Jan 282019
 
 January 28, 2019  Posted by at 11:29 am Finance Tagged with: , , , , , , , , , , , ,  


Pablo Picasso Bust of woman with arms raised 1922

 

US Sanctions On Venezuela Are Killing Citizens – Former UN Rapporteur (Ind.)
PBOC Fixes Yuan Dramatically Stronger Following Gold Spike (ZH)
China’s Real Estate Loan Growth Slows Further In 2018 (CNBC)
Britain’s Biggest Lender To Offer 100% Mortgages To First-Time Buyers (G.)
UK Cannot Simply Trade On WTO Terms After No-Deal Brexit (G.)
May To Seek Binding Changes To Irish Backstop – Boris Johnson (R.)
Ireland Stresses It Will Not Yield On Brexit Backstop (G.)
UK Military Bases Stockpiling To Prepare For No-Deal Brexit (Sky)
Brexit Exposes Growing Fractures In UK Society (G.)
In Germany’s Plan To Phase Out Coal, A Big Polluter Will Benefit (BBG)

 

 

Picked up these numbers last week on Twitter. Chavez announced cancer in late 2012, died early 2013. Oil prices only explain a smal part of it. Economic warfare does the rest.

@spectatorindex – Venezuela GDP growth.
2012: 5.6%
2013: 1.3%
2014: -3.9%
2015: -6.2%
2016: -17%
2017: -15%
2018: -16%

US Sanctions On Venezuela Are Killing Citizens – Former UN Rapporteur (Ind.)

The first UN rapporteur to visit Venezuela for 21 years has told The Independent the US sanctions on the country are illegal and could amount to “crimes against humanity” under international law. Former special rapporteur Alfred de Zayas, who finished his term at the UN in March, has criticized the US for engaging in “economic warfare” against Venezuela which he said is hurting the economy and killing Venezuelans. The comments come amid worsening tensions in the country after the US and UK have backed Juan Guaido, who appointed himself “interim president” of Venezuela as hundreds of thousands marched to support him. European leaders are calling for “free and fair” elections. Russia and Turkey remain Nicolas Maduro’s key supporters.

Mr De Zayas, a former secretary of the UN Human Rights Council (HRC) and an expert in international law, spoke to The Independent following the presentation of his Venezuela report to the HRC in September. He said that since its presentation the report has been ignored by the UN and has not sparked the public debate he believes it deserves. “Sanctions kill,” he told The Independent, adding that they fall most heavily on the poorest people in society, demonstrably cause death through food and medicine shortages, lead to violations of human rights and are aimed at coercing economic change in a “sister democracy”. On his fact-finding mission to the country in late 2017, he found internal overdependence on oil, poor governance and corruption had hit the Venezuelan economy hard, but said “economic warfare” practised by the US, EU and Canada are significant factors in the economic crisis.

In the report, Mr de Zayas recommended, among other actions, that the International Criminal Court investigate economic sanctions against Venezuela as possible crimes against humanity under Article 7 of the Rome Statute. The US sanctions are illegal under international law because they were not endorsed by the UN Security Council, Mr de Zayas, an expert on international law and a former senior lawyer with the UN High Commissioner for Human Rights, said. “Modern-day economic sanctions and blockades are comparable with medieval sieges of towns. “Twenty-first century sanctions attempt to bring not just a town, but sovereign countries to their knees,” Mr de Zayas said in his report.

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Xi remains nervous.

PBOC Fixes Yuan Dramatically Stronger Following Gold Spike (ZH)

PBOC fixed the yuan dramatically stronger against the dollar overnight, sending offshore yuan surging to its strongest against the dollar in six months. While the Chinese currency is reportedly strengthening on the heels of trade talks optimism (which is entirely the opposite of the rhetoric coming out of Washington), we note that this was the biggest positive shift in the yuan fix in 19 months…

Notably, the yuan is strengthening considerably more against the dollar than it is against the broad basket of trade partner currencies…Shanghai Accord 2.0? And coincidentally, the surge in yuan comes the day after gold prices broke out higher… Perhaps the PBOC’s aggressive action was prompted to manage the Yuan peg against gold back into balance?

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If you look closer, nothing seems very dramatic. But real estate has become such a huge part of the economy that Beijing must weigh curbing risks vs continued growth.

It’s also the speed with which this has happened. 10 years ago Chinese didn’t borrow for homes. It’s literally been used to mitigate the financial crisis.

China’s Real Estate Loan Growth Slows Further In 2018 (CNBC)

Loans to China’s property sector grew at a slower pace in 2018 as Beijing tightened home-purchase rules to curb bubble risk, but lending to property developers expanded slightly faster than the year before, central bank data showed on Friday. Outstanding yuan property loans grew 20% from a year earlier to 38.7 trillion yuan ($5.72 trillion) by end-December, compared with 20.9% growth in 2017, the PBOC said in a quarterly financial report. Outstanding mortgage lending climbed 17.8% year-on-year to 25.75 trillion yuan by the end of 2018, below a 22.2% rise in 2017, central bank data showed.

Policymakers have vowed to ensure “stable and healthy” development of the property market, repeatedly emphasizing that homes are for living in, not speculative investment. The government’s sustained drive to reduce debt risks in the economy has cooled the property market but a continued downturn in credit growth in the sector could add to growing pressures on the world’s second-largest economy. The real estate sector is a key driver of economic growth, so any further weakness could influence the pace and scope of fresh stimulus steps expected from Beijing this year.

Property investment is also looking wobbly, with analysts waiting to see if the government will risk loosening restrictions on home buyers that have kept speculation in check. Real estate investment in December rose 8.2% from a year earlier, down from 9.3% in November, according to Reuters calculations based on data released by the National Bureau of Statistics. That was just ahead of the slowest pace of growth last year at 7.7% recorded for October. Developers raised their borrowings last year though, with loans extended for property development up 22.6% in 2018 versus growth of 21.7% in 2017, the report showed. The central bank also said outstanding household loans jumped 18.2% to 47.9 trillion yuan by end-2018.

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How much can Brexit hurt the British? A lot, we must assume. Then again, if you fall for this stuff at this moment in time, maybe you deserve what’s coming. How about a crisis worse than the 1930s?

Britain’s Biggest Lender To Offer 100% Mortgages To First-Time Buyers (G.)

Britain’s biggest lender is to offer 100% mortgages to first-time buyers in a return to lending last seen before the financial crash – but only if the buyer has family that can stand behind the loan. Under the new Lloyds Bank “Lend A Hand” deal, a first-time buyer will be able to borrow up to £500,000 for a new home, without putting down a penny of deposit. The Lloyds move marks a major expansion into the first-time buyer market, as most other mainstream lenders demand a minimum deposit worth 5% of the property purchase price, although Barclays has offered a similar “family springboard” deal. Lloyds has priced the mortgages to undercut the Barclays offer.

The deal – part of what Lloyds said is a £30bn commitment to help first-time buyers – will reopen concern about a two-tier market where buyers with well-off families can elbow aside those without. Saving for a deposit is usually cited by first-time buyers as the biggest hurdle to home ownership. Lloyds said the average deposit put down by first-time buyers has climbed to £33,211, and a staggering £110,182 in London. The Lloyds deal requires that a member of the family – such as parent, grandparent or close relative – helps out. The bank will only grant the 100% mortgage if the family member puts a sum equal to 10% of the value of the property into a Lloyds savings account.

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“The anticipated recession will be worse than the 1930s, let alone 2008.”

UK Cannot Simply Trade On WTO Terms After No-Deal Brexit (G.)

The UK will be unable to have frictionless, tariff-free trade under World Trade Organization rules for up to seven years in the event of a no-deal Brexit, according to two leading European Union law specialists. The ensuing chaos could double food prices and plunge Britain into a recession that could last up to 30 years, claim the lawyers who acted for Gina Miller in the historic case that forced the government to seek parliament’s approval to leave the EU. It has been claimed that the UK could simply move to WTO terms if there is no deal with the EU. But Anneli Howard, a specialist in EU and competition law at Monckton Chambers and a member of the bar’s Brexit working group, believes this isn’t true. “No deal means leaving with nothing,” she said. “The anticipated recession will be worse than the 1930s, let alone 2008.

It is impossible to say how long it would go on for. Some economists say 10 years, others say the effects could be felt for 20 or even 30 years: even ardent Brexiters agree it could be decades.” The government’s own statistics have estimated that under the worst case no-deal scenario, GDP would be 10.7% lower than if the UK stays in the EU, in 15 years. There are two apparently insurmountable hurdles to the UK trading on current WTO tariffs in the event of Britain crashing out in March, said Howard. Firstly, the UK must produce its own schedule covering both services and each of the 5,000-plus product lines covered in the WTO agreement and get it agreed by all the 163 WTO states in the 32 remaining parliamentary sitting days until 29 March 2019. A number of states have already raised objections to the UK’s draft schedule: 20 over goods and three over services.

