Oct 042017
 
 October 4, 2017  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , ,  7 Responses »
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Pablo Picasso Vue de Notre-Dame de Paris 1945

 

Why Greece Took The Fall For A European Banking Crisis (Ren.)
The Fed is a Slave to the S&P 500 (Albert Edwards)
Trump Gets Final List Of Fed Candidates, Yellen Gets The Cold Shoulder (ZH)
Trump Says Puerto Rico’s Debt Will Have To Be Wiped Out (BBG)
White House To Request $29 Billion For Hurricane Relief (R.)
White House: A Tax Plan That Doesn’t Add To The Deficit Won’t Spur Growth (BBG)
IMF Warns That Using Consumer Debt To Fuel Growth Risks Crisis (G.)
IMF Warns That Australia’s Household Debt Hangover Will Hurt (Aus.)
A Debt Bomb Is Growing Down Under (Satyajit Das)
The End of Empire (Chris Hedges)
‘What In God’s Name Were You Thinking?’ Senators Grill Wells Fargo CEO (MW)
King Felipe: Catalonia Authorities Have ‘Scorned’ All Spaniards (G.)
Spain Rules Out Mediator In Catalan Crisis (Pol.)
Goodbye – And Good Riddance – To Livestock Farming (G.)

 

 

“If Greece continues to participate in the EU, democracy is doomed”

Claire Connelly’s damning version of the events. Please read the whole thing.

Why Greece Took The Fall For A European Banking Crisis (Ren.)

The Greek financial crisis was actually a French and German banking crisis for which Greece took the fall, the result of decades of irresponsible spending and lending. When Greece joined the Euro it went on a spending spree, building roads, airports, new subway systems, infrastructure and a state-of-the-art military arsenal all built and provided by German companies. Companies which, incidentally, have been accused of bribing Greek politicians to secure military and civilian government contracts. Siemens allegedly paid €100 million to Greek officials to secure a contract to upgrade Athens’s telecommunications infrastructure for the 2004 Olympic Games. The Euro was designed to limit competition between the industries of member nations while shifting deficits and surpluses around the continent. Greece’s deficits are Germany’s surplus, and so on.

Had Greece still been using the Drachma, it had a chance of keeping its deficits in check, because it could decide on its own how to set interest rates and tax currency, but when replaced with the Euro, French and German loans caused its deficits to explode and it had no option but to accept the terms of its creditors, even though they knew the debt had no chance of being repaid. Banks – having been bankrupted by the 2008 Global Financial Crisis – stopped lending, and Greece, unable to rollover its debt, became insolvent. As a result, the three French banks which had issued loans to its European nations faced peripheral losses twice the size of its economy. More to the point, the French and German banks didn’t want the debts to be repaid. But they also didn’t want countries like Italy, Spain, Portugal and Ireland to default.

France’s top three banks had loaned €627 billion to Italy, Spain and Portugal and €102 billion to Greece and were staring down a 30 to 1 leverage ratio, meaning that if it lost only 3.33% of its loans to defaults, its capital would be wiped out and banking regulators would be forced to shut the banks down. And if Greece defaulted on its debt, the banks were concerned Spain, Italy, Portugal and Ireland would follow, resulting in a 19% loss of French debt assets, far and above the 3% that would lead to its insolvency. The three French banks needed a €562 billion bailout, but unlike the US which can shift its losses to its central bank, the Federal Reserve, France a) had no such central bank to shift its losses to, having dismantled it in favour of the European Central Bank, and b) the ECB was prohibited upon its formation to shift bad debts onto its books.

Likewise, Germany’s banks also went bust and required a €406 billion bailout – which it received – but it was barely enough to cover its US-based toxic derivative trades which led to the crisis in the first place, let alone what they had leant to their European neighbours. The banks came back begging, mere months after being cut a €406 billion cheque by the German government. “Greece’s bankruptcy would force the French state to borrow six time its total annual tax revenues just to hand it over to three idiotic banks,” former Greek finance minister, Yanis Varoufakis wrote in his expose of the ‘bailout’ negotiations, Adults In The Room. Had the markets found out this secret, interest rates would have skyrocketed and €1.29 trillion of French government debt would have gone bad and the country bankrupted, and the EU with it.

Read more …

Edwards likes Kevin Warsh, frontrunner for Fed chief….

The Fed is a Slave to the S&P 500 (Albert Edwards)

I was the first speaker and afterward I enjoyed listening to every other speaker at the two-day event. Most notable of the outside economics speakers were Paul Volcker, Larry Summers, and most significantly for me, ex Fed-Governor Kevin Warsh. Much to my own regret, I had never familiarised myself with the views of Governor Warsh, who was at the Fed from 2006-11, and played a key role in navigating the Fed through the crisis. He got a rousing reception from the BCA audience as he talked a lot of sense – in particular on how the Yellen Fed has lost its way and current policy is deeply flawed. He explained that the Fed has been “captured” by a groupthink of academics led by the ‘Secular Stagnation’ ideas of his friend, Larry Summers.

Rather than admitting they are wrong, this group, who failed to predict the current economic malaise, have constructed this theory to explain why ever more stimulus is required. In particular, Warsh warned that the Fed had become the slave of the S&P. Summers’ relaxed view on the debt build-up, particularly visible in the corporate sector, is in sharp contrast with our own view that this looks set to wreck the US economy. The problem with Summers’ analysis in my view is that it is the higher debt that is being used to push up asset values (via share buybacks), just as it did during the housing bubble in 2005-7. And by pushing asset values well beyond fundamentals you build debt structures on false asset values, which only become apparent when the asset bubble bursts. And am I in any way reassured that the Fed sees no bubbles? No, I am not. These dudes will never identify an asset bubble – at least before the event!

Read more …

… bur Warsh might endanger easy money policies, and make the dollar stronger.

Trump Gets Final List Of Fed Candidates, Yellen Gets The Cold Shoulder (ZH)

[..] we can cross out economist Glenn Hubbard and U.S. Bancorp Chairman Richard Davis, both of whom have been floated as possible candidates, although Trump has no intention of interviewing them. A potential wildcard is Stanford economist John Taylor, a favorite of fiscal conservatives, who is also said to be under consideration. It has also been previously reported that Trump has spoken to Yellen, Cohn, Warsh and Powell about the Fed post, although there is no frontrunner at the moment. According to Bloomberg, “the latest developments show that Trump is closer to making a final selection than previously known.” Last Friday, Trump said that he is “two or three weeks away from announcing his nominee” for the post overseeing the nation’s central bank.

Meanwhile, speaking at the Vanity Fair New Establishment Summit on Tuesday in Los Angeles, Jeffrey Gundlach – who accurately predicted Trump’s presidency – predicted that Neel Kashkari would be picked as next Fed chair. “I actually have a very non-consensus point of view. I think it’s going to be Neel Kashkari… He happens to be the most easy money guy that’s in the Federal Reserve system today and that’s why he may win.” The Bond King said that Trump needs someone who will keep rates low in order to keep his populist reputation and help his base voters and that’s why he’ll pick Kashkari. “A stronger dollar is not good for achieving that agenda,” he said. Gundlach also is confident that Yellen would not get reappointed: “I think there is no chance that she wants to be chairwoman, nor do I think the president wants her to be,” said the manager of $109 billion.

Judging by the latest PredictIt odds, if Gundlach is right, and if he is willing to bet some money on it, he could make a killing, as Kashkari does not even have a contract. As to the current ranking, Warsh remains in top spot with 38% odds, although following today’s Politico news, Powell surged to second place with 31% odds, and now following the Bloomberg report, John Taylor finds himself in third spot with 20% odds, above both Gary Cohn in 4th and Janet Yellen who has tumbled to 5th with just 13% odds of being reappointed.

Read more …

“I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.” Wonder how it would be done. And what does it mean for Texas, Florida debt?

Trump Says Puerto Rico’s Debt Will Have To Be Wiped Out (BBG)

President Donald Trump suggested that the government debt accumulated by bankrupt Puerto Rico would need to be wiped clean to help the island recover from the devastation caused by Hurricane Maria. “We are going to work something out. We have to look at their whole debt structure,” Trump said during an interview on Fox News Tuesday. “You know they owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna have to be – you know, you can say goodbye to that. I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.” Puerto Rico is dealing with an immediate humanitarian disaster made worse by the long-term debt crisis that led it to declare a form of bankruptcy this year.

The island’s government for decades had been plagued by budget deficits caused by wasteful spending, and borrowed $74 billion. Much of that went to operations. The commonwealth’s budget is under the control of a federally appointed oversight board, a panel that the U.S. Congress created to wield broad sway over the territory’s finances. The panel approves the island’s budget and is meant to help make unpalatable decisions such as closing schools and cracking down on tax evasion. Trump paid a four-and-a-half-hour visit to the island earlier Tuesday, greeting local officials and offering consolation to residents who have been without power and, in many cases, drinking water since the storm struck on Sept. 20. Some in Puerto Rico’s government already are estimating reconstruction costs will be as high as $60 billion.

Prices of the U.S. territory’s bonds have plunged to record lows, signaling investors expect that there will be even less money available to repay its $74 billion of debt. Puerto Rico has little financial ability to navigate the disaster on its own, leaving the recovery heavily dependent on how much aid comes from Washington. It began defaulting on its debts two years ago, seeking to avoid draconian budget cuts officials said would deal another blow to an already shrinking economy. With nearly half of its 3.4 million residents living in poverty, the government filed for bankruptcy protection in May.

Read more …

Are they going to fight over this?

White House To Request $29 Billion For Hurricane Relief (R.)

The White House is preparing a $29 billion disaster aid request to send to the U.S. Congress after hurricanes hit Puerto Rico, Texas and Florida, a White House official said on Tuesday. The request is expected to come on Wednesday. It will combine nearly $13 billion in new relief for hurricane victims with $16 billion for the government-backed flood insurance program, the White House official told Reuters. The White House wants Congress to forgive $16 billion of the debt that the National Flood Insurance Program, which insures about 5 million homes and businesses, has racked up.

The request comes as the program is close to running out of money, congressional aides said. The program had racked up nearly $25 billion in debt before this season’s major hurricanes. The Trump administration is also proposing more than a dozen reforms including new means testing and an extreme-loss repetition provision, aides said. Some homes insured under the program have gotten payments repeatedly from the program after multiple storms. The flood insurance money is aimed primarily for areas impacted by Hurricanes Harvey and Irma, which struck Texas and Florida, aides said.

Read more …

Don’t think the GOP will like this.

White House: A Tax Plan That Doesn’t Add To The Deficit Won’t Spur Growth (BBG)

The White House is showing “softness” on ending a $1.3 trillion federal tax deduction filers get for their state and local taxes, Senator Bob Corker said Monday, warning that it raises questions about the GOP’s “intestinal fortitude” and could imperil a tax overhaul. The framework that President Donald Trump and Republican leaders released Wednesday calls for deep rate cuts and would abolish existing tax breaks to help pay for them. Without such “pay-fors,” Congress might have to settle for only temporary tax cuts. Corker, who insists he won’t vote for a tax bill that adds a penny to the deficit, said in an interview that he’s concerned about the early signals from the White House. On Friday – two days after the tax framework was rolled out – National Economic Council Director Gary Cohn said that ending the state and local tax break was negotiable.

“That’s the easiest one,” said Corker, a Tennessee Republican. “Some of the others are actually more offensive and produce lesser amounts of money.” The budget rules that Senate leaders plan to use to pass the legislation require that any changes that boost the federal deficit would have to expire in time. But the nine-page framework released Wednesday provided few details on revenue raisers. It calls for eliminating deductions, but doesn’t specify them. By showing its willingness to negotiate on one such deduction, the White House appears to be charting a rocky path. “As a general matter in tax reform you have to acknowledge that you cannot negotiate with everybody’s single pay-for,” said Doug Holtz-Eakin, who runs the American Action Forum, a conservative group that’s working with GOP leaders on taxes. “If you do that for everything, you don’t get tax reform.”

Ending the state and local deduction, which Trump’s aides proposed in April, faces resistance from Republican lawmakers in high-tax states like New York and New Jersey. The same day Cohn commented on the state tax break, tax-writing chiefs Senator Orrin Hatch and Representative Kevin Brady dismissed a study that found ending personal exemptions, another one of the few offsets set forth, could raise taxes for some middle-class families. Their response: The committees haven’t made decisions about which tax breaks to end. Asked if the state tax break and personal exemptions were negotiable, Brady reiterated Monday the bill is a work-in-progress. “We’re continuing to work on the final design of the tax reform plan that we’ll have ready after the budget is completed,” he said.

White House Budget Director Mick Mulvaney is signaling similar flexibility, saying on CNN Sunday that decisions about deductions remain up in the air as “the bill is not finished yet.” He took it a step further on Fox News Sunday, by adding that a tax plan that doesn’t add to the deficit won’t spur growth. “I’ve been very candid about this. We need to have new deficits because of that. We need to have the growth,” Mulvaney said. “If we simply look at this as being deficit-neutral, you’re never going to get the type of tax reform and tax reductions that you need to get to sustain 3% economic growth.”

Read more …

Just-in-time politics.

IMF Warns That Using Consumer Debt To Fuel Growth Risks Crisis (G.)

The IMF has issued a warning to governments that rely on debt-fuelled consumer spending to boost economic growth, telling them they run the risk of another major financial collapse. In a report before the IMF’s annual meeting in Washington next week, it said analysis of consumer spending and levels of household debt showed that economies benefited in the first two to three years when households raised their levels of borrowing, but then risks began to mount. Once growth becomes dependent on household debt, it can be a matter of two to three years before a financial crash, the IMF said in its annual report on the global financial system. The study follows a series of warnings about rising levels of household debt in the UK from financial regulators and debt charities.

In a blogpost accompanying the report, one of the authors, Nico Valckx, warned: “Debt greases the wheels of the economy. It allows individuals to make big investments today – like buying a house or going to college – by pledging some of their future earnings. That’s all fine in theory. But as the global financial crisis showed, rapid growth in household debt – especially mortgages – can be dangerous.” He added: “Higher debt is associated with significantly higher unemployment up to four years ahead. And a one percentage point increase in debt raises the odds of a future banking crisis by about one percentage point. That’s a significant increase, when you consider that the probability of a crisis is 3.5%, even without any increase in debt.”

Earlier this year the IMF cut its forecast for the UK’s GDP growth in 2017 by 0.3 percentage points to 1.7% and it is expected to reduce its prediction further next week when its global outlook is published. The uncertainty created by the Brexit vote and negotiations to leave are likely to be blamed, along with a reliance on consumer spending, which has slowed this year. The Bank of England, which regulates the banking sector, said last month that the UK’s banks could incur £30bn of losses on their lending on credit cards, personal loans and for car finance if interest rates and unemployment rose sharply. The debt charity Stepchange has warned that 6.5 million people have used credit to pay for basic items such as food after a change in their circumstances. And MPs have called for an independent commission to examine the effects of rising household debt levels in the UK.

Read more …

Same IMF report, specifically for Australia.

IMF Warns That Australia’s Household Debt Hangover Will Hurt (Aus.)

Rapid growth in household debt works as a short-term sugar hit to the economy but leaves a long hangover with reduced growth, higher unemployment and the risk of a banking crisis, the International Monetary Fund has warned. The fund identifies Australia as one of the countries most exposed, with household debts rising to more than 100% of GDP compared with an advanced- country average of 63%. “In the short term, an increase in the household debt-to-GDP ratio is typically associated with higher economic growth and lower unemployment, but the effects are reversed in three to five years, the IMF says in its latest review of global financial stability. Moreover, higher growth in household debt is associated with a greater probability of banking crises.

Reserve Bank governor Philip Lowe yesterday repeated his concern that housing debt has been outpacing the slow growth in household incomes and is now limiting growth in household spending. “Slow growth in real wages and high levels of household debt are likely to constrain growth in household spending,” he said. Announcing that the bank was keeping its benchmark cash rate at the record low of 1.5%, where it has now been sitting since August 2016, he said risks in the housing market were being contained by banking regulator the Australian Prudential Regulation Authority, which had tightened supervision of real estate lending.

The IMF’s research shows that on average, a 5 percentage point rise in household debt to GDP over a three-year period foreshadows weaker growth in GDP, which would be 1.25 percentage points lower in three years’ time. Reserve Bank statistics on household balance sheets show that total debts have risen from 123% of GDP to 137% over the past five years, or a 14 percentage point increase.

Read more …

And Das has some more on the land of Oz.

A Debt Bomb Is Growing Down Under (Satyajit Das)

Australia’s record of 26 years without a recession flatters to deceive. The gaudy numbers mask serious flaws in the country’s economic model. First and most obviously, the Australian economy is still far too dependent on “houses and holes.” During part of the typical business cycle, national income and prosperity are driven by exports of commodities – primarily iron ore, liquefied natural gas and coal – that come out of holes in the ground. At other times, low interest rates and easy credit boost house prices, propping up economic activity. These two forces have combined with one of the highest population growth rates in the developed world (around 1.5% annually, driven mostly by immigration) to prop up headline growth. Yet a significant portion of housing activity is speculative. Going by measures such as price-to-rent or price-to-disposable income, Australia’s property market looks substantially overvalued.

Meanwhile, GDP per capita has been largely stagnant since 2008. Australia’s manufacturing industry, once a significant employer and an important part of the economy, has increasingly been hollowed out. The country’s cost structure is high. Improvements in productivity have, as elsewhere, been lackluster. Infrastructure is aging and unable to cope with the demands of a rising population, especially in major cities. Australia stands at 21st place in the 2017 Global Competitiveness Report. It ranks 15th in the World Bank’s ease of doing business list. Attempts to diversify the economy have had mixed results. Tourism and service exports, mainly of education and health services, have expanded significantly. But they’re nowhere near replacing the revenues brought in by mineral exports.

Second, a debt bomb is growing Down Under. Australia’s total non-financial debt is over 250% of GDP, up around 50% since 2010. Household debt is currently over 120% of GDP, among the highest proportions in the world. The ratio of household debt to income has nearly quintupled since the 1980s, reaching an all-time high of 194%. Stagnant real incomes have contributed to the problem, as have high home prices and the associated mortgage debt. Despite record-low interest rates, around 12% of income is now devoted to servicing all this debt. That’s a third more than in 1989-90, when interest rates neared 20%.

Read more …

“..a motley collection of imbeciles, con artists, thieves, opportunists and warmongering generals. And to be clear, I am speaking about Democrats, too.”

The End of Empire (Chris Hedges)

The American empire is coming to an end. The U.S. economy is being drained by wars in the Middle East and vast military expansion around the globe. It is burdened by growing deficits, along with the devastating effects of deindustrialization and global trade agreements. Our democracy has been captured and destroyed by corporations that steadily demand more tax cuts, more deregulation and impunity from prosecution for massive acts of financial fraud, all the while looting trillions from the U.S. treasury in the form of bailouts. The nation has lost the power and respect needed to induce allies in Europe, Latin America, Asia and Africa to do its bidding. Add to this the mounting destruction caused by climate change and you have a recipe for an emerging dystopia.

Overseeing this descent at the highest levels of the federal and state governments is a motley collection of imbeciles, con artists, thieves, opportunists and warmongering generals. And to be clear, I am speaking about Democrats, too. The empire will limp along, steadily losing influence until the dollar is dropped as the world’s reserve currency, plunging the United States into a crippling depression and instantly forcing a massive contraction of its military machine. Short of a sudden and widespread popular revolt, which does not seem likely, the death spiral appears unstoppable, meaning the United States as we know it will no longer exist within a decade or, at most, two.

The global vacuum we leave behind will be filled by China, already establishing itself as an economic and military juggernaut, or perhaps there will be a multipolar world carved up among Russia, China, India, Brazil, Turkey, South Africa and a few other states. Or maybe the void will be filled, as the historian Alfred W. McCoy writes in his book “In the Shadows of the American Century: The Rise and Decline of US Global Power,” by “a coalition of transnational corporations, multilateral military forces like NATO, and an international financial leadership self-selected at Davos and Bilderberg” that will “forge a supranational nexus to supersede any nation or empire.”

Read more …

“We serve one out of every three Americans, we have 270,000 team members,” Sloan began, before Schatz cut him off. “So you’re too big?” Schatz asked.

‘What In God’s Name Were You Thinking?’ Senators Grill Wells Fargo CEO (MW)

The chief executive of Wells Fargo & Co. on Tuesday faced senators unimpressed with the bank’s claims of progress in rectifying a massive scandal that lasted years and ensnared millions of customers. “My task is to make sure nothing like this happens again at Wells,” CEO Tim Sloan, a former CFO who was elevated after the ouster of John Stumpf last fall, told the Senate Banking Committee. Sloan outlined steps Wells had taken to address the management structure that incentivized opening accounts for customers fraudulently, and to make affected customers whole. But most legislators said those actions – and Sloan’s testimony – fell far short. The hearing marked one year since regulators settled with Wells over the opening of 2 million phony accounts – and since then, additional wrongdoing has emerged.

In July, the New York Times broke the news that Wells had charged hundreds of thousands of customers for auto insurance they didn’t request or require – a practice that in many cases resulted in overdrawn accounts, fees, and car repossessions. Just days later, the bank told regulators that the number of unauthorized accounts should be revised much higher, to 3.5 million. On Tuesday, Sloan was asked whether the actual count of fraudulent accounts could be even higher than that. He told legislators that he was confident 3.5 million would be the final tally—and more than one noted that Stumpf had said the same thing, a year before. But many senators, it seemed, hadn’t even made peace with the revelations already reported.

“What in God’s name were you thinking?” said Senator John Kennedy, a Louisiana Republican. “I’m not against large, I’m against dumb. I’m against a business practice which has Wells Fargo first and customers second,” he added. Senator Elizabeth Warren, the populist Massachusetts Democrat, was even more blunt. “At best you were incompetent, at worst you were complicit. And either way you should be fired,” she told Sloan. Warren has previously called for removal of the entire board of directors, and urged Federal Reserve Chairwoman Janet Yellen to oust the board in her capacity as a regulator, if Wells doesn’t do it voluntarily. Yellen has said that the bank’s actions were “egregious and unacceptable” and has hinted at further penalties or enforcement actions.

“Why shouldn’t the OCC (Office of the Comptroller of the Currency) simply revoke your charter?” Brian Schatz, a Hawaii Democrat, asked Sloan. “We serve one out of every three Americans, we have 270,000 team members,” Sloan began, before Schatz cut him off. “So you’re too big?” Schatz asked.

Read more …

The King represents the old Franco interests. He’s being used to turn Spaniards against Catalans.

King Felipe: Catalonia Authorities Have ‘Scorned’ All Spaniards (G.)

King Felipe of Spain has accused the Catalan authorities of attempting to break “the unity of Spain” and warned that their push for independence could risk the country’s social and economic stability. In a rare and strongly worded television address on Tuesday evening, he said the Catalan government’s behaviour had “eroded the harmony and co-existence within Catalan society itself, managing, unfortunately, to divide it”. Speaking two days after the regional government’s unilateral independence referendum, in which 90% of participants opted to secede from Spain, he described Catalan society as “fractured” but said Spain would remain united. The king made no mention of the violence that marred the referendum when Spanish police officers raided polling stations, beat would-be voters and fired rubber bullets at crowds.

Instead, he focused on the actions of the government of the Catalan president, Carles Puigdemont. “These authorities have scorned the attachments and feelings of solidarity that have united and will unite all Spaniards,” he said. “Their irresponsible conduct could even jeopardise the economic and social stability of Catalonia and all of Spain. He described the regional government actions as “an unacceptable attempt” to take over Catalan institutions, adding that they had placed themselves outside both democracy and the law. “They have tried to break the unity of Spain and its national sovereignty, which is the right of all Spaniards to democratically decide their lives together,” he said.

“Given all that – and faced with this extremely grave situation, which requires the firm commitment of all to the common interest – it is the responsibility of the legitimate state powers to ensure constitutional order and the normal functioning of the institution, the validity of the rule of law and the self-government of Catalonia, based on the constitution and its statute of autonomy.”

Read more …

The EU is making mistakes that will threaten its existence.

Spain Rules Out Mediator In Catalan Crisis (Pol.)

The Spanish government Tuesday dismissed calls to bring in a mediator between Madrid and the government of Catalonia in the wake of Sunday’s controversial independence vote. Spanish European Affairs Minister Jorge Toledo told POLITICO that no third-party mediator would be acceptable to Madrid, and that any dialogue must be bilateral. “You can change the law, you can oppose it, but you cannot disobey it,” Toledo said. The comments are a further sign of Madrid’s opposition to providing any sort of encouragement or reward to Catalan separatists as a result of Sunday’s violent clashes, which they blame on the Catalan government.

The European Commission Monday called for “all relevant players to now move very swiftly from confrontation to dialogue.” European Council President Donald Tusk on Monday “appealed for finding ways to avoid further escalation and use of force.” Ahead of Sunday’s vote Amadeu Altafaj, Catalonia’s representative in Brussels, told POLITICO’s EU Confidential podcast that he welcomed the idea of a third-party mediator and that “ideally it would have happened some time ago.”

Read more …

It’s World Animal Day.

Goodbye – And Good Riddance – To Livestock Farming (G.)

What will future generations, looking back on our age, see as its monstrosities? We think of slavery, the subjugation of women, judicial torture, the murder of heretics, imperial conquest and genocide, the first world war and the rise of fascism, and ask ourselves how people could have failed to see the horror of what they did. What madness of our times will revolt our descendants? There are plenty to choose from. But one of them, I believe, will be the mass incarceration of animals, to enable us to eat their flesh or eggs or drink their milk. While we call ourselves animal lovers, and lavish kindness on our dogs and cats, we inflict brutal deprivations on billions of animals that are just as capable of suffering. The hypocrisy is so rank that future generations will marvel at how we could have failed to see it.

The shift will occur with the advent of cheap artificial meat. Technological change has often helped to catalyse ethical change. The $300m deal China signed last month to buy lab-grown meat marks the beginning of the end of livestock farming. But it won’t happen quickly: the great suffering is likely to continue for many years. The answer, we are told by celebrity chefs and food writers, is to keep livestock outdoors: eat free-range beef or lamb, not battery pork. But all this does is to swap one disaster – mass cruelty – for another: mass destruction. Almost all forms of animal farming cause environmental damage, but none more so than keeping them outdoors. The reason is inefficiency. Grazing is not just slightly inefficient, it is stupendously wasteful. Roughly twice as much of the world’s surface is used for grazing as for growing crops, yet animals fed entirely on pasture produce just one gram out of the 81g of protein consumed per person per day.

A paper in Science of the Total Environment reports that “livestock production is the single largest driver of habitat loss”. Grazing livestock are a fully automated system for ecological destruction: you need only release them on to the land and they do the rest, browsing out tree seedlings, simplifying complex ecosystems. Their keepers augment this assault by slaughtering large predators. In the UK, for example, sheep supply around 1% of our diet in terms of calories. Yet they occupy around 4m hectares of the uplands. This is more or less equivalent to all the land under crops in this country, and more than twice the area of the built environment (1.7m hectares). The rich mosaic of rainforest and other habitats that once covered our hills has been erased, the wildlife reduced to a handful of hardy species. The damage caused is out of all proportion to the meat produced.

Read more …

Sep 012017
 
 September 1, 2017  Posted by at 9:40 am Finance Tagged with: , , , , , , , , ,  5 Responses »
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Vincent van Gogh Seine with Pont de Clichy 1887

 

Monetary Stimulus: How Much Is Too Much? (Lebowitz)
Yes, You Should Be Concerned With Consumer Debt (Roberts)
Why We’re Doomed: Stagnant Wages (CHS)
US Fuel Shortages From Harvey To Hamper Labor Day Travel (R.)
Wells Fargo Says 3.5 Million Accounts Involved In Scandal (AP)
World’s Biggest Wealth Fund Reveals Bleak View on Global Trade (BBG)
New Math Deals Minnesota’s Pensions the Biggest Hit in the US (BBG)
Six Big Banks To Create A Blockchain-Based Cash System (R.)
Putin Warns Of ‘Major Conflict’ Over North Korea, Urges Talks (AFP)
Trump, Nuclear War And Climate Change Among Gravest Threats To Humanity (PA)
Greece Doesn’t Want Any More Rescues – But It Does Need Something Else (CNBC)
Hurricane Irma Turning Into Monster (ZH)

 

 

Take their power away or else.

Monetary Stimulus: How Much Is Too Much? (Lebowitz)

The amount of monetary stimulus increasingly imposed on the financial system creates false signals about the economy’s true growth rate, causing a vast misallocation of capital, impaired productivity and weakened economic activity. To help quantify the amount of stimulus, please consider the graph. Federal Reserve (Fed) monetary stimulus comes in two forms. First in the form of targeting the Fed Funds interest rate at a rate below the nominal rate of economic growth (blue). Second, it stems from the large scale asset purchases QE) by the Fed (orange). When these two metrics are quantified, it yields an estimate of the average amount of monetary stimulus (red) applied during each post-recession period since 1980. It has been almost ten years since the 2008 financial crisis and the Fed is applying the equivalent of 5.25% of interest rate stimulus to the economy, dwarfing that of prior periods.

The graph highlights that the Fed has been increasingly aggressive in both the amount of stimulus employed as well as the amount of time that such monetary stimulus remains outstanding. Amazingly few investors seem to comprehend that despite the massive level of monetary stimulus, economic growth is trending well below recoveries of years past. Additionally, as witnessed by historically high valuations, the rise in the prices of many financial assets is not based on improving economic fundamentals but simply the stimulative effect that QE and low interest rates have on investor confidence and financial leverage. Now consider the ramifications of a Fed that continues to increase the Fed Funds rate and moves forward with plans to slowly remove QE.

