of energy, soil fertility and carrying capacity.