To make it more complicated, there are no “default terms” Britain can crash out on, Howard said, while at the same time, the UK has been blocked by WTO members from simply relying on the EU’s “schedule” – its existing tariffs and tariff-free trade quotas. The second hurdle is the sheer volume of domestic legislation that would need to be passed before being able to trade under WTO rules: there are nine statutes and 600 statutory instruments that would need to be adopted. The government cannot simply cut and paste the 120,000 EU statutes into UK law and then make changes to them gradually, Howard said. “The UK will need to set up new enforcement bodies and transfer new powers to regulators to create our own domestic regimes,” she said.

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Fast and loose with Good Friday.

May To Seek Binding Changes To Irish Backstop – Boris Johnson

Prime Minister Theresa May will seek legally binding changes to the Irish backstop from the European Union in an attempt to break the deadlock over Brexit, lawmaker Boris Johnson wrote in The Telegraph on Sunday, citing senior government sources. The PM is looking to change the text of the agreement to insert either a sunset clause or a mechanism for the UK to escape without reference to the EU, Boris Johnson said in The Telegraph. The contentious backstop arrangement is designed to prevent a hard border between Ireland and the UK province of Northern Ireland by requiring Britain to keep some EU rules if it was unable to agree a trade deal with the bloc. Ireland said earlier on Sunday it would not accept any changes to the backstop agreement.

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The backstop will be May’s major point of contention this week. Stop her! There’s already talk of reinserting issues in the deal that have already been thrown out.

Ireland Stresses It Will Not Yield On Brexit Backstop (G.)

Ireland has launched a last-minute effort to warn Theresa May off any attempt to unravel the backstop, two days before a crucial Commons debate that may decide the next move for the UK’s rudderless Brexit policy. Simon Coveney, the Irish foreign minister and deputy prime minister, insisted the backstop – the mechanism to ensure there will be no hard border between the Irish Republic and Northern Ireland if Britain and the EU fail to strike a free trade deal – was “part of a balanced package that isn’t going to change”. In a forceful interview, he insisted it was only part of the withdrawal agreement because of the UK’s red lines.

On Tuesday Tory Brexiters may get the chance to vote for amendments that would signal their willingness to back May’s Brexit deal subject to the backstop’s either being removed or time-limited. Ministers have not formally backed any of the anti-backstop amendments, which are incompatible with the deal that May agreed with UK leaders, but if one were to pass by a majority, she would be able to present the EU with a firm idea of what changes might get her deal through parliament – something that as yet remains unclear to Brussels. In an interview with BBC One’s The Andrew Marr Show, Coveney said he did not see the need for further compromise because “the backstop is already a compromise”.

Although originally Northern Ireland-specific, it was made UK-wide at the request of May, he said. “And the very need for the backstop in the first place was because of British red lines that they wanted to leave the customs union and single market,” he said.

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Many Brits are so poor they can’t even think of stockpiling.

UK Military Bases Stockpiling To Prepare For No-Deal Brexit (Sky)

Britain has begun stockpiling food, fuel, spare parts and ammunition at military bases in Gibraltar, Cyprus and the Falklands in case of a no-deal Brexit, Sky News has learnt. Extra supplies are also being built up at bases in the UK to reduce the risk of the armed forces running short and being unable to operate if it suddenly becomes much harder to import and export day-to-day goods after 29 March. Military chiefs have spent at least £23m on what is being described as “forward-purchased” goods, Sky News understands. The move is part of contingency planning by the government – codenamed Operation Yellowhammer – to reduce disruption if Britain departs from the European Union without an agreement, according to three defence sources.

“An army marches on its stomach. If supply lines breakdown they struggle,” one source said. Any blockage in the flow of food and other vital items to Britain’s military bases overseas could impact on operations and affect thousands of soldiers, sailors and airmen. There is a concern that supplies delivered to British troops in the rest of Europe – the UK has a permanent presence in Cyprus and a base on the British overseas territory of Gibraltar, which shares a border with Spain – could be impacted, according to the sources.

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We haven’t seen any of it yet.

Brexit Exposes Growing Fractures In UK Society (G.)

Britons have become angrier since the referendum to leave the EU, according to a survey which suggests there is widespread unhappiness about the direction in which the country is heading. 69 per cent of respondents said they felt their fellow citizens had become “angrier about politics and society” since the Brexit vote in 2016, according to the Edelman Trust Barometer, a long-established, annual survey of trust carried out across the globe. 40 per cent of people think others are now more likely to take part in violent protests, the UK results from the survey show, even though violent political protest in Britain is rare.

One person in six said they had fallen out with friends or relatives over the vote to leave the bloc, the survey found. Edelman, which said the findings exposed a “disUnited Kingdom”, found widespread concern about where the government was heading, particularly among those who voted remain, and those who backed Labour. Overall, about 65% of Britons think the country is “on the wrong track”, the survey suggests. Amongst remain voters the figure is 82%, but even among leave voters the figure is 43%. Some 60% of people who identify with the Conservatives think the country is heading in the right direction, but among Labour identifiers, the figure is just 20%.

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The coal phase-out is part of a 500 billion-euro switch away from fossil fuels and toward renewables..

Compensating coal-mining regions & consumers for higher electricity prices expected to cost German taxpayer up to €78bn.

But across the border lies Italy, and next to it Greece. How are they going to pay for such a switch? And if they don’t, what’s the use of Germany doing it?

In Germany’s Plan To Phase Out Coal, A Big Polluter Will Benefit (BBG)

A proposal to stop Germany from using coal for power generation within two decades may leave an unexpected beneficiary: The company that burns the most of the fuel. While RWE AG was quick to say it’s “too soon” to shed all fossil fuel plants by 2038, the recommendations outlined this weekend by a panel advising Chancellor Angela Merkel called for compensation for the utilities and 40 billion euros ($45.6 billion) for regions coping with the transition. Together, the measures would significantly soften the blow on industry from Merkel’s vow to scale back greenhouse gases. They show how far the government has moved away from a quick clampdown on the most polluting fossil fuel and give more certainty for the future of some of RWE’s most valuable assets.

And while the proposals could yet be watered down by politicians, they signal a longer life for many of the utility’s plants than environmentalists had hoped for. “We believe that clarity, compensation payments, and a relatively long phase-out period should trigger a re-rating for the company’s conventional power generation,” said Guido Hoymann, an analyst at the private bank B. Metzler Seel. Sohn & Co. KGaA who added RWE to a list of top 10 German stocks.

Germany’s 120 or so remaining coal and lignite plants have a combined capacity of about 45 gigawatts. That’s enough to feed 40 percent of the nation’s power demand or about 32 million homes. Germany is already falling short on its targets to slash greenhouse gas emissions and sees closing coal plants as one of the most important ways to make the reductions needed. The coal commission includes members from the main political parties, environmental groups and industry charged with developing a consensus that Germany can live with for years to come.

Read more …

Jul 022018
 
 July 2, 2018  Posted by at 9:07 am Finance Tagged with: , , , , , , , , , , , ,  


Roy Lichtenstein Woman in Bath 1963

 

When Politics Trumps Economics (Roach)
Update on Deflating Property Bubbles in Sydney & Melbourne (WS)
EU Warns US Of $294 Billion Hit If Car Tariffs Imposed (R.)
Key Merkel Ally Seehofer ‘Announces Intention To Resign’ Over Migration (G.)
Competing Visions Of Europe Are Threatening To Tear The Union Apart (G.)
Leftist ‘AMLO’ Sweeps To Mexican Presidency (AFP)
Axios Leaks Trump Bill To Blow Up World Trade Organization (ZH)
UK To Announce Third Post-Brexit Customs Model (BBC)
The Supreme Court Has Already Reshaped America (G.)
Australian Plastic Bag Ban Sparks Abuse, Violence From Angry Shoppers (Ind.)
New Zealand Most Perilous Place For Seabirds Due To Plastic Pollution (G.)

 

 

All economics is politics.

When Politics Trumps Economics (Roach)

With each passing day, it becomes increasingly evident that US President Donald Trump’s administration cares less about economics and more about the aggressive exercise of political power. This is obviously a source of enormous frustration for those of us who practice the art and science of economics. But by now, the verdict is self-evident: Trump and his team continue to flaunt virtually every principle of conventional economics. Trade policy is an obvious and essential case in point. Showing no appreciation of the time-honored linkage between trade deficits and macroeconomic saving-investment imbalances, the president continues to fixate on bilateral solutions to a multilateral problem – in effect, blaming China for America’s merchandise trade deficits with 102 countries.

