Dec 152016
 
 December 15, 2016  Posted by at 8:50 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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William Henry Jackson Hand cart carry, Adirondacks, New York 1902


Dollar at 14-Year Peak as Fed Rejuvenates Trump Rally (R.)
Dollar Jumps as Fed Pulls the Trigger While Stocks, Debt Decline (BBG)
Fed Fallout Escalates: China Bond Market Crashes Most On Record (ZH)
Higher US Interest Rates Next Year Could Make Big Problems For China (CNBC)
Shadow Banking in China Appears to Have Made a Roaring Comeback (BBG)
Trump Meets With Tech Titans: “No Formal Chain Of Command Around Here” (CNBC)
Canada’s Gravity-Defying Household Debt Swells to C$2 Trillion (BBG)
EU Politicians Believe UK Post-Brexit Trade Deal Could Take Decade (G.)
Ex-UK Ambassador: Clinton Emails Leaked By “Disgusted” Dem. Whistleblower (DM)
US Accuses Vladimir Putin Of “Personal Involvement” In Election Hack (ZH)
Eurozone Suspends Short-Term Debt Relief for Greece (WSJ)
Greek Opposition Leader To Seek Backing In Brussels For Snap Polls (Kath.)

 

 

Moving fast. A lot of global debt gets much more expensive to pay off.

Dollar at 14-Year Peak as Fed Rejuvenates Trump Rally (R.)

The dollar rose to a 14-year peak against a basket of major currencies on Thursday after the Federal Reserve boosted the number of projected interest rate hikes for 2017, rejuvenating the month-long Trump rally and knocking emerging market currencies. The Fed’s 25 basis-point interest rate increase on Wednesday was widely anticipated by financial markets though they appeared to have been caught out by the central bank signal of three hikes in 2017, up from around two flagged at its September policy meeting. The relatively hawkish Fed stance came as U.S. president-elect Donald Trump takes over with promises to boost growth through tax cuts, spending and deregulation. “The rate hike projections for 2017 being increased to three shows that Fed’s board is having to factor in the impact of Trump’s policies,” said Junichi Ishikawa at IG Securities in Tokyo.

The dollar index extended its overnight rally and was up 0.5% at 102.270. It touched 102.620, its highest since January 2003. The euro was down 0.2% at $1.0512 after sliding to $1.0468, a trough not seen in 21 months. The greenback set a 10-month high of 117.860 yen early on Thursday and was last up 0.3% at 117.390. The allure of higher U.S. yields took a predictable toll on emerging Asian currencies. The Chinese yuan fell to its lowest levels in more than eight years, after the central bank set the daily mid-point at the lowest since mid 2008. Low-yielding currencies such as the Singapore dollar and Korean won came under pressure, as investors grew anxious over the risk of capital being sucked out of regional economies toward dollar-based assets.

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Yellen hiked rates and dotplot.

Dollar Jumps as Fed Pulls the Trigger While Stocks, Debt Decline (BBG)

The dollar rallied, while Treasury yields spiked as the Federal Reserve signaled a steeper path for in interest rates going forward after their first hike to borrowing costs in 2016. U.S. equities slumped the most since October. The greenback climbed to its strongest level in 10 months versus the yen, advancing against most of its major peers as as traders speculated that U.S. rates may be elevated faster than previously thought. Utilities and energy shares drove the S&P 500 Index down 0.8% as two-year Treasury yields soared to their highest level in seven years. The dollar’s gains sent oil tumbling as gold also retreated. Emerging-market currencies were among the biggest decliners, while Asian index futures diverged amid the yen’s drop.

“The bottom line is that this is more hawkish than the markets expected,” said Dennis Debusschere at Evercore ISI in New York. “I don’t think the shift higher in the dots was priced in. The consensus going in was that they’d wait until they had details of the fiscal program before they actually raised the rate forecast, and they did that before they saw the details.” What was only the second U.S. rate increase in a decade tied off a volatile year for markets, with investors whipsawed by ructions in Chinese trading, then the shock wins for Brexit and Donald Trump. The Fed moving further into tightening territory puts it at the vanguard of a shift globally from easing monetary policy toward an increased focus on fiscal stimulus.

After hiking by 25 basis points, the central bank said it expects three rate increases in 2017, up from two in its September forecasts. Speaking to reporters after the decision, Fed Chair Janet Yellen sought to downplay the significance of that change in the projections. “This is a very modest adjustment in the path of the federal funds rate,” Yellen said during the press conference. The decision to raise rates is “a vote of confidence in the economy,” she said, noting that some fed officials, but not all, incorporated the assumption of a change in fiscal policies when making their forecasts.

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“.. it appears the final bastion of safety has cracked”.

Fed Fallout Escalates: China Bond Market Crashes Most On Record (ZH)

After a bubblicious surge higher over the last few months (as China’s hot money swishes from one trending-higher market to another), China’s bond market is collapsing. As Chinese money-markets tighten into new year, yuan weakens, and capital outflows accelerate, so it appears the final bastion of safety has cracked. Chinese bond futures crashed overnight by the most on record, erasing in a week the gains of the last 18 months. The rally began in 2014, buoyed by slowing economic growth and a monetary-easing cycle that kicked off in November that year. Now that is over…

As Chinese liquidity pressures ripple up from the short-term repo markets…

Offshore Yuan has tumbled 5 handles since The Fed raised rates…

And Japanese stocks cannot hold a bid despite the weaker yen. It appears Janet’s message about Trump’s fiscal plan is starting to sink in.

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“They’re playing whack-a-mole constantly. They try to bring down one bubble, and something pops up somewhere else. They do that, and something comes up somewhere else..”

Higher US Interest Rates Next Year Could Make Big Problems For China (CNBC)

Rising interest rates in the United States have an obvious effect on the world’s biggest economy — but less obvious is the impact those rates could have on the second biggest. Higher interest rates in the United States could make it harder for China to manage its exploding debt, as the Asian giant increasingly depends on borrowing in order to keep growing — while simultaneously trying to block capital from fleeing for more fruitful shores in America. “If the Federal Reserve [keeps increasing] interest rates in the United States, the single biggest casualty of that this time is going to be China, because there’s so much money just waiting to leave” the country, said Ruchir Sharma at Morgan Stanley. Sharma spoke Tuesday evening as part of a panel at the Asia Society in New York.

Sharma pointed out that over the last year, China has moved from one bubble to another: commodities, stocks and, currently, real estate. That is not a sustainable way for China to grow, he said, especially considering that China’s “debt increase over the last five years has been 60 percentage points as a share of its economy.” “They’re playing whack-a-mole constantly. They try to bring down one bubble, and something pops up somewhere else. They do that, and something comes up somewhere else,” said Sharma, who noted that housing prices in China’s largest cities have increased between 30 and 50% over the last 18 months alone. Fed officials on Wednesday approved the first U.S. interest rate increase in a year. The 0.25 percentage point hike was widely expected, but the more aggressive pace for future increases outlined by the Fed — three next year instead of the two that were previously expected — was not.

Rising U.S. rates typically mean better yields for U.S. Treasurys and a stronger U.S. dollar. And indeed, both bond yields and the greenback immediately moved higher after Wednesday’s announcement. “I certainly think we could hit a 3 (percent on the 10-year Treasury yield) by the first quarter” of next year, Rick Rieder, CIO, global fixed income at BlackRock, told CNBC on Wednesday. The 10-year was last at 3% in January 2014. [..] the ability to keep financing its “massive debt binge” is impaired, Sharma said, if too much money bleeds out of the system. And China needs a lot of money — and more and more of it — to keep hitting the largely arbitrary 6% GDP growth rate that Beijing has mandated for the country. “Today in China, it’s taking $4 in debt to create a dollar of GDP growth,” said Sharma

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Oh no, it was never gone. It’s only been growing the whole time.

Shadow Banking in China Appears to Have Made a Roaring Comeback (BBG)

Time to don the tin hats? Chinese shadow-banking activity registered a surprise jump in November, throwing into sharp relief how policy makers are struggling to make good on their vow to rein in the runaway loan growth that threatens the stability of the financial sector. Often cast as one of the weakest links in the global financial system given the potential threat it poses to Asia’s largest economy, shadow credit – which consists of trust loans, entrusted loans and bank-acceptance bills –rose sharply to 479 billion yuan ($69 billion), after having dropped to 55 billion yuan in October. The surprise rebound may be a reaction to expectations for continuing yuan weakness as companies look to increase their local-currency liabilities at the expense of dollar-denominated obligations.

“Today’s surprising data will likely trigger some regulatory concerns,” David Qu, China economist at Australia & New Zealand Banking, wrote in a note to clients on Wednesday, citing the size and opacity of off-balance sheet lending from trust companies, brokerages, micro-lenders, pawn-shops and even real-estate companies. The rise could reflect “short-term speculation due to expectations of renminbi depreciation and producer-price inflation,” analysts at Nomura Holdings Inc, led by Zhao Yang, wrote in a report on Wednesday. Efforts to curtail shadow lending may exacerbate this month’s liquidity squeeze, as the yield on 10-year government bonds shoots up to 3.24% from 2.74% at the end of October – their highest level in more than a year.

“If Chinese regulators start to restrict shadow banking activities, there may be spillover effects to the bond market due to liquidity tightening,” Qu adds, referring to the prospect that redemptions from wealth-management funds would force asset managers to trim their bond positions. Last month’s credit binge wasn’t confined to the shadow financial system. Total social finance, the broadest measure of new lending, expanded the most since March at 1.74 trillion yuan, up from 896.3 billion yuan in October. [..] The 11.8% increase on a year-on-year basis was driven by household lending growth, reflecting how property curbs have yet to kick in, as well as expansion in the shadow-banking sector.

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Tens of billions eating crow at that table. Trump knows exactly what Bezos, Cook etc. said about him not long ago. Eric Schmidt just about ran Hillary’s campaign.

Trump Meets With Tech Titans: “No Formal Chain Of Command Around Here” (CNBC)

A confab of tech titans had a “productive” meeting with President-elect Donald Trump at Trump Tower on Wednesday, Amazon CEO Jeff Bezos told CNBC, as Trump moved to mend fences with Silicon Valley before taking office in January. Apple, Alphabet, Microsoft, Amazon, Facebook, Intel, Oracle, IBM, Cisco and Tesla were among the C-suite executives in attendance, with Apple CEO Tim Cook and Tesla CEO Elon Musk expected to get private briefings, according to transition staff. During the campaign, Trump issued a number of barbs directed at Bezos and his businesses, but at the meeting both men appeared nothing but complimentary. “I found today’s meeting with the president-elect, his transition team, and tech leaders to be very productive,” Bezos said.

“I shared the view that the administration should make innovation one of its key pillars, which would create a huge number of jobs across the whole country, in all sectors, not just tech—agriculture, infrastructure, manufacturing—everywhere.” Though many tech leaders actively opposed his election, Trump said at the meeting he was interested in helping tech do well — and that the executives can call any time, since there’s no formal chain of command. “We want you to keep going with the incredible innovation,” Trump said. “There’s no one like you in the world….anything we can do to help this go along, we’re going to be there for you. You can call my people, call me — it makes no difference — we have no formal chain of command around here.”

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As someone commented on Twitter: “Carney’s baby is all grown up”.

Canada’s Gravity-Defying Household Debt Swells to C$2 Trillion (BBG)

The appetite for bank borrowing remained unabated in the third quarter, setting fresh records for total credit and mortgage borrowing, Statistics Canada reported Wednesday. The widely-followed ratio of household debt to after-tax income rose to another record high of almost 167%. The numbers will intensify concern among policy makers the economy has become over-reliant on bank borrowing, and is vulnerable to a housing downturn and rising interest rates. The latest report covers the three months before Finance Minister Bill Morneau tightened mortgage lending rules again in October, a move designed to discourage Vancouver and Toronto home buyers from signing larger mortgages than they could handle.

“Household indebtedness continues to defy gravity and remains the Achilles heel of the Canadian economy,” said Charles St-Arnaud at Nomura Securities, who has worked in Canada’s finance department and central bank. “Continued increase in yields and job losses remain the biggest risks.” Credit-market debt climbed to C$2.005 trillion ($1.53 trillion) from C$1.980 trillion in the prior quarter. Those obligations jumped by 1.3% in the third quarter, faster than the 0.9% gain in household income. Total consumer debt exceeded the size of Canada’s economy for a second straight quarter, accounting for 101.2% of gross domestic product in the July-to-September period. Debts have climbed alongside the Vancouver and Toronto housing boom, fueled by job growth and rock-bottom borrowing costs.

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Elections, anyone?

EU Politicians Believe UK Post-Brexit Trade Deal Could Take Decade (G.)

Europe’s politicians believe a trade deal with the UK could take up to a decade or more and could still fail in the final stages, Downing Street has been warned by the UK’s ambassador to the EU. Sir Ivan Rogers, who conducted David Cameron’s renegotiation with the EU prior to the referendum, is reported to have told the prime minister that European politicians expected that a deal would not be finalised until the early to mid-2020s, according to the BBC. That deal could still be rejected by any of the 27 national parliaments during the ratification process. It is understood Rogers was reporting back conversations he had had with European politicians, rather than giving his own advice to the British government. “It is wrong to suggest this is advice from our ambassador to the EU,” a Number 10 spokesman said. “Like all ambassadors, part of his role is to report the views of others.”

Former Tory minister Dominic Raab, a leave campaigner, said it was “reasonable to set out a worst-case scenario of five to 10 years to iron out all the detail of a trade deal.” He told BBC Radio 4’s Today programme: “The crucial question is whether we maintain barrier-free trade in the meantime, in which case there’s no real problem. I have to say it’s very unlikely in the interim that the EU would want to erect trade barriers.” The reports come after Brexit secretary, David Davis, told a select committee hearing that “everything is negotiable” within a year and a half of the formal article 50 notification in March. The deal would then take about six months to be agreed by European leaders, the European parliament and the British parliament, he said.

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Try these on for size: “Murray is a controversial figure who was removed from his post as a British ambassador amid allegations of misconduct.” Misconduct? Well: “Murray was a vocal critic of human rights abuses in Uzbekistan while serving as ambassador between 2002 and 2004, a stance that pitted him against the UK Foreign Office.”

Ex-UK Ambassador: Clinton Emails Leaked By “Disgusted” Dem. Whistleblower (DM)

A Wikileaks envoy today claims he personally received Clinton campaign emails in Washington D.C. after they were leaked by ‘disgusted’ whisteblowers – and not hacked by Russia. Craig Murray, former British ambassador to Uzbekistan and a close associate of Wikileaks founder Julian Assange, told Dailymail.com that he flew to Washington, D.C. for a clandestine hand-off with one of the email sources in September. ‘Neither of [the leaks] came from the Russians,’ said Murray in an interview with Dailymail.com on Tuesday. ‘The source had legal access to the information. The documents came from inside leaks, not hacks.’ His account contradicts directly the version of how thousands of Democratic emails were published before the election being advanced by U.S. intelligence.

Murray is a controversial figure who was removed from his post as a British ambassador amid allegations of misconduct. He was cleared of those but left the diplomatic service in acrimony. His links to Wikileaks are well known and while his account is likely to be seen as both unprovable and possibly biased, it is also the first intervention by Wikileaks since reports surfaced last week that the CIA believed Russia hacked the Clinton emails to help hand the election to Donald Trump. Murray’s claims about the origins of the Clinton campaign emails comes as U.S. intelligence officials are increasingly confident that Russian hackers infiltrated both the Democratic National Committee and the email account of top Clinton aide John Podesta. In Podesta’s case, his account appeared to have been compromised through a basic ‘phishing’ scheme, the New York Times reported on Wednesday.

U.S. intelligence officials have reportedly told members of Congress during classified briefings that they believe Russians passed the documents on to Wikileaks as part of an influence operation to swing the election in favor of Donald Trump. But Murray insisted that the DNC and Podesta emails published by Wikileaks did not come from the Russians, and were given to the whistleblowing group by Americans who had authorized access to the information. ‘Neither of [the leaks] came from the Russians,’ Murray said. ‘The source had legal access to the information. The documents came from inside leaks, not hacks.’ He said the leakers were motivated by ‘disgust at the corruption of the Clinton Foundation and the tilting of the primary election playing field against Bernie Sanders.’

‘I don’t understand why the CIA would say the information came from Russian hackers when they must know that isn’t true,’ he said. ‘Regardless of whether the Russians hacked into the DNC, the documents Wikileaks published did not come from that.’ Murray was a vocal critic of human rights abuses in Uzbekistan while serving as ambassador between 2002 and 2004, a stance that pitted him against the UK Foreign Office.

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“The former CIA official said the Obama administration may feel compelled to respond before it leaves office. “This whole thing has heated up so much,” he said. “I can very easily see them saying, `We can’t just say wow, this was terrible and there’s nothing we can do.'”

Well, if Obama is truly getting involved, he has 4 days in which to turn 37 Republican electors against Trump. As for the potential fallout, which may include various forms of social conflict should the Trump victory be overturned in the 11th hour at the Electoral College, then Putin will truly win as a result of what may then follow.

US Accuses Vladimir Putin Of “Personal Involvement” In Election Hack (ZH)

And just like that the narrative of Russia hacking the presidential election has escalated to the highest possible level, and has officially jumped the shark. Moments ago, following a month-long barrage of unsubstantiated stories in the press accusing the Russian government of indirectly hacking the US presidential election, which culminated with last night’s 8,000 word NYT expose, and which followed a schism between the FBI and CIA, in which the former disputed the latter’s “fuzzy and ambiguous” claims that Russia sought to influence the presidential elections, moments ago the NBC News reported that U.S. intelligence officials believe with “a high level of confidence” that Russian President Vladimir Putin became personally involved in the covert Russian campaign to interfere in the U.S. presidential election.

Perhaps because the official narrative has so far been unable to gather traction with the previous “shotgun approach” in which just “Russia” was accused of handing the election to Trump, four short days before the Electoral College vote, the narrative has changed and it now involves the very pinnacle of Russia’s government: the president himself. Citing two senior officials with direct access to the information, NBC reports that “new intelligence shows that Putin personally directed how hacked material from Democrats was leaked and otherwise used. The intelligence came from diplomatic sources and spies working for U.S. allies, the officials said.” So why did Putin hack a few million rust belt Americans into believing that their lives under Obama, and by extension Hillary, were bad enough that they demanded a change? NBC provides the following spoonfed logic:

Putin’s objectives were multifaceted, a high-level intelligence source told NBC News. What began as a “vendetta” against Hillary Clinton morphed into an effort to show corruption in American politics and to “split off key American allies by creating the image that [other countries] couldn’t depend on the U.S. to be a credible global leader anymore,” the official said.

Ultimately, the CIA has assessed, “the Russian government wanted to elect Donald Trump.” And this is where the latest turn in the story falls apart, because even NBC – which will blast this report on prime time TV to all America – admits “the FBI and other agencies don’t fully endorse that view”, but it adds “few officials would dispute that the Russian operation was intended to harm Clinton’s candidacy by leaking embarrassing emails about Democrats.”

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As I said, looks like Tsipras has had enough.

Eurozone Suspends Short-Term Debt Relief for Greece (WSJ)

Greece’s European creditors suspended proposed debt-relief measures for the country after the Greek government surprised them by announcing it would boost welfare benefits for low-income pensioners, a sign of escalating tensions over the country’s bailout. The moves come as Athens and its international creditors—which include the eurozone and the IMF—are struggling to conclude their latest review of the country’s rescue plan of as much as €86 billion ($92 billion) in loans. “The institutions have concluded that the actions of the Greek government appear to not be in line with our agreements,” a spokesman for Jeroen Dijsselbloem, the Dutch finance minister who presides over the group of his eurozone counterparts, said in a statement on Twitter.

“No unanimity now for implementing short-term debt measures,” he added. The step puts further pressure on Greece’s government, which is considering calling snap elections in 2017 as it grapples with slumping popularity and is losing hope of winning concessions on deeper debt relief or austerity from the eurozone and the IMF. Greece’s embattled Prime Minister Alexis Tsipras surprised Greeks and the country’s creditors last week with handouts that his government hadn’t previously discussed with bailout supervisors, which represent eurozone governments and the IMF. Mr. Tsipras promised 1.6 million pensioners a Christmas bonus of between €300 and €800. He also suspended a planned increase in sales tax for Aegean islands that have received large numbers of refugees from the Middle East and elsewhere.

Eurozone officials expressed frustration that the country’s creditors were not told in advance by Greece of its plans—widely seen as a lure to voters ahead of elections—and said the new measures would have to be assessed to determine whether they were in line with the country’s bailout commitments. “We will adhere to the [bailout] program to the letter, but whatever outperformance in revenue arises by following to the program, we will not ask anyone in order to give this money to those most in need,” Mr. Tsipras said Tuesday from the small island of Nisyros.

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Can you imagine the opposition in your country doing this? They would risk being persecuted for treason. In Europe, it’s the new normal. But he might as well ask Putin.

Greek Opposition Leader To Seek Backing In Brussels For Snap Polls (Kath.)

In talks with officials on the sidelines of a summit of the European People’s Party in Brussels that started Wednesday, conservative New Democracy leader Kyriakos Mitsotakis is to press his argument that Greece needs snap elections to sweep away the current leftist-led government and bring in a more reform-friendly administration. Mitsotakis is to meet Thursday with European Commission President Jean-Claude Juncker and European Economic and Monetary Affairs Commissioner Pierre Moscovici, among others.

ND sources are hoping that EU officials will welcome Mitsotakis’s call for political change, coming as it does just a few days after Prime Minister Alexis Tsipras unsettled the country’s creditors by announcing Christmas bonuses for thousands of pensioners and vowing to keep in place a value-added tax discount for remote islands that the government had promised its lenders to revoke. The meetings come as ND leads leftist SYRIZA by a wide margin in opinion polls. Mitsotakis’s argument is that snap polls would not be destabilizing, as they had been in January 2015, as ND is a reformist power compared to the SYRIZA coalition with Independent Greeks which the conservative party describes as “unreliable and opportunistic” in its policy-making.

Read more …

Dec 142016
 
 December 14, 2016  Posted by at 10:02 am Finance Tagged with: , , , , , , , , ,  5 Responses »
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Louise Rosskam General store in Lincoln, Vermont 1940


Janet Yellen Needs To Announce Her Resignation — Not A Rate Hike (Crudele)
Stephen Roach Flags Trade, China Under Trump, Tillerson (CNBC)
Trump May Be Turning China’s $1.16 Trillion Of Treasuries Into A Weapon (F.)
China To Fine Unnamed US Automaker For ‘Monopolistic Behavior’ (R.)
Top US Spy Agency Has Not Embraced CIA Assessment On Russia Hacking (R.)
Lavrov Hints ISIS Recapture Of Palmyra Orchestrated By US (R.)
There Is More Than One Truth To Tell In The Awful Story Of Aleppo (Fisk)
How To Make A Profit From Defeating Climate Change (Carney/Bloomberg)
Greece ‘Boxed In’ as EU and IMF Fight Over Nation’s Debt Relief Plan (G.)
Tsipras To Propose To EU Leaders That IMF Be Excluded (Kath.)
Crisis Leaves Greeks Gloomiest In Europe And Beyond (R.)
Final EPA Study Confirms Fracking Contaminates Drinking Water (EW)
A Crack In Antarctica Is Forming An Iceberg The Size Of Delaware (PopSci)

 

 

“Yellen is a lame-duck chair. And Trump is going to want to cook her goose. It isn’t going to be pheasant.”

Janet Yellen Needs To Announce Her Resignation — Not A Rate Hike (Crudele)

If Janet Yellen had any class, she wouldn’t just be announcing an interest rate hike this week – she would also be offering her resignation. Yellen was appointed chair of the Federal Reserve by President Obama in 2014. While most heads of government agencies will soon be offering their resignations to President-elect Donald Trump, the Fed is not a government agency. It’s an independent entity. Which means Yellen doesn’t have to resign. Her term as chair – which makes her, perhaps, the second-most powerful person in Washington — doesn’t end until January 2018. And even then, she can hang around as a mere board member – one of 14 – until 2024. So, although Yellen and her colleagues have screwed things up, they get to keep their jobs. And boy has the Fed screwed things up — both before and since the financial crisis that started in 2007. [..]

It’s clear that Trump doesn’t like Yellen. And she hasn’t said anything nice about the incoming president or his policies either. So the two aren’t likely to get along. Yellen has shown no inclination to give up her job even though Trump has lashed out at her. “I think the Fed is being totally controlled,” Trump said during a campaign stop at the Economic Club of New York. “They’re not raising rates. And they’re being controlled politically.” Welcome to reality, Mr. Trump. The Fed lost its independence four decades ago. And you’ll be trying to control it soon. Yellen has hit back at Trump, saying that his pledge to spend $1 trillion on infrastructure to help the economy was dangerous. She said that after Trump spent that much money, there “is not a lot of fiscal space should a shock to the economy occur.”

Yellen also continued to assert her preposterous notion that the “economy is operating close to full employment.” If true, why hasn’t she already raised interest rates vigorously? And why, if the economy was doing so well, did the election go so badly for the incumbents — the Democrats? The Fed boss understands economics better than Trump. The higher borrowing costs that are already being seen (and which the Fed will pile onto this week) will automatically cause government borrowing costs – and therefore, spending – to increase and make US debt levels much worse. How much worse? That depends on how high rates go and how reluctant the Chinese are to continue to lend us money, especially now that Trump has picked a fight with Beijing. Yellen is a lame-duck chair. And Trump is going to want to cook her goose. It isn’t going to be pheasant.

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Few people in the west know China the way Roach does.

Stephen Roach Flags Trade, China Under Trump, Tillerson (CNBC)

Stock markets are euphoric after Donald Trump’s victory as pundits bet on U.S. economic growth based on the president-elect’s stimulus plans, but be aware of trade deficits and funding U.S. consumption, said Yale economist and noted author on China, Stephen Roach. “Given the overall savings of the U.S., that spells bigger trade deficits and for a president who is clearly raising some protectionist flags at a time when our trade deficits are going to widen, that’s a big disconnect,” Roach, a former chairman of Morgan Stanley Asia and chief economist, told CNBC’s “Squawk Box”. “The idea of larger trade deficits colliding with protectionist shifts in policy is a very worrisome development for the U.S. and for the broader global economy,” added Roach.

Roach’s comments come against a background of Trump having campaigned on remedying a wide trade gap in favor of Beijing that he said was spurred by moves to artificially weaken the yuan and restrict entry into home markets. He has also angered China by taking a congratulatory phone call from Taiwan President Tsai Ing-wen and calling into question the foundations of the “One China” policy. China is the world’s top holder of U.S Treasurys, and any major change in that stance would have broad macroeconomic impact. “The deeper question is less about the integrity of the leadership skills he can bring to the job, but how much scope for action he will have in the Trump administration … (after) Mr Trump has made some very strong statements about a number of critical foreign policy issues,” said Roach.

Roach also commented broadly on issues that will have to be resolved in the early phase of a Trump administration, including how a U.S. savings shortfall will be financed, suggesting choices of higher interest rates or a weak dollar as possibilities. He also expects a reassessment of Trump’s economic policies and outcomes in late 2017. As for Trump’s goals to shore up the battered manufacturing industries, Roach said Americans will have to pay a price for penalizing offshore operations. “As they bring those activities home, the cost of goods sold, the prices that go to American families who are hard strapped who voted for Mr. Trump, those prices are going to go up … We can’t have it both ways,”he said.

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Only, the author doesn’t really say how.

Trump May Be Turning China’s $1.16 Trillion Of Treasuries Into A Weapon (F.)

When Donald Trump talks about China devaluing its currency it’s difficult for investors to figure out exactly what he’s trying to convey. China, in fact, is trying to strengthen its own currency against the dollar as part of an effort to prevent capital from leaving the country. It leaves people uncertain whether Trump–who has access to people who know the capital markets and can point out his mistake–simply misunderstands what’s happening in global capital markets, or if he’s picking a fight with China. Trump’s decision to take a phone call Dec. 2 from Taiwan’s President, Tsai Ing-wen, sent off alarms in Beijing, and leaders there appear to be moving toward the conclusion that Trump is picking a fight. Trump’s response that the longstanding U.S. “one China” policy may be a bargaining chip in potential trade negotiations made matters worse.

China subsequently sent a bomber capable of carrying a nuclear payload outside its borders over the contested South China Sea in a show of force aimed at expressing displeasure with Trump’s posture. China held $1.16 trillion of U.S. government debt as of September, according to the most recent data available from the Treasury. That’s down by $100 billion from the year before. During that period Treasuries have actually rallied, with the benchmark 10-year note yield falling to 1.60% from 1.99%. China’s reduction in holdings didn’t hurt the bond market, as the economic stresses that led them to allocate cash away from Treasuries led other investors to seek out safety in the debt. China is well-positioned to use the bond market to show its displeasure with the U.S. in a manner that would be more than symbolic: it could sell more Treasuries. For the President-elect, who has plans to borrow to pay to ramp up infrastructure spending, that could cause real pain. The 10-year note yield has risen to a two-year high of 2.49% up from 1.88% on election day.

For more than a decade, politicians have expressed concern that China and other foreign government could use their significant stakes in Treasuries against the U.S. by dumping them on the market. Such a move would potentially drive borrowing costs throughout the U.S. sharply higher. Bond market conventional wisdom has been that this would be unlikely because it would reduce the value of the seller’s remaining reserves, weakening it’s own capital bulwarks against a future crisis. Trump’s pugnacity mixed with his seeming willingness to ignore facts contrary to his argument make it hard to assess his motives, which may scramble conventional thinking and raise the risks of an unorthodox response from China.

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Let the games begin.

China To Fine Unnamed US Automaker For ‘Monopolistic Behavior’ (R.)

China will soon slap a penalty on an unnamed U.S. automaker for monopolistic behavior, the official China Daily newspaper reported on Wednesday, quoting a senior state planning official. News of the penalty comes at a sensitive time for China-U.S. relations after U.S. president-elect Donald Trump called into question a long-standing U.S. policy of acknowledging that Taiwan is part of “one China”. Beijing maintains that self-ruled Taiwan is a wayward province of China and has never renounced the use of force to take it back. Investigators found the U.S. company had instructed distributors to fix prices starting in 2014, Zhang Handong, director of the National Development and Reform Commission’s price supervision bureau, was quoted as saying.

In an exclusive interview with the newspaper, Zhang said no one should “read anything improper” into the timing or target of the penalty. China, the world’s largest auto market, has become crucial to the strategies of car companies around the world, including major U.S. players General Motors and Ford. “We are unaware of the issue,” said Mark Truby, Ford’s chief spokesman for its Asia-Pacific operations. In a statement, GM said: “GM fully respects local laws and regulations wherever we operate. We do not comment on media speculation.”

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There’s just so much borrowing going on. And that was never the Chinese way.

Just Another Chinese Cash Crunch, But Bigger (BBG)

In markets where investors are highly leveraged, things tend to happen slowly at first, then fast. China is having one of those moments, and as with the 2008 crisis, it can’t be pinned on one event. On Monday, the Shanghai Composite Index sank 2.5%, then extended that decline Tuesday before rebounding to close little changed. The one-year government note yield rose 7 basis points to 2.72%, on top of Monday’s 15 basis-point increase. The root cause may be banks. There’s clearly a liquidity squeeze on Chinese lenders. Nothing new there: Financial institutions tend to face higher demand for cash in December, and this year that’s been exacerbated because Chinese New Year falls early – the holiday, when many people withdraw deposits to buy gifts and travel, begins Jan. 28.