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America: the House that Debt Built.

Yes, You Should Be Concerned With Consumer Debt (Roberts)

First, the calculation of disposable personal income, income less taxes, is largely a guess and very inaccurate due to the variability of income taxes paid by households. Secondly, but most importantly, the measure is heavily skewed by the top 20% of income earners, needless to say, the top 5%. As shown in the chart below, those in the top 20% have seen substantially larger median wage growth versus the bottom 80%.

Lastly, disposable incomes and discretionary incomes are two very different animals. Discretionary income is what is left of disposable incomes after you pay for all of the mandatory spending like rent, food, utilities, health care premiums, insurance, etc. According to a Gallup survey, it requires about $53,000 a year to maintain a family of four in the United States. For 80% of Americans, this is a problem even on a GROSS income basis.

This is why record levels of consumer debt is a problem. There is simply a limit to how much “debt” each household can carry even at historically low interest rates. It is also the primary reason why we can not have a replay of the 1980-90’s. “Beginning 1983, the secular bull market of the 80-90’s began. Driven by falling rates of inflation, interest rates, and the deregulation of the banking industry, the debt-induced ramp up of the 90’s gained traction as consumers levered their way into a higher standard of living.”

“While the Internet boom did cause an increase in productivity, it also had a very deleterious effect on the economy. As shown in the chart above, the rise in personal debt was used to offset the declines in personal income and savings rates. This plunge into indebtedness supported the ‘consumption function’ of the economy. The ‘borrowing and spending like mad’ provided a false sense of economic prosperity. During the boom market of the 1980’s and 90’s consumption, as a%age of the economy, grew from roughly 61% to 68% currently. The increase in consumption was largely built upon a falling interest rate environment, lower borrowing costs, and relaxation of lending standards. (Think mortgage, auto, student and sub-prime loans.) In 1980, household credit market debt stood at $1.3 Trillion. To move consumption, as a% of the economy, from 61% to 67% by the year 2000 it required an increase of $5.6 Trillion in debt. Since 2000, consumption as a% of the economy has risen by just 2% over the last 17 years, however, that increase required more than a $6 Trillion in debt.

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Doomed growth projections.

Why We’re Doomed: Stagnant Wages (CHS)

Despite all the happy talk about “recovery” and higher growth, wages have gone nowhere since 2000–and for the bottom 20% of workers, they’ve gone nowhere since the 1970s. GDP has risen smartly since 2000, but the share of GDP going to wages and salaries has plummeted: this is simply an extension of a 47-year downtrend. [..] .. our system requires ever-higher household incomes to function–not just in the top 5%, but in the top 80%. Our federal social programs–Social Security, Medicare and Medicaid–are pay-as-you-go: all the expenditures this year are paid by taxes collected this year. As I have detailed many times, the so-called “Trust Funds” are fictions; when Social Security runs a deficit, the difference between receipts and expenses are filled by selling Treasury bonds in the open market–the exact same mechanism ther government uses to fund any other deficit.

The demographics of the nation have changed in the past two generations. The Baby Boom is retiring en masse, expanding the number of beneficiaries of these programs, while the number of full-time workers to retirees is down from 10-to-1 in the good old days to 2-to-1: there are 60 million beneficiaries of Social Security and Medicare and about 120 million full-time workers in the U.S. Meanwhile, medical expenses per person are soaring. Profiteering by healthcare cartels, new and ever-more costly treatments, the rise of chronic lifestyle illnesses–there are many drivers of this trend. There is absolutely no evidence to support the fantasy that this trend will magically reverse.

Costs are skyrocketing and the number of retirees is ballooning, but wages are going nowhere. Do you see the problem? All pay-as-you-go programs are based on the assumption that the number of workers and the wages they earn will both rise at a rate that is above the underlying rate of inflation and equal to the rate of increase in pay-as-you-go programs. If 95% of the households are earning less money when adjusted for inflation, and their wealth has also declined or stagnated, then how can we pay for programs which expand by 6% or more every year? The short answer is you can’t.

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Are we going to add this to the cost of Harvey?

US Fuel Shortages From Harvey To Hamper Labor Day Travel (R.)

Travelers and fuel suppliers across the United States braced for higher prices and shortages ahead of the Labor Day holiday weekend as the country’s biggest fuel pipelines and refineries curb operations after Hurricane Harvey. Just six days after Harvey slammed into the heart of the U.S. energy industry in Texas, the effects are being felt not just in Houston, but also in Chicago and New York, and prices at the pump nationwide have hit a high for the year. Supply shortages have developed even though there are nearly a quarter of a billion barrels of gasoline stockpiled in the United States. But much of it is held in places where it cannot be accessed due to massive floods, or too far away from the places it is needed. Some of it is unfinished, meaning it needs to be blended before it can go to gas stations.

Harvey has highlighted another weakness in the system: pipeline terminals typically only have a five-day supply in storage to load into the lines. Some of the biggest pipelines in the United States, supplying the northeast market and the Chicago area, have already shut down or reduced operations because they have no fuel to pump. “Gasoline is very much a ‘just-in-time’ fuel, for as many million barrels as they think we have,” said Patrick DeHaan, petroleum analyst at GasBuddy. “Sure, they are somewhere, but they still have to be mixed and blended together.” At least two East Coast refiners, including Philadelphia Energy Solutions and Irving Oil, have already run out of gasoline for immediate delivery as they have rushed to send supplies to the U.S. Southeast, Caribbean, Mexico and South America to offset the lack of exports since Harvey.

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Lock them up!

Wells Fargo Says 3.5 Million Accounts Involved In Scandal (AP)

The scope of Wells Fargo’s fake accounts scandal grew significantly on Thursday, with the bank now saying that 3.5 million accounts were potentially opened without customers’ permission between 2009 and 2016. That’s up from 2.1 million accounts that the bank had cited in September 2016, when it acknowledged that employees under pressure to meet aggressive sales targets had opened accounts that customers might not have even been aware existed. People may have had different kinds of accounts in their names, so the number of customers affected may differ from the account total. Wells Fargo said Thursday that about half a million of the newly discovered accounts were missed during the original review, which covered the years 2011 to 2015.

After Wells Fargo acknowledged the fake accounts last year, evidence quickly appeared that the sales practices problems dated back even further. So Wells Fargo hired an outside consulting firm to analyze 165 million retail bank accounts opened between 2009 and 2016. Wells said the firm found that, along with the 2.1 million accounts originally disclosed, 981,000 more accounts were found in the expanded timeline. And roughly 450,000 accounts were found in the original window. The scandal was the biggest in Wells Fargo’s history. It cost then-CEO John Stumpf his job, and the bank’s once-sterling industry reputation was in tatters. The company ended up paying $185 million to regulators and settled a class-action suit for $142 million. New managers have been trying to amends with customers, politicians and the public.

But it’s been tough, as new revelations keep coming. Wells Fargo said last month that roughly 570,000 customers were signed up for and billed for car insurance that they didn’t need or necessarily know about. Many couldn’t afford the extra costs and fell behind in their payments, and in about 20,000 cases, cars were repossessed. Other customers have filed lawsuits against Wells Fargo saying they were victims of unfair overdraft practices. Wells Fargo is also still under several investigations for its sales practices problems, including a congressional inquiry and one by the Justice Department. Wells Fargo said Thursday that of the 3.5 million accounts potentially opened without permission, 190,000 of those incurred fees and charges. That’s up from 130,000 that the bank originally said. Wells Fargo will refund $2.8 million to customers, in addition to the $3.3 million it already agreed to pay.

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Wise.

World’s Biggest Wealth Fund Reveals Bleak View on Global Trade (BBG)

Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, as the fund is known, says the heyday of cross-border trade is probably behind us. “The question investors are asking themselves is if the easy wins already have been made,” Slyngstad said in an Aug. 29 interview from his office on the top floor of Norway’s central bank in Oslo. “The global supply chains have in a way had a one-time gain primarily through outsourcing of multinationals to China.” Norway’s wealth fund owns 1.3% of globally listed stocks, spread out over almost 80 countries. And with interest rates at record lows, the investor has cut its long-term return expectations to about 3% from 4%, even after winning approval from parliament to raise its share of equities to 70% from 60%.

Slyngstad, who became CEO in 2008 just as the global economy was sinking into the worst crisis since the Great Depression, noted that back then the fund rode out the turmoil by dumping bonds and buying stocks. “I don’t expect that we will act differently in any similar crisis in the future,” he said. During a recent conference on globalization, the fund’s chief strategist, Bjorn Erik Orskaug, suggested the world might be at an “inflection point” in trade, with shallower value chains and less cross-border production. And then there’s the protectionist agenda some governments are pursuing. “Is there also a political situation that could make it more challenging?” Slyngstad said. “Time will tell, but there’s of course a risk on the horizon.” He says the wealth fund’s extremely long-term investment timeline allows it to look past the noise coming from governments that come and go.

The fund will probably stay over-weighted in Europe, where it’s more of an active investor. But the only two economies that really matter are the U.S. and China, Slyngstad said. [..] As the fund approaches $1 trillion in value, its stated goal is to safeguard today’s oil wealth for future generations of Norwegians. It has surged in size since its inception two decades ago, generating an annual nominal return of 5.89%. Norway’s government last year started taking cash out of the fund for the first time, to make up for lower oil revenue. Withdrawals are set to hit about 72 billion kroner ($9.3 billion) in 2017, and remain at that level in coming years amid stricter fiscal rules.

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Once the creative accounting is removed, there won’t be much left.

New Math Deals Minnesota’s Pensions the Biggest Hit in the US (BBG)

Minnesota’s debt to its workers’ retirement system has soared by $33.4 billion, or $6,000 for every resident, courtesy of accounting rules. The jump caused the finances of Minnesota’s pensions to erode more than any other state’s last year as accounting standards seek to prevent governments from using overly optimistic assumptions to minimize what they owe public employees decades from now. Because of changes in actuarial math, Minnesota in 2016 reported having just 53% of what it needed to cover promised benefits, down from 80% a year earlier, transforming it from one of the best funded state systems to the seventh worst, according to data compiled by Bloomberg. “It’s a crisis,” said Susan Lenczewski, executive director of the state’s Legislative Commission on Pensions and Retirement.

The latest reckoning won’t force Minnesota to pump more taxpayer money into its pensions, nor does it put retirees’ pension checks in any jeopardy. But it underscores the long-term financial pressure facing governments such as Minnesota, New Jersey and Illinois that have been left with massive shortfalls after years of failing to make adequate contributions to their retirement systems. The Governmental Accounting Standards Board’s rules, ushered in after the last recession, were intended to address concern that state and city pensions were understating the scale of their obligations by counting on steady investment gains even after they run out of cash – and no longer have money to invest. Pensions use the expected rate of return on their investments to calculate in today’s dollars, or discount, the value of pension checks that won’t be paid out for decades.

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Everybody wants their share of the pie.

Six Big Banks To Create A Blockchain-Based Cash System (R.)

Six new banks have joined a UBS-led effort to create a digital cash system that would allow financial markets to make payments and settle transactions quickly via blockchain technology. The group aims to launch the system late next year. Barclays, Credit Suisse, Canadian Imperial Bank of Commerce, HSBC, MUFG and State Street have joined the group developing the “utility settlement coin” (USC), a digital cash equivalent of each of the major currencies backed by central banks, UBS said on Thursday. The group is in discussions with central banks and regulators and is aiming for a “limited ’go live’” in the latter part of 2018, UBS’s head of strategic investment and fintech innovation told the Financial Times.

The Swiss bank first launched the concept in September 2015 with London-based blockchain company Clearmatics, and was later joined on the project by BNY Mellon, Deutsche Bank, Santander and brokerage ICAP. The USC would be convertible at parity with a bank deposit in the corresponding currency, making it fully backed by cash assets at a central bank. Spending a USC would be the same as spending the real currency it is paired with. Blockchain works as a tamper-proof shared ledger that can automatically process and settle transactions using computer algorithms, with no need for third-party verification. Because it does not require manual processing, nor authentication through intermediaries, the technology can make payments faster, more reliable and easier to audit.

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Better talk with him.

Putin Warns Of ‘Major Conflict’ Over North Korea, Urges Talks (AFP)

Russian President Vladimir Putin warned Friday of a “major conflict” looming on the Korean Peninsula, calling for talks to alleviate the crisis after Pyongyang fired a missile over Japan this week. “The problems in the region will only be solved via direct dialogue between all concerned parties, without preconditions,” Putin said. “Threats, pressure and insulting and militant rhetoric are a dead end,” a statement from his office said, adding that heaping additional pressure on North Korea in a bid to curb its nuclear programme was “wrong and futile.” Tensions on the Korean Peninsula are at their highest point in years after a series of missile tests by Pyongyang.

Early on Tuesday, the reclusive state fired an intermediate-range Hwasong-12 over Japan, prompting US President Donald Trump to insist that “all options” were on the table in an implied threat of pre-emptive military action. The UN Security Council denounced North Korea’s latest missile test, unanimously demanding that Pyongyang halt the programme. US heavy bombers and stealth jet fighters took part in a joint live fire drill in South Korea on Thursday, intended as a show of force against the North, Seoul said. Putin said he feared the peninsula was “on the verge of a major conflict” and called for all sides to sign up to a mediation programme drawn up by Moscow and Beijing. He echoed comments by Foreign Minister Sergei Lavrov who in a Wednesday telephone call with US counterpart Rex Tillerson “underscored… the need to refrain from any military steps that could have unpredictable consequences.”

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Prime candidate for worst report ever. The Independent tweeetd: “12 Nobel Prize winners just warned Trump is one of the gravest threats to humanity “. But that’s not what the article by the Press Association says. It says two.

Trump, Nuclear War And Climate Change Among Gravest Threats To Humanity (PA)

Nobel Prize winners consider nuclear war and US President Donald Trump as among the gravest threats to humanity, a survey has found. More than a third (34%) said environmental issues including over-population and climate change posed the greatest risk to mankind, according to the poll by Times Higher Education and Lindau Nobel Laureate Meetings. But amid rising tensions between the US and North Korea, almost a quarter (23%) said nuclear war was the most serious threat. Of the 50 living Nobel Prize winners canvassed, 6% said the ignorance of political leaders was their greatest concern – with two naming Mr Trump as a particular problem. Peter Agre, who won the Nobel Prize for chemistry in 2003, described the US President as “extraordinarily uninformed and bad-natured”. He told Times Higher Education: “Trump could play a villain in a Batman movie – everything he does is wicked or selfish.”

Laureates for chemistry, physics, physiology, medicine and economics took part in the survey, with some highlighting more than one threat. Peace Prize and Literature Prize recipients were not canvassed. Infectious diseases and drug resistance were considered the gravest threats to humankind by 8% of respondents, while 8% cited selfishness and dishonesty and 6% cited terrorism and fundamentalism. Another 6% spoke of the dangers of “ignorance and the distortion of truth”. Despite high-profile figures Elon Musk and Professor Stephen Hawking expressing concern about the dangers associated with artificial intelligence, just two of those surveyed identified it as among the biggest threats facing humans.

John Gill, editor of Times Higher Education, said the survey offers “a unique insight into the issues that keep the world’s greatest scientific minds awake at night”. He said: “There is a consensus that heading off these dangers requires political will and action, the prioritisation of education on a global scale, and above all avoiding the risk of inaction through complacency.”

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Stockholm Syndrome?

Greece Doesn’t Want Any More Rescues – But It Does Need Something Else (CNBC)

Greece wants nothing more than to avoid another bailout — which means it needs debt relief. And so far, that’s the sticking point. “There is now light at the end of the tunnel,” Greek Finance Minister Euclid Tsakalotos said hopefully in June. After months of wrangling, the European Union and International Monetary Fund had just agreed to release more rescue funds to the perennially troubled nation, bringing the total from its third bailout alone to €40.2 billion ($47.75 billion). Euro zone finance ministers took very light steps toward debt relief at that time — they said they were willing to keep deferring interest on financial assistance Greece had already received — but those measures fell short of the relief Greek Prime Minister Alexis Tsipras was pressing for.

The current bailout program is set to end in September of next year. Greece has been wracked by perennial financial crises since 2010, and it even appeared at risk of leaving the euro zone altogether in 2015. Tsipras’s objective is to re-gain full market access to international bond markets and to leave institutional help behind, so the subject of long-term debt is one that will continue to dominate discussions as it draws closer to September 2018. In July, Greece dipped into bond markets after a 3-year hiatus, issuing 5-year debt at an average yield of 4.66%. Greece is expected to return to the market again in the next 12 months. But Greece’s debt isn’t manageable in the long-run without being either extended or forgiven, according to the IMF, which is pressing for easier budgetary targets for Greece while simultaneously undertaking reforms.

Its European creditors currently require it to achieve a primary surplus before debt service of 3.5% of gross domestic product. The ECB has also been emphatic that it will not include Greek government bonds in its own debt-buying mechanism, the Public Sector Purchase Program. In a June letter, ECB President Mario Draghi ruled out that possibility, saying the central bank’s staff wasn’t in a position to fully analyze Greece’s public debt. Analysts at Barclays have estimated that the inclusion of Greek debt into ECB’s bond-buying program would entail monthly purchases of around 115 million euros ($136.5 million).

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Not looking good.

Hurricane Irma Turning Into Monster (ZH)

Hurricane Irma continues to strengthen much faster than pretty much any computer model predicted as of yesterday or even this morning. Per the National Hurricane Center’s (NHC) latest update, Irma is currently a Cat-3 storm with sustained winds of 115 mph but is expected to strengthen to a devastating Cat-5 with winds that could top out at 180 mph or more. Longer term computer models still vary widely but suggest that Irma will make landfall in the U.S. either in the Gulf of Mexico or Florida. Meteorological Scientist Michael Ventrice of the Weather Channel is forecasting windspeeds of up to 180 mph, which he described as the “highest windspeed forecasts I’ve ever seen in my 10 yrs of Atlantic hurricane forecasting.”

In a separate tweet, Ventrice had the following troubling comment: “Wow, a number of ECMWF EPS members show a maximum-sustained windspeed of 180+mph for #Irma, rivaling Hurricane #Allen (1980) for record wind”. The Weather Channel meteorologist also calculated the odds for a landfall along the eastern seaboard at 30%. Meanwhile, the Weather Channel has the “most likely” path of Irma passing directly over Antigua, Puerto Rico and Domincan Republic toward the middle of next week.

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Aug 302017
 
 August 30, 2017  Posted by at 8:39 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Elliott Erwitt Crowd at Armistice Day Parade, Pittsburgh 1950

 

The Economy Minus Houston (Slate)
Harvey Didn’t Come Out Of The Blue (Naomi Klein)
The US Cities with the Biggest Housing Bubbles (WS)
“Crazy” House Prices Are Firing Up New Zealand’s Voters (BBG)
China’s $2 Trillion of Shadow Lending Throws Focus on Rust Belt (BBG)
Homeowner’s Lawsuit Says Wells Fargo Charged Improper Mortgage Fees (R.)
The Battle for India’s $45 Billion Gold Industry Has Begun (BBG)
US Defense Boost May Unravel Into a $65 Billion Cut (BBG)
England’s Fire Services Suffer 25% Cut To Safety Officers Numbers (G.)
UK’s Leading Companies’ Pension Deficit Rises To 70% Of Their Profits (G.)
We Need To Nationalise Google, Facebook and Amazon (G.)
As Poverty Surges in Italy, Five Star Propose a ‘Citizens’ Income’ (BBG)
Why Every European Country Has A Trump Or Sanders Candidate (Drake)

 

 

A huge number of people will not be able to rebuild, because they lack insurance. And in many cases, rebuilding on the same -flood prone- spot wouldn’t be a good idea to begin with. But where will the people go?

Time to stop talking about the damage to the economy, and focus on the people.

The Economy Minus Houston (Slate)

Houston, America’s fourth-largest city, has a massive, diversified economy. Sure, New Orleans sits near the mouth of the mighty Mississippi River and is an important entrepôt and site for export of raw materials, agricultural commodities chemicals, and petroleum products. But Houston is a larger, busier, and far more important node in the networked economy. Economies derive their power and influence from their connections to other cities, countries, and markets. And Houston is one of the more connected. It is one of the global capitals of the energy and energy services industries. Yes, there’s a degree to which consumption and other economic activity that is forestalled or foregone during a flood is consumption and economic activity deferred. And cleanup efforts tend to be additive to local economies. But in today’s economy, a lot of value can easily be destroyed very quickly.

With only a small portion of the housing stock carrying flood insurance, billions of dollars in property will simply be destroyed and not immediately replaced. People who get paid by the hour, or who work for themselves, won’t be able to make up for the income they’re losing a few weeks from now. Hotel rooms and airplane seats are perishable goods—once canceled, they can’t simply be rescheduled. Refineries won’t be able to make up all the time offline—they can’t run more than 24 hours per day. And given that supply chains rely on a huge number of shipments making their connections with precision, the disruption to the region’s shipping, trucking, and rail infrastructure will have far-reaching effects. If you’re a business in Oklahoma or New Mexico, there’s a pretty good chance the goods you are importing or exporting pass through the Port of Houston.

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Sorry, Naomi, but you can’t take individual events and blame them on cllmate change. The system is far too complex for that. We must stick to science, not lose ourselves in assumptions.

Harvey Didn’t Come Out Of The Blue (Naomi Klein)

Now is exactly the time to talk about climate change, and all the other systemic injustices — from racial profiling to economic austerity — that turn disasters like Harvey into human catastrophes. Turn on the coverage of the Hurricane Harvey and the Houston flooding and you’ll hear lots of talk about how unprecedented this kind of rainfall is. How no one saw it coming, so no one could adequately prepare. What you will hear very little about is why these kind of unprecedented, record-breaking weather events are happening with such regularity that “record-breaking” has become a meteorological cliche. In other words, you won’t hear much, if any, talk about climate change.

This, we are told, is out of a desire not to “politicize” a still unfolding human tragedy, which is an understandable impulse. But here’s the thing: every time we act as if an unprecedented weather event is hitting us out of the blue, as some sort of Act of God that no one foresaw, reporters are making a highly political decision. It’s a decision to spare feelings and avoid controversy at the expense of telling the truth, however difficult. Because the truth is that these events have long been predicted by climate scientists. Warmer oceans throw up more powerful storms. Higher sea levels mean those storms surge into places they never reached before. Hotter weather leads to extremes of precipitation: long dry periods interrupted by massive snow or rain dumps, rather than the steadier predictable patterns most of us grew up with.

The records being broken year after year — whether for drought, storm surges, wildfires, or just heat — are happening because the planet is markedly warmer than it has been since record-keeping began. Covering events like Harvey while ignoring those facts, failing to provide a platform to climate scientists who can make them plain, all while never mentioning President Donald Trump’s decision to withdraw from the Paris climate accords, fails in the most basic duty of journalism: to provide important facts and relevant context. It leaves the public with the false impression that these are disasters without root causes, which also means that nothing could have been done to prevent them (and that nothing can be done now to prevent them from getting much worse in the future).

It’s also worth noting that the Harvey coverage has been highly political since well before the storm made landfall. There has been endless talk about whether Trump was taking the storm seriously enough, endless speculation about whether this hurricane will be his “Katrina moment” and a great deal of (fair) point-scoring about how many Republicans voted against Sandy relief but have their hands out for Texas now. That’s politics being made out of a disaster — it’s just the kind of partisan politics that is fully inside the comfort zone of conventional media, politics that conveniently skirts the reality that placing the interests of fossil fuel companies ahead of the need for decisive pollution control has been a deeply bipartisan affair.

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Wolf Richter with a whole series of US cities, all with record new highs. How people can keep saying there is no bubble in the US, I don’t know.

The US Cities with the Biggest Housing Bubbles (WS)

For the good folks who hope fervently that the Fed doesn’t have reasons to raise rates or unwind QE because there isn’t enough inflation, here is an update on one aspect of inflation – asset price inflation, and particularly house price inflation – where the value of your hard-earned dollars has collapsed over a given number of years to where it takes a whole lot more dollars to pay for the same house. So here are some visuals of amazing house price bubbles, city by city. Bubbles really aren’t hard to recognize, if you want to recognize them. What’s hard to predict accurately is when they will burst. Normally the Fed doesn’t want to acknowledge them. But now it has its eyes focused on them.

The S&P CoreLogic Case-Shiller National Home Price Index for June was released today. It jumped 5.8% year-over-year, not seasonally adjusted, once again outpacing growth in household incomes, as it has done for years. At 192.6, the index has surpassed by 5% the peak in May 2006 of crazy Housing Bubble 1, which everyone called “housing bubble” after it imploded (data via FRED, St. Louis Fed). The Case-Shiller Index is based on a rolling-three month average; today’s release was for April, May, and June data. Instead of median prices, it uses “home price sales pairs,” for example, a house sold in 2011 and then again in 2017. Algorithms adjust this price movement and add other factors. The index was set at 100 for January 2000. An index value of 200 means prices have doubled in the past 17 years, which is what most of the metros in this series have accomplished, or are close to accomplishing.

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There is no easy way out for New Zealand.

“Crazy” House Prices Are Firing Up New Zealand’s Voters (BBG)

As ownership falls to the lowest since 1951, housing affordability is firing up voters ahead of New Zealand’s general election on Sept. 23. The government is under attack for failing to respond to price surges that have forced many to ditch their property dreams. New Labour leader Jacinda Ardern has made housing a key issue, helping restore the main opposition party in opinion polls and leaving the election too close to call. “The government’s response has been too slow and inadequate for many because they’ve seen house prices rising very fast,” said Raymond Miller, professor of politics at Auckland University. “Some voters might well have a feeling of being let down by what they see as indifference to their plight. It’s the government’s Achilles’ heel.” Prices across New Zealand have risen 34% the past three years, fanned by record immigration, historically low interest rates and a supply shortage.

That’s seen the portion of owner-occupied properties slump to 63% of the nation’s 1.8 million homes in the second quarter, down from a peak of 74% in the early 1990s. In response, the ruling National Party has made more land available for development and increased deposit grants to first-home buyers. But it’s done little to curb immigration that’s added 201,000 to the population the past three years, while a policy of taxing profits on investment properties sold within two years of purchase has been criticized as too mild. Labour is pledging a more aggressive solution. It’s promising to ban property sales to non-resident foreigners who it says have fanned price pressures, and will extend the period in which investors will be subject to tax to five years. It wants to curb immigration, and plans to build 100,000 homes over 10 years and sell them at affordable prices.

“We’re going to get the government back into the business of building large numbers of affordable homes for first-home buyers like governments used to in this country,” Labour’s housing spokesman Phil Twyford said in a Television New Zealand interview. “The government has had nine years and they’ve just tinkered around the edges.” Many New Zealanders are motivated to save for a home where they can bring up a family just as their parents and grandparents did. National will be wary that disillusioned home-buyers may turn their back on the party, thwarting its efforts to win a rare fourth term. No party has won an outright majority since the South Pacific nation introduced proportional representation in 1996. National had 44% support in a poll published Aug. 17. Labour had 37% but could get across the line with the additional support of ally the Green Party, which had 4%, and New Zealand First, which got 10%.

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I think the estimates are still low.

China’s $2 Trillion of Shadow Lending Throws Focus on Rust Belt (BBG)

Regional banks in China’s rust-belt provinces are driving the rapid expansion of shadow banking in the country, fueling a web of informal lending that poses wider risks to the financial system, according to a study by UBS. Smaller rust-belt banks like Bank of Tangshan Co. and Baoshang Bank have been using products such as trust beneficiary rights and directional asset-management plans to hide the true state of their bad loans and circumvent lending restrictions, the study by analyst Jason Bedford said. Others have been using the shadow loan instruments to diversify away from lending in their struggling home provinces, exposing themselves to a much wider spectrum of Chinese corporate risk in the event of a default, according to the report. By analyzing 237 Chinese banks, many of them small and unlisted regional lenders, Bedford casts a new spotlight on underground financing and the risks it poses to the nation’s $35 trillion banking industry.

Shadow loans grew almost 15% to 14.1 trillion yuan ($2.3 trillion) by December from a year earlier, equal to about 19% of economic output, he estimates. “This is a sleeper issue,” Bedford wrote. “The remarkable level of concentration in regional banks in rust-belt region banks, combined with evidence that these assets are increasingly being used to roll over loans to existing borrowers as well as being swapped between banks without a clear transfer of risk are alarming.” Accounting for this financing, Chinese banks’ nonperforming loans could be three times higher than the official published level, he said. By recording such lending under “investment receivables” rather than “loans” on their financial statements, banks were able to disguise what is in effect lending, to get around regulatory lending curbs or heavy reliance on wholesale funding.

Such financial engineering also enabled some lenders to overstate their capital adequacy ratios, understate nonperforming loans and reduce provision charges. [..] Bank of Tangshan is an unlisted lender in the struggling northeast city of the same name, which produces more steel than any other city around the world. The firm’s shadow loans grew 86% last year to a size equal to 308% of its formal book, the highest of any bank in China, according to Bedford’s report. Still, the bank reported a bad-loan ratio of just 0.05% last year, the lowest of any bank in UBS’ analysis, exemplifying the “distortion” shadow loan books create in assessing asset quality, Bedford said.

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How is this NOT criminal intent? Where are the indictments?

Homeowner’s Lawsuit Says Wells Fargo Charged Improper Mortgage Fees (R.)