Similarly, his refusal to sign the recent G7 communiqué was couched in the claim that the US is like a “piggy bank that everybody is robbing” through unfair trading practices. But piggy banks are for saving, and in the first quarter of this year, America’s net domestic saving rate was just 1.5% of national income. Not much to rob there! The same can be said of fiscal policy. Trump’s deficit-busting tax cuts and increases in government spending make no sense for an economy nearing a business-cycle peak and with an unemployment rate of 3.8%. Moreover, the feedback loop through the saving channel only exacerbates the very trade problems that Trump claims to be solving.

With the Congressional Budget Office projecting that federal budget deficits will average 4.2% of GDP from now until 2023, domestic saving will come under further pressure, fueling increased demand for surplus saving from abroad and even bigger trade deficits in order to fill the void. Yet Trump now ups the ante on tariffs – in effect, biting the very hand that feeds the US economy.

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A real threat to the entire Aussie economy.

Update on Deflating Property Bubbles in Sydney & Melbourne (WS)

In Sydney, Australia’s largest property market and Petri dish for one of the world’s biggest housing bubbles, home prices fell 4.6% in June compared to a year ago, with house prices down 6.2%, and prices of condos (“units” as they’re called) down 0.7%, according to CoreLogic. The most expensive sector got hit the hardest: in the top quartile of home sales, prices fell 7.3%. In the nine months since the peak in September, the overall Daily Home Value Index has fallen 5.0%. But it had been one heck of a boom in Sydney, where home prices had jumped over 80% from the end of 2009 through the peak in September last year. Even during the big-bad Global Financial Crisis, they’d only dipped 4.6%.

So the market is changing, and the denying has stopped. Australian banks are getting put through the wringer by the Royal Commission with ongoing revelations of an ever longer list of misdeeds, particularly in the mortgage sector. The Australian Prudential Regulation Authority (ARPA), which is supposed to regulate the financial services industry, put in place some macroprodential measures to tamp down on the housing bubble, and they’re finally having an impact. Banks are suddenly focusing on borrowers’ debt-to-income ratios and other specifics, rather than just the assurance that home prices will always rise. They’re under investigation, and they’re tightening credit. And investors – a huge force in the market – have suddenly lost their appetite for property speculation, and banks have lost their appetite for funding them.

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Just make all tariffs the same.

EU Warns US Of $294 Billion Hit If Car Tariffs Imposed (R.)

The European Union has warned the United States that imposing import tariffs on cars and car parts would harm its own automotive industry and likely lead to counter-measures by its trading partners on $294 billion of U.S. exports. In a 10-page submission to the United States Commerce Department sent last Friday, the European Union said tariffs on cars and car parts were unjustifiable and did not make economic sense. he Commerce Department launched its investigation, on grounds of national security, on May 23 under instruction from President Donald Trump, who has repeatedly criticised the EU over its trade surplus with the United States and for having higher import duties on cars. The EU has a 10% levy, compared to 2.5% for cars entering the United States.

Trump said last week that the government was completing its study and suggested the United States would take action soon, having earlier threatened to impose a 20% tariff on all EU-assembled cars. The bloc exported 37.4 billion euros (33.10 billion pounds) of cars to the United States in 2017, while 6.2 billion euros worth of cars went the other way. The European Union says that for some goods, such as trucks, U.S. import duties are higher. In its submission, the EU said that EU companies make close to 2.9 million cars in the United States, supporting 120,000 jobs – or 420,000 if cars dealerships and car parts retailers are included. [..] Assuming counter-measures along the lines of those taken in response to existing U.S. import tariffs on steel and aluminium, up to $294 billion of U.S. exports – 19% of overall U.S. exports – could be affected, the submission said.

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One last chance for Merkel.

Key Merkel Ally Seehofer ‘Announces Intention To Resign’ Over Migration (G.)

The future of Germany’s coalition government is hanging in the balance after the country’s interior minister reportedly announced his intention to resign over a migration showdown with Angela Merkel. Horst Seehofer, who is also leader of the Christian Social Union, on Sunday night offered to step down from his ministerial role and party leadership in a closed-door meeting in which he and fellow CSU leaders had debated the merits of the migration deal Merkel hammered out with fellow European Union leaders in Brussels. But with CSU hardliners believed to have tried to talk the combative interior minister into staying, a press conference was postponed until Monday, with Seehofer seeking to go back to Merkel in search of a final compromise.

At a 2am media conference, Seehofer said he had agreed to meet again with Merkel’s party before he made his decision final. “We’ll have more talks today with the CDU in Berlin with the hope that we can come to an agreement,” Seehofer said. “After that, then we will see.” In the short term, Seehofer’s resignation would appear to be a let-up for a beleaguered Merkel, removing a politician who has become the chancellor’s biggest nemesis inside her own government since taking up his post at the interior ministry in March. But if Seehofer were to resign and his replacement continue an adversarial approach, it would threaten to bring an end to the historic alliance between Merkel’s party, the Christian Democratic Union, and the Bavarian CSU, pushing the chancellor’s coalition government to the brink of collapse.

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Germany has dictated policies far too long.

Competing Visions Of Europe Are Threatening To Tear The Union Apart (G.)

[..] three competing visions have emerged. The first is Merkel’s idea of a “competitive” Europe. Under her “leadership” since the euro crisis began in 2010, the EU has increasingly become a vehicle for imposing market discipline on member states. It is in the name of this idea of a competitive Europe that, led by Germany, austerity has been imposed on debtor countries in the eurozone. In other words, although it is expressed in pro-European terms and involves further integration, it is essentially a neoliberal vision.

The second vision is the French president Emmanuel Macron’s idea of a “Europe qui protège”, a Europe that protects. Macron envisages an EU in which there would be greater solidarity between citizens and between member states. In practice, this means more redistribution and risk-sharing in the eurozone – the “transfer union” that Germany and other creditor countries fear. This is a centre-left vision of Europe – although in France, because Macron has implemented structural reforms in an attempt to gain credibility in Berlin, he is himself increasingly perceived as neoliberal.

The third vision is the Hungarian prime minister Viktor Orbán’s idea of a “Christian” Europe of sovereign states. His vision first emerged in response to the attempt, led by Germany, to force EU member states to accept mandatory quotas of refugees in 2015, but it has developed into a broader critique of the European project. Orbán defines himself as an “illiberal democrat” in opposition to what he sees as the undemocratic liberalism of the EU. His vision is shared not just by the Law and Justice party government in Poland but also by far-right parties in other EU member states.

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Good luck. Mexico is such a mess. But they might beat Brazil today in the World Cup.

Leftist ‘AMLO’ Sweeps To Mexican Presidency (AFP)

Anti-establishment leftist Andres Manuel Lopez Obrador swept to victory in Mexico’s presidential election Sunday, in a political sea change driven by voters’ anger over endemic corruption and brutal violence. The sharp-tongued, silver-haired politician known as “AMLO” won 53% of the vote, according to an official projection of the results. It is the first time in Mexico’s modern history a candidate has won more than half the vote in a competitive election, and a resounding rejection of the two parties that have governed the country for nearly a century. “This is a historic day, and it will be a memorable night,” Lopez Obrador said in a victory speech in Mexico City’s Alameda park, as thousands of ecstatic supporters flooded the capital’s central district, chanting “Yes we did!” and partying to mariachi music.

Lopez Obrador, 64, sought to downplay fears of radicalism, after critics branded him a “tropical Messiah” who would install Venezuela-style policies that could wreck Latin America’s second-largest economy. “Our new national project seeks an authentic democracy. We are not looking to construct a dictatorship, either open or hidden,” he told cheering supporters, promising to safeguard freedoms, respect the private sector and work to reconcile a divided nation. He also vowed to pursue a relationship of “friendship and cooperation” with the United States, Mexico’s key trading partner – a change in tone from some comments during the campaign, when he said he would put US President Donald Trump “in his place.”

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Better to reorganize it?!