Perhaps more important, banks also want to boost the deposits they can account for as of Dec. 31, when they close their books. Financial institutions struggled to meet a loan-to-deposit ratio ceiling of 75%, and that cap was scrapped in June. None of the banks wants to show that the amount they lend is completely disconnected from what they have in the coffers, however. Which may explain why short-term deposit rates are far higher than longer-term ones. In simple terms, this is a seasonal cash crunch. The issue is that this time it’s on steroids, because it comes after several months when the People’s Bank of China increased short-term rates. This boosted funding costs for wealth-management products and for investors using leverage to buy everything from stocks to bonds to iron ore. As some of the trades begin to offer negative returns, these investors are selling.

Curiously, Hong Kong is going through a similar issue because of the impending Federal Reserve rate increase. Then the vicious circle of leverage begins: Assets being sold drop below agreed levels, triggering margin calls – or the requirement that someone borrowing money to buy securities post more cash to back up the loan. To meet those calls, investors sell more of their securities, putting further pressure on prices and prompting new margin calls. The slump in Chinese stocks last year was exacerbated by just such a dynamic. Investors must now hope that China has learned the lesson from that rout and will use its pension funds to steady the market. Otherwise, if this selloff really is the result of a liquidity squeeze, it’s unlikely to stop before February, when people return from the holiday.

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And neither has the FBI.

Top US Spy Agency Has Not Embraced CIA Assessment On Russia Hacking (R.)

The overseers of the U.S. intelligence community have not embraced a CIA assessment that Russian cyber attacks were aimed at helping Republican President-elect Donald Trump win the 2016 election, three American officials said on Monday. While the Office of the Director of National Intelligence (ODNI) does not dispute the CIA’s analysis of Russian hacking operations, it has not endorsed their assessment because of a lack of conclusive evidence that Moscow intended to boost Trump over Democratic opponent Hillary Clinton, said the officials, who declined to be named. The position of the ODNI, which oversees the 17 agency-strong U.S. intelligence community, could give Trump fresh ammunition to dispute the CIA assessment, which he rejected as “ridiculous” in weekend remarks, and press his assertion that no evidence implicates Russia in the cyber attacks.

Trump’s rejection of the CIA’s judgment marks the latest in a string of disputes over Russia’s international conduct that have erupted between the president-elect and the intelligence community he will soon command. “ODNI is not arguing that the agency (CIA) is wrong, only that they can’t prove intent,” said one of the three U.S. officials. “Of course they can’t, absent agents in on the decision-making in Moscow.” The FBI, whose evidentiary standards require it to make cases that can stand up in court, declined to accept the CIA’s analysis – a deductive assessment of the available intelligence – for the same reason, the three officials said. [..] In October, the U.S. government formally accused Russia of a campaign of cyber attacks against American political organizations ahead of the Nov. 8 presidential election. President Barack Obama has said he warned Vladimir Putin about consequences for the attacks.

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That’s quite the claim. Especially since all western reporting contradicts even the possibility.

Lavrov Hints ISIS Recapture Of Palmyra Orchestrated By US (R.)

Foreign Minister Sergei Lavrov said talks with the United States on Syria were at a dead end, and Islamic State’s advance to Palmyra may have been staged by the United States and its regional allies to allow Syrian rebels in Aleppo a respite. During a visit to Belgrade, Lavrov said Russia was ready to quickly negotiate with the United States the opening of corridors for the pullout of rebels from Aleppo, but said these would have to be agreed before any ceasefire happened. “Our American colleagues do, so to speak, agree with that, and from Dec. 3 when we met John Kerry in Rome they supported such a concept and even gave us their approval on paper,” Lavrov told reporters at a news conference with his Serbian counterpart on Monday.

“But after three days they revoked that agreement and returned to their old, dead-end position which comprises this: Before the agreement on corridors there has to be a truce… as I understand, this would just mean the rebels would get a break,” he said. Earlier in the day, a military source said the Syrian army was on the verge of announcing victory in its battle to retake rebel-held eastern Aleppo. The Syrian army made new advances on Monday after taking the Sheikh Saeed district, leaving rebels trapped in a tiny part of the city. Lavrov also said he believed that Islamic State’s seizure of Palmyra might have been engineered by the U.S.-led coalition to divert attention from Aleppo. “That leads us to a thought – and I am sincerely hoping I am wrong, that this is all orchestrated, coordinated to give a break to those bandits that are in eastern Aleppo,” he said.

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Robert Fisk suggests Lavrov may be on to something.

There Is More Than One Truth To Tell In The Awful Story Of Aleppo (Fisk)

[..] it’s time to tell the other truth: that many of the “rebels” whom we in the West have been supporting – and which our preposterous Prime Minister Theresa May indirectly blessed when she grovelled to the Gulf head-choppers last week – are among the cruellest and most ruthless of fighters in the Middle East. And while we have been tut-tutting at the frightfulness of Isis during the siege of Mosul (an event all too similar to Aleppo, although you wouldn’t think so from reading our narrative of the story), we have been willfully ignoring the behaviour of the rebels of Aleppo. Only a few weeks ago, I interviewed one of the very first Muslim families to flee eastern Aleppo during a ceasefire. The father had just been told that his brother was to be executed by the rebels because he crossed the frontline with his wife and son.

He condemned the rebels for closing the schools and putting weapons close to hospitals. And he was no pro-regime stooge; he even admired Isis for their good behaviour in the early days of the siege. Around the same time, Syrian soldiers were privately expressing their belief to me that the Americans would allow Isis to leave Mosul to again attack the regime in Syria. An American general had actually expressed his fear that Iraqi Shiite militiamen might prevent Isis from fleeing across the Iraqi border to Syria. Well, so it came to pass. In three vast columns of suicide trucks and thousands of armed supporters, Isis has just swarmed across the desert from Mosul in Iraq, and from Raqqa and Deir ez-Zour in eastern Syria to seize the beautiful city of Palmyra all over again.

It is highly instructive to look at our reporting of these two parallel events. Almost every headline today speaks of the “fall” of Aleppo to the Syrian army – when in any other circumstances, we would have surely said that the army had “recaptured” it from the “rebels” – while Isis was reported to have “recaptured” Palmyra when (given their own murderous behaviour) we should surely have announced that the Roman city had “fallen” once more under their grotesque rule. Words matter. These are the men – our “chaps”, I suppose, if we keep to the current jihadi narrative – who after their first occupation of the city last year beheaded the 82-year-old scholar who tried to protect the Roman treasures and then placed his spectacles back on his decapitated head.

By their own admission, the Russians flew 64 bombing sorties against the Isis attackers outside Palmyra. But given the huge columns of dust thrown up by the Isis convoys, why didn’t the American air force join in the bombardment of their greatest enemy? But no: for some reason, the US satellites and drones and intelligence just didn’t spot them – any more than they did when Isis drove identical convoys of suicide trucks to seize Palmyra when they first took the city in May 2015. There’s no doubting what a setback Palmyra represents for both the Syrian army and the Russians – however symbolic rather than military. Syrian officers told me in Palmyra earlier this year that Isis would never be allowed to return. There was a Russian military base in the city. Russian aircraft flew overhead. A Russian orchestra had just played in the Roman ruins to celebrate Palmyra’s liberation.

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The craziest thing I’ve seen in a long time.

How To Make A Profit From Defeating Climate Change (Carney/Bloomberg)

From rising sea levels to more severe storms and more intense droughts, climate change will present serious risks to, and create major opportunities for, nearly every industry. Citizens, consumers, businesses, governments, and international organisations are all taking action. And entrepreneurs are developing disruptive technologies that will create and destroy value. The challenge is that investors currently don’t have the information they need to respond to these developments. This must change if financial markets are going to do what they do best: allocate capital to manage risks and seize new opportunities. Without the necessary information, market adjustments to climate change will be incomplete, late and potentially destabilising.

Public policy, consumer demand and technological innovation are driving a shift towards a low-carbon economy. Which companies and industries are most, and least, dependent on fossil fuels? And who stands ready to provide resilient and sustainable infrastructure? Which financial institutions are best positioned to gain and which to lose? In every case, which firms have the governance, resources and the strategy to manage, and profit from, these major shifts? We believe that financial disclosure is essential to a market-based solution to climate change. A properly functioning market will price in the risks associated with climate change and reward firms that mitigate them. As its impact becomes more commonplace and public policy responses more active, climate change has become a material risk that isn’t properly disclosed.

In response to a G20 request to consider the financial stability risks, the Financial Stability Board created a taskforce on climate-related financial disclosures. Its purpose is to develop voluntary, consistent disclosures to help investors, lenders and insurance underwriters manage material climate risks. As befits a solution by the market for the market, the taskforce is led by members of the private sector from across the G20, including major companies, large investors, global banks and insurers. After a year of intensive work and widespread consultation its recommendations are now publicly available. They concentrate on the practical, material disclosures most relevant to investors and creditors and which can be compiled by all companies that raise capital as well as financial institutions.

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Poul Thomsen was always a disgrace.

Greece ‘Boxed In’ as EU and IMF Fight Over Nation’s Debt Relief Plan (G.)

The row over how to stabilise the indebted Greek economy has resurfaced with renewed vigour after the European Union on Tuesday angrily rejected charges by the IMF that its current rescue programme is “not credible”. The spectre of the country’s economic crisis flaring up again deepened as the extent of the differences between creditors was laid bare. Caught in the middle, Athens also ratcheted up the rhetoric, as its finance minister told the Guardian that the IMF was “economising with the truth”. “Greece is being boxed into a corner,” said Euclid Tsakalotos, claiming that the country was under intense pressure to specify new austerity measures that made “no economic or political sense”. The war of words intensified after the IMF issued a 1,300-word statement distancing itself from the economic policies underpinning the nation’s latest bailout.

The adjustment programme agreed last summer in exchange for €86bn (£72bn) worth of rescue loans – a plan the IMF has so far refused to support – was based on measures that were “unfriendly to growth”, wrote Poul Thomsen, who directs the IMF’s European department, and Maurice Obstfeld, its chief economist. “It is not the IMF that is demanding more austerity,” the officials argued in a blog published late on Monday. “If Greece agrees with its European partners on ambitious fiscal targets, don’t criticise the IMF … when we ask to see the measures required to make such targets credible.” Athens, they said, had agreed to achieve a budget surplus – where state tax income exceeds expenditure – of 3.5% of GDP once the bailout expired in 2018, a feat that was not feasible without further cuts, said the IMF.

On Tuesday, the European commission hit back, insisting that the economic fundamentals were not only sound, but working. “The European institutions consider that the policies of the ESM program are sound and if fully implemented can return Greece to sustainable growth and can allow Greece to regain market access,” said commission spokeswoman Annika Breidthardt. The plan, she added, had undergone “several parts of scrutiny”, and even the European court of auditors had provided feedback, which had been taken into account. [..] Hopes of a political breakthrough are now resting on meetings Tsipras will have later this week with German and French leaders. But on past form, lenders are unlikely to yield, and Greek officials are now worrying that the row could be the precursor of the IMF pulling out of the programme altogether.

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“s it likely when around 45% of pensioners receive monthly payments below the poverty line of €665, and almost 4 million people, that is more than a third of the population, have been classed as being at risk of poverty or social exclusion, that Greece’s main problem is that pensions and tax credit allowances are too generous?”

Tsipras To Propose To EU Leaders That IMF Be Excluded (Kath.)

Prime Minister Alexis Tsipras is to suggest to European counterparts this week that the IMF should be left out of the Greek program, sources have told Kathimerini. Tsipras is expected to sound out Francois Hollande, who he is due to hold talks with Wednesday, and Angela Merkel, with whom he will have a working lunch on Friday, about the idea of the Fund no longer having a role in Greece’s bailout. If an agreement cannot be reached on this proposal, Tsipras will put forward the possibility of the IMF retaining just a technical role in the program. Athens believes that the political cost of the Fund remaining on board has become too high after the latest spat between the government and the organization, which flared up as the institutions returned to the Greek capital for further talks aimed at completing the bailout review.

The talks resumed under a cloud after the IMF’s European director Poul Thomsen and head of research Maurice Obstfeld published a blog post on Monday night in which they denied that the Fund was responsible for asking Greece to adopt more austerity measures and claimed that the country’s pensions and tax benefits are still too generous. Finance Minister Euclid Tsakalotos confronted the IMF mission chief Delia Velculescu over the blog post when talks between the Greek government and the institutions resumed in Athens Tuesday. Velculescu is said to have assured the Greek minister that the IMF did not want to make negotiations harder but simply to express its view.

A little earlier, Tsakalotos had publicly countered the claims made by the IMF officials in their article. “In effect [the Fund] is arguing for Greek pensioners and poorer wage earners to make further economies, while it economizes on the truth,” he told The Guardian. “Greek expenditure on both pensions and other subsidies is about 70% of the EU average and 52% of that of Germany. Is it likely when around 45% of pensioners receive monthly payments below the poverty line of €665, and almost 4 million people, that is more than a third of the population, have been classed as being at risk of poverty or social exclusion, that Greece’s main problem is that pensions and tax credit allowances are too generous?” he added.

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But of course they are short on anti-depressants too.

Crisis Leaves Greeks Gloomiest In Europe And Beyond (R.)

Greece’s debt crisis has made its population the unhappiest not only in western Europe but also in comparison with people in some former Communist countries, a study showed on Tuesday. The “Life in Transition” survey conducted by the European Bank for Reconstruction and Development (EBRD) and the World Bank has questioned households across a broad region since 1991 as the Cold War came to an end, but Greece was included for the first time this year. Over 92% of Greeks said the debt crisis had affected them, with 76% of households suffering reduced income due to wage or pension cuts, job losses, delayed or suspended pay or fewer working hours.

Only one in 10 Greeks were satisfied with their financial situation and only 24% with life overall, compared with 72% in Germany and 42% in Italy, the two western European countries used as comparisons. The figure was 48% in post-communist countries. Austerity measures demanded by international creditors have been tough on Greeks. Pensions, for example, have been reduced by about a third since the crisis began in 2009. Only 16% of the respondents in Greece saw their situation improving over the next four years, compared with 48% in post-communist countries and 35 and 23% in Germany and Italy, respectively. “This signals that, despite the recent political changes and attempts at economic reforms that have taken place in the country, Greeks do not see their situation improving for the foreseeable future”, the report said.

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So that stops all fracking, right?!

Final EPA Study Confirms Fracking Contaminates Drinking Water (EW)

The U.S. Environmental Protection Agency (EPA) has released its widely anticipated final report on hydraulic fracturing, or fracking, confirming that the controversial drilling process indeed impacts drinking water “under some circumstances.” Notably, the report also removes the EPA’s misleading line that fracking has not led to “widespread, systemic impacts on drinking water resources.”The report, done at the request of Congress, provides scientific evidence that hydraulic fracturing activities can impact drinking water resources in the United States under some circumstances,” the agency stated in a media advisory. This conclusion is a major reversal from the EPA’s June 2015 pro-fracking draft report. That specific “widespread, systemic” line baffled many experts, scientists and landowners who—despite the egregious headlines—saw clear evidence of fracking-related contamination in water samples.

Conversely, the EPA’s top line encouraged Big Oil and Gas to push for more drilling around the globe. But as it turns out, a damning exposé from Marketplace and APM Reports revealed last month that top EPA officials made critical, last-minute alterations to the agency’s draft report and corresponding press materials to soft-pedal clear evidence of fracking’s ill effects on the environment and public health. Thomas Burke, EPA deputy assistant administrator and science advisor, discussed the agency’s final report released Tuesday. “There are instances when hyrdofracking has impacted drinking water resources. That’s an important conclusion, an important consideration for moving forward,” Burke told reporters today, according to The Hill. Regarding the EPA’s contentious “national, systemic conclusion,” Burke said, “that’s a different question that this study does not have adequate evidence to really make a conclusive, quantified statement.”

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Small state, but big chunk of ice.

A Crack In Antarctica Is Forming An Iceberg The Size Of Delaware (PopSci)

An iceberg the size of Delaware is starting to break away from Antarctica. It began with a small crack, but has now grown 70 miles long and more than 300 feet wide. When it reaches the edges of the ice sheet, the state-sized chunk will drift away into the sea. The crack is a third of a mile deep—reaching all the way to the sea below. It’s a relatively new rift in the ice sheet, called Larsen C, but is following in its icy brethren’s footsteps: Larsen A and B both broke away from the main Antarctic sheet in the last two decades in much the same way. All three began with clefts in the ice and eventually floated away to disintegrate. That dramatic a cleft is unusual—it’s more common for ice sheets to slowly break up along the edges and fall in smaller chunks. Only in the last half century has it become common for the Antarctic to form these dramatic fault lines, and scientists say global warming is likely to blame.

NASA has been monitoring the Larsen ice sheets since Larsen A broke off in 1995. Larsen B followed it in 2002, and Larsen C is expected to go the same way soon. Operation IceBridge has surveyed the polar ice caps annually for the past eight years as a way to track changes in the glaciers and ice sheets. The MIDAS Project, a U.K.-based research group, first reported the Larsen C rift in 2014 and has kept a watchful eye on it ever since. [..] The more than 2,400 square miles that is likely to break away from Larsen C will only be about 12% of the ice sheet’s total area. But once that part comes loose, the MIDAS Project predicts that the rest of the sheet could become unstable and completely disintegrate. The crack is growing steadily and shows no signs of stopping, though the break won’t happen immediately. It takes much longer for ice sheets to break up—unlike many human relationships, this one will last through the holiday season.


A rare ice crack not formed by that squirrel from the Ice Age movies – NASA/John Sonntag

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Dec 072016
 
 December 7, 2016  Posted by at 10:17 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Harris&Ewing Washington snow scenes 1924


Trump: US Must End ‘Destructive Cycle of Intervention and Chaos’ (VoA)
‘Chances Of Italy Staying In Euro For Next 5 Years Below 30%’ (Ind.)
Italian Interior Minister Sees New Elections In February (R.)
‘A Landscape of Exhaustion and Moral Decay’ (G.)
Is Janet Yellen Trying To Screw Donald Trump? (Miller)
Trump’s Air Force One Tweet Was A Brilliant Move (CNBC)
The Equation That Explains It All (Mark St.Cyr)
China Admits “Economic Downturn Just Beginning” (ZH)
China’s Big Savers Are Racking Up More Debt (BBG)
Australia’s Economy Shrinks 0.5%, Most in Eight Years (BBG)
John Key Was Known As The Smiling Assassin. And People Still Liked Him (G.)
Europe’s Still Dithering Over Greece (BBG)
Christmas Spirit Lacking In Greek Bailout Wrangles (R.)
Polar Bear Numbers To Plunge A Third As Sea Ice Melts (AFP)

 

 

If he pulls this off, it’s the biggest thing that’s happened in the US for many decades.

Trump: US Must End ‘Destructive Cycle of Intervention and Chaos’ (VoA)

U.S. President-elect Donald Trump returned Tuesday to his vision of a non-interventionist foreign policy for the United States, saying as he did during his campaign, that he does not want to have American forces fighting “in areas that we shouldn’t be fighting in.” Speaking during a “thank you” rally for his supporters in Fayetteville, North Carolina, Trump said instead his focus will be on defeating terrorists, including the Islamic State group. “We will stop racing to topple foreign regimes that we know nothing about, that we shouldn’t be involved with,” Trump said. He said the U.S. must end what he called a “destructive cycle of intervention and chaos.” Trump pledged to build up the military, but said the purpose would be to project strength, not aggression. After questioning frequently during his campaign whether NATO and other allies were pulling their weight Trump said Tuesday he wants to strengthen “old friendships” and seek new ones.

At the same rally, Trump formally announced he has chosen retired Marine General James Mattis as his nominee for secretary of defense. “Under his leadership, such an important position, we will rebuild our military and alliances, destroy terrorists, face our enemies head on and make America safe again,” Trump said. Michael O’Hanlon, a senior defense expert at the Brookings Institution, called Mattis “one of the best read, best informed and most experienced generals of his generation.” Mattis has served as the head of U.S. Central Command, which carries out U.S. operations in the Middle East, and the Supreme Allied Commander of NATO forces. The retired general will need a congressional waiver in order to be confirmed as secretary of defense. Mattis would otherwise be ineligible to serve because of a law that requires a seven-year wait for former members of the military to serve in the post. He has been retired for less than four years.

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Bold.

‘Chances Of Italy Staying In Euro For Next 5 Years Below 30%’ (Ind.)

The political turmoil set off by the Italian referendum result could endanger the euro, a German business group has warned. Ulrich Grillo, the head of the Federation of German Industries, said that the German industry is worried about the consequences of the referendum, which prompted Premier Minister Matteo Renzi to announce his resignation on Monday. “The risks of a new political instability for economic development, the financial markets and the currency union are increasing further,” he said. Douglas McWilliams from the Centre for Economics and Business Researcg (CEBR), a leading economics consultancy, said it estimated the chances of Italy staying in the Euro for the next five years had fallen below 30% following the vote.

“There is no doubt that Italy could stay in the euro if it were prepared to pay the price of virtually zero growth and depressed consumer spending for another five years or so. But that is asking a lot of an increasingly impatient electorate. We think the chances of their sustaining this policy are below 30%,” he said. German’s foreign minister also expressed concerns about the result, which prompted Prime Minister Matteo Renzi to resign. Speaking during a visit to Greece, Frank-Walter Steinmeier said that while the result of the Italian referendum on constitutional reform was “not the end of the world,” it was also “not a positive development in the case of the general crisis in Europe.”

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After the laws are changed?

Italian Interior Minister Sees New Elections In February (R.)

Italy could have an election as early as February, a minister in Prime Minister Matteo Renzi’s outgoing government said on Tuesday, speaking after talking to Renzi. The comments will add to growing support for a quick vote as the only way to avoid protracted political limbo in Italy following Sunday’s “No” vote on Renzi’s constitutional reforms. Renzi announced he would step down after his heavy defeat. President Sergio Mattarella told him to stay on until parliament had approved the 2017 budget, expected later this week. Then, the president said, Renzi could tender his resignation. Before the referendum, most commentators, and financial markets, assumed that even if Renzi lost and resigned, a temporary unelected government would be installed to tide Italy over until the end of parliament’s term in 2018.

But a chorus of comments from party chiefs suggests consensus may be growing for an early vote in spring. “I forecast there will be the will to go to elections in February,” Interior Minister Angelino Alfano, the head of a small centre-right party that is a crucial part of Renzi’s ruling coalition, told Corriere della Sera daily on Tuesday. Significantly, Alfano said he made his forecast after discussing the issue with Renzi. Renzi is still leader of the centre-left Democratic Party (PD), which has the largest number of parliamentarians, so it is unlikely any new government could be formed without his backing.

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The 1860s that Mark Carney referred to. Well, or today.

‘A Landscape of Exhaustion and Moral Decay’ (G.)

When Mark Carney insisted in a speech at Liverpool John Moores University that the conditions through which we are now living are “exactly the same” as those that British citizens endured during the “lost decade” of the 1860s, he was taking a bit of rhetorical licence. The past is never simply the present dressed up in funny clothes, and the analogy between today’s painful realities and those of 150 years ago doesn’t quite hold. And yet, the governor of the Bank of England had a point. When Overend Gurney collapsed in 1866, it undid once and for all the sense that, give or take a few individual misfortunes, capitalism was a moral force that rewarded skill and hard work. Toppling under a mountain of unsecured debt, the joint stock bank dragged down 200 businesses and a broad tranche of private investors with it, from courtiers to grocers.

As with the Northern Rock crisis in 2007, there were queues of panicky investors lining the streets. More profoundly, now came a dawning realisation that bad things could happen to good people. Thanks to the publication of Charles Darwin’s Origin of Species in 1859, the universe increasingly seemed not only godless but, what was perhaps even worse, indifferent to the sufferings of ordinary folk. The shock of 1866 was doubly hard because, for the previous 15 years, Britain had been sailing on a sea of prosperity and confidence. In 1851, the Great Exhibition had showcased the nation’s position as “the workshop of the world”, the great exporter of industrial goods and technological know-how to the four corners of the globe. Business was thriving, the social discontent of the “hungry” 1840s had receded, and this was, to use the coinage of the historian WL Burn, the “age of equipoise”, a serene and sunny upland of prosperity and social cohesion.

Increasingly, though, there were worrying signs that Britain could not hold on to its trading pre-eminence for much longer. Germany and the United States were playing industrial catch-up, and would soon be making everything from saucepans to spanners more cheaply and better than we ever could. What’s more, with global transport systems stretching further as each year passed, Britain’s grain, and even its dairy and meat produce, would soon be supplied from as far away as Australia and Canada. Domestic farming was about to go into a decline from which, some historians suggest, it has never recovered.

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Stockman at the head of the Fed would be diffferent…

Is Janet Yellen Trying To Screw Donald Trump? (Miller)

[..] But will Yellen’s gambit plunge us into a recession is the question. Just because Wall Street is gorging on high returns doesn’t mean the economy is sound. For eight years and running, the Fed has kept interest rates near zero% in an attempt to spark investment and borrowing. Unemployment has gradually shrunk during the Obama years, yet the workforce participation rate remains low by modern standards. Prior to Election Day, two-thirds of Americans were anxious about their economic future. Stock traders are popping the bubbly while middle America drinks the warm beer of worry. If you’re still in the dark as to why Trump stole the Rust Belt from Hillary, you need not look further than that. Fear aside, Trump’s election has been an Advil to the ongoing economic headache felt by most Americans.

Eight years of Obama’s big spending combined with ultra low interest rates has done precious little to shore up their optimism. Retirees on fixed income can’t get a yield on their savings. Millennials earning a salary for the first time in their life have little incentive to put money away. So you might think: Hey, maybe Yellen’s hinting about raising interest rates is a good thing! Sure, it might cause the S&P 500 to dip. But it’s about time Grandma got a return on her CDs. I’m very skeptical. Interest rates most definitely need to rise, but Yellen’s timing is suspicious. Trump, despite his admiration for low borrowing rates (and debt refinancing), has accused Yellen of keeping the lid on interest rates in order to boost Obama’s legacy. He told CNBC in September that rates were “staying at zero because [Yellen’s] obviously political and she’s doing what Obama wants her to do.” In another interview with Reuters, Trump explained with perfect Trumpian simplicity, “They’re keeping rates down because they don’t want everything else to go down.”

Yellen wasn’t happy about the charges. She fired back at a press conference, saying, “We do not discuss politics at our meetings, and we do not take politics into account in our decisions.” Uh huh. And I’m the Archbishop of Canterbury. [..] What the Fed, serving as America’s central bank, does is balance the money supply to reflect market conditions. When the market is roaring, it’s time to cut off the money spigot so as to rein in inflation. When things are sluggish, pouring cash into the economy is supposed to gin up activity. There are all kinds of ins and outs and what-have-yous involved in the process, including convoluted accounting techniques. But long mythologized story short, the tinkers at the Fed are supposed to act on behalf of the economy, and not the elected shysters in Washington. Every macro-econ student learns that faux civics lesson the first week of class.

[..] A few choices off the top of my head: finance writer and all-around mensch Jim Grant, former Director of the Office of Management and Budget David Stockman, commodity guru Jim Rogers, or former congressional representative and arch-Fed-critic Ron Paul.

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Brilliant is a big word, but the use of Twitter is interesting.

Trump’s Air Force One Tweet Was A Brilliant Move (CNBC)

Another day, another provocative tweet from President-elect Donald Trump. This time, he went after Boeing and the cost of the new Air Force One replacement program. But while the target was different, the goal of Trump’s twitter use remains the same: It’s his negotiating tool and, just as importantly, an instant link to public support that no president has ever been able to use before. But why this tweet and comments and why now? As few people knew before now, the Air Force is actually currently in negotiations with Boeing on the final costs of the two new Air Force One jets it hopes to buy and have in service by 2024. The source of Trump’s $4 billion cost figure in his tweet is not so clear, but the last publicly reported estimate was at $3 billion with costs still rising.

Sure, there are a lot of spending programs that cost more that Trump could target. But are there many more that are as easy for all the voters to understand? Air Force One is an iconic jet that we all know exists and almost everyone can picture quickly in their minds. Our social media/short attention span media culture makes this issue absolutely perfect for Trump to single out on Twitter. And it looks like it may have already worked. About two hours after the tweet, Boeing delivered the following statement: “We are currently under contract for $170 million to help determine the capabilities of these complex military aircraft that serves the unique requirements of the President of the United States. We look forward to working with the U.S. Air Force on subsequent phases of the program allowing us to deliver the best planes for the President at the best value for the American taxpayer.”

Yes, that “at the best value” phrase at the end of the statement says it all. Who knows exactly how much the Trump tweet just saved the American taxpayers? But considering that it cost him and us nothing for him to send it, even a few hundred grand looks like a big net windfall. And that’s not the only reason why the use of Twitter remains crucial to Trump. Every President of the United States has had the option to use public opinion to promote his agenda, but none before Trump has had an established and instantaneous link with his supporters like he has with Twitter. In the past, the best a president could do was go on national TV and make a long speech. That’s tortuous compared to the quick bang Trump gets by tweeting directly to his 16 million-plus followers and the tens of millions more who instantly hear about his tweets from the news media.

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“..we need more financial chaos (A) To make even more all time “market” highs (C)..”

The Equation That Explains It All (Mark St.Cyr)

If you were just woken from some form of suspended animation from let’s say 2010 (ancient economic history in today’s terms) then informed of the current state of global political affairs and upheavals, U.S. employment (95+million not,) global currency gyrations, interest rates at not only 0% but some -0%, threats of escalating wars, threats of major confrontational war, GDP of the major global economies not only contracting, but below statistical stagnant, governments, as well as central banks with balance sheets of debt calculated in $TRILLIONS, some in the 10’s of, all financed at near or below 0%, and the Fed is only about a week away from raising rates into the teeth of what can only be called “uncertainty,” and much, much more. (There isn’t enough time, or digital ink to list them all.)

Nobody would be surprised if your first reaction based on your prior acumen (the ancient history of 7 years ago whether it be in stocks, business, or both) would to become immediately concerned that whatever portfolio, or wealth you may have had in the markets, may be worth far less today than when you were first put to sleep. And probably becoming ever smaller as you thought about what you might need to do next in order to preserve any that may be left. That is, till someone explained to you the markets you went to sleep knowing of – are no longer – and the reality of the markets today you could never have dreamed up. Even if they let you sleep another decade or longer. Today, the markets you once knew of are better described as the “markets.”

To clear up any confusion as to how, or why, the “markets” can now be at “never before seen in the history of mankind highs” once again after the resounding “NO” vote in Italy, where the entire E.U. experiment is now seriously undermined, and falling apart in real-time (Brexit first, Italy will surely now vote next, etc., etc,) [here] is the calculation that explains it all. For under the rules of: If A = B and B = C, then A = C, you now have the magical formula to understand with Einstein like surety today’s ‘markets.” If you have any doubt to the soundness of this expression, consider the following: If a financial crisis appears (A) The central banks will intervene (B) If the central banks intervene (B) The “markets” go up (C) Thus, we need more financial chaos (A) To make even more all time “market” highs (C)

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“..the decrease reflects Chinese economic downturn, which is just now beginning and will last a long time since China has passed its economic boom period in which many problems were hidden..”