A homeowner has filed a lawsuit accusing Wells Fargo of improperly charging thousands of customers nationwide to lock in interest rates when their mortgage applications were delayed. Filed on Monday in San Francisco federal court, the lawsuit said Wells Fargo managers pressured employees to blame homeowners for the delays, sometimes by falsely stating that paperwork was missing, so homeowners could be stuck with extra fees. Wells Fargo Spokesman Tom Goyda said the bank is reviewing past practices on rate lock extensions and will take steps for customers as appropriate. The lawsuit, which will request the court grant class action status, comes as Wells Fargo is trying to recover from a scandal last year when the bank was fined for opening accounts for customers without their authorization in order to boost sales figures.

Last month, a new lawsuit accused it of charging several hundred thousand borrowers for auto insurance they did not request. Monday’s lawsuit accuses the bank of violating state and federal consumer protection laws, including the U.S. Real Estate Settlement Procedures Act and the U.S. Truth in Lending Act. Earlier this month, Wells Fargo disclosed that the Consumer Financial Protection Bureau was investigating the fees the company charged to lock in interest rates for delayed mortgage loans. In a securities filing, the bank said it was working with regulators to see if customers had been harmed by the fees. Interest rate locks are guarantees by a lender to lock in a set interest rate, usually for several weeks, while a loan is processed. If the rate lock expires before a loan closes, lenders often cover the cost of extending the lock if the delay was their fault.

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Modi taking people’s incomes away. Reforms. Here’s thinking India is nowhere near ready for this.

The Battle for India’s $45 Billion Gold Industry Has Begun (BBG)

India’s past and future are colliding in Anand Ghugre’s family jewelry shop in Mumbai. “We still operate the way my father did for 50 years,” said Ghugre, 52, explaining that transactions were typically in cash and were not always recorded. “For small jewelers and the unorganized sector, most of our sales happen through personal connections. Sometimes they don’t want bills, but the jewelers can’t say no to them.” That way of doing business is under threat as the world’s second-largest gold market faces Prime Minister Narendra Modi’s campaign to bring India’s informal economy to book. About three quarters of the estimated $45 billion of the precious metal that is traded in the country each year makes its way through thousands of family-run jewelry shops that have catered for centuries to the nation’s love of gold.

Modi’s financial reforms, including demonetization and a new goods and services tax, combined with a younger generation that shops online, may usher in a wave of takeovers and mergers by big state-wide and national chains as small shops are swallowed up or close. “The one story that we hear is that the business is becoming problematic for smaller jewelers,” said Chirag Sheth at London-based precious metals consultancy Metals Focus. “The bigger jewelers have deeper pockets, they have larger shops, better designs and better margins. It is very difficult for a smaller guy to compete.” Modi in November banned higher denomination notes to bring unaccounted cash back into the system and introduced tougher proof of identity for purchases, capped the amount of cash used in transactions and topped it off with the uniform goods and services tax last month.

An overhaul of the fragmented industry is also on the cards with the government said to be planning a new policy on gold that will bolster confidence among consumers, where the gifting of gold at weddings and festivals or its purchase as a store of value are deeply held traditions. Fixing quality standards and allowing supply chains to be easily tracked are ways to enhance trust.

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Well, we can’t have that, can we?

US Defense Boost May Unravel Into a $65 Billion Cut (BBG)

U.S. national security funding may be slashed by about $65 billion in January as lawmakers forge ahead with a spending plan that collides with a budget ceiling under a six-year-old law. A $614 billion bill passed by the U.S. House in H.R. 3219 is caught in a political vise: President Donald Trump and most lawmakers want to see increases in Pentagon spending, yet that intention isn’t backed up by an agreement to undo the 2011 Budget Control Act. Without another budget agreement in place, the Defense Department faces automatic across-the-board cuts of 9% to 10% starting in mid-January, according to Chris Sherwood, a Pentagon spokesman. That’s about $65 billion, the Congressional Budget Office estimates.

Enforcement of the act’s caps are returning for the coming fiscal year that begins Oct. 1 after they were adjusted in fiscal 2016 and 2017 for discretionary domestic and national security spending. That was the third time since the act passed that the limits were adjusted, in those cases for both defense and domestic discretionary spending. Trump wants to cut domestic spending while adding to defense, a proposal opposed by Democrats and many Republicans. If the mandatory cuts go ahead, they would be leveled across thousands of Pentagon programs. The White House would have the option of exempting military personnel funds from the automatic cuts, known as sequestration. Such cuts are likely because all of the pending congressional defense bills so far propose busting the cap of $549 billion in national security spending for fiscal year 2018, or $522 billion for the Pentagon alone.

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Cameron and Osborne and May have gutted the entire country.

England’s Fire Services Suffer 25% Cut To Safety Officers Numbers (G.)

Fire services in England have lost more than a quarter of their specialist fire safety staff since 2011, a Guardian investigation has found. Fire safety officers carry out inspections of high-risk buildings to ensure they comply with safety legislation and take action against landlords where buildings are found to be unsafe. Figures released to the Guardian under the Freedom of Information Act showed the number of specialist staff in 26 fire services had fallen from 924 to 680, a loss of 244 officers between 2011 and 2017. Between 2011 and 2016, the government reduced its funding for fire services by between 26% and 39%, according to the National Audit Office, which in turn resulted in a 17% average real-terms reduction in spending power.

Warren Spencer, a fire safety lawyer, said the figures showed a “clear culture of complacency” about fire safety. “The government has tended to take the view that fewer people are dying in fires, fires occur less frequently, and therefore there’s no need to invest in fire prevention. So there’s been a total brain drain in fire safety knowledge and many experienced specialist officers have left the force,” he said. “But fire safety officers have been saying to me for years that one day, there would be a big fire in a multiple occupancy building, which would make everyone sit up and take notice of the lack of fire safety provision. Tragically, that’s what happened at Grenfell Tower.”

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As dividends keep being paid out.

UK’s Leading Companies’ Pension Deficit Rises To 70% Of Their Profits (G.)

The combined pension deficit of FTSE 350 companies has risen to £62bn, accounting for 70% of their profits. The deficit as a proportion of profits recorded for 2016 is higher than at any time since the financial crisis, following a £12bn rise since 2015. The 25% increase came in a second year of comparatively low profit for UK publicly listed companies. The deficit is the gap between the expected liabilities of pension commitments and the funds that companies hold to pay for pensions. While many have set aside billions in recent years, a trend towards rising life expectancy, combined with lower expectations for returns on investment, has put more pressure on pension schemes and seen the deficit grow. Actuaries have warned that even a slight fall in bond yields would see the pension deficit of the plcs outstrip their aggregate profits by 2019.

The figures, in a report from the actuarial consultancy Barnett Waddingham, show the deficit has risen sharply as a proportion of profits in the past five years, from 25% of the £214bn pre-tax profits of the FTSE 350 in 2011. Even in the aftermath of the financial crisis in 2009, the deficit was lower at 60%. For 21 plcs, the pensions shortfall is more than 10% of their value, which Barnett Waddingham described as alarming. However, the actuaries said recent data suggesting years of austerity had seen gains in UK life expectancy grind to a halt could provide “welcome respite for companies”. It showed that after a century in which the rate of increase in life expectancy had accelerated, the average age of death was levelling off at 79 for men and 83 for women.

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A discussion that must take place. But the political climate doesn’t lean towards nationalization. Besides, how do you nationalize companies that operate in many dozens of countries?

We Need To Nationalise Google, Facebook and Amazon (G.)

At the heart of platform capitalism is a drive to extract more data in order to survive. One way is to get people to stay on your platform longer. Facebook is a master at using all sorts of behavioural techniques to foster addictions to its service: how many of us scroll absentmindedly through Facebook, barely aware of it? Another way is to expand the apparatus of extraction. This helps to explain why Google, ostensibly a search engine company, is moving into the consumer internet of things (Home/Nest), self-driving cars (Waymo), virtual reality (Daydream/Cardboard), and all sorts of other personal services. Each of these is another rich source of data for the company, and another point of leverage over their competitors.

Others have simply bought up smaller companies: Facebook has swallowed Instagram ($1bn), WhatsApp ($19bn), and Oculus ($2bn), while investing in drone-based internet, e-commerce and payment services. It has even developed a tool that warns when a start-up is becoming popular and a possible threat. Google itself is among the most prolific acquirers of new companies, at some stages purchasing a new venture every week. The picture that emerges is of increasingly sprawling empires designed to vacuum up as much data as possible. But here we get to the real endgame: artificial intelligence (or, less glamorously, machine learning). Some enjoy speculating about wild futures involving a Terminator-style Skynet, but the more realistic challenges of AI are far closer.

In the past few years, every major platform company has turned its focus to investing in this field. As the head of corporate development at Google recently said, “We’re definitely AI first.” All the dynamics of platforms are amplified once AI enters the equation: the insatiable appetite for data, and the winner-takes-all momentum of network effects. And there is a virtuous cycle here: more data means better machine learning, which means better services and more users, which means more data. Currently Google is using AI to improve its targeted advertising, and Amazon is using AI to improve its highly profitable cloud computing business. As one AI company takes a significant lead over competitors, these dynamics are likely to propel it to an increasingly powerful position.

What’s the answer? We’ve only begun to grasp the problem, but in the past, natural monopolies like utilities and railways that enjoy huge economies of scale and serve the common good have been prime candidates for public ownership. The solution to our newfangled monopoly problem lies in this sort of age-old fix, updated for our digital age. It would mean taking back control over the internet and our digital infrastructure, instead of allowing them to be run in the pursuit of profit and power. Tinkering with minor regulations while AI firms amass power won’t do. If we don’t take over today’s platform monopolies, we risk letting them own and control the basic infrastructure of 21st-century society.

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Of course the headline said “populists”… Fixed that.

As Poverty Surges in Italy, Five Star Propose a ‘Citizens’ Income’ (BBG)

“Poverty will be center stage in the campaign,” says Giorgio Freddi, professor emeritus of political science at the University of Bologna. The populist Five Star Movement “has imposed the issue on national politics. The mainstream parties are being forced to play catch-up.” Five Star is a fast-growing group fueled by anger at the old political class. Three years ago the movement rode economic concerns to power in Livorno, ending 70 years of rule by the Communists and other left-leaning parties. The new mayor, a former engineer named Filippo Nogarin, introduced a €500 ($590) monthly subsidy to the disadvantaged. That idea is a key plank in Five Star’s national platform, and the group’s leaders have promised to quickly implement such a program if they take power. Beppe Grillo, the former television comedian who co-founded the party, says fighting poverty should be a top priority.

A basic income can “give people back their dignity,” Grillo’s blog declared in April. “The current government is ignoring millions of families in difficulty.” The Five Star program echoes universal basic income schemes being considered around the world. Finland in January started an experiment in which 2,000 unemployed people receive a stipend of €560 per month. And the Canadian province of Ontario this summer began trials in three cities in which individuals can get almost C$17,000 ($13,600) per year. Five Star’s version would give Italians below the poverty line as much as €780 a month. Recipients must perform several hours of community service each week and actively seek work, and they’d be cut off after rejecting three job offers. Five Star says the plan would cost €17 billion a year, funded in part by spending cuts as well as tax hikes on banks, insurance companies, and gambling.

Opinion polls show Five Star neck and neck with the Democratic Party, led by ex-Premier Matteo Renzi, and a center-right bloc including Forza Italia, the party of former Premier Silvio Berlusconi. To keep Five Star from dominating the debate, Prime Minister Paolo Gentiloni, a Renzi ally, has approved a less ambitious plan he calls “the first universal tool against poverty.” The scheme, dubbed “inclusion income,” would give 1.7 million people as much as €485 a month as long as they’re actively seeking work, at a cost of about €2 billion a year. With industrial output down by about 25% from 2008 to 2013 in Italy’s worst postwar recession, either plan could be helpful, says Giuseppe Di Taranto, a professor of economic history at Rome’s Luiss University. “We lost lots of jobs, and poverty has risen so much that we’ve got to experiment.”

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More of the same. But the anti-EU, anti-globalization mood is obvious: “77% of the people questioned in a recent poll could see no advantage to them at all from the country’s membership in the European Union.” While Macron and Merkel are planning a lot more EU. And claiming that the EU is doing fine.

Why Every European Country Has A Trump Or Sanders Candidate (Drake)

As a result of the methods used to promote globalization, the consequences for the West have been tragic. Work is becoming increasingly uncertain and insecure, or it is in the process of disappearing altogether. It would take Veblen’s talents for social satire, which are unsurpassed in all of American literature, to depict with the essential exactitude of artistic synthesis how far the United States has fallen away from democratic grace, the country’s dramatically widening gap between the haves and the have-nots being what it is. Clearly, we are on the wrong course. What the robotics revolution, now at an incipient stage, will do to further diminish opportunities for Western peoples to work can be easily imagined, if the economic imperative of corporate capitalism is the rule to go by.

The same desolating trends can be seen in Europe, where people increasingly regard the European Union as a Trojan horse. The economic elites and their political front-men responsible for this image-challenged contraption lose public support with each new poll. The people by and large blame the European Union and the other accessories of globalization for their worsening standard of living. When informed by the establishment media that thanks to globalization Europe has never been more prosperous and peaceful, Europeans in historic numbers are reacting with disbelief. Their deepening sense of betrayal propels the surge of populism that defines the politics of Europe today. Arguments long-settled in favor of deregulation, liberalization, open borders, and other globalization watchwords have been reopened.

The constituency is growing for a politics that puts the well-being of Europeans first. Political measures calling for the protection of European jobs and cultures have gained a following unforeseen prior to 2008. In Italy, for example, 77% of the people questioned in a recent poll could see no advantage to them at all from the country’s membership in the European Union. 64% of them expressed hostility toward it. Eight Italian businesses out of 10 can find nothing positive to say about the European Union. It is seen to be a creature of the banks and the big financial houses. As public relations disasters go, this one has unfolded on an epic scale as the underlying populations, long left out of consideration by the economic elites, have begun to sense the fate their masters have in store for them.

Leaving underlying populations out of consideration was a special feature of the planning that went into globalization. They have been voiceless. In America, Trump gave them a voice, and they responded to him with their political support. It did not matter that he came before them without a plan for their deliverance. That he came to them at all mattered. He understood the depth of the anger and alienation in America against a status quo personified by his opponent, Hillary Clinton, whose repeated and munificently rewarded speeches before the captains of finance on Wall Street effectively branded her as the safe candidate for all who wanted to leave existing economic arrangements fundamentally undisturbed.

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Aug 192017
 
 August 19, 2017  Posted by at 10:00 am Finance Tagged with: , , , , , , , , ,  6 Responses »
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Fred Stein Man in pushcart, New York 1944

 

We’re Racing Towards Another Private Debt Crisis (Graeber)
China Moves To Curb Overseas Acquisitions As Firms’ Debt Levels Rise (G.)
Wells Fargo Troubles Shift From Phony Bank Accounts To Real Ones (R.)
Total Eclipse (Jim Kunstler)
A House Divided Against Itself Cannot Stand (Paul Craig Roberts)
The Truth Will Not Be Googled (Connelly)
Greek Pensioners Set For Another Blow (K.)
The Super Gangs Behind Africa’s Poaching Crisis (G.)
Want To Fight Climate Change? Don’t Invest In Tesla (MW)

 

 

David Graeber on the all too obvious. So yeah, let’s have that inquiry.

We’re Racing Towards Another Private Debt Crisis (Graeber)

This is a call for a public inquiry on the current situation regarding private debt. For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And – this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That’s what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don’t do something about it, the results will, inevitably, be another catastrophe. These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.” As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt. We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened. Now, if this seems to have very little to do with the way politicians talk about such matters, there’s a simple reason: most politicians don’t actually know any of this. A recent survey showed 90% of MPs don’t even understand where money comes from (they think it’s issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

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It’s getting serious.

China Moves To Curb Overseas Acquisitions As Firms’ Debt Levels Rise (G.)

The Chinese government has served notice on the country’s foreign investment spree in football clubs, skyscrapers and Hollywood as it moves to curb rising levels of debt among domestic companies. The announcement of restrictions in a range of sectors follows a buying spree around the globe during which Chinese firms and business tycoons have taken control of assets including Legendary Entertainment, the US film producer behind Jurassic World and Warcraft, buildings such as the Cheesegrater in London, and English football clubs including Southampton and Aston Villa. The curbs were announced in a document released on Friday by the state council, China’s cabinet, in the latest move to halt a string of foreign acquisitions. This week the IMF described China’s credit-fuelled economic strategy as dangerous, in a strongly worded statement warning that the country’s approach risks financial turmoil.

Raising concerns that some of the companies involved may be taking on too much debt, the council said: “There are great opportunities for our nation’s companies to embark on foreign investment, but they also face numerous risks and challenges.” It added that through the new guidance, the government hopes to promote the “rational, orderly and healthy development of foreign investment while effectively guarding against risks”. The document limits overseas investments in areas such as hotels, cinemas, the entertainment industry, real estate and sports clubs. It also bans outright investments in enterprises related to gambling and the sex industry. The Chinese government had already flagged hotels as an area of concern, having reportedly asked the insurance group Anbang to sell the Waldorf Astoria hotel in New York.

One of China’s biggest conglomerates, Wanda Group, also bowed to pressure from the government when it abandoned the $1bn (£780m) purchase of the entertainment company Dick Clark Productions earlier this year. In 2016 Wanda bought Legendary Entertainment for $3.5bn, having become the world’s biggest cinema operator in 2012 with its purchase of a majority stake in US chain AMC for $2.6bn. At the same time, the document encourages companies to plough money into projects related to the “Belt and Road” project, President Xi Jinping’s signature foreign policy initiative that seeks to link China with other parts of Asia and eastern Europe through multibillion-dollar investments in ports, highways, railways, power plants and other infrastructure.

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Why is Wells Fargo a going concern? Close it.

Wells Fargo Troubles Shift From Phony Bank Accounts To Real Ones (R.)

After paying customers millions of dollars for opening phony accounts they did not want, Wells Fargo has said it is now grappling with the possibility it harmed customers by closing real accounts they needed, leaving them without access to funds. Wells, the third-largest U.S. bank, disclosed in a regulatory filing on Aug. 4 that the Consumer Financial Protection Bureau (CFPB) is looking into the matter, one of many regulatory probes the bank faces over its treatment of depositors and borrowers. A Reuters review of the regulator’s complaints database found several instances of customers reporting financial hardship in recent years after Wells Fargo unexpectedly froze or closed their accounts. Some of the complaints described fraudulent deposits of unknown origin.

Others said they were victims of identity theft and Wells Fargo closed their accounts and refused to reopen them or open new ones. One customer said the bank closed an account after a hacker changed personal information, and then Wells Fargo improperly sent funds to the wrong address. The complaints had consistent themes of confusion about why accounts were frozen or closed, and reflected desperation over being unable to access money, as well as frustration over not getting help from Wells Fargo’s customer service. “I moved money from my mother’s savings account into her checking account the day before she passed away,” one Wells Fargo customer wrote. “This checking account has been ‘locked’ by the fraud department for almost 3 months … Now her debts are delinquent and mortgage about to go into foreclosure.”

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Rename the capital!

Total Eclipse (Jim Kunstler)

I’d like to hear to hear an argument as to why the Washington Monument should remain dedicated to that vicious slave-driver and rebellious soldier, and indeed the name of the city that is the federal seat of government. Or the District of Columbia (after Columbus, who initiated the genocide of Native Americans). Or America, cribbed out of Amerigo Vespucci, the wicked Florentine cartographer who ascertained that the place called Brazil today was not the east coast of Asia but actually a New World — and so all our troubles began![..] Just as empires tend to build their most grandiose monuments prior to collapse, our tottering empire is concocting the most monumentally ludicrous delusions before it slides down the laundry chute of history.

It’s as if the Marx Brothers colluded with Alfred Hitchcock to dream up a melodramatic climax to the American Century that would be the most ridiculous and embarrassing to our posterity. In the meantime, many citizens await Monday’s spectacle of a total solar eclipse in parts of the country. They apparently don’t realize that another eclipse has been underway for months: the total eclipse of reality across the entire landscape of the USA. Now that has been an event to behold, not just some twenty-minute freak of astronomy. What’s being blacked out is the perilously fragile condition of the financial system — a great groaning Rube Goldberg contraption of accounting fraud, grift, statistical deceit, and racketeering that pretends to support the day-to-day activities of our national life.

For months, the recognition of this oncoming financial monster has been blocked by the hallucination of gremlins from the Kremlin infiltrating the recent presidential election. But just as that mirage was dissolving, along comes the treacherous invasion of the Confederate statues. It begins to look like the final piece of the puzzle in the Deep State’s quest to eject Donald Trump from the oval office. His response to the deadly statue situation (“…why not Washington and Jefferson…?”) was deemed so obtuse and unfeeling that even the rodents of his own nominal Republican Party want to jump his ship of state.

So, the set-up could not be more perfect! The country will now get down to the business of a months-long 25th Amendment circle-jerk at the very moment that the financial system flies apart. The damage from the financial clusterfuck will be much more real, and much worse, than anything that might be spun out of the anti-statue crusade hogging the headlines today. It will be interesting to see whether the old legacy media even reports on it as it happens, or whether they will cook up new and more bizarre entertainments to distract the public from what might be the ultimate swindling of a lifetime.

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The echo chamber causes hearing damage.

A House Divided Against Itself Cannot Stand (Paul Craig Roberts)

The liberal/progressive/left are enjoying their drunkfest of denunciation. I can’t say I have ever witnessed anything like it. These are the people who sat on their hands for 16 years while Washington destroyed in whole or part seven countries. Not being satisfied with this level of warmongering and crimes against humanity, Washington orchestrated a conflict situation with Russia. Americans elected a president who said he would defuse this dangerous conflict, and the liberal/progressive/left turned on him. In contrast, one person is killed after the hated Charlottesville protest event was over, and there is endless absurd outrage against the president of the US. Three New York Times presstitutes yesterday blamed the crisis on Trump, declaring him “increasingly isolated in a racial crisis of his own making.”

Apparently, Trump is responsible for the crisis because he blamed both protest groups for the violence. But isn’t that what happened? Wasn’t there violence on both sides? That was the impression I got from the news reporting. I’m not surprised that Trump got the same impression. Indeed, many readers have sent emails that they received the same impression of mutual violence. So Trump is being damned for stating the truth. Let’s assume that the impression Trump and many others got from the news is wrong. That would make Trump guilty of arriving at a mistaken conclusion. Yet, he is accused of instigating and supporting Nazi violence. How is it possible to transform a mistake into evil intent? A mistaken impression gained from news reporting does not constitute a “defense of white nationalist protesters.”

An assertion by the New York Times cannot turn the absence of intent into intent. What the Establishment is trying to do is to push Trump into the arms of white supremacists, which is where they want him. Clearly, there is no basis for this charge. It is a lie, an orchestration that is being used to delegitimize President Trump and those who elected him. The question is: who is behind this orchestration? The orchestration is causing people to run away from Trump or is being used as an excuse by them to further the plot to remove him from office. Trump’s Strategic and Policy Forum headed by Stephen A. Schwarzman ran away, just as members of the Carter Center’s board deserted President Jimmy Carter when he criticized Israel for its apartheid policy toward the Palestinians. The New York Times says that the armed services chiefs are running away. And the entire Republican Party.

The hypocrisy is stunning. For 16 years the armed services chiefs, the New York Times and the rest of the presstitute media, both political parties and the liberal/progressive/left have participated actively or passively in massive crimes against humanity. There are millions of dead, maimed, and displaced people. Yet one death in Charlottesville has produced a greater outpouring of protest. I don’t believe it is sincere. I don’t believe that people who are insensitive to the deaths of millions at the hands of their government can be so upset over the death of one person. Assume that Trump is responsible for the death of the woman. How much blood is it compared to the blood on the hands of Bill Clinton, George W. Bush, and Obama?

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Too much monopoly, too much power.

The Truth Will Not Be Googled (Connelly)

While web-hosting services have been criticised for cancelling the registration of neo-Nazi website, Daily Stormer, progressive left-leaning sites are losing Google ranking and traffic because of a deliberate move to censor “fake” news by the internet search giant. New data released by World Socialist Websites (WSWS) revealed that sites such as Wikileaks, The Intercept, Electronic Frontiers Foundation, the American Civil Liberties Organisation, CounterPunch and many other organisations with the audacity to provide context about the activities of federal governments not reported in mainstream publications have experienced a significant drop in traffic after Google altered its algorithm. (WSWS is an online news and information service founded by the International Committee of the Fourth International, the leadership of the world socialist movement).

Earlier this week, internet hosting provider, GoDaddy, announced it had cancelled US neo-Nazi website, Daily Stormer, for posting an attack on Heather Heyer, the protester who was murdered at the Klan rally in Charlottesville last week. Google and CloudFlare likewise cancelled its registration after the site tried to move its hosting over to their respective services. But while these hosting services are being congratulated by some – and condemned by others on free-speech grounds – for ensuring that those looking to commit violence have to work slightly harder to get access to their like-minded Nazi communities, those who own the means of transmission – namely Google, Facebook and Twitter – are still preventing the rest of us from accessing information that allows people to make sense of the world around us.

Earlier this month, Google altered its algorithm – allegedly in an attempt to address the ‘fake news’ problem – and in doing so, a broad array of anti-establishment news organisations, whistleblower, civil-rights and anti-war websites were censored from its search listings. But most people were too distracted by the opinions of some low-level engineer on Google’s diversity hiring policies and its intolerance of conservative views in the workplace to take notice. The data released by WSWS shows that since Google altered its algorithm, Wikileaks experienced a 30% decline in traffic from Google searches. Democracy Now fell by 36%. Truthout dropped by 25%. Its own traffic dropped by 67% percent over the same period. Alternet saw a 63% decline in traffic. Media Matters saw a 36% drop in traffic. Counterpunch.org fell by 21%. The Intercept fell by 19%.

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Ongoing.

Greek Pensioners Set For Another Blow (K.)

Pension applications submitted after May 13, 2016 – after the so-called Katrougalos law was legislated – reveal significant cuts in pension payments. According to the relevant data, five categories of pensioners will suffer cuts due to the new way pensions are calculated. Overall, experts estimate that by the year 2020 some 200,000 retirees will receive pensions that do not correspond to the amount of money they contributed to the funds during their working lives. In some cases, pensioners will receive 30% less than what they would have received had the Katrougalos law not come into effect. The overall reduction is estimated at 12 to 16%. The hardest hit will be civil servants, especially those who have worked for more than 30 years and belong to the categories of University and Technological Education. Other categories of pensioners that will be negatively impacted are those who made above-average contributions to the IKA social security foundation for more than 30 years.

Meanwhile, those who made medium or large contributions to the TEVE fund for the self-employed will also lose out. Others who can expect to be affected by pension cuts are people who contributed for 30 years to the retailer’ insurance fund (TAE) or the professional drivers’ pension fund (TSA). The new pension system, however, will favor retirees with monthly gross earnings below €700 and less than 30 years of insurance – in line with the declaration made by former labor minister Giorgos Katrougalos that the new system would be classless and favor people with low incomes. This category includes people insured for 20 to 30 years with IKA, who will retire with a gross remuneration of around €1,000, or the former social security fund for professional drivers (TSA). Those insured at several public enterprises (DEKO) and bank funds will also be entitled to an increase in their pension because they pay very high contributions.

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Man is losing the world to his own greed. Selling mother earth.

The Super Gangs Behind Africa’s Poaching Crisis (G.)

“It’s not hundreds of groups involved in ivory trafficking – there are just a handful of networks operating across Africa,” says Paula Kahumbu, a conservationist and elephant expert who runs Wildlife Direct, a Kenyan organisation working to stop the ivory trade and which deploys teams to closely observe trials such as Ali’s. lose scrutiny of cases – including making copies of court documents and video recording proceedings – keeps courts and judges honest and prevents the disappearance of files that so often scuppers trials. Wildlife Direct’s pressure was instrumental in ensuring Ali’s case went the distance. At the end, says Kahumbu, there was “a phenomenal sense of achievement”. “It was a huge surprise,” says Ofir Drori, an Israeli wildlife activist and co-founder of the Eagle Network, a group responsible for the prosecution of hundreds of traffickers, big and small, over the years, and who was involved in tracking Ali.

“Every Kenyan will tell you: what’s supposed to happen is that if you belong to a strong syndicate, you’re out.” It was the syndicate aspect that interested Gretchen Peters. A former foreign correspondent in Afghanistan and Pakistan, Peters had become fascinated by the links between drugs and terrorism that she saw in the Taliban’s heroin operation, and by the hidden connections between other forms of criminality. Ditching journalism, she decided to tackle wildlife crime. Peters set up the Satao Project – named after one of Kenya’s magisterial “tusker” bull elephants, killed by a poacher’s poisoned arrow in 2014 – to investigate criminal gangs in 2015 but quickly ran into the underlying problem: corruption. “If there’s a network that is moving illegal goods from one country to another, there are inevitably government officials involved, protecting them or looking the other way,” she says. “It is impossible for that not to be happening.”

Hired by the US department of state, Peters began by studying ivory supply chains in Tanzania and Kenya, but her investigations quickly enveloped Uganda too and spread into other forms of trafficking. There is in East Africa, she says, “a regional ecosystem moving ivory, drugs and guns … a matrix of different organisations that collaborate to move illegal goods along the Swahili coast.” The overlap between drugs and ivory smuggling came as no surprise to her. “I’m not aware of any syndicate trafficking ivory transnationally that is only moving ivory,” she says. No illicit commodity is as profitable as drugs, so: “When you get up to the traffickers they’re almost inevitably moving narcotics too.”

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Thermodynamics 101.