Axios Leaks Trump Bill To Blow Up World Trade Organization (ZH)

Following the close of a second quarter that will be best remembered by President Trump’s vacillations on trade, Axios has dropped a Sunday night bombshell that may spook markets hoping for a respite from the daily escalating trade war rhetoric as the second half of the year begins: White House reporter Jonathan Swan has obtained a copy of a draft bill, purportedly ordered by Trump himself, that would allow the US to “walk away” from its commitments to the World Trade Organization. If passed, the bill (entitled the “United States Fair and Reciprocal Tariff Act”) would effectively blow up the WTO, an organization that the US helped create back in the 90s, by allowing Trump to unilaterally ignore the two most important principles:

The “Most Favored Nation” (MFN) principle that countries can’t set different tariff rates for different countries outside of free trade agreements; “Bound tariff rates” — the tariff ceilings that each WTO country has already agreed to in previous negotiations. “It would be the equivalent of walking away from the WTO and our commitments there without us actually notifying our withdrawal,” one anonymous source reportedly told Axios. The bill asks Congress to hand over to Trump unilateral power to ignore WTO rules and negotiate unilateral trade agreements. The leak of the draft bill follows another WTO-related scoop from Axios, published last week, where Swan reported that Trump has repeatedly badgered his aides about pulling the US out of the WTO, which the president has famously criticized as a “disaster”.

The bill’s chances of making it through Congress are extremely low. However, if Trump has taught us anything about his trade agenda, it’s never say never. “The good news is Congress would never give this authority to the president,” the source added, describing the bill as “insane.” “It’s not implementable at the border,” given it would create potentially tens of thousands of new tariff rates on products. “And it would completely remove us from the set of global trade rules.”

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Another nonstarter.

UK To Announce Third Post-Brexit Customs Model (BBC)

Downing Street has produced a third model for handling customs after the UK leaves the EU, the BBC understands. Details of the new plan have not been revealed publicly but senior ministers will discuss it at Chequers, the prime minister’s country retreat, on Friday. Ministers have been involved in heated discussions recently as they tried to choose between two earlier models. Tory backbencher Jacob Rees-Mogg says the PM risks a revolt if the type of Brexit she promised is not delivered. Theresa May hopes to resolve cabinet splits on the shape of Brexit at this week’s cabinet meeting. The prime minister has said the UK will then publish a White Paper setting out “in more detail what strong partnership the United Kingdom wants to see with the European Union in the future”.

It follows last week’s summit in Brussels where European Council president Donald Tusk issued a “last call” for the UK to agree its position on Brexit, saying the “most difficult” issues were unresolved and “quick progress” was needed if agreement was to be reached by the next meeting in October. BBC political correspondent Chris Mason says Downing Street hopes it has now found its way out of a bind on customs, the issue central to the practicalities of the UK’s future trading relationship with the EU, and a significant part of finding a solution to maintaining an open border with the Republic of Ireland.

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Highest courts in every nation MUST be independent.

The Supreme Court Has Already Reshaped America (G.)

“It’s not just that justice Kennedy’s successor is likely going to move the court to the right,” Vladeck said. “It’s that knowing that there are five conservative justices surely emboldens states and conservative interest groups to bring to the supreme court legal theories that they might have been reluctant to leave in justice Kennedy’s hands.” If that picture of the country’s jurisprudential future has left liberals distraught, it has also raised questions about the court’s increasingly politicized nature, its power to shape society and the erosion of its independence as one branch of government meant to balance the other two – Congress and the presidency – and to be checked in turn itself.

While past courts have had liberal or conservative bents, since the Bush v Gore decision that decided the 2000 election, the court has taken on a more explicitly political feel. “People say the founders would roll over in their graves – I think the founders would hang themselves”, said Mickey Edwards, vice-president of the Aspen Institute think-tank and formerly a congressman for 16 years. “The whole idea of the court being a separate and independent branch has totally disappeared. It is now a third branch of the policymaking process.” Extreme partisanship in Congress has led the legislature to relinquish its power to the presidency and the court, Edwards said.

“We now have become so accustomed to thinking of things – whether it’s foreign policy or trade policy or other things that the Congress has constitutional authority over – we now look at them all as presidential powers,” Edwards said. “So the presidency has grown much stronger. “I would also say that the supreme court has grown stronger and it’s become more partisan, which is very disturbing.”

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Portrait of a nation.

Australian Plastic Bag Ban Sparks Abuse, Violence From Angry Shoppers (Ind.)

Supermarket staff in Australia have faced abuse and violence from shoppers angry at the removal of plastic bags as a ban comes into force. Customers rebelling against the end of free single-use bags have taken out their frustration on staff, prompting warnings to them to be considerate. In Western Australia, a shopper put his hands around the throat of an employee at Woolworths, which had stopped giving out free plastic bags days before the ban came into force. It was one of dozens of cases of shop staff being abused as Australia moves to reduce the amount of non-decomposing synthetic materials going into rivers and seas.

In a survey of supermarket workers this week, out of 132 who responded, 57 (43 per cent) said they had suffered abuse because of the plastic bag ban. “I work at Woolies and have already been abused countless times; it’s not our fault,” staff member Lauren McGowan told News.com.au. There have also been reports of customers stealing handfuls of bags before the ban. As of today, major retailers in Western Australia and Queensland face fines if they supply single-use plastic bags – which are already banned in Tasmania, South Australia, the Northern Territory and the Australian Capital Territory.

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Because there are so many birds.

New Zealand Most Perilous Place For Seabirds Due To Plastic Pollution (G.)

Seabirds are more at risk of dying due to plastic in New Zealand than anywhere else in the world, new research presented to parliament has shown. New Zealand is considered “the seabird capital of the world”, according to the country’s Department of Conservation, with the northern royal albatross raising their chicks on the Otago Peninsula, unique species of oystercatchers on the Chatham Islands and more penguin species than any country in the world. There are 36 seabird species that breed only in New Zealand. Mexico is a distant second with just five. More than a third of all seabird species are known to spend time in New Zealand’s waters.

Karen Baird from conservation group Forest & Bird, which produced the report, said: “Rubbish that ends up in our seas has a far worse effect on seabird species than anywhere else in the world.” “Even though we don’t have the most plastic pollution, we are unique in the world in having so many seabirds species. We also have the most threatened seabird species, many of which are found nowhere else.” Seabirds are particularly vulnerable to eating plastic because they are surface feeders, spotting food from the air and swooping down on it, scooping it up and swallowing it before the mistake is realised. Seabird chicks and adults face starvation when their stomachs fill up with plastic rather than food.

Forest & Bird called on the government to ban single-use plastic bags and commit to further research into how marine life is affected by plastic in New Zealand waters. One in three turtles that are found sick or dead in the country are caused by the animals eating plastic, Forest & Bird found, with marine mammals such as seals and sea lions also at risk. In neighbouring Australia, nine out of 10 fledglings in some shearwater colonies surveyed had eaten significant quantities of plastic, Baird said. New Zealand’s 10 shearwater species could be in for the same fate if plastic pollution wasn’t urgently addressed, Baird said.

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Apr 042018
 
 April 4, 2018  Posted by at 12:49 pm Finance Tagged with: , , , , , , , , , , , , ,  


Mayfair Building, Times Square NYC 1951

 

 

Dr. D is on a roll.

 

 

Dr. D: Since tariffs are in the news again, let’s run down the topic , first in micro, then in macro.

 

“Trump said this week he’ll slap 25% tariffs on $50 billion to $60 billion in Chinese exports to the U.S., including aerospace, information and communication technology, and machinery. The move is aimed at countering Chinese cyber and intellectual property theft of U.S. technology . It also tries to push back against China’s demands for technology transfers from U.S. companies in return for access to China’s market.

The Chinese government, in turn, said it would hit U.S. shipments to China with $3 billion in tariffs, affecting goods such as pork, aluminum pipes, steel and wine.

“A family of four will end up paying about $500 more to buy (clothing, shoes, fashion accessories and travel goods) every year” if those products are subject to 25% tariffs, the American Apparel and Footwear Association says…

Retaliatory tariffs from China, meanwhile, could especially hurt American farmers.  China is the world’s top soybean importer, with the U.S. providing close to 60% of the commodity. And the country is the second-largest purchaser of U.S. pork. Growing talk about a trade war has worried Iowa farmers. The state is the nation’s largest corn and pork producer and second-largest soybean grower.”

Historical background, when Clinton added China to the WTO, it opened the borders and U.S. markets to Chinese goods, but likewise, China promised to treat the exports of the U.S. fairly, which are driven by movies, patents, and intellectual property rights. In theory, that’s how the deal would be equitable. However for 20 years they have not been paying billions in patents or media royalties back to the U.S.. Stealing everything, patents, intellectual rights, ignoring international law, building a mile high tariff wall, and polluting their whole nation to boot, just like we did back in the 19th century when we were a wee country.

