May 162017
 
 May 16, 2017  Posted by at 8:25 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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Fred Stein Chinatown 1944

 

White House: Report Trump Shared Classified Info With Russians is ‘False’ (RT)
Trump’s Classified Disclosure Is Shocking But Legal (BBG)
The ‘Soft Coup’ of Russia-Gate (Robert Parry)
China’s Silk Road Vision: Cheap Funds, Heavy Debt, Growing Risk (R.)
China Banking Regulator Tightens Rules On WMPs, Flags More Curbs (R.)
New Zealand Housing Market Most at Risk of Bust – Goldman (BBG)
Snowden & Chomsky Lead Calls To Drop DOJ Case Against WikiLeaks (RT)
Large Hedge Funds Moved Out Of Financial Stocks In First Quarter (R.)
Ford To Cut North America, Asia Salaried Workers By 10% (R.)
How High Should Congress Let Flood Insurance Rates Rise? (USAT)
Macron Wins Merkel Backing For Bid To Shake Up Europe (AFP)
Germany Must Decide: Budget Rigour Or Europe’s Future (R.)
The Euro Area – A Simple Model Of Savings, Debt & Private Spending (Terzi)
Greek Economy Pays for Drawn-Out Talks With Return to Recession (BBG)

 

 

And here we are: The WaPo, left with almost zero credibility after so many anti-Trump and anti-Russia opinions more often than not disguised as factual reports, can only find a willing ear anymore inside its echo chamber. As usual, the WaPo article is based on anonymous sources. America is trapped inside it own narrative.

White House: Report Trump Shared Classified Info With Russians is ‘False’ (RT)

Multiple White House officials, including National Security Advisor H.R. McMaster, are refuting a Washington Post story claiming that President Donald Trump revealed highly classified information to Russian officials in the Oval Office last week. But some believe McMaster’s statement contained holes. On Monday evening, National Security Advisor McMaster called a report published earlier in the day by the Washington Post “false.” The report that went viral cited unverifiable sources, unnamed current and former US officials, who claimed that Trump disclosed to Russian Foreign Minister Sergey Lavrov and Ambassador to the US Sergey Kislyak “code-word information” relating to Islamic State during a May 10 meeting in the Oval Office at the White House.

The intelligence was reportedly from “a US partner through an intelligence-sharing arrangement” and not authorized to be shared with Russia, US allies or even within much of the US government. “I was in the room. It didn’t happen,” McMaster told reporters outside the White House. Deputy National Security Adviser Dina Powell also called the story “false” Monday. “The president only discussed the common threats that both countries faced,” Powell said. Secretary of State Rex Tillerson, who was also at the meeting, denied the allegation. McMaster told reporters that Trump did discuss civil aviation threats with Lavrov and Kislyak. [..] The Russian Embassy in DC had no comment on the media claim, according to a representative.

Read more …

Besides, the WaPo article doesn’t describe anything illegal. But it’ll take a while before that sinks in, if ever.

Trump’s Classified Disclosure Is Shocking But Legal (BBG)

Oh for the days when Donald Trump wasn’t taking the presidential daily brief – and didn’t know highly classified information that he could give to the Russians. But a bit bizarrely, Trump’s reported disclosure of Islamic State plans to two Russian officials during an Oval Office visit last week wasn’t illegal. If anyone else in the government, except possibly the vice president, had revealed such classified information that person would be going to prison. The president, however, has inherent constitutional authority to declassify information at will. And that means the federal laws that criminalize the disclosure of classified secrets don’t apply to him. If this doesn’t make much sense to you, I feel your pain.

To understand the legal structure of classification and declassification requires a brief journey into the constitutional law of separation of powers. That’s not always especially fun. But at this juncture in U.S. history, it’s essential. Not since Richard Nixon’s administration has separation of powers been so central to the fate of the republic. The authority to label facts or documents as classified rests with the president in his capacity as a commander in chief. Or at least that’s what the U.S. Supreme Court said in a 1988 case, Department of the Navy v. Egan. Justice Harry Blackmun, who wrote the opinion, said that the executive’s “authority to classify and control access to information bearing on national security … flows primarily from this constitutional investment of power in the President and exists quite apart from any explicit congressional grant.”

Blackmun’s idea that the president has an inherent right to decide who gets access to classified information seems to imply the converse: that the president has the inherent authority to declassify information, too. Although there’s no case on this point, scholars took that view during the years of the George W. Bush administration, when the president was thought to have declassified some information that was leaked to the news media by White House aide I. Lewis “Scooter” Libby. It makes sense. If it is up to the president to decide what can’t be disclosed, it should be up to him to decide what can be.

[..] If you’re following closely, you’ll have noticed an anomaly: The president can classify and declassify. But the president can’t send people to prison for disobeying his order. That requires a federal law passed by Congress, and a conviction before a judge. Thus, under the separation of powers, the president has inherent authority to fire his own employees for disclosing classified information, but lacks the power to punish them criminally without Congress and the courts. That law exists: 18 U.S. Code Section 798, if you care to look it up. It makes it a federal crime to communicate “classified information” to an “unauthorized person.” The catch is that the law defines classified information as information determined classified by a U.S. government agency, and similarly defines an unauthorized person as someone not determined authorized by the executive branch. That puts Trump in the clear insofar as he has an inherent authority to declare information unclassified.

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And Robert Parry can tell you why things like that WaPo ‘report’ get so blown up.

The ‘Soft Coup’ of Russia-Gate (Robert Parry)

I realize that many Democrats, liberals and progressives hate Donald Trump so much that they believe that any pretext is justified in taking him down, even if that plays into the hands of the neoconservatives and other warmongers. Many people who detest Trump view Russia-gate as the most likely path to achieve Trump’s impeachment, so this desirable end justifies whatever means. Some people have told me that they even believe that it is the responsibility of the major news media, the law enforcement and intelligence communities, and members of Congress to engage in a “soft coup” against Trump – also known as a “constitutional coup” or “deep state coup” – for the “good of the country.”

The argument is that it sometimes falls to these Establishment institutions to “correct” a mistake made by the American voters, in this case, the election of a largely unqualified individual as U.S. president. It is even viewed by some anti-Trump activists as a responsibility of “responsible” journalists, government officials and others to play this “guardian” role, to not simply “resist” Trump but to remove him. There are obvious counter-arguments to this view, particularly that it makes something of a sham of American democracy. It also imposes on journalists a need to violate the ethical responsibility to provide objective reporting, not taking sides in political disputes. But The New York Times and The Washington Post, in particular, have made it clear that they view Trump as a clear and present danger to the American system and thus have cast aside any pretense of neutrality.

The Times justifies its open hostility to the President as part of its duty to protect “the truth”; the Post has adopted a slogan aimed at Trump, “Democracy Dies in Darkness.” In other words, America’s two most influential political newspapers are effectively pushing for a “soft coup” under the guise of defending “democracy” and “truth.” But the obvious problem with a “soft coup” is that America’s democratic process, as imperfect as it has been and still is, has held this diverse country together since 1788 with the notable exception of the Civil War. If Americans believe that the Washington elites are removing an elected president – even one as buffoonish as Donald Trump – it could tear apart the fabric of national unity, which is already under extraordinary stress from intense partisanship.

That means that the “soft coup” would have to be carried out under the guise of a serious investigation into something grave enough to justify the President’s removal, a removal that could be accomplished by congressional impeachment, his forced resignation, or the application of Twenty-fifth Amendment, which allows the Vice President and a majority of the Cabinet to judge a President incapable of continuing in office. That is where Russia-gate comes in. The gauzy allegation that Trump and/or his advisers somehow colluded with Russian intelligence officials to rig the 2016 election would probably clear the threshold for an extreme action like removing a President. And, given the determination of many key figures in the Establishment to get rid of Trump, it should come as no surprise that no one seems to care that no actual government-verified evidence has been revealed publicly to support any of the Russia-gate allegations.

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China wants to own the new Silk Road, and to be the leader. The original one knew neither ownership nor leadership.

China’s Silk Road Vision: Cheap Funds, Heavy Debt, Growing Risk (R.)

Behind China’s trillion-dollar effort to build a modern Silk Road is a lending program of unprecedented breadth, one that will help build ports, roads and rail links, but could also leave some banks and many countries with quite a hangover. At the heart of that splurge are China’s two policy lenders, China Development Bank (CDB) and Export-Import Bank of China (EXIM), which have between them already provided $200 billion in loans throughout Asia, the Middle East and even Africa. They are due to extend at least $55 billion more, according to announcements made during a lavish two-day Belt and Road summit in Beijing, which ends on Monday. Thanks to cheaper funding, CDB and EXIM have helped to unblock what Chinese president Xi Jinping on Sunday called a ‘prominent challenge’ to the Silk Road: the funding bottleneck.

But as the Belt and Road project grows, so do the risks to policy banks, commercial lenders and borrowers, all of whom are tangled in projects with questionable business logic, bankers and analysts say. EXIM, seeking to contain risk, says it has imposed a debt ceiling for each country. CDB says it has applied strict limits on sovereign borrowers’ credit lines and controls the concentration of loans. “For some countries, if we give them too many loans, too much debt, then the sustainability of its debt is questionable,” Sun Ping, vice governor of EXIM, told reporters last week. For now, funds are cheap and plentiful, thanks to Beijing. Belt and Road infrastructure loans so far have been primarily negotiated government to government, with interest rates below those offered by commercial banks and extended repayment schedules, bankers and analysts said.

[..] 47 of China’s 102 central-government-owned conglomerates participated in 1,676 Belt and Road projects, according to government statistics. China Communications Construction alone has notched up $40 billion of contracts and built 10,320 kilometres of road, 95 deepwater ports, 10 airports, 152 bridges and 2,080 railways in Belt and Road countries. China’s central bank governor Zhou Xiaochuan is among those to warn that this reliance on cheap loans raises “risks and problems”, starting with moral hazard and unsustainability. China has been caught out before; it is owed $65 billion by Venezuela, now torn by crisis. “The jurisdictions where many of these loans are going are places that would have difficulty getting loans from Western commercial banks – their credit ratings are not very good, or the projects in question often are not commercially viable,” said Jack Yuan at Fitch in Shanghai. “The broader concern is that capital continues to be mis-allocated by Chinese banks.”

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We’ll believe it when the bankruptcies start accumulating.

China Banking Regulator Tightens Rules On WMPs, Flags More Curbs (R.)

China’s banking regulator is tightening disclosure rules on lenders’ wealth management products (WMP) as it tries to track risky lending practices in the shadow banking sector, the latest in a series of steps by Beijing aimed at defusing financial risks. The China Banking Regulatory Commission (CBRC) said in a notice late on Monday it plans to launch 46 new or revised rules this year, part of which targets risks related to shadowbanking activities. Authorities are trying to better regulate 30 trillion yuan ($4.35 trillion) of WMPs, much of it sitting off-balance sheet in the shadowbanking sector. The WMPS have been used to channel deposits into risky investments, often via many layers of asset management schemes to skirt lending and capital rules.

The CBRC will now require that banks report the underlying assets and liabilities of their WMPs, as well as all layers of investment schemes, on a weekly basis. Previously, banks were required to hand in less detailed information, and on a monthly basis. The new rules – published by a WMP management platform under CBRC – reflect regulators’ desire to have a full picture of banks’ activities, and could slow the growth of WMPs. In March, China’s newly appointment banking regulator Guo Shuqing, vowed to strengthen supervision of the lending sector, underscoring Beijing’s determination to fend off financial risks and push reforms this year. Separately, CBRC unveiled a long list of rules it aims to publish this year, many of these related to risk-management. The rules are to “ensure that (risk) does not become systemic,” CBRC said.

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Useless numbers from Goldman Sachs.

New Zealand Housing Market Most at Risk of Bust – Goldman (BBG)

New Zealand’s housing market is the most over-valued among the so-called G-10 economies and the most at risk of a correction, according to Goldman Sachs. In research published this week, the investment bank said there is about a 40% chance of a housing “bust” in New Zealand over the next two years, which it defines as house prices falling 5% or more after adjustment for inflation. The report looks at housing markets in the G-10 countries – those with the 10 most-traded currencies in the world – and finds they are most elevated in small, open economies such as New Zealand, where house prices have rocketed in recent years. In Auckland, the nation’s largest city, the average price has surged 91% since 2007 to more than NZ$1 million ($688,000).

Goldman compares house-price levels across economies using three standard metrics: the ratio of house prices to rent, the ratio of house prices to household income and house prices adjusted for inflation. “Using an average of these measures, house prices in New Zealand appear the most over-valued, followed by Canada, Sweden, Australia and Norway,” it said. “According to the model, the probability of a housing bust over the next five to eight quarters is the highest in Sweden and New Zealand at 35 to 40%.” A graph in the report shows that New Zealand’s probability of a housing bust is just above 40%, while Sweden’s is just above 35%. The risk of a bust in Australia is about 25%.

Read more …

Chelsea Manning is free as of tomorrow.

Snowden & Chomsky Lead Calls To Drop DOJ Case Against WikiLeaks (RT)

Former intelligence officers, journalists and artists are among more than 100 signatories of an open letter calling on President Trump to close the Grand Jury investigation into WikiLeaks and drop any planned charges against the whistleblower group.
The letter released Monday by the Courage Foundation includes NSA whistleblower Edward Snowden and renowned scholar and activist Noah Chomsky among the original signatories. A significant number of former personnel from US intelligence agencies are backing the letter. Among them are former senior NSA officials Thomas Drake, William Binney and Kirk Wiebe. Daniel Ellsberg, the former State and Defense Department official who released top secret Pentagon Papers in 1971 and retired FBI Special Agent and former Minneapolis Division Legal Counsel Coleen Rowley also signed the letter.

The plea to President Trump is in response to comments made by US Attorney General Jeff Sessions last month, in which he confirmed that the arrest of WikiLeaks founder Julian Assange was a “priority” for the US government. Fears are growing that charges including conspiracy, theft of government property and violating the Espionage Act are being considered against members of WikiLeaks. Several artists are also pushing the call for Trump to drop any proposed charges against the whistleblower organization. Among the big names are Oliver Stone, Ken Loach, Pamela Anderson, Patti Smith, PJ Harvey and Vivienne Westwood.

The letter acknowledges that the Obama administration prosecuted more whistleblowers than all previous presidents combined and opened a Grand Jury investigation into WikiLeaks that had no precedent. “It now appears the US is preparing to take the next step — prosecuting publishers who provide the “currency” of free speech, to paraphrase Thomas Jefferson,” the document states. “A threat to WikiLeaks’ work — which is publishing information protected under the First Amendment — is a threat to all free journalism. If the DOJ is able to convict a publisher for its journalistic work, all free journalism can be criminalized.”

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They know something you don’t.

Large Hedge Funds Moved Out Of Financial Stocks In First Quarter (R.)

Several big-name hedge fund investors trimmed their stakes in financial companies in the first quarter as hopes for immediate tax cuts and loosening of regulations after President Donald Trump’s victory in November began to fade. Adage Capital Management cut its position in Wells Fargo, which has come under fire for its sales practices, by 3.9 million shares, according to regulatory filings, while John Burbank’s Passport Capital cut its stake in the company by 947,000 shares. Third Point cut its stake in JPMorgan Chase by 28%, to 3.75 million shares, while Suvretta Capital Management sold all of its shares of Morgan Stanley, JPMorgan and Citigroup. Overall, financial companies in the S&P 500 were up 2.1% in the first quarter, compared with 5.5% for the index as a whole.

Financials significantly outperformed the broad market following Trump’s Nov. 8 election. Trump had pledged to do a “big number” on the landmark Dodd-Frank financial reform law, which raised banks’ capital requirements and restricted their ability to make speculative bets with customers’ money. The Treasury Department is still filling vacancies and will not be able to complete a review of the law by Trump’s June deadline, sources told Reuters. Quarterly disclosures of hedge fund managers’ stock holdings, in what are known as 13F filings with the U.S. Securities and Exchange Commission, are one of the few public ways of tracking what the managers are selling and buying. But relying on the filings to develop an investment strategy comes with some risk because the disclosures come out 45 days after the end of each quarter and may not reflect current positions.

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Lean and efficient, and losing sales.

Ford To Cut North America, Asia Salaried Workers By 10% (R.)

Ford plans to shrink its salaried workforce in North America and Asia by about 10% as it works to boost profits and its sliding stock price, a source familiar with the plan told Reuters on Monday. A person briefed on the plan said Ford plans to offer generous early retirement incentives to reduce its salaried headcount by Oct. 1, but does not plan cuts to its hourly workforce or its production. The move could put the U.S. automaker on a collision course with President Donald Trump, who has made boosting auto employment a top priority. Ford has about 30,000 salaried workers in the United States.

The cuts are part of a previously announced plan to slash costs by $3 billion, the person said, as U.S. new vehicles auto sales have shown signs of decline after seven years of consecutive growth since the end of the Great Recession. The Wall Street Journal reported Monday evening that Ford plans to cut 10% of its 200,000-person global workforce, but the person briefed on the plan disputed that figure. The source requested anonymity in order to be able to discuss the matter freely. Ford declined to comment on any job cuts but said it remains focused on its core strategies to “drive profitable growth”. “Reducing costs and becoming as lean and efficient as possible also remain part of that work,” it said in a statement. “We have not announced any new people efficiency actions, nor do we comment on speculation.”

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FEMA rules!

How High Should Congress Let Flood Insurance Rates Rise? (USAT)

Congress is considering dramatic changes to the National Flood Insurance Program, which has a $25 billion debt that its director says cannot be repaid. But as a Sept. 30 deadline looms for the program to be renewed, disagreements remain over how much homeowners should be forced to pay for flood insurance to make the program more solvent. If Congress can’t reach an agreement, a lapse in the Federal Emergency Management Agency’s legal authority to write new policies could disrupt real estate sales in flood-prone areas around the country.

Republican Sen. Bill Cassidy of Louisiana and Democratic Sen. Kirsten Gillibrand of New York are circulating draft legislation to renew the program, but it contains provisions – such as vouchers to help low-income homeowners keep the cost of premiums and fees from getting too high — that are not in a draft that Republicans on the House Financial Services Committee plan to release this week. Disputes also remain over how to address wrongdoing by insurance companies and affiliated contractors in the wake of Superstorm Sandy and last year’s floods in Louisiana, and whether older properties that flood repeatedly should still receive discounts. Many in Congress also want to encourage more private insurers to enter the market, but some warn the government could be left with only the riskiest properties.

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Macron has to focus on France. and will do so until well after Merkel is re-elected. Still, these new views could have prevented Brexit.

Macron Wins Merkel Backing For Bid To Shake Up Europe (AFP)

France’s new President Emmanuel Macron secured backing Monday from key ally Chancellor Angela Merkel for his bid to shake up Europe, despite scepticism in Berlin over his proposed reforms. Travelling to the German capital to meet the veteran leader in his first official trip abroad, Macron used the opportunity to call for a “historic reconstruction” of Europe. During his campaign, Macron had thrown up ideas on reforming the eurozone, noting that the currency bloc cannot go on as it is if it wanted to avoid falling prey to protest and populism. Among reforms he wants to see are setting up a separate budget for the 28-member group, as well as giving it its own parliament and finance minister. But the proposals have sent alarm bells ringing in Berlin, and initial relief about his victory against far-right leader Marine Le Pen had quickly given way to fears about his reform plans.

Finance Minister Wolfgang Schaeuble warned that such deep-reaching reforms would require treaty changes, which were “not realistic” at a time when Europe is hit by a surge of anti-euro populism. Saturday’s edition of weekly news magazine Der Spiegel featured a cover picture of Macron with the headline “expensive friend”. But at a joint press conference following their talks, Merkel adopted a conciliatory tone and offered what appeared to be a key concession. “From the German point of view, it’s possible to change the treaty if it makes sense,” she said. “If we can say why, what for, what the point is, then Germany will be ready.” Merkel’s approach underlined her view that it was crucial not only for France, but for Germany, to help Macron succeed – a point that she has repeatedly stressed.

Yet it remains to be seen if her approach would go down well in Germany, which is deeply adverse to shouldering burdens of eurozone laggards. Macron sought to bat away German fears on debt, saying he was opposed to mutualising “old debt” between eurozone countries. However, he signalled readiness to look at sharing future burdens. “I am not a promoter of the mutualisation of old debt” within the eurozone, said Macron after meeting Merkel, adding however that the joint financing of future projects should be considered. Underlining the concerns over Macron’s proposals, Germany’s biggest selling daily Bild warned ahead of the French leader’s meeting with Merkel that before seeking deeper EU integration, “France must once again be at the same level as Germany politically and economically”. “Only then can the EU be reformed or develop deeper integration,” it said.

Read more …

Ye olde ‘there is stil time’ delusion: there is still time to make Germany change its stance on the EU, in the same way that there is still time to save the planet. No, there isn’t, if you include the time it will take to turn around what has been the ‘normal’. You need a revolution, not a change.

Germany Must Decide: Budget Rigour Or Europe’s Future (R.)

After Emmanuel Macron’s victory in France’s presidential election, Germany must decide whether it wants to continue its single-minded focus on budget rigour or work with him to ensure the future of the European project, a German diplomat said. In an interview with Reuters hours before the new French president travels to Berlin to meet Chancellor Angela Merkel, Wolfgang Ischinger, chairman of the Munich Security Conference, pushed back against German politicians who have picked holes in Macron’s ideas for Europe since his election win. Among those are Finance Minister Wolfgang Schaeuble, who has come to personify Berlin’s focus on the “Schwarze Null”, or balanced budget. He has suggested Macron’s plans to create a budget and finance minister for the euro zone are unrealistic.

“My wish is that this issue is not used in the (German) election campaign, but that we have a serious discussion over the question: ‘What is more important to us? The Schwarze Null as a categoric imperative or the future of Europe?'” Ischinger said. “If compromises are necessary and make sense, then I would support compromise rather than categorical imperatives.” Mainstream parties in Germany applauded Macron’s victory over far-right leader Marine Le Pen earlier this month. But since then, conservative politicians and media have criticized his plans, suggesting they would lead to a “transfer union” in which German money would be used to pay for uncompetitive member states that are reluctant to reform. Schaeuble has suggested some of Macron’s more ambitious plans would require politically thorny changes to the EU treaty. But Ischinger, a former German ambassador to Britain and the United States, said much could be done on an intergovernmental basis.

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The illusion that the ECB can manage the EU economy.