Want To Fight Climate Change? Don’t Invest In Tesla (MW)

Morgan Stanley identified 39 stocks that generate at least half their revenue “from the provision of solutions to climate change,” something it said was a central component of investing to make a difference, as opposed to just a making a buck. “In our view, impact investing needs to begin with companies whose products and services have a notable positive environmental or social impact,” wrote Jessica Alsford, an equity strategist at the investment bank. Not surprisingly, alternative-energy companies ranked the highest in terms of their positive impact, and the “top five climate-change impact stocks” were all manufacturers of solar and wind energy: Canadian Solar, China High Speed Transmission, GCL-Poly, Daqo New Energy and Jinko Solar. Not among the top companies? Electric-car makers, including Tesla. Elon Musk’s company has been an investor favorite for years, even eclipsing Ford and General Motors in market cap.

Tesla shares are up nearly 66% so far this year, but the good it may have been doing for portfolios may not translate to it doing good for the planet. Morgan Stanley said this was one of the “biggest surprises” of its study. The bank grouped the “climate-change impact stocks” into four sector categories: utilities, renewable manufacturers, green infrastructure companies and transportation stocks. It then analyzed them on a number of metrics, including “the CO2 [carbon dioxide] savings achieved from the products and services sold by the companies,” as well as secondary and tertiary factors centered around the environmental impact of the making of these products. This is where Tesla, along with China’s Guoxuan High-Tech, fall short.

“Whilst the electric vehicles and lithium batteries manufactured by these two companies do indeed help to reduce direct CO2 emissions from vehicles, electricity is needed to power them,” Morgan Stanley wrote. “And with their primary markets still largely weighted towards fossil-fuel power (72% in the U.S. and 75% in China) the CO2 emissions from this electricity generation are still material.” In other words, “the carbon emissions generated by the electricity required for electric vehicles are greater than those saved by cutting out direct vehicle emissions.” Morgan Stanley calculated that an investment of $1 million in Canadian Solar results in nearly 15,300 metric tons of carbon dioxide being saved every year. For Tesla, such an investment adds nearly one-third of a metric ton of CO2.

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Jul 292017
 
 July 29, 2017  Posted by at 9:09 am Finance Tagged with: , , , , , , , ,  2 Responses »
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Dorothea Lange Grocery store in Widtsoe, Utah 1936

 

Trump’s Mistake In Taking Ownership Of The Stock Market Bubble (LR)
Congress Checkmates Trump (And The American People) (LR)
Russia Hits Back Over Sanctions, Orders US Diplomats To Leave (R.)
EU Explores Account Freezes To Prevent Runs At Failing Banks (R.)
The Great Transatlantic Bond Divergence Unwind (WSJ)
Top German Automakers Sued in US Over Two-Decade ‘Cartel’ (BBG)
Wells Fargo Faces Angry Questions After New Sales Abuses Uncovered (R.)
Wells Fargo Cuts 70 Senior Managers in Retail Bank After Accounts Scandal (BBG)
What Explains amazon.com’s Share Price? (PCR)
Panama Leaks and the Fall of Pakistan’s Prime Minister (Niaz)
Plastic Microparticles Found In Flesh Of Fish Eaten By Humans (Ind.)

 

 

More incentives for the Fed to trigger a crisis.

Trump’s Mistake In Taking Ownership Of The Stock Market Bubble (LR)

Let’s start at the beginning. Bubbles and Busts are both created by The Federal Reserve. Presidents are merely along for the ride. They like to credit themselves for the bubbles, and then look for scapegoats, usually the (non-existent) free market during the busts. But it is The Fed that creates them both. President Trump has made a big (yet understandable) mistake. He’s tried to portray himself as the cause of the current bubble in the stock market. He wants credit where credit is due. In this case, credit is not due. As we already mentioned, the Fed created the current bubble, and did so a long time ago. One look at a chart of the S&P 500 says it all:

Chances are, Trump realizes that most people won’t look at a chart of the stock market and he just wants some good PR. The president wants people to think that he is the reason for the stock market bubble. This is a big mistake. The Fed is the premier member of the so-called “Deep State”. In fact, without The Fed, there would hardly be a “Deep State” to speak of. The Fed sits at the top of the Deep State. They have the ultimate power (that no human beings should ever have) to create new money out-of-thin-air. In case Trump hasn’t figured it out yet, the Deep State does not like him. Should a major decline in the stock market occur during Trump’s Administration, guess who will take the blame? President Trump. After all, he took ownership of the bubble!

Should the market tumble, the mainstream media (that also despises Trump) will have plenty of his quotes, YouTubes, and Tweets to use against him. The economic woes will be pinned on Trump. Will Trump deserve the blame? No, but it’ll be too late. This is not to say that a major decline will occur during Trump’s tenure. Bubbles can take on a life of their own, and this one may last during Trump’s full term. But that’s a risky gamble to make. This bubble is going on almost 10 years now without a serious decline. Should we see a major selloff, Trump has very few friends in the major power centers that will come to his aid. As Peter Schiff points out in this fantastic clip below: The Fed now has their fall guy:

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A curious move. An ultimate power game.

Congress Checkmates Trump (And The American People) (LR)

Yesterday, the US Senate passed HR 3364, the Countering America’s Adversaries Through Sanctions Act by a massive 98 yeas to two nays. Opposing the bill were Sens. Bernie Sanders (I-VT) and Rand Paul (R-KY). The bill passed in the House by 419-3 on Tuesday, with Reps Massie (R-KY), Amash (R-MI), and Duncan (R-TN) opposing. The new sanctions bill ties President Trump’s hands on foreign policy, as he will be forced to ask Congress for permission to ease the measures. Speaking in favor of the legislation, Sen. Bob Menendez (R-NJ) cited the need to send Russia a message that it cannot meddle in US elections, that it cannot annex Crimea, that it cannot invade Ukraine, and that it cannot indiscriminately kill women and children in Syria.

Those of us living in the actual real world recognize that the first count remains unproven and the remaining counts are simply fatuous, fact-free bluster by Washington’s uninformed, group-thinking, foreign policy elites. Fueled by the millions coming in to the military-industrial complex. The House and Senate passed “Countering America’s Adversaries Through Sanctions Act” now goes to President Trump’s desk, where he faces a damned if he does and damned if he doesn’t scenario. A veto would certainly be over-ridden, handing the president a bitter bi-partisan blow that would likely end whatever aspirations he may retain to keep his campaign promises to get along better with Russia.

Similarly, signing the bill signs a death warrant for any foreign policy different than the one served up by the neocons for decades: create enemies; push war propaganda; collect massive checks from military industrial complex; demonize any American refusing to go along; repeat, adding bombs as necessary. Checkmate, President Trump.

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Over 600 would have to leave. Question: why does the US have over 6000 more staff in Russia than vice versa?

Russia Hits Back Over Sanctions, Orders US Diplomats To Leave (R.)

Russia told the United States on Friday that some of its diplomats had to leave the country in just over a month and said it was seizing some U.S. diplomatic property as retaliation for what it said were proposed illegal U.S. sanctions. Russia’s response, announced by the Foreign Ministry, came a day after the U.S. Senate voted to slap new sanctions on Russia, putting President Donald Trump in a tough position by forcing him to take a hard line on Moscow or veto the legislation and anger his own Republican Party. President Vladimir Putin had warned on Thursday that Russia had so far exercised restraint, but would have to retaliate against what he described as boorish and unreasonable U.S. behaviour. Relations between the two countries, already at a post-Cold War low, have deteriorated even further after U.S. intelligence agencies accused Russia of trying to meddle in last year’s U.S. presidential election, something Moscow flatly denies.

The Russian Foreign Ministry said on Friday that the United States had until Sept. 1 to reduce its diplomatic staff in Russia to 455 people, the same number of Russian diplomats it said were left in the United States after Washington expelled 35 Russians in December. It said in a statement that the decision by Congress to impose new sanctions confirmed “the extreme aggression of the United States in international affairs.” “Hiding behind its ‘exceptionalism’ the United States arrogantly ignores the positions and interests of other countries,” said the ministry. “Under the absolutely invented pretext of Russian interference in their “Under the absolutely invented pretext of Russian interference in their domestic affairs the United States is aggressively pushing forward, one after another, crude anti-Russian actions. This all runs counter to the principles of international law.”

[..] An official at the U.S. embassy in Moscow, who declined to be named because they were not allowed to speak to the media, said there were around 1,100 U.S. diplomatic staff in Russia. That included Russian citizens and U.S. citizens. Most staff, including around 300 U.S. citizens, work in the main embassy in Moscow with others based in outlying consulates. The Russian Foreign Ministry said it was also seizing a Moscow dacha compound used by U.S. diplomats to relax from Aug. 1 as well as a U.S. diplomatic warehouse in Moscow.

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Confidence spelled backwards. How to cause a bank run in 3 easy lessons.

EU Explores Account Freezes To Prevent Runs At Failing Banks (R.)

European Union states are considering measures which would allow them to temporarily stop people withdrawing money from their accounts to prevent bank runs, an EU document reviewed by Reuters revealed. The move is aimed at helping rescue lenders that are deemed failing or likely to fail, but critics say it could hit confidence and might even hasten withdrawals at the first rumors of a bank being in trouble. The proposal, which has been in the works since the beginning of this year, comes less than two months after a run on deposits at Banco Popular contributed to the collapse of the Spanish lender. It also come amid a bitter wrangle among European countries over how to deal with troubled banks, roughly a decade after a financial crash that required the ECB to print billions of euros to prevent a prolonged economic slump.

Giving supervisors the power to temporarily block bank accounts at ailing lenders is “a feasible option,” a paper prepared by the Estonian presidency of the EU said, acknowledging that member states were divided on the issue. EU countries which already allow a moratorium on bank payouts in insolvency procedures at national level, like Germany, support the measure, officials said. “The desire is to prevent a bank run, so that when a bank is in a critical situation it is not pushed over the edge,” a person familiar with German government’s thinking said. To cover for savers’ immediate financial needs, the Estonian paper, dated July 10, recommended the introduction of a mechanism that could allow depositors to withdraw “at least a limited amount of funds.”

Banks, though, say it would discourage saving. “We strongly believe that this would incentivize depositors to run from a bank at an early stage,” Charlie Bannister of the Association for Financial Markets in Europe (AFME), a banking lobby group, said. The Estonian proposal was discussed by EU envoys on July 13 but no decision was made, an EU official said. Discussions were due to continue in September. The plan, if agreed, would contrast with legislative proposals made by the European Commission in November that aimed to strengthen supervisors’ powers to suspend withdrawals, but excluded from the moratorium insured depositors, which under EU rules are those below 100,000 euros ($117,000).

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Price discovery.

The Great Transatlantic Bond Divergence Unwind (WSJ)

Many of the trades embraced by markets after President Donald Trump’s election have been slowly unwinding in 2017. Here’s an important one that could have further to go: the gap between U.S. and German government bond yields. The spread between 10-year Treasurys and bunds ballooned after Mr. Trump’s November victory to a level not seen since before the fall of the Berlin Wall, around 2.3 percentage points by the end of 2016. U.S. yields rose sharply on the idea of reflation and stimulus, while Europe appeared stuck in a rut. At 1.75%age points, the gap is close to its pre-election level. But even that is unusual by historical standards. Between 1990 and 2014, the spread was only rarely wider than one percentage point, and over that period averaged just 0.2 point, according to data from FactSet.

Such a tight relationship between German and U.S. bonds reflected the long global bull market for bonds in the glory years of globalization. Relatively synchronized monetary policy meant yields fell on both sides of the Atlantic together. The Fed’s 2013 taper, followed by signals of coming European Central Bank bond buying helped set the bond markets apart. That both helped weaken the euro and encouraged a rush of bond issuance by U.S. companies in European markets as borrowing costs fell. Where policy goes now is key. Markets doubt how far the Fed might get with its tightening, and seem unflustered by the prospect of the central bank shrinking its balance sheet. Investors may be too relaxed, but in the absence of fiscal stimulus and inflation, much higher yields for Treasurys might be hard to achieve in the near term.

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But they rule Germany. So yeah, some fines etc., but the culture just goes on.

Top German Automakers Sued in US Over Two-Decade ‘Cartel’ (BBG)

German’s major automakers were accused in a U.S. lawsuit of acting as a cartel, colluding for nearly two decades to limit the pace of technological advances in their vehicles and stifle competition – allegations that widen the scope of the latest scandal to hit the nation’s auto industry. BMW AG, Daimler AG, Volkswagen AG and its Audi and Porsche brands shared competitive information about vehicle technologies with one another from 1996 through at least 2015 in violation of antitrust laws, according to a complaint filed Friday in San Francisco federal court. “These coordinated actions enabled the manufacturer defendants — the self-named ‘Fünfer-Kreise,’ or Circle of Five — to impose a German automobile premium on consumers premised on superior German engineering, while secretly stunting incentives to innovate,” the suit alleges.

The suit, which seeks class-action status on behalf of U.S. drivers, says the companies agreed to limit the development of vehicle systems, including emissions control. The arrangement allegedly led to the development of so-called “defeat devices” used by Volkswagen to cheat on pollution tests. Plaintiffs claim the operation of convertible roofs, body design, brakes and electronic systems were also part of the “technological innovations inhibited” by the pacts. The supplier of VW’s cheat software, Robert Bosch Gmbh, was also named as a defendant in the lawsuit.

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“The added cost of insurance pushed 274,000 customers into delinquency..”

Elizabeth Warren has called on the Fed to remove Wells Fargo board members. I think if your legal system does not allow you to put these people behind bars, maybe you should look there first. Many of these people should be put before a judge and Wells Fargo should be forced to close. Institutions like that are diseases in a society.

Wells Fargo Faces Angry Questions After New Sales Abuses Uncovered (R.)

New revelations that Wells Fargo spent years enrolling unknowing borrowers in costly auto insurance has put the bank under new pressure to answer for a months-long scandal over sales practices that have harmed millions of Americans. The latest news that 800,000 Wells Fargo auto borrowers were improperly charged for insurance rattled investors yet again, and sent its stock down 2.6% on Friday. Shareholders, analysts, lawmakers and consumer advocates demanded answers about how the situation manifested, and why Wells Fargo did not disclose the problems sooner, given existing turmoil over phony deposit and credit card accounts opened in customers’ names without their permission.

“This is a full-blown scandal — again,” said New York City Comptroller Scott Stringer, who oversees public pension funds that hold roughly 11.6 million Wells Fargo shares. “It’s unbelievable, outrageous, sad, and yet quintessential Wells Fargo. This isn’t just a corporate debacle. It’s caused real human harm.” Stringer called on the bank to install a new independent chair and “immediately” disclose more information. Wells Fargo first became aware of potential problems a year ago, when the auto lending business began receiving an unusually high number of complaints, Franklin Codel, head of consumer lending, said in an interview. The auto insurance program was quickly suspended, and the problem escalated to senior management, the board and regulators, he said.

Wells Fargo planned to delay public disclosure until it could notify affected customers and reimburse them. “The problem with disclosing to the marketplace today or several months ago is customers start calling and asking when they’re going to get their money,” he said. “It’s not a great customer experience to say, ‘Yeah, we’ll get back to you.'” [..] Wall Street analysts expect the financial damage to go beyond the $80 million in reimbursements. In a note on Friday, Piper Jaffray’s Kevin Barker predicted the true cost would be “multiples” of that figure, with lawsuits and further customer remediation. The added cost of insurance pushed 274,000 customers into delinquency, and led to at least 20,000 wrongful repossessions, according to the Times.

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“Community bank” and Wells Fargo in one sentence. Take out the ones that are most guilty and go on as you were.

Wells Fargo Cuts 70 Senior Managers in Retail Bank After Accounts Scandal (BBG)

Wells Fargo, the lender struggling to overcome a fake-accounts scandal in its community bank, said the division’s new leader is cutting about 70 senior executive jobs. The lender will reduce the number of regional and area presidents to 91, Mary Mack, head of the retail bank, said Friday in a memo to staff, a copy of which was obtained by Bloomberg. Bank spokeswoman Bridget Braxton confirmed the contents of the memo and said employees whose positions are eliminated will remain staff members for 60 days until further steps are decided. Most of the remaining managers will be re-titled as region bank presidents with direct responsibility for more employees than before, in a move aimed at reducing management levels across the branch network, Mack wrote.

Across its 10 geographical divisions, Wells Fargo previously employed 160 regional and area presidents. “Change is hard, yet change is necessary to make sure we are well positioned for the future,” Mack wrote. “In order to truly be better, we must put the right structure in place,” she added. The community-banking division, which houses the retail bank, has generated weaker profit since September when Wells Fargo was fined $185 million because employees had been opening accounts for more than a half decade without customers’ permission. This week, the firm’s consumer operations revealed another scandal, announcing that the bank had charged as many as 500,000 customers for auto insurance they didn’t need.

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“..Bill Gates who heads the largest digital technology company is on occasion second fiddle to Bezos who heads an online Sears or Macy’s.”

What Explains amazon.com’s Share Price? (PCR)

“Here are today’s top stories on Bloomberg” “Jeff Bezos briefly overtook Bill Gates as the world’s richest person. A surge in Amazon shares Thursday morning in advance of its earnings report gave Bezos a net worth of $92.3 billion, surpassing the Microsoft founder’s $90.8 billion fortune. In afternoon trading, Bezos remains ranked second on the Bloomberg Billionaires Index. Gates has held the top spot since May 2013.” Amazon’s stock closed yesterday at $1,046 per share. Amazon’s profits do not support this extraordinary price. Apple, a very profitable company, has a share price of $150.56, an overprice itself. What or who is making Bezos so rich from an online sales company? Note, amazon.com is just sales. It is not some new manufacturing technology that produces valuable output at low cost.

amazon.com is what Walmart, Sears, and Macy’s do, the difference being that amazon.com is online and Walmart, Sears, and Macy’s are in physical locations where real merchandise can be experienced hands on and tried on for fit. In other words, online purchases are convenient, but you don’t know what you are getting. Does it fit? What is the quality? And so forth. How many times do you send it back before you get what you want? There are two answers to the question about who is making Bezos rich. One is that Wall Street is betting that the collapse of US anti-trust law and regulatory authority—it is still on the books but not enforced, just look at the Big Banks—and the ability of Bezos to use his ownership of the Washington Post, the newspaper of the country’s capital, to support those who support him, ensure that amazon.com will be an online monopoly.

Once this is put in place, amazon’s prices and profits will rise, and the extraordinary amazon.com P/E ratio will come into line with reality. Another is that Bezos’ cooperation with Washington’s spy network over all Americans is paid for by the CIA’s many front companies driving up the price of amazon.com’s stock. As the price of amazon.com rises, so does Bezos’ wealth. I don’t know that either of these answers is correct. What I notice is that Bill Gates who heads the largest digital technology company is on occasion second fiddle to Bezos who heads an online Sears or Macy’s.

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Just in case you’re thinking things are a mess where you are. His brother is rumored to succeed him.

Panama Leaks and the Fall of Pakistan’s Prime Minister (Niaz)

On July 28, 2017, the Supreme Court of Pakistan (SCP) rendered a unanimous verdict by a five-member bench that disqualified Prime Minister Nawaz Sharif from holding public office. This outcome was the result of the Panama Leaks, which revealed that the premier and his family owned assets disproportionate to their known sources of income. The opposition Pakistan Tehreek-i-Insaf (PTI), led by Imran Khan, seized on this issue and managed to compel Pakistan’s normally apathetic state institutions to take notice. For over a year, the premier and his family failed to explain how they acquired upscale properties in London. The ruling family dug themselves even deeper into the hole in their effort to establish some kind of cover for their acquisitions by being deliberately inaccurate before the SCP and even forging documents.

Surrounded by sycophants, the premier was evidently badly advised at each step and he and his family have paid a very high political price and could well face jail time. Pakistan has a long tradition of dragging its civilian chief executives over the coals. No prime minister has completed a regular term in office, their tenures cut short by assassination, civilian or military coups, judicial intervention, and intra-party machinations. Many premiers have been overthrown or dismissed for alleged abuse of power, mal-administration, and corruption. Nawaz Sharif and his family, in being unable to account for their wealth, and in their crude attempts at a cover up, have demonstrated that they are evidently crooks.

This said, the Pakistan Muslim League-Nawaz (PML-N) has done a better job of delivering on its campaign promises than any political party in Pakistan’s democratic experience. Pakistan’s energy crisis has eased, the economy is headed towards 6% annual growth, FDI is the highest in a decade, per capita income has risen perceptively, major cities have seen considerable investment in their infrastructure, and the gross level of terrorist violence has declined. Given that the ruling party won in 2013 with as many votes as the next two largest parties combined, its victory in 2018 seemed all but assured.

[..] Since 1947, Pakistan state elites have presided over a massive privatization of public wealth. Entitlements in the form of plots, perks, benefits, are part of an elaborate system of bureaucratically induced shortages that breed systemic corruption and undermines governance. Pakistani private and public sector corporations and entrepreneurs guzzle subsidies and thrive only in a cartelized environment. Any attempt by a government to rationalize the economy or improve productivity is met with howls of protest and demands for more subsidies. Pakistani professionals, be they lawyers, doctors, engineers, educators, behave like mafias, seeking to avoid ethical checks while relentlessly pursuing self-aggrandizement.

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We’ll eat our own crap yet. Garbage in, garbage out.

Plastic Microparticles Found In Flesh Of Fish Eaten By Humans (Ind.)

Plastic microparticles are getting into the flesh of fish eaten by humans, according to a new study. A team of scientists from Malaysia and France discovered a total of 36 tiny pieces of plastic in the bodies of 120 mackerel, anchovies, mullets and croakers. They warned that as plastic attracts toxins in the environment, these poisons could be released into people’s bodies after they ate the fish. The plastics found included nylon, polystyrene and polyethylene. Writing in the journal Scientific Reports, the researchers said: “The widespread distribution of microplastics in aquatic bodies has subsequently contaminated a diverse range of aquatic biota, including those sold for human consumption such as shellfish and mussels.

“Therefore, seafood products could be a major route of human exposure to microplastics. “Microplastics were suggested to exert their harmful effects by providing a medium to facilitate the transport of other toxic compounds such as heavy metals and persistent organic pollutants to the body of organisms. Upon ingestion, these chemicals may be released and cause toxicity.” They suggested people eating the fish examined in this study, which are often dried and sold across Malaysia and neighbouring countries, could consume up to 246 pieces of microplastic a year. However, they added: “The majority of the tested fish in this study did not contain microplastics. Therefore, it is less likely that an individual would ingest the suggested maximum number of microplastics per annum.”

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May 132017
 
 May 13, 2017  Posted by at 8:47 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Fred Stein Subway Steps New York 1943

 

Hackers Hit Dozens of Countries Exploiting Stolen NSA Tool (NYT)
UK Health Service, Targeted in Cyberattack, Ignored Warnings for Months (NYT)
Hurricane Bearing Down on the Casino (Stockman)
$500 Trillion in Derivatives “Remain an Important Asset Class” – NY Fed (WS)
The Great Misconception of a Return to “Normal” (Econimica)
US Nears $100 Billion Arms Deal For Saudi Arabia (R.)
Wells Fargo Bogus Accounts Balloon To 3.5 Million (R.)
EU To Decide Future Of Uber, Airbnb In Europe (NE)
A Populist Storm Stirs in Italy (WSJ)
Macron To Visit Germany To Seek Support For A Beefed Up Eurozone (G.)
Blood Sports (Jim Kunstler)
Greece and the Bond Market. Friends Reunited? (BBG)
China’s Xi Offers Indebted Greece Strong Support (R.)
Varoufakis Accuses Tsipras, Tsakalotos Of Giving In To Creditors (K.)
IMF, Eurozone Say Need More Time To Reach Greek Debt Relief Deal (R.)

 

 

Edward Snowden @Snowden: “In light of today’s attack, Congress needs to be asking @NSAgov if it knows of any other vulnerabilities in software used in our hospitals.”

Hackers Hit Dozens of Countries Exploiting Stolen NSA Tool (NYT)

Hackers exploiting malicious software stolen from the National Security Agency executed damaging cyberattacks on Friday that hit dozens of countries worldwide, forcing Britain’s public health system to send patients away, freezing computers at Russia’s Interior Ministry and wreaking havoc on tens of thousands of computers elsewhere. The attacks amounted to an audacious global blackmail attempt spread by the internet and underscored the vulnerabilities of the digital age. Transmitted via email, the malicious software locked British hospitals out of their computer systems and demanded ransom before users could be let back in – with a threat that data would be destroyed if the demands were not met.

By late Friday the attacks had spread to more than 74 countries, according to security firms tracking the spread. Kaspersky Lab, a Russian cybersecurity firm, said Russia was the worst-hit, followed by Ukraine, India and Taiwan. Reports of attacks also came from Latin America and Africa.[..] The hackers’ weapon of choice on Friday was Wanna Decryptor, a new variant of the WannaCry ransomware, which encrypts victims’ data, locks them out of their systems and demands ransoms. Researchers said the impact and speed of Friday’s attacks had not been seen in nearly a decade, when the Conficker computer worm infected millions of government, business and personal computers in more than 190 countries, threatening to overpower the computer networks that controlled health care, air traffic and banking systems over the course of several weeks.

One reason the ransomware on Friday was able to spread so quickly was that the stolen N.S.A. hacking tool, known as “Eternal Blue,” affected a vulnerability in Microsoft Windows servers. Hours after the Shadow Brokers released the tool last month, Microsoft assured users that it had already included a patch for the underlying vulnerability in a software update in March. But Microsoft, which regularly credits researchers who discover holes in its products, curiously would not say who had tipped the company off to the issue. Many suspected that the United States government itself had told Microsoft, after the N.S.A. realized that its hacking method exploiting the vulnerability had been stolen.

Privacy activists said if that were the case, the government would be to blame for the fact that so many companies were left vulnerable to Friday’s attacks. It takes time for companies to roll out systemwide patches, and by notifying Microsoft of the hole only after the N.S.A.’s hacking tool was stolen, activists say the government would have left many hospitals, businesses and governments susceptible. “It would be deeply troubling if the N.S.A. knew about this vulnerability but failed to disclose it to Microsoft until after it was stolen,” Patrick Toomey, a lawyer at the American Civil Liberties Union, said on Friday. “These attacks underscore the fact that vulnerabilities will be exploited not just by our security agencies, but by hackers and criminals around the world.”

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Don’t just blame the hospitals. Blame the government that squeezes them so dry they have to choose patients over computers.

UK Health Service, Targeted in Cyberattack, Ignored Warnings for Months (NYT)

Britain’s National Health Service ignored numerous warnings over the last year that many of its computer systems were outdated and unprotected from the type of devastating cyberattack it suffered on Friday. The attack caused some hospitals to stop accepting patients, doctor’s offices to shut down, emergency rooms to divert patients, and critical operations to be canceled as a decentralized system struggled to cope. At some hospitals, nurses could not even print out name tags for newborn babies. At the Royal London Hospital, in east London, George Popescu, a 23-year-old hotel cook, showed up with a forehead injury. “My head is pounding and they say they can’t see me,” he said. “They said their computers weren’t working. You don’t expect this in a big city like London.”

In a statement on Friday, the N.H.S. said its inquiry into the attack was in its early phases but that “at this stage we do not have any evidence that patient data has been accessed.” Many of the N.H.S. computers still run Windows XP, an out-of-date software that no longer gets security updates from its maker, Microsoft. A government contract with Microsoft to update the software for the N.H.S. expired two years ago. Microsoft discontinued the security updates for Windows XP in 2014. It made a patch, or fix, available in newer versions of Windows for the flaws that were exploited in Friday’s cyberattacks. But the health service does not seem to have installed either the newer version of Windows or the patch.

“Historically, we’ve known that N.H.S. uses computers running old versions of Windows that Microsoft itself no longer supports and says is a security risk,” said Graham Cluley, a cybersecurity expert in Oxford, England. “And even on the newest computers, they would have needed to apply the patch released in March. Clearly that did not happen, or the malware wouldn’t have spread this fast.” Just this month, a parliamentary research briefing noted that cyberattacks were viewed as one of the top threats facing Britain. The push to make medical records systems more interconnected might also make the system more vulnerable to attack. Britain plans to digitize all patient records by 2020.

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The anti-Trump battle will be fought with financial weapons. And the Donald is walking into that trap.

Hurricane Bearing Down on the Casino (Stockman)

Yesterday I said the Donald was absolutely right in canning the insufferable James Comey, but that he has also has stepped on a terminal political land-mine. And he did. That’s because the entire Russian meddling and collusion narrative is a ridiculous, evidence-free attempt to re-litigate the last election. And now that the powers that be have all the justification they need. And what is already an irrational witch-hunt will be quickly turned into a scorched-earth assault on a sitting president. I have no idea how this will play out, but as a youthful witness to history back in 1973-1974 I observed Tricky Dick’s demise in daily slow motion. But the most memorable part of the saga was how incredibly invincible Nixon seemed in early 1973. Nixon started his second term, in fact, with a massive electoral landslide, strong public opinion polls and a completely functioning government and cabinet.

Even more importantly, he was still basking in the afterglow of his smashing 1972 foreign policy successes in negotiating detente and the anti-ballistic missile (ABM) treaty with Brezhnev and then the historic opening to China on his Beijing trip. So I’ll take the unders from anyone who gives the Donald even the 19 months that Nixon survived. After all, Trump lost the popular vote, is loathed by official Washington, barely has a functioning cabinet and is a whirling dervish of disorder, indiscipline and unpredictability. To be sure, the terms of the Donald’s eventual exit from the Imperial City will ultimately by finalized by the 46th President in waiting, Mike Pence. But I’m pretty sure of one thing: Between now and then, there is not a snow ball’s chance in the hot place that Donald’s severance package will include the ballyhooed Trump Tax Cut and Fiscal Stimulus.