Guess what that shows? Tariffs work. It worked for us then and it works for China now. Go to a store and look for any item that isn’t made in China. That has devastated industry, and is arguably dumping, i.e. selling at a loss to ruin your competition. How? China isn’t a “capitalist” country, really. It’s an amalgam of communism and protectionism meant to rapidly modernize China in the footsteps of Stalin or Mao’s “Great Leap Forward,” and it works. As such, factories are built of debt money printed by the Central State then protected from bankruptcy with more printing and bailing out hand-picked winners by the state — just like we do.

Just like Abe buying up the entire Nikkei or the Swiss Bank buying a trillion in foreign stocks. So in a roundabout way, China is creating all these products at a loss, but doesn’t care about profit because people are employed and their industry rockets into the 21st century. Since profit is not a motive and bankruptcy is not a possibility, the strategy to modernize and compete with the U.S. is enhanced not only by moving China forward, but also by moving the U.S. backward into the last century. So the very concept of WTO, “Free Trade”, “Fair Trade” does not and cannot exist with a centrally-planned, centrally-protected, non-free market economy – theirs and ours. Only national strategy remains.

When that’s the case, you see Trump merely advocating for consequences to China breaking the original treaty, the original parity of hard goods for intellectual property. And why shouldn’t breaking a treaty have consequences? The problem of course is what those consequences mean.

Since from the Chinese perspective, they have reduced U.S. wealth, production, capacity for production, and even the U.S. military to 3rd world levels, and the U.S. no longer has the bargaining power to reverse what was supposed to be a free-market trade, but was executed by China as a mercantile/protectionist trade. And good on them, well played!

Here in the States, we hear people say –still!—“well if they give us cheap goods at a loss, who are we not to take them?” Regardless of the jobs lost since that giant sucking sound started. Or worse, “Since rebuilding industry will cost money, any move to help ourselves should be avoided because it will raise prices.” Yes people, we already missed the 21st century, let’s move back from the 20th century into an 19th century African colony because fighting it would cost something and be inconvenient. Worked for Argentina, right?

 

Trump said in his Asian tour:

“I don’t blame China – after all, who can blame a country for taking advantage of another country for the benefit of its citizens… I give China great credit,” said Mr. Trump while addressing a room of business leaders. Instead, the US leader said previous US administrations were responsible for what he called “a very unfair and one-sided” trade relationship with China.”

China seemed to understand this and take it pretty well: in the last 30 years 500 million were lifted out of poverty, they got everything they wanted, and are arguably already the largest, most modern economy, but the ride is over. Asia loves gold-plated show-boaters like Trump and their equanimity was unreported by the press.

It’s no surprise; I’m sure they knew it would end someday. Probably never dreamed it would go on this long. However, the way the game is played, China will still negotiate all they can as the inevitable ends. And with retaliatory tariffs, they negotiate their best deal, and as quoted, Trump understands that too. Nothing personal.

 

Daily news covered, let’s go Macro.

In the bigger sense, a lot of this is window dressing. We hear a lot about how “the world can’t feed itself if such and such,” but it’s feeding itself now: clearly it’s perfectly possible: if anything we may have too much! Same with trade and tariffs. So China refuses to buy American soybeans, but buys Brazilian, great: stick it to those farmers (mega corps actually) in the voting states! Show ‘em!

But here’s the thing: there are X hectares of soybeans grown on planet earth, and Y people who eat them. If China buys “The Beans of Brazil”™, then whoever bought Brazil last year won’t get theirs and will buy American. Same with steel, same with oil. If China now buys Saudi oil or Russian oil, then that oil is simply removed from Europe, and Europe must buy Norwegian or Venezuelan oil. But it’s the same oil, from the same wells, going to the same people: that is, FROM planet earth, TO planet earth, BY the people of planet earth.

There are strategies and prices, advantages and minutia down there, but in the big picture, the effect becomes more subdued than may appear. So China places tariffs, even boycotts Iowa corn, then that corn is sold to Europe instead. What kind of political pressure are they really bringing, aside from making headlines?

The same is with Trump attempting to change the composition of U.S. industry. It’s a lot harder and takes a lot longer to rotate out of services and back into hard goods than it seems. What’s more, to start making your own chips or medical equipment requires a constellation of support industries: power lines, rails, screw machines, sheet metal stamping, servo motors, and behind them the dirty, heavy industries we erased: mining, steel and aluminum smelting, and so on. Yet this has to be done. We can’t run a country by asking China, “pretty please sell us some steel so we can make battleships to bomb you with.”

But like the soybeans, this shift of capacity doesn’t work in the macro view: if we’re not buying Chinese goods because we’re making our own, what is China going to do with all their factories? That capacity exists. It’s going somewhere or it will collapse, we BOTH have a lot to lose. A cutoff of most retail goods, their factories idled and people in the streets, Mutual Assured Destruction.

This goes back to 2005 and something Ben Bernanke said about the “Global Savings Glut.” That is, the problem wasn’t that the U.S. spent too much, but the real problem was the darn Chinese were too productive, too responsible, and spent too little. You might recognize this same argument from Germany and Greece. As much as this deserves raucous laughter, the larger macroeconomic imbalance is only this: the U.S. imports instead of producing, and China exports instead of consuming.

That’s how we come to a $700B yearly trade deficit, a deficit that is not ours alone, but China’s too. This goes back to righting the trade imbalance, the tariffs, in fact the overall inequality of the present (former) globalism: the U.S. prints fake digits and the Chinese send us real goods. If the imbalances are righted, there is only one path: China must spend more and the U.S. must spend less.

 

What will China do with their own factories if the U.S. reindustrializes and makes their own goods? They’ll buy those Chinese products themselves.

 

This is a long time coming, too. For decades, China has worked hard and developed their country, so why should they make cheap products and get nothing for their work? They deserve the products of their labor — arguably more than the Americans do. They need to spend more, and as we see with input costs rising back home, we need to spend less. So let them buy their “Make-happy ginsu mango-mango slicer.” No one deserves it more.

What do you think Chairman-for-life Xi thinks of this? Trump is going to make China stop saving and force their middle class to start spending, to start behaving like the modern nation they are. Xi and his predecessors have been unable to convince China to spend. But now Trump can blame his problems on China and Xi can blame his problems on Trump. So do you think Xi is angry? Or happy?

This had to happen. A nation cannot live at the expense of everyone else forever, amen. The only question is when and how it ends. So if China makes and buys Chinese products, and the U.S. makes and buys U.S. products, and we trade equally, where’s the harm?

It’s no fun to re-industrialize, to fall back to the level of real production your country is capable of minus extractive, extortive credit, but there are only two choices: the Neocon’s one world unipolar empire of murder and force, or nation states with borders and the independence and the internal capacity to produce for and defend themselves on all fronts, agricultural, manufacturing, intellectual, and military.

That’s what the “America First” plan was and in the Asian tour, China showed they understand this. So since nation states are going to persist for now, the best we can do is rebuild, re-normalize, and re-localize independently as best we can.

As the imbalances are reversed, it’s going to be a bumpy ride, but if we can do it, it will be worthwhile. At the very least, better than the alternative (They tried). We can – it is possible – recover our nation again, and with it, what it means to be “America”, and that may be worth the work.

 

 

Nov 242016
 
 November 24, 2016  Posted by at 9:49 am Finance Tagged with: , , , , , , , , , , ,  


Kennedy and Johnson Morning of Nov 22 1963

Another Election Year, Another Bunch Of Fake Growth Numbers (John Rubino)
China Vows To Defend Trade Rights In Face Of Trump Tariff Threats (R.)
IMF: Chinese Banks Disguise A Massive Amount Of Bad Debt (BI)
The ‘Ownership Society’ Came And Went – A Long Time Ago (MW)
How (Slightly) Higher Mortgage Rates Maul Housing Bubble 2 (WS)
‘Brexit Will Blow £59 Billion Hole In UK Public Finances’ (G.)
Pro-Brexit Lawmakers Attack Fiscal Watchdog’s Gloomy Outlook (BBG)
Capital Flight From Italy (Reinhart)
Jill Stein Raises Over $2 Million To Request US Election Recounts (G.)
Bernie Sanders Should Visit Trump Sooner Rather Than Later (NYDN)
Merkel Warns Against Fake News Driving Populist Gains (AFP)
Putin: EU Resolution Equating RT to ISIS A ‘Degradation Of Democracy’ (R.)
US Navy’s New $4 Billion Stealth Warship Breaks Down – Again (ZH)
Greece Wants To Conclude EU/IMF Review, Won’t Accept ‘Irrational’ Demands (R.)
Greek Businesses Move Abroad To Escape Austerity (R.)

