manufacturing Archives - The Automatic Earth

Pelosi claims she can call a House impeachment inquiry without a House vote, and totally ignore Republican House members while she’s at it. That smells of prorogation.

The courts will have to decide this one. And that may take all the way to the 2020 election. Which the Dems think suits them just fine.

• Ignore The Hype — This Is Not An Impeachment Inquiry (McCarthy)

There is no impeachment inquiry. There are no subpoenas. You are not to be faulted if you think a formal inquest is under way and that legal process has been issued. The misimpression is completely understandable if you have been taking in media coverage — in particular, reporting on a haughty Sept. 27 letter from House Democrats, presuming to direct Secretary of State Mike Pompeo, on pain of citation for obstruction, to cooperate in their demands to depose State Department officials and review various records. The letter is signed by not one but three committee chairmen. Remember your elementary math, though: Zero is still zero even when multiplied by three. What is portrayed as an “impeachment inquiry” is actually just a made-for-cable-TV political soap opera.

The House of Representatives is not conducting a formal impeachment inquiry. To the contrary, congressional Democrats are conducting the 2020 political campaign. The House has not voted as a body to authorize an impeachment inquiry. What we have are partisan theatrics, proceeding under the ipse dixit of Speaker Nancy Pelosi (D-Calif.). It raises the profile, but not the legitimacy, of the same “impeachment inquiry” House Judiciary Committee Chairman Jerrold Nadler (D-N.Y.) previously tried to abracadabra into being without a committee vote. Moreover, there are no subpoenas. As Secretary Pompeo observed in his fittingly tart response on Tuesday, what the committee chairmen issued was merely a letter.

Its huffing and puffing notwithstanding, the letter is nothing more than an informal request for voluntary cooperation. Legally, it has no compulsive power. If anything, it is rife with legal deficiencies. The Democrats, of course, hope you don’t notice that the House is not conducting a formal impeachment inquiry. They are using the guise of frenetic activity by several standing committees — Intelligence, Judiciary, Foreign Affairs, Oversight and Reform, Financial Services, and Ways and Means — whose normal oversight functions are being gussied up to look like serious impeachment business. But standing committees do have subpoena power, so why not use it? Well, because subpoenas get litigated in court when the people or agencies on the receiving end object. Democrats want to have an impeachment show — um, inquiry — on television; they do not want to defend its bona fides in court.

“.. the White House is planning to send Nancy Pelosi a letter as soon as Friday arguing that President Trump and his team can ignore lawmakers’ demands until she holds a full House vote..”

• Trump Dares Pelosi To Hold Impeachment Inquiry Vote (ZH)

Why do Republicans want a vote, besides have Democrats – especially those in states won by Trump – be put on the record? Because, as RealClearPolitics explains, holding a formal vote on impeachment would allow Republicans to subpoena documents and witnesses and investigate all the revelations surrounding the whistleblower’s complaint about Trump’s interactions with Ukraine, as well the roles of Joe Biden and his son Hunter in Ukrainian corruption allegations. “Republicans would have the opportunity to get information from all sources and get it on the table,” Cleta Mitchell, a conservative political law attorney, told RealClearPolitics. “The process they are proceeding under through their committee attorney means they are the only ones who have the rights to gather information.”

[..] Which brings us to late on Thursday, when Trump himself figured out that his position would be strengthened by having a formal vote, because according to Axios, the White House is planning to send Nancy Pelosi a letter as soon as Friday arguing that President Trump and his team can ignore lawmakers’ demands until she holds a full House vote formally approving an impeachment inquiry. In addition to the above considerations, Axios notes that by putting in writing the case that Trump and his supporters have been making verbally for days, “the White House is preparing for a court fight and arguing to the public that its resistance to Congress’ requests is justified.”

Trump wants to force House Democrats in vulnerable races to be on the record if they favor pursuing impeachment, these sources tell us. Republicans also say the minority party can exert more influence over hearings and other aspects of an inquiry once it is formalized with a vote. By calling this an inquiry without holding a vote, Pelosi and the Democratic committee chairmen are having it both ways, one official said. “They want to be a little bit pregnant.” A letter could be filed as soon as Friday, because according to Axios sources, several White House lawyers spent a good chunk of their Thursday reviewing the language in the letter, expecting that it could find its way before a judge.

The MSM story that Shokin was corrupt seems to be falling apart. Biden’s defense for demanding him gone is that many voices said so. Yeah, the likes of Pyatt and Nuland, the architects of the Maidan coup.

• Joe Biden Sprang Into Action When Ukraine Prosecutor Came After His Son (MoA)

After the U.S. sponsored Maidan coup in 2014 then Vice President Joe Biden led the Ukraine policy of the Obama administration. His campaign against prosecutor general Shokin started in September 2015: “[The U.S. ambassador at the time, Geoffrey] Pyatt kicked off the effort with a speech on Sept. 24, 2015 in which he blasted Shokin for “openly and aggressively undermining reform” and having “undermined prosecutors working on legitimate corruption cases.” In testimony to the Senate Foreign Relations Committee on Oct. 8, Nuland declared: “The Prosecutor General’s Office has to be reinvented as an institution that serves the citizens of Ukraine, rather than ripping them off.”

Biden followed up with a visit to Kiev in December. On Dec. 7, he held a news conference with Poroshenko and announced $190 million to “fight corruption in law enforcement and reform the justice sector.” He made no public mention of the loan guarantee, but behind the scenes he had explicitly linked the $1 billion loan guarantee to reform efforts, including removing Shokin, according to Colin Kahl, Biden’s national security adviser at the time. A day after the news conference, he addressed the Ukrainian parliament and decried the “cancer of corruption” in the country. “The Office of the General Prosecutor desperately needs reform,” he noted.
…
Biden next met on Jan. 20 with Poroshenko on the sidelines of the World Economic Forum in Davos, Switzerland, when he also pressed “the need to continue to move forward on Ukraine’s anti-corruption agenda,” according to a White House statement.

Backdraft.

• Trump Approval Climbs To Highest Level Of 2019 Amid Impeachment Inquiry (Hill)

President Trump’s approval ticked up to 49 percent – its highest mark this year, according to a new Hill-HarrisX survey released on Wednesday. The figure marks a 2-point increase from a Sept. 11-12 poll, but a 2-point decrease from its previous peak of 51 percent in August 2018. Trump’s disapproval rating, meanwhile, dropped to 51 percent, which marks his lowest level so far this year. The nationwide survey was conducted on Sept. 28 and 29, less than a week after House Democrats launched a formal impeachment inquiry into Trump over concerns raised in a whistleblower’s complaint about the president’s communications with Ukraine.

House Democrats threatened Wednesday morning to subpoena the White House for documents related to Trump’s dealings with Ukraine as part of their impeachment inquiry. House Oversight Committee Chairman Elijah Cummings (D-Md.) said in a memo that House committees have repeatedly tried to obtain voluntary compliance from Trump officials, but the White House has “refused to engage with – or even respond to – the Committees.” Speaker Nancy Pelosi (D-Calif.) and House Intelligence Committee Chairman Adam Schiff (D-Calif.) held a joint news conference later that morning, warning that attempts by the White House to “stonewall” the impeachment inquiry and “conceal facts” would be considered an obstruction of justice.

Wait, isn’t that what Trump is after?

• Weakening The Dollar Is The Last Hope For The Global Economy – Saxo (CNBC)

Weakening the dollar is the last throw of the dice in rescuing the global economy, according to Saxo Bank’s Steen Jakobsen. In the online trading and investment specialist’s outlook report for the fourth quarter, published Thursday, Jakobsen said 2019 will most likely be remembered as the year that kickstarted a global recession, despite the lowest ever nominal and real interest rates. “Monetary policy has reached the end of a very long road and has proven a failure,” Jakobsen, who is the chief economist and CIO at Saxo Bank, added. The U.S. Federal Reserve in September made a second 25 basis point cut to interest rates, moving to a range of 1.75% to 2%. Its initial 25 basis point reduction in July was the central bank’s first rate cut since the financial crisis.

The European Central Bank (ECB), meanwhile, recently unveiled a package of measures to reinvigorate the euro zone economy, cutting its deposit rate by 10 basis points to -0.5% and launching a massive new quantitative easing (QE) program. A host of other central banks across the world have also embarked on dovish policy shifts. Fears for the global economy have been exacerbated of late by the weakest manufacturing data out of the U.S. for over a decade, which compounded already fragile readings from across the euro zone and beyond. “In a global system of failed monetary policies and a long and difficult path to fiscal policy, there is only one other tool left in the box for the global economy and that is lower the price of global money itself: the U.S. dollar,” Jakobsen said.

The outlook report pointed to an estimated $240 trillion of debt worldwide, roughly 240% of global GDP, and argued that too much of this debt is denominated in dollars, due to the greenback’s role as global reserve currency and the deep liquidity of U.S. capital markets. This means the prospects for all asset classes have become a function of U.S. dollar liquidity and direction, Saxo Bank economists suggested. “If the dollar rises too much, the strain in the system increases: not only for U.S. exports, but also for the emerging market with its high dependence on USD funding and export machines,” Jakobsen said.