The Euro Area – A Simple Model Of Savings, Debt & Private Spending (Terzi)

In 2010, with the first casualty (Greece) in the emergency room and the first economic adjustment programme (with financial package) approved, the Eurosystem eventually became an occasional buyer of government debt. Two years later, with three more casualties (Ireland, Portugal, and Spain) and a systemic collapse in sight, the ECB added the newly crafted Outright Monetary Transactions (OMT) to its toolbox. This meant that the ECB had formally become ready to be an unlimited, albeit conditional, outright buyer in the secondary market for Eurozone government debts. The introduction of OMTs was the way to restore systemic liquidity buffers in a monetary system that had become unsustainable, while remaining consistent with the monetary financing prohibition laid down in the Treaty.

As events during the crisis unfolded, and depending on the narrative about its causes, several different meanings have been attached to the notion of the Eurozone crisis. This has been seen, alternatively, as the unwinding of intra-euro lending and borrowing, the consequence of private credit bubbles, the product of unsustainable public debt, the failure of inadequately supervised banking and financial institutions, and, most notably, as a double-dip recession followed by an unusually weak expansion combined with a visibly inadequate policy (and political) response. Today, six years after the crisis erupted, and notwithstanding the modified ECB practice that saved the day, the Eurozone is still visibly failing to enact sustainable policies that can effectively restore economic prosperity.

Accordingly, there have been two distinct phases in the Eurozone crisis. Between 2010 and 2012 the monetary union was in jeopardy of undergoing an operational breakdown up until the change in the operational practice in the market for public sector securities, complemented by the banking union reform. Since 2012, the problems have been the continuing sluggishness of the real economy, the acute lack of demand, vulnerability to internal and external shocks, and, ultimately, the risk of a political implosion. While the ECB has successfully reclaimed one indispensable tool to operationally manage the euro, the deflationary bias of the euro area has not gone away. Effectively, Europe’s economic performance has been vastly disappointing ever since the launch of the euro.

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Greece has no way to escape recession, drawn out talks have nothing to do with it.

Greek Economy Pays for Drawn-Out Talks With Return to Recession (BBG)

Greece’s economy returned to recession in the first quarter as delays in concluding talks between the government and its creditors raised the specter of another debt drama. GDP contracted 0.1% in the first three months of the year after shrinking 1.2% in the previous quarter, the Hellenic Statistical Authority said in a statement on Monday. The seasonally adjusted contraction was 0.5% from a year earlier. Talks between creditors on easing the country’s debt load are accelerating after Greece and officials from the IMF and euro-area institutions ended a months-long impasse over the austerity measures the government needs to take. While that’s prompted a rally in Greek stocks and bonds this month, the delay has taken a toll on the economy. That cost led the government to cut its GDP growth forecast for this year to 1.8% from 2.7% on Saturday. The European Commission reduced its estimate to 2.1% last week.

Read more …

Feb 212017
 
 February 21, 2017  Posted by at 9:53 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle February 21 2017
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DPC Masonic Temple, New Orleans 1910

 

Greece: The Economic Consequences of Depression Economics (Prime)
After Seven Years Of Bailouts, Greeks Sink Yet Deeper In Poverty (R.)
Greece’s Creditors Dash Hopes For Quick Deal (Tel.)
Greek Government In Damage Control Mode After Giving In To Troika, Again (K.)
Mr Draghi, What Are You Afraid Of? Release #TheGreekFiles! (DiEM25)
Fumbling Towards Collapse (Jim Kunstler)
Why Trumponomics Will Fail Spectacularly (Robert Reich)
Saudi Arabia Breaks Records on Oil Exports and Output for (BBG)
Chinese Banks’ Off-Book Wealth Products Exceed $3.8 Trillion (BBG)
Why Toronto (and Other Cities) Inflate Housing Bubbles to the Bitter End (WS)
Refugee Claimants From US Strain Canada’s Border Resources (R.)
‘Casa Nostra, Casa Vostra’ (K.)

 

 

A theoretical approach to austerity as a creator of poverty.

Greece: The Economic Consequences of Depression Economics (Prime)

The policy debate in Greece and the EU is burdened with hysteria over the issue of budget deficit and public debt. The proposition is that the less the governments borrow the better and, therefore, the main policy has been to put pressure on the State to curtail as far as possible all capital expenditure, without concern on how productive and desirable that is in itself. The idea is that cuts in government expenditures are not to be used by the government to tax the general population less but to borrow less on the assumption that if the government borrows less the private sector necessarily borrows more, though taxing less the highest rungs of the income distribution might be desirable as it is considered as an incentive to investment.

Second, led by the belief that the main thrust of policy should be internal devaluation, a program of cutbacks in expenditures, decrease in deficits and debts and wage and income restraint is pursued even in a time of recession. The idea is that if producers have reduced costs of production they will produce more and the prices of the produced goods will fall as much as wages. However, as Keynes pointed out that there is no reason to expect that any reduction of purchasing power will be offset by increases in other directions. Certainly, this reduction of purchasing power may cause a reduction of domestic expenditures on imports, which may improve the trade balance. It may also reduce savings, as public employees and others whose salaries are cut and those who lost their jobs may save less or draw on their passed savings to maintain their habitual standard of life.

However, producers will find that the expenditures of consumers (public employees, pensioners, unemployed) are reduced. Consequently, they can only match this reduction of revenue by either cutting down their own expenditure or making redundant some of their employees or both. As a necessary consequence of reduced incomes and profits there should be an increase in unemployment and a decrease in government tax revenues. Importantly, as Keynes noticed, deflation of wages, incomes and prices transfers wealth from the rest of the public to the rentiers and to those who hold titles to money. In effect, internal devaluation redistributes wealth as it transfers money from borrowers to lenders. The real assets in the country constitute the wealth of its citizens. Such real assets are buildings, stocks of commodities, goods in the process of production and the like. As is the usual practice, owners of these assets frequently purchase them by borrowing money.

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Don’t forget, it’s not Greece that’s being bailed out.

After Seven Years Of Bailouts, Greeks Sink Yet Deeper In Poverty (R.)

Greek pensioner Dimitra says she never imagined a life reduced to food handouts: some rice, two bags of pasta, a packet of chickpeas, some dates and a tin of milk for the month. At 73, Dimitra – who herself once helped the hard-up as a Red Cross food server – is among a growing number of Greeks barely getting by. After seven years of bailouts that poured billions of euros into their country, poverty isn’t getting any better; it’s getting worse like nowhere else in the EU. “It had never even crossed my mind,” she said, declining to give her last name because of the stigma still attached to accepting handouts in Greece. “I lived frugally. I’ve never even been on holiday. Nothing, nothing, nothing.” Now more than half of her €332 ($350) monthly income goes to renting a tiny Athens apartment. The rest: bills.

The global financial crisis and its fallout forced four euro zone countries to turn to international lenders. Ireland, Portugal and Cyprus all went through rescues and are back out, their economies growing again. But Greece, the first into a bailout in 2010, has needed three. Rescue funds from the EU and IMF saved Greece from bankruptcy, but the austerity and reform policies the lenders attached as conditions have helped to turn recession into a depression. Prime Minister Alexis Tsipras, whose leftist-led government is lagging in opinion polls, has tried to make the plight of Greeks a rallying cry in the latest round of drawn-out negotiations with the lenders blocking the release of more aid. “We must all be careful towards a country that has been pillaged and people who have made, and are continuing to make, so many sacrifices in the name of Europe,” he said this month.

Much of the vast sums in aid money has simply been in the form of new debt used to repay old borrowings. But regardless of who is to blame for the collapse in living standards, poverty figures from the EU statistics agency are startling. Greece isn’t the poorest member of the EU; poverty rates are higher in Bulgaria and Romania. But Greece isn’t far behind in third place, with Eurostat data showing 22.2% of the population were “severely materially deprived” in 2015. And whereas the figures have dropped sharply in the post-communist Balkan states – by almost a third in Romania’s case – the Greek rate has almost doubled since 2008, the year the global crisis erupted. Overall, the EU level fell from 8.5% to 8.1% over the period. The reality of such statistics becomes clear at places like the food bank run by the Athens municipality where Dimitra collects her monthly handouts.

Here, dozens more Greeks waited solemnly with a ticket in hand to get their share. All are registered as living below the poverty line of about €370 a month. “The needs are huge,” said Eleni Katsouli, a municipal official in charge of the center. Figures for the food bank, which serves central Athens, show a similar trend on a local scale to the wider Eurostat data. About 11,000 families – or 26,000 people – are registered there, up from just 2,500 in 2012 and 6,000 in 2014, Katsouli said. About 5,000 are children.

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Delusional theoretics: “..a greater emphasis on growth..”

Greece’s Creditors Dash Hopes For Quick Deal (Tel.)

Greece’s creditors have dashed hopes of a quick resolution to the country’s looming cash crunch, even as talks paved the way for debt inspectors to return to Athens. Jeroen Dijsselbloem, the head of the Eurogroup, told reporters that there had been a “clear shift” in creditor demands following a meeting of finance ministers in Brussels on Monday. Yields on Greek government bonds fell sharply after he announced that representatives from the European Commission and IMF would return to Athens to thrash out an “additional package of structural reforms” to support long term growth and debt sustainability. Greece needs around €7bn in fresh rescue funds before July in order to cover substantial debt repayments to the ECB and private creditors. The Dutch finance minister said new measures would be “designed and agreed on the ground” in Athens, with a greater emphasis on growth.

“At face value, that means less tax rises and spending cuts and deep reforms to the country’s tax system, pensions and labour laws,” Mr Dijsselbloem told reporters. However, he played down reaching a solution before Dutch elections next month or even the French presidential election in May and said creditors were “looking towards the summer” for an agreement. “There is still a lot of work to do, a lot of issues to discuss and calibrate so I want to temper expectations,” he said. “There is no need for a disbursement in March, April or May.” Mr Dijsselbloem also signalled that differences remained between Greece, Brussels and the IMF over the reforms needed to unlock the next loan tranche and secure the institution’s participation in Greece’s third, €86bn rescue package.

Speaking after the meeting, a Greek government official said Athens was prepared to implement reforms beyond 2019. The official added: “The agreement includes the inviolable condition that was set by the Greek side for not even one euro more of austerity.” However, Pierre Moscovici, European Commissioner for economic and financial affairs, signalled that structural reforms, including pension cuts as well as tax and labour reforms would be required before pro-growth measures could be sanctioned. “I think that one word was forgotten [in the Greek official’s statement]. That was ‘net’,” he said.

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This one may be hard for Tsipras to explain. What’s the use of red lines if they mean nothing?

Greek Government In Damage Control Mode After Giving In To Troika, Again (K.)

After the government backed down on its vow not to take new measures at Monday’s Eurogroup, its number one priority now is damage control. In the runup to Monday’s meeting of eurozone finance ministers, Athens had insisted it had drawn its “red lines,” but it left Brussels having promised its EU partners that it will legislate measures after the current bailout program expires in 2018, in exchange for the return of technical experts to Athens in the bid to conclude the second review of the country’s third bailout. Faced with the challenge of explaining its turnaround and agreement to take new measures to an increasingly disillusioned electorate and lawmakers of ruling SYRIZA and Independent Greeks (ANEL), the government is using the term “neutral fiscal balance” in an attempt to sweeten the pill.

According to government sources, the term essentially means that for every euro saved from the new measures, there will be equivalent reductions in value-added, corporate or property taxes. In other words, the government’s narrative is that even though new measures will be implemented, these will be neutral as their burden will be canceled out by tax relief. Senior government officials were also busy laying the groundwork last week, saying that the government may have to accept new measures “for the good of the country” as the protracted negotiations to conclude the review were having a negative impact on the prospects of the country’s economic recovery.

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Nice legal twist.

Mr Draghi, What Are You Afraid Of? Release #TheGreekFiles! (DiEM25)

Deep in a vault in the headquarters of the European Central Bank (ECB) lie #TheGreekFiles, a legal opinion about the ECB’s actions towards Greece in 2015 that could send shockwaves across Europe. As a European taxpayer, you paid for these documents. But the ECB’s boss, ex-Goldman Sachs head Mario Draghi, says you can’t see them. So former Greek Finance Minister Yanis Varoufakis and MEP Fabio de Masi, together with a broad alliance of politicians and academics (below), have announced they will file a mass freedom of information request to the ECB to uncover #TheGreekFiles once and for all. If Mario says no, they’ll take the campaign to the next level, and consider all options – including legal action – to make this vital information public. Support their request to release critical documents you paid for by signing this petition now!

What are #TheGreekFiles? In June 2015, the newly-elected Greek government was locked in tense negotiations with its creditors (the ‘Troika’ – the ECB, EC and IMF), doing what it had been voted in to do: renegotiate the country’s public debt, fiscal policy and reform agenda, and save its people from the hardship of the most crushing austerity programme in modern history. The Troika knew they needed to make a drastic move to force the Greek government to capitulate. And that’s just what they did: through the ECB, they took action to force Greece’s banks to close, ultimately driving the Greek government – against its democratic mandate – to accept the country’s third ‘bailout’, together with new austerity measures and new reductions in national sovereignty.

But in their haste, their zeal to crush the Greek government’s resistance, the ECB feared their actions might be legally dubious. So they commissioned a private law firm to examine whether those decisions were legal. The legal opinion of this law firm is contained in #TheGreekFiles. In July 2015, the German MEP Fabio De Masi asked Mario Draghi to release the legal opinion. Mario refused, hiding behind ‘attorney-client privilege’. Clearly #TheGreekFiles contain something he doesn’t want you to see. One of the foremost experts on European Law, Professor Andreas Fischer-Lescano, examined whether the ECB was right to refuse to release #TheGreekFiles. His detailed conclusion leaves no room for doubt: the ECB has no case for withholding from MEPs and the citizens of Europe the legal opinion the ECB secured (and paid for using your money) regarding its own conduct.

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“..lost in a hall of mirrors with the lights off..” Building infrastructure for a world that’s gone, strip malls etc.

Fumbling Towards Collapse (Jim Kunstler)

[..] the real issue hidden in plain sight is how America — indeed all the so-called “developed” nations — are going to navigate to a stepped-down mode of living, without slip-sliding all the way into a dark age, or something worse. By the way, the Ole Maestro, Alan Greenspan, also chimed in on the “productivity” question last week to equally specious effect in this Business Insider article. None of these celebrated Grand Viziers knows what the fuck he’s talking about, and a nation depending on their guidance will find itself lost in a hall of mirrors with the lights off. So, on one side you have Trump and his trumpets and trumpistas heralding the return of “greatness” (i.e. a booming industrial economy of happy men with lunchboxes) which is not going to happen; and on the other side you have a claque of clueless technocrats who actually believe they can “solve” the productivity problem with measures that really only boil down to different kinds of accounting fraud.

You also have an American public, and a mass media, who do not question the premise of a massive “infrastructure” spending project to re-boot the foundering economy. If you ask what they mean by that, you will learn that they uniformly see rebuilding our highways, bridges, tunnels, and airports. Some rightly suspect that the money for that is not there – or can only be summoned with more accounting fraud (borrowing from our future). But on the whole, most adults of all political stripes in this country think we can and should do this, that it would be a good thing. And what is this infrastructure re-boot in the service of? A living arrangement with no future. A matrix of extreme car dependency that has zero chance of continuing another decade. More WalMarts, Target stores, Taco Bells, muffler shops, McHousing subdivisions, and other accoutrement of our fast-zombifying mode of existence? Isn’t it obvious, even if you never heard of, or don’t understand, the oil quandary, that we have shot our wad with all this? That we have to start down a different path if we intend to remain human?

It’s not hard to describe that waiting world, which I’ve done in a bunch of recent books. We’re going there whether we like it or not. But we can make the journey to it easier or harsher depending on how much we drag our heels getting on with the job. History is pretty unforgiving. Right now, the dynamic I describe is propelling us toward a difficult reckoning, which is very likely to manifest this spring as the political ineptitude of Trump, and the antipathy of his enemies, leaves us in a constitutional maelstrom at the very moment when the financial system comes unglued. Look for the debt ceiling debate and another Federal Reserve interest rate hike to set off the latter. There may be yet another converging layer of tribulation when we start blaming all our problems on Russia, China, Mexico, or some other patsy nation. It’s already obvious that we can depend on the Deep State to rev that up.

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US manufacturing is inferior.

Why Trumponomics Will Fail Spectacularly (Robert Reich)

When Donald Trump gave a speech last Friday at Boeing’s factory in North Charleston, South Carolina – unveiling Boeing’s new 787 “Dreamliner” – he congratulated Boeing for building the plane “right here” in South Carolina. It’s pure fantasy. I’ll let you know why in a moment. Trump also used the occasion to tout his “America First” economics, stating “our goal as a nation must be to rely less on imports and more on products made here in the U.S.A.” and “we want products made by our workers in our factories stamped by those four magnificent words, ‘Made in the U.S.A.’” To achieve this goal Trump would impose “a very substantial penalty” on companies that fired their workers and moved to another country to make a product, and then tried to sell it back to America. The carrot would be lower taxes and fewer regulations “that send our jobs to those other countries.” Trump seems utterly ignorant about global competition – and about what’s really holding back American workers.

Start with Boeing’s Dreamliner itself. It’s not “made in the U.S.A..” It’s assembled in the United States. But most of it parts come from overseas. Those foreign parts total almost a third of the cost of the entire plane. For example: The Italian firm Alenia Aeronautica makes the center fuselage and horizontal stabilizers. The French firm Messier-Dowty makes the aircraft’s landing gears and doors. The German firm Diehl Luftfahrt Elektronik supplies the main cabin lighting. The Swedish firm Saab Aerostructures makes the cargo access doors. The Japanese company Jamco makes parts for the lavatories, flight deck interiors and galleys. The French firm Thales makes its electrical power conversion system. Thales selected GS Yuasa, a Japanese firm, in 2005 to supply it with the system’s lithium-ion batteries. The British company Rolls Royce makes many of the engines. A Canadian firm makes the moveable trailing edge of the wings.

Notably, these companies don’t pay their workers low wages. In fact, when you add in the value of health and pension benefits – either directly from these companies to their workers, or in the form of public benefits to which the companies contribute – most of these foreign workers get a better deal than do Boeing’s workers. (The average wage for Boeing production and maintenance workers in South Carolina is $20.59 per hour, or $42,827 a year.) They also get more paid vacation days. These nations also provide most young people with excellent educations and technical training. They continuously upgrade the skills of their workers. And they offer universally-available health care. To pay for all this, these countries also impose higher tax rates on their corporations and wealthy individuals than does the United States. And their health, safety, environmental, and labor regulations are stricter.

Not incidentally, they have stronger unions. So why is so much of Boeing’s Dreamliner coming from these high-wage, high-tax, high-cost places?

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Yeah, big cuts, remember?

Saudi Arabia Breaks Records on Oil Exports and Output for (BBG)

Saudi Arabia boosted oil exports and production last year to the highest monthly averages on record as the global crude market endured oversupply. Exports climbed to 7.65 million barrels a day on average last year, from 7.39 million barrels a day a year earlier, according to Joint Organisations Data Initiative monthly data compiled by Bloomberg. Production rose to 10.46 million barrels a day from 10.19 million, on average, over the same period. Saudi Arabia led the push by global producers to end a crude glut by cutting output as of Jan. 1. JODI data indicate that the kingdom’s exports surged to more than 8 million barrels a day in November and December right before the cuts were due to start. Shipments in November were the highest since May 2003, JODI data show.

“Whenever there was no agreement with others, Saudi Arabia was running after expanding its market share,” said Mohamed Ramady, an independent analyst in London. Saudi Arabia pumped 10.2 million barrels to 10.67 million barrels a day in the first 10 months as producers discussed output cuts without making an agreement. It reined in production in January following the deal between the Organization of Petroleum Exporting Countries and non-OPEC nations to reduce output by 1.8 million barrels a day, according to data compiled by Bloomberg.

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This is just a part of the shadow banking sector, the part that’s held by official banks.

Chinese Banks’ Off-Book Wealth Products Exceed $3.8 Trillion (BBG)

Chinese banks had more than 26 trillion yuan ($3.8 trillion) of wealth-management products held off their balance sheets at the end of December, a 30% increase from a year earlier, according to the central bank. The expansion of this form of shadow banking, with money eventually being diverted to quasi-loans and bonds, outpaced the 10% growth for normal lending during the same period, raising risks for the broader economy and undermining the country’s “deleveraging” efforts, the People’s Bank of China said Friday in its quarterly monetary policy report. The central bank is including off-balance sheet WMPs in its so-called macro prudential assessment framework starting this quarter to better gauge the expansion of credit and potential risks in the financial system.

The move will probably lead to banks reporting higher credit growth and may require them to take steps to maintain sufficient capital reserves to limit risks posed by the investment products. Since late 2014, the China Banking Regulatory Commission has been tightening rules on WMPs, most of which are non-principal guaranteed, meaning they can reside off banks’ balance sheets. The products are a key reason behind the growth of shadow banking in China, and have been used by some financial institutions as a way to extend funds to risky borrowers and evade capital requirements. The investment vehicles are asset-management products by nature and therefore investors should shoulder any risks by themselves, the central bank said in its report. More work is needed to solve problems such as the real amount of capital banks should hold to cover WMPs, risk segmentation, regulatory arbitrage, and the perception of an implicit guarantee of repayment, the PBOC said.

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Tax addiction.

Why Toronto (and Other Cities) Inflate Housing Bubbles to the Bitter End (WS)

“Let’s drop the pretense. The Toronto housing market and the many cities surrounding it are in a housing bubble,” Bank of Montreal (BMO) Chief Economist Doug Porter told clients in a note last week. Many have called it “housing bubble” for a while, but now it’s official, according to BMO. In January, the benchmark price and the average price were both up 22% year-over-year, with the average price of detached homes up 26%, of semi-detached homes 28%, of townhouses 27%, and of condos 15%. Double-digit price increases have become the rule in recent years. But this jump was “the fastest increase since the late 1980s – a period pretty much everyone can agree was a true bubble – and a cool 21 percentage points faster than inflation and/or wage growth,” Porter explained in his note, cited by BNN.

Home prices in Greater Toronto have become “dangerously detached” from economic fundamentals and are soaring simply on the belief that they will continue to soar, he wrote. “The market is far too hot for comfort.” BNN: “The often-cited mantra that Toronto’s real estate market is being driven largely by a lack of supply is wearing thin, he argues. Housing starts in Toronto and Vancouver recently hit an all-time high of 70,000 units per year and overall Canadian starts are above demographic demand at 200,000 units in the past year, according to BMO.” The “massive price gains” are not driven by lack of supply, but “first and foremost by sizzling hot demand, whether from ultra-low interest rates (negative in real terms), robust population growth, or non-resident investor demand.”

“Toronto and any city that is remotely within commuting distance are overheating, and perhaps dangerously so,” he said. But don’t expect the city of Toronto to do anything other than inflate the bubble further. It has to – unless it wants to fall into a fiscal and financial sinkhole. This became apparent last week, when the city councilors approved Toronto’s operating and capital budgets. What a mess!