 

 

“So why the approximately $1.8 trillion surge in government borrowing? Because a robustly-healthy economy was necessary to help the party in power stay in power.”

Another Election Year, Another Bunch Of Fake Growth Numbers (John Rubino)

Some pretty good economic reports have energized various parts of the financial markets lately. Consumer spending is up, GDP is exceeding expectations and even factory orders, that perennial downer, popped this morning. In response the dollar is soaring and interest rates are at breaking out of their multi-decade down-channel. The economy is clearly recovering, implying a return to normality. Right? Nah, it’s just the usual election year illusion. When the presidency is at stake the party in power always pumps up spending in an attempt to put people back to work and create the impression of a well-run country whose leaders deserve more time in the spotlight. After the election, spending returns to trend and the resulting bad news gets buried in “political honeymoon” media coverage.

How do we know this year is following the script? By looking at the federal debt. If the government is borrowing more than usual and (presumably) spending the proceeds, then it’s likely that the economy is getting a bit more than its typical diet of stimulus. So here you go: Note that after seven years of massive increases, the federal debt plateaued in 2015, which is what you’d expect in the late stages of a recovery. With full employment approaching and asset prices high, there should be plenty of tax revenues flowing in and relatively few people on public assistance, so the budget should be trending towards balance. Well, more people are working this year than last, and stock, bond and home prices all rose in the first half of the year. So why the approximately $1.8 trillion surge in government borrowing? Because a robustly-healthy economy was necessary to help the party in power stay in power.

This is a huge jump in government debt, even by recent standards. And its impact is commensurately large, accounting for a big part of the “growth” seen in recent months. But it’s also unsustainable. You don’t double a government’s debt in a single decade (from an already historically high level) and then keep on borrowing. At some point an extreme event or policy choice will put an end to the orgy. Either the markets impose discipline through a crisis of some sort, or the government adopts a policy of currency devaluation or debt forgiveness. And – in a nice ironic twist – the people who did the insanely-excessive borrowing are leaving town, to be replaced by folks who will inherit something unprecedented, with (apparently) no clear idea of what’s coming or what will be necessary in response.

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Protectionism and globalism in one.

China Vows To Defend Trade Rights In Face Of Trump Tariff Threats (R.)

China will defend its rights under WTO tariff rules if US president-elect Donald Trump moves toward executing his campaign threats to levy punitive duties on goods made in China, a senior trade official has said. Zhang Xiangchen, China’s deputy international trade representative, also told a news conference in Washington on Wednesday that a broad consensus of academics, business people and government officials have concluded that China is not manipulating its yuan currency to gain an unfair trade advantage, as Trump has charged. “I think after Mr Trump takes office, he will be reminded that the United States should honour its obligations as a member of the WTO,” Zhang said through an interpreter. “And as a member of the WTO, China also has the right to ensure its rights as a WTO member.”

Trump has said China is “killing us” on trade and that he would take steps to reduce the large US goods trade deficit with China, including labelling Beijing as a currency manipulator soon after he takes office and levying duties of up to 45% on Chinese goods to level the playing field for US manufacturers. Trump said on Monday he will formally exit the 12-country TPP trade deal in January. China is not a signatory to the TPP. Zhang, who spoke at the closing news conference for a two-day technical meeting of US and Chinese trade officials in Washington, was not specific on what steps China would take to protect its rights under WTO rules. The global trading body prohibits members from unilaterally raising tariffs above levels that they have committed to maintain.

China’s state-run Global Times newspaper last week warned that a 45% Trump tariff would paralyse US-China bilateral trade. “China will take a tit-for-tat approach then. A batch of Boeing orders will be replaced by Airbus. US auto and [Apple] iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted,” the newspaper warned.

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Shadow securities. US redux.

IMF: Chinese Banks Disguise A Massive Amount Of Bad Debt (BI)

China’s banks are disguising bad debts by turning them into “securitized packages” rather than writing them down as non-performing loans, according to the IMF. The “untradeable debt” comes from China’s “shadow credit” world, which has generated a massive amount of credit that has the potential to become suddenly illiquid. The debts consist of interbank loans in “a structure potentially susceptible to rapid risk transmission and destabilizing liquidity events,” the IMF says. The amount of “shadow credit” grew 48% in 2015, to RMB 40 trillion ($580 billion), the IMF says, “equivalent to 40% of banks’ corporate loans and 58% of GDP.” If any of this sounds familiar, that’s because it is. It’s similar in principal to the way American banks disguised bad mortgages inside securitized packages before the Great Financial Crisis of 2007-2008.

Back then, US mortgage providers gave out too many loans to people who couldn’t repay them. On its own, that should not have been a problem. A mortgage default only hurts the bank that made the loan. But banks bundled together packages of those mortgages and sold them as “mortgage-backed securities” to other institutions. Bad mortgages were mixed in with good ones, making it impossible for investors to judge their quality. When it became obvious that some of these packages were toxic, no one wanted to buy any them. The market became suddenly illiquid. And the credit derivative hedges and leveraged bets layered upon them magnified the problem throughout the entire banking system, creating the financial collapse that plunged most of the world into recession.

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It was always just a fabricated dream.

The ‘Ownership Society’ Came And Went – A Long Time Ago (MW)

Of all the aftereffects of the housing bust and financial crisis, the steady decline in the homeownership rate might be among the most pernicious. Homeownership is traditionally one of the best means into the middle class, and it’s still popularly equated with the American Dream. But in a presentation last week, St. Louis Federal Reserve economist William Emmons demonstrated that homeownership has been losing ground for decades. What’s more, Emmons showed that higher ownership rates were likely coaxed along by government policies and national priorities appropriate for a certain moment in history and unsustainable beyond that. After the Depression, Emmons noted, New Deal policies “laid the foundation” for a huge increase in homeownership.

Those policies included the creation of a government financial system, such as the Federal Housing Administration, Fannie Mae, and the Federal Home Loan Banks. But just as important was the return of millions of service members from World War II, rising incomes and a prosperous economy, a national push for a country full of suburban single-family homes and highways to connect them all, as well as a national process of Americans “sorting themselves out” by race and class into the broad geographic outlines that would persist for decades. That meant the U.S. enjoyed robust growth – until it didn’t. Not only was there little room left to grow, but other changes began to influence ownership, Emmons said. Americans began to age, pushing off marriage, childbearing and home-buying until later.

The U.S. is also becoming more racially and ethnically diverse. Hispanics and African-Americans have traditionally had more limited opportunities to achieve homeownership – but as Emmons pointed out, citing research from the Harvard Joint Center for Housing Studies, “aspirations to own a home are higher among African-Americans and Latinos than among whites and Asians, despite homeownership rates that are 20 to 30 percentage points lower.” And while much of the impact of the 2008 crash has ebbed, it still continues to impact many people through diminished personal wealth, damaged credit scores, blighted neighborhoods, and some loss of trust in financial institutions.

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How ‘little things’ add up.

How (Slightly) Higher Mortgage Rates Maul Housing Bubble 2 (WS)

After the brutal beating following Election Day, US Treasuries took a breather early this week. But today, the beating resumed and will continue until the mood improves. Mid-day, the 10-year Treasury fell so hard that its yield, which moves in the opposite direction of price, spiked to 2.42%. By the end of the day, the 10-year yield was at 2.36%, up 4 basis points for the day, and up an entire percentage point from July this year: The market is 100% certain that the Fed will stop flip-flopping in mid-December and raise rates by moving the upper limit of the Fed funds target range to 0.75%. The markets see more rate hikes next year. A Fed funds rate with the first “1”-handle since 2008 would be a phenomenon a whole generation of Wall Street gurus has never seen in their professional lives.

Mortgage rates are chasing after Treasury rates. The Mortgage Bankers Association reported today that the 30-year fixed-rate conforming mortgage ($417,000 or less) reached 4.16%, its “highest weekly average since the beginning of 2016.” This caused a flurry of activity. Last week, amid the post-election interest rate spike, mortgage applications plunged. But homebuyers may be trying to lock in whatever rate they can get, before they go even higher, and mortgage applications surged. Ironically, from a historical point of view, nothing major has happened so far. That spike is still small compared to what came before, including the spike during the Taper Tantrum in the summer of 2013, when the Fed started musing about ending QE Infinity. Compared to prior years, rates are still very, very low, but home prices have since soared, and for home buyers even a minor uptick makes a world of difference.

From the peak of Housing Bubble 1, which in San Francisco occurred in 2007, to Q3 2016, the median house price soared 45%. But due to plunging mortgage rates, the monthly housing costs increased only 14%. Now with rates rising, that process is going to reverse. The household income needed to qualify for a 30-year fixed rate mortgage with 20% down on that median $1.3 million house in San Francisco was $251,000 before Election Day. Paragon observes: “By Friday, November 18, the income requirement increased by $13,000. And if the interest rate goes up to 5% (and again, we are not saying it will), an additional $35,000 in annual income would be required.”