End the Fed.

• Fed Policymakers ‘Open’ To Rate Cut As Risks To Outlook Rise (R.)

Two Fed policymakers on Thursday signaled they are open to delivering another rate cut after a report showed the growth in the vast U.S. services sector is slowing, but the Fed’s No. 2, speaking late in the day, gave little away on his own thinking. The Fed “will act as appropriate to sustain a low unemployment rate and solid growth and stable inflation,” Fed Vice Chairman Richard Clarida said in New York, repeating a phrase Fed Chair Jerome Powell has used ahead of meetings when the Fed did cut rates, as well as in June, when it didn’t. The U.S. consumer and economy are in a “good place,” and the U.S. labor market is “very healthy,” Clarida said. At the same time, risks include slowing global growth, uncertainty over trade, and persistent low inflation overseas, all of which impact the U.S. economy.

“We have eight meetings a year, we take them one at a time. We are not on a preset course,” he said. Clarida’s circumspect comments came at the end of a day where traders bid up expectations of two more Fed rate cuts this year after the Institute for Supply Management (ISM)’s non-manufacturing activity index dropped to its lowest reading since August 2016. Separate data earlier in the week showed an index of U.S. factory activity contracting to its lowest level in more than a decade. The reports may signal that a slide in exports, business sentiment and business investment is spreading to the consumer, whose spending accounts for the bulk of the $20 trillion U.S. economy.

Gee, that’s surprising. Service economy, right?

• America’s Manufacturing Industry Is In Contraction (CNN)

America’s manufacturing industry is in contraction. Business spending is soft. And now the biggest chunk of the economy, the US service sector, is growing at its weakest pace in three years. Recession fears were reinforced on Thursday after the Institute for Supply Management said its non-manufacturing index dropped to 52.6 last month, down from 56.4 in August. This barometer of growth among service providers such as banks, restaurants and hotels is now at the lowest level since August 2016. Businesses expressed concern about tariffs, a shortage of workers and the direction of the economy, ISM said.

Although the service sector is still expanding, the gloomy report raises concern that America’s manufacturing troubles are spilling over into the broader economy. Slammed by the trade war, US manufacturing activity dropped deeper into contraction in September, the most sluggish month for factories since June 2009. “The weakness in manufacturing has now infected the services side of the US economy,” Peter Boockvar, chief investment officer at Bleakely Advisory Group, wrote in a note to clients on Thursday.

The EU is talking about unilaterally declaring a Brexit extension.

• Boris Has Destroyed What Is Left Of UK’s Credibility (Fintan O’Toole)

When Boris Johnson described his long-awaited proposals for changes to the Brexit withdrawal treaty as a compromise, he was not wrong. Two questions arise, however. What is being compromised? And who is Johnson compromising with? The answer to the second is obvious: the proposals are a compromise, not with the EU, but with the DUP. And what is being compromised is the credibility of the UK as a partner in any international negotiations. Though the EU and the Irish government are too polite to say so directly, Johnson’s plan destroys any remaining sense that the current regime in London is capable of sticking even to its own self-declared principles.

Ever since its victory in the referendum of June 2016, the Brexit project has been dogged by its inability to transcend its own origins. The referendum was always driven by the internal politics of the Conservative Party. Its purpose, from the point of view of the man who called it, David Cameron, was to silence the increasingly turbulent anti-EU faction in his own party and see off the threat of Nigel Farage. And it has never been able to move on from being an internal negotiation to being an external one. The only thing that has really changed is that “internal” Tory politics came, after the 2017 election, to include the DUP.

And so here we are again. Political compromise is about two sides with different agendas meeting each other half way. It is easy to see why Johnson might be sincere in thinking he has achieved this – but only if the two sides are Johnson himself with his need to look like he is coming up with some vaguely credible alternative to the backstop and the DUP with its “blood red line” of Northern Ireland leaving the EU on exactly the same terms as the rest of the UK.

A 1922 law, right? Nothing much changed in the territory since then?

• Hong Kong Leader Carrie Lam Invokes Emergency Powers, Bans Face Masks (CNBC)

Hong Kong leader Carrie Lam on Friday invoked emergency powers and banned face masks, saying the order goes into effect on Saturday, Oct. 5. Consequences for breaking the ban include up to one year in jail and a fine of $25,000 Hong Kong dollars ($3,187). In a press conference, Lam explained that the face mask ban was necessary because “almost all protesters who carry out vandalism and violence covered their face.” “The purpose was to hide their identity and evade the law and they have become more and more daring,” Lam said. She noted, however, that the mask ban contains certain exemptions “to cater for legitimate needs.”

Face masks have become ubiquitous in the city after the 2003 SARS outbreak. The disease killed 298 people in Hong Kong, according to World Health Organization data. Hong Kong’s parliamentary body, the Legislative Council, will discuss the legislation on Oct. 16 when it resumes session, Lam said. The Hong Kong leader said the decision was made after she called a special meeting of the Executive Council, which decided to invoke the Emergency Regulations Ordinance. Lam explained that the government believes the regulation will have a “deterrent effect” against violent behavior and help police officers carry out their duties. Under the 1922 law, the chief executive is allowed to “make any regulations whatsoever which he may consider desirable in the public interest.”

Study since 1970. But more of the damage had already been done before that.

• UK Wildlife Species Dying Out, Many Will Soon Vanish (Ind.)

The UK’s wildlife is dying out and many species will go extinct if urgent action is not taken, according to the latest State of Nature report, which draws on scientific monitoring since the 1970s. Leading professionals from more than 70 wildlife organisations have joined government agencies to create the comprehensive report, which warns wildlife declines continue “unabated”. Among thousands of mammal and plant species assessed, 15 per cent are threatened with being lost from Britain, including wildcats and greater mouse-eared bats. More than two-fifths of UK species including animals, birds and butterflies have seen significant declines in recent decades, the study found.

Since 1500 around 133 species have already vanished from Britain’s shores, including birds such as the wryneck and serin, which were lost as breeding birds in the 20th century. Dr Daniel Hayhow, lead author on the report and conservation scientist at RSPB, said: “We know more about the UK’s wildlife than any other country on the planet, and what it is telling us should make us sit up and listen. “We need to respond more urgently across the board if we are to put nature back where it belongs.” Data on nearly 700 species of land, freshwater and sea animals, fish, birds, butterflies and moths reveals 41 per cent have seen populations decline since 1970, while 26 per cent have increased.

Debt Rattle March 1 2019

Mar 012019

March 1, 2019 Posted by Raúl Ilargi Meijer at 10:29 am Finance Tagged with: Chelsea Manning, China, concrete, CPAC, manufacturing, Michael Cohen, shadow banks, socialism, tax cuts, trade talks, Venezuela, Wikileaks 12 Responses »

Salvador Dali Eggs on the plate (without the plate) 1932

• Tax Cuts A Year Later – Did They Deliver? (Roberts)

• The Death Of Cash Has Been Greatly Exaggerated – Look At The $100 Bill (MW)

• China Trade Talks Made ‘Fantastic’ Progress Last Week -Kudlow (CNBC)

• China’s Shadow Debt Burden Much Larger Than Believed (ZH)

• Growing China Downdraft Chills Asia Factory Activity (R.)

• CPAC On Socialism, Bernie Sanders And 2020: ‘Trump Will Win, 100%’ (G.)

• Claim Trump Had Prior Knowledge Of WikiLeaks Fails Hilariously (Dore)

• Trump Says Cohen Lied ‘95% Instead Of 100%’ In Testimony To Congress (G.)

• The Case That Could Bring Down Canada’s Justin Trudeau (G.)

• Anti-Maduro Allies Regroup After The Fight For Humanitarian Aid (CNBC)

• Disclosing Subpoena for Testimony, Chelsea Manning Vows to Fight (NYT)

• The Grey Wall Of China: Inside The World’s Concrete Superpower (G.)

Well, they delivered something. But that’s a much bigger topic than just tax cuts, that’s Fed policy.

Lance is trying to utterly confuse us with an absolute overkill of graphs all in one place. But the gist is clear.

• Tax Cuts A Year Later – Did They Deliver? (Roberts)

I received a lot of push back on my views when the “mainstream” analysis was the tax cuts would jump start economic growth. Of course, with 2017’s Q1 economic growth coming in at a meager 0.7% annualized, it would certainly seem to be needed. But as I questioned then: “Do tax reductions lead to higher economic growth, employment and incomes over the long-term as promised?” Speaking to NBC’s Meet the Press, VP Mike Pence argued at the time he was confident that eventually, the deficit would decline as it would be overcome by surging economic “growth” thanks to the tax cuts it will fund. [..] As shown in the chart below, changes to tax rates have a very limited impact on economic growth over the longer term.

Reagan’s tax cuts were effective because they were “timely” due to the economic, fiscal, and valuation backdrop which is diametrically opposed to the situation today. “Importantly, as has been stated, the proposed tax cut by President-elect Trump will be the largest since Ronald Reagan. However, in order to make valid assumptions on the potential impact of the tax cut on the economy, earnings and the markets, we need to review the differences between the Reagan and Trump eras. My colleague, Michael Lebowitz, recently penned the following on this exact issue.