The tax-supported operating budget is now expected to grow by 4.4% in 2017, to C$10.5 billion. So more taxes must be extracted from the hapless folks in Toronto. Among sundry fees, taxes, and levies, the councilors approved a 3.29% increase in the residential property tax and raised the municipal land transfer tax. Under the new budget, property taxes would provide 38% of the revenues, and the land transfer tax 7%, for a total of 45% of the C$10.5 billion in taxes, or C$4.7 billion. Just how dependent the funding for Toronto’s ballooning operating budget has become on the house price bubble – and the property-related taxes it generates – is made clear in this chart by Warren Lovely, Head of Public Sector Research & Strategy at National Bank Financial, Toronto:

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A most curious difference.

Refugee Claimants From US Strain Canada’s Border Resources (R.)

Canadian police said on Monday they had bolstered their presence at the Quebec border and that border authorities had created a temporary refugee center to process a growing number of asylum seekers crossing from the United States. The Canada Border Services Agency, or CBSA, said at a news conference that it had converted an unused basement into a refugee claimant processing center. Both the border agency and the Royal Canadian Mounted Police are reassigning staff from other locations in the province, as needed, to accommodate rising demand. The CBSA said the number of people making refugee claims at Quebec-U.S. border crossings more than doubled from 2015 to 2016. Last month, 452 people made claims in Quebec compared with 137 in January 2016, the agency said.

The influx is straining police, federal government and community resources from the western prairie province of Manitoba, where people arrive frostbitten from hours walking in freezing conditions, to Quebec, where cabs drop asylum seekers off meters away from the Quebec-U.S.border, the border agency said. A Reuters reporter on Monday saw RCMP officers take in for questioning a family of four – two men, a woman and a baby in a car seat – who had walked across the snowy gully dividing Roxham Road in Champlain, New York, from Chemin Roxham in Hemmingford, Quebec. “Please explain to her that she’s in Canada,” one Canadian officer told another officer.

Police take people crossing the border in for questioning at the border agency’s office in Lacolle, Quebec, which is the province’s biggest and busiest border crossing. Police identify them and ensure they are not a threat or carrying contraband. They are then transferred to the CBSA for fingerprinting and further questions. If people are deemed a threat or flight risk, they are detained. If not, they can file refugee claims and live in Canada while they wait for a decision “It’s touching, and we are not insensitive to that,” Bryan Byrne, the RCMP’s Champlain Detachment commander, told reporters near the border. “Some of these people had a long journey. Some are not dressed for the climate here.”

Asylum seekers cross illegally because Canada’s policy under the Canada-U.S. Safe Third Country Agreement is to turn back refugees if they make claims at border crossings. But as U.S. President Donald Trump cracks down on illegal immigrants, Amnesty International and refugee advocacy groups are pressuring the Canadian government to abandon the agreement, arguing the United States is no safe haven. On Monday, Montreal, Canada’s second most populous city, voted to declare itself a “sanctuary city,” making it the fourth Canadian city to protect illegal immigrants and to provide services to them.

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European governments criticizing Trump’s refugee policies have no credibility. But the people still can.

‘Casa Nostra, Casa Vostra’ (K.)

Thousands of people marched through the streets of downtown Barcelona on Saturday shouting the slogan “Casa nostra, casa vostra” (Our home, your home). Barcelona had prepared its plan for welcoming Syrian and Iraqi refugees back in September 2015. It put its municipal services on standby and organized an army of volunteers, whose generosity inspired residents in Madrid and Valencia to open their own cities to refugees. In the meantime, much of the rest of Europe was busy building walls, fencing itself in, warding inflows off, hardening its laws and ignoring not just the plight of the refugees themselves, but also the difficulties faced by Greece and Italy, Lesvos and Lampedusa. This amazing show of solidarity – not rhetorical but actual and tangible – from the Catalans convinced the Spanish government to raise its commitment for taking in refugees trapped in Greece and Italy from the 2,749 it had initially agreed to up to 17,680.

But numbers often suffer the same fate as words, dying out without leaving a single political or moral trace. Up until February 2016, just 18 refugees had been relocated to Spain, a number that makes sense when you consider that of the 160,000 relocations agreed on by the countries of the European Union, just 600 had actually taken place by that time. This failure to live up to commitments prompted Barcelona Mayor Ada Colau at this precise time last year to lash out against the Spanish government and the strategy centers in Brussels, which seem happy to confine their action to the deal made between the European Union and Turkey, even though this has been condemned by every respected humanitarian organization.

Colau’s protests fell on deaf ears, so on August 1, 2016, authorities in Barcelona placed a “counter of shame” on the city’s most popular beach, recording daily how many people are lost at sea in their effort to escape war or extreme poverty. We don’t know whether the counter triggered any feelings of guilt, but it certainly failed to awaken any sense of responsibility. When it was inaugurated, the number of victims stood at 3,034. By the end of the year, and according to official data from Europe, ever the passive observer, this surpassed 5,000. And as far as relocations to Spain go, these barely came to more than 1,000 last year. This, in general terms, is the background of that very encouraging rally we saw in Barcelona on Saturday. Whether the people who took to the streets were motived by their feelings or by their ideological beliefs is a question that only means something to those who think ideology is a fixation and feelings a sign of immaturity.

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Nov 252016
 
 November 25, 2016  Posted by at 9:53 am Finance Tagged with: , , , , , , , , ,  10 Responses »
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Robert Capa Anti-fascist militia women at Barcelona street barricade 1936

America’s Trade Advantage: Large Deficits (Pettis)
All Aboard Post-TPP World (Escobar)
The Bank of Japan Can’t Keep Stores From Cutting Prices (BBG)
China Banking Regulator Wrestles With $2.9 Trillion Off-Balance Sheet WMPs (R.)
China Central Bank Warns Against Outflows Disguised As Investment (R.)
ECB Says It Can Shield Eurozone From Global Finance Instability (BBG)
The Snowball of Debt (HowMuch/VC)
Russia to OPEC: Oil Freeze Is All You Get
Germany, 15 Other Countries Press For Arms Control Deal With Russia (R.)
Fillon Calls Hollande’s Hardline Policy On Russia ‘Absurd’ (EuA)
EU Parliament President Martin Schulz to Step Down, Run Against Merkel (WSJ)
Increasingly Rapid Ice Melt Could Trigger Uncontrollable Climate Change (G.)
Erdogan Threatens To Open Borders To Refugees After EU Vote (AFP)
Refugees Torch Lesbos Camp After Gas Explosion Kills Two (AFP)

 

 

Interesting point of view. What Pettis ignores is that the issuer of a global reserve currency MUST always run a deficit, or the world will be starved of money.

America’s Trade Advantage: Large Deficits (Pettis)

Even China’s official voice, the People’s Daily, pointed out Monday how unlikely it was that China could “overtake the U.S. to lead the world.” This is because China must accommodate high and rising trade surpluses to moderate a stark trade-off between rising debt and rising unemployment. After years of deep imbalances and accelerating credit growth, China this year met its 6.7% GDP-growth target—needed to stabilize employment—only by growing debt in a frightening amount equal to more than 40 percentage points of GDP. Debt limits are a major constraint on China’s difficult adjustment. The country must therefore rely on its trade surplus for crucial breathing space, with each percentage point of surplus substituting for about 10 percentage points of debt.

To see how this affects China’s leadership role, consider how the U.S., only after 50 years as the world’s largest economy and a negligible governance role, finally came to dominate global trade. This occurred over two separate periods. The first ran for roughly five decades beginning with World War I. Two highly destructive world wars left all the world’s major economies acutely short of capital—all except for the U.S., which began the period as the world’s largest surplus nation and its main exporter of savings. This inevitably put America at the center of the emerging economic order. By the 1970s, conditions were very different. The other advanced nations had rebuilt their economies, global savings were abundant and other forms of demand determined the growth rates for most economies.

Rather than receive access to scarce capital, these countries wanted instead to export capital, i.e., to expand demand by increasing exports of tradable goods while constraining imports. With its flexible financial system and the gradual elimination by the 1970s of all capital restrictions, the U.S. quickly adapted and began running large deficits, the costs of which, in the form of unemployment and consumer debt, America was willing to absorb for political advantage. This is the key reason why China cannot replace the U.S. as the leader of global trade.

[..] Opposition to trade, particularly among Americans most vulnerable to unemployment and consumer debt, was therefore inevitable. But rather than other countries reorganizing around the surpluses China requires, it is more likely that over time global trade will become unstable and increasingly contentious. That is in fact closer to the historical norm than the anomalous stability of the four decades before 1914 and the six after 1945. A U.S. retreat from trade would clearly be damaging to global prospects. Many economists argue that it will also damage U.S. prospects. But they are almost certainly wrong. History suggests that intervention usually benefits diversified economies with large, persistent trade deficits, especially when driven at least in part by distortions abroad.

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Escobar should read Pettis.

All Aboard Post-TPP World (Escobar)

A half-hearted near handshake between US President Barack Obama and Russian President Vladimir Putin before and after they spoke ‘for about four minutes’, standing up, on the sidelines of the APEC summit in Lima, Peru, captured to perfection the melancholic dwindling of the Obama era. A whirlwind flashback of the fractious relationship between Obama and ‘existential threats’ Russia and China would include everything from the Washington-sponsored Maidan in Kiev to Obama’s ‘Assad must go’ in Syria, with special mentions to the oil price war, sanctions, the raid on the ruble, extreme demonization of Putin and all things Russian, provocations in the South China Sea – all down to a finishing flourish; the death of the much vaunted TPP treaty, which was reconfirmed at APEC right after the election of Donald Trump.

It was almost too painful to watch Obama defending his not exactly spectacular legacy at his final international press conference – with, ironically, the backdrop of the South American Pacific coast – just as Chinese President Xi Jinping all but basked in his reiterated geopolitical glow, which he already shares with Putin. As for Trump, though invisible in Lima, he was everywhere. The ritual burial, in Peru’s Pacific waters, of the «NATO on trade» arm of the pivot to Asia (first announced in October 2011 by Hillary Clinton) thus offered Xi the perfect platform to plug the merits of the Regional Comprehensive Economic Partnership (RCEP), amply supported by China. RCEP is an ambitious idea aiming at becoming the world’s biggest free trade agreement; 46% of global population, with a combined GDP of $17 trillion, and 40% of world trade.

RCEP includes the 10 ASEAN nations plus China, Japan, South Korea, India, Australia and New Zealand. The RCEP idea was born four years ago at an ASEAN summit in Cambodia – and has been through nine rounds of negotiations so far. Curiously, the initial idea came from Japan – as a mechanism to combine the plethora of bilateral deals ASEAN has struck with its partners. But now China is in the lead. [..] Meanwhile, Putin and Xi met once again – with Putin revealing he’s going to China next spring to deepen Russian involvement in the New Silk Roads, a.k.a. One Belt, One Road (OBOR). The ultimate objective is to merge the Chinese-led OBOR with the development of the Russia-led Eurasia Economic Union (EEU).

That’s the spirit behind 25 intergovernmental agreements in economy, investment and nuclear industry signed by Russian PM Dmitry Medvedev and Chinese PM Li Keqiang in St. Petersburg in early November, as well as the set up of a joint Russia-China Venture Fund. In parallel, almost out of blue, and with a single stroke, Turkey President Tayyip Erdogan, on the way back from a visit to Pakistan and Uzbekistan, confirmed what had been all but evident for the past few months; “Why shouldn’t Turkey be in the Shanghai Five? I said this to Mr. Putin, to (Kazakh President) Nazarbayev, to those who are in the Shanghai Five now… I think if Turkey were to join the Shanghai Five, it will enable it to act with much greater ease”.

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How is it possible that this is still allowed to continue?

The Bank of Japan Can’t Keep Stores From Cutting Prices (BBG)

While Governor Haruhiko Kuroda’s vow to overshoot the Bank of Japan’s 2% inflation target caused a stir among monetary policy watchers in September, it’s yet to have an impact among retailers. Stores as diverse as supermarket operator Aeon, Mister Donut and Wal-Mart have all announced price cuts since Kuroda’s pledge, underscoring the weakness in Japanese consumer spending and the difficulty of overcoming the “deflationary mindset” that the BOJ set out to eradicate. Consumer prices fell for an eighth straight month in October, a government report showed Friday. “Companies are just being practical,” said Masamichi Adachi at JPMorgan. “No one is buying the BOJ’s new commitment. There is strong doubt that the BOJ can even achieve the 2% target and the name ‘overshooting commitment’ itself is hard to understand for ordinary people.”

Falling prices and expectations for more of the same could also drag on annual wage talks, which start soon. Kuroda said last week that he’s “paying close attention” to these, as weak growth in pay has been hampering efforts to generate inflation. It’s essential for Japanese companies to set salaries based on the premise of 2% inflation, he said. Base salaries, which exclude bonuses and overtime, will rise this year by less than last year, Dai-ichi Life Research Institute forecast in a report this month. This reinforces frugality among shoppers and encourages retailers to compete by discounting.

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Beijing does not control its own economy. It’s hostage to the shadow banks.

China Banking Regulator Wrestles With $2.9 Trillion Off-Balance Sheet WMPs (R.)

China’s banking regulator may be getting serious about how lenders provision for the more than 20 trillion yuan ($2.9 trillion) of wealth management products (WMPs) that have been issued as non-guaranteed off-balance sheet liabilities. The China Banking Regulatory Commission (CBRC), in new draft rules released on Wednesday, demanded banks apply a more “comprehensive” approach to cover “substantive risks” related to off-balance sheet activities, or shadow banking. The guidelines, which would replace 2011 regulations and are awaiting comment, proposed such measures as adding impairment loss allowances and properly calculating risk-weighted assets for off-balance sheet activity.

It was the latest measure announced by CBRC to curb shadow banking risks and address the rapid growth of WMPs, which amounted to 26.28 trillion yuan ($3.8 trillion) by end-June, data from the Banking Sector Wealth Management Product Registration and Custodian Centre showed. That amounts to around 39% of China’s GDP in 2015. About 77%, or 20.18 trillion yuan, of the products are non-guaranteed bank WMPs, a major component of shadow banking activity, the data showed. CBRC Chairman Shang Fulin warned banks in September the rampant growth of their off-balance sheet operations must be curtailed, and represented a “hidden credit risk that potentially threatens financial safety”.

[..] China’s mid-tier and small lenders, which have raised a greater proportion of their funding using WMPs, are more vulnerable to off-balance sheet liquidity risks. One important obstacle is capital. A very strict interpretation of the draft regulations, requiring banks to hold reserves against all off-balance sheet issuance, would require banks to raise as much as 1.7 trillion yuan to maintain current capital levels, said Jack Yuan, a banking analyst at Fitch. “The incentives for banks to issue more off-balance sheet WMPs still exists,” said Yuan. “There’s nothing in these rules that disincentivizes banks from continuing on with more off-balance sheet activity.” “It’s like driving a car,” said a risk manager at another mid-size lender. “If you don’t follow the rules, there’s a mess. But if you follow the rules, that doesn’t mean you have to slow down.”

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How do you tell them apart though?

China Central Bank Warns Against Outflows Disguised As Investment (R.)

China’s central bank has urged commercial banks in Shanghai to guard against money outflows via the Shanghai Free Trade Zone (FTZ) disguised as foreign investment, two sources with knowledge of the instructions said on Friday. The Shanghai headquarters of the People’s Bank of China asked for particular vigilance against money originating in other provinces or cities in China that flowed into the FTZ en route abroad, the banking industry sources said. The guidance from the PBOC’s was the latest in a string of measures to stem surging capital outflows as the yuan currency plumbs 8-1/2 year lows against the surging U.S. dollar.

“The central bank has urged lenders to strengthen due diligence to prevent capital outflows disguised as outbound investment,” said one source, who declined to be identified because he was not authorized to speak publicly about the matter. On Wednesday it said it would crack down on capital flight and closely monitor abnormal capital flows through the FTZ. In a report on Tuesday, Capital Economics estimated that capital outflows last month were the largest since January, and posed a threat to China’s exchange rate regime. The Shanghai FTZ was launched in 2013 to promote international trade and cross-border investment, but three years later the city government is trying to balance efforts to accelerate financial reforms in the zone while preventing capital outflows.

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But of course….

ECB Says It Can Shield Eurozone From Global Finance Instability (BBG)

The ECB is confident it will be able to continue shielding the euro area from the risk of a sudden correction in asset prices, after political events such as the election of Donald Trump threaten to increase volatility in coming months. “We are certainly seeing a correction coming from the U.S.,” ECB Vice President Vitor Constancio said on Thursday in an interview with Bloomberg TV’s Matt Miller. “The ECB will continue to exert its stabilizing role, so I don’t think there will be significant contagion to Europe.” Constancio spoke on the occasion of the publication of the ECB’s twice-yearly Financial Stability Review.

The report warns that the risk of an abrupt global market correction has intensified on the back of widespread political uncertainty, posing a threat to banks, stability and economic growth. While the policies of incoming President Trump may lead to higher spending and faster inflation in the U.S., their effect on the euro area is difficult to gauge given the possibility of protectionist tit-for-tats and higher chances of populist victories in votes across the continent. “More volatility in the near future is likely and the potential for an abrupt reversal remains significant,” according to the bank. “Elevated geopolitical tensions and heightened political uncertainty amid busy electoral calendars in major advanced economies have the potential to reignite global risk aversion and to trigger a major confidence shock.”

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A similar graph of private debt would be more revealing.

The Snowball of Debt (HowMuch/VC)

With the U.S. National Debt closing in on the $20 trillion mark, there has been a lot of conversation in Washington about debt and its role in government. And most of that conversation right now revolves around President-elect Donald Trump. On one hand, the Trump campaign had early rhetoric in the Presidential campaign that the elimination of the deficit and existing government debt would be paramount if elected. The Trump administration has also been highly critical of the Federal Reserve, saying that the Fed’s policies create a “false economy”. As a result, some see Trump embracing the unique opportunity to put his stamp on how the Federal Reserve does business in early 2017.

On the other hand, even many conservative think tanks are concerned about what Trump policies mean for government debt. Rebuilding infrastructure is not cheap, and widely-cited estimates see the national debt increasing by anywhere from $5.3 trillion to $11.5 trillion over the next 10 years. While giant numbers like $20 trillion sound abstract and meaningless, converting them to debt-per-capita can make things more intuitive. The per-capita amount shows the amount of debt that exists per citizen, and makes things plain and simple. Today’s infographic from HowMuch.net, a cost information site, shows government debt-per-capita in every country in the world, including the United States.

Here are the countries where people owe the most debt per person:
Japan: $85,694.87 per person
Ireland: $67,147.59 per person
Singapore: $56,112.75 per person
Belgium: $44,202.75 per person
United States: $42,503.98 per person
Canada: $42,142.61 per person
Italy: $40,461.11 per person
Iceland: $39,731.65 per person
Australia: $38,769.98 per person
United Kingdom: $36,206.11 per person
Of course, debt-per-capita isn’t the only lens to view government debt.

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Manipulating prices with empty words. If they ever sign an agreement, it will be a hollowed out one, and it won’t last more than two weeks.

Russia to OPEC: Oil Freeze Is All You Get

Facing pressure from OPEC to make a significant output reduction, Russia reiterated its readiness to freeze oil production at current levels, arguing that the offer amounted to a cut compared with next year’s plans. A production cap would mean Russia pumping 200,000 to 300,000 barrels a day less than planned in 2017, Energy Minister Alexander Novak told reporters in Moscow on Thursday. That means a freeze would be “quite a difficult and harsh situation for us as our plans envisioned an output growth next year,” he said. OPEC, which is seeking to finalize its own supply cuts of as much as 1.1 million barrels a day next week, asked non-members to contribute by cutting daily production by about 500,000 barrels, Novak said.

OPEC reached a preliminary deal in September to reduce collective output to 32.5 million to 33 million barrels a day, compared with the group’s estimate of 33.6 million in October. Talks on individual production quotas continued this week with the aim of securing a final pact by the ministerial meeting in Vienna on Nov. 30. The group will meet lower-level OPEC officials to discuss cooperation on Nov. 28, followed by a Nov. 30 breakfast meeting between ministers and non-members, including Russia, before the ministerial summit, according to people familiar with the matter.

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Merkel’s anti-Putin stance will be used against her. Germany and Russia should always try to talk. They are too close to not talk.

Germany, 15 Other Countries Press For Arms Control Deal With Russia (R.)

Fifteen European countries have joined Germany in its push for a new arms control agreement with Moscow, saying more dialogue is needed to prevent an arms race in Europe after Russia’s actions in Crimea and eastern Ukraine, a German newspaper said. “Europe’s security is in danger,” German Foreign Minister Frank-Walter Steinmeier told Die Welt newspaper in an interview published on Friday. “As difficult as ties to Russia may currently be, we need more dialogue, not less.” Steinmeier, a Social Democrat who has been nominated to become German president next year, first called for a new arms control deal with Russia in August to avoid an escalation of tensions in Europe.

Fifteen other countries – all belonging to the Organization for Security and Cooperation in Europe – have since joined Steinmeier’s initiative: France, Italy, Austria, Belgium, Switzerland, the Czech Republic, Spain, Finland, the Netherlands, Norway, Romania, Sweden, Slovakia, Bulgaria and Portugal. The group plans to issue a joint statement on Friday and will meet again on the sidelines of a Dec. 8-9 ministerial level OSCE meeting in Hamburg that will be hosted by Germany, which now holds the rotating presidency of the OSCE. Steinmeier condemned Russia’s annexation of Crimea and its support for separatists in eastern Ukraine, saying such acts undermined delicate bonds of trust built up over decades and threatened to unleashed a new arms race.

U.S. officials are skeptical about the initiative, citing Russia’s failure to abide by existing agreements and treaties. Steinmeier also drew criticism from U.S. and NATO officials in June after warning that Western military maneuvers in eastern Europe amounted to “saber-rattling and shrill war cries” that could worsen tensions with Russia.

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I’ve said it before: it’s never a good feeling when the looses cannons make most sense. But that’s 2016 for you.

Fillon Calls Hollande’s Hardline Policy On Russia ‘Absurd’ (EuA)

In a televised debate last night (24 November) French conservative frontrunner François Fillon said Russia must be anchored to Europe, or else Moscow would couple with China, to the detriment of the continent. The debate was largely seen as the last chance for Alain Juppé, who came second in the first round of the primary elections of the conservatives last Sunday, to impress the conservative electorate and catch up on Fillon ahead of the 27 November run-off. The one-and-a-half hour debate was generally uncontroversial. One of the rare contentious exchanges was when Juppé questioned Fillon’s perceived closeness to Russian President Vladimir Putin. Putin knew Fillon when they were both prime ministers.