Hence, at 5%, a minimum qualifying household income of $286,000 a year. In this scenario, even in less costly markets, there are two things that happen: One, many people have to step down to a lower-priced home, or they don’t buy at all. A market-wide shift of this type puts downward pressure on prices and volume. And two, as people stretch more to buy homes at higher interest rates and higher monthly costs, they have even less money to spend on other things. This creates a new drag on consumer spending. It’s how low mortgage rates not only subsidized the house price bubble but the entire economy by giving consumers more money to spend – not just the US economy but exporter nations around the world.

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Or will it?

‘Brexit Will Blow £59 Billion Hole In UK Public Finances’ (G.)

Philip Hammond conceded that Brexit will blow a £59bn black hole in the public finances over the next five years, as he outlined plans to boost investment in infrastructure and housing to equip the UK economy for life outside the EU. In his first fiscal statement, the chancellor, who had supported remain, sought to strike a cautiously upbeat tone about the country’s prospects, saying the economy had “confounded commentators at home and abroad with its strength and its resilience” since the referendum result last June. But the first official projections conducted after the vote of the likely impact of leaving the EU pointed to significantly weaker growth after Brexit. The Office for Budget Responsibility (OBR) announced that there would be a cumulative £122bn of extra borrowing over the next five years, with £59bn of that as a direct result of Brexit.

Other factors included weaker-than-expected tax revenues, and policy changes, including Hammond’s decision to spend more on infrastructure. George Osborne was expecting to achieve a surplus of £11bn on the public finances by 2020-21; instead, the OBR is now forecasting a £21bn deficit – and public debt is expected to peak at more than 90% of GDP. With little cash to spare, Hammond offered only modest handouts to the “just about managing” families (Jams) Theresa May’s government had said it wanted to help, although he repeatedly used the mantra of “building an economy that works for everyone”. The chancellor announced a renewed freeze in fuel duty, to help motorists – largely paid for with an increase in insurance premium tax from 10% to 12% – and a partial reversal of planned cuts to universal credit.

But Labour said there was no cash for either the NHS or social care, which are under increasing strain with winter approaching. Instead, the main thrust of Hammond’s first set-piece outing at the dispatch box was how to help Britain withstand the challenges of leaving the EU.

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Agree to disagree.

Pro-Brexit Lawmakers Attack Fiscal Watchdog’s Gloomy Outlook (BBG)

Conservative lawmakers attacked Britain’s fiscal watchdog after it warned that Brexit would cost £60 billion ($75 billion) in extra borrowing as the economy falters. The Office for Budget Responsibility’s forecast — the first official assessment of the costs related to leaving the bloc – also stated that exiting the EU would leave Britain with less potential for sustainable growth. Chancellor of the Exchequer Philip Hammond, who presented the forecasts alongside his Autumn Statement Wednesday, said the predictions showed there is an “urgent” need for Britain to tackle its long-term economic weaknesses. “We’ve had an endless slew of gloom and doom, and I just don’t buy it,” said Kwasi Kwarteng, a Tory lawmaker who backed the campaign to leave the EU. “They haven’t exactly had a brilliant track record. I’d take their predictions with a pinch of salt.”

Pro-Brexit lawmakers have been critical of both the OBR and the Treasury for overstating the negative consequences of Brexit. While Hammond made brief references to the opportunities that leaving may bring, his tone was one of caution, with few giveaways and a focus on creating a more productive economy that could weather future shocks. Responding to complaints from pro-Brexit politicians, Hammond told lawmakers that economic forecasting “is not a precise science.” He added: “The OBR very specifically says in its report that there is an unusually high degree of uncertainty in the forecasts it is making because of the unusual circumstances.”

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It’s high time for Italy to go its own separate ways. There’s nothing to gain from the EU anymore, but lots to lose.

Capital Flight From Italy (Reinhart)

Understandably, after the surprise victory in June of the “Leave” campaign in the United Kingdom’s Brexit referendum, and of Donald Trump in the United States’ presidential election, no one has much faith in polls in advance of the Italian vote. There is, however, a disquieting real-time poll of investors’ sentiment: capital flight from Italy has accelerated this year. There is a recent precedent for this. In the summer of 2015, Greece’s short-lived default on its IMF loan and the introduction of capital controls and deposit-withdrawal restrictions were at the center of the eurozone drama. Tensions between the Greek and German governments ran high, and speculation about whether Greece would remain in the eurozone escalated.

The stage has now shifted to the much larger Italian economy. In the current environment of uncertainty, yield spreads on Italian bonds have widened to about 200 basis points over German bunds. Economic and political conditions in the two debt-laden southern European economies differ in important respects; but there are also similarities. Economic growth in both countries has lagged far behind other advanced economies for more than a decade, but most markedly since the Global Financial crisis of 2008-2009. According to IMF estimates, real per capita income in Italy is about 12% below what it was in 2007, with only Greece faring worse. The problem of bank insolvency, endemic in Greece, where nonperforming loans account for more than one-third of bank assets, is not as generalized in Italy.

Still, the uncertain resolution of Italy’s third-largest bank, Monte dei Paschi, together with the Italian government’s limited resources to deal with weak banks, has fueled unease among depositors. Bankers also warn that the plan for Monte dei Paschi’s rescue may be jeopardized by the December referendum, which could trigger another round of decline in share prices. But, for all the talk of a looming banking crisis, the balance-of-payments crisis already underway in Italy since the first half of 2016 is the main factor driving the real-time poll of investors. Prior to the adoption of the euro, an unsustainable balance-of-payments position in Italy (as in other countries with their own currencies) would typically spur the central bank to raise interest rates, thereby making domestic financial assets more attractive to investors and stemming capital flight. With the ECB setting monetary policy for the eurozone as a whole, this is no longer an option for Banca d’Italia.

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Nostalgia for hanging chads.

Jill Stein Raises Over $2 Million To Request US Election Recounts (G.)

Jill Stein, the Green party’s presidential candidate, is prepared to request recounts of the election result in several key battleground states, her campaign said on Wednesday. Stein launched an online fundraising page seeking donations toward a a multimillion-dollar fund she said was needed to request reviews of the results in Michigan, Pennsylvania and Wisconsin. Before midnight EST on Wednesday, the drive had already raised more than the $2m necessary to file for a recount in Wisconsin, where the deadline to challenge is on Friday. Stein said she was acting due to “compelling evidence of voting anomalies” and that data analysis had indicated “significant discrepancies in vote totals” that were released by state authorities.

“These concerns need to be investigated before the 2016 presidential election is certified,” she said in a statement. “We deserve elections we can trust.” The fundraising page said it expected to need around $6m-7m to challenge the results in all three states. Stein’s move came amid growing calls for recounts or audits of the election results by groups of academics and activists concerned that foreign hackers may have interfered with election systems. The concerned groups have been urging Hillary Clinton, the defeated Democratic nominee, to join their cause.

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As I said yesterday in “Trump Moves as America Stands Still”.

Bernie Sanders Should Visit Trump Sooner Rather Than Later (NYDN)

Trump aside, evidently the most clairvoyant messenger of 2016 was Sanders, who got pitifully little support from the Democratic Party establishment — including a raw deal from the DNC, which tilted the scales against him in order to coronate Hillary. His brand of anti-Wall Street, anti-elite populism is ascendant. He is the tribune of the progressive youth, many of whom refused to back Hillary despite her repeated (and hollow) entreaties. So what should Sanders do now? Well, how about meeting with the new President-elect? It might seem incongruous. What would the nationalist, brash Trump have to gain from the aging socialist Sanders? Well, maybe quite a bit. Trump explicitly proclaimed during the campaign that he was going to take a page from Bernie’s playbook, much to the consternation of conservative pundits.

“I’m going to be taking a lot of the things Bernie said and using them,” Trump declared in April. And indeed, Trump followed through on the pledge: He made opposition to the Trans-Pacific Partnership a centerpiece of his campaign, thus emphasizing an area of agreement with Sanders. (Trump has since confirmed that the trade deal will be canceled.) He called for a reduced U.S. military presence abroad. And he even repeatedly defended Sanders before millions of people at the televised debates, pointing out that he’d been screwed over by the DNC and Clinton minions. Naturally, Trump and Sanders will never agree on everything, but where they do see eye-to-eye, why not take advantage?