China Admits “Economic Downturn Just Beginning” (ZH)

In what may be the most direct admission that China’s economy is about to grind to a deflationary halt, today China’s Global Times, a newspaper which is seen as a propaganda companion to the official People’s Daily, revealed data showing this year’s proposed salary guidelines according to which there is a broad wage growth declines in virtually every single province on the mainland, which according to the Chinese publication “confirms the country is experiencing an economic slowdown.” Salary guidelines are issued by local governments as a reference to help firms decide how much they should increase their employees’ salaries. They are based on labor market conditions and economic growth, among other factors.

Global Times notes that compared to 2015 salary guidelines, wages in 2016 have grown at a slower rate in virtually all 19 provinces and regions that have so far published their annual guidelines for firms. Northeast China’s Heilongjiang Province has not released salary guidelines for years as the region has been experiencing a recession and therefore wages are not generally increasing. Seventeen provinces have seen a decrease in salary standards, including North China’s Hebei Province, South China’s Hainan Province, Northwest China’s Xinjiang Uyghur Autonomous Region and East China’s Jiangxi Province. The only increases were seen in Southwest China’s Guizhou Province and Beijing Municipality.

“2016’s guidelines have seen a slowing of salary growth after years of increases, which means that the speed of wage growth has surpassed economic growth since China’s labor contract law was adopted in 2007,” Wang Jiangsong, a professor at the China Institute of Industrial Relations, told the Global Times on Tuesday. Confirming that the only way for Chinese wage growth is down, Wang Jiangsong, a professor at the China Institute of Industrial Relations, told the Global Times that “since China’s labor contract law was adopted in 2007, wage increases have surpassed economic growth.” He said the slowdown reflects China’s economic downturn. It also means that local workers will not be happy.

But more troubling was Wang’s next admission: “the decrease reflects Chinese economic downturn, which is just now beginning and will last a long time since China has passed its economic boom period in which many problems were hidden but now those problems will gradually surface.” In short, declining wage growth, with aggregate 2016 demand driven by the biggest credit impulse and expansion in Chinese history. To all those who truly believe in the global reflation these, we wish you the best of luck.

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The shadow banking system gets bigger, not smaller. That should worry Xi to no end.

China’s Big Savers Are Racking Up More Debt (BBG)

China’s savers, who sock away cash like almost no one else in the world, are racking up more debt as borrowing options proliferate. 94% of consumers used a credit or loan in the past year, up from 85% two years ago, according to a survey by market researcher Mintel Group. Peer-to-peer lending via online lenders jumped, while car loans and mortgages nearly doubled, the poll showed. “Huo zai dang xia”, or living in the moment, is the new buzzword. It’s especially prevalent among consumers in their 20s, according to Aaron Guo, a senior analyst for Mintel in Shanghai. “Compared with their parents’ generation, who tend to save more and are sometimes thrifty, youngsters are willing to spend more on products with special features or tailored services,” he said.

That’s a profound shift in attitudes for a nation where saving has long been the bedrock principle of personal financial management and a prerequisite for big milestones like cars, homes and kids. Deposits stand at 59.6 trillion yuan ($8.67 trillion), People’s Bank of China data show. The newfound willingness to borrow from the future to enjoy the present could help support consumption in coming years and nudge the nation’s rebalancing away from old traditional drivers. China’s GDP rose 6.7% in the third quarter from a year earlier on the back of resilient retail sales, which expanded 10.3% in the year to date. The borrowing could be just getting started. China’s household outstanding loans will continue to rise at a rate of 14% for the following five years and exceed 60 trillion yuan by 2021, the Mintel report said.

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Presented as a one-off.

Australia’s Economy Shrinks 0.5%, Most in Eight Years (BBG)

While Australia’s economy shrunk last quarter, it’s probably more of a red flag than a precursor to recession. One of only four quarterly contractions in the past 25 years, the so-called ‘lucky country’ is unlikely to suffer a second consecutive slump — just as in those prior periods. But it’s a wake-up call for lawmakers that recent political timidity and gridlock is unsustainable, as is reliance on monetary policy to support growth with a 1.5% interest rate that may not even fall further. A growing chorus of high-profile economists and international institutions are calling on Australia to follow U.K. and U.S. plans to use infrastructure stimulus, particularly with global borrowing costs so low. But the government has made clear its priority is returning the budget to balance as it seeks to protect a prized AAA credit rating.

Wednesday’s report showed:
• GDP fell 0.5% from previous quarter, when it gained a revised 0.6%
• Decline was driven by slump in construction and government spending
• Result was worst since depths of global financial crisis at the end of 2008 and well below economists’ estimates of a 0.1% drop
• The economy grew 1.8% from a year earlier, compared with a forecast 2.2% gain
• Australian dollar fell almost half a U.S. cent on the data

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Nice put-down of a wanker of a man.“He pulled ponytails instead of grabbing pussies.” Does New Zealand have any competent people in politics?

John Key Was Known As The Smiling Assassin. And People Still Liked Him (G.)

John Key’s legacy will not be defined by great policy achievements; it’s his success as the model of a neoliberal leader – a poster boy for trickle-down economics – that he will be remembered for. Key presided over increasing and gross social inequality with all the glibness of the banker who was known as the “smiling assassin” in his Merrill Lynch days. And people still liked him. In this regard, Key was like a Tony Blair of the South Seas: a certain level of personal charisma and a socially inclusive façade allowed both Key and Blair to sell the nasty side of neoliberalism. Compared with the likes of Donald Trump in the United States and Tony Abbott in Australia, Key was socially moderate in ways that many thought – and hoped – Malcolm Turnbull would have been before he capitulated to the far right of his party on refugees, marriage equality and climate change.

Key was more inclusive, and less divisive. He pulled ponytails instead of grabbing pussies. Key supported marriage equality in New Zealand and, as far as race is concerned, Key’s National party entered into a coalition government with the Maori party not once, but twice. Like Blair, Key had the Teflon gene. Despite ignoring public preferences not to privatise state-owned enterprises (2-1 against in a referendum), increasing the GST during the global financial crisis, and more or less ignoring New Zealand’s chronic child poverty because he blames the victims, none of it stuck. What did stick with Key was his reputation as a smart-money guy who was also likeable, self-effacing and wouldn’t look out of place having a beer with regular folks. Never mind the hundreds of thousands of children living under the poverty line in New Zealand – a country of 4 million – and him brushing off the recommendations of the government panel charged with improving their lot; Key was seen as a good guy and a safe pair of hands.

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It’s time for the international press, including Bloomberg, to stop dithering around the topic and tell Brussels to stop this disgrace.

Europe’s Still Dithering Over Greece (BBG)

This week, the European Union’s finance ministers granted some new debt relief to Greece. The new “short-term” measures are better than nothing – but they’re less than a convincing solution to a problem that has dragged on far too long. The deal, sketched out and agreed to in principle earlier this year, should help the Greek government convince voters to keep accepting much-needed domestic reform. That’s good. It isn’t enough, though, to put the country’s debts and budget plans on a sustainable footing. That’s why the International Monetary Fund, whose support will be necessary to achieve that larger goal, isn’t yet on board. After years of muddling through, the issue still isn’t resolved. In the approach to the latest talks, French Finance Minister Michel Sapin acknowledged that “Greece has made huge efforts. This is the first Greek government in a long time that has implemented its commitments.”

He said it was vital that Europe respond by recognizing its obligation to help ease the country’s debt burden, both as a reward and to encourage further improvements in the business climate. All true. Greece can’t be accused of doing nothing to help itself. The banking system has stabilized after three bouts of recapitalization, and deposits are returning, albeit slowly. The economy is growing modestly. The country posted a primary budget surplus for the first 10 months of this year. State asset sales are proceeding slowly but surely. These efforts justify extending the repayment schedule and swapping some floating-rate debt to fixed payments at the current low rates, as announced. But the expected reduction in Greece’s debts relative to its economic output by 20 percentage points through 2060 is far too timid – while the idea that Greece can achieve an annual primary budget surplus of 3.5% of output throughout the coming decade is a fantasy.

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This is why we are raising funds for Greece (see top of this page). So the poor can have a little bit better Christmas. And a little better prospect for the new year. To counter the devastation unleashed by the EU.

Christmas Spirit Lacking In Greek Bailout Wrangles (R.)

Greece thanked creditors for modest debt relief on St. Nicholas Day in Brussels but did not hide disappointment it won’t get the Christmas gift it wants – a pass on the latest phase of its bailout programme. Athens has been hoping fellow euro zone governments will approve a second review of its third bailout, granted in August last year, before year’s end. A government spokesman said on Tuesday it did not yet rule that out. But others, not least German Finance Minister Wolfgang Schaeuble, made clear that is highly unlikely after a Eurogroup meeting on Monday that revealed differences over how well Greece has done in meeting reform commitments. That left Greece and its allies among its EU partners annoyed at stalemate.

Athens wants to clear the review in order to be able to take advantage of selling bonds to the ECB’s quantitative easing scheme. “We could have got this done by the end of the year but the Germans are not moving,” one EU source said. “Greece has done a lot … We haven’t been so strict in other programmes.” A senior EU official involved in Monday’s talks described them as “useless” in terms of furthering agreement, according to another EU source. Ministers were at odds too on budget targets to set Greece after the bailout regime ends in 2018 – conditions important in persuading the IMF to join in lending. [..] The Eurogroup did agree to a series of short-term adjustments to the structure of Greek debt that will smooth out humps in repayments and should reduce its costs in the long run.

Government spokesman Dimitris Tzanakopoulos called that a “significant success”. But he said Athens still wanted Schaeuble and the IMF to scale back demands for more belt-tightening. “They must stop insisting on continuing a policy of extreme austerity which has been proven destructive for society and also economically ineffective,” he said. Schaeuble made clear he will not be swayed by pleas to forgo economic reforms which, he insisted, were for Greece’s own good.

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Note the effects of chemicals on populations.

Polar Bear Numbers To Plunge A Third As Sea Ice Melts (AFP)

Polar bear numbers could drop a third by mid-century, according to the first systematic assessment, released on Wednesday, of how dwindling Arctic sea ice affects the world’s largest bear. There is a 70% chance that the global polar bear population – estimated at 26,000 – will decline by more than 30% over the next 35 years, a period corresponding to three generations, the study found. Other assessments have reached similar conclusions, notably a recent review by the International Union for the Conservation of Nature (IUCN), which tracks endangered species on its Red List. The IUCN classified the sea-faring polar bear – a.k.a. Ursus maritimus – as “vulnerable”, or at high risk of extinction in the wild.

But the new study, published in the Royal Society’s Biology Letters, is the most comprehensive to date, combining 35 years of satellite data on Arctic sea ice with all known shifts in 19 distinct polar bears groupings scattered across four ecological zones in the Arctic. [..] Researchers led by Eric Regehr of the US Fish and Wildlife Service in Anchorage, Alaska projected three population scenarios out to mid-century, and all of them were bad news for the snow-white carnivores. The first assumed a proportional decline in sea ice and polar bears. Despite year-to-year fluctuations, long-term trends are unmistakable: the ten lowest Arctic ice extents over the satellite record have all occurred since 2007.

The record low of 3.41 million square kilometres (1.32 million square miles) in 2012 was 44% below the 1981-2010 average. This week, the US National Snow and Ice Data Center reported that sea ice extent in October and November was the lowest ever registered for both months. [..] Unfortunately, polar bears face other threats besides a habitat radically altered by the release of heat-trapping greenhouse gases. In the 1980s and 1990s, females and pups were found to have accumulated high levels of toxic PCPs in their tissue and organs. The manmade chemicals – used for decades and banned in many countries in the late 1970s – worked their way up through the food chain, becoming more concentrated along the way.

But a new study, published last week in the Royal Society’s Proceedings B, suggested that declines in some polar bear populations stemmed from contaminated males rendered sterile by the chemicals. “PCB concentrations in the Arctic have levelled off,” said lead author Viola Pavlova, a scientist at the Institute of Hydrobiology in the Czech Republic. “Unfortunately, many other manmade chemicals that are also endocrine disruptors occur in the Arctic and could act similarly,” she told AFP.

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Dec 062016
 
 December 6, 2016  Posted by at 10:01 am Finance Tagged with: , , , , , , , , , , ,  1 Response »
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John M. Fox Midtown Dealers Corp. and Hudson showroom, Broadway at W. 62nd Street, NY 1947


Mark Carney: World Is Facing The “First Lost Decade Since The 1860s” (BBG)
Trump Must Fire Janet Yellen – First Thing! (Stockman)
Matteo Renzi’s Resignation Temporarily ‘Frozen’ By Italian President (G.)
Italian Bank Shares Slump as Renzi Loss Adds to Uncertainty (BBG)
Italy Already Requested Monte Dei Paschi Bailout Before Referendum (R.)
Could Renzi’s Exit Lead To An Italian Bank Rescue? (G.)
How Italy Became This Century’s ‘Sick Man Of Europe’ (G.)
Standing Rock Is A Modern-Day Indian War. This Time Indians Are Winning (G.)
Trump Advisors Aim To Privatize Oil-Rich Indian Reservations (R.)
Naked Capitalism Demands Retraction, Apology Over WaPo Fake News Story (NC)
Russia Remains The Only Target Country Of NATO’s Nuclear Weapons (SC)
The Deepening Deep State (Jim Kunstler)
Eurozone Agrees Debt Relief For Greece Amid IMF Row (AFP)
Greek Home Sellers Getting Paid In Banks Abroad (Kath.)
Greek Court Rejects Extradition Of 3 Turkish Officers Accused Of Coup (AFP)

 

 

But he had nothing to do with it!

Mark Carney: World Is Facing The “First Lost Decade Since The 1860s” (BBG)

Mark Carney launched a defense of globalization and set out a manifesto for central bankers and governments to boost growth and make the world economy more equal. The Bank of England Governor said they must acknowledge that gains from trade and technology haven’t been felt by all, improve the balance of monetary and fiscal policy, and move to a more inclusive model where “everyone has a stake in globalization.” Carney’s speech in Liverpool, England, comes amid rising disquiet about the state of the world economy and political status quo that helped propel Donald Trump to victory in the U.S. presidential election and boost support for the U.K.’s exit from the European Union.

Trump isn’t right to favor more protectionist policies in response to globalization, Carney said in a television interview broadcast after his speech. The answer is to “redistribute some of the benefits of trade” and ensure that workers are able to acquire new skills. “Weak income growth has focused growing attention on its distribution,” Carney said in the speech. “Inequalities which might have been tolerated during generalized prosperity are felt more acutely when economies stagnate.” Describing the world as facing the “first lost decade since the 1860s,” the BOE governor said public support for open markets is under threat and rejecting them would be a “tragedy, but is a possibility.”

Carney also defended the central bank’s current policy stance. The BOE has faced criticism from politicians after officials took measures including cutting interest rates and expanding asset purchases in August to support the economy after Britain’s June vote to leave the EU. “Low rates are not the caprice of central bankers, but rather the consequence of powerful global forces, including debt, demographics and distribution,” he said, adding that they helped to prevent a deeper economic downturn.

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“Essentially, the United States is held to be a closed economy resembling a giant bathtub.” Stockman says the Trump team have contacted him.

Trump Must Fire Janet Yellen – First Thing! (Stockman)

The Keynesian statists at the Fed think the devastating financial busts we’ve suffered since 1987 were due to a mix of too much investor exuberance, too much deregulation, a one-time housing mania and a smattering of Wall Street greed and corruption, too. And that’s not to overlook some of the more far-fetched reasons for the two big financial meltdowns of this century. Foremost among these is the Greenspan-Bernanke fairy tale that Chinese workers making under $1 per hour were saving too much money, thereby causing low global mortgage rates and a runaway housing boom in America! Needless to say, not only are these rationalizations completely bogus; but so is the entire underlying rationale for Keynesian monetary central planning.

The claim that market capitalism is chronically and destructively unstable and that the business cycle needs constant management and stimulus by the state and its central banking branch is belied by the historical facts. Every economic setback of modern times, including the foundation events of the Great Depression — was caused by the state. The catalyst was either inflationary war finance or central bank fueled credit expansion, not the deficiencies or inherent instabilities’ of market capitalism. Nevertheless, the Fed’s model robs the millions of workers, entrepreneurs, investors and savers who comprise the ground level economy and the billions of supply-side prices for labor and capital through which they interact and ultimately generate output, income and wealth.

Instead, the Fed focuses on the macroeconomic aggregates as the key to achieving its so-called dual mandate of stable prices and maximum employment. Essentially, the United States is held to be a closed economy resembling a giant bathtub. In the pursuit of “full employment,” the central bank’s job is to keep it pumped full to the brim with “aggregate demand.” But the domestic macroeconomic aggregates of employment and inflation cannot be measured on an accurate and timely basis. Neither can they be reliably and directly influenced by the crude tools of the central bank, such as pegging the money market rate, manipulating the yield curve via QE, levitating Wall Street animal spirits via wealth-effects and various forms of open-mouth intervention such as “forward guidance.”

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The president picking favorites. Dangerous at this stage. Italy’s had technocrat ‘caretakers’ before, and that didn’t go well. But everything to keep M5S out of power, including new changes to election laws.

Matteo Renzi’s Resignation Temporarily ‘Frozen’ By Italian President (G.)

Matteo Renzi will remain in office for at least a week after Italy’s head of state asked the centre-left prime minister to “freeze” his resignation temporarily until the senate passed a 2017 budget. Renzi met Sergio Mattarella on Monday at the presidential palace – the Quirinale – in order to formally submit his resignation following a stunning defeat in a referendum on Sunday. Renzi was expected to step down immediately but his departure could now be delayed until Christmas. Mattarella signalled that he will not call snap elections in response to the referendum results, putting him on a collision course with populist and rightwing parties that want a new poll to be called right away.

The Sicilian head of state said he believed it was important for Italy’s institutions to respect “commitments and deadlines”, and that they worked hard to find solutions that were worthy of the “demands of the time”. While the president must always appear to be independent of political allegiances, his comments were taken as a clear sign that he believed the current government needed to fulfil its obligation to not only pass a budget but also make changes to an election law that has been put in flux by the referendum results. Renzi’s months-long campaign to convince Italians to vote yes and overhaul the constitution and parliament was roundly rejected by 59.1% of voters on Sunday, on a turnout of 68%.

The high interest in the plebiscite did not escape Mattarella, who said it was a “testament to a solid democracy [and] an impassioned country capable of active participation”. Mattarella’s call for “serenity” after Italy was plunged into political chaos by the vote may have assuaged worries in Europe about what Renzi’s defeat signified for Europe, Italy’s fragile banking system, and the future of the euro. Germany’s foreign minister, Frank-Walter Steinmeier, said the result was a “concern”, while finance minister Wolfgang Schäuble said Italy ought to continue on an economic path that had been adopted by Renzi. The results, however, were celebrated by French far-right candidate Marine Le Pen who said that, with the no win, Italians joined the British in turning their backs on “absurd European policies which are plunging the continent into poverty”.


Wikipedia

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Oh well, everything else went up…

Italian Bank Shares Slump as Renzi Loss Adds to Uncertainty (BBG)

UniCredit and Banca Monte dei Paschi di Siena fell along with most Italian bank shares after Prime Minister Matteo Renzi’s decision to resign added to uncertainty about their plans for shoring up their finances. Monte Paschi will decide within the next few days whether it will proceed with a planned capital increase, people with knowledge of the matter said. The underwriters, who met with the bank’s executives on Monday, are still waiting for a formal commitment from possible anchor investors, the people said, asking to not be identified because the matter is private. Potential investors are seeking more time to review the political situation after the referendum, according to the people. Italy’s political vacuum threatens to usher in a period of uncertainty that may weigh on plans to reduce a pile of bad loans estimated at €360 billion.

UniCredit and Monte Paschi are among banks looking to raise capital as part of overhauls to clean up their balance sheets and strengthen profitability. UniCredit CEO Jean Pierre Mustier said he’s not worried that market volatility will compromise a strategic plan due next week, just as Renzi prepares to step down. “The events overnight won’t change our strategy,” he said on Monday, without elaborating on the changes ahead. Mustier is trying to restore confidence in a systemically important lender after a slide in its share price eroded more than 60% of the company’s market value this year. Italy’s biggest bank was trading 2.9% lower at 5:24 p.m. in Milan, while Monte Paschi was down 4.2%, after falling as much as 7.5% earlier Monday. Italy’s biggest bank plans to raise as much as €13 billion through a combination of asset sales and a stock offering.

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Italy will have to bail out banks, but doesn’t want EU rules to force it to victimize its own citizens, who hold a huge amount of bank bonds. Maybe they should let Beppe have a go at this.

Italy Already Requested Monte Dei Paschi Bailout Before Referendum (R.)

Italy is discussing with the European Commission the terms of a state bailout of ailing bank Monte dei Paschi that has already been requested and could be launched next week if needed, Italian daily Corriere della Sera reported on Friday. Italy’s third-largest bank needs to raise €5 billion by the end of the year to plug a capital shortfall identified by ECB stress tests or face the risk of being wound down. Quoting sources with knowledge of the matter, Corriere said that Italy had already filed a request to launch a public recapitalization of Monte dei Paschi as early as next week. The newspaper reported that the Commission was willing to limit the burden on shareholders and subordinated bondholders and it was being discussed to what extent retail investors who held subordinated bonds could be spared.

The bank’s finance chief Francesco Mele said this week that the Commission was expected to agree that only shareholders and junior bondholders share the bank’s losses before Monte dei Paschi is given any state aid. New EU rules on state aid to banks require investors to take a hit before lenders tap public money, but a lighter version of the rules can apply in cases such as Monte dei Paschi’s. Sources told Reuters last week that authorities would apply EU rules with flexibility with regard to a Monte dei Paschi bailout to avoid damage to the entire Italian banking system. A debt-to-equity swap aimed at reducing the size of a share sale ends on Friday, with Monte dei Paschi planning to launch its share issue after Italy’s referendum on constitutional reform this Sunday.

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Yup, Draghi.

Could Renzi’s Exit Lead To An Italian Bank Rescue? (G.)

Investors’ ability to look on the bright side on political turmoil is remarkable. In the case of Italy, the departure of Matteo Renzi, the market-friendly centre-left prime minister, was followed quickly by the thought that the crisis in the country’s banking system may, counterintuitively, become easier to address. That wasn’t last week’s theory, of course. Back then, Renzi’s survival was seen as critical to encouraging private sector investors to cough up billions of euros of new capital to refinance the likes of Banca Monte dei Paschi di Siena and UniCredit. This week’s silver lining theory holds that a political vacuum isn’t so bad if it prods the ECBand the eurozone authorities to take a flexible approach to Italy’s banking mess.

Ireland’s finance minister, Michael Noonan, captured the new mood: “The president of the ECB, Mario Draghi, is Italian and I can’t envisage a situation in which the ECB under Mario Draghi will let the Italian banks get into difficulty.” He’s probably right. It seems quite possible that, if MPS struggles to get its required €5bn (£4.2bn) from big private sector investors such as Qatar’s sovereign wealth fund, the bank could be nationalised with ways found to compensate ordinary savers who hold bonds that would be wiped out. A wipeout of senior bondholders is meant to be an essential requirement of state bailouts in the eurozone these days. It causes problems in Italy because so many bondholders are retail savers.

But the eurozone’s capacity to bend its own rules is legendary: compensation for some bondholders, even if that is supposed to be a no-no, might be deemed a price worth paying after Renzi’s exit. Yet would that really be a cause for celebration? Only if the health of the Italian banking system is addressed once and for all. But it seems far more likely that a weak Italian government and reluctant eurozone authorities will serve up only half a solution – one big enough to get through the current crisis but insufficient to allow a proper cleansing of the bad loans in the system, which are estimated to stand at €360bn.

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Italy has a lot of small enterprises, often family owned. That doesn’t fit today’s globalization model (not competitive enough). But globalization is over anyway. The country had better save what’s left of its business model, because it’s ideal for a post-centralized world.

How Italy Became This Century’s ‘Sick Man Of Europe’ (G.)

On New Year’s Day in 2002, Italians gathered in Rome to throw their lire into the Trevi fountain. There were celebrations as Italians took possession of the new euro notes and coins that became legal tender as the clocks struck midnight. But hopes that the advent of the single currency would provide a fresh start for Italy’s economy were misplaced. The growth performance of the eurozone as a whole has been poor, but Italy’s has been dismal. Greece and Spain at least had booms before their painful busts; Germany and France have managed to claw back the ground lost in the deep recession of 2008-09. But national output per head in Italy is only 4% higher than it was 15 years ago. The economy is still smaller than it was in 2008.

Unemployment is at 11.6%, labour market participation is low, and its birthrate in 2014 was the lowest since the modern Italian state was founded in 1861. If there was a contest for the unwanted title of the sick man of Europe in the 21st century, Italy would walk it. The eurozone’s third biggest economy has one central problem: the goods and services it produces are more expensive than those of its rivals. This lack of competitiveness means that it has suffered the biggest drop in export market share of any developed country. There are three reasons for this. Firstly, Italy’s manufacturing sector has traditionally been dominated by small companies, many of them family-owned. These businesses have been reluctant to invest, poor at innovation, and were slow to take advantage of the the new information technology when it came on stream in the 1990s.

Productivity has increased less rapidly than in Germany or France. Secondly, Italy has tended to specialise in low-cost manufactured goods, a segment of the global economy that has been dominated by China since it gained membership of the World Trade Organisation in 2001. Italy’s competitiveness problem is not new. Since the second world war, it has tended to have higher costs and higher inflation than rival countries. But up until it joined the euro, Italy was able to restore competitiveness by devaluing the lire, which made exports cheaper. With that option no longer available, Matteo Renzi has been trying a different approach: structural reforms of Italy’s labour market.

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A bit overdone this, but not entirely.

Standing Rock Is A Modern-Day Indian War. This Time Indians Are Winning (G.)

As Indigenous peoples faced off against armed police and tanks near the Standing Rock Sioux reservation in Dakota, theirs wasn’t just a battle over a pipeline. It was a battle over a story that could define the future of America. The Obama administration’s decision yesterday to refuse the Dakota Access pipeline permission to complete its construction has now shaken up that story. Its old version was that Indigenous peoples have always been in the way of progress, their interests a nuisance or threat, their treaties a discardable artifact. In that story, the American heroes forged on these high plains of the west were never the Indians: they were the gold-diggers or gamblers, the cowboys or cavalry.

But over the past months, it became impossible to watch peaceful Indigenous people and supporters attacked by snarling dogs, maced, and shot with rubber bullets and water cannons in freezing conditions, and still see in them a threat. It was impossible to look upon these young Indigenous men and women, in jingle dresses or on horseback, and not observe the courage that America desperately needs. It was impossible to listen to the cry of their slogan and not hear a rallying vision for all of us: Water is Life. Along the snowy banks of the Missouri river, a new story is being painfully birthed. It tells us that frontiers must at some point close. That endless taking must become care-taking.

And that Indigenous rights, cast aside for too long, are a key to protecting land and water and preventing climate chaos. America is waking up to new heroes. This is not high-minded romanticism. It is hard-bitten reality. All over the world, there are massive pools of fossil fuels—and the infrastructure to rip and ship it—concentrated in the traditional territories of Indigenous peoples. This rush for extreme energy on their lands was never a new crisis for them—it was only the latest stage in a very old colonial pillage.

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Seems ridiculous, but he has support from various tribes and leaders.

Trump Advisors Aim To Privatize Oil-Rich Indian Reservations (R.)

Native American reservations cover just 2% of the United States, but they may contain about a fifth of the nation’s oil and gas, along with vast coal reserves. Now, a group of advisors to President-elect Donald Trump on Native American issues wants to free those resources from what they call a suffocating federal bureaucracy that holds title to 56 million acres of tribal lands, two chairmen of the coalition told Reuters in exclusive interviews. The group proposes to put those lands into private ownership – a politically explosive idea that could upend more than century of policy designed to preserve Indian tribes on U.S.-owned reservations, which are governed by tribal leaders as sovereign nations.

The tribes have rights to use the land, but they do not own it. They can drill it and reap the profits, but only under regulations that are far more burdensome than those applied to private property. “We should take tribal land away from public treatment,” said Markwayne Mullin, a Republican U.S. Representative from Oklahoma and a Cherokee tribe member who is co-chairing Trump’s Native American Affairs Coalition. “As long as we can do it without unintended consequences, I think we will have broad support around Indian country.” [..] The plan dovetails with Trump’s larger aim of slashing regulation to boost energy production. It could deeply divide Native American leaders, who hold a range of opinions on the proper balance between development and conservation.

The proposed path to deregulated drilling – privatizing reservations – could prove even more divisive. Many Native Americans view such efforts as a violation of tribal self-determination and culture. “Our spiritual leaders are opposed to the privatization of our lands, which means the commoditization of the nature, water, air we hold sacred,” said Tom Goldtooth, a member of both the Navajo and the Dakota tribes who runs the Indigenous Environmental Network. “Privatization has been the goal since colonization – to strip Native Nations of their sovereignty.” Reservations governed by the U.S. Bureau of Indian Affairs are intended in part to keep Native American lands off the private real estate market, preventing sales to non-Indians.

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Go Yves!

Naked Capitalism Demands Retraction, Apology Over WaPo Fake News Story (NC)

As the lawyers like to say, res ipsa loquitur. Please tweet and circulate this letter widely. You will notice that our attorney Jim Moody is a seasoned litigator who has won cases before the Supreme Court. He has considerable experience in First Amendment and defamation actions. Past high profile representations include Westomoreland v. CBS and defending Linda Tripp. I also hope, particularly for those of you who don’t regularly visit Naked Capitalism, that you’ll check out our related pieces that give more color to how the fact the Washington Post was taken for a ride by inept propagandists, particularly our introduction to our spoof PropOrNot.org site, which uses the PropOrNot project as an example of sorely deficient propaganda and shows where it went wrong, or the humor site itself. Be sure not to miss its FAQ.

We have another post today that describes how the few things that are verifiable on the PropOrNot site don’t pan out, as in the organization is not simply a group of inept propagandists but also appears to deal solely in fabrications. If the site is flagrantly false with respect to things that can be checked, why pray tell did the Washington Post and its fellow useful idiots in the mainstream media validate and amplify its message? Strong claims demand strong proofs, yet the Post appeared content to give a megaphone to people who make stuff up with abandon. No wonder the members of PropOrNot hide as much as they can about what they are up to; more transparency would expose their work to be a tissue of lies.

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NATO expands in multiple dimensions.

Russia Remains The Only Target Country Of NATO’s Nuclear Weapons (SC)

For many years before the 2016 Warsaw summit, NATO had been deploying aircraft all round Europe that were capable of delivering nuclear weapons against Russia. The only difference in recent times is that NATO, as recorded by Arms Control in June 2016, «is beefing up its nuclear posture. Polish F-16s participated for the first time on the sidelines of a NATO nuclear strike exercise at the end of 2014. As a clear signal to Russian President Vladimir Putin, four B-52 bombers flew a nuclear strike mission over the North Pole and the North Sea in a bomber exercise in April 2015. Although these planes did not have nuclear weapons on board, they were equipped to carry 80 nuclear air-launched cruise missiles».

It goes further than that, because NATO’s most recent nuclear-associated deployments to the Baltic have involved aircraft from Belgium’s 10th Tactical Wing which is based at Kleine Brogel Air Base and flies US-supplied F-16 nuclear-capable strike aircraft. NATO reported that four of them are currently conducting missions from Ämari Air Base in Estonia, in order «to guard the Baltic skies against unauthorised overflights» and that their duties included «intercepting Russian aircraft flying in international airspace at the Baltic borders». According to NATO, the Mission of the 10th Tactical Wing is «to generate air power effects in the full operational spectrum by putting into action the best combat ready people and equipment to execute or support both conventional and nuclear operations in a joint, national or multinational environment, anytime and anywhere, in the most proficient, safe and efficient manner».