In an unusual televised appearance the Russian president praised him Wednesday as a “great professional” and a “very principled person”. “This must be the first presidential election in which the Russian president chooses his candidate,” Juppé said. Fillon brushed off Putin’s comments but said the West must work more closely with Russia at a time when relations are at their worst since the Cold War. “Russia is a dangerous country if we treat it as we have treated it for the last five years,” Fillon said. He said the real danger to Europe was not Russia but the economic threat of “the Asian continent”. Fillon argued that Russia should be anchored to Europe geopolitically or risk seeing Moscow forge alliances with China instead.

He called “absurd” the hardline policy of French President François Hollande with regard to Russia, saying it only made Moscow harden its positions and exacerbate its nationalist reflexes. The French conservative frontrunner said the EU would not change alliances and would not abandon its transatlantic link, but added that Paris didn’t need the permission from Washington to talk to Moscow. “What I am asking is that we sit down at a table with the Russians without asking for the agreement of the United States and that we re-establish a link, if not a relation based on confidence, which will make it possible to anchor Russia to Europe.”

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His EU pension for life will be stunning. And now he can add a German one.

EU Parliament President Martin Schulz to Step Down, Run Against Merkel (WSJ)

European Parliament President Martin Schulz said on Thursday that he would stand down in January and run in next year’s elections in Germany, where he is seen as a potential rival to Chancellor Angela Merkel. The 60-year-old, who has been a member of the European Union’s legislature for the past 22 years, said it was “not an easy decision” to quit. Mr. Schulz’s return to German politics after more than 20 years in Brussels is fueling speculation that he could lead his Social Democratic Party’s ticket at next year’s general election, to run against Ms. Merkel’s conservatives. “My commitment to the European project is unwavering. From now on I will be fighting for this project from the national level, but my values don’t change,” Mr. Schulz said.

He noted that as the largest country in the EU, Germany “bears a special responsibility” which he will strive to fulfill, as of next year, from Berlin. Mr. Schulz didn’t comment on the possibility that he could succeed Frank-Walter Steinmeier as Germany’s foreign minister after the latter vacates his post early next year to run for the largely ceremonial office of German president. The SPD has said it would decide in January who would lead it into the general election next fall. SPD officials said Sigmar Gabriel, party chairman and economics minister, had the first shot, and would have to voluntarily yield to Mr. Schulz. The two men are longtime friends.

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We play around, very much at our own peril. with systems far too complex for us to understand. We simply deny we don’t understand. And there’s something ironically stupid in the Trump team taking away funding from NASA to be used in … space exploration. That you don’t make up.

Increasingly Rapid Ice Melt Could Trigger Uncontrollable Climate Change (G.)

Arctic scientists have warned that the increasingly rapid melting of the ice cap risks triggering 19 “tipping points” in the region that could have catastrophic consequences around the globe. The Arctic Resilience Report found that the effects of Arctic warming could be felt as far away as the Indian Ocean, in a stark warning that changes in the region could cause uncontrollable climate change at a global level. Temperatures in the Arctic are currently about 20C above what would be expected for the time of year, which scientists describe as “off the charts”. Sea ice is at the lowest extent ever recorded for the time of year. “The warning signals are getting louder,” said Marcus Carson of the Stockholm Environment Institute and one of the lead authors of the report. “[These developments] also make the potential for triggering [tipping points] and feedback loops much larger.”

Climate tipping points occur when a natural system, such as the polar ice cap, undergoes sudden or overwhelming change that has a profound effect on surrounding ecosystems, often irreversible. In the Arctic, the tipping points identified in the new report, published on Friday, include: growth in vegetation on tundra, which replaces reflective snow and ice with darker vegetation, thus absorbing more heat; higher releases of methane, a potent greenhouse gas, from the tundra as it warms; shifts in snow distribution that warm the ocean, resulting in altered climate patterns as far away as Asia, where the monsoon could be effected; and the collapse of some key Arctic fisheries, with knock-on effects on ocean ecosystems around the globe.

The research, compiled by 11 organisations including the Arctic Council and six universities, comes at a critical time, not only because of the current Arctic temperature rises but in political terms. Aides to the US president-elect, Donald Trump, this week unveiled plans to remove the budget for climate change science currently used by Nasa and other US federal agencies for projects such as examining Arctic changes, and to spend it instead on space exploration.

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More power away from Merkel.

Erdogan Threatens To Open Borders To Refugees After EU Vote (AFP)

Turkish President Recep Tayyip Erdogan on Friday threatened to throw open Turkey’s borders to illegal migrants after the European Parliament voted to back a freeze in membership talks with Ankara. “Listen to me. If you go any further, then the frontiers will be opened, bear that in mind,” Erdogan told the EU in a speech in Istanbul. On March 18, Ankara and Brussels forged a deal for Turkey to halt the flow of migrants to Europe – an accord that has largely been successful in reducing numbers crossing the Aegean Sea.

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It’s a miracle we haven’t seen much moe of this kind of thing happen.

Refugees Torch Lesbos Camp After Gas Explosion Kills Two (AFP)

Angry migrants set fire to a camp on the Greek island of Lesbos after a woman and a six-year-old child died following a gas cylinder explosion, local police said. The explosion occurred while the 66-year-old woman was cooking, police said, adding that the child’s mother and four-year-old sibling were hospitalised with serious injuries. In an apparent act of rage, migrants then set fire to the Moria camp on Lesbos, causing significant damage, police said. Firefighters arrived at the scene to try to put out the flames. Ensuing clashes between migrants and police left six refugees slightly injured. Some migrants fled the camp after the blast but had since returned and calm was being restored, a police source said.

Several fires have erupted in refugee camps on the Greek islands, where some 16,000 people became stranded after the European Union signed a deal that was aimed at stemming the influx of migrants. Moria has a capacity for 3,500 people but currently houses more than 5,000. Part of the camp was badly damaged in a fire on September 19 during clashes between migrants and police, and thousands had to be moved out before returning two days later. Nearly 66,000 refugees and migrants are currently stranded in Greece, according to official figures.

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Sep 052016
 
 September 5, 2016  Posted by at 9:44 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle September 5 2016
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DPC Sternwheeler Mary H. Miller in Mississippi River floating dry dock, Vicksburg 1905

China, US Commit To Refrain From Currency Wars (R.)
China’s $3.9 Trillion Wealth-Management Product Boom Seen Cooling (BBG)
China Banks Play Catch Up With Capital Raising As Bad Loans Soar (BBG)
Stiglitz: “Cost Of Keeping Euro Probably Exceeds Cost Of Breaking It Up” (LSE)
Hanjin Shipping Shares Drop 30% As It Seeks Stay Orders In 43 Countries (BBG)
Japan’s Long-Term Bonds Add To Worst Rout Since 2013 (BBG)
BOJ’s Kuroda Says Room For More Easing, Including New Ideas (R.)
EU Finds Volkswagen Broke Consumer Laws In 20 Countries (R.)
The Greater Depression (Quinn)
The Ultimate 21st Century Choice: OBOR Or War (Escobar)
EU Will Not Release More Bailout Money For Greece This Month (R.)
Hungary Police Recruit ‘Border-Hunters’ To Keep Migrants Out (BBC)
Overnight Clashes At Lesvos Refugee Center (Kath.)
9,000-Year-Old Stone Houses Found On Australian Island (G.)
World’s Largest Gorillas ‘One Step From Going Extinct’ (AFP)

 

 

Sure. We believe you.

China, US Commit To Refrain From Currency Wars (R.)

China and the United States on Sunday committed anew to refrain from competitive currency devaluations, and China said it would continue an orderly transition to a market-oriented exchange rate for the yuan. A joint “fact sheet”, issued a day after U.S. President Barack Obama and his Chinese counterpart Xi Jinping held talks, also said the two countries had committed “not to unnecessarily limit or prevent commercial sales opportunities for foreign suppliers of ICT (information and communications technology) products or services”. While China and the United States cooperate closely on a range of global issues, including North Korea’s disputed nuclear program and climate change, the two countries have deep disagreements in other areas, like cyberhacking and human rights.

Both countries said they would “refrain from competitive devaluations and not target exchange rates for competitive purposes”, the fact sheet said. Meanwhile, China would “continue an orderly transition to a market-determined exchange rate, enhancing two-way flexibility. China stresses that there is no basis for a sustained depreciation of the RMB (yuan). Both sides recognize the importance of clear policy communication.” China shocked global markets by devaluing the yuan in August 2015 and allowing it to slip sharply again early this year. Though it has stepped in to temper losses in recent weeks, the currency is still hovering near six-year lows against the dollar.

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Only when Beijing can locate another bubble to blow.

China’s $3.9 Trillion Wealth-Management Product Boom Seen Cooling (BBG)

China’s multi-trillion dollar boom in wealth-management products, under scrutiny around the world because of potential threats to financial stability, is set to cool as yields fall on tighter regulation, according to China Merchants Securities analyst Ma Kunpeng. Ma cited a “significant slowdown” in the products’ growth in the first half and said that WMPs may shrink in the future, with money flowing elsewhere. Banks have started to lower yields on WMPs in preparation for requirements for funds to be held in third-party custody, the analyst said, adding that such a change may be implemented over six months to a year. Currently, lenders can use newly invested money to pay off maturing products. The Chinese government and agencies including the IMF are focused on potential risks from WMPs that rose to a record 26.3 trillion yuan ($3.9 trillion) as of June 30.

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Have investors, who are mostly domestic, buy your banks’ bad debt. This is just shifting the rotten fish from the right pocket to the left.

China Banks Play Catch Up With Capital Raising As Bad Loans Soar (BBG)

China’s banks, which dialed down fundraising efforts this year even as bad debts swelled, are making up for lost time. Both lenders and the companies set up to acquire their delinquent assets are bolstering their finances. China Citic Bank last month announced plans to raise as much as 40 billion yuan ($6 billion), while Agricultural Bank of China, Industrial Bank and China Zheshang Bank are also boosting capital. China Cinda Asset Management and China Huarong Asset Management are poised to tap investors. “Chinese banks are preemptively raising capital while pricing remains favorable in order to tackle higher loan impairments,” said Nicholas Yap at Mitsubishi UFJ Securities in Hong Kong.

“Additionally, the mid- and small-sized lenders also need to boost their capital levels as they have been growing their asset bases rapidly, largely through their investment receivables portfolios.” Chinese banks have strained their finances with the busiest first-half lending spree on record, despite having the highest amount of bad debt in 11 years. Still, completed offerings of hybrid capital declined 38% after two consecutive years of record fundraising. A rule change in April that requires lenders to make full provisions for loan rights they have transferred is also encouraging the fundraising. BNP Paribas said Chinese lenders may be assessing the right time to approach investors.

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You have to specify who’s going to pay that cost, Joe.

Stiglitz: “Cost Of Keeping Euro Probably Exceeds Cost Of Breaking It Up” (LSE)

Can the euro be saved? In an interview with Artemis Photiadou and EUROPP’s editor Stuart Brown, Nobel Prize-winning economist and bestselling author Joseph Stiglitz discusses the structural problems at the heart of the Eurozone, why an amicable divorce may be preferable to maintaining the single currency, and how European leaders should respond to the UK’s vote to leave the EU. Your new book, The Euro: And its Threat to Europe, outlines the problems at the heart of the euro and their effects on European economies. Can the euro be saved?

The fundamental thesis of the book is that it is the structure of the Eurozone itself, not the actions of individual countries, which is at the root of the problem. All countries make mistakes, but the real problem is the structure of the Eurozone. A lot of people say there were policy mistakes – and there have been a lot of policy mistakes – but even the best economic minds in the world would have been incapable of making the euro work. It’s fundamentally a structural problem with the Eurozone. So are there reforms that could make the euro work? Yes, I think there are and in my book I talk about what these reforms would be. They are not that complicated economically, after all the United States is made up of 50 diverse states and they all use the same currency so we know that you can make a currency union work. But the question is, is there political will and is there enough solidarity to make it work?

There is an argument that even if the euro was a mistake, the costs of breaking it up may be so severe that it is worth pushing for a reformed euro rather than pursuing what you call an ‘amicable divorce’. Are the benefits of a properly functioning euro worth the costs to get there? You are right. The question of whether you should form the union is different from whether you should break it up: history matters. I think it’s pretty clear now that it was a mistake to start the euro at that time, with those institutions. There will be a cost to breaking it up, but whichever way you look at it, over the last 8 years the euro has generated enormous costs for Europe. And I think that one could manage the cost of breaking it up and that under the current course, the cost of keeping the Eurozone together probably exceeds the cost of breaking it up.

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Chapter 11.

Hanjin Shipping Shares Drop 30% As It Seeks Stay Orders In 43 Countries (BBG)

South Korea’s financial regulator said Hanjin Shipping will seek stay orders in 43 countries to protect its vessels from being seized, after its court receivership filing last week roiled companies’ supply chain before the year-end shopping season. Applications in 10 countries will be made this week and the remainder soon, the Financial Supervisory Commission said in a statement Monday. Hanjin Group, owner of the shipping line, should also take more action to account for the “chaos” caused to the shipping industry, FSC Chairman Yim Jong Yong said. Vessels of Hanjin – the world’s 7th-largest container carrier with a 2.9% market share – are getting stranded at sea and ports after the box carrier sought protection, hurting the supply of LG televisions and other consumer goods ahead of the holiday season.

Hanjin Shipping shares resumed trading Monday limit down 30% and later erased losses to rally as much as 18%. Any optimism may be misplaced, said Park Moo Hyun Hana Financial Investment in Seoul. “Retail investors are hoping for the best on false hopes,” Park said. “They think that government measures to help resolve the supply-chain disruptions could mean it’s also supporting Hanjin Shipping. They don’t seem to realize that that’s the wrong conclusion.” The commission said 79 of Hanjin’s vessels, including 61 container ships, have had their operations disrupted. Hanjin Group Chairman Cho Yang Ho and Korean Air Lines, the shipping company’s largest shareholder, should take steps to ease the disruptions, Yim said.

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Keep digging!

Japan’s Long-Term Bonds Add To Worst Rout Since 2013 (BBG)

Japanese long-term bonds fell, with 30-year debt adding to its biggest weekly loss in almost 2 1/2 years, as investors prepared to bid at an auction of the securities Tuesday. The rout is being driven by speculation the Bank of Japan will reduce its bond-buying program at its next policy meeting Sept. 20-21 now that it owns a third of the nation’s government debt. BOJ Governor Haruhiko Kuroda said Monday he doesn’t share the view there’s a limit to monetary easing. PIMCO said last month the central bank has pushed monetary policy as far as it can. “Unless Governor Kuroda directly rules out scaling back bond purchases, the market will continue to hold that as a possibility,” said Shuichi Ohsaki, the chief rates strategist at Bank of America’s Merrill Lynch unit in Tokyo. “Selling of longer-dated debt is likely ahead of tomorrow’s 30-year auction.”

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The whole notion that you’re going to try out ‘New Ideas’ kills off confidence, the one thing you know is needed.

BOJ’s Kuroda Says Room For More Easing, Including New Ideas (R.)

Bank of Japan Governor Haruhiko Kuroda signaled his readiness to ease monetary policy further using existing or new tools, shrugging off growing market concerns that the bank is reaching its limits after an already massive stimulus program. He also stressed the BOJ’s comprehensive assessment of its policies later this month won’t lead to a withdrawal of easing. But Kuroda acknowledged that the BOJ’s negative interest rate policy may impair financial intermediation and hurt public confidence in Japan’s banking system, a sign the central bank is becoming more mindful of the rising cost of its stimulus.

“Even within the current framework, there is ample room for further monetary easing … and other new ideas should not be off the table,” Kuroda told a seminar on Monday. “There may be a situation where drastic measures are warranted even though they could entail costs,” he said, adding that the BOJ should “always prepare policy options.” Under its current framework that combines negative rates with hefty buying of government bonds and some riskier assets, the BOJ has gobbled up a third of Japan’s bond market and faced criticism from banks for squeezing already thin profit margins.

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Slap that wrist!

EU Finds Volkswagen Broke Consumer Laws In 20 Countries (R.)

The European Commission has found that Volkswagen broke consumer laws in 20 European Union countries by cheating on emissions tests, German daily Die Welt reported, citing Commission sources. Among them are the Consumer Sales and Guarantees Directive – which prohibits companies from touting exaggerated environmental claims in their sales pitches – and the Unfair Commercial Practises Directive, both of which apply across the EU, the paper said. The European Commission said Industry Commissioner Elzbieta Bienkowska has repeatedly invited Volkswagen to consider compensating consumers voluntarily, without an encouraging response, and that it was for national courts to determine whether consumers were legally entitled to compensation.

To ensure consumers are treated fairly, a Commission spokeswoman said, Consumer Commissioner Vera Jourova had written to consumer associations across the EU to collect information. “She will meet relevant representatives in Brussels this week,” the spokeswoman wrote in an emailed response. Jourova has been working with consumer groups to pressure Volkswagen to compensate clients in Europe as it has in the United States over the diesel emissions scandal. Volkswagen has pledged billions of euros to compensate owners of VW diesel-powered cars, but has so far rejected calls for similar payments for the 8.5 million affected vehicles in Europe, where different legal rules weaken the chances of winning a pay out.

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Jim makes a good point: today’s food lines have turned digital.

The Greater Depression (Quinn)

It’s the black and white photographs of disheartened men and hungry children from the 1930’s that define the Great Depression for present day generations. Of course after years of government run social engineering disguised as education, most people couldn’t even define when or what constituted the Great Depression. These heart wrenching portraits of average Americans suffering and in despair capture the zeitgeist of the last Fourth Turning crisis. Apologists for the status quo contend the last eight years couldn’t possibly be classified as a depression. The narrative of economic recovery has been peddled by corporate media mouthpieces, feckless politicians, Too Big To Trust Wall Street bankers, Federal Reserve puppets, and government apparatchiks flogging manipulated data as proof of economic advancement. They point to the lack of soup lines as proof we couldn’t be experiencing a depression.

First of all, if there were soup lines, the corporate media would just ignore them. If they don’t report it, then it isn’t happening. Secondly, the soup lines are electronic, as the government downloads the “soup” onto EBT cards so JP Morgan can reap billions in fees to run the SNAP program. Just because there are no pictures of starving downtrodden Americans in shabby clothes waiting in soup lines, doesn’t mean the majority of Americans aren’t experiencing a depression. If the country has actually been experiencing an economic recovery for the last seven years, why would 14% to 15% of all Americans be dependent on food stamps to survive? When the economy is actually growing and employment is really below 5%, the%age of Americans on food stamps is below 8%.

If the government economic data was truthful, there would not be 43.5 million people living in 21.4 households (17% of all households) dependent on food stamps. More than 100 million Americans are now dependent on some form of federal welfare (not including Social Security or Medicare). If the economy came out of recession in the second half of 2009, why would 6 million more Americans need to go on welfare over the next two years?

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I don’t know, it’s an ambitious dream and all, but… Reading that $40 billion has been pledged for a $1.4 trillion project doesn’t help, I guess.

The Ultimate 21st Century Choice: OBOR Or War (Escobar)

The G20 meets in tech hub Hangzhou, China, at an extremely tense geopolitical juncture. China has invested immense political/economic capital to prepare this summit. The debates will revolve around the main theme of seeking solutions “towards an innovative, invigorated, interconnected and inclusive world economy.” G20 Trade Ministers have already agreed to lay down nine core principles for global investment. At the summit, China will keep pressing for emerging markets to have a bigger say in the Bretton Woods system. But most of all China will seek greater G20 backing for the New Silk Roads – or One Belt, One Road (OBOR), as they are officially known – as well as the new Asian Infrastructure Investment Bank (AIIB).

So at the heart of the G20 we will have the two projects which are competing head on to geopolitically shape the young 21st century. China has proposed OBOR; a pan-Eurasian connectivity spectacular designed to configure a hypermarket at least 10 times the size of the US market within the next two decades. The US hyperpower – not the Atlanticist West, because Europe is mired in fear and stagnation — “proposes” the current neocon/neoliberalcon status quo; the usual Divide and Rule tactics; and the primacy of fear, enshrined in the Pentagon array of “threats” that must be fought, from Russia and China to Iran. The geopolitical rumble in the background high-tech jungle is all about the “containment” of top G20 members Russia and China.

Shuttling between the West and Asia, one can glimpse, in myriad forms, the graphic contrast between paralysis and paranoia and an immensely ambitious $1.4 trillion project potentially touching 64 nations, no less than 4.4 billion people and around 40 per cent of the global economy which will, among other features, create new “innovative, invigorated, interconnected and inclusive” trade horizons and arguably install a post-geopolitics win-win era. An array of financial mechanisms is already in place. The AIIB (which will fund way beyond the initial commitment of $100 billion); the Silk Road Fund ($40 billion already committed); the BRICS’s New Development Bank (NDB), initially committing $100 billion; plus assorted players such as the China Development Bank and the Hong Kong-based China Merchants Holdings International.

Chinese state companies and funds are relentlessly buying up ports and tech companies in Western Europe – from Greece to the UK. Cargo trains are now plying the route from Zhejiang to Tehran in 14 days, through Kazakhstan and Turkmenistan; soon this will be all part of a trans-Eurasia high-speed rail network, including a high-speed Transiberian. The $46 billion China-Pakistan Economic Corridor (CPEC) has the potential to unblock vast swathes of South Asia, with Gwadar, operated by China Overseas Port Holdings, slated to become a key naval hub of the New Silk Roads. Deep-sea ports will be built in Kyaukphyu in Myanmar, Sonadia island in Bangladesh, Hambantota in Sri Lanka. Add to them the China-Belarus Industrial Park and 33 deals in Kazakhstan covering everything from mining and engineering to oil and gas.

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Greece gets punished for not inflicting more misery on its people fast enough.

EU Will Not Release More Bailout Money For Greece This Month (R.)

The euro zone will not release additional bailout money for Greece at a meeting in Bratislava this month, Germany’s Handelsblatt Global reported on Sunday, citing European Union diplomats. The online edition of the German business daily quoted the diplomats as saying that Athens had only implemented two of 15 political reforms that are conditions for the bailout money. Above all, they said, Greece had been slow to privatize state assets. Under a deal signed last year with the Troika, the ESM will provide financial assistance of up to €86 billion to Greece by 2018 in return for the agreed reforms.