Markets slipped today because of carnage in the retail sector (which I’ve been warning readers about). But these fantasies are apparently still “priced-in” to a market that has now become just plain stupid. What is surely coming down the pike after the Comey firing, however, is just the opposite. That is, Washington will soon become a three-ring circus of investigations of Russia-gate and the “hidden” reasons for Trump’s action. The Imperial City will get embroiled in bitter partisan warfare and the splintering of the GOP between its populist and establishment wings. In that context, what passes for “governance” will be reduced to a moveable Fiscal Bloodbath that cycles between debt ceiling showdowns and short-term continuing resolution extensions.

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The swamp that can’t be drained without causing explosions.

$500 Trillion in Derivatives “Remain an Important Asset Class” – NY Fed (WS)

Economists at the New York Fed included this gem in their report on a two-day conference on “Derivatives and Regulatory Changes” since the Financial Crisis: “Though the notional amount [of derivatives] outstanding has declined in recent years, at more than $500 trillion outstanding, OTC derivatives remain an important asset class.” An important asset class. A hilarious understatement. Let’s see… the “notional amount” of $500 trillion is 25 times the GDP of the US and about 7 times global GDP. Derivatives are not just an “important asset class,” like bonds; they’re the largest “financial weapons of mass destruction,” as Warren Buffett called them in 2003.

Derivatives are used for hedging economic risks. And they’re used as “speculative directional exposures” – very risky one-sided bets. It’s all tied together in an immense and opaque market interwoven with the banks. The New York Fed: The 2007-09 financial crisis highlighted weaknesses in the over-the-counter (OTC) derivatives markets and the increased risk of contagion due to the interconnectedness of market participants in these markets. This chart from the New York Fed shows how derivatives ballooned 150% – or by $360 trillion – in less than four years before the Financial Crisis. They ticked down during the Financial Crisis, then rose again during the Fed’s QE to peak at $700 trillion. After the end of QE, they declined, but recently ticked up again to $500 trillion. I added in red the Warren Buffett moment:

The vast majority of the derivatives are interest rate and credit contracts (dark blue). Banks specialize in that. For example, according to the OCC’s Q4 2016 Report on Derivatives, JPMorgan Chase holds $47.5 trillion of derivatives at notional value and Citibank $43.9 trillion. The top 25 US banks hold $164.7 trillion, or 8.5 times US GDP. So even a minor squiggle could trigger some serious heartburn.

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Try use “normal” and “derivatives” in one sentence and put on a straight face.

The Great Misconception of a Return to “Normal” (Econimica)

Since 2009, there has been ongoing discussion of the size & composition of major central bank balance sheets (I’m focusing on the Federal Reserve Bank, European Central Bank, and the Bank of Japan) but little discussion of why these institutions felt (and continue to feel) compelled to “buy” assets. The chart below highlights the ongoing collective explosion of these bank “assets” since 2009 after a previous period of relative stability. These institutions clearly have the capability and willingness to digitally conjure “money” from nothing and have felt compelled to remove over $10 trillion worth of assets from the markets since 2009. This swap of illiquid assets for liquid cash had (and continues to have) the effect of squeezing the prices of the remaining assets higher (more money chasing fewer assets=price appreciation).

A prime example of that squeeze, the US stock market total valuation (represented by the Wilshire 5000, below) is $10 trillion higher than the “bubble” peak of 2008…and $11 trillion higher than the 2001 “bubble” peak. Likewise, US federal debt since 2008 has increased by…you guessed it, $10 trillion. The narrative seems to be that 2009 was a one off event and that the central banks role was and still is to “stabilize” the situation until things “normalize”. But right there…that idea that 2009 was a “one-off” or “abnormal” couldn’t be more wrong. So what is “normal” growth, at least from a consumption standpoint? Normal is never the same twice…it is ever changing and must be constantly rediscovered.

To determine “normal” growth in consumption, all we need do is figure the change in the quantity of consumers (annual population growth) and the quality of those consumers (their earnings, savings, and utilization of credit). The chart below details the ever changing “normal” that is the annual change in the under 65yr/old global population broken down by wealthy consuming nations (blue line) and the rest of the (generally poor) world (red line). The natural rate of growth in consumption has been declining ever since 1988 (persistently less growth in the population on a year over year basis)…but central banks and central governments have substituted interest rate cuts and un-repayable debt to maintain an unnaturally high consumption growth rate.

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If we don’t put a stop to this, we have no chance. This is where it all begins and ends.

US Nears $100 Billion Arms Deal For Saudi Arabia (R.)

The United States is close to completing a series of arms deals for Saudi Arabia totaling more than $100 billion, a senior White House official said on Friday, a week ahead of President Donald Trump’s planned visit to Riyadh. The official, who spoke to Reuters on condition of anonymity, said the arms package could end up surpassing more than $300 billion over a decade to help Saudi Arabia boost its defensive capabilities while still maintaining U.S. ally Israel’s qualitative military edge over its neighbors. “We are in the final stages of a series of deals,” the official said. The package is being developed to coincide with Trump’s visit to Saudi Arabia. Trump leaves for the kingdom on May 19, the first stop on his maiden international trip.

Reuters reported last week that Washington was pushing through contracts for tens of billions of dollars in arms sales to Saudi Arabia, some new, others already in the pipeline, ahead of Trump’s visit. The United States has been the main supplier for most Saudi military needs, from F-15 fighter jets to command and control systems worth tens of billions of dollars in recent years. Trump has vowed to stimulate the U.S. economy by boosting manufacturing jobs. The package includes American arms and maintenance, ships, air missile defense and maritime security, the official said. “We’ll see a very substantial commitment … In many ways it is intended to build capabilities for the threats they face.” The official added: “It’s good for the American economy but it will also be good in terms of building a capability that is appropriate for the challenges of the region. Israel would still maintain an edge.”

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How many executives in jail, you said?

Wells Fargo Bogus Accounts Balloon To 3.5 Million (R.)

Wells Fargo may have opened as many as 3.5 million unauthorized customer accounts, far more than previously estimated, according to lawyers seeking approval of a $142 million settlement over the practice. The new estimate was provided in a filing late Thursday night in the federal court in San Francisco, and is 1.4 million accounts higher than previously reported by federal regulators, in what became a national scandal. Keller Rohrback, a law firm for the plaintiff customers, said the higher estimate reflects “public information, negotiations, and confirmatory discovery.” The Seattle-based firm also said the number “may well be over-inclusive, but provides a reasonable basis on which to estimate a maximum recovery.”

Wells Fargo spokesman Ancel Martinez in an email said the new estimate was “based on a hypothetical scenario” and unverified, and did not reflect “actual unauthorized accounts.” Nonetheless, it could complicate Wells Fargo’s ability to win approval for the settlement, which has drawn opposition from some customers and lawyers who consider it too small. “This adds more credence to the fact there is not enough information to assess whether the settlement is fair and adequate,” Lewis Garrison, a partner at Heninger Garrison Davis in Birmingham, Alabama who represents some objecting customers, said in an interview. U.S. District Judge Vince Chhabria in San Francisco is scheduled to consider preliminary approval at a May 18 hearing. The accounts scandal mushroomed after Wells Fargo agreed last September to pay $185 million in penalties to settle charges by authorities including the U.S. Consumer Financial Protection Bureau.

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They better be thorough, or individual countries must each formulate their own responses.

EU To Decide Future Of Uber, Airbnb In Europe (NE)

An opinion issued by the European Court of Justice on May 11 could prevent people from using or working for services such as Uber and Airbnb. The opinion from the Advocate General of the European Court of Justice follows a case that has been brought by Spanish taxi drivers against the ride sharing service Uber. It found that Uber should be regulated like a transportation company, not as an “information society service”. If the opinion is upheld, these services could be required to apply for specific licences or be restricted in number as is the case with taxis in various European cities in an attempt to keep prices artificially high.

The court is slated to deliver a final ruling on whether Uber should be classified as a transport company or as a passive internet intermediary, in the coming months. Usually, the judges follow the opinion of the Advocate General. It remains to be seen whether the case will impact other so-called sharing economy services as Airbnb. Speaking after the opinion was issued, Dan Dalton, European Conservatives and Reformists (ECR) spokesman on the EU internal market said: “The opinion given today has huge implications for innovative, consumer driven digital services all across Europe… It is right that there are safeguards for consumers, but applying analogue era regulation to the digital world only strangles innovation and entrenches privileged monopolies.”

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Beppe always had one goal first: get rid of corruption. The WSJ can talk all it wants about M5S teething problems, but there are bigger issues here.

A Populist Storm Stirs in Italy (WSJ)

Europe’s establishment breathed a sigh of relief after the pro-European Union centrist Emmanuel Macron was elected French president this week. But another populist storm is brewing in Italy, where the euroskeptic 5 Star Movement has remained strong. Fueled by discontent with slow growth, high unemployment and disillusionment with mainstream politicians, 5-Star has won local elections in Rome, Turin and elsewhere, partly on the strength of its leaders’ call for a referendum on Italy’s use of the European single currency. Pollsters say about 30% of Italian voters support the movement founded by comedian Beppe Grillo, a level of popularity that has stood firm despite a series of high-profile stumbles, especially by its mayor in Rome.

The self-described association of free citizens has replaced the center-left Democratic Party at the top of most polls ahead of national elections to be held by May 2018. Now, the group that has flouted the rules of the game for establishment parties in Italy is experiencing growing pains as it prepares for the possibility of taking power. The prospect of Mr. Grillo and his supporters winning and forming a government has made investors nervous and pushed up yields on Italian bonds in recent months. On Friday, the spread between Italian and German 10-year sovereign bond yields was 1.85 percentage points, nearly five times the corresponding spread between French and German bonds.

Mr. Grillo and 5 Star waged a successful campaign to block constitutional changes sought by former Democratic Italian Prime Minister Matteo Renzi, effectively forcing him from office in December. Since then, a caretaker government has run Italy. The movement has vowed to institute tougher anticorruption laws and deliver a minimum guaranteed income for all working-age and retired Italians if it emerges from upcoming elections as head of a minority government or in a governing coalition with other euroskeptic parties.

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There is no support for a beefed up EU or eurozone. Besides, Macron will be fighting the unions over the summer.

Macron To Visit Germany To Seek Support For A Beefed Up Eurozone (G.)

Emmanuel Macron will take power as French president on Sunday and immediately face the twin challenges of European Union reform and loosening strict labour laws in France. After walking up the red carpet to the Élysée Palace on Sunday morning, being briefed on the nuclear deterrent by the outgoing Socialist leader François Hollande, and making his first speech, Macron will on Monday fly to Berlin to meet the German chancellor, Angela Merkel. It is traditional for French leaders to make Berlin their first European trip. The pro-European centrist Macron wants to boost the French-German motor at the heart of Europe and press for closer cooperation, including creating a parliament and budget for the eurozone. Merkel welcomed Macron’s decisive election victory over the far-right Marine Le Pen, saying he carried “the hopes of millions of French people and also many in Germany and across Europe”.

But if Macron is to push for eurozone reform, he must also prove to Berlin and other European allies that he can deliver the changes he has promised on France’s sluggish economy and deficit problem. The German finance minister, Wolfgang Schäuble, in an interview with the weekly Spiegel, kept up his country’s pressure on France to reduce its budget deficit to the EU ceiling of 3%. “France can make it,” he said. Macron, 39, France’s youngest elected leader, vowed during his campaign that he would immediately loosen France’s rigid labour regulations, giving businesses more power over setting working hours and deciding working conditions. He said that if needed, he would push through these changes by decree soon after taking office. Trade unions and leftwing demonstrators are warning of street protests if changes are not handled carefully.

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Jim waxes nostalgic on Nixon.

Blood Sports (Jim Kunstler)

I remember that sweaty August day that he threw in the towel. (I was a young newspaper reporter when newspapers still mattered.) It was pretty much a national orgasm. “NIXON RESIGNS!” the headlines screamed. A moment later he was on the gangway into the helicopter for the last time. Enter, stage right, the genial Gerald Ford…. Forgive me for getting caught up in the very nostalgia I castigate. And now here we are in the mere early months of Trumptopia about to hit the replay button on a televised inquisition. In my humble opinion, Donald Trump is a far more troubling personality than Tricky Dick ever was, infantile, narcissistic, at times verging on psychotic, but the RussiaGate story looks pretty flimsy. At this point, after about ten months of NSA-FBI investigation, nothing conclusive has turned up about Trump’s people “colluding” with Russia to gain unfair advantage in the election against You-Know-Who.

Former NSA chief James Clapper has publicly stated twice in no uncertain terms that there’s no evidence to support the allegations (so far). And there remains the specter of the actual content of the “collusion” — conveniently ignored by the so-called “Resistance” and its water-carriers at The New York Times — the hacked emails that evince all kinds of actual misbehavior by Secretary of State HRC and the DNC. The General Mike Flynn episode seems especially squishy, since it is the routine duty of incoming foreign affairs officials to check in with the ambassador corps in Washington. Why do you think nations send ambassadors to other countries? The upshot of all this will be a political circus for the rest of the year and the abandonment of any real business in government, at a moment in history when some very weighty black swans circle above the clouds waiting to crash land. Enjoy the histrionics if you dare, and pay no attention to collapsing economy as it all plays out.

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Draghi need to buy Greek bonds, and bring down those rates.

Greece and the Bond Market. Friends Reunited? (BBG)

Greece is considering tapping the capital markets for the first time in three years. Let’s hope its second attempt to regain market access goes more smoothly for investors than its first. A bond sale in July or September is being considered – if a deal on debt relief is reached, and the ECB adds Greek debt to the shopping list of securities it can buy through its quantitative easing program, according to the Wall Street Journal. The news comes as the U.S. presses European officials to ease Greece’s debt burden at informal talks during the Group of Seven gathering currently taking place in Italy.Investors can be forgiven if they feel a sense of déjà vu.In April 2014, Greece sold €3 billion of 4.75% bonds repayable in 2019 in its first issue for almost four years.

The country had sought to raise €2.5 billion; orders from more than 550 investors, though, exceeded €20 billion, and, five months later, the bond was increased by a further €1 billion. The then PM Antonis Samaras called the sale “one more decisive step toward exiting the crisis.”Except … it turned out Greece was about to get worse, not better. The day after the sale, the price of the bonds slipped by a bit more than half a point. By the end of the year, they’d lost almost 20% of their value. And by the middle of 2015, they slumped to as low as 40% of face value as the government was forced to introduce capital controls in an effort to stanch the flood of money leaving the country’s banking system. The bond price recovered as the Greek government dropped its defiance against the terms demanded by its lenders, implemented pension and labor market reforms and accelerated the sale of government assets.

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Does Brussels really want China to buy up Greece?

China’s Xi Offers Indebted Greece Strong Support (R.)

Chinese President Xi Jinping offered the prime minister of deeply indebted Greece strong support on Saturday, saying the two countries should expand cooperation in infrastructure, energy and telecommunications. Xi told Prime Minister Alexis Tsipras that Greece was an important part in China’s new Silk Road strategy. “At present, China and Greece’s traditional friendship and cooperation continues to glow with new dynamism,” China’s Foreign Ministry cited Xi as saying. Cooperation in infrastructure, energy and telecommunications should be “deep and solid”, Xi added, without giving details. Tsipras is in Beijing to attend a summit to promote Xi’s vision of expanding links between Asia, Africa and Europe underpinned by billions of dollars in infrastructure investment called the Belt and Road initiative.

Greek infrastructure development group Copelouzos has signed a deal with China’s Shenhua Group to cooperate in green energy projects and the upgrade of power plants in Greece and other countries, the Greek company said on Friday. The deal will involve total investment of €3 billion, Copelouzos said in a statement, without providing further details. China has been investing heavily in Greece in recent years. Its biggest shipping company, COSCO Shipping, bought a majority stake in Piraeus Port Authority last year under a plan to turn Greece into a transhipment hub for rapidly growing trade between Asia and Eastern Europe. Xi said China and Greece should focus their efforts on turning the Piraeus port into an important international transhipment hub and key part of the new Silk Road, the Chinese ministry said.

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Yanis says Greece’s future is Kosovo, Steve Keen said Somalia. They’re both right.

Varoufakis Accuses Tsipras, Tsakalotos Of Giving In To Creditors (K.)

In an interview Friday on Skai TV, former finance minister Yanis Varoufakis hit out at his erstwhile government colleagues, accusing both his successor Euclid Tsakalotos and Prime Minister Alexis Tsipras of giving in to the country’s international creditors. “There is no new agreement, just a new surrender,” he said of the latest deal with Greece’s lenders. “The first memorandum burned Papandreou, the second Samaras, the third Tsipras. The fourth will require a new prime minister,” he said. As for Greece’s prospects, his prediction was bleak. “We will become Kosovo, a protectorate run by an employee of the European Union.”

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Never seen a more broken record.

IMF, Eurozone Say Need More Time To Reach Greek Debt Relief Deal (R.)

The IMF and eurozone government lenders need more time to reach an agreement on debt relief for Greece because the eurozone is still not sufficiently clear in its intentions, IMF chief Christine Lagarde said on Friday. Top eurozone officials and Lagarde met on Friday morning to discuss debt relief for Athens which eurozone finance ministers, or the Eurogroup, promised in May 2016, but under strict conditions. “We will carry on working on this debt relief package. There is not enough clarity yet. Our European partners need to be more specific in terms of debt relief, which is an imperative,” Lagarde told reporters in the city of Bari in Italy. German Finance Ministers Wolfgang Schaeuble, also at the meeting of the G7 advanced economies in Bari, asked if he would be prepared to ease the conditions for debt relief, said: “We are prepared to stick to what we have agreed in May 2016. That is the basis on which we are working … I am still in favor of getting a solution, at least a political solution, in the Eurogroup on the 22nd of May.”

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Sep 282016
 
 September 28, 2016  Posted by at 9:20 am Finance Tagged with: , , , , , , , , ,  7 Responses »
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DPC Heart of Chinatown, San Francisco, after earthquake and fire 1906

Small Army Of Fed Speakers, OPEC On Tap For Wednesday (CNBC)
“Negative Growth” of Real Wages is Normal for Much of the Workforce (WS)
Grocery Prices Are Plunging (BBG)
EU Banking Mayhem, One Bank at a Time, then All at Once (WS)
Deutsche Bank Troubles Cast Long Shadow Over European Banking (BBG)
IMF Warns Central Banks Could Lose Deflation Fight (AFP)
A Legal Barrier to Higher US Interest Rates (WSJ)
Global Container Volume on Track for Worst Year Since 2009 (WSJ)
Wells Fargo Executives Forfeit Millions, CEO To Forgo Salary (G.)
Worries Grow Over Greek Economic Forecast (WSJ)
Germany’s Hypocrisy Over Greece Water Privatisation (G.)
China Wants GMOs. The Chinese People Don’t. (BBG)
Single Clothes Wash May Release 700,000 Microplastic Fibres (G.)

 

 

And the MH17 report that lost all credibility long ago. Got to keep the customer entertained.

Small Army Of Fed Speakers, OPEC On Tap For Wednesday (CNBC)

A flurry of Fed speakers, including the Fed chair, will keep markets busy Wednesday. There are also mortgage applications at 7 a.m. EDT, durable goods data at 8:30 a.m. EDT and oil inventory data at 10:30 a.m. EDT. OPEC, meanwhile, is meeting in Algeria and could continue to create volatility in oil prices after headlines from there triggered a near 3% plunge Tuesday. Fed Chair Janet Yellen appears before the House Financial Services Committee at 10 a.m. on supervision and regulation. The Fed chair was personally criticized in the presidential debate Monday night by GOP candidate Donald Trump, who said the Fed’s decision to keep rates low was political and that it’s creating a bubble in the stock market.

“It has to worry the markets that potentially you could have a president getting into a nasty dispute with the chairman of the Fed in early 2017. That’s something the market would not like to see. I think the Fed has not done a very good job communicating. It’s a cacophony of confusing comments. There’s reason to criticize the Fed, but the personal attack on Yellen is unprecedented,” said Greg Valliere, chief global strategist at Horizon Investments. Traders are watching to see if Yellen is in the political hot seat on banking regulation and supervision when she appears before the committee.

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One side of US deflation is falling wages…

“Negative Growth” of Real Wages is Normal for Much of the Workforce (WS)

The chart below shows the%age change of real wages (left, y-axis) as these men aged (horizontal, x-axis). As young adults, their wages soared by up to 10% a year. Then the rate of growth fell off sharply. When the men in this cohort turned 40 in the 1990s, wage growth disappeared. By around the year 2000, the real wage peak in the US, when the oldest men in this cohort turned 50, wages had begun to decline for most of them. By the time these men were in the mid-50s, their wages across the board were heading south – and for many of them, rapidly. Hence this colorful, drooping spaghetti:

This “negative real wage growth” – devastating as it may be for those experiencing it – is nothing special, according to the New York Fed. And it crushes not just white men, but everyone: “Real wages tend to rise early in a worker’s career, flatten out mid-career, and then decline as the worker approaches retirement. This inverted U-shape pattern is a well-established feature in the labor economics literature.” The report explained it further: “Labor economists explain the rapid real wage growth early in a worker’s career as a combination of on-the-job learning and better matching of workers to jobs. A large portion is due to job matching as workers change jobs in search of a position that better utilizes their skills. As workers age, the decline in the pace of their real wage growth reflects a diminished incentive to invest in new skills (because their remaining work life is shorter) and fewer job changes (because they have found a good job match).”

The report divides life for its purposes into three phases, terms of wage growth: • Fast growth, up to age 40, • Flat growth, ages 41-54, • “Negative growth,” age 55 and older. Now there’s another problem mucking up the overall and ever-elusive real-wage growth miracle everyone has been counting on: demographics. The US population is aging. There are more people aged 40 and over in the workforce, and their incomes are now flat or declining. The portion of the population in the first phase when wages are growing fast has plunged from close to 60% in the 1980s to the mid-40% range currently. And the portion of workers with wages in the “negative growth” phase has ballooned. Given the demographics, real wage declines among workers over 50 will continue to hammer the national averages.

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…and when wages are falling, so must prices.

Grocery Prices Are Plunging (BBG)

Call it the Great Grocery-Store Giveaway of 2016. In Austin, Texas, Randalls slashed prices for boneless beef ribs by 40%, to $3.99 a pound. Not to be outdone, the H-E-B grocer down the street charged $1 a pound less. Not long ago, Albertsons advertised a deal you don’t normally see on your finer cuts of meat: “buy 1 get 1 free” specials on “USDA Choice Petite Sirloin Steak.” And what does $1 buy these days? In North Bergen, New Jersey, you could pick up a dozen eggs at Wal-Mart. OK, the price was actually $1.14. A mile away, check out Aldi, the German supermarket discounter, which can actually break the buck – 12 eggs for 99 cents. A year ago, you would have paid, on average, three times that price.

In a startling development, almost unheard of outside a recession, food prices have fallen for nine straight months in the U.S. It’s the longest streak of food deflation since 1960 – with the exception of 2009, when the financial crisis was winding down. Analysts credit low oil and grain prices, as well as cutthroat competition from discounters. Consumers are winning out; grocery chains, not so much. Their margins and, in some cases, their stock prices, are taking a hit. Eggs and beef have have grown especially inexpensive, and it isn’t only an American phenomenon: In England, Aldi recently offered its prized 8-ounce wagyu steaks from New Zealand for about $6.50 – a little more than the price of a pint of beer. “The severity of what we’re seeing is completely unprecedented,” said Scott Mushkin at Wolfe Research, who has studied grocery prices around the country for more than ten years. “We’ve never seen deflation this sharp.”

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“The can has been kicked down the road for years. Now negative interest rates appear to have inadvertently crushed the can.”

EU Banking Mayhem, One Bank at a Time, then All at Once (WS)

Here are the 29 banks in the ESTX Banks Index of Eurozone banks (so Swiss and UK banks, for example are not included). It shows the percentage drop from their 52-week high. But for some of these banks, particularly for Italian and Portuguese banks, that 52-week high was just about last year’s 52-week low, so relentless has their decline been over the years. Some of them had already been reduced to penny stocks years ago, and for them, in euro terms, the biggest losses occurred back then. So these mayhem banks, color coded by country:

If a bank stock plunges from €0.04 to €0.01 over the 52-week period, such as Banco Comercial Português in Portugal, it has been toast for longer than 52 weeks, and the percentage plunge is essentially meaningless because shares were worthless to begin with. The shares of five of these banks trade under €1. Another 8 banks trade under €3. These 29 banks form a big part of the European financial system. It includes some of the world’s largest banks, such as Deutsche Bank, Societe Generale, and BNP Paribas. It includes a slew of other “systemically important financial institutions,” such as Unicredit, ING, and Santander. They’re troubled at the same time. The can has been kicked down the road for years. Now negative interest rates appear to have inadvertently crushed the can.

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Deutsche won’t go alone. Just like saving only Deutsche is far from enough. The dominoes suppart each other.

Deutsche Bank Troubles Cast Long Shadow Over European Banking (BBG)

The turmoil swirling around Deutsche Bank has brought simmering concerns about the health of Europe’s banks back to a boil. Germany’s largest lender extended losses to a record low this week, dragging down European financial stocks, after the U.S. Department of Justice requested $14 billion to settle claims tied to fraudulent mortgage-backed securities. While the bank said it won’t pay anywhere close to that amount, the dust-up fueled doubts over its capital levels and refocused investors on the industry’s faults. “One word – Deutsche,” David Moss at BMO Global Asset Management in London, said when asked to sum up the recent slump in European banks. “That’s the biggest thing – it’s reignited the risk around regulation, fines and litigation.”

Dismissing concern about the bank’s finances, Chief Executive Officer John Cryan told Bild in an interview published late Tuesday that capital “is currently not an issue,” and accepting government support is “out of the question for us.” Deutsche Bank has tumbled almost 20% this month, while Royal Bank of Scotland – which also faces a looming Justice Department fine – fell 13%, and Italy’s UniCredit slumped 12%. The Bloomberg Europe 500 Banks and Financial Services Index has declined 4.2% in September, making it the worst month since June, when Britain’s vote to exit the European Union roiled markets and sent bank shares plunging.

[..] European banks are grappling with tougher regulatory requirements, sputtering economic growth and negative interest rates, which squeeze lending margins and crimp investment returns. In Italy, where banks are burdened with some €360 billion of soured loans, UniCredit is working on a plan to boost capital that may include asset sales and a stock offering, according to people familiar with the matter. In Germany, Commerzbank scaled back its full-year profit goals and may announce thousands of job cuts this week,

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They already have.

IMF Warns Central Banks Could Lose Deflation Fight (AFP)

The IMF warned Tuesday that central banks are struggling to beat back deflationary forces and that governments need to spend to help them succeed. In a new assessment of global economic conditions, the IMF said many countries worldwide are battling disinflation – low and slowing inflation – due to weak global economic growth.If central banks around the world cannot halt this stall, and if companies and people increasingly believe they can’t halt it, their economies risk sinking into a deflationary spiral – where prices generally start to fall and companies and consumers hold back spending and investment, stalling the economy. In this case, “countries can’t afford to be complacent,” the Fund warned. The report said deflationary pressures in many countries are coming from abroad, in the form of sinking prices of both commodities and manufactured goods.

“The breadth of the decline in inflation across countries and the fact that it is stronger in the tradable goods sectors underscore the global nature of disinflationary forces,” the IMF said. Weak inflation challenges central banks’ ability to use monetary policy to stimulate demand, the IMF notes, because interest rates are likely to already be very low, giving them little room to cut further. That has been the case with top central banks including the Fed, the ECB and the BOJ, with the latter two already having taken some interest rates negative. “Eventually, ‘persistent’ disinflation can lead to costly deflationary cycles – as we have seen in Japan – where weak demand and deflation reinforce each other, and end up increasing debt burdens and hindering economic activity and job creation.”

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How to politicize the Fed?!

A Legal Barrier to Higher US Interest Rates (WSJ)

Defending the Fed’s recent decision to put off raising interest rates again, Fed Chair Janet Yellen told reporters last week that she and other Fed governors wanted “to see some continued progress” before taking that step. Politics, she insisted, had nothing to do with it. What Ms. Yellen didn’t say is that the Fed couldn’t raise its rates without breaking the law. Since when are Fed rate increases illegal? Since the 2007-08 subprime meltdown and financial disaster, actually. Until then the Fed could set any target it liked for the federal-funds rate—the interest rate banks pay for overnight loans of cash reserves. To keep the fed-funds rate from rising above target, the Fed pumped more reserves into the banking system. To keep it from dropping below, it took reserves away.

But after Lehman Brothers failed in 2008, the Fed’s efforts to keep the fed-funds rate from dropping below its target proved futile. To set a floor on how far the rate could go, the Fed started paying interest on banks’ reserve balances with the Fed, taking advantage of the 2006 Financial Services Regulatory Relief Act giving it permission to do so. Alas, it didn’t work. Government-sponsored enterprises Fannie Mae, Freddie Mac and the Federal Home Loan Banks, which also kept deposit balances at the Fed but weren’t eligible for interest on reserves (IOR), started making overnight loans to banks at rates below the IOR rate. In effect, this turned what the Fed hoped would be a floor on the fed-funds rate into a ceiling. To raise rates now, the Fed increases the rate on reserves.