So it sends four of 10 Wing’s nuclear-capable F-16s, flown by nuclear-delivery trained pilots to Estonia to guard the Baltic skies. In Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia the Alliance has established «NATO Force Integration Units» which are advanced military headquarters whose Mission is «to improve cooperation and coordination between NATO and national forces, and prepare and support exercises and any deployments needed». The relentless expansion of US-NATO forces right up to Russia’s borders continues apace, with formation of a «new standing Joint Logistic Support Group Headquarters, to support deployed forces».

NATO is on a war footing, and has made it clear that «nuclear weapons are a core component of the Alliance’s overall capabilities». The Belgian F-16 deployments, deliberately and provocatively in a most sensitive area on Russia’s borders, together with creation of advanced military control organisations in eight countries, have been authorised and greeted with approval by western governments whose citizens have little understanding that the west’s policy of confrontation is increasing tension day by day. Russia has no intention of invading any of the Baltic nations, or, indeed, any other country. It has no interest whatever in becoming engaged in conflict that could result only in vast expenditure, no territorial gain of any value, and destruction of much-valued trade and other commercial arrangements.

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“..these newspapers and their handmaidens on TV, were far less concerned as to whether the leaked information was true or not..”

The Deepening Deep State (Jim Kunstler)

Pretty obviously, the struggle between mainstream news and Web news climaxed over the election, with the mainstream overwhelmingly pimping for Hillary, and then having a nervous breakdown when she lost. Desperate to explain the loss, the two leading old-line newspapers, The New York Times and The Washington Post, ran with the Russia-Hacks-Election story — because only Satanic intervention could explain the fall of Ms. It’s-My-Turn / I’m-With-Her. Thus, the story went, Russia hacked the Democratic National Committee (DNC), gave the hacked emails to Wikileaks, and sabotaged not only Hillary herself but the livelihoods of every myrmidon in the American Deep State termite mound, an unforgivable act.

Also interestingly, these newspapers and their handmaidens on TV, were far less concerned as to whether the leaked information was true or not — e.g. the Clinton Foundation donors’ influence-peddling around arms deals made in the State Department; the DNC’s campaign to undermine Bernie Sanders in the primaries; DNC temporary chair (and CNN employee) Donna Brazille conveying debate questions to HRC; the content of HRC’s quarter-million-dollar speeches to Wall Street banks. All of that turned out to be true, of course. Then, a few weeks after the election, the US House of Representatives passed H.R. 6393, the Intelligence Authorization Act for Fiscal Year 2017. Blogger Ronald Thomas West reports:

“Section 501 calls for the government to “counter active measures by Russia to exert covert influence … carried out in coordination with, or at the behest of, political leaders or the security services of the Russian Federation and the role of the Russian Federation has been hidden or not acknowledged publicly.”

The measure has not been passed by the Senate or signed into law yet, and the holiday recess may prevent that. But it is easy to see how it would empower the Deep State to shut down whichever websites they happened to not like. My reference to the Deep State might even imply to some readers that I’m infected by the paranoia virus. But I’m simply talking about the massive “security” and surveillance matrix that has unquestionably expanded since the 9/11 airplane attacks, creating a gigantic NSA superstructure above and beyond the Central Intelligence Agency, the Department of Defense’s DIA, and the hoary old FBI.

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They will continue to demand a full hand for every finger given. A road to nowhere for Greece.

Eurozone Agrees Debt Relief For Greece Amid IMF Row (AFP)

Eurozone finance ministers on Monday approved new debt relief measures to relieve Greece’s colossal debt mountain in the wake of its huge €86 billion bailout, but at levels far short of those demanded by the IMF. “The Eurogroup endorsed today the full set of short-term measures” including extending the repayment period and an adjustment to interest rates, the eurozone’s 19 finance ministers said in a statement. The ministers accorded Athens the small measures to reduce Greece’s debt as a reward for completing the latest round of reforms demanded in the country’s massive bailout programme – its third since 2010. “We will start implementing them in the next weeks,” said Klaus Regling, the head of the European Stability Mechanism, the eurozone’s bailout fund.

However the ministers refused to officially sign off on the bailout’s second review as expected, telling Athens that there still remained a few open questions on Greece’s reform efforts. The talks were marred by a row with the IMF, as Europe and the fund remain as far apart as ever on the level of need for debt relief measures. This is a crucial demand for the fund to back the bailout programme in which for now it plays only a technical role. The hardline stance on debt relief by the ministers, led by Germany’s powerful Wolfgang Schaeuble, comes as key elections approach next year in Germany and the Netherlands, where bailout fatigue is running rife with voters.

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Capital flight in thinly veiled disguise.

Greek Home Sellers Getting Paid In Banks Abroad (Kath.)

The bulk of transactions concerning Greek real estate acquired by foreign nationals are conducted outside the domestic banking system, making it even harder to get a clear idea of the situation in the Greek residential properties market, particularly as regards holiday homes. Estate agents who mainly work with foreign buyers say that the majority of sellers in agreed transactions ask for the money to be deposited in banks abroad. Sellers are even prepared to travel abroad themselves, with contracts in hand, in order to open a bank account.

“After the imposition of the capital controls [at end-June 2015], the cases of sellers requesting that money be deposited abroad have multiplied. Of course such transactions are entirely legitimate and taxed in Greece, but the revenues remain in other countries,” says Yiannis Ploumis, general director at the Ploumis-Sotiropoulos estate agency, which specializes in the luxury property market. That way, the funds paid by foreign property buyers do not enter the Greek credit system or the local economy in general. This trend concerns virtually the entire construction sector, as well as private owners, especially those selling houses of significant value, as transactions of €50,000-100,000 hardly ever lead sellers to open a new bank account abroad.

Read more …

More on this today.

Greek Court Rejects Extradition Of 3 Turkish Officers Accused Of Coup (AFP)

A Greek court on Monday rejected the extradition of three military officers demanded by Turkey over their alleged involvement in July’s failed coup, a judicial source said. The decision outraged Ankara, which has arrested tens of thousands of people as part of a wide-ranging crackdown since the attempted putsch. “Greece is in the NATO alliance with Turkey and is a NATO ally. Our expectation is that the Greek government make every effort to return” those individuals to Turkey, Defence Minister Fikri Isik said. The Greek court determined that the three men – out of a total eight officers seeking asylum in Greece – faced threats to their personal safety if returned to Turkey.

It also deemed that Turkish authorities have not provided sufficient evidence tying them to the coup attempt against President Recep Tayyip Erdogan, the source said. The court is expected to decide the fate of the other five officers on Tuesday. Turkey may still appeal the case, and any final decision to extradite rests with the Greek minister of justice. The two Turkish commanders, four captains and two sergeants requested asylum in Greece after landing a military helicopter in the northern city of Alexandroupoli shortly after the attempted government takeover in mid-July. The officers are currently appealing against a Greek refusal to grant them asylum in September.

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Nov 182016
 
 November 18, 2016  Posted by at 10:14 am Finance Tagged with: , , , , , , , , , ,  5 Responses »
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Unknown Army of the James, James River, Virginia. 1865


The End of Globalization? (Spiegel)
Global Trade Is Slowing (BBG)
US Recovery Is Heading Towards Its Death: Albert Edwards (CNBC)
US Retail Sales, Ignorance & Return Reality (Roberts)
How “Dynamic Scoring” Could Justify A Debt Driven Keynesian Stimulus (BBG)
How US Federal Revenues Have Been Used To Steer The Economy In The Past (BBG)
Yellen: I’m Not Stepping Down Until My Term Is Done (CNBC)
Europe At Risk Of Collapse; France, Germany Must Lead – French PM (R.)
Renzi Renews Pledge To Resign If He Loses Referendum (Local.it)
Italy Is The Next Country To Fall To Trumpism (David McWilliams)
EU Reinforces 2017 Budget On Migration And Jobs (EUO)
Kremlin Ramps Up Efforts To Crack Down On US Tech Companies (BBG)
Why the World Needs WikiLeaks (Sarah Harrison)
Another 100 Migrants Feared Drowned in Mediterranean (AFP)
The North Pole Is An Insane 36º Warmer Than Normal As Winter Descends (WaPo)

 

 

They all find it terribly hard to acknowledge that globalization is gone because growth is too. Wonder how long it will take them. A long five-part article.

The End of Globalization? (Spiegel)

Who could have imagined in 2006 that such an outlandish billionaire like Donald Trump could become president of the United States? Who would have believed that the British would leave the European Union? Who would have thought it possible that a right-wing populist party in Germany would win over 10% support in several state elections? Nobody. Ten years ago, the world was a vastly different place. In 2006, Germany lived through its “Summer Fairytale” of hosting the football World Cup – still untainted by accusations of corruption – and presented itself as a cosmopolitan host. Russia was still part of the G-8 and welcomed world leaders to the summit in St. Petersburg. Pope Benedict XVI visited Turkey and prayed in the Blue Mosque. In Berlin, the first Islam conference took place, promoting better integration for the religion.

A Romano Prodi-led alliance defeated the populist Silvio Berlusconi in Italian parliamentary elections. And international trade grew by 9% while the Chinese economy spiked by almost 13%. Between then and now lie years of crisis. Banks and entire countries had to be bailed out, debt grew and faith in the economy and politics evaporated. Central banks chopped their interest rates again and again to stimulate the economy – with modest success and significant side-effects: Debt continued climbing around the world while in industrialized countries, savers suffered and middle-class retirement funds in particular took a hit. Now, in 2016, many people in Western, industrialized countries are worried about losing their jobs, their prosperity and that of their children. They see themselves as the losers of a development that has only helped the elite.

[..] It is a fact that globalization and free trade have increased global prosperity, but they have also increased inequality in the world’s wealthiest nations. They have made the biggest companies more powerful, because business operates globally while politics tends to be a local or regional affair, and made the world more vulnerable to crises, because everything is networked and the debts of American homeowners could lead the entire world to the brink of collapse. In short, globalization is responsible for a host of problems that would otherwise not exist. And it is therefore in the process of gambling away the trust of people around the world. Already today, global trade growth has slowed and state interference is on the rise. The world finds itself at a turning point. It must try to eliminate the drawbacks of globalization without destroying its advantages. If, on the other hand, protectionism and populism gain the upper hand, there is a danger that global prosperity could shrink. The age of globalization would be at an end.

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“The days of frenzied trade growth may be over.” No kidding.

Global Trade Is Slowing (BBG)

Until he takes office in January, Donald Trump won’t be able to follow through on his pledges to scrap TPP, renegotiate NAFTA, or penalize Chinese imports. Even without him, protectionism is rising, and world trade is slowing. Responding to an outcry from local steelmakers, the EU this year has punished Chinese competitors for allegedly selling steel below cost. The EU has announced antidumping duties as high as 81.1% on Chinese steel. “Free trade must be fair, and only fair trade can be free,” EC VP Jyrki Katainen said in a statement on Nov. 9, adding that some 30 million European jobs depend on free trade. Around the world, many companies that binged on easy credit after the global financial crisis have excess capacity and are struggling to find buyers, since economic growth in the U.S., Europe, and Japan is relatively weak, and China’s economy is cooling.

“The pie is growing more slowly, and that makes domestic producers more defensive about their share of it and more willing to fight when threatened,” says Tim Condon, chief Asia economist in Singapore with ING. Bloomberg Intelligence chief Asia economist Tom Orlik points out that over the past two decades, consumers and businesses have spent heavily on laptops, tablets, and smartphones, but despite efforts by Apple and others to popularize smart watches, there’s no new must-have device to boost global trade. Stagnant income growth in the West also forces politicians to show they understand voters’ worries. “The pressure grows for governments to appease those voices by giving them the things they want,” says Orlik, “and the things they want are trade restrictions.”

[..] In the five months leading up to mid-October, members of the world’s 20 major economies, the Group of 20, implemented an average of 17 trade constraints a month, the World Trade Organization reported on Nov. 10. “The continued introduction of trade-restrictive measures is a real and persistent concern,” WTO Director-General Roberto Azevêdo said in a statement. The curbs come while global commerce is sputtering. World trade volume has grown a little more than 3% a year since 2012, the IMF reported last month, less than half the average expansion rate over the prior three decades. Said the IMF, “Between 1985 and 2007, real world trade grew on average twice as fast as global GDP, whereas over the past four years, it has barely kept pace. Such prolonged sluggish growth in trade volumes relative to economic activity has few precedents during the past five decades.”

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As always, I’m uncomfortable with the definition of inflation used here, it obscures the argument.

US Recovery Is Heading Towards Its Death: Albert Edwards (CNBC)

Societe Generale’s resident uber-bear, Albert Edwards, says the very long economic recovery underway in the U.S. is gearing up to suffer a “very traditional death” as consumption will likely crumble under rapidly stepped-up inflation and tighter monetary conditions next year. In Edwards’ own words, “Even if the Fed refuses to tighten, monetary conditions will tighten dramatically anyway as bond yields and the dollar surge, exacerbating the profits recession.” “The surge in headline inflation from zero to 2.5%-3% in Q1 next year is likely to crush consumption,” he continued, adding, “The expected expansion of the fiscal deficit under Trump will not prevent this happening in 2017 as it will come too late – in 2018/19.”

Edwards breaks down the recent spike in nominal bond yields by pointing out it has been driven by spiraling inflation expectations with real yields staying relatively steady. An anomaly in the current situation, he says, is that this has occurred without an accompanying surge in oil prices. However, what has risen more quickly than acknowledged by the U.S. Federal Reserve or the broader market, in his view, is real wage inflation, partially disguised by the weakness of nominal wage inflation given subdued consumer price index (CPI) inflation. But as we move into an era of higher CPI inflation, Edwards warns that it is such real wage inflation that will slip to zero before long. According to Edwards, “We might quibble about how much nominal wage inflation might accelerate in a weak economic and corporate profits environment, but accelerate it will.”

Why this is so important, he notes, is that it is likely to propel the Fed into action. Speaking about the U.S. central bank, he says “to those who retort that the increasingly weak economy in H1 2017 means they should not tighten, I would probably agree. But that doesn’t mean the Fed won’t be forced into it by surging wage inflation.” The knock-on effect for bonds will come through in the form of a continued rise in yields over the next six months with the trend upwards now having become a momentum trade with investors “looking for a narrative to support the direction of travel”.

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“81% of American’s are now worse off than they were in 2005..”

US Retail Sales, Ignorance & Return Reality (Roberts)

There was an awful lot of cheering about the recent retail sales report which showed an uptick of 0.8% which beat the analyst’s estimates of 0.6%. Despite the fact the improvement was driven by a surge in gasoline prices (which is important as consumers did not consume MORE of the product, but just paid more for it) important discretionary areas like restaurants and furniture declined. However, if we dig deeper behind the headlines more troubling trends emerge for the consumer which begins to erode the narrative of the “economy is doing great” and “there is no recession” in sight. [..] Despite ongoing prognostications of a “recession nowhere in sight,” it should be remembered that consumption drives roughly 2/3rds of the economy. Of that, retail sales comprise about 40%. Therefore, the ongoing deterioration in retail sales should not be readily dismissed. More troubling is the rise in consumer credit relative to the decline in retail sales as shown below.

What this suggests is that consumers are struggling just to maintain their current living standard and have resorted to credit to make ends meet. Since the amount of credit extended to any one individual is finite, it should not surprise anyone that such a surge in credit as retail sales decline has been a precursor to previous recessions. Further, the weakness of consumption can be seen in the levels of retailers inventory relative to their actual sales. We can also view this problem with retail sales by looking at the National Federation of Independent Business Small Business Survey. The survey asks respondents about last quarter’s actual sales versus next quarter’s expectations.

[..] it really isn’t just the Millennial age group that are struggling to save money but the entirety of the population in the bottom 80% of income earners. According to a recent McKinsey & Company study, 81% of American’s are now worse off than they were in 2005: “Based on market income from wages and capital, the study shows 81% of US citizens are worse off now than a decade ago. In France the figure is 63%, Italy 97%, and Sweden 20%.”

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If you don’t like the models, well, we have other ones.

How “Dynamic Scoring” Could Justify A Debt Driven Keynesian Stimulus (BBG)

Republicans have long argued that economic growth from tax cuts should be fed back into the model, year by year. They call this approach “dynamic scoring” or “macroeconomic analysis.” For the first time, macroeconomic analysis will likely prevail in next year’s official scores for major revenue bills from the JCT. Some Democrats, who’ve been suspicious of an approach that makes tax cuts look cheaper, are slowly warming to the same idea for appropriations bills. It could make infrastructure spending look cheaper, too. Into this fussing over details strides Donald Trump. During the campaign, he proposed a tax cut that would cost, according to his own preferred estimate, $4.4 trillion. And to pay for it, his campaign proposed a new kind of analysis, an economic model radically more complex than what either academics or policymakers have tried in the past.

All aspects of Trump’s plan, including trade and regulatory rollbacks, would be part of the analysis. Together, the campaign argued, they would create enough growth, and therefore enough tax revenue, to offset all but about $200 billion of those tax cuts. The real challenge of budgeting is to offer something, but at a discount. In 2017 dynamic scoring will let the Republican majority offer tax cuts without having to offset them entirely with spending cuts. It may even offer infrastructure spending—without having to renege on the promise of tax cuts. If the models are right, they’re right. If they’re wrong, the tax cuts will be a debt-driven Keynesian stimulus. Dynamic scoring arrived on the Republican wave of 1994. In January 1995, as one of its first acts, the new GOP majority in Congress invited Alan Greenspan, among others, to a rare joint hearing of the budget committees.

The representatives wanted to talk about macroeconomic models of budget changes. Greenspan, then the chairman of the Federal Reserve and thus in charge of the world’s best-known macroeconomic modeler, was skeptical. Then as now, the CBO every year produces a 10-year projection of economic growth. This is the “baseline,” the fixed point from which everything else is calculated. Under “static analysis,” modelers in Washington make assumptions about human behavior. But as they project out into the future, they can’t change the CBO’s baseline gross domestic product. Under “dynamic analysis,” they can. Next year’s projected growth changes the baseline for the year after, and so on. If static analysis is arithmetic, dynamic analysis is calculus.

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The comparisons only hold up to a point, as Trump will find out. There’s nowhere to grow to anymore. But focusing on domestic production and consumption can still solidify the economy somewhat.

How US Federal Revenues Have Been Used To Steer The Economy In The Past (BBG)

Donald Trump plans massive fiscal stimulus to combat lackluster growth just as the budget deficit begins rising again, making this a good time to look at how federal revenues have been used to steer the economy in the past. After the six recessions prior to the 2007-2009 downturn, lawmakers let the deficit’s share of GDP rise for an average of 15 months to make sure the economy was back on track. Following the last downturn, the most severe since World War II, Barack Obama’s stimulus gave way to Republican-backed spending cuts to shrink the deficit within just eight months – and the weakest recovery in decades.

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She won’t be able to stop the first rate hike, and after that things will be very different anyway.

Yellen: I’m Not Stepping Down Until My Term Is Done (CNBC)

Forget all that talk about Janet Yellen stepping down if Donald Trump becomes president: The Fed chair told Congress on Thursday she’s not leaving. Trump has been critical of the central bank leader and has suggested that he would replace her at some point. He once told CNBC that Yellen should be “ashamed” of her actions, saying her policies were political positions to help President Barack Obama. Amid expectations that the president-elect would step up political pressure on the Fed after he takes office in January, there was chatter that Yellen might just step aside. “No I cannot,” she said when asked by Rep. Carolyn Maloney if there were circumstances under which she might leave before her term expires. “I was confirmed by the Senate to a four-year term, which ends at the end of January of 2018, and it is fully my intention to serve out that term.” If Trump removes her from the chair, she could still stay on as a governor until her 14-year term expires in 2024.

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Yeah, lead the collapse!

Europe At Risk Of Collapse; France, Germany Must Lead – French PM (R.)

The EU is in danger of breaking apart unless France and Germany, in particular, work harder to stimulate growth and employment and heed citizens’ concerns, French PM Manuel Valls said in the German capital on Thursday. Valls said the two countries, for decades the axis around which the EU revolved, had to help refocus the bloc to tackle an immigration crisis, a lack of solidarity between member states, Britain’s looming exit, and terrorism. “Europe is in danger of falling apart,” Valls said at an event organized by the Sueddeutsche Zeitung. “So Germany and France have a huge responsibility.” He said France must continue to open up its economy, not least by cutting corporate taxation, while Germany and the EU as a whole must increase investment that would stimulate growth and job creation, as well as boosting defense.

As Britain seeks to negotiate its post-Brexit relationship with the EU, hoping to restrict immigration from the EU while maintaining as much access as possible to the EU single market, Valls said it must be prevented from cherry-picking. “If they are able to have all the advantages of Europe without the inconveniences, then we are opening a window for others to leave the EU,” Valls said. Immigration was one of the main drivers of Britons’ vote to leave the EU, and Valls said the bloc, which more than a million migrants entered last year, had to regain control of its borders. He said the Brexit vote and Donald Trump’s election victory showed how important it was to listen to angry citizens, and that politicians scared of making decisions were opening the door to populists and demagogues.

In France, opinion polls suggest that the far-right, anti-EU, anti-immigration National Front leader Marine Le Pen will win the first round of the presidential election next April, before losing the runoff.

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He has no choice.

Renzi Renews Pledge To Resign If He Loses Referendum (Local.it)

Italian Prime Minister Matteo Renzi said on Wednesday that he would have no interest in a government role if he loses Italy’s upcoming constitutional referendum. In an interview on Italian radio, the premier said: “I’m here to change things. If that doesn’t happen, there is no role for me to play.” If the ‘No’ vote wins on December 4th and Renzi’s proposed changes to the constitution are rejected, it is likely that a temporary or technical government will be formed to change the electoral law before general elections can be held. The PM said he would not be willing to seek a deal with other parties to form a coalition if this happens, adding that he didn’t want to take part in “old-style political games”. Renzi vowed to “fight like a lion” to win the vote and said he believed the “silent majority” of voters would back him in the referendum.

He is currently touring the south of the country, where the ‘No’ camp’s lead is strongest. However, he also emphasized that he didn’t envisage a ‘No’ victory causing immediate problems in the country. “The 5th of December won’t be Armageddon,” said Renzi. “If ‘No’ wins, everything will stay as it is. Italians shouldn’t be fooled by politicians who are fighting to keep the privileges they have always had.” The reforms would see the number of senators and their legislative power drastically reduced, which Renzi claims will cut down on bureaucracy, making government more stable and efficient. But his opponents argue that there are inconsistencies in his proposed changes, and that they would put too much power in the hands of the prime minister.

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I like McWilliams, but Trumpism is a nonsensical term, and Italy’s resistance against the EU and globalization was way earlier than Trump became an issue. Correlation and causation.

Italy Is The Next Country To Fall To Trumpism (David McWilliams)

The Bangladeshi selfie-stick hawkers are doing a brisk trade outside the Colosseum. Local chain-smoking lads dressed as gladiators prey on vulnerable tourists, while portly priests on their annual visit to Catholicism’s corporate HQ take time out from soul-searching. Even the heavily armed soldiers, there to protect against a potential Italian Bataclan, are smiling in the Mediterranean sunshine. And as it is midday in Italy, everyone is checking out everyone else. All looks quite normal, chilled out and as it should be. But it is not. Italy is a country going through what could be described as a nervous breakdown. After a decade of almost no economic growth, in two weeks Italians will vote in a referendum which will determine what direction this huge country of nearly 60 million people will take. The result will profoundly affect the EU.

Although the referendum is technically about the way Italy is governed, the country is split down the middle in a plebiscite that has come to symbolise something much bigger. Once again, like the Brexit vote and the Trump election, this referendum is about insiders against outsiders. It is about those who are the victims of inequality and globalisation and those who uphold the status quo. On one side, you have the Italian political elite — the insiders embodied by Matteo Renzi, the youthful prime minister. He represents the people and institutions that have ruled Italy for decades. On the other side, you have an unusual anti-EU coalition, the Left and the Right — the ‘Outsiders’ — who are united by a common belief that, after 10 years of economic stagnation, there must be another way.

We have the same picture we saw in the UK in June and in the US last week, where an elite is desperately trying to connect with the people and large swathes of the population are saying they have had enough. In terms of the big picture, the Italian election can be seen as yet another domino in a year of falling dominos. First we had Brexit, then Trump, and the next big one for Europe after Italy is the potential rise of Le Pen in France. Italy is the triplet in a quartet that will culminate in France, and, in my opinion, if the Italian elite loses on December 4th, Marine Le Pen will win in France.

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The amounts are mind-boggling. Money in, waste out.

EU Reinforces 2017 Budget On Migration And Jobs (EUO)

EU member states and European Parliament have reached an agreement on a budget for next year that focuses on tackling the migration crisis and creating jobs. After 20 hours of discussions, a deal was reached early on Thursday (17 November) to set the total commitments for 2017 at €157.88 billion and payments at €134.49 billion. “The 2017 EU budget will thus help buffer against shocks, providing a boost to our economy and helping to deal with issues like the refugee crisis,” budget commissioner Kristalina Georgieva said. The budget commits €5.91 billion to tackling the migration crisis and reinforcing security, an 11.3% increase on 2016’s figure, according to a statement from the EU Council, which represents member states.

The money will help EU countries resettle refugees, create reception centres, and return those who have no right to stay. Extra spending will also go to help enhance border protection, crime prevention, counter terrorism activities and protect critical infrastructure. A total of €21.3 billion was put aside to boost economic growth and create new jobs, which is an increase of around 12% compared with this year, the council said. The Erasmus+ scheme, a cross-border student programme, will see an increase of its budget of 19%. The 2017 budget also includes €500 million for youth unemployment, and a €42.6 billion support for farmers.

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The Russians are highly aware of what Facebook and Alphabet are doing: “Not replacing foreign IT would be equivalent to dismissing the army.”

Kremlin Ramps Up Efforts To Crack Down On US Tech Companies (BBG)

In a Nov. 14 phone call with President-elect Donald Trump, Russian President Vladimir Putin held out the prospect of better relations between their two countries. But U.S. tech companies shouldn’t expect warmer ties to ease a Kremlin effort to freeze out their products. Seeking to cut dependence on companies such as Google, Microsoft, and LinkedIn, Putin in recent years has urged the creation of domestic versions of everything from operating systems and e-mail to microchips and payment processing. Putin’s government says Russia needs protection from U.S. sanctions, bugs, and any backdoors built into hardware or software. “It’s a matter of national security,” says Andrey Chernogorov, executive secretary of the State Duma’s commission on strategic information systems. “Not replacing foreign IT would be equivalent to dismissing the army.”

Since last year, Russia has required foreign internet companies to store Russian clients’ data on servers in the country. In January the Kremlin ordered government agencies to use programs for office applications, database management, and cloud storage from an approved list of Russian suppliers or explain why they can’t—a blow to Microsoft, IBM, and Oracle. Google last year was ordered to allow Android phone makers to offer a Russian search engine. And a state-backed group called the Institute of Internet Development is holding a public contest for a messenger service to compete with text and voice apps like WhatsApp and Viber. Russia’s Security Council has criticized the use of those services by state employees over concerns that U.S. spies could monitor the encrypted communications while Russian agencies can’t. Trump’s election hasn’t changed those policies, according to Putin spokesman Dmitry Peskov. “This doesn’t depend on external factors,” he says. “It’s a consistent strategy.”

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Do try and wrap your head around the irony of this being published by the NYT, on of the main media companies whose disfunctionality makes Wikileaks so necessary.

Why the World Needs WikiLeaks (Sarah Harrison)

My organization, WikiLeaks, took a lot of heat during the run-up to the recent presidential election. We have been accused of abetting the candidacy of Donald J. Trump by publishing cryptographically authenticated information about Hillary Clinton’s campaign and its influence over the Democratic National Committee, the implication being that a news organization should have withheld accurate, newsworthy information from the public. The Obama Justice Department continues to pursue its six-year criminal investigation of WikiLeaks, the largest known of its kind, into the publishing of classified documents and articles about the wars in Iraq and Afghanistan, Guantánamo Bay and Mrs. Clinton’s first year as secretary of state. According to the trial testimony of one F.B.I. agent, the investigation includes several of WikiLeaks founders, owners and managers.

And last month our editor, Julian Assange, who has asylum at Ecuador’s London embassy, had his internet connection severed. I can understand the frustration, however misplaced, from Clinton supporters. But the WikiLeaks staff is committed to the mandate set by Mr. Assange, and we are not going to go away, no matter how much he is abused. That’s something that Democrats, along with everyone who believes in the accountability of governments, should be happy about. Despite the mounting legal and political pressure coming from Washington, we continue to publish valuable material, and submissions keep pouring in. There is a desperate need for our work: The world is connected by largely unaccountable networks of power that span industries and countries, political parties, corporations and institutions; WikiLeaks shines a light on these by revealing not just individual incidents, but information about entire structures of power.

While a single document might give a picture of a particular event, the best way to shed light on a whole system is to fully uncover the mechanisms around it – the hierarchy, ideology, habits and economic forces that sustain it. It is the trends and details visible in the large archives we are committed to publishing that reveal the details that tell us about the nature of these structures. It is the constellations, not stars alone, that allow us to read the night sky. [..] WikiLeaks will continue publishing, enforcing transparency where secrecy is the norm. While threats against our editor are mounting, Mr. Assange is not alone, and his ideas continue to inspire us and people around the world.

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Just another day.

Another 100 Migrants Feared Drowned in Mediterranean (AFP)

The toll of missing and dead rose Thursday in a grim week of Mediterranean crossings as African survivors described being robbed of life jackets and boat engines and abandoned to a watery grave. A group of 27 survivors, all men, were plucked to safety on Wednesday, but roughly 100 other passengers who set off with them from Libya were missing and feared drowned, Doctors Without Borders (MSF) said. Along with two other shipwrecks this week, the latest incident pushed the toll to 18 confirmed dead and 340 missing, in what was already the most lethal year ever recorded for migrant deaths at sea. The survivors rescued Wednesday by a British Navy ship, described being stripped of their sole means of survival by the men they had paid for safe passage.

They had set off before dawn on Monday from a beach close to Tripoli. After several hours the traffickers, travelling aboard a separate boat, ordered them at gunpoint to hand over life jackets they had paid for, as well as the boat engine, and left them without a satellite phone to call for help. “At that point I thought we were going to die”, said Abdoullae Diallo, 18, according to MSF. “Without a motor, we couldn’t go far. A trafficker told us we would be rescued but I felt like we were going to die.” The overcrowded dinghy began rapidly taking on water and deflated. Tossed for two days and nights on rough seas, some passengers fell overboard, while others succumbed to exhaustion. By the time the British Royal Navy’s HMS Enterprise – engaged in the anti-trafficking Sofia operation – found them, just 27 people were left alive, clinging to what was left of the dinghy.

[..] The first group of survivors were brought to Catania, in Sicily, while the second group were expected to arrive on Italy’s mainland in the port of Reggio Calabria Some were children. “One young boy has been weeping, asking for his mother,” Mathilde Auvillain, a spokeswoman for SOS Mediterranee told AFP. “Another has written a list of names of the people travelling with him and re-reads it over and over. He wants to know if his friends are on the boat or in the sea,” she said.

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Watching in bewilderment.