The debt relief is due to be granted in tranches, including short-term measures to extend Greece’s debt, with a further reduction due after 2018 including interest deferrals and interest rate caps. Handelsblatt Global said the Eurogroup had approved a tranche of €10.3 billion for Greece in May from the overall package. An initial €7.5 billion of that sum had been transferred to Athens with the rest scheduled to arrive in the fall. The diplomats said the Eurogroup will only discuss a progress report on Greece at the Bratislava meeting. The comments came just days after the head of the euro zone’s bailout fund, the European Stability Mechanism (ESM) on Saturday said Greece could secure short-term debt relief measures “very soon” if it implements remaining reforms agreed under its bailout program.

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Civilized Europe.

Hungary Police Recruit ‘Border-Hunters’ To Keep Migrants Out (BBC)

The Hungarian police are advertising for 3,000 “border-hunters”, who will reinforce up to 10,000 police and soldiers patrolling a razor-wire fence built to keep migrants out. The new recruits, like existing officers, will carry pistols with live ammunition, and have pepper spray, batons, handcuffs and protective kit. The number of migrants reaching Hungary’s southern border with Serbia has stagnated, at fewer than 200 daily. The new guards will start work in May.\ The recruits will have six months’ training, they must be over 18, physically fit and must pass a psychological test, police officer Zsolt Pozsgai told Hungarian state television. Monthly pay will be 150,000 forint ($542) for the first two months, then 220,300 forint.

Hungary is in the grip of a massive publicity campaign, launched by Prime Minister Viktor Orban’s right-wing government ahead of a 2 October referendum. Voters will be asked to oppose a European Commission proposal to relocate 160,000 refugees more fairly across the 28-nation EU. Under the EU scheme, Hungary has been asked to take 1,300 refugees. The relocation programme is for refugees from Syria, Iraq and Eritrea. Currently 30 migrants are allowed into Hungary each day through official “transit zones”.

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Inevitable when far too many people are forced into far too few places, over prolonged periods of absolute uncertainty about their fate. Though children assaulting children is a new depth. Our friend Kostas says these things originate almost always in a lack of food. The solution is simple: EU countries should live up to their promises regarding refugee relocation.

Overnight Clashes At Lesvos Refugee Center (Kath.)

Authorities say clashes have broken out between rival ethnic groups of refugees and other migrants at a detention camp on the eastern Aegean Sea island of Lesvos. The trouble at the Moria hot spot started shortly after midnight in a wing of the camp where minors are held and then spread, authorities said, adding that child refugees from Syria had been assaulted by a group of Afghan children. An unspecified number of children were injured while about 40 of them escaped into nearby fields. Order was restored around 4 a.m. after intervention by riot police. Authorities were trying to locate the missing children. Nearly 5,000 migrants and refugees are currently sheltered on the islands of Lesvos. Local authorities are demanding immediate government action to decongest overcrowded migrant facilities.

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Australia’s ancient civilizations were way ahead of anyone else.

9,000-Year-Old Stone Houses Found On Australian Island (G.)

Archeologists working on the Dampier archipelago off Australia’s north-west coast have found evidence of stone houses dating back 9,000 years – to the end of the last ice age – building the case for the area to get a world heritage listing. Circular stone foundations were discovered in a cave floor on Rosemary Island, the outermost of 42 islands that make up the archipelago. The islands and the nearby Burrup peninsula are known as Murujuga – a word meaning “hip bones sticking out” – in the language of the Ngarluma people. Prof Jo Mcdonald, director of the Centre for Rock Art Research and Management at the University of Western Australia, said the excavations showed occupation was maintained throughout the ice age and the period of rapid sea level rise that followed.

“Around 8,000 years ago, it would have been on the coast,” McDonald told Guardian Australia. “This is the time that the islands were starting to be cut off and it’s a time when people were starting to rearrange themselves.” The sea level on Australia’s north-west coast rose 130 metres after the end of the ice age, at a rate of about a metre every five to 10 years. “In people’s lifetimes they would have seen loss of territory and would have had to renegotiate – a bit like Miami these days,” McDonald said. The placement of the stone structures indicated how that sudden space restriction was managed, she said. “The development of housing is really significant in terms of understanding how people actually divided up their space and lived in close proximity to each other in times of environmental stress.”

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“..we are wiping out some of our closest relatives..”

World’s Largest Gorillas ‘One Step From Going Extinct’ (AFP)

The world’s largest gorillas have been pushed to the brink of extinction by a surge of illegal hunting in the Democratic Republic of Congo, and are now critically endangered, officials said Sunday. With just 5,000 Eastern gorillas (Gorilla beringei) left on Earth, the majestic species now faces the risk of disappearing completely, officials said at the International Union for Conservation of Nature’s global conference in Honolulu. Four out of six of the Earth’s great apes are now critically endangered, “only one step away from going extinct,” including the Eastern Gorilla, Western Gorilla, Bornean Orangutan and Sumatran Orangutan, said the IUCN in an update to its Red List, the world’s most comprehensive inventory of plant and animal species. Chimpanzees and bonobos are listed as endangered.

“Today is a sad day because the IUCN Red List shows we are wiping out some of our closest relatives,” Inger Andersen, IUCN director general, told reporters. War, hunting and loss of land to refugees in the past 20 years have led to a “devastating population decline of more than 70%,” for the Eastern gorilla, said the IUCN’s update. One of the two subspecies of Eastern gorilla, known as Grauer’s gorilla (G. b. graueri), has drastically declined since 1994 when there were 16,900 individuals, to just 3,800 in 2015. Even though killing these apes is against the law, hunting is their greatest threat, experts said. The second subspecies of Eastern gorilla – the Mountain gorilla (G. b. beringei) – has seen a small rebound in its numbers, and totals around 880 individuals.

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Jul 272016
 
 July 27, 2016  Posted by at 9:12 am Finance Tagged with: , , , , , , , , , , , ,  5 Responses »
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John Vachon Five o’clock crowds, Chicago 1941

Japan PM Unveils More Than $266 Billion Stimulus (AFP)
Deutsche Bank’s Q2 Net Income Plunges Nearly 100% Year-On-Year (CNBC)
China’s Debt Problem May Be Worse Than Expected, Moody’s Warns (CNBC)
China Stocks Tumble on Report of Wealth Management Product Curbs (BBG)
Hong Kong Imports/Exports Plunge in Line with Japan and China (R.)
A Refinery-Driven Correction Is Upon Us’ (BBG)
Cameron Was Right, Britain Is Broken (G.)
Kremlin Says Idea It Hacked Democratic Party Emails Absurd (R.)
Assange: “A Lot More Material” Will Be Released (ZH)
The Neocons Are Backing Hillary Clinton (Intercept)
The Odious Versus the Tedious (Kunstler)
Auckland House Prices Must Deliberately Be Reduced By 50% – NZ Greens (RNZ)
Catalonia Tells Spain It Will Push For Secession With Or Without Assent (G.)
We Love To Talk Of Terror (Robert Fisk)
The Power of “Nyet” (Dmitry Orlov)
Leading Insecticide Cuts Bee Sperm By 40%, Lifespan By A Third (G.)
LUCA: The Ancestor Of All Living Things On Earth (IBT)

 

 

Abenomics must end in full-blown madness.

Japan PM Unveils More Than $266 Billion Stimulus (AFP)

Japan on Wednesday announced a whopping economic stimulus package worth more than 28 trillion yen ($266 billion), media reported, to boost the stumbling economy. Prime Minister Shinzo Abe announced the package in a speech in southwestern Japan, giving few details except to say it would include about 13 trillion yen in government spending, according to Jiji Press news agency.

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“..scrapping dividend payments to shareholders, thousands of job cuts and asset sales…”

Deutsche Bank’s Q2 Net Income Plunges Nearly 100% Year-On-Year (CNBC)

Deutsche Bank, the German bank which is an important part of the global financial system, announced revenue and income falls Wednesday which could add further concerns for investors made jittery by a combination of Brexit and previous issues at the bank. Its second-quarter net income was down 98% from the same period in the previous year, to 20 million euros ($22 million), as it exited parts of its business while revenues were down 20% to 7.4 billion euro. Further cuts may be needed, John Cryan, chief executive of Deutsche Bank, warned. “If the current weak economic environment persists, we will need to be yet more ambitious in the timing and intensity of our restructuring,” he said in a statement.

Deutsche’s CET1 ratio – a key measure of financial strength – improved slightly to 10.8%. The bank, one of Germany’s largest lenders, has lost around 40% of its market value this year as concerns mount about its capital position and $14 billion in fines over past misconduct. John Cryan, the bank’s co-chief executive who was appointed in July last year, has embarked on a drastic plan to meet its capital targets, including scrapping dividend payments to shareholders, thousands of job cuts and asset sales. Raising new capital is likely to be difficult because of the bank’s holdings of debt for some of the worse off euro zone countries.

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As I’ve said 100 times: “China’s “shadow banking” system is masking the rise in indebtedness..

China’s Debt Problem May Be Worse Than Expected, Moody’s Warns (CNBC)

China’s “shadow banking” system is masking the rise in indebtedness in China, Moody’s Investors Service said in a report Wednesday. The rating agency said overall leverage in China’s economy continued to rise with credit growth outpacing the rise in nominal GDP. “The growth in overall leverage may be understated, because some of the fastest growing components of shadow banking are not included in TSF (total social financing),” said Michael Taylor, Moody’s chief credit officer for Asia Pacific. The credit growth was measured using TSF, an economic barometer of total fundraising by Chinese non-state entities, including individuals. It didn’t, however, include all shadow banking activities, which have grown in recent years.

“We estimate the potential understatement to be significant, amounting to at least RMB16 trillion ($2.4 trillion) or 23% of GDP at end-2015, equivalent to around one-third of shadow banking,” Taylor added. Moody’s said TSF flows were being sustained by formal bank credit flows supported by accommodative monetary policy. The increasing leverage was worrying. “The rise in overall leverage and further expansion of shadow banking activity are pushing up financial risks,” said Stephen Schwartz, a Moody’s senior vice president.

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Shadow banks and their ‘wealth’ products.

China Stocks Tumble on Report of Wealth Management Product Curbs (BBG)

Chinese stocks slumped the most in six weeks amid concern regulators are moving to limit equity investments by some wealth-management products. The Shanghai Composite Index fell 1.6% at the mid-day break, reversing a gain of as much as 0.2%. The Shenzhen Composite Index lost 3%, while the ChiNext Index of small-company shares sank 4%, the most since June 13. China’s banking regulator is considering tightening curbs on the nation’s $3.6 trillion market for WMPs, the 21st Century Business Herald reported, citing people it didn’t identify. Authorities may set a limit on how much WMPs can invest in equities and “non-standard assets” such as loans, the report said.

“There’s an obvious trend that the regulators want to strengthen market monitoring and lower the use of leverage in financial markets to control risks,” said Dai Ming at Hengsheng Asset Management. “Under such circumstances, Chinext is especially vulnerable, given its high valuations and the recent gains.” The China Banking Regulatory Commission met with some banks this month on the rule revision and a final version hasn’t been drafted, the 21st Century Business Herald report said. China’s watchdogs have signaled they’re paying closer attention to the fund managers and brokerages who funnel the nation’s household savings into investments from stocks to bonds and derivatives.

The China Securities Regulatory Commission this month issued guidelines curbing the use of leverage by structured asset management plans. Li Chao, vice chairman of the regulator, told a gathering of firms in the northeastern city of Harbin last week to do better due diligence on prospective clients when arranging initial public offerings, secondary share sales and bond issues, people familiar with the matter said.

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Hong Kong=Japan=China. Exact same pattern. World trade collapsing. If Hong Kong weren’t so dependent on imports, those would fall much more than 5.6%. “Domestic exports to the United Kingdom [..] plunged 48.2% in June.”

Hong Kong Imports/Exports Plunge in Line with Japan and China (R.)

Hong Kong’s total exports in June fell for the 14th straight month, dampened by a slowdown in China, with the city’s factories bracing for more pain in coming months from the impact of Brexit. Open and trade-dependent economies in Asia such as Hong Kong are expected to be among the most vulnerable to a slowdown in global trade from Britain’s shock vote to leave the European Union as the effects filter through factory supply chains, analysts say. Hong Kong’s total exports in June fell 1% from a year earlier to HK$296.5 billion ($38.2 billion), government data showed on Tuesday. Total imports fell 0.9%, in its 17th straight month of decline, to HK$342.1 billion. In May, annual exports slipped 0.1% while imports dropped 4.3%.

For the first half of 2016, total exports value dropped 3.9%, while imports fell 5.6%. The city recorded a visible trade deficit of HK$199.6 billion for the first half period, equivalent to 10.8% of the value of imports. “Looking ahead, the external trading environment remains challenging given the uncertainties associated with the outcome of the UK referendum in favor of leaving the EU, slow recovery in the advanced markets, monetary policy divergence among major central banks and heightened geopolitical tensions in various regions,” the government said, adding it will monitor the situation closely. Domestic exports to the United Kingdom, which accounted for 2.2% of the total, plunged 48.2% in June.

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Well, not really, it’s all just about demand.

A Refinery-Driven Correction Is Upon Us’ (BBG)

Gear up for a fall in oil prices. The global oil market is “severely oversupplied” with gasoline — with stocks at a five-year high — serving as a blow to crude prices from next month, reckon Morgan Stanley analysts led by Adam Longson. In a report published on Sunday, the analysts foresee “worrisome trends” for oil supply and demand, led by refineries generating too much gasoline in recent months. Faced with the need to cut back on capacity utilization to protect profit margins, these refineries are set to crimp crude oil purchases and drag prices lower, the analysts say. “Crude oil demand is trending below refined product demand for the first time in three years,” they write.

“Refineries are the true consumer of crude oil, and crude oil demand is ultimately more important than aggregate refined product demand for oil balances. Given the oversupply in the refined product markets, fading refinery margins, and economic run cuts, we expect crude oil demand to deteriorate further over the coming months.” A glut of gasoline could weigh significantly on oil prices, which have been lifted in recent weeks by supply disruptions and healthy petrol demand in emerging markets. Excess gasoline also means that refiners may close their doors sooner and for longer than usual during their traditional summer production shutdown, taking further demand out of the market.

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Reading through a piece like this, it becomes even more surprising that Brexit was a surprise to so many Brits.

Cameron Was Right, Britain Is Broken (G.)

In opposition, David Cameron battered Gordon Brown with two words: Broken Britain. It was his Murdoch-inspired catchphrase for hoodies scrapping in gangs, Neets necking alcopops, teenagers ending up pregnant. It set the framework for Iain Duncan Smith’s welfare reforms. Broken Britain summed up the dark side of the New Labour era: a busted social contract and a class wantonly sponging off the rest of society. It always struck me as the right phrase for the wrong target. The real Broken Britain is the one revealed over the past four days in two reports from MPs. It is workers urinating into bottles at the “Victorian workhouse” of Sports Direct, because their toilet breaks are restricted. It is women being offered permanent jobs in return for sexual favours.

It is BHS, a high-street chain nearly as old as the Queen, effectively killed by two “plundering” owners. It is 10,000 shop workers who will shortly be out on the streets, and 20,000 pension-scheme members who must now worry over how much they’ll have to live on in their old age. The riots of 2011 were taken by Cameron as proof he’d been right all along: “Irresponsibility. Selfishness. Behaving as if your choices have no consequences … Reward without effort. Crime without punishment. Rights without responsibilities.” This is Philip Green and Mike Ashley summed up – along with all the well-heeled consultants, directors and credulous politicians (including Cameron) who applauded and subsidised them on their way, bought off with fat fees and cheap photo-ops.

The rioting kids who stole bottles of water and robbed tellies from their local Argos were given prison sentences worth a total of 1,200 years. By contrast, Green and Ashley weren’t even going to bother facing MPs. Only after five months of back and forth did Sports Direct’s Ashley get in the chauffeured car down to Westminster. Green went one better, demanding that Frank Field resign from the BHS inquiry – then rocking up to parliament and telling MPs to stop looking at him. Such prickliness from a multibillionaire would have been funny had it not been for the thousands of families whose lives he’d just ruined.

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Wow. I found a few sentences at Reuters that sound somewhat sensible on the topic. “If the Russians hadn’t hacked us (for which we have no proof), Americans would have never found out about what we did.” Dumb f**ks!

Kremlin Says Idea It Hacked Democratic Party Emails Absurd (R.)

“We are again seeing these maniacal attempts to exploit the Russian theme in the U.S. election campaign,” Kremlin spokesman Dmitry Peskov told reporters when asked about the leaked emails. “This is not breaking new ground, this is an old trick which is being played again. This is not good for our bilateral relations, but we understand that we simply have to get through this unpleasant period.” U.S. Secretary of State John Kerry said earlier on Tuesday he had raised the hacking issue at a meeting in Laos with Russian Foreign Minister Sergei Lavrov. “I don’t want to use four-letter words,” was Lavrov’s only response to reporters when asked whether Russia was responsible for the email hack.

Earlier this month, Carter Page, a foreign policy adviser to Trump, visited Moscow, where he gave a lecture complaining that Western governments had often had a hypocritical focus on democratization in the post-Soviet world. Analysts say the Kremlin would welcome a Trump win because the billionaire U.S. businessman has repeatedly praised Putin, spoken of wanting to get along with Russia, and has said he would consider an alliance with Moscow against Islamic State. Trump’s suggestion he might abandon NATO’s pledge to automatically defend all alliance members is also likely to have gone down well in Moscow, where the military alliance is cast as an outdated Cold War relic.

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“Assange told CNN that Democratic Party officials were using the specter of Russian involvement to distract from the content of the emails..”

Assange: “A Lot More Material” Will Be Released (ZH)

One month ago, when Wikileaks’ Julian Assange told ITV’s Richard Peston that he would publish “enough evidence” to indict Hillary Clinton, few took him seriously. And while Hillary has not been indicted – yet – last Friday’s leak has already managed to wreak havoc and has led to revelations of cronyism and collusion within the Democratic party and the media, the resignation of the DNC Chair Debbie Wasserman Schultz, as well as chaos on the first day of the Democratic convention. Hence, why we believe Assange will be taken more seriously this time. Earlier today, Assange told CNN that Wikileaks might release “a lot more material” relevant to the US electoral campaign. Assange spoke to CNN following the release of nearly 20,000 hacked Democratic National Committee emails.

The topic then turned to the topic du jour: “did Putin do it”? Assange refused to confirm or deny a Russian origin for the mass email leak, saying Wikileaks tries to create ambiguity to protect all its sources. “Perhaps one day the source or sources will step forward and that might be an interesting moment some people may have egg on their faces. But to exclude certain actors is to make it easier to find out who our sources are,” Assange told CNN. The Kremlin has rejected allegations its behind the hacking, calling suggestions it ordered the release of the emails to influence US politics the “usual fun and games” of the US election campaigns, while the Russian foreign minister had an even simpler reaction to the same question: “I don’t want to use four-letter words.”

Dmitry Peskov, the Kremlin spokesman, added, “This is not really good for bilateral relations.” All of this now appears to be irrelevant, and as we speculated earlier, the “anti-Russia” narrative is now in motion and moments ago Obama said that it’s ‘possible’ Putin is trying to sway vote for Trump. Which brings us to the next point: speaking from the Ecuadorian embassy in London, where he faces extradition over sexual assault allegations, Assange told CNN that Democratic Party officials were using the specter of Russian involvement to distract from the content of the emails, which have had tumultuous affect on the party at the start of its national convention [..]

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And you think Trump is the danger? These are the people who shed blood around the globe. These are the people responsible for the terrorist attacks against the west.

The Neocons Are Backing Hillary Clinton (Intercept)

As Hillary Clinton puts together what she hopes will be a winning coalition in November, many progressives remain wary — but she has the war-hawks firmly behind her. “I would say all Republican foreign policy professionals are anti-Trump,” leading neoconservative Robert Kagan told a group gathered around him, groupie-style, at a “foreign policy professionals for Hillary” fundraiser I attended last week. “I would say that a majority of people in my circle will vote for Hillary.” As the co-founder of the neoconservative think tank Project for the New American Century, Kagan played a leading role in pushing for America’s unilateral invasion of Iraq, and insisted for years afterwards that it had turned out great.

Despite the catastrophic effects of that war, Kagan insisted at last week’s fundraiser that U.S. foreign policy over the last 25 years has been “an extraordinary success.” Republican presidential nominee Donald Trump’s know-nothing isolationism has led many neocons to flee the Republican ticket. And some, like Kagan, are actively helping Clinton, whose hawkishness in many ways resembles their own. The event raised $25,000 for Clinton. Two rising stars in the Democratic foreign policy establishment, Amanda Sloat and Julianne Smith, also spoke.

The way they described Clinton’s foreign policy vision suggested that if elected president in November, she will escalate tensions with Russia, double down on military belligerence in the Middle East and generally ignore the American public’s growing hostility to intervention. Sloat, the former deputy assistant secretary of state in the Bureau of European and Eurasian Affairs, boasted that Clinton will be “more interventionist and forward-leaning than Obama’s been” in Syria. She also applauded Clinton for doing intervention the right way, through coalitions instead of the unilateral aggression that defined the Bush years.

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“What higher service to democracy than to expose the anti-democratic workings of the party that affects to call itself Democratic? ”

The Odious Versus the Tedious (Kunstler)

You thought the Republican convention was a ghastly spectacle of royal Trumpery (and Iago-style backstabbing featuring the arch-asshole Ted Cruz)? Now comes the Democratic Annunciation of I’m-With-Her-It’s-My-Turn, the incarnation of crony corruption in our late-state Republic of Racketeering. Remember that old movie, The Exorcist, with its demonic spewage of projectile vomit. Expect something like that on the grand scale in Philadelphia this week as the Exalted-Breaker-of-Glass-Ceilings steps forth to accept her victory tiara.

The New York Times is blaming the Ruskies for releasing those thousands of new emails disclosing the perfidy of the Democratic National Committee staff in pimping for Hillary against Bernie and trafficking with the major network news operations to manage and spin things Her way — and especially to rig the electoral machinery against Sanders. How much will his supporters Feel the Bern this week in Philly as the party attempts to put on an appearance of unity (Ha!) behind HRC? How can it conceivably be possible now for Bernie to stand by her side for the crucial unity photo op? I suspect he’d rather chew his right arm off.

For my money, the Ruskies should get the Nobel Peace Prize if they were behind the email release. What higher service to democracy than to expose the anti-democratic workings of the party that affects to call itself Democratic? The sudden appearance of 20,000 smoking guns made party chairperson Debbie Wasserman-Schultz vamoose faster than you can say Debbie Wasserman Schultz, though her replacement, Donna Brazile is every inch just another blatant HRC foot-soldier. Perhaps she’ll have to orchestrate the proceedings with smoke signals or invisible ink instead of emails.