Two days after the election, Sanders issued a statement noting Trump’s success at connecting with folks “sick and tired of establishment economics, establishment politics and the establishment media.” Sanders then offered to “work with” him on discrete initiatives. Trump has already announced that an infrastructure funding bill is one of his top priorities, so who better than Sanders to help steer the legislative process in the most fruitful possible direction? (Bernie this week characterized Trump’s plan as a “scam,” so why not register those concerns in person?)

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Sounds desperate.

Merkel Warns Against Fake News Driving Populist Gains (AFP)

German Chancellor Angela Merkel warned Wednesday against the power of fake news on social media to spur the rise of populists, after launching her campaign for a fourth term. Speaking in parliament for the first time since her announcement Sunday that she would seek re-election next year, Merkel cautioned that public opinion was being “manipulated” on the internet. “Something has changed – as globalisation has marched on, (political) debate is taking place in a completely new media environment. Opinions aren’t formed the way they were 25 years ago,” she said. “Today we have fake sites, bots, trolls – things that regenerate themselves, reinforcing opinions with certain algorithms and we have to learn to deal with them.”

Merkel, 62, said the challenge for democrats was to “reach and inspire people – we must confront this phenomenon and if necessary, regulate it.” She said she supported initiatives by her right-left coalition government to crack down on “hate speech” on social media in the face of what she said were “concerns about the stability of our familiar order”. “Populism and political extremes are growing in Western democracies,” she warned. Last week, Google and Facebook moved to cut off ad revenue to bogus news sites after a US election campaign in which the global misinformation industry may have influenced the outcome of the vote. But media watchers say more is needed to stamp out a powerful phenomenon seen by some experts as a threat to democracy itself.

Merkel’s conservative Christian Democrats are the odds-on favourites to win the German national election, expected in September or October 2017.

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Well, we already knew the EU has gone crazy.

Putin: EU Resolution Equating RT to ISIS A ‘Degradation Of Democracy’ (R.)

The European Parliament called on the EU and its states to do more to counter Russian “disinformation and propaganda warfare” on Wednesday, drawing an angry response from President Vladimir Putin. A motion endorsing a committee report, which also called for more effort against attempts by Islamic State to radicalize Europeans, passed by 304 votes to 179. Members on the far left and far right were opposed; many in the center-left abstained. “The European Parliament … expresses its strong criticism of Russian efforts to disrupt the EU integration process and deplores, in this respect, Russian backing of anti-EU forces in the EU with regard, in particular, to extreme-right parties, populist forces and movements that deny the basic values of liberal democracies,” the 59-point motion read.

With East-West relations in deep freeze since Moscow responded to an EU pact with Ukraine by annexing Crimea in 2014, the Parliament’s report accused the Kremlin of funding media outlets that spread falsehoods and of sponsoring eurosceptic movements in Western Europe which are growing in strength. Putin said that after lecturing Russia on democracy Europe was now trying to silence dissenting opinions. He told reporters in Moscow: “We are observing a certain, quite obvious, degradation … of how democracy is understood in Western society, in this particular case in the European Parliament.” In Strasbourg, center-left lawmakers said they could not endorse the report because Russia was not alone in posing such threats and they objected to the way it appeared to be given an equivalent status to the non-state militants of Islamic State.

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Not a bug but a feature. Given the multibillion ‘trouble’ with the JSF, what do you think the odds are the military-industrial complex makes broken equipemnt on purpose, for profit?

US Navy’s New $4 Billion Stealth Warship Breaks Down – Again (ZH)

For the second time in two months, The Navy’s new $4 billion stealth warship has broken down. As Military.com reports, the ripped-from-the-pages-of-a-sci-fi mag-looking USS Zumwalt is now in Panama for repairs after suffering a breakdown while passing through the Panama Canal on Monday evening. Military.com’s Hope Hodge Seck reports that a spokesman for U.S. 3rd Fleet, Cmdr. Ryan Perry, told Military.com that the commander of 3rd Fleet, Vice Adm. Nora Tyson, had instructed the USS Zumwalt, the first in a new class of stealthy destroyers, to remain at ex-Naval Station Rodman in Panama to address the engineering casualty. “The timeline for repairs is being determined now, in direct coordination with Naval Sea Systems and Naval Surface Forces,” he said in a statement.

“The schedule for the ship will remain flexible to enable testing and evaluation in order to ensure the ship’s safe transit to her new homeport in San Diego.” An official confirmed to Military.com that the ship had been transiting south through the canal en route to its new San Diego homeport when the incident occurred. The ship had to be towed to pier by the Panama Canal Authority, the official said. While details about what caused the breakdown were few, Navy Times – which first reported the incident – cited reports about problems with heat exchangers in the ship’s integrated power plant that had contributed to the mishap. [..]The ship also made headlines earlier this month when multiple outlets reported that the missiles fired from its 155mm Advanced Gun System, at $800,000 apiece, were too expensive for the Navy to buy in large quantities [..]

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But they’ve accepted tons of others already?!

Greece Wants To Conclude EU/IMF Review, Won’t Accept ‘Irrational’ Demands (R.)

Greece wants to conclude its bailout review but cannot accept what it sees as irrational demands on labor reform or for extra austerity, Prime Minister Alexis Tsipras said on Wednesday, in his first speech to lawmakers after a cabinet reshuffle. Negotiations between Greece and its official creditors – the EU and the IMF – hit a snag this week due to differences on fiscal targets, energy and labor reforms in the country, where one in four is unemployed. “The Greek government is fully consistent with what was agreed and has proven it has the political will to conclude the second bailout review without meaningless delays,” Tsipras told his Syriza party lawmakers. “But this does not mean we would discuss irrational demands.”

The mission chiefs overseeing Greece’s bailout program implementation left Athens on Tuesday. Government officials said talks would continue but the latest disagreements and a long-standing rift among the creditors on medium-term fiscal targets have clouded Greek hopes for a swift conclusion. Unpopular labor reforms, including collective bargaining, a mechanism to set the minimum wage and giving companies more freedom to lay off workers are the main sticking point in talks with lenders. Tsipras said differences could be bridged if there is political will on all sides, adding that an agreement could be reached by Dec. 5, when euro zone finance ministers will meet in Brussels.

“It is realistic but also absolutely necessary to conclude the talks soon to secure at the scheduled Dec. 5 … meeting the agreement needed on a political level in order to conclude the bailout review,” he said. Tsipras said this would pave the way for talks on debt relief measures, not only in the short term but also in the medium and long term, which would allow Greece to lower primary surplus targets beyond 2018, when its bailout program ends.

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The Troika forces Greece to strangle itself.

Greek Businesses Move Abroad To Escape Austerity (R.)

Greek businessman Prokopis Makris believes moving to Bulgaria three years ago was the best decision he ever made. The accountant shut his failing furniture company in Greece and opened a business helping other entrepreneurs move to Bulgaria to escape a 29% tax rate, which has jumped since Athens adopted austerity as part of an international bailout. “We are bombarded with taxes in Greece, businesses are being annihilated,” he says in his plush office overlooking the town square of Petritsi, a Bulgarian town about 12 km (seven miles) north of the border with Greece. The debt crises faced by Greece and several other European countries led to drastic spending cuts and tax increases to improve government finances.

But the higher taxes punished businesses forcing many to shut or move to lower tax jurisdictions such as Bulgaria or Cyprus, helping those economies but undermining the recovery needed to balance the books at home. The number of Greek owned businesses based in Bulgaria, where the corporate tax rate is only 10%, has risen to 17,000 from 2,000 in 2010, when Greece had its first bailout, according to Bulgarian authorities. The Greek government is concerned. It plans a series of tax audits in cooperation with Bulgaria to determine if these business defections are merely changes of address designed to avoid tax rather than a physical relocation of operations. [..] Six hundred kilometers north of Athens, the Greek-Bulgarian border is teeming with traffic. A ravine through mountains on the Greek side gives way to a sweeping valley where agriculture and vineyards are the mainstay of the local economy.

At two small industrial parks 5 km inside Bulgaria, Greek signs are everywhere, advertising storage and office space. “There are dozens of Greek businesses just in this area alone, from transport companies to textile businesses and construction materials,” said Yiorgos Kalaitzoglou who runs a logistics business out of one of the industrial parks where a sign reads, “Land of Opportunities”. Three years ago, his business was stuttering in Greece. He moved to Bulgaria, leaving his wife and family in Thessaloniki, Greece’s second largest city an hour’s drive away. “The taxman in Greece takes 70 to 90% of earnings, Greece simply doesn’t let you live,” the 50-year-old said as he walked through a warehouse stacked with ladders and paint tubs.

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