So what’s to keep the Fed from raising rates this way again? The 2006 Financial Services Regulatory Relief Act is what. For that law only allows the central bank to pay interest on reserves “at a rate or rates not to exceed the general level of short-term interest rates.” The rub is that the Fed’s IOR rate of 50 basis points (0.5%) already exceeds the closest comparable market rates: those on shorter-term Treasury bills. At the start of this month, the four-week T-bill rate was just 26 basis points; since then it has slid even lower, all the way down to 10 basis points. Judging by these numbers, the Fed is already flouting the law. Another hike would mean flouting it all the more flagrantly. Lawmakers will be duty-bound to object. The law can only be stretched so far. Unless “general short-term rates” rise markedly, Congress can be expected to question the legality of any Fed rate increase. If it comes to that, Ms. Yellen will find it very hard to dissemble her way out of it.

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2016 will be known as the good old days.

Global Container Volume on Track for Worst Year Since 2009 (WSJ)

Global container volumes are on track for zero growth this year, which would mark the sector’s worst performance since the 2009 economic crisis and a sure catalyst for further bankruptcies and possible acquisitions in the beleaguered shipping industry, shipping executives said. Freight rates, the predominant source of income for shipping companies, fell 20% in the benchmark Asia to Europe trade route this week compared with last week to $767 per container. Rates have mostly stayed well below $1,000 since the start of the year and operators say anything below $1,400 is unsustainable. They aren’t expected to turn around soon.

China’s Golden Week holiday starts at the beginning of October, marking the slow season for operators as many Chinese factories cut production levels after an output frenzy in the summer months when western importers stack up products for the year-end holidays. “The industry faces its worst year since the Lehman Brothers collapse,” said Jonathan Roach, an analyst at London based Braemar ACM. “Demand is around zero and any moves to increase freight rates will likely fail.” Hanjin, South Korea’s biggest operator and the world’s seventh largest in terms of capacity, filed for bankruptcy protection last month and is under court order to sell its own ships and returning chartered ships to their owners. Container operators, which move everything from clothes and shoes to electronics and furniture, are burdened by 30% more capacity in the water than demand.

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And they’ll keep their jobs?

Wells Fargo Executives Forfeit Millions, CEO To Forgo Salary (G.)

Wells Fargo executives will forfeit millions of dollars in the wake of revelations that the bank’s sales quotas led to the creation of more than 2m unauthorized accounts. The bank’s chief executive John Stumpf will forgo his salary for the coming months as independent directors launch a new investigation into Wells Fargo’s retail banking and sales practices. Last year, Stumpf made about $19.3m. Stumpf will also forfeit unvested equity awards worth about $41m. Carrie Tolstedt, who oversaw the retail banking at Wells Fargo while the unauthorized accounts were opened, was slated to receive as much as $124.6m after retiring this summer, according to Fortune. The bank said on Tuesday that she would not receive an undisclosed severance and would forfeit about $19m in unvested awards.

Less than three weeks ago, Wells Fargo announced that it had agreed to pay $185m in penalties after an audit found that its employees opened as many as 1.5m deposit accounts and 565,000 credit card accounts without customers’ consent. The accounts were opened by the bank’s staff in hopes of meeting their monthly sales quota and earning their incentive bonuses. Wells Fargo workers have tried to draw attention to the “unreasonable” quotas before – some even staged a protest in front of the bank’s headquarters last year. When Stumpf testified in front of the US Senate last week, he drew ire from US lawmakers. Many of them called for the bank to recoup pay from Stumpf and Tolstedt and hold them accountable.

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The EU has made Greek recovery impossible. Spending power has been murdered, and a whole generation of younger people is 50-60% long-term unemployed. It makes no difference what anyone forecasts.

Worries Grow Over Greek Economic Forecast (WSJ)

Greece’s economic recovery is proving elusive, challenging the forecasts of the country’s government and foreign creditors still counting on growth reviving this year. The IMF said last week that the economy is stagnating, in the first admission from creditors that Greece’s recovery is off track again. Growth will only restart next year, the head of the IMF’s team in Greece said on a conference call with reporters, without offering details. Of particular concern is that exports, which are supposed to lead Greece out of trouble, are on a slow downward trajectory, hampered by capital controls, taxes and a lack of credit. “There is no chance we will see a rebound unless we see some bold political decisions that would introduce a more stable business environment,” said Dimitris Tsakonitis, general manager at mining company Grecian Magnesite.

The bailout agreement between Greece and its German-led creditors assumes rapid growth from late 2016 onward, including an official forecast of 2.7% growth in 2017. Private-sector economists believe next year’s growth could be closer to 0.6%. Weaker growth would undermine the budget, likely leading to fresh arguments with lenders about extra austerity measures. Greece is still grappling with the measures it has already agreed to. Late on Tuesday the country’s parliament approved pension overhauls and other policy changes that have been delayed for months, holding up bailout funding.

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Good to note. Berlin buys back its water, and forces Athens to sell it. “It’s not any more a democracy or equality in the EU. It’s a kind of business..”

No society should ever agree to sell its basic needs to foreigners. Leaders who do that anyway should be fired.

Germany’s Hypocrisy Over Greece Water Privatisation (G.)

Greek activists are warning that the privatisation of state water companies would be a backward step for the country. Under the terms of the bailout agreement approved by the Greek parliament today, Greece has pledged to support an existing programme of privatisation, which includes large chunks of the water utilities of Greece’s two largest cities – Athens and Thessaloniki. There is ongoing debate about water privatisation and the role of business. Across Europe a wave of austerity-driven privatisation proposals has led to protests in Ireland, Italy, Greece and Spain. At the same time, some of northern Europe’s largest cities, including Paris and Berlin, are buying back utilities they sold just last decade.

President of the Thessaloniki water company trade union George Argovtopoulos said a move to a for-profit model would raise prices for consumers and degrade services. “It’s not any more a democracy or equality in the EU. It’s a kind of business,” he said, adding that austerity measures that require water privatisation smacked of a “do as I say, but not as I do” approach from Germany. “We know that in Berlin, just two years ago they remunicipalised the water there, although they paid just under €600m to Veolia [to buy back its stake]. It’s clear that the model of privatisation of water has failed all around the world,” he said. The German finance ministry refused to comment ahead of a Eurogroup meeting in Brussels on Friday where the third bailout deal looked set to be signed.

[..] Austerity-led changes to water supply have been fiercely resisted across Europe’s most indebted countries. In Dublin this year, huge protests erupted over plans to directly charge water users who previously paid for water through their taxes. This was seen as a first step towards selling off Ireland’s water supply. A water privatisation push by former Italian prime minister Silvio Berlusconi was crushed by a 95% referendum vote in 2011. A similar referendum in Thessaloniki last year delivered a 98% vote against. A 2014 report by the Transnational Institute’s Satoko Kishimoto found that across the world 180 cities had bought back (or remunicipalised) their water supply. She said this was a response to almost universally higher water prices and the loss of control over a fundamental resource.

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Another author claiming that “..the scientific consensus within and outside of China is that GMOs are safe..”

China Wants GMOs. The Chinese People Don’t. (BBG)

The latest food safety scandal in China might be its most damaging. Earlier this week, a former doctoral student at one of the country’s national testing centers for genetically modified organisms went public with allegations of scientific fraud, including claims that records were doctored extensively, that unqualified personnel were employed under illegal contracts and – most seriously – that authorities refused to take action when his concerns were aired privately. On Wednesday, China’s Ministry of Agriculture responded to a social media storm by suspending operations at the center. That might take care of the current scandal, but the Chinese public’s hostility toward GMOs won’t go away so easily.

Those concerns have only grown over the past decade as the government has increased its support of GMOs, including approval of the state-owned ChinaChem Group’s $43 billion takeover offer for the Swiss seed giant Syngenta. These efforts have galvanized a very public opposition that transcends China’s typical political fault lines, and created one of the government’s most intractable headaches. Feeding China’s huge population has never been easy. But over the last three decades, the challenges have become considerably greater as urbanization devoured farmland, and pollution made even more of it unusable. Today, the government is faced with the task of feeding 21% of the world’s population with 9% of its arable land. Its reliance on foreign goods has made China the world leader in imports since 2011.

Officials now fear the country could become dependent on foreigners for its food supply and the government remains committed to maintaining self-sufficiency in rice, wheat, and other key grains. As a result, the political pressure to increase yields is considerable. In fact, this pressure is centuries-old. Domesticated rice first appeared in the Yangtze River Valley at least 8,000 years ago, and Chinese farmers and scientists have been innovating ever since. In 1992, China became the first country to introduce a GMO crop into commercial production, when it sowed a virus-resistant tobacco plant on 100 acres. Since then, the government has issued safety certificates for a wide range of GMO crops, ranging from chili peppers to petunias. Yet, so far at least, only cotton has gone into wide cultivation. Other GMOs – especially rice, a staple of the Chinese diet – are still awaiting approval to be domestically cultivated.

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The blessings of plastic.

Single Clothes Wash May Release 700,000 Microplastic Fibres (G.)

Each cycle of a washing machine could release more than 700,000 microscopic plastic fibres into the environment, according to a study. A team at Plymouth University in the UK spent 12 months analysing what happened when a number of synthetic materials were washed at different temperatures in domestic washing machines, using different combinations of detergents, to quantify the microfibres shed. They found that acrylic was the worst offender, releasing nearly 730,000 tiny synthetic particles per wash, five times more than polyester-cotton blend fabric, and nearly 1.5 times as many as polyester. “Different types of fabrics can have very different levels of emissions,” said Richard Thompson, professor of marine biology at Plymouth University, who conducted the investigation with a PhD student, Imogen Napper.

“We need to understand why is it that some types of [fabric] are releasing substantially more fibres [ than others].” These microfibres track through domestic wastewater into sewage treatment plants where some of the tiny plastic fragments are captured as part of sewage sludge. The rest pass through into rivers and eventually, oceans. A paper published in 2011 found that microfibres made up 85% of human-made debris on shorelines around the world. The impact of microplastic pollution is not fully understood but studies have suggested that it has the potential to poison the food chain, build up in animals’ digestive tracts, reduce the ability of some organisms to absorb energy from foods in the normal way and even to change the behaviour of crabs.

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Sep 252016
 
 September 25, 2016  Posted by at 8:50 am Finance Tagged with: , , , , , , ,  Comments Off on Debt Rattle September 25 2016
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Harris&Ewing Boy Scout farm 1917

The Market Is In Line With History. The History Of Crashes (Stockman)
How to Suffocate Your Economy: Drown it in Massive Private Debt (Vague)
Vancouver Property Sales To Foreigners Crash 96% (ZH)
Merkel Rules out State Assistance for Deutsche Bank (BBG)
EU Must Turn Off the Dividend Spigot at Under-Capitalized Banks (PS)
China Continues to Battle Massive Capital Flight Problem (Brink)
Naked Shorts Can’t Stay Naked Forever (Dayen)
Whistleblower Describes Years Of Fraudulent, Criminal Culture At Wells Fargo (BB)
Former Employees File Class Action Against Wells Fargo (R.)
Clinton Server Tech Told FBI Of Colleagues’ Worries About System (R.)
America’s War On Its Own Children (G.)
Death Toll In Migrant Shipwreck Off Egypt Rises To 300 (G.)

 

 

The level of high grade corporate debt is more than 2X its pre-crisis peak. As Capex is down 10%, and net fixed business investment is 20% below 2000 levels. Corporations are burning and bleeding cash left right and center. Question: what has the debt been used for?

The Market Is In Line With History. The History Of Crashes (Stockman)

By punting again [this week], our dithering money printers at the Fed are continuing to fuel a monumental orgy of corporate bond issuance. It only enables companies to speculate in their own stocks with borrowed money, while heaping windfall gains on the fast money traders who hound corporate boards into strip-mining their own balance sheets. The level of high grade corporate debt outstanding has gone nearly parabolic in the last few years and now stands at more than 2X its pre-crisis peak. Yet even Yellen admitted during yesterday’s mindlessly meandering presser that business capital expenditure (CapEx) has been extraordinarily weak. In fact, non-defense CapEx orders excluding aircraft peaked in mid-2104 and are now down by 10%.

Even more to the point, real net fixed business investment after depreciation is still 20% below the level it reached way back in early 2000. That is, two bubbles ago. Perhaps the question about where all this hand-over-fist corporate borrowing is going might have occurred to at least one of the geniuses who voted to stand pat. But apparently it didn’t because once again Yellen insisted that “valuations are largely in line with their historical trends.” What in the world is our clueless school marm talking about? At the closing price yesterday, the S&P 500 traded at 25X the $87 per share reported for the last twelve month (LTM) period ending in June. And that was in the face of earnings that have plunged 19% since peaking in the September 2014 LTM period.

Yellen is right about the historical trends, of course. But not at all in a good way. In fact, on the eve of the last crash when the market peaked in October 2007 at about 1550, S&P 500 earnings during the most recent LTM period had posted at $79 per share. That means the peak pre-crash multiple was substantially lower than today at 19.7X. Even when S&P earnings peaked at $54 per share in September 2000, the multiple was only a tad higher than today at 26.5X. So, yes, the market is in line with history. That is, the history of crashes! The truth is, the Fed is inherently, relentlessly and radically in the financial bubble business. But the Keynesian school marm who runs it wouldn’t know a bubble if one transported her to the moon and back.

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The role of debt has been growing for a long time.

How to Suffocate Your Economy: Drown it in Massive Private Debt (Vague)

[..] if a country’s private debt to GDP ratio is low, let’s say 50%, then the households and businesses in that country generally have low loan-to-income ratios and are well positioned to power growth through increased leverage. And if a country’s private debt to GDP ratio is high, let’s say 200%, then the households and businesses in that country are generally overleveraged, with, on average, very high debt ratios. They are much less likely to be able to boost growth through more borrowing.

Chart 2 showed that private debt to GDP in major economies has been growing rapidly since World War II. However, it has been growing in size relative to GDP for a lot longer than that. It’s part of a process often described by economists as “financialization” or “financial deepening,” an increase in the size of a country’s debt and equity markets usually explained as simply the maturation of a market. But as we have seen, when it comes to debt, it is much more than that—it is the path from low leverage to overleverage for the participants in that economy. The benefit of increasing leverage from low levels has played a central role in the miraculous gains in incomes over the 200-plus years since the Industrial Revolution.

You can see this clearly in Chart 3. I have made a concerted effort to reconstruct more than 200 years of private debt history for the six countries in this chart—China, Japan, Germany, Britain, France, and the United States—because collectively, they have accounted for roughly 50% or more of global GDP since the Industrial Revolution. So studying the data of these six countries during this period gives us a fairly solid proxy for the world during the most important era of economic history. (This chart is a work-in-progress which will be augmented and refined in preparation for an upcoming book on this same subject.)

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Auckland, Sydney, London etc. should do the same.

Vancouver Property Sales To Foreigners Crash 96% (ZH)

China’s favorite offshore money laundering hub is officially no longer accepting its money. According to data released by British Columbia’s Ministry of Finance on Thursday, foreign investors officially disappeared from Vancouver’s property market last month after the local government imposed a 15% surcharge to curb a record-shattering surge in home prices. Overseas buyers accounted for a paltry 0.7% of the C$6.5 billion of residential real estate purchases in August in Metro Vancouver; this represents a 96% plunge from the seven weeks prior, when foreigners were responsible for 16.5% of transactions by value. According to the latest data overseas buyers snapped up C$2.3 billion of homes in the seven weeks before the tax was imposed, and less than C$50 million in the next four weeks.

[..] As Bloomberg notes, the plunge in foreign participation joins other signs of a slowdown in Canada’s most expensive property market. The silver lining is that while transactions may have ground to a halt, the government did pick up some extra tax revenues: British Columbia has raised C$2.5 million in revenue from the new levy since it took effect. Budget forecasts released last week indicated that the Pacific coast province expects foreign investors to scoop up about C$4.5 billion of real estate through March 2019. That may prove optimistic, because as reported two weeks ago as Chinese buyers wave goodbye to Vancouver, they have set their sights on another Canadian city: Toronto. According to the Star, sales of $1-million-plus Toronto-area single-family homes rose 83% year over year in July and August. That’s 3,026 homes, with 55% of them inside Toronto’s borders.

[..] if they are looking in Canada, we believe Toronto will be the most logical place for people to consider. Montreal and Calgary will probably also get a look-see,” Henderson said. Or maybe not. As CBC reported earlier this week, economist Benjamin Tal of CIBC said that Ontario will have little choice but to copy Vancouver and implement a tax on foreign house buyers. In a recent note to clients, the economist said the biggest problem facing policymakers with regard to hot housing markets in Toronto and Vancouver is a limit on the supply of new homes. “The main reason behind higher prices in the [Greater Toronto Area] is a policy-driven lack of land supply,” Tal said. “And with no change on that front, policymakers have to use demand tools to deal with what is essentially a supply problem.”

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I’m going to have my doubts here.

Merkel Rules out State Assistance for Deutsche Bank (BBG)

Chancellor Angela Merkel has ruled out any state assistance for Deutsche Bank in the year heading into the national election in September 2017, Focus magazine reported, citing unidentified government officials. The German leader also declined to step into the bank’s legal imbroglio with the U.S. Justice Department, which may seek as much as $14 billion in sanctions against Deutsche Bank’s mortgage-backed securities business, the magazine said. The finances of Germany’s biggest lender, which has lost almost half of its market value this year, are raising concern among German politicians.

At a closed session of Social Democratic finance lawmakers this week, Deutsche Bank’s woes came up alongside a debate over Basel financial rules, according to two people familiar with the matter. Germany’s government expects a “fair outcome” in the U.S. probe, the Finance Ministry said on Sept. 16. Deutsche Bank has said it’s unwilling to pay the maximum amount sought by U.S. authorities as investors fret about the bank’s capital. Chief Executive Officer John Cryan, 55, has struggled to boost profitability by selling riskier assets and eliminating jobs as unresolved legal probes and claims add to concerns that the lender will be forced to raise capital.

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Cut off dividends and share prices will fall through the floor.

EU Must Turn Off the Dividend Spigot at Under-Capitalized Banks (PS)

Dividend payments made by under-capitalized banks amount to a substantial wealth transfer from subordinated bondholders to shareholders, because it is bondholders who will suffer the losses in a crisis. Moreover, it is potentially a wealth transfer from taxpayers to private shareholders, because under new banking rules government bailouts are possible after bondholders have covered (bailed in) 8% of a bank’s equity and liabilities. By contrast, undercapitalized banks in the US are forced to halt all forms of capital distribution if they fail a stress test. Fortunately, following the 2016 round of stress tests, the EBA is now also considering this type of regulatory sanction. Thus, “competent authorities may also consider requesting changes to the institutions’ capital plan,” which “may take a number of forms such as potential restrictions on dividends required for a bank to maintain the agreed trajectory of its capital planning in the adverse scenario.”

We estimate that if European regulators had adopted this approach and forced banks to stop paying dividends in 2010 – the start of the sovereign debt crisis in Europe – the retained equity could have paid for more than 50% of the 2016 capital shortfalls. The figure above shows our calculated capital shortfalls, using the EBA stress test’s “adverse scenario” losses and the cumulative dividends these banks have distributed since 2010. Dividends paid out by some banks, such as BNP Paribas and Barclays, actually exceed the current capital shortfalls, while at others – such as Deutsche Bank, Commerzbank, and Société Générale – capital shortfalls far exceed dividends that would have been retained. The latter banks would still require substantial capital issuances on top of dividend restrictions to make up the difference. Nonetheless, our findings suggest a simple first step toward preventing bank capital erosion: stop banks with capital shortfalls from paying dividends (including internal dividends such as employee bonuses).

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Not everyone believes the omnipotency tale Beijing likes to spread.

China Continues to Battle Massive Capital Flight Problem (Brink)

Last summer, China’s stock market collapse and unexpected devaluation deepened its capital outflow problem and accelerated the fall of reserves, which had started in mid-2014. Since February, reserves have started to stabilize. While the situation is clearly better, China continues to struggle in terms of stabilizing its massive capital outflows. Within that context, foreign reserves seem to have become a policy target. Although capital outflows are still large, it’s not enough for reserves to start falling again. In 2015, the largest net outflows stemmed from the repayment of bank loans (close to $500 billion in “other investment” outflows), followed by unrecorded outflows of residents amounting to nearly $200 billion.

Portfolio flows (equity and bond) were also negative, but smaller. The situation has hardly improved in 2016, based on first quarter data. In fact, all types of capital recorded outflows, even net foreign direct investment (FDI), which was not the case in 2015. It’s important to note that Chinese residents have been driving capital outflows for years. The difference in 2015 is that non-residents stopped investing in China and started to move their capital out. Still, the bulk of the outflow was made by residents. These are unrecorded outflows and also include the investment of Chinese companies, as well as the loans of Chinese banks abroad (increasingly in the emerging world).

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SEC? FBI? Who can be trusted to investigate?

Naked Shorts Can’t Stay Naked Forever (Dayen)

A few years into his personal quest to understand how he had lost a million dollars on a penny stock, Chris DiIorio developed a sweeping hypothesis involving Knight Capital, the mammoth brokerage company that frequently traded in them. Knight earned $333 million in pre-tax profits in 2008, and another $232 million in 2009. But DiIorio didn’t think Knight was making that kind of money simply from executing transactions for clients. As a market maker, Knight was in the rare position of being able to legally sell a stock it didn’t have (the principle being that it will get that stock soon, so no worries). That’s called naked shorting. It’s illegal when regular people do it. DiIorio suspected that Knight, either on its own behalf or on behalf of clients, made a practice of artificially increasing the number of shares available in a stock through naked shorting, thereby depressing the price.

His suspicion grew when he noticed that Knight often traded in securities that were red-flagged on the Depository Trust Company’s “chill list.” The DTC is an obscure financial industry-owned company that manages the custody of more than $1 quadrillion in securities annually, recording the transfers with journal entries and guaranteeing the trade. The company makes it easy for people to buy and sell securities without needing to exchange paper stock But when the DTC senses trouble, it will stop clearing trades on a stock temporarily. A chilled stock can still trade — as long as the market participants handle the physical certificates themselves. But it can be a sign that something is gravely wrong. The DTC states on its website that it chills stocks “when there are questions about an issuer’s compliance with applicable law.” That doesn’t stop Knight from buying and selling them, though.

Its chief legal officer, Thomas Merritt, acknowledged at a 2011 Securities and Exchange Commission roundtable that the company actively traded chilled stocks, saying that as long as the security still trades, “we are going to be involved in that business.” And DiIorio found numerous examples of Knight trading chilled penny stocks. “I didn’t know they did that,” said Jim Angel, a Georgetown University business school professor. “I’m kind of shocked to think that Knight would be working with paper stock certificates.” He suggested that Knight might simply want to accommodate customers trying to get out of chilled stocks. “Or maybe they feel there’s enough interest in a security that they can trade profitably, even if they have to shuffle the certificates.” Because most other market makers flee chilled stocks, however, this means Knight can assume even more control over the stock price.

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Upper management should be dragged before a public committe.

Whistleblower Describes Years Of Fraudulent, Criminal Culture At Wells Fargo (BB)

Beth Jacobson was a Wells Fargo loan officer who blew the whistle on the bank’s predatory, racist loan-fraud in the runup to the 2008 financial crisis, which tanked the world’s economy and nearly wiped out Wells Fargo (they were rescued with a $36B taxpayer-funded bailout). Eight years later, Wells Fargo has fired 5,300 employees for participating in a scam that involved opening 2,000,000 fake accounts in its customers’ names, stealing their money and crashing their credit-ratings – the exec who oversaw this a $125M taxpayer-subsidized bonus, and CEO John Stumpf, who took home $200M in bonuses based on profits from the fraud, will keep the money and his job, but the whistleblowers who reported the fraud starting in 2011 were all illegally fired.

Jacobson describes how Stumpf – now CEO, then a top exec – was complicit in the fraud that helped precipitate the crash and the worst recession since the Great Depression. She pins blame for the loan-fraud on the bank’s aggressive sales targets – the same thing that caused the current fraud, suggesting that the bank hasn’t learned a fucking thing since 2008, except that it can get away with crime, every time. “One means of falsifying loan applications that I learned of involved cutting and pasting credit reports from one applicant to another. I was aware of A reps who would ‘cut and paste’ the credit report of a borrower who had already qualified for a loan into the file of an applicant who would not have qualified for a Wells Fargo subprime loan because of his or her credit history.

I was also aware of subprime loan officers who would cut and paste W-2 forms. IDs deception by the subprime loan officer would artificially increase the creditworthiness of the applicant so that Wells Fargo’s underwriters would approve the loan. I reported this conduct to management and was not aware of any action that was taken to correct the problem. “High-ranking Wells Fargo managers knew that this practice was going on, because after about a year of these standby explanations being given, underwriters in the underwriting department were told to call the customers directly rather than contact the loan officer who was working with the customer. The loan officers quickly figured out how to work around this by warning customers that underwriters might call them and then coaching the customers about what to say.

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CEO gone.

Former Employees File Class Action Against Wells Fargo (R.)

Two former Wells Fargo employees have filed a class action in California seeking $2.6 billion or more for workers who tried to meet aggressive sales quotas without engaging in fraud and were later demoted, forced to resign or fired. The lawsuit on behalf of people who worked for Wells Fargo in California over the past 10 years, including current employees, focuses on those who followed the rules and were penalized for not meeting sales quotas. “Wells Fargo fired or demoted employees who failed to meet unrealistic quotas while at the same time providing promotions to employees who met these quotas by opening fraudulent accounts,” the lawsuit filed on Thursday in California Superior Court in Los Angeles County said.

Wells Fargo has fired some 5,300 employees for opening as many as 2 million accounts in customers’ names without their authorization. On Sept. 8, a federal regulator and Los Angeles prosecutor announced a $190 million settlement with Wells. The revelations are a severe hit to Wells Fargo’s reputation. During the financial crisis, the bank trumpeted being a conservative bank in contrast with its rivals. The lawsuit accuses Wells Fargo of wrongful termination, unlawful business practices and failure to pay wages, overtime, and penalties under California law. Former employees Alexander Polonsky and Brian Zaghi allege Wells Fargo managers pressed workers to meet quotas of 10 accounts per day, required progress reports several times daily and reprimanded workers who fell short.

Polonsky and Zaghi filed applications matching customer requests and were counseled, demoted and later terminated, the lawsuit said. While executives at the top benefited from the activity, the blame landed on thousands of $12-per-hour employees who tried to meet the quotas and were often required to work off the clock to do so, the lawsuit said.

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It’s time to scrutinize the FBI’s role in the whole ‘affair’. That the Hillary people have not been fully honest is now so obvious one wonders why Comey et al have granted many immunity and let them off the hook in general.

Clinton Server Tech Told FBI Of Colleagues’ Worries About System (R.)

A technician hired by Hillary Clinton to run the private email system she used while U.S. secretary of state told investigators he tried to pass on colleagues’ concerns that the system might not comply with records laws, FBI interview summaries show. Bryan Pagliano, the technician Clinton hired when she joined the State Department in 2009, told federal investigators he relayed the concerns to Cheryl Mills, then Clinton’s chief of staff. Mills has previously testified under oath she could not recall anyone alerting her to potential problems with Clinton’s email arrangement.

The episode had not been disclosed until the Federal Bureau of Investigation released on Friday night nearly 200 pages of additional records from its year-long investigation into the handling of classified government documents by Clinton and her staff via an unauthorized email server in the basement of her New York home. Clinton has said the decision to use a private email system was a mistake, but the controversy has dogged her campaign as the Democratic candidate for the presidency and raised public doubts about her trustworthiness, public opinion polls show. Republicans have criticized her for putting national security at risk. The FBI closed the year-long investigation in July, recommending no charges, although FBI Director James Comey said Clinton and her staff had been “extremely careless” in handling classified government secrets.

Pagliano has declined to answer questions by Republican lawmakers about his work on Clinton’s server, but spoke to federal investigators after securing a form of immunity from prosecution. He told investigators two colleagues from the technology office approached him with concerns during Clinton’s first year after learning about the email system. One said it could lead to a “federal records retention issue,” Pagliano told investigators, and urged him to raise the concern with Clinton’s “inner circle.” A colleague also warned Pagliano “he wouldn’t be surprised” if classified information was being sent through Clinton’s unsecure system, Pagliano told the FBI.

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“Every day, on average, seven children and teens are killed by guns in America.”

America’s War On Its Own Children (G.)

It was just another day in America. And as befits an unremarkable Saturday, 10 children and teens were killed by gunfire. They died in altercations at gas stations, accidents in bedrooms, standing on stairwells and walking down the street, in gangland hits and by mistaken identity. Like the weather, none of them would make the national news because, like the weather, their deaths did not disturb the accepted order of things. Every day, on average, seven children and teens are killed by guns in America. Firearms are the leading cause of death among black children under 19, and the second greatest cause of death for all children of the same age, after car accidents. I picked this day at random, and spent two years trying to find out who these children were.

I searched for their parents, pastors, baseball coaches, and scoured their Facebook and Twitter feeds. The youngest child was nine, the oldest 19. Four years ago, for a moment, there was considerable interest in the fact that large numbers of Americans were being fatally shot. On 14 December 2012, 20-year-old Adam Lanza shot his mother, then drove to Sandy Hook Elementary School and shot 20 small children and six staff dead. Mass shootings comprise a small proportion of gun violence, but they disturb America’s self-image in a way that the daily torrent of gun deaths does not. “Seeing the massacre of so many innocent children … it’s changed America,” said the Democrat senator Joe Manchin, who championed a tepid gun-control bill. “We’ve never seen this happen.”

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“At the current rate, the death toll for 2016 is expected to easily surpass the figure for 2015 of 3,771..”

Death Toll In Migrant Shipwreck Off Egypt Rises To 300 (G.)