‘Many investors are suddenly comparing Trump’s economic policy proposals to those of Ronald Reagan. For those that deem that bullish, we remind you that the economic environment and potential growth of 1982 was vastly different than it is today.” [..] The differences with today’s economic and market environment could not be starker. The tailwinds provided by initial deregulation, consumer leveraging, declining interest rates, and inflation provided huge tailwinds for corporate profitability growth. The chart below shows the ramp up in government debt since Reagan versus subsequent economic growth and tax rates.

While wages did rise marginally over the last, due more to tightness in the labor market rather than tax cuts, corporations failed to share the wealth. In fact, the ratio of profits to workers wages have materially worsened since the enactment of tax cuts.

Going to the mattresses. To be honest, it’s always been clear that trying turn the US into a cashless society is the stuff for revolution.

• The Death Of Cash Has Been Greatly Exaggerated – Look At The $100 Bill (MW)

The stock market is coming off its best January in years, the economy appears to be holding up well, interest rates are still low, cryptos and mobile payments continue to gain traction — it’s not exactly a cash-friendly climate at the moment. Then what’s going on with the $100 bill? A decade ago, $20 and $1 bills were both far more prevalent than the Benjamins. As you can see by this chart from Deutsche Bank’s Torsten Slok, the currency hierarchy has shifted dramatically since then.

In 2017, the $100 bill took the crown as the most popular U.S. bill, doubling since 2007, which has helped drive the sharp rise in currency and other liquid assets as a share of GDP:

But why? Deutsche Bank’s Slok mulled a few possibilities. “It could be driven by a global fear of negative interest rates in Europe and Japan,” he said. “Or it could be a savings vehicle for U.S. households worried about another financial crisis, or it could be driven by more demand from the global underground economy.” Of course, we know it’s not because more people are using the $100 bill as pocket money. Smaller bills are still far more popular in that regard. Just look at the average lifespan of each bill:

So what’s that telling us? Mattresses everywhere are getting increasingly stuffed with $100 bills instead of being put to work in the stock market or elsewhere. That speaks to the frame of mind of the Average Joe as much as anything else.

“Lighthizer said after the testimony [..] that formal steps would be taken to abandon plans of raising tariffs on Chinese goods.”

• China Trade Talks Made ‘Fantastic’ Progress Last Week -Kudlow (CNBC)

National Economic Council Director Larry Kudlow said Thursday that trade talks between the U.S. and China are going great, noting the two countries are making “fantastic” progress in meetings last week. “Last week was fantastic,” Kudlow told CNBC’s “Squawk on the Street.” “We’re making great headway on nontariff barriers and tariffs regarding various commodities such as soybeans and energy and beef. We have mechanisms with regard to enforcement, which is -I think- unparalleled.” “The progress has been terrific,” Kudlow added. But “we have to hear from the Chinese side. We have to hear from President Xi Jinping, of course. I think we’re headed for a remarkable, historic deal.” U.S. equities briefly pared some of their losses following Kudlow’s remarks.

Kudlow also said China has expressed willingness to make key structural changes to prevent intellectual property theft, a highly contested issue in these negotiations. Kudlow’s comments follow testimony from Robert Lighthizer, the U.S. trade representative. Lighthizer told members of the House Ways and Means Committee that China needed to do more than just buy more U.S. goods for the two countries to strike a permanent trade deal. But Lighthizer said after the testimony, according to The Wall Street Journal, that formal steps would be taken to abandon plans of raising tariffs on Chinese goods. This is a clear signal that a trade deal could come in the near future. “Lighthizer has worked miracles on this Chinese deal,” Kudlow said. “We’ve never come this far on China trade.”

News item by news item my long held ideas of the importance of the shadow banks for China’s official growth numbers are being confirmed.

• China’s Shadow Debt Burden Much Larger Than Believed (ZH)

[..] a team of S&P credit analysts warned in an October report that China’s debt burden might be much larger than previously believed. Against a backdrop of soaring corporate defaults, the team from S&P warned that investors could safely tack on another ~40% of debt/GDP to China’s total (with even more likely hidden from view) after a careful analysis of a new source of shadow debt being tapped by local governments to further their development plans. These Local Government Financing Vehicles, or LGFVs, represented “an iceberg with titanic credit risks” as local officials had increasingly turned to these sources of shadow financing to finance development projects while bureaucrats in Beijing struggled to turn off the credit taps.

Now that Beijing has reckoned with the idea that now is not the time to try and contain the country’s massive debt load, even as the percentage of bad debt balloons, it increasingly appears that these measures might be too little, too late for investors who financed these LGFVs, as the Wall Street Journal revealed in a report about how a local government in China’s impoverished South had caused a stir by stiffing its creditors after racking up a debt pile – largely through these LGFVs – equivalent to roughly three times the government’s annual revenue.

While putting a number on the amount of shadow debt in the system is difficult due to the opacity of the Chinese financial system, one economist at a domestic think tank estimated that off-balance-sheet borrowings by local governments could be as much as 23.6 trillion yuan, as of the end of 2017, meaning that total is likely higher today, as governments have been forced to tap these vehicles during Beijing’s deleveraging campaign. The proliferation of private funds and other money-raising channels for local governments makes it difficult for economists and for Beijing to track the total amount of borrowings. Official figures pegged the sum of local and central government debt at 29.95 trillion yuan ($4.457 trillion) in 2017, roughly 36% of the economy.

South Korea “exports contracted 11.1 percent in February from a year earlier, their biggest drop in nearly three years, with shipments to major buyer China slumping 17.4 percent.”

• Growing China Downdraft Chills Asia Factory Activity (R.)

Weak demand in China and growing global fallout from the Sino-U.S. trade war took a heavier toll on factories across much of Asia in February, business surveys showed on Friday. Activity in China’s vast manufacturing sector contracted for the third straight month, pointing to more strains on its major trading partners and raising questions over whether Beijing needs to do more to stabilize the slowing economy. In many cases, business conditions were the worst Asian companies have faced since 2016, with demand weakening not only in China but globally. Japan’s factory gauge fell at the sharpest pace in 2-1/2 years as slumping orders prompted plants to cut production, while separate data from South Korea showed its exports plummeted.

“The weakening trend in Chinese import demand weighed heavily on exports across the rest of the region,” said Sian Fenner, lead Asia economist at Oxford Economics. [..] China watchers are looking to Premier Li Keqiang’s work report to the annual meeting of parliament next week for clues on further stimulus plans. Li will set out the government’s economic targets for the year on Tuesday. Sources have told Reuters Beijing will set a 2019 growth target of 6.0-6.5 percent, down from around 6.5 percent in 2018. China reported economic growth cooled to 6.6 percent last year, its weakest pace since 1990, but some analysts believe actual activity is much weaker.

[..] In Japan, the Markit/Nikkei Manufacturing Purchasing Managers Index (PMI) fell into contraction territory as both domestic and foreign orders slumped. “We need to be mindful that uncertainty over the global economic outlook is heightening,” Bank of Japan board member Hitoshi Suzuki said on Thursday, after data showed the biggest drop in industrial output in a year in January. Readings from South Korea — the first economy in Asia to report trade data each month – were equally grim. Its exports contracted 11.1 percent in February from a year earlier, their biggest drop in nearly three years, with shipments to major buyer China slumping 17.4 percent.

“Once deeply resistant to Trump, CPAC is now like a religious gathering full of Trump idolatry. “Make America Great Again” (Maga) hats and sweaters are much in evidence..”

• CPAC On Socialism, Bernie Sanders And 2020: ‘Trump Will Win, 100%’ (G.)

“The favourite in the Democratic race is Bernie Sanders because the way he makes socialism sound,” said Brandon Morris, 32, wearing a Maga cap. “Most citizens don’t know how the system works; once I tell them, they see it will fall apart.” Morris, a nurse from Gainesville, Florida, who is African American, added: “I’m against socialism because I see it as a form of slavery. The rich will get richer and the poor will get poorer. Cory Booker and Kamala Harris talk about Medicare for All and that will kill doctors’ incentives to work hard. Look at Cuba.” Like Trump, Sanders ran in 2016 warning of a rigged system and the downsides of global trade and, like Trump, he thrived in midwestern states against Hillary Clinton. Less than a week after declaring his 2020 candidacy, Sanders had already raised $10m, well ahead of any of his rivals.

Wearing a Maga cap and stars and stripes jacket, Sam Lee, the communications director of conservative group Grand Opportunity USA, said: “I think Sanders has the ability to generate a base. He’s genuine. It’s the same thing as Trump: they’re very upfront about who they are. But Trump will win, 100%.” Lee rejected candidates such as Harris and Elizabeth Warren as “background noise”, adding: “Every election has people who aren’t going to make it and I don’t think they could.” Fran Wendelboe, the treasurer of the conservative organisation the 603 Alliance in New Hampshire, the first state to hold a primary, said: “Among the young voters, Bernie Sanders still seems popular. I think he still has great traction. Elizabeth Warren doesn’t seem to be getting much – she should get out of the race. But they’re all trampling themselves to get as far to the left as they can. Nobody’s going to beat Trump.”