As the conventions rolled out, the aggregate miasma we call the news industry resorted to that tired trope of Optimism Versus Pessimism. Translation: you can’t handle the truth so somebody please bring out the rainbow-leaping unicorns. The American zeitgeist is a tattered garment worn by a three hundred pound tranny in a diabetic coma. It’s probably beyond salvation at this point. Somebody please put it out of its misery. Hence: Trump Versus Hillary, the odious versus the tedious, the election to end all elections.

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This makes too much sense.

Auckland House Prices Must Deliberately Be Reduced By 50% – NZ Greens (RNZ)

Auckland house prices should be deliberately reduced by up to 50% over a period of time to make the market affordable again, Greens co-leader Metiria Turei says. The average house price in Auckland has risen to nearly $1 million, or 10 times the median household income. Ms Turei said the only way to reverse that was to slowly bring prices back down to three or four times the median household income. She told Morning Report the Green Party was considering what timeframe would work without crashing the market and hurting people who already owned homes. “The only way to prevent a bust, and to protect families in the short and long term is to lay out a comprehensive plan, which means using every comprehensive tool that we’ve got so that we can slowly bring down house prices so that they’re reasonable.”

The Auckland Council’s chief economist had suggested bringing prices down to five times the median household income by 2030, she said. Labour leader Andrew Little said Ms Turei’s declaration that Auckland house prices should be deliberately reduced was irresponsible. There was no way a Labour-led government would consider the idea, he said. “We have a very clear plan. It’s not about crashing house prices. It’s about stabilising prices. “We don’t want to cause undue economic harm to those who – in good faith – have bought homes, entered into mortgages. That’s not a responsible approach.”

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“Last month, Spain’s interior minister, Jorge Fernández Díaz, and the head of Catalonia’s anti-fraud office, Daniel de Alfonso, were apparently recorded discussing possible investigations that could be launched against pro-independence politicians in the region.”

Catalonia Tells Spain It Will Push For Secession With Or Without Assent (G.)

The Catalan government has intensified its war of words with Spain by vowing to use its democratic mandate to forge a separate Catalan state with or without the approval of Madrid. Catalonia is preparing to defy Spain’s constitutional court this week by debating the conclusions of a working group on sovereignty, nine months after the Catalan parliament put forward a resolution calling for the “beginning of a process of the creation of an independent Catalan state”. Carme Forcadell, the president of the parliament, and Raül Romeva, the minister of foreign affairs, told the Guardian enduring hostility from Madrid had left Catalonia with no choice but to press ahead with the independence agenda.

“The [Spanish state] has left us feeling that we just don’t have an alternative,” Romeva said. “We have always said that we would have preferred a Scottish-type scenario, where we could negotiate with the state and hold a coordinated and democratic referendum. We keep talking to Madrid, but all we get back from them is an echo.” Forcadell pointed to a recent scandal as evidence of the Spanish government’s attitude towards Catalonia. Last month, Spain’s interior minister, Jorge Fernández Díaz, and the head of Catalonia’s anti-fraud office, Daniel de Alfonso, were apparently recorded discussing possible investigations that could be launched against pro-independence politicians in the region.

Forcadell said she was incredulous at the idea that the acting Spanish government, led by Mariano Rajoy, could simply brush aside the alleged incident and say nothing was going on. “How can they say that when the interior minister, who’s meant to defend the interests of all citizens, is caught conspiring to find evidence against citizens solely because they think differently? How can absolutely nothing come of that? We don’t understand it,” she said.

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The power of words.

We Love To Talk Of Terror (Robert Fisk)

The frightful and bloody hours of Friday night and Saturday morning in Munich and Kabul – despite the 3,000 miles that separate the two cities – provided a highly instructive lesson in the semantics of horror and hypocrisy. I despair of that generic old hate-word, “terror”. It long ago became the punctuation mark and signature tune of every facile politician, policeman, journalist and think tank crank in the world. Terror, terror, terror, terror, terror. Or terrorist, terrorist, terrorist, terrorist, terrorist. But from time to time, we trip up on this killer cliché, just as we did at the weekend. Here’s how it went. When first we heard that three armed men had gone on a “shooting spree” in Munich, the German cops and the lads and lassies of the BBC, CNN and Fox News fingered the “terror” lever.

The Munich constabulary, we were informed, feared this was a “terrorist act”. The local police, the BBC told us, were engaged in an “anti-terror manhunt”. And we knew what that meant: the three men were believed to be Muslims and therefore “terrorists”, and thus suspected of being members of (or at least inspired by) Isis. Then it turned out that the three men were in fact only one man – a man who was obsessed with mass killing. He was born in Germany (albeit partly Iranian in origin). And all of a sudden, in every British media and on CNN, the “anti-terror manhunt” became a hunt for a lone “shooter”. One UK newspaper used the word “shooter” 14 times in a few paragraphs.

Somehow, “shooter” doesn’t sound as dangerous as “terrorist”, though the effect of his actions was most assuredly the same. “Shooter” is a code word. It meant: this particular mass killer is not a Muslim. [..] It all comes down to the same thing in the end. If Muslims attack us, they are terrorists. If non-Muslims attack us, they are shooters. If Muslims attack other Muslims, they are attackers. Scissor out this paragraph and keep it beside you when the killers next let loose – and you’ll be able to work out who the bad guys are before the cops tell you.

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More power of words.

The Power of “Nyet” (Dmitry Orlov)

The way things are supposed to work on this planet is like this: in the United States, the power structures (public and private) decide what they want the rest of the world to do. They communicate their wishes through official and unofficial channels, expecting automatic cooperation. If cooperation is not immediately forthcoming, they apply political, financial and economic pressure. If that still doesn’t produce the intended effect, they attempt regime change through a color revolution or a military coup, or organize and finance an insurgency leading to terrorist attacks and civil war in the recalcitrant nation. If that still doesn’t work, they bomb the country back to the stone age. This is the way it worked in the 1990s and the 2000s, but as of late a new dynamic has emerged.

In the beginning it was centered on Russia, but the phenomenon has since spread around the world and is about to engulf the United States itself. It works like this: the United States decides what it wants Russia to do and communicates its wishes, expecting automatic cooperation. Russia says “Nyet.” The United States then runs through all of the above steps up to but not including the bombing campaign, from which it is deterred by Russia’s nuclear deterrent. The answer remains “Nyet.” One could perhaps imagine that some smart person within the US power structure would pipe up and say: “Based on the evidence before us, dictating our terms to Russia doesn’t work; let’s try negotiating with Russia in good faith as equals.”

And then everybody else would slap their heads and say, “Wow! That’s brilliant! Why didn’t we think of that?” But instead that person would be fired that very same day because, you see, American global hegemony is nonnegotiable. And so what happens instead is that the Americans act baffled, regroup and try again, making for quite an amusing spectacle.

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But it’s a billion-dollar industry!

Leading Insecticide Cuts Bee Sperm By 40%, Lifespan By A Third (G.)

The world’s most widely used insecticide is an inadvertent contraceptive for bees, cutting live sperm in males by almost 40%, according to research. The study also showed the neonicotinoid pesticides cut the lifespan of the drones by a third. The scientists say the discovery provides one possible explanation for the increasing deaths of honeybees in recent years, as well as for the general decline of wild insect pollinators throughout the northern hemisphere. Bees and other insects are vital for pollinating three-quarters of the world’s food crops but have been in significant decline, due to the loss of flower-rich habitats, disease and pests and the use of pesticides.

Neonicotinoids were banned from use on flowering crops in the EU in 2013. The UK opposed the ban and allowed a limited “emergency” lifting of the ban in 2015, but has refused further suspensions this year. There is clear scientific evidence that neonicotinoids harm bees, but there is only a little research showing the pesticides harm the overall performance of colonies. Previous work has shown that neonicotinoids reduce the number of bumblebee queens produced and severely cuts the survival and reproduction of honeybee queens. But the new research, led by Lars Straub at the University of Bern, Switzerland and published in the journal Proceedings of the Royal Society B, is the first to test how neonicotinoids affect male bee fertility.

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We’re really killing off our own family.

LUCA: The Ancestor Of All Living Things On Earth (IBT)

The planet we live on is home to an estimated 10 million species of living organisms. Hard as it may be to fathom, the immense diversity of life we see around us today – from the bacteria living in the garden soil to the majestic blue whale inhabiting the deep blue seas – all evolved from one single-celled ancestor that lived, and died, billions of years ago. In a paper published Monday in the journal Nature Microbiology, researchers have described, in unprecedented detail, this Last Universal Common Ancestor, or LUCA, which was only “half alive.” This ancestor – a single-cell, bacterium-like organism – is believed to have existed roughly four billion years ago, when Earth was just over 500 million years old. LUCA, the researchers say, was the common point of origin for three great domains of life — bacteria, archaea, which are bacteria-like single-cell prokaryotes, and the eukaryotes, a domain that includes all plants and animals.


Phylogeny for LUCA’s genes: In the two-domain tree of life, eukaryotes stem from prokaryotes, so the last universal common ancestor, LUCA, is the ancestor of archaea and bacteria.

“We are seeing something for which there was previously no evidence,” co-author William Martin from the Heinrich Heine University in Düsseldorf, Germany, told the Washington Post. “Just by asking the right questions of genome data, we were able to obtain some very interesting answers that also mesh well with what we know from geochemistry.” In order to get a clear picture of what LUCA was like, the researchers examined over six million protein-coding genes found in the present-day bacteria and archaea. After analyzing the DNA sequence of each gene and determining whether these genes were present in both bacteria and archaea, the researchers identified 355 gene “clusters” that were probably present in LUCA. “It was flabbergasting to us that we found as many as we did,” Martin told New Scientist.

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May 302016
 
 May 30, 2016  Posted by at 7:59 am Finance Tagged with: , , , , , , , , , ,  9 Responses »
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Jack Delano Foggy night in New Bedford, Massachusetts 1941

The Mystery of Weak US Productivity (Luce)
China Default Chain Reaction Threatens Products Worth 35% of GDP (BBG)
China’s Veiled Loans May Prove Lethal (BBG)
How Many Bad Loans Might China Have? (BBG)
Easy Money = Overcapacity = Trade Wars = Deflation (Rubino)
Negative Rates Fail to Spur Investment for Corporate Europe (BBG)
Saudi Arabia’s Petrodollar Reserves Fall to 4-Year Low (BBG)
CEO of No. 1 Asian Commodity Trader Noble Group Resigns In Surprise Move (R.)
Japan Must Delay Sales-Tax Rise to Recover, Abe Aide Says (BBG)
The Butterfly Effect: Cheap Oil Means Fewer Nose Jobs (BBG)
The Source of Failure: We Optimize What We Measure (CH Smith)
30.4% Of Americans Were Obese In 2015 (Forbes)
Tory Turmoil Escalates With Open Call For Cameron To Quit (G.)
Half Of Central, Northern Great Barrier Reef Corals Are Dead (SMH)

“This year, for the first time in more than 30 years, US productivity growth will almost certainly turn negative..”

“Unless we become smarter at how we work, growth will start to exhaust itself too.” Er, no, that has already happened.

“For the first time the next generation of US workers will be less educated than the previous..”

The Mystery of Weak US Productivity (Luce)

Look around you. From your drone home delivery to that oncoming driverless car, change seems to be accelerating. Warren Buffett, the great investor, promises that our children’s generation will be the “luckiest crop in history”. Everywhere the world is speeding up except, that is, in the productivity numbers. This year, for the first time in more than 30 years, US productivity growth will almost certainly turn negative following a decade of sharp slowdown. Yet our Fitbits seem to be telling us otherwise. Which should we trust — the economic statistics or our own lying eyes? A lot hinges on the answer. Productivity is the ultimate test of our ability to create wealth. In the short term you can boost growth by working longer hours, for example, or importing more people.

Or you could lift the retirement age. After a while these options lose steam. Unless we become smarter at how we work, growth will start to exhaust itself too. Other measures bear out the pessimists. At just over 2%, US trend growth is barely half the level it was a generation ago. As Paul Krugman put it: “Productivity isn’t everything, but in the long run it is almost everything.” It is possible we are simply mismeasuring things. Some economists believe the statistics fail to capture the utility of setting up a Facebook profile, for example, or downloading free information from Wikipedia. The gig economy has yet to be properly valued. Yet this argument cuts both ways. Productivity is calculated by dividing the value of what we produce by how many hours we work — data provided by employers.

But recent studies — and common sense — say our iPhones chain us to our employers even when we are at leisure. We may thus be exaggerating productivity growth by undercounting how much we work. The latter certainly fits with the experience of most of the US labour force. It is no coincidence that since 2004 a majority of Americans began to tell pollsters they expected their children to be worse off — the same year in which the internet-fuelled productivity leaps of the 1990s started to vanish. Most Americans have suffered from indifferent or declining wages in the past 15 years or so. A college graduate’s starting salary today is in real terms well below where it was in 2000. For the first time the next generation of US workers will be less educated than the previous, according to the OECD, which means worse is probably yet to come. Last week’s US productivity report bears that out.

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“All the risks are accumulating in an overcrowded financial system.”

China Default Chain Reaction Threatens Products Worth 35% of GDP (BBG)

The risk of a default chain reaction is looming over the $3.6 trillion market for wealth management products in China. WMPs, which traditionally funneled money from Chinese individuals into assets from corporate bonds to stocks and derivatives, are now increasingly investing in each other. Such holdings may have swelled to as much as 2.6 trillion yuan ($396 billion) last year, based on estimates from Autonomous Research this month. The trend has China watchers worried. For starters, it means that bad investments by one WMP could infect others, causing a loss of confidence in products that play an important role in bank funding. It also suggests WMPs are struggling to find enough good assets to meet their return targets.

In the event of widespread losses, cross-ownership will create more uncertainty over who’s vulnerable – a key source of panic in 2008 when soured U.S. mortgage securities triggered a global financial crisis. Those concerns have become more pressing this year after at least 10 Chinese companies defaulted on onshore bonds, the Shanghai Composite Index sank 20% and China’s economy showed few signs of recovery from the weakest expansion in a quarter century. “There’s abundant liquidity in the financial system, but a scarcity of high-yielding assets to invest in,” said Harrison Hu, the chief Greater China economist at RBS in Singapore. “All the risks are accumulating in an overcrowded financial system.”

Issuance of WMPs, which are sold by banks but often reside off their balance sheets, exploded over the past three years as lenders competed for funds and fees while savers sought returns above those offered on deposits. The products, which offer varying levels of explicit guarantees, are regarded by many as having the implicit backing of banks or local governments. The outstanding value of WMPs rose to 23.5 trillion yuan, or 35% of China’s gross domestic product, at the end of 2015 from 7.1 trillion yuan three years earlier, according to China Central Depository & Clearing Co. An average 3,500 WMPs were issued every week last year, with some mid-tier banks, such as China Merchants Bank and China Everbright Bank, especially dependent on the products for funding.

Interbank holdings of WMPs swelled to 3 trillion yuan as of December from 496 billion yuan a year earlier, according to figures released by the clearing agency last month. As much as 85% of those products may have been bought by other WMPs, according to Autonomous Research, which based its estimate on lenders’ public disclosures and data on interbank transactions. The firm speculates that in some cases the products are being “churned” to generate fees for banks. “We’re starting to see layers of liabilities built upon the same underlying assets, much like we did with subprime asset-backed securities, collateralized debt obligations, and CDOs-squared in the U.S.,” Charlene Chu, a partner at Autonomous who rose to prominence in her former role at Fitch Ratings by warning of the risks of bad debt in China, said in an interview on May 17.

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“The unconsolidated structured entities managed by the Group consist primarily of collective investment vehicles (“WMP Vehicles”) formed to issue and distribute wealth management products (“WMPs”), which are not subject to any guarantee by the Group of the principal invested or interest to be paid.”

China’s Veiled Loans May Prove Lethal (BBG)

Credit is a risky business, but loans that dare not speak their name? They are possibly even more dangerous, as China is about to find out.As many as 15 publicly traded Chinese lenders, large and small, report roughly $500 billion of such debt between them, which they hold not as loans but as receivables from shadow banking products. While the traditional credit business of these banks is 16 times bigger, receivables have jumped sixfold in three years. Explosive growth of this type usually ends badly. It’s hard to see why it’ll be different for the People’s Republic. Before they can brace themselves – or embrace the risk, if they think the rewards are worth it – equity investors need to know where to look. Flitting from one explanatory note to another in dense annual reports isn’t everybody’s idea of a day well spent.

But the effort may be worth it. For instance, page 184 of Agricultural Bank’s 2015 annual report informs us that the bank has 557 billion yuan ($85 billion) worth of assets tied in “debt instruments classified as receivables.” On page 245, we further learn that most of this is old hat, and the only fast-growing portion is an 18.7 billion yuan chunk helpfully titled as “Others.” A footnote adds that the category primarily consists of “unconsolidated structured entities managed by the group.” Give up? Then you miss the big reveal that occurs 34 pages later: “The unconsolidated structured entities managed by the Group consist primarily of collective investment vehicles (“WMP Vehicles”) formed to issue and distribute wealth management products (“WMPs”), which are not subject to any guarantee by the Group of the principal invested or interest to be paid.” That’s broadly how Chinese lenders disclose their cryptic linkages with shadow banks.

The names keep changing, from “investment management products under trust scheme” and “investment management products managed by securities companies” to “trust beneficiary rights” and “wealth management products.” The latter have swelled to the equivalent of 35% of GDP, and account for 3 trillion yuan of interbank holdings. The common thread to these products is that they’re all exposed to corporate credit and designed to get around lenders’ minimum capital requirements and maximum loan-to-deposit norms, with scant loss provisioning in case things go wrong.There’s plenty that could. The reported nonperforming loan ratio of 1.75% is a joke. CLSA says bad loans have already snowballed to 15 to 19% of the loan book; Autonomous Research partner Charlene Chu estimates the figure will reach 22% by the end of this year. A 20% loss on a $500 billion portfolio of loans masquerading as receivables would wipe out 58% of annual profit of the 15 banks under our scanner.

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” In the basic resources sector, 46% of loans are with firms without enough income to cover interest payments. ”

How Many Bad Loans Might China Have? (BBG)

How many of China’s loans could turn bad? The official data show a non-performing loan ratio of 1.75%, but that’s widely believed to reflect optimistic accounting. Bloomberg Intelligence Economics has estimated the %age of “at risk” loans – those where the borrower doesn’t have sufficient earnings to cover interest payments. The results show 14% of corporate borrowing at risk of default, up from a low of 5% in 2010. By sector, the basic resources, retail and industrial sectors are among the highest risk. In the basic resources sector, 46% of loans are with firms without enough income to cover interest payments.

Telecommunications, utilities, and travel and leisure sectors look more secure, reflecting stronger earnings and lower debt. The methodology is based on an approach used by the IMF. For a universe of 2,865 Chinese listed firms (excluding financial companies), we screened for firms with interest costs higher than their EBITDA. We then calculated total debt of those firms as a %age of total debt of all listed firms. We assume that the ratio of “at risk” loans for the corporate sector as a whole is the same as for listed companies.

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“..over-investment produces slow growth and falling prices while ever-more-aggressive monetary policy distorts markets beyond recognition and encourages new over-investment in different sectors, which then proceed to follow oil and steel into the deflationary abyss.”

Easy Money = Overcapacity = Trade Wars = Deflation (Rubino)

So what happens to all that Chinese steel that was on its way to the US and EU before slamming into those prohibitively high tariffs? One of three things: Either it’s sold elsewhere, probably at even steeper discounts, thus pricing US and EU steel exports out of those markets. Or it’s stockpiled in China for future use, thus lowering future demand for new steel production and, other things being equal, depressing tomorrow’s prices. Or many of China’s newly-built steel mills will close, and China will eat the losses related to this malinvestment. Each scenario results in lower prices and financial losses somewhere. Put another way, as far as steel is concerned, the world’s fiat currencies are rising in value, which is the common definition of deflation.

And since steel is just one of many basic industries burdened with massive overcapacity, it’s safe to assume that the process which began with oil and recently spread to steel will continue to metastasize throughout the developed and developing worlds. Next up: real estate. “Modern” monetary policy, designed to achieve exactly the opposite outcome (that is, rising prices for real things), will in response be ratcheted up to ever-more-extreme levels — which in this analytical framework is like trying to douse a fire with gasoline. The result is a world in which past over-investment produces slow growth and falling prices while ever-more-aggressive monetary policy distorts markets beyond recognition and encourages new over-investment in different sectors, which then proceed to follow oil and steel into the deflationary abyss. And so on, until the system collapses under the weight of its own absurdity.

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Because they are deflationary.

Negative Rates Fail to Spur Investment for Corporate Europe (BBG)

A prolonged period of negative interest rates is failing to revive investment at Europe’s companies, with the vast majority of businesses in the region saying the stimulus measures have had no affect at all on their growth plans. Some 84% of the 9,440 companies surveyed by Swedish debt collector Intrum Justitia AB for its European Payment Report 2016 say low interest rates haven’t affected their willingness to invest. And perhaps more alarmingly, the number is up from 73% last year. “Creating economic growth requires stability and optimism,” Intrum Justitia Chief Executive Officer Mikael Ericson said in the report. “Evidently, the strategy of keeping interest rates record low for more than a year has not created the much sought-after stability.”

Signs of stalling investment mark a blow to central banks hoping to revive growth across Europe through negative rates and quantitative easing. Europe needs its businesses to invest more if it’s to create the jobs needed to spur growth. In the euro area, where interest rates have been negative since mid-2014, gross domestic product will slow to 1.6% this year, compared with 2.3% in the U.S., the European Commission estimates. “A calculation of an investment includes assumptions of the future,” Intrum said. “To get the calculation to go together those assumptions need to include a belief in stability and prosperity in that future. Perhaps the negative interest rates do not signal that stability at all – rather that we are still in an extraordinary situation?”

The survey also identified another threat to growth, namely late payments. Some 33% of survey participants said they regard not being paid on time as a threat to overall survival while 25% said they are likely to cut jobs if clients pay late or not at all. That problem is more pronounced among Europe’s 20 million small and medium-sized companies, with many reporting that bigger firms are forcing them to accept late payments. “It is a market failure that costs job opportunities for millions of Europeans that big corporations deliberately force SMEs to finance their cash flow,” Ericson said. “As much as two out of five SMEs say late payments prohibit growth of the company. That large corporations use their much smaller sub-suppliers to act as financier of their own cash-management processes is not only wrong, it also creates an imbalance in society.”

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Might as well devalue now.