A record number of migrants is expected to drown in the Mediterranean in 2016, after the estimated death toll in this week’s latest shipwreck rose to about 300 on Friday. Egyptian officials have rescued about 160 survivors from Wednesday’s shipwreck off the country’s north coast, leaving about 150 people still unaccounted for, according to the International Organisation for Migration (IOM). Those confirmed dead include 10 women and a baby, taking the estimated number of migrants to die in the Mediterranean so far this year to more than 3,500. At the current rate, the death toll for 2016 is expected to easily surpass the figure for 2015 of 3,771, which was the highest ever recorded. By this stage in 2015, 2,887 people had drowned.

The number of people trying to reach Europe has fallen significantly since last year’s record levels, as a result of the deal struck between the EU and Turkey and the closure of a humanitarian corridor between Greece and Germany. The flow of migrants from the three main departure points – Libya, Turkey and Egypt – stands at roughly the same level as 2014.

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Sep 222016
 
 September 22, 2016  Posted by at 8:24 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle September 22 2016
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Harris&Ewing Harding inauguration 1921

The Global Economic Outlook: Dark Clouds Ahead (Guardian Ed.)
UN Fears Third Leg Of Global Financial Crisis – With Epic Debt Defaults (AEP)
Major Trend Forecast For The Rest Of 2016 (Celente)
Report Highlights Rising US Poverty (D&C)
In Places With Fraying Social Fabric, a Political Backlash Rises (WSJ)
Greek Bakers Unite To Give Away Bread To Those Too Poor To Afford It (KTG)
Young Britons Live In ‘Suspended Adulthood’ (G.)
It’s Not Just Consumers That Are Living Paycheck To Paycheck (BBG)
Divided Fed Holds Fire, Signals 2016 Rate Increase Still Likely (BBG)
Bank of Japan’s Inflation Overshoot Deepens Policy Innovation (BBG)
Real Estate Gets Its Seat At The S&P 500 Table (Forbes)
With Mortgage Rates So Low, Why Are So Many People Still Renting? (Time)
House-Flippers Are Back, With Anonymous Funding (BBG)
China Chalks Up $667-Billion Debt Pile Over Toll Roads (R.)
Wells Fargo Too Arrogant To Own Up To Its Fraudulent Ways (WaPo)
27 US Senators Rebel Against Arming Saudi Arabia (I’Cept)
A First Step for Syria? Stop the Killing (Jimmy Carter)
Apologizing to My Daughter for the Last 15 Years of War (Van Buren)

 

 

Actually not all that bad from the Guardian Ed. staff. Though they predictably conclude with plain silliness: In the long run, this failed globalisation needs to be turned into something more sustainable and more inclusive, built on higher wages, robust tax systems and strong public safety nets.

The Global Economic Outlook: Dark Clouds Ahead (Guardian Ed.)

Eight years ago this month, a bank collapsed, Wall Street went into meltdown and the world economy plunged into crisis. Trillions were lost in output ($22tn in the US, within just five years), millions of workers were made redundant (8.8 million in America’s great recession, 1.2 million in the UK) and thousands of promises were made by politicians and policymakers – everyone from Barack Obama and Gordon Brown to David Cameron and Christine Lagarde – that things would change. Yet, nearly a decade later, what is most striking is how little has changed. In the US, the UK and the rest of the developed world, policymakers talk of the “new mediocre”, so tepid is economic performance. And in the developing world things look even worse.

Such is the message from two of the world’s leading economic thinktanks, the OECD and the UN Conference on Trade and Development (Unctad). Both their reports on Wednesday were thick with cloud and short on silver lining. Yes, the OECD believes that Brexit Britain will have a slightly easier time this year – but that will be followed by a far choppier 2017. And the Unctad report is even more troubling. The biggest single warning it makes is that the world is on the verge of “entering a third phase of the financial crisis”. What began in the US subprime housing market before roiling Europe’s governments is likely to rear its head again – this time in Latin America, Africa and other poor countries. What will do for them, believe the Unctad researchers, is what also did for America and Europe: debt.

Much of the cheap money created by the Fed, the BOE and the ECB has been pushed by financial speculators into the higher-yielding markets of South Africa, Brazil and India, among others. Economists at the Bank for International Settlements, the central banks’ central bank, reckon that $9.8tn was pumped out in foreign bank loans and bonds in the first half-decade after the Lehman Brothers collapse. Unctad calculates that around $7tn of that was pushed through to emerging markets. By any standards, that is a flood of credit – one that was encouraged by panicky policymakers.

Wasn’t it the turn of China and the rest to pick up the slack in the global economy? Except now developing countries are lumbered with a gigantic private debt mountain to pay down. The private, non-financial sector across the developing world has debt service obligations worth nearly 150% of its income. The comparable figure for the developed world, by contrast, is just above 80%. And now developing countries are hobbling along rather than sprinting ahead, while commodity prices have tanked. To make matters worse, companies will typically have borrowed in US dollars and invested in their local currencies – but the strength of the dollar will make those loans all the harder to repay.

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“What is clear is that world will soon need a massive and coordinated spending push by governments to create demand and bring the broken global system back into equilibrium. UNCTAD is entirely right about that. If this does not happen, it is sauve qui peut.”

UN Fears Third Leg Of Global Financial Crisis – With Epic Debt Defaults (AEP)

The third leg of the world’s intractable depression is yet to come. If trade economists at the United Nations are right, the next traumatic episode may entail the greatest debt jubilee in history. It may also prove to be the definitive crisis of globalized capitalism, the demise of the liberal free-market orthodoxies promoted for almost forty years by the Bretton Woods institutions, the OECD, and the Davos fraternity. “Alarm bells have been ringing over the explosion of corporate debt levels in emerging economies, which now exceed $25 trillion. Damaging deflationary spirals cannot be ruled out,” said the annual report of the UN Conference on Trade and Development (UNCTAD). We know already that the poisonous side-effect of zero rates and quantitative easing in the US, Europe, and Japan was to flood developing nations with cheap credit, upsetting their internal chemistry and drawing them into a snare.

What is less understood is just how destructive this has been. Much of the money was wasted, skewed towards “highly cyclical and rent-based sectors of limited strategic importance for catching up,” it said. Worse yet, these countries have imported the deformities of western finance before they are ready to cope with the consequences. This has undermined what UNCTAD calls the “profit-investment nexus” that ultimately drives growth and prosperity. The extraordinary result is that some countries are slipping backwards, victims of “premature deindustrialisation”. Many of them have fallen further behind the rich world than they were in 1980 despite opening up their economies and following the global policy script diligently.

The middle income trap closed in on Latin America and the non-oil states of the Middle East a long time ago, but now it is beginning to close in such countries as Malaysia and Thailand, and in some respects China. “The benefits of a rushed integration into international financial markets post-2008 are fast evaporating,” it said. Yet the suffocating liabilities built up over the QE years remain. UNCTAD says corporate debt in emerging markets has risen from 57pc to 104pc of GDP since the end of 2008, and much of this may have to written off unless there is a world policy revolution. “If the global economy were to slow down more sharply, a significant share of developing-country debt incurred since 2008 could become unpayable and exert considerable pressure on the financial system,” it said.

“There remains a risk of deflationary spirals in which capital flight, currency devaluations and collapsing asset prices would stymie growth and shrink government revenues. As capital begins to flow out, there is now a real danger of entering a third phase of the financial crisis which began in the US housing market in late 2007 before spreading to the European bond market,” it said. These are deeply-disturbing assertions. The combined US subprime and ‘Alt-A’ property exposure before the Lehman crisis was just $2 trillion, and Greece’s debts were trivial. What UNCTAD is talking about is an order of magnitude larger.

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Haven’t featured Celente in ages…

Major Trend Forecast For The Rest Of 2016 (Celente)

Central bank policies rule the financial world. Their never-in-the-history-of-the-world negative and historically low interest rate policies, plus massive government and corporate bond buying schemes have enriched equity markets but not the general economy… “In fact, what we have been forecasting and reporting since 2010, the Bank for International Settlements confirmed this week with its warning that central bank behavior, not economic fundamentals, hold sway over markets. Claudio Borio, head of the monetary and economic department of the BIS questioned whether “market prices fully reflect the risk ahead,” and “doubts about valuations seem to have taken hold in recent days.” Indeed true price discovery is dead.

Despite massive Federal Reserve intervention in the US that has driven the Dow and NASDAQ to new highs, S&P 500 companies reported five straight quarters of year-over-year declines. Also on the market fundamental front, with retail sales down 0.3% in August, there was no back-to-school-splurge. The service sector, the main economic driver of the United States economy, fell to its lowest level since 2010. Despite “experts” forecasting US GDP to rise 3% in 2016, it’s slogged along at an annualized 1% for the first two quarters. Just yesterday it was reported that housing starts in the US came in at an annualized rate of 1.14 million in August, well below the expected 1.19 million while construction permits fell 0.4% to a 1.14 million-unit rate last month.

And while President Obama chastised “Anyone claiming that America’s economy is in decline is peddling fiction,” US economic growth since the recession ended is tracking at its weakest pace of any expansion since 1949. As the BIS report concludes, “A more balanced policy mix is essential to bring the global economy into a more robust, balanced and sustainable expansion.” Yet, today, all equity eyes are concentrated more on central bank maneuvers than market fundamentals. In Japan, with new data showing exports falling 9.6% and imports down 17.3% in August, the focus is on what new schemes the Bank of Japan will invent to boost the economy despite its long proven track record of failure.

Similarly, later today in the US, the markets await news of if, and when, the Fed will raise interest rates. Yet, as the data proves since the Panic of ’08, central banks’ “policy mix” has failed …and we forecast despite pending measures, they will continue to fail to generate true economic growth. Thus we forecast continued equity market volatility with increasing prospects for a market meltdown.

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There should have been much more of this. People would have understood the world they live in so much better. The lack of this sort of analysis gives birth to Brexit and the Donald.

Report Highlights Rising US Poverty (D&C)

Among the troubling statistics in a new report released Tuesday was the rising concentration of poverty in city neighborhoods, and expanding number of census tracts where the poverty rate stood at 40% or higher. The count of high-poverty census tracts has nearly doubled in the city, from 19 to 37 since 2000. Fully one-third of Rochester residents live in poverty, and nearly another third require some outside assistance to get by, according to estimates in the ACT Rochester and Rochester Area Community Foundation update to its 2013 report on the state of poverty and self-sufficiency across the Greater Rochester region. The numbers are a near mirror-image of the suburbs, where more than two-thirds of residents are self-sufficient. And while the poverty rate in the nine-county Greater Rochester region continues to creep upward, it remains below state and national averages, the report shows.

“We don’t really have a poverty problem,” said Edward Doherty, a Strategic Community Intervention associate who served as project manager and editor of the report, and is active in local efforts to combat poverty. “We have a concentration of poverty problem.” Rochester has the third-highest concentration of poverty in the nation. And a significant segment of that population is female-headed families with children younger than 18. Though accounting for 17% of the population, the report found, the city has 36% of such households, and that population has a staggering poverty rate of 59.9%. Doing the math, the report estimates these families account for nearly half of all people living in poverty in the city, and these children account for more than 80% of all poor children in the city.

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This is changing the world, all over the world. Poverty and loss hidden from us by media and political propaganda.

In Places With Fraying Social Fabric, a Political Backlash Rises (WSJ)

Reading, Pa.— The buckling of social institutions fundamental to American civic life is deepening a sense of pessimism and disorientation, while adding fuel to this year’s rise of political populists like Donald Trump and Bernie Sanders. Here and across the U.S., key measures of civic engagement ranging from church attendance to civic-group membership to bowling-league participation to union activity are slipping. Unlocked doors have given way to anxiety about strangers. In Reading, tension between longtime white residents and Hispanic newcomers has added to the unease. For Mr. Martin, social and economic setbacks led him to support Mr. Sanders, who he figured would stick it to the big businesses Mr. Martin feels have sold out working people.

Other people here find resonance in Mr. Trump’s message that the U.S. has skidded so far off course that it needs to lock out immigrants and block imports to recover an era of greatness. “When you lose the family unit and you lose the church community, you are losing a whole lot,” says Bonnie Stock, a retired teacher in Reading and Trump supporter, who says the church where she was baptized is dying from lack of young members. “People are looking at Trump because most of us see this [country] isn’t working,” she says. Ms. Stock figures Mr. Trump’s business experience would help him better attack societal problems like drug addiction.

Across the U.S., the Republican presidential nominee has his firmest support among the white working class. In the Republican primaries, he carried all but nine of the country’s 156 counties where at least 85% of the adult population was whites without four-year college degrees. Mr. Trump won 64% of the vote in Berks and Schuylkill counties, where noncollege whites were 66% of the adult population as of 2014. In Berks County, once famous for the Reading Railroad stop on the Monopoly board game, social ills have been exacerbated by a 30% decline in manufacturing jobs and 6% fall in inflation-adjusted median income since 1995.

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In case you’re wondering why the Automatic Earth tries so hard to help the poorest Greeks. These are the very people your generous donations assist. The problem is their numbers are rising fast.

But we’re not going to give up. I’m breaking my head over the next steps in the process. We need to do something big for Christmas. Meanwhile, please keep donating through our Paypal widget, top left corner of the site, in amounts that end in $0.99 or $0.37.

Greek Bakers Unite To Give Away Bread To Those Too Poor To Afford It (KTG)

Did you know that there are people in Greece who cannot afford to buy even a loaf of bread at a cost of €0.60 – €0.70? Almost a year after Greece surrendered into the arms of the international lenders and the IMF and the austerity cuts started to affect people’s lives, a bakery in our neighborhood was offering a bread at a special price for pensioners and unemployed. The special price was just half a euro. At one point, I remember that more and more people were going to this bakery and asking for bread from the previous day for a couple of cents or even free of charge. Two days ago, the grim Greek reality hit me again. I was at the bakery sometime at noon. All different kinds of bread loafs were waiting for customers, nicely set in order, one by one, next to each other.

Yet, somewhere, in a corner at one of the lower shelves there was a group of breads: several loaves, long and round, white and wholewheat, a couple of baguettes. “What are these?” I asked the baker and he answered “This is bread from yesterday, for the poor. We give it free of charge.” He told me further, that he had 6-7 returning customers who come every second day for the bread from yesterday. Mostly elderly, pensioners. And “maybe 2-3 people per day,” people he does not know who just step in and ask for “old bread for free.” The problem of poverty is not widespread only in Athens, where the cost of living is much higher than in the countryside. Today, I read about the action of the Bakers’ Association in Kozani, in Northern Greece. Customers can buy extra bread for those in need, while the bakers will keep records of the “Bread on the waiting” – as they call their action – and give it to those who cannot afford it.

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As I’ve written before: and still everyone says they love their kids.

Young Britons Live In ‘Suspended Adulthood’ (G.)

Despair, worries about the future and financial pressures are taking a toll on millions of young Britons, according to a poll which found young women in particular were suffering. Low pay and lack of work in today’s Britain are resulting in “suspended adulthood”, with many living or moving back in with their parents and putting off having children, according to the poll of thousands of 18 to 30-year-olds. Large numbers describe themselves as worn down (42%), lacking self-confidence (47%) and feeling worried about the future (51%).

The Young Women’s Trust, the charity that commissioned the polling by Populus Data Solutions, warned that Britain was facing a “generation of young people in crisis” as it called on the government to take steps including creating a minister with responsibility for overall youth policy. Young women are being particularly affected. The percentage of women reporting that they lacked self-confidence was 54%, compared with 39% of young men. While four in 10 young people said they felt worn down, the percentage for young women was 46% compared with 38% of men. One in three said they were worried about their mental health, including 38% of young women and 29% of young men.

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US small business dances on the edge. They account for 50% of GDP and more than 50% of new job creation.

It’s Not Just Consumers That Are Living Paycheck To Paycheck (BBG)

As Federal Reserve officials gather to issue their monthly assessment of the world’s largest economy, a new study lays bare the extent to which many small firms are pressed for cash. “Most small businesses are operating on very small margins,” Diana Farrell, CEO of the JPMorgan Chase Institute, an in-house think tank that uses data from the bank to analyze the economy. “The small business sector is less full of future Googles and Ubers and tons and tons of very small operators living month to month,” she said in a phone interview. The companies in question may be small, but they represent an outsized share of the U.S. economy.

According to the Small Business and Entrepreneurship Council, they account for roughly 50% of GDP and more than 50% of new job creation — a metric that’s closely watched by the Fed in determining whether the economy can withstand a constriction in financing conditions. Yet even though they’re contributing a great deal to the economy there remains ignorance about their financial health, Farrell added. On average, the companies surveyed have just 27 days worth of cash reserves — or money to cover expenses if inflows suddenly stopped — according to the JPMorgan study, which analyzed 470 million transactions by 570,000 small business last year. Restaurants typically hold the smallest cash buffers, with just 16 days of reserves, while the real-estate sector boasts the biggest, at 47 days.

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These people get far too much attention. That makes them feel much too important. We should ignore them. After taking their undemocratic powers away.

Divided Fed Holds Fire, Signals 2016 Rate Increase Still Likely (BBG)

A divided Federal Reserve left its policy interest rate unchanged to await more evidence of progress toward its goals, while projecting that an increase is still likely by year-end. “Near-term risks to the economic outlook appear roughly balanced,” the Federal Open Market Committee said in its statement Wednesday after a two-day meeting in Washington. “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” The sixth straight hold extends U.S. central bankers’ run of getting cold feet amid risks from abroad and inconsistent signs of economic strength.

Now the focus will shift to December as the Fed’s likely last chance to raise interest rates in 2016 – a move that depends on how the economy, inflation and markets fare in the months surrounding a contentious presidential election. “The statement is much more hawkish than I thought it would be,” said Stephen Stanley at Amherst Pierpont Securities in New York, who said he expects a rate increase in December. “That just tells you they are revving up the engines.” Three officials, the most since December 2014, dissented in favor of a quarter-point hike. Esther George, president of the Kansas City Fed, voted against the decision for a second straight meeting. She was joined by Cleveland Fed President Loretta Mester – in her first dissent – and Eric Rosengren, head of the Boston Fed, whose previous dissents called for easier policy.

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Uh, no: The need for yet another overhaul of the BOJ’s policy framework [..] speaks to the deep-seated challenges facing policy makers. Actually, it speaks to the utter failure of all ‘policies’ up till now.

Bank of Japan’s Inflation Overshoot Deepens Policy Innovation (BBG)

The first major central bank to adopt quantitative easing in the modern era has innovated again. BOJ Governor Haruhiko Kuroda and his colleagues adopted a pledge of “overshooting” their 2% inflation target, an idea floated by central bankers including Federal Reserve Bank of Chicago President Charles Evans, but not formally adopted up to now. They also unveiled a strategy of targeting short- and longer-term rates to provide the economy with cheap borrowing costs. Since taking the helm in 2013, Kuroda had previously pursued a QE-on-steroids policy to shock Japan out of deflation. Yet after three and a half years, he was running into increasing concerns about the sustainability of the purchases of government bonds, which have run at about 15% of gross domestic product annually.

The adoption of a negative interest rate on some bank reserves resulted in an outcry from banks, and – for a time – an alarming plunge in yields even on longer-dated securities. The Federal Reserve had a cap on long-term yields back in the 1940s, as part of the U.S. government’s efforts to keep down wartime and postwar debt financing. But a strategy of targeting the yield curve as a reflation initiative is new to the major central banks of today. “The BOJ had to do something revolutionary out of necessity – they are concerned about sustainability,” said Yuji Shimanaka at Mitsubishi UFJ Morgan Stanley Securities. The need for yet another overhaul of the BOJ’s policy framework – this is the third iteration under Kuroda alone – speaks to the deep-seated challenges facing policy makers. Japan’s consumer prices slumped 0.5% in July from a year before, far from the 2% gains targeted “at the earliest possible time.”

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There are still scores of greater fools out there… This time lured by low rates.

Real Estate Gets Its Seat At The S&P 500 Table (Forbes)

In case you haven’t noticed, the S&P 500 Index is looking a little different these days. Once a sub-industry of the financial sector, real estate now has its own zip code in the universe of blue chip stocks. It’s the first time since 1999 that such a change has been made to the S&P’s composition. The new sector has a weighting of nearly 3%, all of it taken out of financials. Real estate’s promotion should attract more institutional and individual investors to the space. It tells them this is no longer a niche market but one with a distinct and significant presence, with its own unique business drivers.

This has been a long time coming, to be perfectly honest. Ever since the housing and financial crisis, real estate investment trusts (REITs) have been pulling in some serious cash as more become available for trading on the New York Stock Exchange and elsewhere. Altogether, REITs currently have a market cap of over $1 trillion, according to REIT.com. With investors on the hunt for yield, it’s not hard to see why. As of August 31, the FTSE NAREIT All Equity REITs Index yielded an average of 3.61%, compared to the S&P 500’s 2.11%. During 2015, stock exchange-listed REITs paid out a whopping $46.5 billion in dividends.

Looking just at the residential housing market, business is definitely booming. With 30-year mortgage rates at below 3.5%, the market is scorching hot in many parts of the U.S.—so much so, some builders are reporting a shortage in construction workers to meet demand. New construction starts rose to 1.2 million in July, beating analysts’ forecasts and suggesting the U.S. housing market appears to have finally made a full recovery eight years following the recession, with Bloomberg calling this the “strongest home sales since the start of the economic expansion.”

Trouble could be brewing, however. As I shared with you last month, millennials just aren’t buying homes at the same rate we’ve historically seen from 18- to 34-year-olds. There are many theories as to why this is, from millennials delaying starting families to focus on careers, to a loss of trust in homeownership as a reliable investment or even as an institution, to a preference to rent. This trend has contributed to the lowest U.S. homeownership rate in five decades. How can this be? How could there be both massive housing demand and yet declining home ownership?

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“On average, homeowners paid 28% more in mortgage payments than renters did in monthly rent.”

With Mortgage Rates So Low, Why Are So Many People Still Renting? (Time)

With interest rates lower than they have been for years, many people still find that renting is more budget-friendly than a monthly mortgage payment. This is not true in all parts of the U.S., but a study by Robert W. Baird & Co. shows that living in one of the biggest housing markets in the country is often more expensive. The study looked at 28 different cities, and found that U.S. homeowners in 24 of the cities paid more than those who rent. On average, homeowners paid 28% more in mortgage payments than renters did in monthly rent. The study looked at properties with ratings of four or five stars to keep variables to a minimum.

The study also made some assumptions, such as that all mortgages were 30-year fixed loans, that all homeowners made a down payment of 15%, and that all mortgages included private mortgage insurance, homeowners’ insurance, and taxes. Of the 28 different markets examined, it was more affordable to own than to rent in Baltimore, Maryland, Tampa, Florida, Jacksonville, Florida, and Norfolk/Richmond, Virginia. Of the remaining 24 cities, 15 showed a 20% or higher difference in the cost of renting versus the cost of owning. These differences were due to factors such as the increase in housing prices and the fact that there are few houses on the market in many of these areas.

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More fallout from the war on interest rates.

House-Flippers Are Back, With Anonymous Funding (BBG)

Alex Sifakis never raised this much money this fast. The house flipper from Jacksonville, Florida, crowdfunded nine deals totaling more than $9 million through RealtyShares over the last two and a half years. A July deal for $1 million took him just 12 hours. “Generally, raising money takes so much time,’’ said Sifakis, 33. “This offers so much flexibility and time savings. It’s so much better than going to family offices, banks or Wall Street firms.’’ House flippers and property developers are increasingly crowdfunding — tapping the virtual wallets of anonymous internet backers on platforms such as RealtyShares, LendingHome, PeerStreet and Patch of Land. For riskier ventures, such as building new homes and buying, renovating and selling existing ones, they’re finding quick financing can be easier to get online than from banks.

That’s contributed to an increase in home flipping. In the second quarter, 39,775 investors bought and sold at least one house, the most since 2007, according to ATTOM Data Solutions. The crowdfunding sites are part of the multibillion-dollar ecosystem of marketplace lenders, like LendingClub Corp. and Prosper Marketplace Inc., that match users who need money with people who want to provide it for anything from debt consolidation to elective medical procedures. That business hasn’t always run smoothly. LendingClub is going through a rough stretch after years of rapid growth. In May, its founder and chief executive officer resigned amid an internal probe into a botched loan sale, sending LendingClub’s shares tumbling. So far, there have been few defaults in real estate crowdfunding deals. When they happen, the platforms say they’ll pay investors the proceeds from property sales.

The business has other potential pitfalls. When it comes to real estate, faster isn’t always better. Wall Street’s home-mortgage machine of the mid-2000s valued speed over accuracy, with disastrous results, though most crowdfunding sites cater to investors and not homebuyers. Also, clicking for capital can be exploited by fraudsters who may not be who they say they are, according to Sara Hanks, co-founder and CEO of CrowdCheck, which provides due-diligence services for online investors. “We’ve seen some things where the entity that’s supposed to own the property doesn’t actually own it,’’ she said.

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“..40% of China’s expressways were built between 2010 and 2015..”

China Chalks Up $667-Billion Debt Pile Over Toll Roads (R.)

China’s toll roads have stacked up a debt pile of 4.45 trillion yuan ($666.96 billion), with almost 80% of their annual income last year going to repay loans, the transport ministry said, as the country accelerates road building. Beijing has cranked up state spending on infrastructure to support economic growth as private sector investment falters, and efforts to lure investors into private-public partnerships to build projects such as toll roads have had few successes. The ministry published the 2015 figures late on Tuesday in a report that comes as global investors express growing concern over China’s overall credit, much of which has gone to build infrastructure. The toll road network’s debt grew an annual 15.7% last year, far outpacing income growth of 4.6%, the ministry said in the report.

“Although China’s toll road debt is relatively large, this is just a phase,” state newspaper the People’s Daily quoted Sun Yonghong, an official of the ministry’s highway division, as saying. “In the long run, the risks are controllable.” About three-quarters of 2015 revenue of 409.78 billion yuan went to paying down debt and interest, as banks sought payment of the principal one year after project completions, Sun said. Toll roads make up less than 4% of China’s road network, which stretches 4.5 million km (2.8 million miles). Sun said much of the debt was incurred to build expressways, and accumulation would slow as the road network matured. Almost 40% of China’s expressways were built between 2010 and 2015, at a cost of 3.32 trillion yuan, about 2.23 trillion yuan of which was paid through loans, he said.

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Sickening.

Wells Fargo Too Arrogant To Own Up To Its Fraudulent Ways (WaPo)

The 2008 financial collapse was eight years ago this month — and the big banks are back to their old shenanigans. Venerable Wells Fargo has engaged in behavior that would have made a robber baron blush: It pressured low-wage workers with unrealistic sales targets, so these workers created 2 million bogus accounts over five years, causing customers to be hit with fees and damage to their credit ratings. About 5,300 workers have been fired and $185 million in penalties assessed to the bank, but not a single high-level executive has been sacked or even forced to give back the tens of millions of dollars in pay earned based on the fraud. When Wells Fargo chairman and CEO John Stumpf sat before the Senate Banking Committee this week, he represented a bank too big to fail, too sprawling to manage and too arrogant to own up to its failures.

Can’t Wells Fargo take back some of the executive payouts? “I’m not an expert in compensation,” Stumpf said. Would he commit to investigate whether the fraud began in earlier years? “I can’t tell you that today.” Did he learn about the fraud before reading about it in the Los Angeles Times? “I don’t remember the exact time frame.” Stumpf informed the senators that what Wells Fargo did “was not a scam,” disputed that “this is a massive fraud” and said he had no idea “why people did this.” Sen. Jerry Moran, R-Kan., encouraged Stumpf to “make certain that the employees are not the scapegoat for behavior at higher levels.” Stumpf repeated that “the 5,300, for whatever reason, they were dishonest, and I’m not scapegoating.” If high-level bankers didn’t go to prison for the subprime high jinks that caused the 2008 crash, it’s a safe bet that none will in the Wells Fargo scandal either.

But if arrogance were a criminal offense, Stumpf would be looking at a life sentence. The bank’s fraud, and the executive’s insolence, may have one salutary result: It takes off the agenda any plan to dismantle the Consumer Financial Protection Bureau, one of the post-2008 regulatory creations and a top target of Donald Trump and congressional Republicans. The Los Angeles city attorney and the Los Angeles Times may deserve more credit for exposing the wrongdoing, but the audacity at Wells Fargo shows that the industry isn’t about to police itself. Stumpf also managed to create rare bipartisan unity on the Banking Committee – in condemnation of his actions. Sherrod Brown, D-Ohio, was “stunned.” Dean Heller, R-Nev., compared him to Sgt. Schultz of “Hogan’s Heroes.” Robert Menendez, D-N.J., called the actions “despicable.” Patrick J. Toomey, R-Pa., told Stumpf: “This isn’t cross-selling, this is fraud.”

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“Let’s ask ourselves whether we are comfortable with the United States getting slowly, predictably, and all too quietly dragged into yet another war in the Middle East.”

27 US Senators Rebel Against Arming Saudi Arabia (I’Cept)

A Senate resolution opposing a $1.15 billion arms transfer to Saudi Arabia garnered support from 27 senators on Wednesday, a sign of growing unease about the increasing number of civilians being killed with U.S. weapons in Yemen. A procedural vote to table the resolution passed 71-27. The Obama administration announced the transfer last month, the same day the Saudi Arabian coalition bombed a potato chip factory in the besieged Yemeni capital. In the following week, the Saudi-led forces would go on to bomb a children’s school, the home of the school’s principal, a Doctors Without Borders hospital, and the bridge used to carry humanitarian aid into the capital. Saudi Arabia began bombing Yemen in March 2015, four months after Houthi rebels from Northern Yemen overran the capitol, Sanaa, and deposed the Saudi-backed ruler, Abdu Rabbu Mansour Hadi.