Mike Wertz, a self-employed property appraiser, said: “It’s hard to run against Santa Claus: Bernie Sanders is Santa Claus because he says he would give everything away free. But Trump is still popular.” Wertz, 52, from Stevensville, Maryland, dismissed the prospects of Joe Biden, the former vice-president who is yet to declare whether he will mount a third bid for the White House. “Biden would get exposed. He stumbles around and says silly things. Trump would bring that out of him; he wouldn’t let Biden get away with it. If Biden said something stupid, Trump would tweet it in about 30 seconds.”

Just to show you my views are not alone. Jimmy Dore and Aaron Maté.

Someone mailed me yesterday talking about the conservatism of my columns. Never saw that before. And I don’t agree. Raging against the empty narratives of the anti-Trump machine does not make me a Trump supporter. People should read more carefully. The world is not divided into two camps.

• Claim Trump Had Prior Knowledge Of WikiLeaks Fails Hilariously (Dore)

Cohen and the Democrats lost it all when he said at the start he never wanted a White House job.

• Trump Says Cohen Lied ‘95% Instead Of 100%’ In Testimony To Congress (G.)

Donald Trump claimed on Thursday that Michael Cohen lied about almost everything during his explosive congressional testimony the day before – but told the truth by saying he had no evidence that Trump colluded with Russia. Speaking in Vietnam after meeting the North Korean leader, Kim Jong un, Trump said Cohen, his former legal fixer, lied “95% instead of 100%” of the time during a hearing of the House oversight committee on Wednesday. “I was impressed,” said Trump. Trump falsely claimed several times that Cohen had testified that there had been “no collusion”. In fact, Cohen said he did not know any “direct evidence” of collusion. “But I have my suspicions,” he told members of Congress.

Trump said of Cohen: “He lied a lot, but it was very interesting, because he didn’t lie about one thing. He said no collusion with the Russian hoax. And I said, ‘I wonder why he didn’t just lie about that too, like he lied about everything else.’” Cohen delivered a scathing account of his 10 years as Trump’s enforcer, calling the president a racist conman, implicating him in a series of felonies and estimating that Cohen had threatened 500 people on Trump’s behalf. He said Trump’s eldest son, Donald Jr, had been involved in a criminal conspiracy to pay hush money to a pornographic actor, Stormy Daniels, who alleged she had an affair with the elder Trump. Federal prosecutors in New York continue to investigate.

Cohen confirmed that Trump was under federal investigation for undisclosed crimes and warned that Trump may try to cling to power even if his re-election campaign fails next year. He also alleged that Trump knew in advance of plans by WikiLeaks to publish Democratic party emails, which US authorities say were stolen by Russian intelligence operatives, and that Donald Jr was to meet with Russians at Trump Tower. But, Cohen said, he knew of no direct evidence that Trump or his campaign colluded with Russia’s interference in the 2016 election campaign. US intelligence agencies concluded that the Russian operation was aimed at boosting Trump’s chances.

Trudeau’s riding has lots of SNC-Lavalin jobs. But he may have gone too far.

• The Case That Could Bring Down Canada’s Justin Trudeau (G.)

What is going on in Canada? Canada’s prime minister, Justin Trudeau, is facing the biggest political scandal of his administration. The affair centres around allegations that his former attorney general, Jody-Wilson Raybould, was improperly pressured by some of his closest advisers to prevent the prosecution of a large Canadian engineering firm over accusations of fraud and bribery. Thus far, the scandal has been politically costly; Gerald Butts, a longtime friend of Trudeau’s, and his closest adviser, resigned two weeks ago. Wilson-Raybould has resigned, too. A handful of polls are showing the scandal is politically unpopular for the governing Liberals – which is worrying for them, given there is a federal election in October.

What is the company accused of? SNC-Lavalin, based in Montreal, is accused of paying C$48m worth of bribes in Libya to Muammar Gaddafi’s family, in order to secure lucrative contracts. The bribery is alleged to have occurred between 2001 and 2011. If found guilty, the company would be barred from bidding on federal projects for a decade. SNC-Lavalin employs nearly 50,000 people worldwide, with 3,400 in Quebec. Company executives have been lobbying fora “deferred prosecution agreement”, which in effect allows them to pay a fine in lieu of a criminal prosecution, with no ban on bidding for contracts. But federal prosectors have decided to pursue a trial.

This is where the scandal is centred: the prime minister and his aides, along with the finance minister, have been accused of pressing Wilson-Raybould to intervene and asking prosecutors to accept a deferred prosecution agreement. Wilson-Raybould declined to override the judgment of her top legal team.

Nobody is willing to say yes to intervention.

• Anti-Maduro Allies Regroup After The Fight For Humanitarian Aid (CNBC)

Venezuela’s opposition has formally urged the international community to keep all options on the table, after deadly clashes broke out in border towns over the weekend. On Saturday, at least three people were killed and hundreds more were left injured, Reuters reported, as opposition activists tried to defy a government ban to bring food supplies, hygiene kits and nutritional supplements into the country. It comes at a time when the South American nation is in the midst of the Western Hemisphere’s worst humanitarian crisis in recent memory. President Donald Trump has consistently refused to rule out the prospect of military intervention in Venezuela and the country’s opposition leader, Juan Guaido, has called on the international community to “keep all options open.”

U.S. Secretary of State Mike Pompeo tweeted over the weekend that Washington would “take action against those who oppose the peaceful restoration of democracy in Venezuela.” To be sure, the prospect of U.S.-led military intervention is clearly being signaled as a form of “action.” “I think large-scale U.S. military intervention remains unlikely, though the chances are increasing — that’s worrying,” Tom Long, assistant professor in the department of politics and international studies at the University of Warwick, told CNBC via email. “More than the deadly clashes, what I worry could push towards military action is the lack of options remaining for the opposition and its international allies to increase pressure,” he added.

We can only guess as to why Chelsea picks the NYT to divulge details about this. We don’t have to guess as to why the NYT picks it up; it wants to repeat this one again:

” In recent years, Mr. Assange and WikiLeaks have become notorious for their role in disseminating Democratic emails stolen by Russian hackers as part of the Russian government’s covert efforts to damage the 2016 Democratic presidential nominee, Hillary Clinton, and help Donald J. Trump win.”

And Chelsea now helps them do it.

• Disclosing Subpoena for Testimony, Chelsea Manning Vows to Fight (NYT)

Chelsea Manning, the former Army intelligence analyst convicted in 2013 of leaking archives of secret military and diplomatic documents to WikiLeaks, revealed in an interview on Thursday that she had been subpoenaed to testify before a grand jury — and vowed to fight it. The subpoena does not say what prosecutors intend to ask her about. But it was issued in the Eastern District of Virginia and comes after prosecutors inadvertently disclosed in November that Julian Assange, the founder of WikiLeaks, has been charged under seal in that district. Ms. Manning, who provided a copy of the subpoena to The New York Times, said that her legal team would file a motion on Friday morning to quash it, arguing that it would violate her constitutional rights to force her to appear.

She declined to say whether she would cooperate if that failed. “Given what is going on, I am opposing this,” she said. “I want to be very forthright I have been subpoenaed. I don’t know the parameters of the subpoena apart from that I am expected to appear. I don’t know what I’m going to be asked.” [..] Ms. Manning said that her lawyers have been talking about the subpoena with an assistant United States attorney in the Eastern District, Gordon D. Kromberg. After an inadvertent court filing revealed that Mr. Assange has been charged under seal, it was Mr. Kromberg who successfully argued before a judge that any such charges remain a secret and should not be unsealed. Moreover, she said, Mr. Kromberg told her lawyers in vague terms that prosecutors wanted to talk to her about her past statements.

During her court-martial, Ms. Manning delivered a lengthy statement about how she came to copy archives of secret documents and send them to WikiLeaks, including her online interactions with someone who was likely Mr. Assange. “It’s disappointing but not surprising that the government is continuing to pursue criminal charges against Julian Assange, apparently for his role in uncovering and providing the public truthful information about matters of great public interest,” said Barry Pollack, a lawyer for Mr. Assange. [..] In recent years, Mr. Assange and WikiLeaks have become notorious for their role in disseminating Democratic emails stolen by Russian hackers as part of the Russian government’s covert efforts to damage the 2016 Democratic presidential nominee, Hillary Clinton, and help Donald J. Trump win.

“Since 2003, China has poured more cement every two years than the US managed in the entire 20th century.”

• The Grey Wall Of China: Inside The World’s Concrete Superpower (G.)