Saudi Arabia’s Petrodollar Reserves Fall to 4-Year Low (BBG)

Saudi Arabia’s net foreign assets fell for a 15th month in April, as the kingdom announced its “vision” for a post-oil future. The Saudi Arabian Monetary Agency said on Sunday net foreign assets declined 1.1% to $572 billion, the lowest level in four years. The slump in crude prices has forced the government to sell bonds and draw on its currency reserves, still among the world’s largest. Net foreign assets fell by $115 billion last year, when the kingdom ran a budget deficit of nearly $100 billion.

The fiscal crunch has pushed Saudi Arabia’s rulers to look beyond oil, consider new taxes, and plan an initial public offering of state giant Saudi Arabian Oil Co. Deputy Crown Prince Mohammed bin Salman sketched out the planned changes dubbed Saudi Vision 2030 on April 25. The strain on reserves has also fueled speculation that the kingdom will adjust its decades-old riyal peg to the dollar. New central bank Governor Ahmed Alkholifey told Al-Arabiya on Thursday that Saudi Arabia doesn’t plan to change its exchange rate policy.

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Firesale. Given what’s happened in commodities the past year, not surprising.

CEO of No. 1 Asian Commodity Trader Noble Group Resigns In Surprise Move (R.)

Embattled commodity trader Noble Group announced the surprise resignation of CEO Yusuf Alireza on Monday and said it planned to sell a U.S. unit to bolster its balance sheet as it seeks to regain investor confidence. Alireza, a former Goldman Sachs banker had steered Asia’s biggest commodity trader to sell assets, cut business lines and take big writedowns as it battled weak commodity markets and the fallout from an accounting dispute. “With this transformation process now largely complete, Mr. Alireza considered that the time was right for him to move on,” Noble said in a statement. It appointed senior executives William Randall and Jeff Frase as co-chief executive officers and said it would begin a sale process for Noble Americas Energy Solutions, “expected to generate both significant cash proceeds and profits to substantially enhance the balance sheet.”

Noble came under the spotlight in February last year when it was accused by Iceberg Research of overstating its assets by billions of dollars, claims which Noble rejected. Its shares have since plunged by about 75% and its debt costs have risen as the company has been hit hard by credit rating downgrades and weak investor confidence. “The first task is to stabilize the situation and convey stability and continuity,” said Nirgunan Tiruchelvam at Religare Capital Markets. “That would be the immediate task of somebody in this business which has volatility,” he said. Noble won the backing of banks earlier this month to refinance its debt. In February, Noble reported its first annual loss since 1998, battered by a $1.2 billion writedown for weak coal prices. The company’s shares slumped 65% last year, knocking it out of the benchmark Straits Times index.

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So a delay in the tax hike would trigger elections. And Abe counts on the Japanese to be blind enough to re-elect him.

Japan Must Delay Sales-Tax Rise to Recover, Abe Aide Says (BBG)

Japan needs to delay increasing its sales tax until late 2019 to sustain its economic recovery, an aide to Prime Minister Shinzo Abe said Sunday. There is a possibility that such a move could trigger a general election. The government will probably hold off raising the tax because it needs to give priority to economic growth, Abe aide Hakubun Shimomura said on Fuji television. Japan’s lower house of parliament would need to be dissolved for a general election if the planned increase is delayed again, Finance Minister Taro Aso was cited by Kyodo News as saying on Sunday at a meeting of the ruling party’s members. Abe has said he’ll make a decision before an upper-house election this summer on whether to go ahead with a planned increase in the levy next April to 10%, from 8% at present.

He had previously said the matter would be decided at an appropriate time and that it would be postponed only if there was a shock on the scale of a major earthquake or a corporate collapse like that of Lehman Brothers. An increase in the levy in 2014 pushed Japan into a recession. “We have no other options but to postpone the sales-tax increase,” Shimomura said. “If the increase means a decline in tax revenue for the government, that would threaten the achievement of the goals under Abenomics.” The prime minister told Finance Minister Taro Aso and LDP’s Secretary General Sadakazu Tanigaki on Saturday to delay the sales-tax increase to October 2019, NHK reported.

Aso advised the prime minister to be cautious about the idea, NHK said. “If the tax increase is delayed, a general election is needed to put the plan to the public,” Aso was quoted by Kyodo News as saying on Sunday. Kyodo reported later that Abe doesn’t plan to call snap elections on the same day as the Upper House vote. If Abe fails to go ahead with his plan of raising the tax in April, it means his economic policies have failed and he and his cabinet members should resign to take responsibility, Tetsuro Fukuyama, vice secretary general of the opposition Democratic Party of Japan, said in a program aired by public broadcaster NHK on Sunday.

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Unexpected advantages.

The Butterfly Effect: Cheap Oil Means Fewer Nose Jobs (BBG)

Oil slumps. Middle Eastern patients cancel treatments abroad. Thai hospital stocks slide. It’s the butterfly effect in action. Weak growth outlooks in the Gulf states are prompting greater competition from local clinics, stemming the flow of visitors to the world’s top medical tourism destination. That’s clouding the outlook for Thailand’s health-care shares, which surged more than 800% over the past seven years, as valuations start to look stretched amid the falling demand. Bangkok’s Bumrungrad Hospital, known as the grandaddy of international clinics, has slumped 16% since early March after patient volumes from the United Arab Emirates, its second-biggest source of overseas visitors, fell 20% in the first quarter.

Thailand attracted as many as 1.8 million international patients in 2015, many of whom stayed on afterward for a beach holiday. More than one in three foreigners treated at Bumrungrad are from the Gulf states and Kasikorn Securities says declining growth in the region and a rise in competition from clinics in the U.A.E., where the government is encouraging its citizens to stay home for medical care, are curbing demand. “In the short term, the economic slowdown in the the Middle East will weaken some investors’ confidence on earnings growth for domestic hospital operators,” said Jintana Mekintharanggur at Manulife Asset Management. “We are still bullish on the sector” in the long term as it will benefit from growth in countries like Myanmar and Vietnam that have less-developed health systems, she said.

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Hey, look, we are born as liars. And we will lie to ourselves about that, too.

The Source of Failure: We Optimize What We Measure (CH Smith)

The problems we face cannot be fixed with policy tweaks and minor reforms. Yet policy tweaks and minor reforms are all we can manage when the pie is shrinking and every vested interest is fighting to maintain their share of the pie. Our failure stems from a much deeper problem: we optimize what we measure. If we measure the wrong things, and focus on measuring process rather than outcome, we end up with precisely what we have now: a set of perverse incentives that encourage self-destructive behaviors and policies. The process of selecting which data is measured and recorded carries implicit assumptions with far-reaching consequences. If we measure “growth” in terms of GDP but not well-being, we lock in perverse incentives to boost ‘growth” even at the cost of what really matters, i.e. well-being.

If we reward management with stock options, management has a perverse incentive to borrow money for stock buy-backs that push the share price higher, even if doing so is detrimental to the long-term health of the company. Humans naturally optimize what is being measured and identified as important. If students’ grades are based on attendance, attendance will be high. If doctors are told cholesterol levels are critical and the threshold of increased risk is 200, they will strive to lower their patients’ cholesterol level below 200. If we accept that growth as measured by GDP is the measure of prosperity, politicians will pursue the goal of GDP expansion.

If rising consumption is the key component of GDP, we will be encouraged to go buy a new truck when the economy weakens, whether we need a new truck or not. If profits are identified as the key driver of managers’ bonuses, managers will endeavor to increase net profits by whatever means are available. The problem with choosing what to measure is that the selection can generate counterproductive or even destructive incentives. This is the result of humanity’s highly refined skill in assessing risk and return. All creatures have been selected over the eons to recognize the potential for a windfall that doesn’t require much work to reap.

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Can’t leave out the ones that are diabetic without knowing it. Oh, and: “..these obesity rates are calculated from self-reported heights and weights.”

30.4% Of Americans Were Obese In 2015 (Forbes)

If recent headlines are to be believed, we are rapidly approaching the future depicted in Wall-E, with a morbidly obese population that can get from place to place only with the help of a hover-scooter. “Americans are fatter than ever, CDC finds,” trumpets CNN. “This Many Americans Need To Go On A Diet ASAP, According To New CDC Report,” content farm Elite Daily smugly proclaims. But is it really that cut-and-dried? The report both articles refer to is succinctly titled “Early Release of Selected Estimates Based on Data from the National Health Interview Survey, 2015.” It was released on Tuesday, and it provides an early look at annual data from the titular survey on 15 different points, from health insurance and flu shots to smoking rates and, yes, obesity.

The publication says 30.4% of Americans were obese in 2015, with a 95% confidence interval (so somewhere between 29.62% and 31.27%). That’s compared to 19.4% in 1997. Obesity rates were higher among middle-aged people (ages 40 to 59), with the rate for that group hitting 34.6%. Ages 20 to 39, perhaps predictably, were the least obese, with 26.5% of that population having a BMI of 30 or more. Obesity was highest for black women (45%), followed by black men (35.1%), Latina women (32.6%), Latino men (32%), white men (30.2%) and white women (27.2%). The data in the release didn’t provide any information on other ethnic or racial groups, nor did it break obesity rates down by household income.

In concert with rising obesity rates, Americans are getting more diabetic. In 1997, 5.1% of U.S. adults had been diagnosed with diabetes. By 2015, that number had nearly doubled, to 9.5%. Although, again, the data here don’t break everything down to my satisfaction–there are no numbers for each specific type of diabetes, for instance–it’s safe to say that these correlations are the consequence of rising obesity, as 95% of people diagnosed with diabetes have type 2.

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Managed to monopolize the entire Brexit debate, but they can’t leave well enough alone…

Tory Turmoil Escalates With Open Call For Cameron To Quit (G.)

David Cameron’s hopes of being able to avoid terminal damage to Conservative party unity after the EU referendum campaign were dented on Sunday when two rebel MPs openly called for a new leader and a general election before Christmas. The attacks came from Andrew Bridgen and Nadine Dorries – both Brexiters, and longstanding, publicity-hungry opponents of the prime minister – and their claim that even winning the EU referendum won’t stop Cameron facing a leadership challenge in the summer was dismissed by fellow Tories. But their comments coincided with the ministers in charge of the leave campaign launching some of their strongest personal attacks yet on Cameron, prompting Labour’s Alan Johnson to say that the Tory infighting was getting “very ugly indeed”.

Bridgen told the BBC’s 5 Live that Cameron had been making “outrageous” claims in his bid to persuade voters to back remain and that, as a consequence, he had effectively lost his parliamentary majority. “The party is fairly fractured, straight down the middle and I don’t know which character could possibly pull it back together going forward for an effective government. I honestly think we probably need to go for a general election before Christmas and get a new mandate from the people,” he said. Bridgen said at least 50 Tory MPs – the number needed to call a confidence vote – felt the same way about Cameron and that a vote on the prime minister’s future was “probably highly likely” after the referendum.

Dorries told ITV’s Peston on Sunday she had already submitted her letter to the chairman of the Tory backbench 1922 committee expressing no confidence in the prime minister. “[Cameron] has lied profoundly, and I think that is actually really at the heart of why Conservative MPs have been so angered. To say that Turkey is not going to join the European Union as far as 30 years is a lie.”

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Australia will keep debating this while the last bits die off.

Half Of Central, Northern Great Barrier Reef Corals Are Dead (SMH)

More than one-third of the coral reefs of the central and northern regions of the Great Barrier Reef have died in the huge bleaching event earlier this year, Queensland researchers said. Corals to the north of Cairns – covering about two-thirds of the Great Barrier Reef – were found to have an average mortality rate of 35%, rising to more than half in areas around Cooktown. The study, of 84 reefs along the reef, found corals south of Cairns had escaped the worst of the bleaching and were now largely recovering any colour that had been lost. Professor Terry Hughes, director of the ARC Centre of Excellence for Coral Reef Studies at James Cook University, said he was “gobsmacked” by the scale of the coral bleaching which far exceeded the two previous events in 1998 and 2002.

“It is fair to say we were all caught by surprise,” Professor Hughes said. “It’s a huge wake up call because we all thought that coral bleaching was something that happened in the Pacific or the Caribbean which are closer to the epicentre of El Nino events.” The El Nino of 2015-16 was among the three strongest on record but the starting point was about 0.5 degrees warmer than the previous monster of 1997-98 as rising greenhouse gas emissions lifted background temperatures. Reefs in many regions, such as Fiji and the Maldives, have also been hit hard. Bleaching occurs when abnormal conditions, such as warm seas, cause corals to expel tiny photosynthetic algae, called zooxanthellae. Corals turn white without these algae and may die if the zooxanthellae do not recolonise them.

The northern end of the Great Barrier Reef was home to many 50- to 100-year-old corals that had died and may struggle to rebuild before future El Ninos push tolerance beyond thresholds. “How likely is it that they will fully recover before we get a fourth or a fifth bleaching event?” Professor Hughes said. The health of the reef has been a contentious political issue, with Environment Minister Greg Hunt pledging more funds in the May budget to improve water quality – one aspect affecting coral health. But Mr Hunt has also had to explain why his department instructed the UN to cut out a section on Australia from a report that dealt with the threat of climate change to World Heritage sites including the Great Barrier Reef and Kakadu.

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Mar 172016
 
 March 17, 2016  Posted by at 9:12 am Finance Tagged with: , , , , , , , , ,  9 Responses »
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Christopher Helin Kissel military Highway Scout Kar at Multnomah Falls, Oregon 1918

US Lost 30% Of Manufacturing Jobs Between 1998 And 2016 (WaPo)
Rich Countries Have A $78 Trillion Pension Problem (CNBC)
The Budget That Wasn’t (Halligan)
Asia Cheers as Yellen Succumbs to Cry-Bullies (Barron’s)
China’s Exporters Struggle as Yuan Swings Disrupt Business (BBG)
China Banks Face Credit Risks From Ties To Wealth Management Products (CNBC)
America’s No. 1 Coal Miner to Seek Bankruptcy Protection (WSJ)
Energy Sector Defaults Could Start Falling Like Dominoes (MW)
Oil Investors See $7.4 Billion Vanish as Dividends Are Targeted (BBG)
Big-Oil Bailout Begins as Pemex’s Debt Spirals Down (WS)
Munich Re Rebels Against ECB With Plan To Store Cash In Vaults (BBG)
Netherlands Votes To Ban Weapons Exports To Saudi Arabia (Ind.)
Austria’s Highest Court Proclaims Asylum Cap Illegal (NE)
Huge Challenges Await EU’s Refugee Plan (FT)
EU Prepares To Scale Back Resettlement Of Syrian Refugees (Guardian)
Three Migrants Dead As 2,400 Rescued Off Libya (AFP)

Killing off your manufacturing base is the worst thing you can do.

US Lost 30% Of Manufacturing Jobs Between 1998 And 2016 (WaPo)

Thomaston, Ga. — Not so long ago, this rural town an hour outside Atlanta was a hotbed of textile manufacturing. In the late 1990s, there were six major mills here. Their machines spun children’s clothing for Carter’s, made tire cords for B.F. Goodrich and produced bed sheets for J.C. Penney, Sears and Walmart. In all, they employed about 4,000 workers. By 2001, all of those jobs were gone. What has happened here in the 15 years since then tracks the slow comeback of manufacturing in the United States. Two textile companies have come in, investing millions in new technology and adding about 280 jobs in this town where one-third of the residents still live below the poverty line. It is becoming more affordable to produce textiles in the United States as machines become more efficient, companies say.

Major firms are more willing to pay higher prices for domestically sourced products, and rising wages in China mean there is less of an advantage to making products overseas. Last week, there was new cause for celebration when Marriott International announced that all towels in its 3,000 U.S. hotels would be manufactured by Standard Textile in plants here and in Union, S.C., a move expected to bring $23 million worth of business and 150 jobs back to the United States. The hotelier joins a number of other companies, including Walmart, Apple and General Electric, that have pushed for more U.S.-made products in recent years. But manufacturing employment here is a small fraction of what it was. Although a company such as Standard Textile once might have employed close to 1,000 people, today it has a couple of hundred workers who oversee machines that spin, scour and weave cotton.

“We’ve had to redefine who we were because we were a mill town for so long,” said Kyle Fletcher, executive director of the Thomaston-Upton Industrial Development Authority. “We lost a lot of the middle class.” The United States lost 30% of its manufacturing jobs between 1998 and 2016, according to Federal Reserve data. As of February, the country had 12.3 million workers in the sector, down from 17.6 million in April 2008. In February 2010, that figure was 11.5 million. There are hints that manufacturing is returning to the United States in small ways: The nation’s quarterly output has climbed steadily since the end of the recession, growing 35% and adding 650,000 jobs since mid-2009, according to the Fed. But the glory days are gone, Fletcher said. About one-third of Thomaston’s 9,000 residents live below the poverty line, compared with 23% in 1999. Average income has dropped more than 20% since 1999, to $14,243 from $18,193, according to U.S. Census data.

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Pon Zi.

Rich Countries Have A $78 Trillion Pension Problem (CNBC)

Dreams of lengthy cruises and beach life may be just that, with 20 of the world’s biggest countries facing a pension shortfall worth $78 trillion, Citi said in a report sent on Wednesday. “Social security systems, national pension plans, private sector pensions, and individual retirement accounts are unfunded or underfunded across the globe,” pensions and insurance analysts at the bank said in the report. “Government services, corporate profits, or retirement benefits themselves will have to be reduced to make any part of the system work. This poses an enormous challenge to employers, employees, and policymakers all over the world.” The total value of unfunded or underfunded government pension liabilities for 20 countries belonging to the OECD – a group of largely wealthy countries — is $78 trillion, Citi said. (The countries studied include the U.K., France and Germany, plus several others in western and central Europe, the U.S., Japan, Canada, and Australia.)

The bank added that corporates also failed to consistently meet their pension obligations, with most U.S. and U.K. corporate pensions plans underfunded. Countries with large public pension systems in Europe appear to have the greatest problem. Citi noted that Germany, France, Italy, the U.K., Portugal and Spain had estimated public sector pension liabilities that topped 300% of GDP. Improvements in health care mean retirees need to string out their income for longer. Meanwhile, the increase in the retirement-age population versus the working population is straining government pension schemes. Several countries, including the U.K., France and Italy are gradually hiking retirement ages. Citi recommended that governments explicitly link the retirement age to expected longevity. It also advised that government-funded pensions should serve merely as a “safety net,” rather than the prime pension provider, and that corporate pensions should be “opt out” rather than “opt in” to encourage greater enrollment.

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Osborne’s not worried. He knew everyone would be talking about his sugar tax. Great diversion tactic.

The Budget That Wasn’t (Halligan)

George Osborne’s latest Budget pretended to be many things it wasn’t. The Chancellor talked repeatedly about “borrowing falling”, yet in the next three years, borrowing on our behalf goes sharply up. He warned about “financial instability” and “storm clouds” on the economic horizon, yet he’s relying on growth assumptions that are surely too optimistic. While barely mentioning the EU referendum, the Chancellor’s determination to avoid Brexit pervaded almost every paragraph of his 63-minute Commons statement. Far from being “a Budget for the next generation” – a phrase wielded 18 times – his policies were aimed at attracting as many “Remain” voters as he could, while doing as little as possible to upset those still undecided. Rather than a “long-term Budget” (19 mentions), the package was designed for the next three months, ahead of the EU vote that will decide Osborne’s political future.

What we’ve just seen, then, was possibly the most short-term “long-term budget” in history. Bound to get the chattering classes chuntering (“G&T slimline, anyone?”), Osborne’s flab-fighting “sugar levy” was cynically tactical, broadening his appeal among non-Conservatives, while diverting attention from the statistical sleight of hand at the heart of this Budget. “Borrowing continues to fall,” the Chancellor told us. Really? It’s astonishing that, a full eight years after the financial crisis, and after a surge in growth and employment, the UK is still borrowing more than £72bn a year. Government debt stands at £1,591bn, 50pc up since Osborne took office, more than £50,000 per person in full or part-time employment. The Government is spending £46bn annually on interest payments alone – more than on defence – and that’s with interest rates at historic lows.

As the debt and rates spiral upwards, that interest bill can only rise, all at the expense of spending on services. Instead of cutting borrowing on Wednesday, the Budget fine print shows that, over the next three years, we’ll be adding another £116bn to our national debt – more than £36bn up on the borrowing projections in last November’s Autumn Statement. We’ll probably end up borrowing even more, of course, than these already gargantuan numbers, not least if growth is lower than forecast. Since last November, some £5 trillion has been wiped off global stock markets. Morgan Stanley now warns clients of a 30pc chance of global recession over the next year. Many financiers privately judge the chance of a financial collapse to be far higher. “As one of the most open economies in the world, the UK isn’t immune to global slowdowns and shocks,” Osborne told the Commons. Yet, over each of the next six years, the Budget borrowing projections rest on growth of 2pc or more. While I obviously hope that happens, it amounts to a mighty optimistic assumption.

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“Yellen has surrendered after achieving victory.”

Asia Cheers as Yellen Succumbs to Cry-Bullies (Barron’s)

Well, here’s another nice mess you’ve gotten us into, Janet. U.S. Fed Chair Janet Yellen left rates unchanged this week, and confided after the Fed’s two-day policy meeting that, despite continuing improvement in the U.S. economy, weak global economic growth and turbulent markets had spooked the Fed into halving the number of times it expects to raise rates this year, to two from four. Yellen’s capitulation is already producing a predictable whoop of jubilation in Asian markets, as it confirms this column’s observation that the hot money crowd has succeeded in cry-bullying global central bankers into keeping the punchbowl of cheap cash full to overflowing. Stocks in Shanghai and Hong Kong rose by more than 1%, while Philippine stocks were up almost 2%.

While it’s often the case that Asian stocks move reflexively with those on Wall Street, today it’s all about the U.S. dollar, which fell 1% against the Japanese yen and about 0.7% against the Euro. Even though Tokyo stocks are up, the Fed’s move is bad news for Japan and Europe as well as their respective central bankers, Haruhiko Kuroda and Mario Draghi. As this column explained yesterday, both gentlemen are working furiously to use a negative interest-rate policy to weaken their currencies, boost inflation and revive economic growth. Hearing that Yellen won’t be riding to the rescue soon with another rate hike will come as bad news to them. But it’s excellent news for Asia’s smaller markets, since investors hunting for higher yields can no longer count on getting more bang for the buck out of Yellen.

Indonesia’s rupiah, which has risen 6% already this year, gained another 0.8% after the Fed’s announcement. Malaysia’s ringgit – what corruption scandal? – rose 1% and South Korea’s won soared by 2.5%. Don’t get too excited. While a more reluctant Fed extends the risk-on rally for Asian assets, it does not bode well for investors looking for fundamental value or an upturn in corporate profitability. For starters, the Fed is once again behind the market. Even as they’ve kicked and screamed after the Fed ended a 10-year, zero interest-rate policy by raising rates last December, sending Asian stocks down roughly 15% by mid-February, investors are starting to adjust to the reality that the U.S. economy is not sinking into recession. Jobs and inflation are improving and markets that early this year were predicting no rate hike until 2017 were yesterday betting on another hike as early as July. Yellen has surrendered after achieving victory.