The North Pole Is An Insane 36º Warmer Than Normal As Winter Descends (WaPo)

Political people in the United States are watching the chaos in Washington in the moment. But some people in the science community are watching the chaos somewhere else — the Arctic. It’s polar night there now — the sun isn’t rising in much of the Arctic. That’s when the Arctic is supposed to get super-cold, when the sea ice that covers the vast Arctic Ocean is supposed to grow and thicken. But in the fall of 2016 — which has been a zany year for the region, with multiple records set for low levels of monthly sea ice — something is totally off. The Arctic is super-hot, even as a vast area of cold polar air has been displaced over Siberia. At the same time, one of the key indicators of the state of the Arctic — the extent of sea ice covering the polar ocean — is at a record low. The ice is freezing up again, as it always does this time of year after reaching its September low, but it isn’t doing so as rapidly as usual.

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Aug 292016
 
 August 29, 2016  Posted by at 5:01 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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DPC Up Sutter Street from Grant Avenue, San Francisco 1906


Asia Currencies Head Down The Jackson Hole (CNBC)
German Economy Minister Says EU-US TTiP Talks Have Failed (AP)
UK Must Pay For Brexit Or EU Is In ‘Deep Trouble’, Says German Minister (G.)
German Vice Chancellor Says Can’t See Turkey In EU Anytime Soon (R.)
Brexit, Grexit: When The Sky Didn’t Fall (WSJ)
TTIP’s ‘Failure’ Signals Clues About UK’s Post-Brexit Trading (Ind.)
The 11 Bone-Chilling Things I Gleaned from Yellen’s Chart (WS)
“If This Does Not Disqualify Hillary For The Presidency, What Will?” (ZH)
There Is A Third Pole On Earth, And It’s Melting Quickly (WEF)
Italy Rescues 1,100 Migrants In Mediterranean In One Day (R.)
What Life Will Be Like After An Economic Collapse (Stewart)

 

 

Travel day today, so an early Debt Rattle

 

 

Abe won’t mind.

Asia Currencies Head Down The Jackson Hole (CNBC)

The newly resurgent dollar pressured Asian currencies as markets revived bets that the U.S. Federal Reserve could possibly raise interest rates as soon as next month. The advances in regional currencies were substantial. The dollar was fetching 102.03 yen at 9:51 a.m. HK/SIN, after flirting with levels around 100 yen just before the Fed’s conclave in Jackson Hole, Wyoming. The Australian dollar also felt the sting, fetching $0.7534 Monday morning, down from nearly $0.77 on Friday. The Singapore dollar was also lower, with the greenback fetching S$1.3614 Monday morning, up from as little as S$1.3469 on Friday.

The Malaysian ringgit also fell, with the dollar fetching 4.0425 ringgit on Monday morning, compared with as little as 4.0100 ringgit on Friday. The dollar index, which measures the greenback’s performance against a basket of currencies, jumped to 95.525 on Monday morning, from as low as 94.246 on Friday. Analysts pointed to Fed Chair Janet Yellen’s speech at the conclave on Friday as the reason for the newly resurgent dollar. While markets still saw December as the most likely timing for a Fed rate hike, Yellen opened the door to a September hike when she said the case for a rate hike strengthened in recent months.

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Not making Merkel happy.

German Economy Minister Says EU-US TTiP Talks Have Failed (AP)

Free trade talks between the European Union and the United States have failed, Germany’s economy minister said Sunday, citing a lack of progress on any of the major sections of the long-running negotiations. Both Washington and Brussels have pushed for a deal by the end of the year, despite strong misgivings among some EU member states over the Trans-Atlantic Trade and Investment Partnership, or TTIP. Sigmar Gabriel, who is also Germany’s vice chancellor, compared the TTIP negotiations unfavorably with a free trade deal forged between the 28-nation EU and Canada, which he said was fairer for both sides. “In my opinion, the negotiations with the United States have de facto failed, even though nobody is really admitting it,” Gabriel said during a question-and-answer session with citizens in Berlin.

He noted that in 14 rounds of talks, the two sides haven’t agreed on a single common item out of 27 chapters being discussed. Gabriel accused Washington of being “angry” about the deal that the EU struck with Canada, known as CETA, because it contains elements the U.S. doesn’t want to see in the TTIP. “We mustn’t submit to the American proposals,” said Gabriel, who is also the head of Germany’s center-left Social Democratic Party. In Washington, there was no immediate comment from the office of the U.S. trade representative. Christian Wigand, a spokesman for the European Commission, the EU’s executive arm and which is leading the TTIP negotiations, said Sunday that the institution had no comment or reaction at this time.

Gabriel’s ministry isn’t directly involved in the negotiations with Washington because trade agreements are negotiated at the EU level. But such a damning verdict from a leading official in Europe’s biggest economy is likely to make further talks between the EU executive and the Obama administration harder. Gabriel’s comments contrast with those of Chancellor Angela Merkel, who said last month that TTIP was “absolutely in Europe’s interest.” Popular opposition to a free trade agreement with the United States is strong in Germany. Campaigners have called for nationwide protests against the talks on Sept. 17 — about year before Germany’s next general election.

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Same guy.

UK Must Pay For Brexit Or EU Is In ‘Deep Trouble’, Says German Minister (G.)

German economy minister Sigmar Gabriel has said that Britain must not be allowed to “keep the nice things” that come with EU membership without taking responsibility for the fallout from Brexit. As Theresa May called a cabinet meeting to discuss the UK government’s Brexit strategy on Wednesday, Gabriel warned if the issue was badly handled and other member countries followed Britain’s lead, Europe would go “down the drain”. “Brexit is bad but it won’t hurt us as much economically as some fear – it’s more of a psychological problem and it’s a huge problem politically,” he told a news conference. The world now regarded Europe as an unstable continent, said Gabriel, who is the deputy to chancellor Angela Merkel in Germany’s governing coalition. “If we organise Brexit in the wrong way, then we’ll be in deep trouble, so now we need to make sure that we don’t allow Britain to keep the nice things, so to speak, related to Europe while taking no responsibility,” Gabriel said.

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Still same guy.

German Vice Chancellor Says Can’t See Turkey In EU Anytime Soon (R.)

German Vice Chancellor Sigmar Gabriel said on Sunday he did not see Turkey joining the EU during his political career, adding that the bloc would not be in a position to take Turkey in even if Ankara met all the entry requirements tomorrow. Turkey started talks about joining the European Union in 2005 but has made little progress despite an initial burst of reforms. Many EU countries are wary about the possibility of the large, mainly Muslim country becoming a member of the bloc and Europe has long worried that Turkey’s anti-terrorism laws are used to quash dissent. A crackdown since a failed July 15 coup in Turkey has fueled tension between Ankara and Brussels.

“Even if you’re very optimistic about my political career, I certainly won’t see Turkey becoming a member of this EU,” Gabriel, 56, told a news conference on Sunday. “With the state we’re in, we’re not even in a position to take in a city state,” said Gabriel, leader of the Social Democrats (SPD) – the junior coalition partner in Chancellor Angela Merkel’s government. He said one logistical problem was Turkey’s large population, which stands at about 79 million according to the World Bank. “How would that work in a European Union that is currently losing one of its most important member states, that has been rattled, that doesn’t know how it should reorganise itself?,” he added, referring to Britain’s recent vote to leave the bloc.

He said Turkey might instead, in the distant future, become a partner “in an outer ring” of a changed EU. Earlier this month, Turkish Foreign Minister Mevlut Cavusoglu said his government could stop helping to stem the flow of refugees and migrants to Europe if Brussels failed to relax travel rules for Turks from October. Visa-free access to the EU — the main reward for Ankara’s collaboration in choking off the influx of migrants — has been subject to delays due to a dispute over the anti-terrorism legislation, as well as the post-coup crackdown. Gabriel said in an interview on Saturday that Merkel’s conservatives had “underestimated” the challenge of integrating record migrant arrivals.

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Problem of course is there are no markets, there are only central banks. So no price discovery.

Brexit, Grexit: When The Sky Didn’t Fall (WSJ)

Some economists warned the U.S. congressional budget battles in 2013, which led to sharp spending cuts known as sequestration, could throw the economy back into recession. The economy grew 2.7% that year. Then, in 2010 and 2012, some economists warned the Federal Reserve’s massive bond-buying program would cause hyperinflation, soaring commodity prices and a collapse of the dollar. Nothing of the sort occurred. Warnings abounded in 2015 that if Greece rejected an international bailout, it could spark a sovereign default or a banking crisis or Greece being cast off the euro. Greece’s economy is far from a success story, but it hasn’t gone bankrupt. Its banking system has been battered and drained of deposits, but hasn’t collapsed. It remains in the euro.

So what about Brexit? It’s now been two months since British voters on June 23 cast their ballots to exit from the European Union, and it’s becoming unclear if the recession so many feared will materialize—at least in the near term. It’s worth revisiting the level of concern prior to the vote. George Osborne, the Chancellor of the Exchequer, said a vote for Brexit would cause a “DIY recession.” In the immediate aftermath of the vote, many market economists forecast recession would begin almost immediately. In the days after the vote, global stock markets indeed fell sharply. Perhaps if it had been just a little bit worse, a broader panic would have sent things into a spiral. Instead, markets have rebounded. The FTSE 100 climbed to near-record levels by the middle of August. Nor has the wider economy shown many signs of a coming downturn.

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What good’s a clue if you’re clueless?

TTIP’s ‘Failure’ Signals Clues About UK’s Post-Brexit Trading (Ind.)

The apparent failure of the EU-US trade talks signalled by German Vice-Chancellor Sigmar Gabriel should come as little surprise – for good and bad reasons – and contains some interesting clues about the UK’s post-Brexit trading future. One “good” reason for the negotiators being unable to agree so far on a single chapter of the 27 in the draft Transatlantic Trade and Investment Partnership is that the Europeans are deeply suspicious about how much power will be given to large multinational companies in the process. The secret “court” for settling disputes is absurdly opaque and unaccountable, for example. That would be bad enough across most areas of the economy, but when it impinges on the way the NHS operates for the public good, it is plainly unacceptable.

Anti-business sentiment is often facile and hypocritical, or worse, but TTIP just offers up too many egregious potential abuses to be comfortable with. It could be made more politically palatable, at any rate, and we should always remember that free trade is good for the long-term prosperity of all. Globalisation, unfashionable as it is, has done more good than harm, not least lifting 500 million Chinese out of poverty. TTIP could be made to work, in other words. The “bad” reason for the difficulties TTIP finds itself in is because the EU’s disparate membership can’t agree on what they want, as so often. This, then, supports the Leave camp who argue that the very size and complexity of the EU makes important trade deals such as this impossible to secure. They point to similar failures on EU trade with China and India.

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As I’ve said so often: They have no clue.

The 11 Bone-Chilling Things I Gleaned from Yellen’s Chart (WS)

At the Symposium in Jackson Hole, so feverishly anticipated by the entire world, Fed Chair Janet Yellen gave an even more feverishly anticipated speech on Friday, in which she said the same stuff she’d been saying all along, such as these nuggets: “And, as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course.” “Our ability to predict how the federal funds rate will evolve over time is quite limited because monetary policy will need to respond to whatever disturbances may buffet the economy.” To document this, she supplied the fan chart below, adding this explanation: “The line in the center is the median path for the federal funds rate based on the FOMC’s Summary of Economic Projections in June.” “The shaded region, which is based on the historical accuracy of private and government forecasters, shows a 70% probability that the federal funds rate will be between 0 and 3.25% at the end of next year and between 0 and 4.5% at the end of 2018.”

1. They have no clue about what might happen next. Their forecasts and “forward guidance” are either figments of their imagination or just efforts to manipulate the markets.

2. They have no clue how to get out of what initially was an emergency treatment of a Fed-sponsored financial system in full and self-inflicted collapse, but is now the “new normal” treatment for an economy buckling under its Fed-encouraged debt.

[..] 11. They’re trying to make us forget how long this insanity has been going on. Yellen’s chart begins in Q1 2015. But the Fed’s historic craziness began in 2008. So that we can remember for just how long the Fed has inflicted its policies on the economy, I have added to Yellen’s chart the prior six years, for a total of eight years. It shows that they have no clue about how to get back to normal, and that they have instead changed the definition of normal:

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Tyler.

“If This Does Not Disqualify Hillary For The Presidency, What Will?” (ZH)

This is the week that the steady drip, drip, drip of details about Hillary Clinton’s server turned into a waterfall. This is the week that we finally learned why Mrs. Clinton used a private communications setup, and what it hid. This is the week, in short, that we found out that the infamous server was designed to hide that Mrs. Clinton for three years served as the U.S. Secretary of the Clinton Foundation.

In March this column argued that while Mrs. Clinton’s mishandling of classified information was important, it missed the bigger point. The Democratic nominee obviously didn’t set up her server with the express purpose of exposing national secrets—that was incidental. She set up the server to keep secret the details of the Clintons’ private life—a life built around an elaborate and sweeping money-raising and self-promoting entity known as the Clinton Foundation.

Had Secretary Clinton kept the foundation at arm’s length while in office—as obvious ethical standards would have dictated—there would never have been any need for a private server, or even private email. The vast majority of her electronic communications would have related to her job at the State Department, with maybe that occasional yoga schedule. And those Freedom of Information Act officers would have had little difficulty—when later going through a state.gov email—screening out the clearly “personal” before making her records public. This is how it works for everybody else.

Mrs. Clinton’s problem—as we now know from this week’s release of emails from Huma Abedin’s private Clinton-server account—was that there was no divide between public and private. Mrs. Clinton’s State Department and her family foundation were one seamless entity—employing the same people, comparing schedules, mixing foundation donors with State supplicants. This is why she maintained a secret server, and why she deleted 15,000 emails that should have been turned over to the government.

Most of the focus on this week’s Abedin emails has centered on the disturbing examples of Clinton Foundation executive Doug Band negotiating State favors for foundation donors. But equally instructive in the 725 pages released by Judicial Watch is the frequency and banality of most of the email interaction. Mr. Band asks if Hillary’s doing this conference, or having that meeting, and when she’s going to Brazil. Ms. Abedin responds that she’s working on it, or will get this or that answer. These aren’t the emails of mere casual acquaintances; they don’t even bother with salutations or signoffs. These are the emails of two people engaged in the same purpose—serving the State-Clinton Foundation nexus.

The other undernoted but important revelation is that the media has been looking in the wrong place. The focus is on Mrs. Clinton’s missing emails, and no doubt those 15,000 FBI-recovered texts contain nuggets. Then again, Mrs. Clinton was a busy woman, and most of the details of her daily State/foundation life would have been handled by trusted aides. This is why they, too, had private email. Top marks to Judicial Watch for pursuing Ms. Abedin’s file from the start. A new urgency needs to go into seeing similar emails of former Clinton Chief of Staff Cheryl Mills.

Mostly, we learned this week that Mrs. Clinton’s foundation issue goes far beyond the “appearance” of a conflict of interest. This is straight-up pay to play. When Mr. Band sends an email demanding a Hillary meeting with the crown prince of Bahrain and notes that he’s a “good friend of ours,” what Mr. Band means is that the crown prince had contributed millions to a Clinton Global Initiative scholarship program, and therefore has bought face time. It doesn’t get more clear-cut, folks. That’s highlighted by the Associated Press’s extraordinary finding this week that of the 154 outside people Mrs. Clinton met with in the first years of her tenure, more than half were Clinton Foundation donors. Clinton apologists, like Vox’s Matthew Yglesias, are claiming that statistic is overblown, because the 154 doesn’t include thousands of meetings held with foreign diplomats and U.S. officials.

Nice try. As the nation’s top diplomat, Mrs. Clinton was obliged to meet with diplomats and officials—not with others. Only a blessed few outsiders scored meetings with the harried secretary of state and, surprise, most of the blessed were Clinton Foundation donors. Mrs. Clinton’s only whisper of grace is that it remains (as it always does in potential cases of corruption) hard to connect the dots. There are “quids” (foundation donations) and “quos” (Bahrain arms deals) all over the place, but no precise evidence of “pros.” Count on the Clinton menagerie to dwell in that sliver of a refuge.

But does it even matter? What we discovered this week is that one of the nation’s top officials created a private server that housed proof that she continued a secret, ongoing entwinement with her family foundation – despite ethics agreements – and that she destroyed public records. If that alone doesn’t disqualify her for the presidency, it’s hard to know what would.

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Lest we forget.

There Is A Third Pole On Earth, And It’s Melting Quickly (WEF)

When we think of the world’s polar regions, only two usually spring to mind – the North and South. However, there is a region to the south of China and the north of India that is known as the “Third Pole”. That’s because it is the third largest area of frozen water on the planet. Although much smaller than its north and south counterparts, it is still enormous, covering 100,000 square kilometres with some 46,000 glaciers. Scientists conducting research in the area have warned of disturbing global warming trends, and how, if they continue, they could affect the lives of 1.3 billion people. What happens to ice in the polar regions is taken as clear evidence of climate change. When the ice melts, we know that the planet is warming up.

The Earth’s north and south extremities are crucial for regulating the climate, and at the same time are particularly sensitive to global warming. The Third Pole, because it is high above sea level, is also sensitive to changes in temperatures. It also powers life for many thousands of miles. It is estimated that the water that flows from the Third Pole supports 120 million people directly through irrigation systems, and a total of 1.3 billion indirectly through river basins in China, India, Nepal, Pakistan, Bangladesh and Afghanistan. That’s nearly one fifth of the world’s population.

It is remote – the region encompasses the Himalaya-Hindu Kush mountain ranges and the Tibetan Plateau – but 10 of Asia’s largest rivers begin here, including the Yellow river and Yangtze river in China, the Irrawaddy river in Myanmar, the Ganges, which flows through India and Bangladesh, and the trans-boundary Mekong river. Australian TV company ABC was recently invited to visit one of the remote research stations in the Third Pole by lead researcher, Professor Qin Xiang. Scientists have been gathering data from this remote area for over 50 years, and recent findings are disturbing. Among them, the fact that temperatures there have increased by 1.5 degrees – more than double the global average.

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As the fighting continues.

Italy Rescues 1,100 Migrants In Mediterranean In One Day (R.)

About 1,100 migrants were rescued from boats in the Strait of Sicily on Sunday as they tried to reach Europe, Italy’s coastguard said. The migrants were picked up from eight rubber dinghies, one large boat and two punts through 11 rescue operations in the Mediterranean, the coastguard said in a statement. It did not mention the migrants’ country of origin. Latest data from the International Organization for Migration, released on Friday, said some 105,342 migrants have reached Italy by boat this year, many of them setting sail from Libya. An estimated 2,726 men, women and children have died over the same period trying to make the journey, often dangerously packed into small vessels unsuitable for the voyage. Italy has been on the front line of Europe’s migrant crisis for three years, and more than 400,000 have successfully made the voyage to Italy from North Africa since the beginning of 2014, fleeing violence and poverty.

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A useful and thorough reminder.

What Life Will Be Like After An Economic Collapse (Stewart)

If you have been waiting for a public announcement or news headline to let you know that an economic collapse has begun, you are in for the surprise of your life. If history in other countries and in Detroit, Michigan is any indication, there won’t be an announcement. An economic collapse tends to sneak up on a city, region, or country gradually over time. In some cases, the arrival of an economic collapse is so gradual that most people living in it aren’t even aware of it at first. Things just get gradually worse, often so gradually that people and families adjust as best they can until one day they actually realize that it’s not just their home or their neighborhood that has been hit so hard financially, it’s everyone. By that time, it’s often too late to take preventative action.

In March of 2011, Detroit’s population was reported as having fallen to 713,777, the lowest it had been in a century and a full 25% drop from 2000. In December 2011, the state announced its intention to formally review Detroit’s finances. In May of 2013, almost two years later, the city is deemed “clearly insolvent” and in July of 2013, the state representative filed a Chapter 9 bankruptcy petition for Motor City. Detroit became one of the biggest cities to file bankruptcy in history. So we have only to look at what happened in Detroit, Michigan post-bankruptcy, to get an indication of what might soon be widespread across the United States and what is already widespread in countries like Brazil and Venezuela.

Grocery stores and other businesses will fail one by one or be shut down from the riots and looting. In Detroit, the economic collapse left less than 5 national grocery stores for over 700,000 people. Imagine the lines even if food was still being shipped in on trucks. Small independent corner stores and family owned stores become the most convenient place to shop. These are stores with already high prices who make most of their profit from beer, wine, lottery, and cigarettes. Now imagine that shipping schedules have been affected by the economic crisis, this would mean longer lines with less certainty that any food would even be available once you got into the store to shop. People in Venezuela are actually dealing with government-run grocery stores and are limited to two days per week they can shop.

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Aug 252016
 
 August 25, 2016  Posted by at 9:18 am Finance Tagged with: , , , , , , , , , , ,  7 Responses »
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Harris&Ewing US Navy Yard, Washington. Sight shop, big gun section 1917


‘It’s Easier To Start A War Than To Forgive Debt’ (ET)
Mobius: Helicopter Money Will Be Japan’s Next Big Experiment, And Soon (BBG)
Central Bankers Eye Public Spending To Plug $1 Trillion Investment Gap (R.)
World Trade Falls for Second Quarter in a Row (WS)
Largest Oil Companies’ Debts Hit Record High (WSJ)
This is What’s Wrong with US Oil (WS)
Scotland North Sea Oil Revenues Collapse 97% (Ind.)
The Woman Who Revived Russia’s Markets (WSJ)
China Imposes Caps on P2P Loans to Curb Shadow-Banking Risks (BBG)
Runaway Bosses Fleeing Debts A Symptom Of China’s Economic Slowdown (SCMP)
Real World Shows Economics Has a Deflation Problem (BBG)
S&P: Increased Risk Of ‘Sharp Correction In New Zealand Property Prices’ (Int.)
Treasury to EU: Back Off On Tax Probes Of US Companies (CNBC)
French Support For The EU Project Is Crumbling On The Left And Right (AEP)
‘It Took On A Life Of Its Own’: How One Rogue Tweet Led Syrians To Germany (G.)
We’ve Been Wrecking The Planet A Lot Longer Than You Think (SMH)

 

 

Good and long interview with Macquarie strategist Victor Shvets.

‘It’s Easier To Start A War Than To Forgive Debt’ (ET)

Shvets says the world should have actually delevered or paid down the debt to return initiative to the private sector, but thinks people could not accept the levels of pain associated with it. “You could eliminate the impact of the overcapacity through deflation. Nobody is prepared to accept that we might have to wipe out decades of growth just to eliminate leverage. Banks go, there are defaults, bankruptcies, layoffs,” he said. He thinks the Biblical debt jubilee, where slaves would be freed and debt would be forgiven every 50 years is a nice idea that would also work today if it weren’t for entrenched special interests. “The debt is not spread evenly, we still live in a tribal world, and it’s easier to start a war than to forgive debt,” Shvets said.

Global central banks with their easy money policies of negative interest rates and quantitative easing are working against a debt deflation scenario, with limited success, according to Shvets. “That was the entire idea of aggressive monetary policies: Stimulate investment and consumption. None of that works, there is no evidence. It can impact asset prices, but they don’t flow into the real economy,” he said. “Remember, the people at the Fed and the Bank of England are not supermen, they are people with an above average IQ trying to do a very difficult job in a highly complex environment.” Both overleveraging, easy money policies, and technological shifts are responsible for increasing levels of income inequality across the globe, another hallmark of the previous two industrial revolutions. Fewer people control more of the wealth.

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So far it’s all just talk.

Mobius: Helicopter Money Will Be Japan’s Next Big Experiment, And Soon (BBG)

The Federal Reserve signals a reluctance to raise interest rates. The yen strengthens to 90 per dollar. Haruhiko Kuroda decides to act. Helicopter money is coming, says Mark Mobius, even as soon as next month. The 80-year-old investment veteran is outlining how he expects central banks to respond to sluggish economic growth. For Mobius, executive chairman of Templeton Emerging Markets Group, traditional easing measures have just made people save instead of spend or borrow. Combined with a stronger yen, he says that’s going to force the Bank of Japan governor to contemplate a policy he’s repeatedly ruled out. “They’re really beginning to think what ammunition they have,” he said in an interview on a visit to a typhoon-struck Tokyo this week.

“The first reaction is to say, OK, let’s go for helicopter money, let’s get money directly into the hands of consumers,” he said. “I think that would probably be the next step.” Central bankers have flooded their economies with monetary stimulus in the eight years since the global financial crisis, driving up asset prices – including the stock markets that Mobius invests in – while struggling to kickstart global growth. A foray into negative interest rates in Japan has been met with the yen surging to about 100 per dollar, falling stocks and dwindling bank profits.

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Party time.

Central Bankers Eye Public Spending To Plug $1 Trillion Investment Gap (R.)

While markets wait for Janet Yellen’s latest message about the direction of monetary policy, the Federal Reserve chief and her colleagues already have one for politicians: the U.S. economy needs more public spending to shift into higher gear. In the past few weeks, Yellen and three of the Fed’s other four Washington-based governors have called in speeches and Congressional hearings for government infrastructure spending and other efforts to counter weak growth, sagging productivity improvements, and lagging business investment. The fifth member has supported the idea in the past. The Fed has no direct influence over fiscal policy and its officials traditionally refrain from discussing it in detail.

Having its top officials – from Yellen to former investment banker and Bush administration official Jerome Powell – speak in one voice sends a strong signal to the next president and Congress about the limits they face in setting monetary policy and what is needed to improve the economy’s prospects. The Fed’s annual conference in Jackson Hole, Wyoming, where Yellen speaks on Friday, is due to focus on how to improve central banks’ “toolkit,” but the unanimous message from the Fed’s top policymakers is that those tools are not enough. “Monetary policy is not well equipped to address long-term issues like the slowdown in productivity growth,” Fed vice chair Stanley Fischer said on Sunday. He said it was up to the administration to invest more in infrastructure and education.

Behind Fischer’s statement lies a troubling feature of the recovery – business investment has fallen below levels in prior years and companies seem to have stopped responding to low borrowing costs. As a share of GDP, U.S. annual business investment since 2008 has averaged nearly a full percentage point below the previous decade’s average, government data shows. Reuters calculations indicate the investment shortfall has blown a hole in annual GDP that has grown to as much as one trillion dollars a year compared with what it would have been if the previous trend continued.

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“A full decade of stagnation.”

World Trade Falls for Second Quarter in a Row (WS)

Adding to the picture of crummy demand for goods around the world, the CPB Netherlands Bureau for Economic Policy Analysis, a division of the Ministry of Economic Affairs, just released its preliminary data of its Merchandise World Trade Monitor for June. Trade volumes rose 0.7% in June from May, after falling 0.5% in May, but were about flat year-over-year, and below the volumes of December 2014! On a quarterly basis – it averages out the monthly ups and downs – world trade fell 0.8%, contracting for the second quarter in a row. The CPB recently adjusted its world trade data down, going back many years.

The new data now depicts a post-Financial Crisis recovery of global trade that was a lot weaker than the original data had indicated. These downward adjustments of 2% to 3% came in a world where economic growth, according to the IMF, is stuck at 3.1% in 2016. This chart of the CPB’s World Trade Monitor index shows the old data released as of July 2015 (blue line) and the newly adjusted data released today (red line). Note the 4.4% drop from the peak in global trade volumes in the original data for December 2014 and in the current data for June 2016!

World trade is a reflection of the goods-producing economy. Services don’t get shipped around the world. Goods do. So industrial production, excluding construction, is key. And here the trend is awful for advanced economies. Global industrial production, excluding construction, rose 0.6% in June, after a 0.3% decline in May. The index for industrial production in advanced economies rose to 102.5, below where it had been in January (103.4), a level it had hit after the Financial Crisis in December 2012, but down from the glory days before the Financial Crisis when the index peaked in February 2008 (107.8). And here’s a tidbit: the first time that the index hit the current level had been in April 2006. A full decade of stagnation.

Industrial production has shifted to emerging economies (“cheap labor” economies) for many years, such as China, as companies in the US, decades ago, and eventually in Europe and Japan began outsourcing and offshoring production to emerging economies. Hence, industrial production in emerging economies has surged over this period. This was particularly the case after the Financial Crisis when companies in the US, Europe, and Japan redoubled their efforts to get production relocated offshore. This chart shows the CPB’s industrial production index globally (green line), and also separated by advanced economies (the dismally flat-ish blue line at the bottom) and emerging economies (brown line at the top):

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Someone better restructure that entire industry, or ugly things will happen.

Largest Oil Companies’ Debts Hit Record High (WSJ)

Some of the world’s largest energy companies are saddled with their highest debt levels ever as they struggle with low crude prices, raising worries about their ability to pay dividends and find new barrels. Exxon Mobil, Shell, BP and Chevron hold a combined net debt of $184 billion—more than double their debt levels in 2014, when oil prices began a steep descent that eventually bottomed out at $27 a barrel earlier this year. Crude prices have rebounded since, but still hover near $50 a barrel. The soaring debt levels are a fresh reminder of the toll the two-year price slump has taken on the oil industry. Just a decade ago, these four companies were hauled before Congress to explain “windfall profits” but now can’t cover expenses with normal cash flow.

Executives at BP, Shell, Exxon and Chevron have assured investors that they will generate enough cash in 2017 to pay for new investments and dividends, but some shareholders are skeptical. In the first half of 2015, the companies fell short of that goal by $40 billion, according to a Wall Street Journal analysis of their numbers. “Eventually something will give,” said Michael Hulme, manager of the $550 million Carmignac Commodities Fund, which holds stakes in Shell and Exxon. “These companies won’t be able to maintain the current dividends at $50 to $60 oil—it’s unsustainable.” BP has said it expects to be able to pay for its operations, make new investments and meet its dividend at an oil price of between $50 and $55 a barrel next year.

The debt is piling up despite cuts of billions of dollars on new projects and current operations. Repaying the loans could weigh the companies down for years, crimping their ability to make investments elsewhere and keep pumping ever more oil and gas. “They are just not spending enough to boost production,” said Jonathan Waghorn at Guinness Atkinson Asset Management.

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As graphs go…

This is What’s Wrong with US Oil (WS)

Soothsayers out there have been prophesying time and again, for over a year, that very soon, in fact next week, the supply glut will start to unwind; that production in the US is already coming down sharply, that demand is up, or whatever…. In the end, a glut comes down to whether inventories are rising, particularly during a time of the year when they’re supposed to be falling (glut gets worse), or whether they’re falling (glut stabilizes or abates). It’s not just crude oil, but also the products that crude oil gets refined into for eventual use. And these stocks of petroleum products have been a doozie, particularly gasoline.

Gasoline stocks were essentially unchanged for the week, at 232.7 million barrels, a record for this time of the year, and up 8.5% from the already elevated inventory levels last year. Distillate fuels rose by 200,000 barrels to 153.3 million barrels. And “all other oils” jumped by a total of 3.9 million barrels to 490.6 million barrels. So total petroleum products stocks rose by 6.6 million barrels during the week, or 0.5%. Once again, this small-ish number, but over the period of the oil bust, total petroleum products stocks have soared by 30% and now exceed for the first time ever another huge milestone: 1.4 billion barrels. This chart shows what a truly relentless glut looks like:

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No independence then?!

Scotland North Sea Oil Revenues Collapse 97% (Ind.)

Scotland’s revenues from North Sea oil have collapsed by 97% in the past year as oil prices have plummeted, reigniting a fierce debate over whether an independent Scotland could finance itself. Scottish Liberal Democrat leader Willie Rennie said: “The nationalists’ case for independence has been swallowed up by a £14bn black hole.” Taxes collected from oil production fell from £1.8bn in 2015 to just £60m in 2016. The gap between tax revenues and what Scotland spends is now 9.5%, or £14.8bn, compared to a 4% deficit for the UK as a whole. Scotland’s public sector now spends £12,800 per person, but collects just £10,000 each, the figures reveal. In 2008-9, as oil peaked at almost $150 per barrel, the Scottish government brought in a record £11.6bn from North Sea fields.