In the suburbs south of Beijing, what could one day be the world’s busiest airport is rapidly taking shape. Nicknamed “the starfish” due to the striking design by Zaha Hadid Architects, the Beijing Daxing international airport is set to open in October, and could eventually handle more than 100 million passengers a year. While the 52,000-tonne steel exoskeleton covering the airport’s six concourses immediately catches the eye, what lies beneath is familiar to many Chinese mega-projects: concrete – 1.6m cubic metres of it. Located 67km south of the capital, the airport sprawls across 780,000 sq metres – about a third of the size of Edinburgh. It aims to process 72 million passengers a year, and will have four runways by 2025, but there is a longer-term vision for additional runways and talk of 200 million passengers. Beijing’s existing international airport in the north-east, which will stay open, already handles around 96 million passengers a year.

Photograph: Sipa Asia/Rex/Shutterstock

The new airport is just the latest chapter in the story of how China became the concrete superpower of the 21st century. Since 2003, China has poured more cement every two years than the US managed in the entire 20th century. Even after a dip in recent years, China uses almost half the world’s concrete. The construction sector – roads, bridges, railways, urban development and other concrete-and-steel projects – accounted for one-third of the expansion of the Chinese economy in 2017. China is already home to the largest concrete structure in the world – the Three Gorges Dam across the Yangtze River. Sometimes touted as China’s “new Great Wall”, the dam includes 27.2m cubic metres of concrete and its hydroelectric power station is the world’s largest power station in terms of capacity.

Like all of China’s concrete achievements, the Three Gorges Dam has been mired in controversy. Around 1.4 million people were displaced by the project, and there were complaints that the rehousing settlements were inadequate or that compensation money disappeared into local government coffers. More than 100 workers died in the construction process, and archaeological and cultural sites were flooded. None of this prevented Li Yongan, general manager of the Three Gorges Corporation, from declaring in 2006 that the dam was “the grandest project the Chinese people have undertaken in thousands of years”.

Li only had to wait seven more years to be outdone by yet another Chinese feat of concrete. In 2013, the eastern route of the South-to-North Water Diversion Project opened, connecting the Grand Canal in China’s east with the capital in the north. The project is a multi-decade plan to divert the water from China’s lush south to its arid north, where water scarcity is an acute problem. The waterway has already cost around $80bn (£61bn), making it the most expensive infrastructure project in the world. In the first phase alone, it has used more than double the amount of concrete in the Three Gorges Dam: 65m cubic metres. The project ultimately aims to transport fresh water a distance of more than 4,300km.

Debt Rattle January 2 2019

Jan 022019

January 2, 2019 Posted by Raúl Ilargi Meijer at 10:48 am Finance Tagged with: Australia, China, environment, manufacturing, MH17, Putin, Rand Paul, real estate, Trump, Ukraine, Xi 12 Responses »

Pablo Picasso Portrait of Dora Maar pensive 1937

• China Warns Cities To Cut Reliance On Property, Developers’ Shares Fall (R.)

• Chinese Manufacturing Had An Even Worse December Than Expected (CNBC)

• Markets Dive As China Manufacturing Weakens In Bleak Start To 2019 (G.)

• The Future Might Not Belong to China (Martin Wolf)

• Australian Home Prices Mark Worst Year Since 2008 (R.)

• The Anti-Trump Party (Turley)

• Red Paul: The Senator from Kentucky is Now Working for Vladimir Putin (M.)

• MH17 Turnabout: Ukraine’s Guilt Now Proven (Zuesse)

• Reasons To Be Hopeful About The Environment In 2019 (G.)

Beijing has both actively and passively encouraged real estate sales. Now they move into “we warned you”, and shift the blame onto local government. Ominous, Xi tries to wash his hands from what he sees coming.

• China Warns Cities To Cut Reliance On Property, Developers’ Shares Fall (R.)

China’s regional economies need to reduce their reliance on the property market for growth and instead focus on sustainable longer-term development, the Communist Party’s People’s Daily wrote on Wednesday. Hundreds of cities across China have seen upswings in their local property markets in recent years under a long-term plan by Beijing to further urbanize the country. In the last few years, the process of building new homes and revamping old ones has accelerated, backed by local governments keen to boost land sales and meet red-hot property demand. The total sales of China’s top 100 real estate developers soared 35 percent last year, according to private research firm CIRC.

But Beijing is concerned that some cities, looking for rapid expansion, have grown their property markets too quickly and at the expense of new industry development, adding potential froth to real estate prices. “All areas should focus on their own urbanization processes, develop their own pillar industries according to population mobility and resources, and form new points of growth to avoid the old road of relying on real estate to drive the economy,” the commentary quoted a professor at the Capital University of Economics and Business as saying. [..] The article also comes as a number of Chinese city authorities seek to ease existing curbs on their property markets, despite broader directives from Beijing to keep prices in check. Last week, the city of Hengyang rescinded an order to lift restrictions on property prices, having just introduced the easing measure a day earlier.

So housing slumps, and so does industry. One month left till Chinese new year.

• Chinese Manufacturing Had An Even Worse December Than Expected (CNBC)

Results of a private survey on China’s manufacturing for the month of December showed factory activity contracted for the first time in 19 months amid a trade dispute with the U.S. The Caixin/Markit Manufacturing Purchasing Managers’ index (PMI), a private survey, fell to 49.7 in December from 50.2 in November. Analysts’ in a Reuters poll predicted the PMI to come in at 50.1 in December. A reading above 50 indicates expansion, while a reading below that level signals contraction. In December, two separate measures for new orders and new export orders showed contraction, the Caixin survey showed.

“That showed external demand remained subdued due to the trade frictions between China and the U.S., while domestic demand weakened more notably,” wrote Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, a subsidiary of Caixin. “It is looking increasingly likely that the Chinese economy may come under greater downward pressure,” Zhong added in the press release. [..] The slide in China’s PMI is “worrying” as there will be broader fallout on Asian exporters, said Vishnu Varathan, head of economics and strategy at Mizuho Bank.

Even though China’s manufacturing PMI typically slows ahead of Chinese New Year holidays — starting on February 5 in 2019 — this particular downturn in the sector “could be even sharper than headlines suggest,” Varathan wrote in a note on Wednesday. He added that the sustained downturn in manufacturing PMI in the second half of 2018 “with emphatic year-end slide” is “potentially symptomatic of far sharper underlying demand pullback. Especially as front-running US tariffs on China fade to reveal much softer demand conditions.”

Whoever it is who holds Chinese stocks, some incurred some big losses.

• Markets Dive As China Manufacturing Weakens In Bleak Start To 2019 (G.)

China’s huge manufacturing sector has shrunk for the first time in 19 months, sending stock markets into a tailspin in an ominous start to 2019. The weak data released on Wednesday follows a slew of other disappointing figures from the world’s second largest economy and underline concerns that is heading for a tough 12 months. Stock markets in the region suffered. Hong Kong was down 2.7%, Shanghai off 1.2% and the ASX 200 benchmark closed down 1.6% in Sydney. In South Korea, figures showed that its crucial export industries finished the year on a poor note, sending the Kospi stock index down 1.7% at the end of trading.

Asia biggest market, Japan, was closed for a holiday. But the selling looks set to spread to Europe and the US with FTSE futures pointing to a 0.25% fall at the open and the E-Mini futures for Wall Street’s S&P 500 down 0.8%. The Australian dollar, which is seen as a proxy for the Chinese economy, lost 0.6% as it plunged as low as US70.05 cents. It was the currency’s lowest level since January 2016 and perilously close to dipping below the key trading benchmark of US70c that, once breached, could spur further falls. The Australian outlook was not helped by figures showing that house prices are now falling at their fastest rate for 10 years.

Snippets posted by Brad De Long. I could just as easily says: the future MIGHT not belong to India, either.

• The Future Might Not Belong to China (Martin Wolf)

…The view widely held in the 1980s that Japan would be “number one” turned out to be badly mistaken. In 1956, Nikita Khrushchev, then first secretary of the Communist party of the Soviet Union, told the west that “We will bury you!” He proved utterly wrong…. Mistakes: extrapolating… assuming… rapid economic growth will be indefinitely sustained; and exaggerating the benefits of centralised direction… [which] in the long run… is likely to become rigid and so brittle….

China’s investment rate, at 44 per cent of GDP in 2017, is unsustainably high…. Not surprisingly, returns on investment have collapsed…. China has also hit the buffers on export-driven growth, at a lower level of income per head than other high-growth east Asian economies…. Future demand will depend on the emergence of a mass-consumer market, while growth of supply will require an upsurge in growth of “total factor productivity”…

For one and a half decades, China has benefited from the reforms introduced by Zhu Rongji, premier from 1998 to 2003. No comparable reforms have happened since his time. Today, credit is still being preferentially allocated to state businesses, while state influence over large private businesses is growing. All this is likely to distort the allocation of resources and slow the rate of innovation and economic progress…. China may well fail to replicate the success of other east Asian high-growth economies… because the distortions in its economy are so large and the global environment is going to be so much more hostile….

The most interesting other economy is not Europe, which seems destined for a slow relative decline, but India… far poorer than China … has great potential for fast catch-up growth…. The triumph of despotism is still far from inevitable. Autocracies can fail, just as democracies can thrive. China confronts huge economic challenges. Meanwhile, democracies must learn from their mistakes and focus on renewing their politics and policies…

Everything is worst in a decade, it seems.