In addition to providing Saudi Arabia with intelligence and flying refueling missions for its air force, the United States has enabled the bombing campaign by supplying $20 billion in weapons over the past 18 months. In total, President Obama has sold more than $115 billion in weapons to the Saudi kingdom – more than any other president. After the White House failed to respond to a letter from 60 members of Congress requesting that the transfer be delayed, Sens. Chris Murphy, D-Conn., and Rand Paul, R-Ky., introduced a resolution condemning the arms sale. Paul and Murphy said they had planned to pursue binding legislation if their resolution was successful. “It’s time for the United States to press ‘pause’ on our arms sales to Saudi Arabia,” Murphy said. “Let’s ask ourselves whether we are comfortable with the United States getting slowly, predictably, and all too quietly dragged into yet another war in the Middle East.”

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Carter’s a real man. No Clinton, Bush or Obama is fit to shine his shoes.

A First Step for Syria? Stop the Killing (Jimmy Carter)

The announcement this month of a new cease-fire agreement in Syria is good news. But a lack of trust among the Syrian belligerents and their foreign supporters means this agreement, like the one that came before it, is vulnerable to collapse. It is already showing severe signs of strain. Over the weekend, the United States accidentally bombed Syrian government troops. On Monday, the Syrian military declared it would no longer respect the deal, resumed airstrikes on Aleppo, and even a humanitarian aid convoy was bombed. Still, there is reason for hope. If Russia and the United States were willing to come far enough in their negotiations to reach this deal, these setbacks can be overcome. The targeting of the humanitarian convoy, a war crime, should serve as an added impetus for the United States and Russia to recommit to the cease-fire.

The two parties were well aware of the difficulties as they spent a month negotiating the cease-fire’s terms. The agreement can be salvaged if all sides unite, for now, around a simple and undeniably important goal: Stop the killing. It may be more likely than it sounds. Reliable sources estimate the number of Syrians killed to date at almost half a million, with some two million more people wounded. Well over half of the country’s 22 million prewar population has been displaced. These shocking numbers alone should convince all concerned that war itself is the greatest violation of human rights and the ultimate enemy of Syria. If this cease-fire is to last, the United States and Russia must find ways to work beyond the lack of trust that undermined the previous cease-fire, in February.

The countrywide cessation of hostilities that began then started to crumble within two months, with battles in much of the countryside around Damascus, central and northern Syria, and Aleppo. The resumption of the conflict led in April to the suspension of UN-sponsored peace talks in Geneva. However, a strong effort was made earlier in the year when the United States and Russia pressed their respective allies to pause the fighting and give the negotiations a chance. But the American and Russian expectation that they reach an agreement on issues of transitional governance by Aug. 1 was unrealistic. After five years of killing, and before any semblance of trust could be established, pushing the Syrian parties and their supporters to agree on power-sharing was seen as too threatening by some and too inadequate by others. Unsurprisingly, they reverted to violence.

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A lovely letter.

Apologizing to My Daughter for the Last 15 Years of War (Van Buren)

I recently sent my last kid off for her senior year of college. There are rituals to such moments, and because dad-confessions are not among them, I just carried boxes and kept quiet. But what I really wanted to say to her — rather than see you later, call this weekend, do you need money? – was: I’m sorry. Like all parents in these situations, I was thinking about her future. And like all of America, in that future she won’t be able to escape what is now encompassed by the word “terrorism.” Terrorism is a nearly nonexistent danger for Americans. You have a greater chance of being hit by lightning, but fear doesn’t work that way. There’s no 24/7 coverage of global lightning strikes or “if you see something, say something” signs that encourage you to report thunderstorms.

So I felt no need to apologize for lightning. But terrorism? I really wanted to tell my daughter just how sorry I was that she would have to live in what 9/11 transformed into the most frightened country on Earth. Want the numbers? Some 40% of Americans believe the country is more vulnerable to terrorism than it was just after September 11, 2001 – the highest%age ever. Want the apocalyptic jab in the gut? Army Chief of Staff General Mark Milley said earlier this month that the threat remains just as grave: “Those people, those enemies, those members of that terrorist group, still intend – as they did on 9/11 – to destroy your freedoms, to kill you, kill your families, they still intend to destroy the United States of America.” All that fear turned us into an engine of chaos abroad, while consuming our freedoms at home.

And it saddens me that there was a different world, pre-9/11, which my daughter’s generation and all those who follow her will never know. [..] After the last cardboard boxes had been lugged up the stairs, I held back my tears until the very end. Hugging my daughter at that moment, I felt as if I wasn’t where I was standing but in a hundred other places. I wasn’t consoling a smart, proud, twenty-something woman, apprehensive about senior year, but an elementary school student going to bed on the night that would forever be known only as 9/11. Back home, the house is empty and quiet. Outside, the leaves have just a hint of yellow. At lunch, I had some late-season strawberries nearly sweet enough to confirm the existence of a higher power. I’m gonna really miss this summer.

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Sep 212016
 
 September 21, 2016  Posted by at 9:16 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle September 21 2016
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Harris&Ewing Preparations for the inauguration of Woodrow Wilson, Court of Honor before White House 1913

Unlike in 1986, This Time US Might Not Dodge a Recession: Deutsche Bank (BBG)
Get Ready For The Mother Of All Stock Market Corrections (Tel.)
Japan Exports Fall 11th Straight Month, 9.6% YoY, Imports Plunge 17.3% (R.)
Bank of Japan Overhauls Policy Framework, Sets Yield Curve Target (R.)
Bank of Japan Introduces Rate Target for 10-Year Government Bonds (WSJ)
Could Germany Allow Deutsche Bank To Go Under? (Golem XIV)
Keynesian Deflation Humbug (Mish)
Nobody Has Ever Shut Down The World’s Best Drilling Rigs – Until Now (BBG)
Crude Slips As Venezuela Says Market Is 10% Oversupplied (Dow Jones)
SEC Probes Exxon Over Asset Valuation, Climate Change Accounting (WSJ)
Court Says Hanjin Shipping Rehab Plan ‘Realistically Impossible’ (R.)
Elizabeth Warren to Wells Fargo CEO: Resign, Return Earnings, Face Inquiry (G.)
Mexico Police Raid Sawmills To Rescue Monarch Butterfly Refuge (AFP)
Italy PM Renzi: Merkel Is ‘Lying To The Public’, Europe Is a ‘GHOST’ (Exp.)
EU: Refugees Must Stay On Greek Islands Despite Lesbos Fire (AP)

 

 

There are few things more nonsensical than ‘experts’ saying things like “..there’s a 30% probability that the U.S. will succumb to a recession over the next 12 months..” Yet, people keep listening.

Unlike in 1986, This Time US Might Not Dodge a Recession: Deutsche Bank (BBG)

Falling corporate margins, weakness in the U.S. labor market and rising corporate default rates — all features of the U.S. economy in 1986, a year it avoided a recession. Even if this year markets are largely shrugging off the deterioration in those key indicators and betting grim readings are down to temporary forces, Deutsche Bank strategists say to take little hope from a 30-year old precedent. Investors jittery over bleak readings on a slew of macro and corporate data have seized on 1986, when the same signals for a U.S recession were in place but the economy ended up growing 3.5% after inflation.

But bets on the continued expansion in U.S. output over the next year might be misplaced, according to European equity strategists at Deutsche Bank, since the economy is on a significantly weaker footing compared to the year that saw the release of Ferris Bueller’s Day Off. They restate the bank’s call that there’s a 30% probability that the U.S. will succumb to a recession over the next 12 months. That compares pessimistically with the 20% that is the average expectations of analysts surveyed by Bloomberg — and even with other analysts at the bank.

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…when central banks stop printing…

Get Ready For The Mother Of All Stock Market Corrections (Tel.)

[..] According to Chris Watling at Longview Economics, a wide range of indicators confirm the message: recession risks are rising. And if a recession is indeed looming, it almost certainly means a bear market in equities. Looking at all the US recessions of the last 77 years, Mr Watling finds that there is only one (1945) which has not been accompanied by a stock market correction. Complicating matters further is an ever more worrisome phenomenon – that both bond and equity markets are being artificially propped up by central bank money printing. Further easing this week from the Bank of Japan would only deepen the problem. Yet eventually it must end, and when it does, share prices globally will return to earth with a bump. Only lack of alternatives for today’s ever rising wall of money seems to hold them aloft.

Over the last year, central bank manipulation of markets has reached ludicrous levels, far beyond the “quantitative easing” used to mitigate the early stages of the crisis. Through long use, “unconventional monetary policy” of the original sort has become ineffective, and, well, simply conventional in nature. To get pushback, central banks have been straying ever further onto the wild-west frontiers of monetary policy. Today it’s not just government bonds which are being bought up by the lorry load, but corporate debt, and in the case of the Bank of Japan and the Swiss National Bank (SNB), even high risk equities. [..] For global corporations at least, credit has never been so free and easy, encouraging aggressive share buy-back programmes.

This in turn further inflates valuations already in danger of losing all touch with underlying fundamentals. By the by, it also helps trigger lucrative executive bonus awards. Where’s the real earnings and productivity growth to justify the present state of stock markets? As long as the central bank is there to do the dirty work, it scarcely seems to matter. In any case, the situation seems ever more precarious and unsustainable. Conventional pricing signals have all but disappeared, swept away by a tsunami of newly created money. Globally, the misallocation of capital must already be on a par with what happened in the run-up to the financial crisis, and possibly worse given the continued build-up of debt since then.

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World trade summed up.

Japan Exports Fall 11th Straight Month, 9.6% YoY, Imports Plunge 17.3% (R.)

Japan’s exports fell 9.6% in August from a year earlier, posting an 11th straight month of decline, Ministry of Finance data showed on Wednesday, underscoring sluggish external demand. The fall compares with a 4.8% decrease expected by economists in a Reuters poll. It followed a 14.0% drop in July, the data showed. Imports fell 17.3% in August, versus the median estimate for a 17.8% decline. The trade balance swung to a deficit of 18.7 billion yen ($184 million), versus the median estimate for a 202.3 billion yen surplus. It was a first trade deficit in three months.

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Who says Kuroda has no sense of humor? After failing to lift inflation for years, he now says he will “..allow inflation to overshoot its target..

Bank of Japan Overhauls Policy Framework, Sets Yield Curve Target (R.)

The Bank of Japan added a long-term interest rate target to its massive asset-buying program on Wednesday, overhauling its policy framework and recommitting to reaching its 2% inflation target as quickly as possible. The central bank also said it will allow inflation to overshoot its target by maintaining an ultra-loose policy – beefing up its previous commitment to keep policy easy until the target was reached and kept in a stable manner. At the two-day rate review that ended on Wednesday, the BOJ maintained the 0.1% negative interest rate it applies to some of the excess reserves that financial institutions park with the central bank.

But it abandoned its base money target and instead adopted “yield curve control” under which it will buy long-term government bonds to keep 10-year bond yields at current levels around zero %. The BOJ said it would continue to buy long-term government bonds at a pace that ensures its holdings increase by 80 trillion yen ($781 billion) per year. Under the new framework that adds yield curve control to its current quantitative and qualitative easing (QQE), the BOJ will deepen negative rates, lower the long-term rate target, or expand base money if it were to ease again, the central bank said in a statement announcing the policy decision. “The BOJ will seek to lower real interest rates by controlling short-term and long-term interest rates, which would be placed as the core of the new policy framework,” it said.

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But seriously, historians will look back on today wondering how on earth we could have all swallowed this continuing gibberish.

Bank of Japan Introduces Rate Target for 10-Year Government Bonds (WSJ)

Japan’s central bank took an unexpected step Wednesday, introducing a zero interest-rate target for 10-year government bonds to step up its fight against deflation, after an internal review of previous measures that fell short of expectations. he adoption of a long-term target, the first such attempt in the BOJ’s history, came as global central banks struggle to find ways to get prices rising. Financial markets gyrated following the Bank of Japan’s announcement of what it called a “new framework” to overcome deflation. Some thought it illustrated the limits of the BOJ’s powers, since the decision didn’t include any direct new stimulus measures, while others were encouraged by the BOJ’s tone.

“Investors are showing a positive response as they got the feeling that the BOJ will do whatever it can do to tackle deflation,” said Kengo Suzuki at Mizuho Securities in reference to the yen’s fall following the BOJ action. The dollar was around 102.60 yen in afternoon Tokyo trading, compared with around 101.90 yen before the decision. The 10-year Japanese government bond yield had already been near zero in recent weeks. It was minus 0.06% just before the decision and was minus 0.03% in Tokyo afternoon trading hours after the decision. The new framework puts 10-year interest rates at the center of policy, a contrast to the BOJ’s approach for the last 3 1/2 years under Gov. Haruhiko Kuroda, when asset purchases and expanding the monetary base were the key policy tool.

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Smart from Golem.

Could Germany Allow Deutsche Bank To Go Under? (Golem XIV)

[..] public bail outs are supposed to be strictly temporary. No holding 80% of RBS for most of a decade. Really? But that’s not the point which is important for Deutsche Bank. The important point is that in any sale of the viable parts of Germany’s only G-SIB, the brutal fact of the matter is that there is no other German financial institution that could afford to buy any of it. Commerzbank? Allianz? Letting an insurer buy a bank? So imagine the situation for Germany. They lose their seat at the top table and then they watch as France, England, American or perhaps China buy the crown of German financial might. So I don’t think it will ever happen. Or at least it will only happen when Germany is truly out of any other options. So if Deutsche is not going to be declared “no longer viable” what are the alternatives?

One option is the UniCredit route. UniCredit was a trillion euro bank. It was Italy’s flag carrier. It had bought Bavaria’s banks and some of Austria’s as well. And yet it’s share price was always paltry. Just 7.6 Euros at the market top in May ’07. And since then it has been a hollow and enfeebled giant. Lumbering and ineffectual. It has been the laughing stock of European banks. But Italy doesn’t seem to mind. They seem content to let UniCredit be the quintessential Zombie bank. Would Germany be as sanguine to leave Deutsche to go the same way? This would, I suggest, be almost as injurious to German pride and industrial policy as letting Deutsche go down completely.

But if Germany decided it could not face the financial consequences of obeying the letter of the resolution law nor leave the bank to be a bloated and useless zombie then the alternatives bring in their train even greater political upheavals. Imagine the German government decides that not bailing out Deutsche just inflicts too much damage on Germany – potentially reducing Germany from the front rank of globally significant nations to something lesser. It becomes a matter of national pride if not of survival. So Germany ignores all the FSB rules and regulations and bails Deutsche bringing it into government ownership/protection – call it what you like. In so doing it demolishes the entirety of European policy regarding bail outs, government debts and austerity.

Where then all the German insistence on fiscal discipline it has forced upon Greece, Ireland, Portugal, Spain and Italy? The Bundesbank, Berlin and the ECB would have no authority at all. Every country would have a green light to do the same for their flag carriers. It would be the end the European experiment. Or the European system would have to try to continue without Germany. And that could only happen if all debts to Germany were repudiated. I realise all this is speculation. But Deutsche has lost 90% of its value. Only RBS has lost more. Deutsche has 7000 legal cases against it. Frau Merkel is losing her grip, Brexit rocked the complacent rulers of Euroland and Madame Marine Le Pen would like to push France to do the same.

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Mish restates the obvious: “Keynesian theory says consumers will delay purchases if prices are falling. In practice, all things being equal, it’s precisely the opposite.”

Keynesian Deflation Humbug (Mish)

Hip, hip, hooray! The CPI is up more than expected, led by a huge 1.1% month-over-month surge in medical care supplies. Medical care services jumped 0.9%, and shelter jumped 0.3%. This will not help the economy. And it will subtract from consumer spending other than Obamacare and rent, but economists are cheering.

Real World Happiness

  • Food at home -1.9%
  • Energy -9.2%
  • Gasoline -17.3%
  • Fuel Oil -12.8%
  • Electricity -.07%
  • Used cars -4.0%

Unreal World Happiness

  • Food Away From Home +2.8%
  • Medical Care Commodities +4.5%
  • Shelter +3.4%
  • Transportation Services +3.1%
  • Medical Care Services +5.1%

Keynesian Theory vs. Practice Keynesian theory says consumers will delay purchases if prices are falling. In practice, all things being equal, it’s precisely the opposite. If consumers think prices are too high, they will wait for bargains. It happens every year at Christmas and all year long on discretionary items not in immediate need.

Reality Check Questions

  • If price of food drops will people stop eating?
  • If the price of gasoline drops will people stop driving?
  • If price of airline tickets drop will people stop flying?
  • If the handle on your frying pan falls off or your blow-dryer breaks, will you delay making another purchase because you can get it cheaper next month?
  • If computers, printers, TVs, and other electronic devices will be cheaper next year, then cheaper again the following year, will people delay purchasing electronic devices as long as prices decline?
  • If your coat is worn out, are you inclined to wait another year if there are discounts now, but you expect even bigger discounts a year from now?
  • Will people delay medical procedures in expectation of falling prices?
  • If deflation theory is accurate, why are there huge lines at stores when prices drop the most?

Bonus Question

If falling prices stop people from buying things, how are any computers, flat screen TVs, monitors, etc., ever sold, in light of the fact that quality improves and prices decline every year?

Anyone who thinks soaring Obamacare and rent is a good thing and will help the economy is crazy.

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Forget the OPEC output cut talks, here’s what’s really happening in oil.

Nobody Has Ever Shut Down The World’s Best Drilling Rigs – Until Now (BBG)

In a far corner of the Caribbean Sea, one of those idyllic spots touched most days by little more than a fisherman chasing blue marlin, billions of dollars worth of the world’s finest oil equipment bobs quietly in the water. They are high-tech, deepwater drillships – big, hulking things with giant rigs that tower high above the deck. They’re packed tight in a cluster, nine of them in all. The engines are off. The 20-ton anchors are down. The crews are gone. For months now, they’ve been parked here, 12 miles off the coast of Trinidad & Tobago, waiting for the global oil market to recover. The ships are owned by a company called Transocean Ltd., the biggest offshore-rig operator in the world. And while the decision to idle a chunk of its fleet would seem logical enough given the collapse in oil drilling activity, Transocean is in truth taking an enormous, and unprecedented, risk.

No one, it turns out, had ever shut off these ships before. In the two decades since the newest models hit the market, there never had really been a need to. And no one can tell you, with any certainty or precision, what will happen when they flip the switch back on. It’s a gamble that Transocean, and a couple smaller rig operators, felt compelled to take after having shelled out millions of dollars to keep the motors running on ships not in use. That technique is called warm-stacking. Parked in a safe harbor and manned by a skeleton crew, it typically costs about $40,000 a day. Cold-stacking – when the engines are cut – costs as little as $15,000 a day. Huge savings, yes, but the angst runs high.

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OPES helps the US bring Maduro to his knees.

Crude Slips As Venezuela Says Market Is 10% Oversupplied (Dow Jones)

Oil prices dipped to a new one-month low Tuesday as hopes for any deal between OPEC countries and Russia to freeze production continued to fade. U.S. crude for October delivery recently fell 14 cents, or 0.3%, to $43.18 a barrel on the New York Mercantile Exchange. The October contract expires at settlement, and the more actively traded November contract recently fell 27 cents, or 0.6%, to $43.59 a barrel. Brent, the global benchmark, fell 42 cents, or 0.9%, to $45.53 a barrel on ICE Futures Europe. Recent trade has been marked by fears that more OPEC members are intent on increasing production, even as leaders discuss the possibility of an output cap. Libya, Iran and Nigeria combined want to increase their output by about 1.5 million barrels a day this year.

Even Venezuela is raising exports, despite financial and production troubles, and the moves from all these countries are a clear message that none would be interested in agreeing to a cap, said Bjarne Schieldrop from Sweden’s SEB bank. He added that any deal would probably allow exceptions for Nigeria, Libya, Venezuela and Iran to lift production, possibly nullifying any agreement. “It doesn’t seem like any oil producers outside of North America are doing anything to control their production levels,” said Gene McGillian, research manager at Tradition Energy. Oil has been in a steady downtrend for the better part of two weeks with concerns over lingering oversupply. Prices are down 9.4% since they hit a high point for nearly the past month on Sept. 8.

The biggest drop came in two days last week after the International Energy Agency said a slowdown in global oil demand growth accelerated this quarter, sinking to 800,000 barrels a day – 1.5 million barrels a day lower than the third quarter of 2015. Despite that and talks of an output cap, data show OPEC members broadly producing near-record amounts of crude. “Fundamentals suggest the oil market is likely to remain in surplus for longer than many expected,” strategists at ING Bank said in a note.

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Exxon has not: 1) written down valuations of reserves as prices plunged, and 2) accounted for the financial consequences of climate change regulations.

SEC Probes Exxon Over Asset Valuation, Climate Change Accounting (WSJ)

The U.S. Securities and Exchange Commission is investigating how Exxon Mobil values its assets in a world of increasing climate-change regulations, a probe that could have far-reaching consequences for the oil and gas industry. The SEC sought information and documents in August from Exxon and the company’s auditor, PricewaterhouseCoopers, according to people familiar with the matter. The federal agency has been receiving documents the company submitted as part of a continuing probe into similar issues begun last year by New York Attorney General Eric Schneiderman, the people said.

The SEC’s probe is homing in on how Exxon calculates the impact to its business from the world’s mounting response to climate change, including what figures the company uses to account for the future costs of complying with regulations to curb greenhouse gases as it evaluates the economic viability of its projects. The decision to step into an Exxon investigation and seek climate-related information represents a moment in the effort to take climate change more seriously in the financial community, said Andrew Logan, director of the oil and gas program at Ceres, a Boston-based advocacy organization that has pushed for more carbon-related disclosure from companies.

“It’s a potential tipping point not just for Exxon, but for the industry as a whole,” he said. As part of its probe, the SEC is also examining Exxon’s longstanding practice of not writing down the value of its oil and gas reserves when prices fall, people familiar with the matter said. Exxon is the only major U.S. producer that hasn’t taken a write down or impairment since oil prices plunged two years ago. Peers including Chevron have lowered valuations by a collective $50 billion.

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Shipping prices will plummet.

Court Says Hanjin Shipping Rehab Plan ‘Realistically Impossible’ (R.)

The South Korean court overseeing Hanjin Shipping’s receivership said a rehabilitation plan is “realistically impossible” if top priority debt such as backlogged charter fees exceed 1 trillion won ($896 million), South Korea’s Yonhap newswire reported on Wednesday. Hanjin Shipping, the world’s seventh-largest container carrier, filed for receivership late last month in a South Korean court and must submit a rehabilitation plan in December. With debt of about 6 trillion won ($5.4 billion) at the end of June and the South Korean government’s unwillingness to mount a rescue, expectations are low that Hanjin Shipping will be able to survive. Top priority debt means claims for public interests, which are paid first to creditors and include cargo owners’ damages and unpaid charter fees, Yonhap reported citing the Seoul Central District Court.

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Shouldn’t such an inquiry be as obvious as common sense??

Elizabeth Warren to Wells Fargo CEO: Resign, Return Earnings, Face Inquiry (G.)

Wells Fargo chief executive John Stumpf should resign, return his pay and be criminally investigated over the bank’s illegal sales practices, Senator Elizabeth Warren said on Tuesday. The Massachusetts senator’s comments came moments after Stumpf said he was “deeply sorry” for the more than 2m unauthorized accounts his staff opened for the bank’s customers. The accounts, ranging from credit cards to checking accounts, were opened by thousands of the bank’s employees in an effort to meet Wells Fargo’s sales quotas and have already led to a record $185m fine. While testifying in front of the Senate banking committee, Stumpf said he was “deeply sorry” that the bank let down its customers and apologized for violating their trust.

“I accept full responsibility for all unethical sales practices in our retail banking business, and I am fully committed to doing everything possible to fix this issue, strengthen our culture, and take the necessary actions to restore our customers’ trust,” Stumpf said in his prepared remarks. Warren accused Stumpf of “gutless leadership”, telling him that his definition of being accountable is to push the blame on lower-level employees who do not have a PR firm to defend them. Warren questioned Stumpf’s compensation, asking him: “Have you returned one nickel of the millions of dollars that you were paid while this scam was going on?” “The board will take care of that,” Stumpf said after attempting to duck the question. He also told Warren that this “was not a scam”.

Warren pointed out that during the time that the unauthorized accounts were being opened, the share price of Wells Fargo went up by about $30. Stumpf personally owns about 6.75m shares of Wells Fargo stock and made more than $200m just off his stock during that time, Warren said. [..] At the hearing Stumpf pointed out that the lowest paid employees at Wells Fargo earn $12 an hour and that the employees let go for opening unauthorized accounts were making “good money”, earning $30,000 to $60,000 a year. “How much money did you make last year?” New Jersey senator Robert Menendez asked Stumpf. “$19.3m,” said Stumpf. “Now that’s good money,” said Menendez.

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Kudo’s.

Mexico Police Raid Sawmills To Rescue Monarch Butterfly Refuge (AFP)

A special Mexican police unit has raided seven sawmills near the monarch butterfly’s mountain sanctuary in a bid to prevent illegal logging threatening the insect’s winter migration, officials said Tuesday. Backed up by a helicopter, some 220 members of the country’s police force and 40 forestry inspectors participated in the September 12 operation in the western state of Michoacan. North American governments have taken steps since last year to protect the monarch butterfly, which crosses Canada and the United States each year to hibernate on the fir and pine trees of Mexico’s western mountains. Last week’s raid was the first since the government decided in April to add the police to protection efforts for the brilliant orange and black monarchs.

The force has been conducting foot patrols day and night, using drones and helicopters for surveillance when weather permits, Abel Corona, director of the special units, said at a news conference. [..] Illegal logging dropped by 40% between the 2014-2015 and 2015-2016 butterfly season, environmental protection authorities said last month. But March storms killed seven% of the monarchs. The cold spell came after authorities had reported a rebound in the 2015-2016 season, with the butterfly covering 4.01 hectares (9.9 acres) of forest, more than tripling the previous year’s figure.

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Renzi in his referendum desperation finally tells the truth, somewhat.

Italy PM Renzi: Merkel Is ‘Lying To The Public’, Europe Is a ‘GHOST’ (Exp.)

Angela Merkel has been lying to the public about European unity, Italian Prime Minister Matteo Renzi has said. In a brutal attack on his fellow EU members, he said the first EU summit without the UK amounted to no more than “a nice cruise on the Danube”. Having been excluded from a joint news conference by the German Chancellor, Mrs Merkel and French President Francois Hollande, he said he was dissatisfied with the Bratislava summit’s closing statement. The outspoken Italian premier hit out at the lack of commitments on the economy and immigration in the summit’s conclusions, despite signing it himself. In a fiery interview in Italian daily Corriere della Sera, Mr Renzi intensified his criticisms, although he remained vague on what commitments he would have liked the summit to produce.

The Prime Minister has staked his career on a referendum this autumn over plans for constitutional reform, promising to resign if he loses. Talking about his fellow leaders, he said: “If we want to pass the afternoon writing documents without any soul or any horizon they can do it on their own. “I don’t know what Merkel is referring to when she talks about the ‘spirit of Bratislava’. “If things go on like this, instead of the spirit of Bratislava we’ll be talking about the ghost of Europe.” Mr Renzi said he is preparing a 2017 budget which he claims will cut taxes despite a slowing economy and record high public debt. He added: “At Bratislava we had a nice cruise on the Danube, but I hoped for answers to the crisis caused by Brexit, not just to go on a boat trip.”

He was similarly belligerent about the Italian budget to be presented next month, saying there would be “no negotiation” with Brussels, and money he planned to spend on tackling immigration and making Italy safer from earthquakes would be excluded from EU rules on deficit limits. Other countries were more guilty than Italy of breaking budget rules and Italy had met its commitments on tackling the inflows of migrants crossing the Mediterranean, Renzi said. He said: “I’m not going to stay silent for the sake of a quiet life. “If someone wants to keep Italy quiet they have picked the wrong place, the wrong method and the wrong subject.”

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In case anyone still had any doubts about this, here’s more proof that it’s the EU, not Greece, that is responsible for the expanding misery. Europe wants the islands to serve as holding pens, so richer Europe doesn’t have to face the consequences of the policies it itself dictates.

“To avoid secondary movement to the rest of Europe, that means keeping asylum seekers on the islands..”

EU: Refugees Must Stay On Greek Islands Despite Lesbos Fire (AP)

Authorities on the island of Lesvos called for the immediate evacuation Tuesday of thousands of refugees to the Greek mainland after a fire gutted a detention camp following protests. But EU officials appeared cool to the idea. More than 4,000 people were housed at the camp in Moria on Lesvos where the fire broke out late Monday, destroying or damaging tents and trailers. No injuries were reported at the camp, about 8 kilometers north of the island’s main town. Nine migrants were arrested on public disturbance charges after the chaotic scenes. Families with young children hastily packed up their belongings and fled into the nearby fields as the fire raged after nightfall. Many were later given shelter at volunteer-run camps. “We have been saying for a very long time that overcrowding on the islands must be eased,” regional governor Christiana Kalogirou said.

“On the islands of the northeast Aegean, official facilities have a capacity of 5,450 places, but more than 10,500 people are there. There is an immediate need to take people off the islands because things will get even more difficult,” she said. More than 60,000 migrants and refugees are stranded in transit in Greece, and those who arrived after March 20 have been restricted to five Aegean islands under an EU-brokered deal to deport them back to Turkey. But the agreement has been fraught with delays. In Brussels, a spokeswoman for the European Commission, Natasha Bertaud, said the Greek government had described the situation as being under control. Transfers to the mainland, she said, would remain limited. “To avoid secondary movement to the rest of Europe, that means keeping asylum seekers on the islands for the most part,” Bertaud said.

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