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Funny. Here’s what I wrote on April 8, 2015: Russia’s Central Bank Governor Is Way Smarter Than Ours

The Woman Who Revived Russia’s Markets (WSJ)

Russian markets are red hot again. Two years after plunging oil prices and Western economic sanctions fueled an investor exodus, the Micex stock index on Tuesday hit an all-time high. It is up 25% this year in dollar terms, making Russia the sixth-best performer among 23 emerging countries tracked by MSCI Inc. The ruble has gained 13% against the dollar this year, ranking third among all emerging currencies. Russia’s local-currency bonds rank third this year in performance out of 15 countries tracked by JP Morgan Chase. Many investors credit central-bank chief Elvira Nabiullina for Russia’s resurgence. They cite her surprise decision to end the ruble’s peg to the dollar in November 2014 and then sharply raise interest rates to combat capital flight and knock down inflation.

The moves were painful for Russia’s economy, which went into a sharp recession as the value of the ruble slumped, reducing consumer and business purchasing power. But over time they have helped to restore some international-investor faith in a country still shadowed by its 1998 default. “The correct steps taken by the Russian central bank have restored confidence in the ruble and its macroeconomic policy,” said Andrey Kutuzov, an associate portfolio manager of the Wasatch Emerging Markets Small Cap fund. Global investors this year have added $1.3 billion to funds that invest in Russian bonds and stocks, according to EPFR Global. The share of foreigners among government bondholders rose to 24.5% as of June 1, its highest level since late 2012, according to the Russian central bank.

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“..loans for weddings, guaranteed against the cash gifts that couples expect to receive..”

China Imposes Caps on P2P Loans to Curb Shadow-Banking Risks (BBG)

China imposed limits on lending by peer-to-peer platforms to individuals and companies in an effort to curb risks in one part of the loosely-regulated shadow-banking sector. An individual can borrow as much as 1 million yuan ($150,000) from P2P sites, including a maximum of 200,000 yuan from any one site, the China Banking Regulatory Commission said in Beijing on Wednesday. Corporate borrowers are capped at five times those levels. Tighter regulation may encourage consolidation that aids the industry long-term, said Wei Hou at Sanford C. Bernstein in Hong Kong. China’s authorities are concerned about defaults and fraud among the nation’s 2,349 online lenders. In December, the country’s biggest Ponzi scheme was exposed after Internet lender Ezubo allegedly defrauded more than 900,000 people out of the equivalent of $7.6 billion.

The nation has 1778 “problematic” online lenders, according to the CBRC. The P2P lenders are barred from taking public deposits or selling wealth-management products and must appoint qualified banks as custodians and improve information disclosure, the regulator said. [..] China’s P2P industry brokered 982 billion yuan of loans in 2015, almost quadruple the amount in 2014 and an approximately 10-fold increase from 2013, according to Yingcan. P2P firms attracted more than 3.4 million investors and 1.15 million borrowers in July, with loans extended at an average interest rate of 10.3%, according to Yingcan. Products offered by P2P platforms in China can include anything from loans for weddings, guaranteed against the cash gifts that couples expect to receive, to high-yield lending for risky property or mining projects.

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Biggest debts must be with shadow banks, and they don’t hang up posters.

Runaway Bosses Fleeing Debts A Symptom Of China’s Economic Slowdown (SCMP)

Wanted posters for fugitive debtors, not commercials, are the main images that flash up on a big electronic screen in downtown Yixing, in the heart of the faltering Chinese industrial powerhouse that is the Yangtze River Delta. The posters, from the local courts, show the identity card numbers and pictures of dozens of people who have fled unpaid debts. Rewards ranging from 20,000 yuan (HK$23,000) to 330,000 yuan are offered to anyone reporting their whereabouts. But Hengsheng Square is the glitziest part of Yixing – with the most luxury stores, the brightest lights and the priciest office buildings – and few passers-by, their attention directed elsewhere, heed the wanted posters. They have little novelty value in any case, with the “runaway debtor” phenomenon now just part of daily life in the small city as economic growth slows.

In many ways, the square stands as a metaphor for the overall health of the Chinese economy. Under a prosperous surface, deep cracks have begun to emerge in its investment-led model, casting a shadow over the country’s economic growth prospects and even giving rise to doubts about the fundamental soundness of the world’s second-biggest economy. “The economic dynamics are waning,” said Professor Hu Xingdou, an economist at Beijing Institute of Technology. “China’s economic growth in recent years was powered by massive money printing, which is dangerous and unsustainable.”

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Holding up Spain as a success story while it has 20-25% unemployment never seemed terribly credible. It still doesn’t.

Real World Shows Economics Has a Deflation Problem (BBG)

Jacob Rothschild, the billionaire scion of arguably Europe’s greatest banking dynasty says we’re living through “the greatest experiment in monetary policy in the history of the world.” There’s a major flaw in the experiment, though: the real world isn’t responding to policy in the way that the textbooks say it should. Moreover, it seems increasingly evident that the fears that led to zero interest rates and quantitative easing were at best overblown, if not entirely unjustified. The economic quandary is easy to parse. Central banks almost everywhere have sanctioned a 2% inflation target as signifying financial Nirvana. But, as the table below shows, consumer prices in the world’s major economies are rising much slower than that arbitrary ideal:

Spain has emerged as the poster child for deflation. Prices fell by 0.6% in July, the country’s 12th consecutive month with no increase in inflation. The textbooks suggest that when there’s a prolonged period of falling prices – the definition of deflation – the economy can quickly find itself in a tailspin. Businesses and consumers will defer purchases in the expectation that goods and services will be even cheaper in the future. So if Spain has had an average inflation rate of -0.4% since the end of 2013, and has seen lower prices in 23 of the past 30 months, consumers will have responded by shunning the shops and curtailing their spending, right? Wrong:

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Heed that warning.

S&P: Increased Risk Of ‘Sharp Correction In New Zealand Property Prices’ (Int.)

International credit rating agency S&P Global Ratings has warned of the increasing risks facing New Zealand banks as a result of the continuing rise in house prices. In a new report, S&P has downgraded its Banking Industry Country Risk Assessment (BICRA) for NZ’s banks by a notch, dropping it from 3 to 4, on a scale where 1 is the lowest risk and 10 is the highest risk. However it has not changed the individual credit ratings of any New Zealand banks. [..] .. our ratings on all the financial institutions operating in New Zealand remain unchanged. “This reflects our expectation that despite some weakening in the capital levels of all these financial institutions, their stand alone credit profiles (SACPs) would remain unchanged.

However S&P did downgrade the SACPs of ASB and Rabobank by one notch each, although it did not downgrade the two banks’ credit ratings, “… reflecting our assessment of timely financial support from their respective parents, if needed,” S&P said. S&P said the increased risks to this country’s banking sector had been driven by “…continued strong growth in residential property prices nationally, coupled with an increase in private sector credit growth.” “We believe the risk of a sharp correction in property prices has further increased and, if it were to occur – with about 56% of registered banks’ lending assets secured by residential home loans – the impact on financial institutions would be amplified by the New Zealand economy’s external weaknesses, in particular its persistent current account deficit and high level of external debt.”

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This is just plain funny.

Treasury to EU: Back Off On Tax Probes Of US Companies (CNBC)

There’s a giant pot of corporate gold sitting outside the United States, and the U.S. Treasury and the European Commission are squabbling over how to get their hands on it. American multinational corporations have stashed more than $2 trillion in profits and assets outside to avoid paying what many companies argue are unduly high U.S. corporate tax rates. Over the past few years, the European Commission has opened investigations into a handful of those companies, including Apple, Starbucks and Amazon, to determine whether they owe taxes to European countries. But the Treasury Department, in a “white paper” released Wednesday, said those investigations have gone too far.

The paper attacked the legal approach the EU is using to determine tax liabilities on American companies, saying it targets “income that (European) Member States have no right to tax under well-established international tax standards.” The paper also argued that taxes collected by European countries could, in effect, come right out of the pockets of American taxpayers. That’s because taxes collected by European countries could be deducted from any future payments to the Treasury. “That outcome is deeply troubling, as it would effectively constitute a transfer of revenue to the EU from the U.S. government and its taxpayers,” the paper said. The report urged the European Commission to “return to the system and practice of international tax cooperation that has long fostered cross-border investment between the United States and EU Member States.”

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France will demand the hollowing out of the EU. Decentralization. Inevitable when economies shrink.

French Support For The EU Project Is Crumbling On The Left And Right (AEP)

The drama of Brexit may soon be matched or eclipsed by crystallizing events in France, where the Long Slump is at last taking its political toll. A democracy can endure deflation policies for only so long. The attrition has wasted the French centre-right and the centre-left by turns, and now threatens the Fifth Republic itself. The maturing crisis has echoes of 1936, when the French people tired of ‘deflation decrees’ and turned to the once unthinkable Front Populaire, smashing what remained of the Gold Standard. Former Gaulliste president Nicolas Sarkozy has caught the headlines this week, launching a come-back bid with a package of hard-Right policies unseen in a western European democracy in modern times.

But the uproar on the Left is just as revealing. Arnaud Montebourg, the enfant terrible of the Socialist movement, has launched his own bid for the Socialist Party with a critique of such ferocity that it bears examination. The former economy minister says France voted for a left-wing French manifesto four years ago and ended up with a “right-wing German policy regime”. This is objectively true. The vote was meaningless. “I believe that we have reached the end of road for the EU, and that France no longer has any interest in it. The EU has left us mired in crisis long after the rest of the world has moved on,” he said. Mr Montebourg stops short of ‘Frexit’ but calls for the unilateral suspension of EU labour laws. “As far as I am concerned, the current treaties have elapsed.

I will be inspired by the General de Gaulle’s policy of the ’empty chair’, a strike against the EU. I am not in favour of a French Brexit, but we can longer accept a Europe like that,” he said. In other words, he wishes to leave from within – as Poland, and Hungary are doing – without actually triggering any legal or technical clause. Mr Montebourg is unlikely to progress far but his indictment of president François Hollande is devastating. The party leadership was warned repeatedly and emphatically that contractionary policies would inevitably lead to another million jobless but the economic was swept aside. “They never budged from their Catechism and their false certitudes,” he said.

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“..the first post on social media to change the course of European history..”

‘It Took On A Life Of Its Own’: How One Rogue Tweet Led Syrians To Germany (G.)

The tweet was sent by Germany’s ministry for migration and refugees a year ago today. “The #Dublin procedure for Syrian citizens is at this point in time effectively no longer being adhered to,” the message read. With 175 retweets and 165 likes, it doesn’t look like classic viral content. But in Germany it is being spoken of as the first post on social media to change the course of European history. Referring to an EU law determined at a convention in Dublin in 1990, the tweet was widely interpreted as a de facto suspension of the rule that the country in Europe where a refugee first arrives is responsible for handling his or her asylum application.

By this point in 2015, more than 300,000 asylum seekers had reached Europe by boat – a figure that was already 50% higher than even the record-breaking number of arrivals in 2014. Although the German ministry’s intervention certainly did not start the crisis, it did make Germany the first-choice destination for Syrians who previously might have aimed for other countries in Europe, such as Sweden, which at the time offered indefinite asylum to Syrians. It also created an impression of confusion and loss of political control, from which Angela Merkel’s government has at times struggled to recover. Twelve months on, politicians and officials at the centre of Berlin’s bureaucratic machine are still trying to figure out how the tweet came about.

Four days previously, Angelika Wenzl, the executive senior government official at the refugee ministry, which in Germany is known as BAMF, had emailed out an internal memo titled “Rules for the suspension of the Dublin convention for Syrian citizens” to its 36 field bureaux around the country, stating that Syrians who applied for asylum in Germany would no longer be sent back to the country where they had first stepped on European soil. [..] By channels that officials and journalists have so far failed to pinpoint, Wenzl’s internal memo was leaked to the press.

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I forget who said it, but it’s still an interesting take: ”Nature developed mankind to get rid of a carbon imbalance”.

We’ve Been Wrecking The Planet A Lot Longer Than You Think (SMH)

When Charles Dickens, the English novelist, was detailing the “soft black drizzle” of pollution over London, he might inadvertently have been chronicling the early signs of global warming. New research led by Australian scientists has pegged back the timing of when humans had clearly begun to change the climate to the 1830s. An international research project has found human-induced climate change is first detectable in the Arctic and tropical oceans around the 1830s, earlier than expected. That’s about half a century before the first comprehensive instrumental records began – and about the time Dickens began his novels depicting Victorian Britain’s rush to industrialise.

The findings, published on Thursday in the journal Nature, were based on natural records of climate variation in the world’s oceans and continents, including those found in corals, ice cores, tree rings and the changing chemistry of stalagmites in caves. Helen McGregor, an ARC future fellow at the University of Wollongong and one of the paper’s lead authors, said it was “quite a surprise” the international research teams of dozens of scientists had been able to detect a signal of climate change emerging in the tropical oceans and the Arctic from the 1830s. “Nailing down the timing in different regions was something we hadn’t expected to be able to do,” Dr McGregor told Fairfax Media.

Interestingly, the change comes sooner to northern climes, with regions such as Australasia not experiencing a clear warming signal until the early 1900s. Nerilie Abram, another of the lead authors and an associate professor at the Australian National University’s Research School of Earth Sciences, said greenhouse gas levels rose from about 280 parts per million in the 1830s to about 295 ppm by the end of that century. They now exceed 400 ppm.

Read more …

Jun 162016
 
 June 16, 2016  Posted by at 8:10 am Finance Tagged with: , , , , , , ,  5 Responses »
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Arthur Rothstein Bank that failed. Kansas 1936


Brexit Is The Only Way The Working Class Can Change Anything (G.)
It’s Time To Call Time On The EU Experiment (Steve Keen)
Osborne’s ‘Punishment Budget’ Is Economic Vandalism (AEP)
JPMorgan CIO: Brexit “Hardly The Stuff Of Economic Calamity” (ZH)
Brexit: Which Banks Will Be Hit Hardest (WSJ)
Yellen Says Forces Holding Down Rates May Be Long Lasting, New Normal (BBG)
Yellen Says Brexit Vote Influenced Fed (BBG)
Bank of Japan Stands Pat Ahead of Brexit Vote (WSJ)
Is The World Turning Its Back On Free Trade? (BBC)
Switzerland Withdraws Longstanding Application To Join EU (RT)
Highrise Harry Whispers The Terrible Truth (MB)
EU Pushes Greece To Set Up New Asylum Committees (EUO)
Could We Set Aside Half The Earth For Nature? (G.)

The essence behind the Leave surge. People dislike Cameron so much they’ll vote for anything he doesn’t want.

Brexit Is The Only Way The Working Class Can Change Anything (G.)

In working-class communities, the EU referendum has become a referendum on almost everything. In the cafes, pubs, and nail bars in east London where I live and where I have been researching London working-class life for three years the talk is seldom about anything else (although football has made a recent appearance). In east London it is about housing, schools and low wages. The women worry for their children and their elderly parents – what happens to them if the rent goes up again? The lack of affordable housing is terrifying. In the mining towns of Nottinghamshire where I am from, the debate again is about Brexit, and even former striking miners are voting leave.

The mining communities are also worried about the lack of secure and paid employment, the loss of the pubs and the grinding poverty that has returned to the north. The talk about immigration is not as prevalent or as high on the list of fears as sections of the media would have us believe. The issues around immigration are always part of the debate, but rarely exclusively. From my research I would argue that the referendum debate within working-class communities is not about immigration, despite the rhetoric. It is about precarity and fear. As a group of east London women told me: “I’m sick of being called a racist because I worry about my own mum and my own child,” and “I don’t begrudge anyone a roof who needs it but we can’t manage either.”

Over the past 30 years there has been a sustained attack on working-class people, their identities, their work and their culture by Westminster politics and the media bubble around it. Consequently they have stopped listening to politicians and to Westminster and they are doing what every politician fears: they are using their own experiences in judging what is working for and against them.

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Think I made it very and abundantly clear in the past that I fully agree with this. Tad surpised to see it come from Steve, given his link to Varoufakis.

It’s Time To Call Time On The EU Experiment (Steve Keen)

The arguments for and against Brexit have focused on the economic costs and benefits for the UK in leaving or remaining within the EU. Though I am an economist, I am taking a more political perspective to this vote by focusing on the utterly undemocratic nature of the key institutions of the EU. The European Parliament is a weak, diversionary figurehead, while the real power resides within the unelected bureaucracy of the EU and the key political appointees of the Europe’s governments—and particularly its Finance Ministers. These effective cabals run roughshod over political democracies when they elect leaders that oppose core EU economic policies, while at the same time these policies are leading to the ruin of southern Europe, and the stagnation of France and Italy.

The EU has been a failed enterprise ever since 1992, when the Maastricht Treaty was approved. As the prescient non-mainstream English economist Wynne Godley realised at the time, the fetish in this Treaty for government surpluses would lead to the collapse of Europe. Godley wrote that “If a country or region has no power to devalue, and if it is not the beneficiary of a system of fiscal equalisation, then there is nothing to stop it suffering a process of cumulative and terminal decline leading, in the end, to emigration as the only alternative to poverty or starvation” (Godley, Maastricht and all that, London Review of Books, 1992). Godley’s words, which surely seemed rash and insanely pessimistic at the time, have proven true with time. I therefore think that it’s time to call time on the EU experiment. I’ll be voting for Brexit for this reason.

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A bit surprisingly, Ambrose has turned hard against Brussels and Remain.

Osborne’s ‘Punishment Budget’ Is Economic Vandalism (AEP)

George Osborne is disqualified from serving as Chancellor of the Exchequer for a single week longer. Whatever his past contributions, his threat to push through draconian fiscal tightening in an emergency Brexit budget is economic madness, if not criminal incompetence. Such action would leverage and compound the financial shock of Brexit, and would risk pushing the country into a depression. It violates the known tenets of macro-economics, whether you are Keynesian or not. Alistair Darling, the former Labour Chancellor, has connived in this Gothic drama. He professes to be “much more worried now” than he was even during the white heat of the Lehman crisis and the collapse of the Western banking system in 2008. So he should be. The emergency Budget that he endorses might well bring about disaster.

The policy response is the mirror image of what he himself did – wisely – during his own brief tenure through the Great Recession. We all understand why George Osborne is toying with such pro-cyclical vandalism – or pretending to – for he is acting purely as as partisan for the Remain campaign. He has fatally mixed his roles. No head of the Treasury can behave in this fashion. The emergency Budget would aim to cover a £30bn ‘black hole’ with a mix of tax rises and spending cuts. These “illustration” measures include 2p on income tax and a 5 percentage point rise on inheritance tax, and petrol and alcohol duties. Transport, the police, and local government would be axed by 5pc. There would be cuts in pensions and defence. Spending on the NHS would be “slashed’.

This is a fiscal contraction of 1.7pc of GDP. It would hammer the economy just as it was reeling from the immediate trauma of a Brexit vote and the probable contagion effects across eurozone periphery, already visible in widening bond spreads. It would come amid political chaos, before it was clear what the UK negotiating strategy is, or what the EU might do. It would be the worst possible moment to tighten. The Treasury has already warned that the short-term shock of Brexit would slash output by 3.6pc, or 6pc with 820,000 job losses in its ‘severe’ scenario. The Chancellor now states he will reinforce this with austerity a l’outrance. It is a formula for a self-feeding downward spiral, all too like the scorched-earth policies imposed on southern Europe during the debt crisis.

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“.. the history of the last two centuries can be summed up in two words: democracy matters.”

JPMorgan CIO: Brexit “Hardly The Stuff Of Economic Calamity” (ZH)

First The Telegraph, then The Sun, and today The Spectator all came out on the “Leave” side of the Brexit debate. However, perhaps even more shocking to the establishment is the CIO of a major bank’s asset management arm dismissing the apparent carnage that Cameron, Obama, and Osborne have declared imminent, warning that, “many articles on the Brexit vote overstate its risks and consequences.” As JPM’s Michael Cembalest adds, the reality is “hardly the stuff that economic calamity is made of.” As The Spectator concludes, “the history of the last two centuries can be summed up in two words: democracy matters.” As JPMorgan Asset Management CIO Michael Cembalest explains…

“My sense is that many articles on the Brexit vote overstate its risks and consequences for the UK, and/or overstate the vote’s impact on political movements and economic malaise in the Eurozone that predate it by months and years. Here are some thoughts on issues I have seen raised over the last few weeks. “UK growth will suffer a huge hit”. Of all the analyses I’ve read about a possible Brexit scenario, I found Open Europe’s report to be the most clear-headed and balanced. Their realistic case estimates the cumulative impact of Brexit on UK GDP at just -0.8% to 0.6% by the year 2030; hardly the stuff that economic calamity is made of.

“UK-EU trade will collapse”. Not necessarily. Norway, Iceland and Switzerland have entered into agreements with the EU on trade and labor mobility (European Economic Area, European Free Trade Area). As shown below, these three non-EU countries export as much to the EU as its members do. Such agreements could serve as a template for post-Brexit trade between Britain and the EU, if both sides see it in their mutual self-interest.”

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The City could take a big hit.

Brexit: Which Banks Will Be Hit Hardest (WSJ)

Barclays and HSBC are the banks with the most business in Europe. Barclays got just under 9% of its profits from continental European businesses in 2015. At HSBC, roughly 5.5% of last year’s profits came from continental Europe, where it has a large French retail business. Local businesses could become much more difficult to run from the U.K. if a Brexit vote provokes a big change in the trade arrangements with the rest of Europe. Meanwhile, their large London-based investment banks—and those of other European and U.S. groups—would also face losing direct access to Europe without a new trade deal that preserved Britain’s “passport” for services. In this case, Deutsche Bank, BNP Paribas and Société Générale, for example, would suffer some of the same disruption and relocation costs as Barclays or HSBC.

The other vulnerable group would be U.K. mortgage lenders, such as Lloyds Banking Group, Virgin Money and OneSavings. If international investors react badly to Brexit, pulling capital out of the country, the pound will fall further and the Bank of England may feel compelled to lift interest rates to attract investors back into U.K. government bonds. Some believe benchmark interest rates might only have to go to, say, 2%, to make U.K. assets attractive, but that could upend the housing market, where prices have risen dramatically in the past couple of years, helped by substantial lending to small-time landlords. Ultra-low interest rates have kept debt-service costs minuscule, a situation that could be upended quickly.

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Sounds like she’s giving up.

Yellen Says Forces Holding Down Rates May Be Long Lasting, New Normal (BBG)

Federal Reserve Chair Janet Yellen seems to be coming around to what her one-time rival, Lawrence Summers, has been arguing for a while: Some of the forces holding down interest rates may be long-lasting and secular. That’s reflected in a marked downgrade in rate projections released by policy makers after their meeting on Wednesday. Six of 17 now only see one rise this year, after the central bank lifted rates effectively from zero in December. Officials also slowed the pace of expected moves in both 2017 and 2018: They now only foresee three increases in each of those years, down from the four they expected in March, according to their latest median forecast.

Yellen in the past has ascribed the low level of rates mainly to lingering headwinds from the financial crisis – tight mortgage credit, for instance – and suggested that they would dissipate over time. On Wednesday, though, she also pointed to more permanent forces that could depress rates for longer, namely, slow productivity growth and aging societies, in the U.S. and throughout much of the world. In a press conference after the Fed held policy steady, Yellen spoke of a sense that rates may be depressed by ”factors that are not going to be rapidly disappearing, but will be part of the new normal.”

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She means the Leave vote did. When it looked like Remain would win easily, things were different.

Yellen Says Brexit Vote Influenced Fed (BBG)

Federal Reserve chair Janet Yellen said next week’s referendum in the UK on whether to remain in the EU was a factor in the US central bank’s decision to hold interest rates steady at its meeting Wednesday in Washington. “It is a decision that could have consequences for economic and financial conditions in global financial markets,” Yellen said during a press conference following the meeting. A vote on June 23 by Britons to leave the EU “could have consequences in turn for the US economic outlook,” she said. Fewer Federal Reserve officials now expect the central bank to raise interest rates more than once this year, as policy makers gave a mixed picture of a US economy where growth is picking up and job gains are slowing.

While the median forecast of 17 policy makers remained at two quarter-point hikes this year, the number of officials who see just one move rose to six from one in the previous forecasting round in March, according to projections released by the Federal Open Market Committee on Wednesday following a two-day meeting in Washington. “The central bank reiterated that interest rates are likely to rise at a “gradual” pace, without referring in the statement to the next meeting in July or any other specific timing for another increase.

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“The BOJ might also have found itself short of ammunition to respond to that turbulence.”

Bank of Japan Stands Pat Ahead of Brexit Vote (WSJ)

The Bank of Japan stood pat Thursday despite a surging yen and faltering inflation, opting to wait until after the results of a British referendum next week that could roil global markets. The central bank’s decision comes amid growing skepticism about the effectiveness of Prime Minister Shinzo Abe’s economic program in ending Japan’s long cycle of lackluster growth and sporadic deflation. Abenomics, which has leaned most heavily on the central bank, hasn’t produced sustained, robust growth since it was launched more than three years ago. Japan’s economy has swung between modest expansions and contractions in recent quarters, while the BOJ’s hard-won gains in the battle against falling prices are starting to slip away.

Economists have expected the BOJ to take additional action in recent months, particularly given that BOJ Gov. Haruhiko Kuroda has repeatedly vowed to take action “without hesitation” if the central bank’s 2% inflation target is in danger. The central bank also stood pat in April, when expectations for action were high. Some BOJ policy board members, though, signaled ahead of this week’s meeting that they preferred to wait until after the U.K. votes next week on whether to leave the European Union, according to people familiar with the central bank’s thinking. They were concerned that even if the BOJ acted this week, the market impact of its move would fade if a “Brexit” vote rocked global financial markets, according to people close to the bank. The BOJ might also have found itself short of ammunition to respond to that turbulence.

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Free trade, like all forms of centralization, depends on a growing economy. There is no such thing anymore.

Is The World Turning Its Back On Free Trade? (BBC)

Which politician has captured the curve, summed up a growing mood, in a ferocious speech? “Your iron industry is dead, dead as mutton. Your coal industries, which depend greatly on the iron industries, are languishing. Your silk industry is dead, assassinated by the foreigner. Your woollen industry is in articulo mortis, gasping, struggling. Your cotton industry is seriously sick. Your shipbuilding industry, which held out longest, is come to a standstill.” The Latin, the silk and the mutton are a dead giveaway. Not Trump, but Lord Randolph Churchill in 1884 denouncing Free Trade. The system he preferred – “Fair Trade” – is coming back into fashion.

We have heard a lot about the revolt against the political elites, the backlash by those “left behind” by globalization; a lot about the movements and political personalities this has brought to the fore; a lot about the implications for immigration. But not so much about the economics of it all. It many signal a new rejection of one of the global elite’s most cherished policies – free trade. This is the notion that the fewer economic barriers around the world, and the less countries protect their own goods and trade with special policies, the richer we all end up. The opposite is protectionism – making foreign goods more expensive by putting taxes on their import , tariffs, in order to make home-grown products cheaper by comparison. While few embrace the word protectionism, growing numbers of politicians are openly embracing the principle behind it.

Donald Trump has said he would put a swingeing 45% tax on goods from China and 35% on many from Mexico. Many economists mock this as crazy stuff, but it is a sentiment that goes down well with many Americans. [..] Bernie Sanders has made it very clear he is opposed to NAFTA, the free trade bloc with Mexico and Canada, and the planned Asia Pacific agreement. He has been saying it for a while. This is him in 2011: “Let’s be clear: one of the major reasons that the middle class in America is disappearing, poverty is increasing and the gap between the rich and everyone else is growing wider and wider, is due to our disastrous unfettered free trade policy.”

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“..only “a few lunatics” may want to join the EU now..”

Switzerland Withdraws Longstanding Application To Join EU (RT)

The upper house of the Swiss parliament on Wednesday voted to invalidate its 1992 application to join the European Union, backing an earlier decision by the lower house. The vote comes just a week before Britain decides whether to leave the EU in a referendum Twenty-seven members of the upper house, the Council of States, voted to cancel Switzerland’s longstanding EU application, versus just 13 senators against. Two abstained. In the aftermath of the vote, Switzerland will give formal notice to the EU to consider its application withdrawn, the country’s foreign minister, Didier Burkhalter, was quoted as saying by Neue Zürcher Zeitung. The original motion was introduced by the conservative Swiss People’s Party MP, Lukas Reimann.

It had already received overwhelming support from legislators in the lower house of parliament in March, with 126 National Council deputies voting in favor, and 46 against. Thomas Minder, counsellor for the state of Schaffhausen and an active promoter of the concept of “Swissness,” said he was eager to “close the topic fast and painlessly” as only “a few lunatics” may want to join the EU now, he told the newspaper. Hannes Germann, also representing Schaffhausen, highlighted the symbolic importance of the vote, comparing it to Iceland’s decision to drop its membership bid in 2015. “Iceland had the courage and withdrew the application for membership, so no volcano erupted,” he said, jokingly.

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Australia: “We have nothing else except real estate…”

Highrise Harry Whispers The Terrible Truth (MB)

Highrise Harry’s media foghorns continue his campaign to abolish foreign buyer stamp duties today at the AFR: “Alluding to remarks by Meriton boss Harry Triguboff that he might have to reduce his apartment prices in the wake of the surcharges, Ms Berejiklian said that, given so many people were worried about housing affordability, the NSW government would be “happy to wear that consequence”. Mr Triguboff labelled the new taxes “very dangerous”, coming as they did on top of moves by the banks to tighten up lending to foreign buyers. He also urged caution in light of the decline of the mining sector. “We have nothing else except real estate. We have to be very careful,” Mr Triguboff told the AFR.” True indeed, Highrise. But that’s why policy must shift away from property and towards the repair of everything else.

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Brussels trying to bend Greek sovereign law and legal system.

EU Pushes Greece To Set Up New Asylum Committees (EUO)

The EU wants Greece to quickly set up new appeals committees to better cope with the large number of asylum requests. “New appeals committees under the new law will be set up in the next 10 days, I am confident that procedures will be accelerated soon,” EU migration commissioner Dimitris Avramopoulos [said]. The Greek commissioner said the government in Athens decided on Tuesday to “upgrade and enhance” the appeals committees. “We salute that the Greek government took that initiative,” he said. The aim was “to speed up judicial procedures to assess all the requests and give prompt answers”. The committees are an essential part of an agreement reached in March between Turkey and the EU for sending back migrants.

So far, dealing with appeals regarding asylum requests has been the job of the so-called backlog committees, created in 2010 to deal with the large number of pending asylum cases in Greece. But these committees were not designed to deal with massive influx, as more than 8,000 migrants are still stranded on the Greek islands. EU officials claim it was always the goal of Brussels and Athens to create new committees to take this burden off the backlog committees. A Greek source told EUobserver however that an amendment to the existing law on appeals committees is still being debated in the Greek parliament, and there is no guarantee that the new committees will be set up the next 10 days.

But the issue has become especially important for EU member states after it emerged that the committees had ruled in 55 cases involving Syrians that the claimant could not be returned back to Turkey. In effect ruling that Turkey is not a safe country. Only in two cases did they agree to send those Syrians back to Turkey. According to an EU source, the first decision by the backlog committees that said Turkey is not a safe country created a major upset in Brussels and in other EU capitals, prompting fears that the EU-Turkey deal could unravel. “They are seen as the enemy of the deal,” the source added.