• Australian Home Prices Mark Worst Year Since 2008 (R.)

Australian home prices skidded nearly 5% in 2018, marking their worst year since 2008, led by tighter credit conditions and waning investor interest, and analysts expect the weakness to persist this year. Property values across the country fell for the 15th consecutive month in December, with the rate of decline in Sydney and Melbourne – the two largest markets – worsening over the year, according to property consultant CoreLogic. Its index of home prices nationally dropped 1.8% in December from November, and tumbled 2.3% for the quarter – the worst quarterly decline in eight years. Values in the combined capital cities fell 1.3% in the month and 6.1% for the year.

Sydney was the worst performing capital city with prices down 1.8% in December. Regional centers fared better with prices outside the cities staying almost flat. “Access to credit has been the most significant factor weighing down housing market conditions over the year,” said Tim Lawless, head of research at CoreLogic. Since 2015, regulators have clamped down on risky lending by banks, particularly for interest-only loans, while a raft of scandals amid a high-level government-mandated inquiry has added to an air of caution. Earlier this year, Australia’s prudential regulator did ease some of its lending restrictions, but Lawless said access to finance was likely to remain “the most significant barrier” to an improvement in housing market conditions in 2019.

“Lenders are understandably risk-averse against a backdrop of falling dwelling values, high household debt, rising supply and heightened regulatory focus following the banking royal commission inquiry,” he said. The slowdown has been greatest in Sydney where home prices stumbled nearly 9% on the year, though Melbourne was catching up with an annual drop of 7%. Sydney and Melbourne comprise about 60% of Australia’s housing market by value and 40% by number.

2019 promises to be even uglier than 2018. US politics becomes an oxymoron, the entire system, and all the blame is shifted to just one man.

Me, I’m getting tired of trying to provide some balance in the face of these things. The Democrats refuse to understand that not being Trump is not an identity, because it’s the only claim they have left at an identity.

• The Anti-Trump Party (Turley)

Democrats are now defined by Trump the way that antimatter is defined by matter, with each particle of matter corresponding to an antiparticle. Take the secrecy. Democrats once were the party that fought against the misuse of secret classification laws by the FBI and other agencies. They demanded greater transparency from the executive branch, which is a position that I have readily supported. Yet, when oversight committees sought documents related to the secret Foreign Intelligence Surveillance Act investigation of Trump associates, Democrats denounced the very thought that Republicans would question the judgment of the FBI that any such disclosures would be tantamount to jeopardizing national security.

Democratic Party leaders including Pelosi declared that the oversight committees had moved beyond “dangerous irresponsibility and disregard for our national security” and “disregarded the warnings of the Justice Department and the FBI.” Likewise, House Intelligence Committee ranking minority member Adam Schiff expressed shock that the FBI was not given deference in withholding the information in the surveillance investigation.

Yet, when the information was finally forced out of the FBI, including the disclosure of previously redacted material, it was clear that the FBI had engaged in overclassification to shield not national security but to shield the bureau itself from criticism. It included discussion of the roles of high ranking FBI officials and their reliance on such sources as the Christopher Steele dossier, which were already publicly known. Democratic House members like Schiff presumably knew what was in the redactions and, nevertheless, wanted deference to the classification decisions of the FBI.

The writer is Greg Olear. Whoever that is. But it’s published at Medium, who until now I thought had some standards. I no longer think so.

• Red Paul: The Senator from Kentucky is Now Working for Vladimir Putin (M.)

[..] John McCain accused him on the Senate floor of “working for Vladimir Putin.” This quote got a lot of play in the political press, who love that sort of thing, but the consensus seemed to be that McCain was using hyperbolic language to make his point. But what if this was a bad take? Few members of Congress were more antagonistic toward Putin than John McCain. Perhaps when he called Rand Paul a Russian asset, on the floor of the US Senate, he actually meant it. Since the day John McCain called him out, Rand Paul has been a veritable lobbyist for the Kremlin.

On matters large and small, Paul has supported Moscow’s positions. He’s pushed for open and active dialogue with the nation that engaged in cyberwarfare against us. He’s argued for the lifting of sanctions on Russian individuals close to Putin. He was one of few politicians who defended Trump after his disastrous showing in Helsinki, when Trump more or less kissed the ring of the Russian dictator. He joined Trump in seeking the revocation of a security clearance on John O. Brennan, after the former CIA director denounced the Helsinki summit as “nothing short of treasonous.” In recent weeks, Paul has held with the Kremlin’s position on Syria.

A long piece by Eric Zuesse, I haven’t read the whole thing yet.

• MH17 Turnabout: Ukraine’s Guilt Now Proven (Zuesse)

Russia’s response documented beyond any question, at all, that this airliner was shot down by the Ukrainian Government, and that Western (i.e., US-allied) ‘news’media have been and are covering-up this crucial historical fact and The West’s still-ongoing lies about the downing of MH17. Those lies are the basis of US and EU anti-Russia sanctions, which remain in effect despite the basis for those sanctions having been exposed unequivocally, on September 17th, to be based on lies. Thus, continuing to hide those lies is crucial to the liars. This is the reason why Russia’s blazingly detailed presentation on September 17th has been virtually ignored — to protect the actually guilty.

The evidence here proves that those sanctions, themselves, are nothing but frauds against the public, and crimes against Russia — ongoing additional crimes, which have been, and remain, effectively hidden till now. The reader can see and consider here all of the conclusive evidence in the MH17 case — it can be reached via the present article’s links. Unlike the ‘news’-reports in The West’s ‘news’-media, the presentation here is not presuming readers’ trust, but is instead providing to all readers access to the actual evidence — evidence that is accepted by both sides. That’s what the links here are for: examination by any skeptics.

if you need to look at Macron and the UN for such reasons, forget it.

• Reasons To Be Hopeful About The Environment In 2019 (G.)

[..] 2019 may indeed be a breakthrough year. Public opinion is mobilising around the world and politicians and businesses are paying attention. There will be a series of high-profile events that will engage the public and governments and may provide a better way forward than was managed last year. Chief among them is the promise of António Guterres, the UN secretary general, to hold a summit for world leaders that will require them to face up to the dangers of climate change head on. Guterres is uncompromising, warning in Poland that it would be “immoral and suicidal” not to take firm and urgent action commensurate with the scale of the problem.

Leaders will be put on the spot, and will come under very public pressure as coalitions of civil society groups seek to put their case around the summit and in the lead-up to it. The role of women, who are among the most vulnerable to climate change, will be highlighted, and the role of young people, who will have to live with the consequences of their elders’ mistakes in a warming world. The French president, Emmanuel Macron, is also holding a One World Summit, planned for the summer, at which the focus will be on persuading businesses to take a leading role, investing in projects to reduce greenhouse gas emissions and changing the way they use energy.

There are clear signs of hope on climate change also in the rapidly falling cost of renewable energy technology, which is now competitive with fossil fuels. And the keep it in the ground campaign has succeeded in encouraging many investors to move their money out of fossil fuel stocks.

America 2.0

Apr 072018

April 7, 2018 Posted by Raúl Ilargi Meijer at 12:32 pm Finance Tagged with: China, consumption, deficit, empire, industry, manufacturing, nation, power, production, Rome, surplus, US, wealth 24 Responses »

Dorothea Lange Farmers’ supply co-op. Nyssa, Malheur County, Oregon 1939

It’s Dr. D again. Told you he’s on a roll. He remains convinced America can re-invent itself. If only because it must.

Dr. D: Herbert Stein’s Law states “What Can’t Go On Forever, Doesn’t.” This is a neat summary of the present trade and currency imbalance. China makes real goods and the U.S. consumes them by typing digits on a keyboard. This is the very definition of what cannot go on forever.

• How long do you expect a nation can make nothing and consume everything?

• How long do you expect a nation without manufacturing, without a workforce, and now without a viable military to remain pre-eminent?

• How long does wealth and influence remain in a nation that makes nothing, does nothing, and knows nothing?

Reminds me of that other Law: “A fool and his money should be parted as soon as possible”, for to be wealthy, and helpless, and dumb, is not a combination that lasts for very long.

Since China cannot send the U.S. free goods forever, ergo, they won’t. That means slowly or quickly, now or later, they will cut us off. Right now it appears that can never happen, but I assure you it will very soon. And what will the U.S. do then? Actually, that’s very simple: the U.S. will have to close a $600B trade deficit instantly. Roughly, that means the U.S. will no longer import $600B worth of goods and be $600B/year poorer, or $2,000/year per person. Nor is this unusual. History is rife with examples of nations that once were prosperous and were suddenly cut off: Spain and Greece come immediately to mind. So how does this happen?

The Core nation, the trading hub has failed dozens of times in history, from Venice to Holland, Spain to England, and although most of history was on a gold standard, nevertheless the same thing happened: repudiation and devaluation of the currency. That’s why a U.K. Pound is no longer a troy pound of pure silver ($192) and why the U.S. Dollar is no longer 1/20th ounce of gold ($267). So let’s run down how this might unfold.