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Will exporters force Beijing to devalue?

China’s Exporters Struggle as Yuan Swings Disrupt Business (BBG)

The yuan’s swings are becoming a headache for the Chinese companies that should have been the biggest beneficiaries of last year’s devaluation. In rare overt comments, exporters including Midea and TCL are expressing apprehension about the nation’s exchange-rate policy. Two said the increased volatility has made it difficult to manage costs because customers are choosing to place only short-term orders, while a third said the yuan was allowed to strengthen far too much in the past few years. “Overseas clients are taking into account losses that can be caused by exchange-rate swings and are placing shorter-term orders with smaller volumes, which creates difficulty for our operations,” said Yuan Liqun, VP at Midea, China’s biggest maker of household appliances by market share.

“The fluctuations last year were relatively significant. Companies can accept a market-based yuan that moves within a reasonable range.” Exports slumped 25% in February from a year earlier and a gauge of overseas orders contracted for the 17th month in a row, while the currency’s volatility held near the highest levels since August’s shock devaluation. This illustrates the challenge facing Premier Li Keqiang as he balances the need to nudge the exchange rate lower to help an economy growing at the slowest pace in 25 years, while trying to avoid a run that would create financial instability. The currency, which has plunged 4.8% since last year’s devaluation, climbed in September and October, and dropped in the following three months before rebounding in February. It has strengthened 0.5% in March so far, almost wiping out this year’s losses. The wild swings contributed to an estimated $1 trillion in capital outflows last year.

The yuan, which Royal Bank of Canada says is currently overvalued, will face renewed selling pressure once the Federal Reserve decides to raise borrowing costs again. The median forecast in a Bloomberg survey of economists is for a drop of 4.1% by the end of the year. Its decline against the dollar in 2015 – the most in 21 years – masked a sixth straight annual gain against the exchange rates of China’s main trading partners, according to a BIS index. This shows that there is more room for depreciation, according to Fuyao Glass Industry, which makes automobile windows and whose clients include BMW and Volkswagen. “The yuan is strong, so Chinese companies can’t go abroad and most exporters are making losses,” Cho Tak Wong, chairman of Fuqing, Fujian-based Fuyao, said in an interview over the weekend. “China should allow the yuan to weaken. If the currency doesn’t depreciate, exports will be negatively influenced and export-focused firms will suffer.”

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“There were around 23.5 trillion yuan ($3.60 trillion) worth of WMPs outstanding at the end of 2015, up from around 15 trillion yuan a year earlier..”

China Banks Face Credit Risks From Ties To Wealth Management Products (CNBC)

Chinese banks are starting to create a web of risk through their wealth management products (WMPs), raising concerns about the health of the financial system just as China’s economic growth has slowed to its weakest pace in 25 years. Retail investors are the majority of buyers of WMPs, which offer higher interest rates than a bank deposit. But it isn’t always clear what assets the funds are buying to finance those payouts. The industry publishes aggregated data on where WMPs tend to invest, but the disclosures of individual products can be vague. Overall, WMPs tend to invest in the industrial sector as well as industries related to local government and real estate, according to Fitch. All of these are segments of the economy suffering from overcapacity.

Most WMPs – as many as 74% – don’t carry the issuing bank’s guarantee that investors will be made whole at the end of the product’s term, which is usually less than six months, Fitch said. But even if the products fail to meet performance expectations, banks may choose to repay investors anyway to avoid the spectacle of mom and pop protesters in front of its branches – something that occurred outside a Hua Xia Bank branch near Shanghai in 2012, according to a Reuters report. When the WMP’s performance isn’t up to snuff, it can become a risk for more than just the issuing bank. “The fear is that investments are in industries that might not be generating cash so when they come due, the cash to repay investors might not be there.

There’s always pressure to roll them over,” Jack Yuan, associate director for financial institutions at Fitch, said last week. Additionally, some banks are investing in other banks’ WMPs – those investments are usually on banks’ balance sheets in a category called “investments classified as receivables,” Yuan noted. “There are a lot of interlinkages in the banking sector in terms of banks investing in other banks’ WMPs and calling on the interbank market for funding if they do go bad,” he said. “It’s going to be more and more difficult to resolve these if they do go bad.” There were around 23.5 trillion yuan ($3.60 trillion) worth of WMPs outstanding at the end of 2015, up from around 15 trillion yuan a year earlier, Fitch noted, with around 3,500 new ones offered each week.

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“Peabody’s share price has fallen to under $2.50 from more than $1,300 in 2008.”

America’s No. 1 Coal Miner to Seek Bankruptcy Protection (WSJ)

Peabody Energy, the U.S.’s biggest coal miner, Wednesday posted a going-concern notice in a regulatory filing, warning of possible bankruptcy. A chapter 11 filing by Peabody, which operates 26 mines in the U.S. and Australia, would be the latest in a wave of bankruptcies to hit top American coal producers, including Arch Coal, Alpha Natural Resources, Patriot Coal and Walter Energy, as they wrestle with low energy prices, new regulations, and the conversion of coal-fired power plants to natural gas. Punctuating Peabody’s woes, the Energy Information Administration Wednesday said that 2016 “will be the first year that natural gas-fired generation exceeds coal generation.”

The EIA said Americans would get 33% of their electricity from gas in 2016, and 32% from coal. As recently as 2008, coal fed half of U.S. electricity consumption. The weakening demand is hurting markets. Coal prices have fallen 62% since 2011, and 18% in the past year, according to the EIA. That drop is crushing companies like Peabody. The company has now lost money in nine straight quarters, and in 2015 posted a $2 billion deficit. As of Dec. 31, it had $6.3 billion in debt and $261.3 million in cash. Peabody, whose biggest mining operations are in Wyoming, has also been weighed down by its ill-timed acquisition of Australia’s Macarthur Coal for $5.1 billion in 2011. Prices have been declining ever since. Company shares, which have already lost more than 95% of their value in the past 12 months, fell 44% in midday trading.

Peabody’s share price has fallen to under $2.50 from more than $1,300 in 2008. On Wednesday, Peabody pointed to uncertainty around global coal fundamentals, economic growth concerns of some major coal-importing nations and the potential for additional regulatory requirements on coal producers as reasons for its notice. Because of operating problems and other financial problems, “we may not have sufficient liquidity to sustain operations and to continue as a going concern,” the St. Louis-based miner said in a filing with the SEC. “We may need to voluntarily seek protection under chapter 11 of the U.S. bankruptcy code.” Peabody said it had delayed an interest-rate payment on two loans, triggering a 30-day grace period. If the payments aren’t made within 30 days, an event of default would be declared.

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Oh yeah!

Energy Sector Defaults Could Start Falling Like Dominoes (MW)

Energy-sector bond defaults – and for some producers, bankruptcy risks – are piling up and coal liabilities aren’t the only culprit. Oil-and-gas producers, suffering with low crude prices after a shale revolution made the U.S. a viable energy producer, are smothered under their own junk bonds. Small- and medium-sized U.S.-based producers, especially those that expanded with the shale boom, are most vulnerable; any small blip in oil prices may not be high enough or fast enough to protect all producers. And just this week at least two more have warned about their near-term future. It’s a climate that’s driven some of this sector’s high-yield paper to trade at 30 cents on the dollar or less.

Peabody Energy said Wednesday it filed a “going concern” notice with regulators. Peabody has opted to exercise the 30-day grace period with respect to a $21.1 million interest payment due March 16 on its 6.50% notes due in September 2020, as well as a $50 million interest payment due March 16 on its 10% senior secured second lien notes due in March 2022. Costs and lost business to tougher coal regulation were cited. But Linn Energy – which on Tuesday filed its own “going concern” after missed interest payments now in a grace period — is primarily an oil-and-gas producer with shale interests in western U.S. states. If it files for bankruptcy protection, its $10 billion in debt would make it the largest U.S. oil company to do so since oil prices began their sharp decline in 2014.

In all, about 40 oil and gas producers have filed for bankruptcy protection globally since 2014, according to a February report from Deloitte. Crude traded to 12-year lows, below $30 a barrel, in February before a recent, mild rebound. Energy consulting firm Rystad Energy says smaller players typically need a minimum $50-a-barrel oil price to make a profit. Last week, Fitch said it’s raising its 2016 forecast for U.S. high-yield bond defaults to 6% from 4.5%, and said it expects energy and materials issuers to default on $70 billion of debt this year, including $40 billion for energy alone. The new rate of default is the highest that Fitch has ever forecast during a non-recessionary period, beating the 5.1% it forecast for 2000.

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Might as well sell then, right?

Oil Investors See $7.4 Billion Vanish as Dividends Are Targeted (BBG)

The check is not in the mail. Bludgeoned by falling energy prices, at least a dozen oil and natural gas companies have opted to cut dividends this year to preserve cash, cannibalizing payouts considered sacrosanct by many investors. The cost to shareholders: more than $7.4 billion in lost income, compared to what they would have received this year if the payouts remained the same. It’s another painful measure – along with tens of thousands of layoffs and more than $100 billion in canceled investments – of the toll taken on the industry by the worst oil and gas price slump in decades. The quarterly payments, prized by conservative shareholders as a source of steady income, are unlikely to be restored any time soon. “It really reinforces the necessity of having a margin of safety if you are buying a stock primarily for its dividend,” said Josh Peters, editor of Morningstar’s DividendInvestor newsletter.

“What we have found for some of the energy companies is that the margin of safety was either slim or nonexistent.” Kinder Morgan’s 75% dividend cut was the biggest, amounting to a $3.44 billion loss for shareholders over the course of 2016. The announcement from North America’s largest pipeline operator “came as a shock to some people and obviously was deplored by some people,” founder and Executive Chairman Richard Kinder told analysts at a Jan. 27 meeting. The move was necessary to help the Houston-based company keep its investment-grade credit rating while ensuring it has enough money to pay debts and grow, Kinder said. Since the Dec. 8 announcement, shares have risen about 20%, compared with a 3% gain for the Alerian MLP stock index, which tracks energy infrastructure companies.

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It’s a miracle Pemex still exists.

Big-Oil Bailout Begins as Pemex’s Debt Spirals Down (WS)

Pemex, Mexico’s state-owned oil giant, cannot seem to get a break these days. It notched up 13 straight quarters of rising losses. It now owes over $80 billion to international investors and banks. It needs to raise $23 billion this year to stay afloat. The cost of servicing that gargantuan debt mountain continues to rise. So it tries desperately to rein in its spending, without tackling — or even discussing — its endemic culture of corruption. In recent days, Pemex received a 15 billion peso ($840 million) lifeline from three of Mexico’s homegrown development banks, Banobras, Bancomext and Nafinsa, to help the firm pay back some of its smallest providers, consisting mainly of domestic SMEs. The loan was part of an arrangement cobbled together between the banks and the Mexican government.

By today’s standards the amount involved is pretty meager, but the operation was about more than just raising funds: it was meant to restore confidence among both investors and suppliers in the firm’s ability to repay its debts. “This sends a sign of stability and confidence to the sector, which has been very nervous” payments would not be made, explained Erik Legorreta, President of the Mexican Oil Industry Association, which represents around 3,000 service providers. “Members of the industry now have the confidence and certainty that the payments will be honored.” Not everyone agrees. Last week the U.S. credit rating agency Moody’s flagged concerns that the loan will significantly increase the three banks’ combined exposure to Pemex’s debt, calculated to grow from 44% to 62%.

“The three lenders now have high concentration risks with their 20 biggest creditors,” cautioned Moody’s, which already downgraded Pemex’s debt in November to Baa1, with a negative outlook. In its report last week, the agency piled on the pressure by warning that there’s “a high likelihood” that it will downgrade Pemex’s rating another notch in the coming weeks. What this all means is that rather than restoring investor confidence in Pemex, the loan operation has merely served to reinforce investors’ fears that lending to the debt-laden oil giant is fast becoming a very dangerous risk.

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We’ll see more of this.

Munich Re Rebels Against ECB With Plan To Store Cash In Vaults (BBG)

Munich Re is resorting to the corporate equivalent of stuffing notes under the mattress as the world’s second-biggest reinsurer seeks to avoid paying banks to hold its cash. The German company will store at least €10 million in two currencies so it won’t have to pay for the right to access the money at short notice, Chief Executive Officer Nikolaus von Bomhardsaid at a press conference in Munich on Wednesday. “We will also observe what others are doing to avoid paying negative interest rates,” he said. Institutional investors including insurers, savings banks and pension funds are debating whether to store cash in vaults as overnight deposit rates fall deeper below zero and negative yields dent investment returns. The costs associated with insurance and logistics may outweigh the benefits of taking this step.

Munich Re’s move comes after the ECB last week cut the rate on the deposit facility, which banks use to park excess funds, to minus 0.4%. Munich Re’s strategy, if followed by others, could undermine the ECB’s policy of imposing a sub-zero deposit rate to push down market credit costs and spur lending. Cash hoarding threatens to disrupt the transmission of that policy to the real economy. Munich Re wants to test how practical it would be to store banknotes having already kept some of its gold in vaults, von Bomhard said. This comes at a time when consumers are increasingly using credit cards and electronic banking to pay for transactions. Deutsche Bank CEO John Cryan in January predicted the disappearance of physical cash within a decade. Munich Re also said on Wednesday that it expects its profit to decline this year as falling prices for its products and low interest rates weigh on investment earnings.

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UK rules!

Netherlands Votes To Ban Weapons Exports To Saudi Arabia (Ind.)

The Dutch parliament has voted to ban arms exports to Saudi Arabia in protest against the kingdom’s humanitarian and rights violations. It sees the Netherlands become the first EU country to put in practice a motion by the European Parliament in February urging a bloc-wide Saudi arms embargo. The bill, voted through by Dutch MPs on Tuesday, quoted UN figures which suggest almost 6,000 people – half of them civilians – have been killed since Saudi-led troops entered the conflict in Yemen. It also cited the mass execution of 47 people, largely political dissidents, ordered by the Saudi judiciary on 2 January this year.

According to Reuters, the Dutch bill asks the government to implement a strict weapons embargo that includes dual-use exports which could potentially be used to violate human rights. The vote adds to the growing pressure on Britain, one of the main arms suppliers to Riyadh, to reconsider its stance. According to Campaign Against Arms Trade figures from the start of the year, the UK has sold more than £5.6 billion worth of weapons to the Saudi government under David Cameron. France is the other major European supplier of arms to the Saudi kingdom. Germany’s exports amounted to almost £140 million in the first six months of 2015, while figures for the Netherlands itself were not available.

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Has this changed their policy yet?

Austria’s Highest Court Proclaims Asylum Cap Illegal (NE)

Austria’s asylum cap to 37,500 refugees has been declared unlawful by the country’s Constitutional Court on Tuesday, March 15. While Chancellor Werner Faymann is calling on Germany to introduce its own cap, the president of Austria’s Constitutional Court, Gerhart Holzinger, stated that Austria is obliged to grand asylum to everyone that meets the legal requirements. Vienna allows 80 asylum seekers per day and allows 3,200 to transit to Germany. Meanwhile, the Austrian Defense Minister, Peter Doskozil, suggested on Tuesday that the EU should help the Former Yugoslav Republic of Macedonia (FYROM) – an EU candidate state – to secure its borders with Greece, an EU member state. Doskozil praised the government in Skopje for the work it has done “for the whole of the EU.” Austria’s Vice-President, Reinhold Mitterlehner, reiterated that “the Balkan route must stay closed.”

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How the EU sees this: “We have a week to build a Greek state..” Insane, but true. It smells like the efficiency goal of German camps 70 years ago. If you don’t put people first, you’re going to get it wrong.

Huge Challenges Await EU’s Refugee Plan (FT)

On paper the EU’s latest migration plan promises a straightforward solution to a crisis that has vexed European leaders for months. But in practice, it is anything but simple. By returning thousands of migrants to Turkey, Brussels and Berlin are hoping that others will become convinced the route is now impassable and join a formalised system instead. But its implementation poses an enormous administrative test, with little time to prepare. One of the EU’s weakest states, Greece, will be asked to play a central role. “We have a week to build a Greek state,” joked one senior EU official intimately involved with the planning. Frans Timmermans, the European Commission vice-president, acknowledged: “You don’t need to tell me that this is going to be very complicated in legal and logistical terms.” Here are five Herculean tasks ahead:

Preparing the ground — legally and literally Europe’s return plan violates Greek law. To address this, Greece must overhaul its asylum laws in a matter of days to enshrine Turkey as a “safe third country” to receive asylum seekers. The next step is harder: clearing the backlog. There are around 8,000 migrants on Greek islands, such as Lesbos and Chios. Officials say they ideally need to be moved before the so-called “X Day” -as early as Friday- when the returns policy officially begins. Yet Greek facilities are strained. Shelter is lacking on the mainland, where almost 40,000 migrants are already stranded. Mixing the groups — those who are trapped in Greece, awaiting relocation to Europe, and those who will be sent straight back to Turkey – could get ugly.

Creating a functioning asylum system in Greece “Unacceptable”, “degrading” and “unsanitary” were a few of the words used to describe Greece’s asylum system when the European Court of Human Rights banned other EU members from sending asylum seekers there in 2011. Yet the Greek system will now be the fulcrum of the EU’s deal with Turkey. Greece is the place where thousands of asylum seekers will land, be processed, housed and then returned to Turkey. This will require more manpower, particularly on the Aegean Islands. Everyone from judges -estimates range from 50 to 200- to a small army of Arabic or Pashto translators are required. “We’re far away from having the people, let alone trained people,” said one European official involved in preparations.

An asylum seeker’s claim is supposed to take a week to process, according to the EU plan. But the legal hoops are multiplying as Brussels attempts to guard against court challenges. This requires an assessment of each individual case and an interview. Applications must be dealt with fast – but not too fast. (In October, the European Commission criticised Budapest for rejecting applications in under an hour.) Most difficult is the appeals procedure, which must be heard by a judge. If Greece fails to jump through any of these legal hoops then judges in Greece, Luxembourg or Strasbourg could strike down the agreement. “That would bring the whole system to a halt,” said one senior EU official.

Managing unco-operative migrants So-called “hotspots” in Greece were first promised in September, yet these registration and sorting centres are only now taking shape. They can accommodate around 8,050 arrivals, according to the European Commission. Yet their role is about to change drastically. For a returns policy to work efficiently, hotspots must not simply register migrants but detain them. The centres will become containment facilities, according to EU plans, from which migrants who are about to be returned cannot escape. That requires more fences, more overnight shelter and more security guards. This is a horrible challenge. The UNHCR survey of Syrian refugees in February found almost half to be children. Some detainees will be desperate and angry at the prospect of return, having just risked their lives on a sea journey that possibly cost their life savings. The risk of disorder is high.

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Isn’t that a crazy headline, given that less than 1000 of 160,000 have actually been resettled?!

EU Prepares To Scale Back Resettlement Of Syrian Refugees (Guardian)

The EU is preparing to scale back the number of Syrian refugees offered resettlement in Europe, as part of a controversial pact being drawn up with Turkey. The bloc’s 28 leaders will hold a summit in Brussels on Thursday, before a meeting the Turkish prime minister, Ahmet Davutoglu on Friday, to hammer out the final details of a plan aimed at stemming the flow of refugees and migrants coming to Europe. The EU has pledged to resettle Syrian refugees currently in Turkey, but figures that emerged on Wednesday suggested only 72,000 places would be available, with uncertainty about the bloc’s commitment beyond this number. As the UNHCR stepped up calls for a coordinated approach to manage the number of people, European diplomats were scrambling to finalise a deal with Turkey.

Under a proposed “one-for-one” scheme, for every Syrian refugee in Turkey who is resettled in Europe, a Syrian in Greece would be sent back across the Aegean. The vast majority of refugees and migrants in Greece can also expect to be sent back to Turkey. When these broad principles were agreed at an EU-Turkey summit 10 days ago, the numbers were vague but details are now emerging. Of the 72,000 places identified by the Commission for Syrian refugees, 18,000 places would be available under a voluntary resettlement scheme agreed last year. A further 54,000 places may be available “if needed” under a separate scheme designed to spread asylum seekers more evenly around the bloc, although this would require a change to EU law.

Frans Timmermans, vice-president of the European commission, said the EU would continue to help after these places were used up. It pointed to “a coalition of the willing”, made up of EU member states including Germany and Austria, who have pledged to resettle Syrians once irregular arrivals had stopped. “When we succeed in breaking the pattern of irregular arrivals one-for-one will not become none-for-none,” Timmermans said. But the various EU schemes to rehouse refugees are painfully slow. A plan to find homes for 160,000 refugees has led to only 937 being resettled, according to the latest data. Several countries are concerned that the Turkey deal could mean large-scale resettlement of Syrians in Europe.

A senior EU official said there “cannot be an open-ended commitment on the EU side”. The numbers discussed indicate that the EU wants to scale back help in Europe offered to refugees. Syrians in Greece will go to the back of the queue for resettlement in Europe once they are returned to Turkey. “Priority will be given to Syrians who have not previously entered the EU irregularly,” states an unpublished draft. The commission argues the plan will kill the business model of people smugglers, as potential migrants will have no incentive to come to Europe if they think they will be turned away. But the UN’s human rights chief has warned that the EU risks compromising its human rights values if it cuts corners on asylum standards.

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As the Balkan borders close, refugees will use new routes and old ones. At an even higher risk.

Three Migrants Dead As 2,400 Rescued Off Libya (AFP)

More than 2,400 migrants and three corpses have been recovered from people smugglers’ boats off Libya since Tuesday, Italy’s coastguard said Wednesday. After several quiet weeks, the figures represent a pick-up in the flow of migrants attempting to reach Italy via Libya, a route through which around 330,000 people have made it to Europe since the start of 2014. Prior to the latest rescues, the UN refugee agency (UNHCR) had reported 9,500 people landing at Italian ports since the start of the year. This compares with more than 143,000 who have reached Greek islands by crossing the Aegean Sea since January 1.

With efforts underway to close the entry route through Greece, Italian authorities are wary of a surge in the number of migrants attempting to come through Libya. So far there has been no indication of that happening. Numbers arriving from Libya have always fluctuated in line with weather conditions in the Mediterranean and other factors. Arrivals were slightly down in 2015 compared with 2014 – a trend that may be related to the political chaos in Libya which might have deterred some migrants and has made it harder for those that do make the journey to find work there while awaiting boats to Italy.

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