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E.O. Wilson makes a last desperate call.

Could We Set Aside Half The Earth For Nature? (G.)

As of today, the only place in the universe where we are certain life exists is on our little home, the third planet from the sun. But also as of today, species on Earth are winking out at rates likely not seen since the demise of the dinosaurs. If we don’t change our ways, we will witness a mass extinction event that will not only leave our world a far more boring and lonely place, but will undercut the very survival of our species. So, what do we do? E.O. Wilson, one of the world’s most respected biologists, has proposed a radical, wild and challenging idea to our species: set aside half of the planet as nature preserves. “Even in the best scenarios of conventional conservation practice the losses [of biodiversity] should be considered unacceptable by civilised peoples,” Wilson writes in his new book, Half-Earth: Our Planet’s Fight for Life.

One of the world’s most respected biologists, Wilson is known as the father of sociobiology, a specialist in island biogeography, an expert on ant societies and a passionate conservationist. In the book, Wilson argues eloquently for setting aside half of the planet for nature, including both terrestrial and marine ecosystems. He writes that it’s time for the conservation community to set a big goal, instead of aiming for incremental progress. “People understand and prefer goals,” he writes. “They need a victory, not just news that progress is being made. It is human nature to yearn for finality, something achieved by which their anxieties and fears are put to rest…It is further our nature to choose large goals that while difficult are potentially game-changing and universal in benefit. To strive against odds on behalf of all life would be humanity at its most noble.”

The reason why half is the answer, according to Wilson, is located deep in the science of ecology. “The principal cause of extinction is habitat loss. With a decrease of habitat, the sustainable number of species in it drops by (roughly) the fourth root of the habitable area,” Wilson wrote via email, referencing the species-area curve equation that describes how many species are capable of surviving long-term in a particular area. By preserving half of the planet, we would theoretically protect 80% of the world’s species from extinction, according to the species-area curve. If protection efforts, however, focus on the most biodiverse areas (think tropical forests and coral reefs), we could potentially protect more than 80% of species without going beyond the half-Earth goal. In contrast, if we only protect 10% of the Earth, we are set to lose around half of the planet’s species over time. This is the track we are currently on.

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May 282016
 
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Jack Delano Row houses, Baltimore 1940


Yellen Leans Toward Near-Term Rate Rise Without Detailing Timing (BBG)
Trump: Only ‘Dummies’ Believe Fed’s Unemployment Figure (Crudele)
Japan’s Abe Plans Up to $90.7 Billion Stimulus (BBG)
US Farm Belt Banks Tighten the Buckle (WSJ)
Companies Go on Worldwide Bond Bender With $236 Billion of Sales (BBG)
Clinton Lurks in Shadows When Sparring With Sanders on Banks (BBG)
Toronto’s Red-Hot Market Sends Property Values Soaring (Star)
UK House Prices Compared With Earnings ‘Close To Pre-Crisis Levels’ (G.)
Paris and Berlin Ready ‘Plan B’ For Life After Brexit (FT)
Neoliberalism Increases Inequality and Stunts Economic Growth: IMF (Ind.)
How the Deadly Sin of Avarice Was Rehabilitated as Self Interest (Evon.)
Silencing the United States as It Prepares for War (Pilger)
ISIS Advance Traps 165,000 Syrians at Closed Turkish Border (HRW)

“The economy is continuing to improve..” Nuff said.

Yellen Leans Toward Near-Term Rate Rise Without Detailing Timing (BBG)

Federal Reserve Chair Janet Yellen threw her support behind a growing consensus at the central bank in favor of another interest rate increase soon, while steering clear of specifying the timing of such a move. “It’s appropriate – and I’ve said this in the past – for the Fed to gradually and cautiously increase our overnight interest rate over time,” Yellen said Friday during remarks at Harvard University in Cambridge, Massachusetts. “Probably in the coming months such a move would be appropriate.” Yellen will host her colleagues on the Federal Open Market Committee in Washington June 14-15, when they will contemplate a second interest-rate increase following seven years of near-zero borrowing costs that ended when they hiked in December.

A series of speeches by Fed officials and the release of the minutes to their April policy meeting have heightened investor expectations for another tightening move either next month or in July. “The economy is continuing to improve,” she said in a discussion with Harvard economics professor Gregory Mankiw. She added that she expects “inflation will move up over the next couple of years to our 2% objective,” provided headwinds holding down price pressures, including energy prices and a stronger dollar, stabilize alongside an improving labor market.

Several regional Fed presidents, ranging from Boston Fed President Eric Rosengren to San Francisco’s John Williams, have in recent weeks urged financial market participants to take more seriously the chances of a rate hike in the next two months, pointing to continued signs of steady if unspectacular growth in the U.S. economy and the waning of risks posed by global economic and financial conditions. Yellen suggested that a rate rise would be appropriate if economic growth picks up and the labor market continues to improve – two developments that she said she expects to happen.

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Trump sees a whole other world than Yellen does. Take your pick.

Trump: Only ‘Dummies’ Believe Fed’s Unemployment Figure (Crudele)

Donald Trump, if elected president, will investigate the veracity of US economic statistics produced by Washington — including “the way they are reported.” I caught up with Trump, the presumptive Republican nominee, by phone Tuesday morning, and we had a frank talk about the economy and what is making his campaign tick. “When you look at some of these [economic] numbers they give out and then you go out and see people dying to get a job all over the country, I mean, it’s not jibing with what’s really going on,” Trump said. “The economy is not doing well,” Trump said. “You know, John, I’m getting 20,000 to 25,000 people every time I make a speech, and they are not there just because of the border,” he added, referring to his vow to build a wall between the US and Mexico.

“They are there because — and you know — if you put out a job notice, you’ll get thousands of people showing up to pick up a job,” Trump said. As I’ve mentioned before, I first met Trump decades ago and we used to talk once in a while, but haven’t for many years. Trump says he thinks the US unemployment rate is close to 20% and not the 5% reported by the Labor Department. Anyone who believes the 5% is a “dummy,” he said. The Federal Reserve, of course, always quotes the 5% figure and may raise interest rates based on that belief in the coming months. But even the Fed must not be too certain since it produces its own version of the jobless number, something I’ve already written about. Trump has said in the past that the Fed is also in his cross hairs for an audit. (I would recommend he look into how the Fed interferes with the markets.)

As I’ve been reporting for years, the official unemployment rate is conveniently reduced by a number of factors — each in place during both Democratic and Republican administrations. One of these factors, for example, is out-of-work people who have stopped looking for work for more than a year because they may have grown frustrated by the lack of jobs. They are not counted in the unemployment rate. A less popular unemployment stat, called the U-6, which measures some of these idled souls plus others who are forced to work part-time because they can’t find a 40-hour-a-week gig, stands at 9.7%. The truly frustrated aren’t counted at all.

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It’s stunning, really, that this man still gets to dig his country ever deeper in. He hasn’t delivered on f**k all.

Japan’s Abe Plans Up to $90.7 Billion Stimulus (BBG)

Japan Prime Minister Shinzo Abe plans to propose a fiscal stimulus package of as much as 10 trillion yen ($90.7 billion) after warning Group of Seven leaders that the global economy faces significant risk of another crisis, according to the Nikkei newspaper. Abe will seek a second supplementary budget worth 5 trillion yen to 10 trillion yen after July’s upper-house election, the Nikkei reported Saturday without attribution. Proposals will include accelerating the construction of a magnetic-levitation train line from Nagoya to Osaka, issuing vouchers to boost consumer spending, increasing pay for child-care workers and setting up a scholarship fund, the Nikkei said. “When you want to get the economy going, as long as demand in Asia is weak, you need additional public spending,” Martin Schulz at Fujitsu Research Institute in Tokyo, said by phone.

“Since private spending is still not picking up, the government is simply taking up the slack.” Abe is getting closer to delaying an increase in Japan’s sales tax, saying Friday he’ll make a decision before an upper-house election this summer on whether to go ahead with a planned hike in the levy next April to 10%, from 8%. A formal announcement of a two-year delay is expected Wednesday at the close of the parliamentary session, the Nikkei reported. This would be the second postponement by Abe, as the tax was initially scheduled to be raised in October 2015. An increase in the levy in 2014 pushed Japan into a recession. Abe had previously said the tax hike would be delayed only if there was a shock on the scale of a major earthquake or a corporate collapse like that of Lehman Brothers.

Since the previous tax hike, the economy has swung between contraction and growth, with consumer spending remaining weak. Bank of Japan Governor Haruhiko Kuroda has struggled to spur inflation despite record asset purchases and negative interest rates. Consumer prices excluding fresh food fell 0.3% in April from a year earlier, after dropping by the same amount in March, data released Friday showed. Meanwhile, the yen has surged about 9% versus the dollar this year, threatening profits for exporters including Toyota and weighing on the nation’s stock market. The benchmark Topix index has fallen 13% in 2016.

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Compliments of the globalized and chemicalized food industry.

US Farm Belt Banks Tighten the Buckle (WSJ)

Banks are tightening credit for U.S. farmers amid a rise in delinquencies, forcing some growers to turn to alternative sources of loans. When U.S. agriculture was booming this decade, banks doled out ample credit to strong performers and weaker growers alike, said Michael Swanson, an agricultural economist at Wells Fargo. But with the farm slump moving into its third year, banks have become pickier, requiring some growers to cough up more collateral and denying financing outright to some customers who need it to pay for seeds, crop chemicals and rent. Farmers this year have been grappling with low commodity prices, mounting debt and weaker incomes.


Claude Sem, chief executive of Farm Credit Services of North Dakota, said he asked some farmers to put up more land or machinery to back loans this spring. Collateral requirements could increase for more farmers if crop prices remain low, he said, noting that the cash price for wheat in northern North Dakota recently was about $4.50 a bushel, roughly a dollar below what it costs many farmers to raise the crop. “Below break-even, everything tightens up,” Mr. Sem said, adding that falling land values also have spurred lenders to boost collateral requirements, with cropland prices down as much as 20% in some parts of North Dakota.

With traditional bank loans harder to come by, farmers are turning to sources like CHS Inc., a large farmer-owned cooperative in the U.S., which operates grain elevators and retail stores across the Midwest. CHS said its loans to farmers increased 48% in both number and volume in the 12 months to March and have more than doubled since 2014. It “suggests there are many farmers struggling to obtain financing,” said Randy Nelson, president of the co-op’s financing subsidiary, CHS Capital.

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Lemmings ‘R’ Us.

Companies Go on Worldwide Bond Bender With $236 Billion of Sales (BBG)

A borrowing binge by companies globally is poised to make May one of the the busiest months ever, thanks to investors who continue to devour the relatively juicy yields on corporate debt in a negative-rate world.\ Global issuance of non-financial company debt will be in excess of $236 billion by month-end, according to data compiled by Bloomberg, led by computer maker Dell, which sold $20 billion of bonds to back its takeover of EMC in the year’s second-biggest corporate offering. In Europe, companies sold €48.5 billion ($54.2 billion) making it the busiest May on record. U.S. borrowers including Johnson & Johnson and Kraft Heinz did deals of more than €1 billion.

The surge in issuance is unlikely to satisfy investors who hoped to boost their income by buying company debt when easy-money monetary policies push yields on more than $9 trillion of bonds worldwide below zero. The extra yield investors demand to hold company debt globally relative to safer government bonds remains near year-to-date lows, while concessions on newly issued notes have fallen over the course of the month. “Deals continue to be very much oversubscribed,” said Travis King, head of investment-grade credit at Voya Investment Management, which oversees $203 billion. “It is very difficult to get bonds, especially in the hotter deals.” For investors who placed more than $80 billion of orders for Dell’s bond sale, the problem may get worse next month.

Seasonal declines in issuance, combined with decisions by some companies to accelerate debt sales to May, indicate June volumes in the U.S. will be in the $75 billion to $85 billion range, about half of this month’s supply, according to Bank of America. Vincent Murray, who heads U.S. fixed-income syndicate at Mizuho in New York, said the flow of new deals kept his team kept busy all month. While bond issuance will be less than $100 billion in June, some opportunistic companies may take advantage of low rates in the weeks ahead to issue debt, he said. “The market has remarkably weathered the storm of all this supply,” Murray said. “The fact that supply hasn’t affected the spreads in the marketplace may attract some more issuers that were thinking of passing.”

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“..until the mid-1990s, the sum of runnable liabilities was steady at about 40% of U.S. GDP. That number peaked in early 2008 at 80%, but remains above historical levels, at about 60% of GDP.” And that does not include derivatives.

Clinton Lurks in Shadows When Sparring With Sanders on Banks (BBG)

There is no universal definition for “shadow bank.” At its broadest, it’s any institution that borrows money and invests in financial assets, but is neither a bank, nor regulated like one. This can include insurance companies, hedge funds, private equity firms, and government-sponsored entities such as Fannie Mae and Freddie Mac. In debates, Clinton brings up hedge funds and insurance companies. But her published plan hints at a more precise definition: if it’s runnable, it’s a shadow bank. A research note last year from economists at the Federal Reserve Board in Washington describes “runnables” – short-term funds at financial institutions that can evaporate in a panic. Bank deposits over $250,000 are uninsured, and therefore runnable.

So are shares in money-market mutual funds; they should be considered investments, but in practice are not expected to lose principal. Repurchase agreements, also on the list, allow a borrower to sell a stock or bond, along with a promise to buy it back, often in a day or two. Short-term corporate debt, called “paper,” is similarly runnable. According to the Fed economists’ research, until the mid-1990s, the sum of runnable liabilities was steady at about 40% of U.S. GDP. That number peaked in early 2008 at 80%, but remains above historical levels, at about 60% of GDP. The definitions differ slightly, but this is consistent with patterns measured by Morgan Ricks at the Vanderbilt University Law School in Nashville, and by the the Financial Stability Oversight Council, a group of representatives from several regulators.

Runnables, said Ricks, are the “central unsolved problem of financial reform.” Ricks, who was a senior policy adviser at the Treasury Department in 2009 and 2010, takes a historical view of financial runs. Before the U.S. began insuring bank deposits in 1933, bank runs happened about once a decade. Since then, even during the financial crisis, they’ve been rare. But the risk moved outside the banks. Paul McCulley coined the term “shadow bank” during the Kansas City Fed’s 2007 Jackson Hole conference on economic policy. Then the chief economist of Pimco, McCulley laid out the systemic danger hidden in bank-like firms that relied on uninsured short-term funding. By the end of the next year, Bear Stearns, Lehman Brothers, and Merrill Lynch all collapsed. None of these were banks, but all had seen runs on short-term funding. “These are all species of the same genus,” said Ricks.

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The wholesale destruction of cities and communities is not done.

Toronto’s Red-Hot Market Sends Property Values Soaring (Star)

Toronto’s blistering housing market has prompted a 30% jump in residential property values over the last four years, according to the company that assesses real estate in the province. City homeowners will receive assessment notices — their first since 2012 — from the Municipal Property Assessment Corp. (MPAC) beginning next week showing a 7.5% annual increase in their property values. That’s well above the 4.5% provincial average, but lower than the double-digit increases in some 905-area communities such as Richmond Hill and Markham. The average assessed value for a single-family detached home in Toronto is $770,000, up about $200,000 on average from the last assessment in 2012. Toronto condo values increased 2.9% on average to $363,000, about $35,000 higher than four years ago.

Although assessments are linked to property taxes, homeowners should not panic about a steep rise in taxes, says MPAC. “Just because the assessment does increase doesn’t necessarily mean that this is going to have an impact on their taxes,” said Greg Martino, director of valuation and customer relations MPAC. Municipalities, not MPAC, determine property tax rates. How much an individual owner pays depends on where their assessment ranks compared to the city average. Owners whose properties are assessed above the 7.5% average will pay more. Those with below-average assessments pay less. In Toronto, virtually every property will be assessed at a higher rate than it was in 2012. If two properties were assessed at $500,000 in 2012, each would share an equal portion of the city’s tax burden. But if they are reassessed and one home remains at $500,000 but the other is now valued at $600,000, the higher valued property now carries a bigger tax responsibility.

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Force interest rates up by just 1% and you have mayhem.

UK House Prices Compared With Earnings ‘Close To Pre-Crisis Levels’ (G.)

House prices as a multiple of average earnings are “within a whisker” of record levels set before the financial crisis, a City consultancy has warned. The average UK house price is now 6.1 times average earnings, close to the peak of 6.4 it hit before the downturn, Fathom Consulting said. A rise in interest rates from their current low of 0.5% would lead to a correction, it said, although a return to “normal” rates was some way off. Prices have been pushed up by the availability of cheap home loans, and would need to fall by 40% to bring the ratio back to the pre-2000 average of 3.5 times earnings, it added. During the financial crisis, banks and building societies withdrew from lending, particularly to borrowers with small deposits.

But since then, the government’s funding for lending scheme made loans cheaper for borrowers with substantial equity, and then help to buy brought back 95% mortgages. Lenders are now cutting ratesand easing lending criteria. Fathom said this cheap borrowing had been the biggest driver for demand for homes. “Since 2013, the demand for housing has been turbocharged by chancellor [George] Osborne’s help-to-buy policy and the search for yield – which has resulted in the accumulation of housing wealth as an investment alternative for low-yielding financial assets,” it said. “As a consequence, house prices are now close to an all-time high of more than six times disposable income.”

The firm said couples buying together were increasingly taking on large loans relative to their income. Before the crisis fewer than 30% of joint mortgages were taken at more than 2.75 times income , but now that proportion has risen to more than a third. Fear of destabilising the “fragile arithmetic” that underpinned the housing market meant the Bank of England was unlikely to increase the base rate from its current record low of 0.5% until at least 2018, it said, regardless of the EU referendum result. “If it were to tighten Bank rate, it could trigger a rapid correction in the UK housing market and compound the slowdown in economic growth,” it said.

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“Making Brexit a success will be the end of the EU. It cannot happen.” Brexit, period, will be the end.

Paris and Berlin Ready ‘Plan B’ For Life After Brexit (FT)

European leaders have stepped-up secret discussions about a future union without Britain, drawing-up a “plan-B” focused on closer security and defence co-operation in the event of a UK vote to leave the EU. At several overlapping meetings in recent weeks — in Hanover, Rome and Brussels — EU leaders and their most trusted aides have discussed how to mount a common response to Brexit, which would be the bloc’s biggest setback in its 60-year history. More than a dozen politicians and officials involved at various levels have sketched out to the Financial Times the ideas for concerted action to “double down on the irreversibility of our union” — as well as the many internal divisions that stand in their way.

Rather than attempt a sudden lurch to integrate the eurozone, Chancellor Angela Merkel and President François Hollande are instead eyeing a push to deepen security and defence co-operation, a less contentious initiative that has appeal beyond the 19-member euro area. Foremost is the challenge of managing expected financial and political turmoil in the aftermath of a Brexit vote. Beyond the first statements to reassure markets, officials expect a special gathering of EU leaders — without Britain — to discuss the bloc’s response. A summit of all 28 leaders is already scheduled for June 28-29. “Everybody will say: ‘We’re sorry, this is a historical disaster but now we have to move on.’ And then they will say ‘OK, David [Cameron], goodbye, because now we have to meet as 27 leaders,’” said one senior diplomat intimately involved in the planning.

“That will be rather a decisive moment: will the 27 find the energy, the convergence of views to define a common agenda or whether it will be only the 19?” French officials are wary of Brexit contagion spreading to other member states and the lift it would provide to anti-EU insurgents like the National Front’s Marine Le Pen. They are determined to send a tough and punitive message to show divorce will be costly for Britain. “Playing down or minimising the consequences would put Europe at risk,” said one senior French official. “The principle of consequences is very important — to protect Europe.” Another leading European politician central to the Plan B process said: “Making Brexit a success will be the end of the EU. It cannot happen.”

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There are a few smart people working at the IMF. But they don’t make policy. Neoliberals do.

Neoliberalism Increases Inequality and Stunts Economic Growth: IMF (Ind.)

Key parts of neoliberal economic policy have increased inequality and risk stunting economic growth across the globe, economists at the IMF have warned. Neoliberalism – the dominant economic ideology since the 1980s – tends to advocate a free market approach to policymaking: promoting measures such as privatisation, public spending cuts, and deregulation. It is generally antipathetic to the public sector and believes the private sector should play a greater role in the economy. The ideology was initially championed by Margaret Thatcher and Ronald Reagan in Britain and America, but was ultimately also adopted by centre-left parties worldwide, under “third way” figures like Tony Blair.

The approach has long been the target of criticism from the radical left and parts of the reactionary right – but has been endorsed as common sense by centrist parties across the world for decades. Now a paper published in June 2016’s issue of the IMF’s Finance and Development journal warns that, after nearly forty years of neoliberalism, the approach is jeopardising the future of the world economy. “Instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardising durable expansion,” the senior IMF economists who drew up the paper said. The authors say that while the liberalisation of trade has helped lift people out of poverty in the developed world and some privatisations have raised efficiency, other aspects of the policy platform had seriously misfired.

“There are aspects of the neoliberal agenda that have not delivered as expected,” they said, focusing specifically on austerity and the freedom of capital to move across borders. “The benefits in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries. “The costs in terms of increased inequality are prominent. Such costs epitomize the trade-off between the growth and equity effects of some aspects of the neoliberal agenda. “Increased inequality in turn hurts the level and sustainability of growth. Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects.”

They go on to say that throwing open national borders to multinational corporations has had “uncertain” growth benefits but quite clear costs – due to “increased economic volatility and crisis frequency” which they say is more evident under neoliberalism. On the issue of austerity, the authors say there is strong evidence that there is no reason for countries like Britain to inflict austerity on themselves. “Austerity policies not only generate substantial welfare costs due to supply-side channels, they also hurt demand – and thus worsen employment and unemployment,” they say. “In sum, the benefits of some policies that are an important part of the neoliberal agenda appear to have been somewhat overplayed.”

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“During the Middle Ages, avarice had been considered to be among the most mortal of the seven deadly sins..”

How the Deadly Sin of Avarice Was Rehabilitated as Self Interest (Evon.)

In the aftermath of the stock market crash of 1987, the New York Times headlined an editorial “Ban Greed? No: Harness It,” It continued: “Perhaps the most important idea here is the need to distinguish between motive and consequence. Derivative securities attract the greedy the way raw meat attracts piranhas. But so what? Private greed can lead to public good. The sensible goal for securities regulation is to channel selfish behavior, not thwart it.” The Times, surely unwittingly, was channeling the 18th century philosopher David Hume: “Political writers have established it as a maxim, that in contriving any system of government . . . every man ought to be supposed to be a knave and to have no other end, in all his actions, than his private interest. By this interest we must govern him, and, by means of it, make him, notwithstanding his insatiable avarice and ambition, cooperate to public good.”

The idea that base motives could be harnessed for the public good is what I term economic alchemy. And in Hume’s time it was definitely a new way of thinking about how society could be governed. During the Middle Ages, avarice had been considered to be among the most mortal of the seven deadly sins, a view that became more widespread with the expansion of commercial activity after the twelfth century. So it is surprising that self-interest would eventually be accepted a respectable motive, and even more surprising that this change owed little to the rise of economics, at least at first. How this came about, you will see, is a remarkable story, one that is finally running its course in light of mounting evidence not only that people are not really all that knavish, but also that treating citizens as if they were knaves may lead them to act is if they really were knaves! But I am getting ahead of the story.

It all began in the sixteenth century with Niccolò Machiavelli. “Anyone who would found a republic and order its laws” he wrote in his Discourses, “must assume that all men are wicked [and] . . . never act well except through necessity . . . It is said that hunger and poverty make them industrious, laws make them good.” Hume, it seems was channeling Machiavelli! It was the shadow of war and disorder that made self-interest an acceptable basis of good government. During the seventeenth century, wars accounted for a larger share of European mortality than in any century for which we have records, including what Raymond Aron called “the century of total war,” which happily is now finished.

Writing after a decade of warfare between English parliamentarians and royalists, Hobbes (in 1651) sought to determine “the Passions that encline men to Peace” and found them in “Feare of Death; Desire of such things as are necessary to commodious living; and a Hope by their Industry to obtain them.” Knaves might be preferable to saints or at least likely to be more harmless. The year before Adam Smith wrote in his Wealth of Nations (1776) about how the self-interest of the butcher, the brewer, and the baker would put our dinner on the table, James Boswell’s Dr. Johnson gave Homo economicus a different endorsement: “There are few ways in which a man can be more innocently employed than in getting money.”

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“[One] great myth we’re seeing play out is that of Obama as some kind of peaceful guy who’s trying to get rid of nuclear weapons. He’s the biggest nuclear warrior there is. He’s committed us to a ruinous course of spending a trillion dollars on more nuclear weapons. Somehow, people live in this fantasy that because he gives vague news conferences and speeches and feel-good photo-ops that somehow that’s attached to actual policy. It isn’t.”

Silencing the United States as It Prepares for War (Pilger)

Returning to the United States in an election year, I am struck by the silence. I have covered four presidential campaigns, starting with 1968; I was with Robert Kennedy when he was shot and I saw his assassin, preparing to kill him. It was a baptism in the American way, along with the salivating violence of the Chicago police at the Democratic Party’s rigged convention. The great counter revolution had begun. The first to be assassinated that year, Martin Luther King, had dared link the suffering of African-Americans and the people of Vietnam. When Janis Joplin sang, “Freedom’s just another word for nothing left to lose”, she spoke perhaps unconsciously for millions of America’s victims in faraway places.

“We lost 58,000 young soldiers in Vietnam, and they died defending your freedom. Now don’t you forget it.” So said a National Parks Service guide as I filmed last week at the Lincoln Memorial in Washington. He was addressing a school party of young teenagers in bright orange T-shirts. As if by rote, he inverted the truth about Vietnam into an unchallenged lie. The millions of Vietnamese who died and were maimed and poisoned and dispossessed by the American invasion have no historical place in young minds, not to mention the estimated 60,000 veterans who took their own lives. A friend of mine, a marine who became a paraplegic in Vietnam, was often asked, “Which side did you fight on?” A few years ago, I attended a popular exhibition called “The Price of Freedom” at the venerable Smithsonian Institution in Washington.

The lines of ordinary people, mostly children shuffling through a Santa’s grotto of revisionism, were dispensed a variety of lies: the atomic bombing of Hiroshima and Nagasaki saved “a million lives”; Iraq was “liberated [by] air strikes of unprecedented precision”. The theme was unerringly heroic: only Americans pay the price of freedom. The 2016 election campaign is remarkable not only for the rise of Donald Trump and Bernie Sanders but also for the resilience of an enduring silence about a murderous self-bestowed divinity. A third of the members of the United Nations have felt Washington’s boot, overturning governments, subverting democracy, imposing blockades and boycotts. Most of the presidents responsible have been liberal – Truman, Kennedy, Johnson, Carter, Clinton, Obama.

The breathtaking record of perfidy is so mutated in the public mind, wrote the late Harold Pinter, that it “never happened …Nothing ever happened. Even while it was happening it wasn’t happening. It didn’t matter. It was of no interest. It didn’t matter … “. Pinter expressed a mock admiration for what he called “a quite clinical manipulation of power worldwide while masquerading as a force for universal good. It’s a brilliant, even witty, highly successful act of hypnosis.”

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Is Russia the only party to turn to?

ISIS Advance Traps 165,000 Syrians at Closed Turkish Border (HRW)

There are two walls on the Turkey-Syria border. One is manned by Turkish border guards enforcing Turkey’s 15 month-old border closure who, according to witnesses, have at times shot at and assaulted Syrian asylum seekers as they try to reach safety in Turkey – abuses strongly denied by the Turkish government. The other is a wall of silence by the rest of the world, including the United Nations, which has chosen to turn a blind eye to Turkey’s breach of international law which prohibits forcing people back to places, including by rejecting them at the border, where their lives or freedom would be threatened. Both walls are trapping 165,000 displaced Syrians now scattered in overcrowded informal settlements and fields just south of Turkey’s Öncupınar/Bab al-Salameh border crossing and in and around the nearby Syrian town of Azaz.

In April, 30,000 of them fled ISIS advances on about 10 informal displacement camps to the east of Azaz, which came under ISIS attack, and one of which has since been hit by an airstrike that killed at least 20 people and injured at least 37 more. Turkish border guards shot at civilians fleeing ISIS and approaching the border. Now aid agencies operating in the area say that between May 24 and 27, another 45,000 fled a new ISIS assault on the area east of Azaz and are now stuck in and around Azaz too. Aid agencies say there is no question all 165,000 would seek asylum in Turkey if the border were open to them.

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Mar 302016
 
 March 30, 2016  Posted by at 8:59 am Finance Tagged with: , , , , , , , , ,  1 Response »
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William Henry Jackson Tamasopo River Canyon, San Luis Potosi, Mexico 1890


Yellen Is Worried About Global Growth – And Wall Street Loves It (MW)
Yellen Says Caution in Raising Rates Is ‘Especially Warranted’ (BBG)
The US Is in for Much Greater Civil Unrest Ahead (Dent)
Steel Industry Dealt Hammer Blow As Tata Withdraws From UK (Tel.)
Bonfire of the Commodities Writedowns is Just Starting (BBG)
Japan Industrial Output Drops 6.2% In February, Most Since 2011 (BBG)
China’s True Demand For Copper Is Only Half as Much as You Think (BBG)
China’s Large Banks Wary on Beijing’s Plan for Bad Debt to Equity Swaps (BBG)
Eurozone ‘Flying On One Engine’: S&P (CNBC)
Europe’s Bond Shortage Means Draghi Is About to Shock the Market (BBG)
Oil Explorers Face Challenge to Secure Financing as Oil Prices Fall (WSJ)
The Rise and Fall of Goldman’s Big Man in Malaysia (BBG)
New Student Loans Targeted Straight at Mom and Dad (WSJ)
Free Lunch: Basic Welfare Policy (Sandhu)
Always Attack the Wrong Country (Dmitry Orlov)
European Border Crackdown Kickstarts Migrant-Smuggling Business (WSJ)
UN Chief Urges All Countries To Resettle Syrian Refugees (Reuters)

The price we all will pay for this lousy piece of theater rises by the day.

Yellen Is Worried About Global Growth – And Wall Street Loves It (MW)

Janet Yellen offered up her best impression of a dove Tuesday. In other words, the Federal Reserve chairwoman stressed her intent to gradually lift benchmark interest rates off ultralow levels. Unsurprisingly, Wall Street cheered the prospect of an ever slower approach to raising interest rates as she spoke at a highly anticipated speech at the Economic Club of New York. The Dow Jones and the S&P 500 both posted their highest settlements of 2016. The dollar turned south and yields for rate-sensitive Treasurys touched one-month lows. What is worth taking note of is Yellen’s increased focus on forces outside of the U.S. as she outlines a plan to gingerly normalize interest rates, reiterating an updated March policy statement and the Fed’s reduced expectations for rate increases in 2016 (two versus an earlier projection for four).