Like other empires, the U.S. rose to prominence with hard work and industry. Like other empires, this personal and physical industry was the foundation of an effective military. This military eventually stood alone, leaving the U.S. to set the rules of trade, the rules of diplomacy, and the rules of conduct. Like other nations, the U.S. bent those rules in its own favor, both early and late. Like other nations, the natural way to take advantage was to run an overvalued currency, which draws in capital from all trading partners worldwide, creating a 100-year spiral of wealth and influence that seems truly endless.

However math, the cruelest of Mother Nature’s laws, is not fooled. If you bend the rules to create market distortions, those distortions are indeed created. If there were fair trade, a gold standard, a nation that increases their wealth would find its currency rise. A rising currency would dampen manufacturing and efficiency, the gold would flow back out, and the unfair advantage would be corrected. But only in a free market. Any market on Earth has an Army, and that Army’s job day and night is to make sure that unfair advantage does NOT end. Ask Smedley Butler.

Mother Nature is never deterred. However long it takes, she waits. Lacking fair trade, an abnormally strong currency does the only other thing it can: destroy the Core nation’s industry, totally and completely. More certain than a nuclear explosion, economics will not miss a single spot until the wrong is righted and the truth is out. At first the low-gain commodity industries go: mining, shipping, smelting; then their sooty kinsmen: heavy rail, ships, ports, transportation.

After that go the lighter industries: manufacturing, stamping, autos, and so on up to mainframes, silicon chips and phones, and with them, their children, manufacturing processes and R&D. However, as London and NY showed, you can forestall currency correction even now by moving market distortions into services and financial engineering. At this point, however, the Core nation has nothing left but Banks, Universities, and the Government/Military, and no underlying economy to support them.

However, what Charles Hugh Smith calls the fiefdoms of monopoly cartels and apparatchiks of the 1% now lead an empty parade, horse-whipping the uncompliant 99% into supporting an economy that exists only in their minds. And then “What can’t go on, doesn’t.” The empire collapses from within, to the total surprise of historians of the 1%, and the total lack of interest of the 99%, for whom it had already collapsed decades before.

And of the other side? Thanks to the overly-high currency of the Core nation, the perimeter nation has an artificially LOW currency. They didn’t do that, because they are by definition small and weak and aren’t using an army to set the rules. The artificially low currency leads to low costs, low labor, high enterprise, and in the mirror image of the Core nation, the constant INCREASE in manufacturing. The increase in wealth, and the addition of commodity goods, then heavy industry, then manufacturing, then R&D. Whose fault is that? Who used a worldwide army to enforce the very rules that gutted their homeland? Not the Vandals; not China. It was Rome; it was D.C.

What is this whole imbalance based on? In our case, the artificially strong dollar, backed by a worldwide U.S. military. So how must it end? With a weak dollar, falling real markets, and a U.S. military returning home.

You say this can’t happen? Yet it must happen. To say otherwise means China will give us free goods for 10,000 years, and the U.S. will get always weaker that whole time. So how does the transition go?

The U.S. financial bulwark cracks, being highest and most based on psychology, not reality, very likely in conjunction to a military failure or withdrawal, as in empire finance, the military and currency are equivalent. Slowly, then rapidly, the tide flows out, the U.S. dollar gets weaker, the Chinese Yuan gets stronger, and the whole process reversed as it should have done years ago.

(mind the log scale)

Mother Nature isn’t fooled, and those 70 years of repression and manipulation are made up in a few years.

Down on the ground, what happens is not that China shuts off free imports to the U.S. directly, with a political embargo, what happens is the U.S. is seen as a has-been and the U.S. dollar falls in purchasing power on the world market, raising the price of foreign goods in a “free” and “open” marketplace. Lacking manufacturing and the military power to stop it, the U.S. can’t hold off Mother Nature and the laws of physics any more.

Knowing this to be inevitable, how would a nation prepare? For one thing, you would need to kick-start your industry, post-haste. Anything that can be made internally will find its prices stabilize and not rise. Yet before the currency rates are corrected this face overwhelming headwinds. Second, as income will be lost and the borders will be shut off, you need to switch the focus of taxation from income to tariffs, from finance to real goods.

Third, you need to open your pipelines, ports, and infrastructure, and expand the required steel, oil by any means necessary, even armed standoffs. Fourth, you’ll need to shove the culture away from government support and subsidies that will soon disappear, and into self-reliance and productivity. Firth, you’ll need to downsize the government and especially the military, which will and must return home. Any of those platforms sound familiar?

Despite what you read, it’s not all bad. Just as “The arrogant people will be brought down, and high and mighty people will be humbled”, “Every valley shall be raised up, and every mountain and hill shall be made low; and the crooked shall be made straight, and the rough places smooth.”

This is a master reversal of all manipulations, of all imbalances that have reached extremes. As the U.S. – China trade deficit must balance, we know that Chinese goods must rise. But that also means the cost of production for U.S. goods must fall. This cost-advantage puts Americans back to work just as it did the Chinese, while the rise of the Yuan will make China rich, but less productive.

What’s more, as matters reverse, the U.S. will raise prices on their exports: food and oil, two things China must have and cannot get elsewhere. Agriculture is at an all-time, 1,000 year low and must rise. Stocks and housing are at an all-time high and must fall. In a reversal, the high prices fall, the low prices rise, that’s obvious. That’s what “reversal” means, that’s what “extreme” means.

As for manufacturing, the world is changing fast. Even China is opening “dark” factories that employ no people, only robots. That will be true here as well, which undercuts any labor savings they once had. There’s a few problems, however: robotic mega-factories only work with very large scale of identical goods that can source reliable, high-quality inputs. If oil is too high, and/or shipping or marketing fractures, those factories scale down, retool more, and therefore require more people than presently.

How is China going to have huge robotic mega-factories if half their export market can no longer afford them? If the U.S. and China split the market, aren’t all those factories half the size of present? Since the U.S. will now have low-cost people and raw materials, what advantage does China bring to offset shipping and tariffs? The “market” isn’t uniform. There was worldwide mass-integration of manufacturing between India and England and the world in 1910 too, yet it’s didn’t persist; it changed.

One way it can change is to leapfrog China. We hear about how the U.S. is a has-been as we are supporting legacy copper telephones while the 3rd world goes directly to fiber and cell, and this is true. However, China has mainlined on low-price, low-profit, mass-manufacturing. Why would anyone compete with them there? It’s irrational. Build a baseline and let them have all the low-profit, environment-destroying work they want, the U.S. can’t and won’t beat them there.

We can beat them by leapfrogging into technology that’s out there, but no one is revealing yet, things they haven’t done, but Americans are good at doing: innovating, high-tech, medical. Much as I hate high-tech and its panacea as an answer, yet I believe there are goods, ideas out there that can transform the way things work.

Look at the rapid development and uptake of LEDs for example. The patent office is filled with them, and an outsized number are American. We have superconducting maglev, field physics, material science of no-weight foam, color-shifting paint, hyperconducting graphite, and transparent concrete to name a few. All there, all unused. Let’s make an example case in a very large, very quiet investment.

Medical and Biotech are to some extent used up, with overpriced, mass-market pharmaceuticals being rejected by price and form even by the wider population. But that’s so last-century. The new biotech is going to take a blood or DNA sample and synthesize a drug specifically for your blood and DNA. They are going to create another organ, a blood transfusion no one but you can use.

In one way, this may be more expensive, and that’s good for profits, but in another way, they will work for you, much better and guaranteed, and therefore fix your health faster, spare you useless drugs, bad side effects, and actually work, and therefore be cheaper. What does it take to make them? A complete revolution in drug manufacturing. Multi-billion dollars’ worth of equipment, extremely unique development and patents, a 20 year head start.

Could you sell such a thing to the Chinese? You bet. Could they get off retail manufacturing and scoop us on it? Not a chance. So you see how such a thing could happen, even with a U.S. dollar falling and a hard readjustment ahead. And that’s just one.

If boutique and robotic goods are the new industries, what do we do with 200 million unemployed? We won’t have 200 million. That’s a consequence of the distorted extreme of our finance, our centralization, our currency. For one thing, we have only 100 million now and a lower dollar will definitely restore the competitive advantage of highly-productive U.S. workers. At the same time, if work requires fewer workers, we will find a solution. Why?

Because you can’t have 200 million unemployed. Not even 100 million. The resulting inequity and income disparity can and has caused a revolution. Faced with that, any nation will adjust because they must or perish. As difficult as Americans can be, they are a practical people above all. This has happened to dozens of nations in the past: Spain, France, Germany, England, China, Japan, and they all still exist. Things rotated out in the big wheel of time. New things were made and the old ones faded away, and we will too.

We’re going back to being just one of many nations, and a fair and productive one too. There are ways and we will find them. How can I be so sure? Because “What Can’t Go On Forever, Doesn’t,” and it won’t this time either.