In a note, Deutsche Bank chief international economist Torsten Slok pointed out that Yellen & Co. have been more influenced by events in the rest of the world since late May. Mentions of China, the dollar and the term “global” have been more readily used by the Yellen as the emergence of negative interest rates in Japan and Europe have underscored consternation about the state of the world economy and. in particular, a slowdown by the world’s second-largest economy: China. Slok’s bar graph below illustrates the point. The Fed’s mandate, as Yellen reiterated Tuesday, is centered on the twin goals of maximum employment and stable prices, the latter of which the Fed defines as inflation at or near its 2% target level. But lately, fears that storms brewing abroad could wash ashore in the U.S. have come into greater focus, as the excerpt from Yellen’s Tuesday comments show:

“One concern pertains to the pace of global growth, which is importantly influenced by developments in China. There is a consensus that China’s economy will slow in the coming years as it transitions away from investment toward consumption and from exports toward domestic sources of growth. There is much uncertainty, however, about how smoothly this transition will proceed and about the policy framework in place to manage any financial disruptions that might accompany it. These uncertainties were heightened by market confusion earlier this year over China’s exchange rate policy.”

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How this is any different from interpreting the incoherent utterances of an oracle intoxicated by fumes, I don’t know.

Yellen Says Caution in Raising Rates Is ‘Especially Warranted’ (BBG)

Federal Reserve Chair Janet Yellen said it is appropriate for U.S. central bankers to “proceed cautiously” in raising interest rates because the global economy presents heightened risks. The speech to the Economic Club of New York made a strong case for running the economy hot to push away from the zero boundary for the Federal Open Market Committee’s target rate. “I consider it appropriate for the committee to proceed cautiously in adjusting policy,” Yellen said Tuesday. “This caution is especially warranted because, with the federal funds rate so low, the FOMC’s ability to use conventional monetary policy to respond to economic disturbances is asymmetric.” Fed officials left their benchmark lending rate target unchanged this month at 0.25% to 0.5% while revising down their median estimate for the number of rate increases that will be warranted this year to two hikes, from four projected in December.

U.S. Treasuries advanced following her remarks, while the dollar weakened and U.S. stocks erased earlier losses. The Standard & Poor’s 500 Index was up 0.5% to 2,046.90 at 1:52 p.m. in New York, after falling as much as 0.4%. “Yellen has doubled down on the dovishness from the March statement and press conference,” said Neil Dutta at Renaissance Macro Research. “Global economic developments are cited very prominently.” Yellen said the FOMC “would still have considerable scope” to ease policy if rates hit zero again, pointing to forward guidance on interest rates and increases in the “size or duration of our holdings of long-term securities.”

“While these tools may entail some risks and costs that do not apply to the federal funds rate, we used them effectively to strengthen the recovery from the Great Recession, and we would do so again if needed,” she said. Fed officials’ quarterly economic forecasts for the U.S. didn’t change much in March, while Yellen stressed in a post-FOMC meeting press conference on March 16 that their sense of risks from global economic and financial developments had mounted. Yellen mentioned two risks in her New York speech. Growth in China is slowing, she noted, and there is some uncertainty about how the nation will handle the transition from exports to domestic sources of growth. A second risk is the outlook for commodity prices, and oil in particular. Further declines in oil prices could have “adverse” effects on the global economy, she said.

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“The politics are more polarized than even the Depression and more like the Civil War – and we have over 300 million guns in this country.”

The US Is in for Much Greater Civil Unrest Ahead (Dent)

I made a confession to our Boom & Bust subscribers last month. While I generally advise against owning most real estate, I have a secluded property in the Caribbean. It’s the only property I own (I rent my home in Tampa) and I know for a fact that its value will likely depreciate in the great real estate shakeout I see ahead, although likely by half as much as a high-end property in Florida. The reason I own this property is because I see rising chances for civil unrest in the inevitable downturn ahead, especially in the U.S. I want a place to go if things get really bad, and it looks increasingly likely that they will. The evidence for that is piling up in this year’s presidential race… What we have now, surprising to most political analysts, is a genuine voter revolt against the rich and the establishment.

Trump is taking over the Republican Party, and Sanders is threatening Clinton beyond what almost anyone would have forecast a year ago, even if he can’t quite seem to win. And it doesn’t matter if Trump can back up most of his statements with facts, or if Sanders’ policies have any chance of being viable economically. They understand what the pundits don’t. The people are angry and they want change. When the U.S. came out of World War II, it emerged with the strongest and most successful middle class in the decades that followed. Never before had there been such a middle class emerge in all of history. We had a vibrant workforce with higher wages… a baby boom… startling innovation… But now we have led the decline of that middle class, with wage competition from Asia, Mexico and other emerging countries, and the rapid rise of the professional and speculative classes.

Meanwhile, many higher-paid manufacturing jobs have moved overseas, and even service jobs like call centers have moved to places like India. More immigrants have come in and competed as well. That’s why a silent “near” majority of Americans are anti-immigrant and free trade… Duh! But here’s the real rub. Higher incomes help you survive at a better standard of living, and real wages have only been declining since 2000. They’ve barely risen even back to 1970s levels. That’s enough to be mad about. The ability to live as you want, to retire longer term, and to have power in society comes more from wealth – and that is way more skewed towards the upper class. And that’s where the middle class in America has lost the most ground. Look at this chart from a recent study by Credit Suisse of the share of wealth held by the middle class. Look at how we compare to the rest of the top countries.

The U.S. is the worst! No wonder the middle class here feels the most dis-empowered! It explains why America’s electorate either wants to nominate a political outsider who talks tough and promises to restore our power in the world… or an avowed socialist to combat income and wealth inequality by attacking Wall Street and the top 1%. I have said for a long time that the two countries I most expect to have the worst potential for civil unrest are China… and the U.S. China because it created the greatest over-expansion and urbanization bubble in modern history. Now, it has 250 million unregistered migrant urban workers from rural areas that will be stuck without jobs (and nowhere to go) after they can’t keep building infrastructures for no one. But the U.S. has the most polarized politics of any major country, and the greatest income and wealth inequality in the developed world. The politics are more polarized than even the Depression and more like the Civil War – and we have over 300 million guns in this country.

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A minister mentioned temp government ownership of the steel industry this morning. Like China, I guess?!

Steel Industry Dealt Hammer Blow As Tata Withdraws From UK (Tel.)

The steel industry was dealt a hammer blow on Tuesday as it emerged that Tata plans to completely withdraw from its British operation, putting thousands of jobs at risk. The Indian conglomerate’s board decided to pull out of the UK after rejecting a turnaround plan for Port Talbot, the nation’s biggest steelworks. The South Wales plant employs around 4,000 who face an uncertain future as Tata now seeks a buyer for its British steel assets. Steelworks in South Yorkshire, Northamptonshire and County Durham are also set to be put up for sale. A Tata spokesman said: “The Tata Steel Board came to a unanimous conclusion that the [turnaround] plan is unaffordable… the assumptions behind it are inherently very risky, and its likelihood of delivery is highly uncertain.”

Tata said it had ordered its European steel subsidiary to “explore all options for portfolio restructuring including the potential divestment of Tata Steel UK, in whole or in parts”. The decision by Tata placed the Government under pressure to step in to save Britain’s steel industry. Anna Soubry, the industry minister, has said that “in the words of the Prime Minister, we are unequivocal in saying that steel is a vital industry”. As Tata’s decision emerged from Mumbai, officials were looking at options to secure the survival of British steel making under new owners. It is understood they could include similar measures to those taken by the Scottish government to facilitate the acquisition of two former Tata mills by the commodities investor Liberty House. Taxpayers footed the bill to keep workers on standby and the plants were even temporarily nationalised while the deal was finalised.

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“For energy companies, the price-book ratio is about 31% below its 10-year average, while the discount for miners is 44%.”

Bonfire of the Commodities Writedowns is Just Starting (BBG)

What does $13 billion of burning money smell like? Commodity investors are getting a nose for it. Japanese trading houses Mitsui, Mitsubishi, and Sumitomo have announced 767 billion yen ($6.8 billion) of writedowns on assets this year, including copper, nickel, iron-ore and natural-gas projects. PetroChina wrote 25 billion yuan ($3.8 billion) off the value of oil and gas fields that have “no hope” of making a profit at current prices, President Wang Dongjin said last week, while Citic posted a HK$12.5 billion ($1.6 billion) impairment on an Australian iron-ore mine. Cnooc’s annual results last Thursday count as a good news story against that backdrop, with impairments of 2.75 billion yuan that were lower than the previous year’s.

Investors might hope after all this that we’d be reaching the level where mining and energy assets have been written back to normal levels, allowing companies to start the hard work of rebuilding. It doesn’t look that way. There’s certainly been a reality check of late. The balance sheets of major mining and energy companies have shrunk by $856 billion over the past 12 months, putting the value of their total assets at their lowest level since 2011, according to data compiled by Bloomberg. That looks dramatic until you compare it to the performance of the Bloomberg Commodities index. Companies are still more asset-rich than they were in 2011, which was the peak of a once-in-a-generation commodities boom. This delayed response to lower prices isn’t surprising.

Non-financial companies should have a high bar for reassessing their asset values to prevent manipulation of earnings (revaluations upward count as income, just as writedowns count against profit). That means a degree of inertia: after the 2008 financial crisis, the value of assets in the S&P 500 index didn’t bottom out until June 2010. Even if you blame weak-kneed accountants for that delay, an analogous pattern can be seen in the real economy. Default rates in the U.S. tend to peak well after economic slowdowns begin. To some extent, equity investors are already taking this in their stride. Price-to-book ratios of the Bloomberg World Energy Index and the Bloomberg World Mining Index are at their lowest levels since at least 2003, suggesting the market doesn’t believe companies’ balance sheets are worth as much as they appear on paper. For energy companies, the price-book ratio is about 31% below its 10-year average, while the discount for miners is 44%.

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And projections for elections indicate Abe could get a 2/3 majority. How weird is that?

Japan Industrial Output Drops 6.2% In February, Most Since 2011 (BBG)

Japan’s industrial production dropped the most since the March 2011 earthquake as falling exports sapped demand and a steel-mill explosion halted domestic car production at Toyota. Output slumped 6.2% in February after rising in January, the trade ministry said on Wednesday. Economists surveyed by Bloomberg had forecast a 5.9% drop. The government projects output will expand 3.9% this month. The data underscores the weakness of Japan’s recovery from last quarter’s contraction, with overseas shipments dropping for the last five months and sluggish domestic demand. With pressure building on policy makers to bolster growth, Prime Minister Shinzo Abe said Tuesday that the government would front load spending after parliament passed a record budget for the 12 months starting April 1. He resisted calls for a supplementary fiscal package.

“The slump in industrial output in February suggests that manufacturing activity will contract this quarter,” Marcel Thieliant, senior Japan economist at Capital Economics, wrote in a note. This means there is a growing risk that the economy won’t expand this quarter after the contraction in the final three months of last year, Thieliant wrote. Junichi Makino, chief economist at SMBC Nikko Securities, was more upbeat about the outlook. Production plans for March and April are strong, and there are signs of stronger demand for cars, electrical equipment and machinery, he said in a note. The size of the drop in February was due to both the fall in production at Toyota and the lunar new year, according to Makino.

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“For years, traders on the mainland have used copper as collateral to finance trades in which they borrowed foreign currencies and invested the proceeds in higher-yielding assets denominated in renminbi.”

China’s True Demand For Copper Is Only Half as Much as You Think (BBG)

Virtually every aspect of the commodities bust has a China angle. Forecasts for China’s consumption of raw materials have proved wildly optimistic, while domestic production of certain resources have resulted in particularly severe gluts in commodities such as steel and coal. But in one respect, China has been putting an artificial degree of upward pressure on a select resource—copper—sparing it from the worst of the rout in commodities. For years, traders on the mainland have used copper as collateral to finance trades in which they borrowed foreign currencies and invested the proceeds in higher-yielding assets denominated in renminbi. This carry trade with Chinese characteristics allowed them to net a tidy profit.

(As an aside, however, the devaluation of yuan in August prompted analysts to wonder whether this trade has reached its best-before date—something that would have implications for the future global demand for copper, if true. Meanwhile, there have been persistent rumors of regulators cracking down on such trades.) This practice of warehousing copper to help engage in financial arbitrage “inflated demand, kept prices higher, and led miners to raise output,” according to Bloomberg Intelligence Analysts Kenneth Hoffman and Sean Gilmartin, who sought to identify the extent to which demand for copper has been buoyed by its use as collateral for such trades. The decline in Chinese copper demand for household appliances and electronics since 2011 doesn’t jibe with the headline demand statistics, the analysts note, which show the country’s total copper demand increased of 45% from 2011 to 2015.

Moreover, when benchmarked against cement—another material widely used for construction purposes—copper’s rapid rise in China looks particularly suspicious. While cement intensity, or percentage used per square meter, rose 11% in the time period, copper intensity surged an astounding 117%. Putting all this together, Hoffman and Gilmartin conclude that “real Chinese demand may be 54% lower than anticipated” after stripping out the demand for copper tied to the carry trade. That amounts to nearly 7 million metric tonnes of copper procured for use as collateral in 2015 alone, according to the pair’s calculations—equal to the mass of more than 30,000 Statues of Liberty.

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The banks will be stuck with the smelly bits. Lots of them.

China’s Large Banks Wary on Beijing’s Plan for Bad Debt to Equity Swaps (BBG)

China’s proposal to deal with a potential bad-loan crisis by having banks convert their soured debt into equity is meeting with unexpected resistance from some of the biggest potential beneficiaries of the plan – the country’s large banks. Asked about the plan at the Boao Forum last week, China Construction Bank Chairman Wang Hongzhang said he needs to think of his shareholders and wouldn’t want to see a plan that simply converted “bad debt into bad equity.” China Citic Bank’s Vice President Sun Deshun said at a press conference last week that any compulsory conversion of debt into equity would have to be capped. And Bank of China Chairman Tian Guoli said in Boao that it’s “hard to evaluate” how effective debt-equity swaps will be, as so much has changed in China since the tool was used to bail out the banking system during a previous crisis in the late 1990s.

Behind the caution is a lack of clarity about how exactly the government will proceed with the conversion of up to 1.27 trillion yuan ($195 billion) of bad debt owed to the banks mostly by the country’s lumbering state-owned enterprises, and – crucially – about the level of support that will be available from the state. Bank of Communications, the first of China’s large banks to report 2015 earnings, said Tuesday it nearly doubled its bad-debt provisions in the fourth quarter of last year to 7.5 billion yuan. Without backing from the government, in the form of cash injections or easier capital rules for the banks, any debt-equity swaps would simply shift the bad-loan problem from the SOEs to the banks, with potentially disastrous consequences for the stability of the nation’s lenders. On the other hand it will be politically impossible to repeat the approach used in 1999 and again in 2004, when Chinese taxpayers effectively underwrote the bailouts, leaving the banks unscathed.

“You can’t kill three birds with one stone,” said Mu Hua at Guangfa Securities, referring to the need to balance the need to fix bank and SOE bad loans while protecting the interests of Chinese taxpayers. “Voluntary swaps won’t scale up unless the government offers enough incentive, such as lowering the risk weighting or setting up a platform for banks to dump the stakes.” The discussion of debt-equity swaps comes as China’s policymakers scramble for ways to cut corporate leverage that has climbed to a record high, and to clean up the mounting tally of bad loans on the banks’ books. Premier Li Keqiang said at the National People’s Congress earlier this month that the country may use the swaps to cut the leverage ratio of Chinese companies and to mitigate financial risks.

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Growth comes from household debt.

Eurozone ‘Flying On One Engine’: S&P (CNBC)

The euro zone economy is “flying on one engine,” according to the chief European economist at ratings agency Standard and Poor’s, which trimmed its growth and inflation forecasts for the euro zone. In his latest report on Wednesday, S&P’s Chief European Economist Jean-Michel Six likened the 19-country euro zone to a plane “flying on one engine” and “fighting for altitude” and said that while there are reasons to hope that the economy will pick up altitude, a “pre-crisis flight path” of robust growth is not likely. Since the start of the year, Six noted that global market turmoil had caused a “nosedive in financial conditions…(which) had taken some wind out of the euro zone economy” and although regional conditions had since improved – particularly due to what he called a “well-received” set of more accommodative measures from the ECB – the eurozone relied too much on domestic consumption for growth.

While the euro zone had seen its recovery “gathering momentum” over the last two years, Six warned that the “the current upswing in the euro zone has been a one-engine, consumer recovery.” To illustrate his point, Six noted that consumption represents 55% of the region’s GDP and has accounted for a “whopping” 72% of economic growth since 2014. That dependence on consumption entailed risks, he said, although the euro zone might well get away with it. “A recovery that mainly relies on one cylinder is by definition suspicious: It could quickly grind to a halt, as it did in the previous cycle in 2010-2011. Or, it could be a flash in the pan, caused simply by a one-off drop in household energy bills.”

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ECB leaves nothing for others to invest in.

Europe’s Bond Shortage Means Draghi Is About to Shock the Market (BBG)

As ECB Governor Mario Draghi prepares to increase and broaden his bond-buying program, the shrunken market might be in for a shock. While policy makers will expand their asset-purchase plan by €20 billion a month at the start of April, corporate debt won’t be included until later in the quarter. That’s leaving investors to face even higher demand for government bonds with supply unable to keep up and some of Europe’s biggest banks are predicting yields are headed for even more record lows. “All of that is going to be in covered bonds, in govvies, in agencies,” Vincent Chaigneau at Societe Generale in London said in an interview. “That’s going to create a shock on supply-demand in Europe.”

The prospect of increased largess from the ECB has pushed government bonds higher, with the yield on German 10-year bunds headed for their biggest quarterly slide in almost five years. They dropped to 0.15% on Tuesday, half where they were when the ECB announced an increase to its quantitative-easing program on March 10. French bank Societe Generale predicts the bund yield will slide not only to the record low of 0.049% posted in April 2015, but to negative 0.05% by the end of the next quarter. The ECB cut its main interest rates, announced the increase to QE and revealed a new targeted-loan program earlier this month as it ramped up efforts to boost inflation in the 19-member currency bloc. A report on Thursday will show consumer prices in the currency zone probably fell for a second month in March, according to economists surveyed by Bloomberg.

The rate hasn’t touched policy makers’ near-2% goal since 2013.The ECB has said it’s confident it has an “adequate” universe of assets to buy. But even when corporate debt purchases start, some investors are skeptical the ECB will be able to purchase sufficient quantities to alleviate pressure on government securities. Peter Schaffrik at Royal Bank of Canada in London said the consensus is that officials will be able to buy about €5 billion of company bonds, leaving an additional €15 billion of government and agency securities to be acquired each month.

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The defaults are delayed not because of energy firms, but because of their lenders.

Oil Explorers Face Challenge to Secure Financing as Oil Prices Fall (WSJ)

Just a few years ago, when oil sold for about $100 a barrel, banks [in London] were lining up to give international oil explorers access to billions of dollars to finance new drilling and projects. But as oil prices stay mired in a funk, the money is drying up. Senior executives from companies such as Tullow Oil and Cairn Energy have been meeting with their bankers for a biannual review of the loans that allow them to keep drilling and building out projects. For many European companies, it has been a nail-biting experience, as banks worry about the growing pile of debt taken on by oil companies with little or no profits. Several companies said they expect their ability to tap credit lines to be diminished after the reviews. Some lenders have brought in teams that specialize in corporate restructuring to scrutinize companies’ balance sheets, spending and assets, though not at Tullow or Cairn.

In the past, the reviews were generally conducted solely by banks’ energy specialists. The new scrutiny in Europe comes as oil-company debt emerges as an issue across the world with prices for crude near $40 a barrel—down more than 60% from June 2014. Globally, the net debt of publicly listed oil and gas companies has nearly tripled over the past decade to $549 billion in 2015, excluding state-owned oil companies, according to Wood Mackenzie, the energy consultancy. Reviews of these loans have high stakes. If a bank decides a company has already borrowed more than it can afford, the reviews could trigger a repayment, more cost cuts or even a fire sale of assets to raise cash. “There isn’t anyone in the oil independent sector that will be very relaxed at the moment,” said Thomas Bethel at Herbert Smith Freehills.

Oil companies are facing a similar set of biannual reviews in the U.S., where many small and midsize companies borrowed heavily to expand during the shale boom. The number of energy loans deemed in danger of default is on course to breach 50% at several major U.S. banks, The WSJ reported last week. But some American firms have been able to raise cash by issuing new stock or selling new debt, while in recent years Europe-based explorers have come to rely more on bank lending as investors that once pumped up the industry are fleeing in droves. In Europe, the focus is on a specialized type of borrowing known as reserves-based lending that has mushroomed in recent years. Europe’s top 10 non-state-owned oil companies have taken on over $12 billion in such loans, which are particularly exposed to energy prices as they are secured against the value of a company’s petroleum reserves and future production.

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What happens when you plant Goldman’s MO in fertile ground.

The Rise and Fall of Goldman’s Big Man in Malaysia (BBG)

The prime minister of Malaysia had a message for the crowd at the Grand Hyatt San Francisco in September 2013. “We cannot have an egalitarian society – it’s impossible to have an egalitarian society,” Najib Razak said. “But certainly we can achieve a more equitable society.” Tim Leissner, one of Goldman Sachs’s star bankers, enjoyed the festivities that night with model Kimora Lee Simmons, who’s now his wife. In snapshots she posted to Twitter, she’s sitting next to Najib’s wife, and then standing between him and Leissner. Everyone smiled. The good times didn’t last. At least $681 million landed in the prime minister’s personal bank accounts that year, money his government has said was a gift from the Saudi royal family. The windfall triggered turmoil for him, investigations into the state fund he oversees and trouble for Goldman Sachs, which helped it raise $6.5 billion.

Leissner, the firm’s Southeast Asia chairman, left last month after questions about the fund, his work on an Indonesian mining deal and an allegedly inaccurate reference letter. Few corporations have mastered the mix of money and power like New York-based Goldman Sachs, whose alumni have become U.S. lawmakers, Treasury secretaries and central bankers. Leissner’s rise and fall shows how lucrative and fraught it can be when the bank exports that recipe worldwide. In 2002, when the firm made him head of investment banking in Singapore, it had just cleaned up a mess there after offending powerful families. It took only a few years before the networking maestro was helping the bank soar in Southeast Asia – culminating in billion-dollar deals with state fund 1Malaysia Development Bhd., also known as 1MDB. But if his links to the rich and powerful fueled his Goldman career, they also helped end it.

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How to kill an entire education system in a few easy steps.

New Student Loans Targeted Straight at Mom and Dad (WSJ)

As rising tuition costs pile ever-higher debts on students, lenders and colleges are pushing for an alternative: Heap more on their parents. An increasing number of private student lenders are rolling out parent loans, which allow borrowers to get funds to pay for their children’s education without putting the students on the hook. The loans mimic a similar federal program but don’t charge the hefty upfront fee levied by the government, which could make them cheaper and encourage more use. SLM Corp., the largest U.S. private student lender by loan originations and better known as Sallie Mae, will introduce its version of the loan next month. Parents will be able to borrow at interest rates ranging from about 3.75% to 13%, with 10 years to pay it off.

“There’s an opportunity to expand our reach,” said Charles Rocha, chief marketing officer at Sallie Mae. The lender joins banks like Citizens Financial Group, which started offering a similar loan last year. Online lender Social Finance, or SoFi, first rolled one out in 2014 at the request of Stanford University. Stanford spokesman Brad Hayward said the university initiated discussions about the loan to help parents who were looking for more financing options. Colleges including Stanford, Boston College and Carnegie Mellon University are referring parents to the loans through emails or by putting them on lists of preferred loan options. An official at Boston College also said the school approached lenders to create the loans.

Lenders see the new products as an area of growth in an otherwise sluggish lending environment. Colleges are helping push them in part because of a quirk in federal calculations. Unlike ordinary federal student loans, the parent loans don’t count on a scorecard in which the U.S. Education Department discloses universities’ median student debt at graduation. That can ease the pressure to keep tuition increases in check at a time when heavy student debt has become a political issue.

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“..basic income could remove the need for a welfare state that is patronising and humiliating..”

Free Lunch: Basic Welfare Policy (Sandhu)

There are ideas that refuse to die no matter how many times they are rejected. One such idea is Universal Basic Income. Basic income is the proposal to pay all citizens an unconditional regular amount sufficient for basic needs, and then leave them to seek their fortune as best they can in the market. Few trials have been held and those have not led to large-scale adoption, but the proposal keeps recurring in social policy debates. That is largely because it is an excellent idea. In the past century the attraction for thinkers on the left and the right has been that basic income could remove the need for a welfare state that is patronising and humiliating, creates perverse incentives against working, and whose complexity means it often fails to reach those truly in need of help while subsidising the middle class.

Today, with deepening anxiety that we will all be put out of work (or, alternatively, be enslaved) by robots, the appeal of basic income has returned to its roots. More than 200 years ago, Thomas Paine advocated it as a way to fairly distribute the “ground rent” generated by concentrated landholdings to the landless — the idea being that the earth was humanity’s common property. If technological change today means markets tilt the distribution of income towards capital owners and away from workers, a similar argument can be made for the redistribution of “rent” due to humanity’s technological ingenuity equally among every citizen.

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“The reason to want to make problems worse is that problems are profitable..”

Always Attack the Wrong Country (Dmitry Orlov)

There are numerous tactics available to those who aim to make problems worse while pretending to solve them, but misdirection is always a favorite. The reason to want to make problems worse is that problems are profitable—for someone. And the reason to pretend to be solving them is that causing problems, then making them worse, makes those who profit from them look bad. In the international arena, this type of misdirection tends to take on a farcical aspect. The ones profiting from the world’s problems are the members of the US foreign policy and military establishments, the defense contractors and the politicians around the world, and especially in the EU, who have been bought off by them. Their tactic of misdirection is conditioned by a certain quirk of the American public, which is that it doesn’t concern itself too much with the rest of the world.

The average member of the American public has no idea where various countries are, can’t tell Sweden from Switzerland, thinks that Iran is full of Arabs and can’t distinguish any of the countries that end in -stan. And so a handy trick has evolved, which amounts to the following dictum: “Always attack the wrong country.” Need some examples? After 9/11, which, according to the official story (which is probably nonsense) was carried out by “suicide bombers” (some of them, amusingly, still alive today) who were mostly from Saudi Arabia, the US chose to retaliate by attacking Saudi Arabia Afghanistan and Iraq. When Arab Spring erupted (because a heat wave in Russia drove up wheat prices) the obvious place to concentrate efforts, to avoid a seriously bad outcome for the region, was Egypt—the most populous Arab country and an anchor for the entire region. And so the US and NATO decided to attack Egypt Libya.

When things went south in the Ukraine, whose vacillating government couldn’t make up its mind whether it wanted to remain within the Customs Union with Russia, its traditional trading partner, or to gamble on signing an agreement with the EU based on vague (and since then broken) promises of economic cooperation, the obvious place to go and try to fix things was the Ukraine. And so the US and the EU decided fix the Ukraine Russia, even though Russia is not particularly broken. Russia was not amused; nor is it a country to be trifled with, and so in response the Russians inflicted some serious pain on the Washington establishment farmers within the EU.

Who was at fault exceedingly [became] clear once the Ukrainians that managed to get into power (including some very nasty neo-Nazis) started to violate the rights of Ukraine’s Russian-speaking majority, including staging some massacres, in turn causing a large chunk of it to hold referendums and vote to secede. (Perhaps you didn’t know this, but the majority of the people in the Ukraine are Russian-speakers, and there is just one city of any size—Lvov—that is mostly Ukrainian-speaking. Mind you, I find Ukrainian to be very cute and it makes me smile whenever I hear it. I don’t bother speaking it, though, because any Ukrainian with an IQ above bathwater temperature understands Russian.) And so the US and the EU decided to fix things by continuing to put pressure on the Ukraine Russia.

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The exact opposite of what they -pretend to- want.

European Border Crackdown Kickstarts Migrant-Smuggling Business (WSJ)

ATHENS—The leaders of 15 human-smuggling networks gathered behind the closed curtains of an Afghan restaurant here in late February, the air fragrant from grilled lamb and hookahs. It was time to celebrate a boost to their business, people present recall. Police in Macedonia had just stopped letting Afghans cross the border from Greece. Today, the entire human highway to Europe’s north, traveled by nearly a million refugees and other migrants last year, has been closed. The crackdown, complete with razor-wire fences guarded by riot police, has stranded about 50,000 migrants in Greece. Many are desperate to get out but too afraid to turn back. For those with cash left, smugglers are now the best hope.

The combination of closed borders and unrestrained migration has turned Athens’s Victoria Square and the nearby port city of Piraeus into the center of a barely disguised human-trafficking business. In grimy cafes, cheap hotels and dark alleys, business is booming for smugglers who arrange transit around closed borders and into relative safety. They say they even offer a money-back guarantee—most of the time. “If you stay here even for five minutes, you will see it. A human bazaar is taking place,” said Orestis Papadopoulos, owner of a kiosk on Victoria Square that sells cigarettes and magazines. “And when the police clear the square, they just go around the corner and come back minutes later.” One recent afternoon, Ali, who wouldn’t provide his last name, walked into the restaurant that hosted the February celebration. He said he is 33 years old, was born in Afghanistan and lives in Athens. He specializes in smuggling Afghans and Iraqis.

Followed by three associates, Ali grinned broadly, exposing a missing tooth. Then he hugged other men in the restaurant, including a passport forger. Thirty Afghan clients had just reached Germany, meaning Ali’s smuggling syndicate would get about €54,000 ($60,280). “I’m very happy today,” he said. Ali’s smartphone rang as he ate lamb with rice. A prospective customer wanted to reach Germany by plane, using a false passport. “It costs €4,700,” Ali said. He left the noisy restaurant to haggle. When Europe’s refugee crisis exploded last year, demand for smugglers fizzled once migrants had successfully crossed the Aegean Sea from Turkey. German Chancellor Angela Merkel ’s open-door policy for refugees largely made Ali and his rivals obsolete.

Since then, the Balkans and the EUhave clamped down on migration from Greece into the rest of the continent, threatening to turn the country into a giant, open-air refugee camp. The problem will likely be exacerbated by last week’s terrorist attacks in Brussels, which immediately led to toughened security at airports, train stations and borders. Europe is now even less likely to reopen its borders to legal transit for refugees and migrants. For smugglers, the job could get harder, but they can always push the prices they charge higher.

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“If Europe were to welcome the same percentage of refugees as Lebanon in comparison to its population, it would have to take in 100 million refugees.”

UN Chief Urges All Countries To Resettle Syrian Refugees (Reuters)

U.N. Secretary-General Ban Ki-moon called on all countries on Wednesday to show solidarity and accept nearly half a million Syrian refugees for resettlement over the next three years. Ban, kicking off a ministerial conference hosted by the U.N. refugee agency UNHCR in Geneva, said: “This demands an exponential increase in global solidarity.” The United Nations is aiming to re-settle some 480,000 refugees, about 10% of those now in neighboring countries, by the end of 2018, but has conceded it needs to overcome widespread fear and political manipulation. Ban urged countries to pledge new and additional pathways for admitting Syrian refugees, adding: “These pathways can include resettlement or humanitarian admission, family reunions, as well as labor or study opportunities.”

Filippo Grandi, U.N. High Commissioner for Refugees, said the refugees were facing increasing obstacles to find safety. “We must find a way to manage this crisis in a more humane, equitable and organized manner. It is only possible if the international community is united and in agreement on how to move forward,” Grandi said. The five-year conflict has killed at least 250,000 and driven nearly 5 million refugees abroad, mostly to neighboring Turkey, Lebanon, Jordan and Iraq. Grandi said: “If Europe were to welcome the same percentage of refugees as Lebanon in comparison to its population, it would have to take in 100 million refugees.” Ban, referring to U.N.-led efforts to end the war, said: “We have a cessation of hostilities, by and large holding for over a month, but the parties must consolidate and expand it into a ceasefire, and ultimately to a political solution through dialogue.”

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