Globalization is Poverty

Oct 162017

October 16, 2017 Posted by Raúl Ilargi Meijer at 2:00 pm Finance Tagged with: centralization, China, Corbyn, debt, globalization, manufacturing, production, Rome, Uber, Yellen 16 Responses »

Marc Riboud Zazou, painter of the EIffel Tower 1953

Central bankers have never done more damage to the world economy than in the past 10 years. One may argue this is because they never had the power to do that. If their predecessors had had that power, who knows? Still, the global economy has never been more interconnected than it is today, due mostly to the advance of globalism, neoliberalism and perhaps even more, technology.

Ironically, all three of these factors are unremittingly praised as forces for good. But living standards for many millions of people in the west have come down and/or are laden with uncertainty, while millions of Chinese now have higher living standards. People in the west have been told to see this as a positive development; after all, it allows them to buy products cheaper than if they had been made in domestic industries.

But along with their manufacturing jobs, their entire way of life has mostly disappeared as well. Or, rather, it is being hidden behind a veil of debt. Still, we can no longer credibly deny that some three-quarters of Americans have a hard time paying their bills, and that is very different from the 1950s and 60s. In western Europe, this is somewhat less pronounced, or perhaps it’s just lagging, but with globalism and neoliberalism still the ruling economic religions, there’s no going back.

What happened? Well, we don’t make stuff anymore. That’s what. We have to buy our stuff from others. Increasingly, we lack the skills to make stuff too. We have become dependent on nations half a planet away just to survive. Nations that are only interested in selling their stuff to us if we can pay for it. And who see their domestic wage demands go up, and will -have to- charge ever higher prices for their products.

And we have no choice but to pay. But we can only pay with what we can borrow. As nations, as companies, and as individuals. We need to borrow because as nations, as companies, and as individuals we don’t make stuff anymore. It’s a vicious circle that globalization has blessed us with. And from which, we are told, we can escape only if we achieve growth. Which we can’t, because we don’t make anything.

So we rely on central bankers to manage the crisis. Because we’re told they know how to manage it. They don’t. But they do pretend to know. Still, if you read between the lines, they do admit to their ignorance. Janet Yellen a few weeks ago fessed up to the fact that she has no idea why inflation is weak. Mario Draghi has said more or less the same. Why don’t they know? Because the models don’t fit. And the models are all they have.

Economic models are more important in central banking than common sense. The Fed has some 1000 PhDs under contract. But Yellen, their boss, still claims that ‘perhaps’ the models are wrong, with it comes to inflation, and to wage growth. They have no idea why wages don’t grow. Because the models say they should. Because everybody has a job. 1000 very well paid PhDs. And that’s all they have. They say the lack of wage growth is a mystery.

I say that those for whom this is a mystery are not fit for their jobs. If you export millions of jobs to Asia, take workers’ negotiating powers away and push them into crappy jobs with no benefits, only one outcome is possible. And that doesn’t include inflation or wage growth. Instead, the only possible outcome is continuing erosion of economies.

The globalist mantra says we will fill up the lost space in our economies with ‘better’ jobs, service sector, knowledge sector. But reality does not follow the mantra. Most new jobs are definitely not ‘better’. And as we wait tables or greet customers at Wal-Mart, we see robots take over what production capacity is left, and delivery services erase what’s left of our brick and mortar stores. Yes, that means even less ‘quality’ jobs.

Meanwhile, the Chinese who now have taken over our jobs, have only been able to do that amidst insane amounts of pollution. And as if that’s not bad enough, they have recently, just to keep their magical new production paradise running, been forced to borrow as much as we have been -and are-, at state level, at local government level, and now as individuals as well.

In China, credit functions like opioids do in America. Millions of people who had never been in touch with the stuff would have been fine if they never had, but now they are hooked. The local governments were already, which has created a shadow banking system that will threaten Beijing soon, but for the citizens it’s a relatively new phenomenon.

And if you see them saying things like: “if you don’t buy a flat today, you will never be able to afford it” and “..a person without a flat has no future in Shenzhen.”, you know they have it bad. These are people who’ve only ever seen property prices go up, and who’ve never thought of any place as a ghost city, and who have few other ways to park what money they make working the jobs imported from the US and Europe.

They undoubtedly think their wages will keep growing too, just like the ‘value’ of their flats. They’ve never seen either go down. But if we need to borrow in order to afford the products they make in order to pay off what they borrowed in order to buy their flats, everyone’s in trouble.

And then globalization itself is in trouble. The very beneficiaries, the owners of globalization will be. Though not before they have taken away most of the fruits of our labor. What are you going to do with your billions when the societies you knew when you grew up are eradicated by the very process that allowed you to make those billions? It stops somewhere. If those 1000 PhDs want to study a model, they should try that one.

Globalization causes many problems. Jobs disappearing from societies just so their citizens can buy the same products a few pennies cheaper when they come from China is a big one. But the main problem with globalization is financial: money continually vanishes from societies, who have to get ever deeper in debt just to stand still. Globalization, like any type of centralization, does that: it takes money away from the ‘periphery’.

The Wal-Mart, McDonald’s, Starbucks model has already taken away untold jobs, stores and money from our societies, but we ain’t seen nothing yet. The advent of the internet will put that model on steroids. But why would you let a bunch of Silicon Valley venture capitalists run things like Uber or Airbnb in your location, when you can do it yourself just as well, and use the profits to enhance your community instead of letting them make you poorer?

I see UK’s Jeremy Corbyn had that same thought, and good on him. Britain may become the first major victim of the dark side of centralization, by leaving the organization that enables it -the EU-, and Corbyn’s idea of a local cooperative to replace Uber is the kind of thinking it will need. Because how can you make up for all that money, and all that production capacity, leaving where you live? You can’t run fast enough, and you don’t have to.

This is the Roman Empire’s centralization conundrum all over. Though the Romans never pushed their peripheries to stop producing essentials; they instead demanded a share of them. Their problem was, towards the end of the empire, the share they demanded -forcefully- became ever larger. Until the periphery turned on them -also forcefully-.

The world’s central bankers’ club is set to get new leadership soon. Yellen may well be gone, so will Japan’s Kuroda and China’s Zhou; the ECB’s -and Goldman’s- Mario Draghi will go a bit later. But there is no sign that the economic religions they adhere to will be replaced, it’ll be centralization all the way, and if that fails, more centralization.

The endgame of that process is painfully obvious way in advance. Centralization feeds central forces, be they governmental, military or commercial, with the fruits of labor of local populations. That is a process that will always, inevitably, run into a wall, because too much of those fruits are taken out. Too much of it will flow to the center, be it Silicon Valley or Wall Street or Rome. Same difference.

There are things that you can safely centralize (peace negotiations), but they don’t include essentials like food, housing, transport, water, clothing. They are too costly at the local level to allow them to be centralized. Or everybody everywhere will end up paying through the nose just to survive.

It’s very easy. Maybe that’s why nobody notices.

Productivity and Debt

Aug 042017

August 4, 2017 Posted by Raúl Ilargi Meijer at 1:26 pm Finance Tagged with: consumption, debt, decline, GDP, Growth, manufacturing, productivity 7 Responses »

William Blake Europe Supported by Africa and America 1796

Earlier this week I was struck by the similarities and differences between two graphs I saw float by. And the thought occurred that they are as scary as they are interesting. The graphs show eerily similar trends. And complement each other. The first graph, which Tyler Durden posted, shows productivity, defined as more or less the same as GDP per capita. It goes all the way back to 1790 and contends that 2017 productivity is about back to the level it was at in 1790. In the article, Tyler suggests a link with the amount of time people spend on Instagram et al, but perhaps there is something more going on.

That is, America and Western Europe exported almost their entire manufacturing capacity to China etc. And how can you be productive if you don’t manufacture anything? Yeah, I know, ‘knowledge economy’ and ‘service economy’ and all that, but does anyone still really believe those terms? Sure, that may have worked for a while as others were still actually making stuff (and nobody really understood the idea anyway), but it’s a sliding scale. As productivity plunged, so did GDP per capita. We can all wrap our heads around that.

America’s Productivity Plunge Explained

For the first time since the financial crisis, US multifactor productivity growth turned negative last year, mystifying economists who have struggled to find something to blame for the fact that worker productivity is declining despite a technology boom that should make them more efficient – at least in theory. To be sure, economists have struggled to find explanations for the exasperating trend, with some arguing that the US hasn’t figured out how to properly measure productivity growth correctly now that service-sector jobs proliferate while manufacturing shrinks. But what if there’s a more straightforward explanation? What if the decline in US productivity measured since the 1970s isn’t happening in spite of technology, but because of it?

To wit, Facebook has just released user-engagement data for its popular Instagram photo-sharing app. Unsurprisingly, the data show that the average user below the age of 25 now spends more than 32 minutes a day on the app, while the average user aged 25 and older. The last time Facebook released this data, in October 2014, its users averaged 21 minutes a day on the app. According to Bloomberg, “time spent is an important metric for advertisers, which like to hear that users are browsing an app beyond quick checks for updates, making them more likely to run into some marketing.” Maybe they should matter more to economists, too.

When asking the question “What if the decline in US productivity measured since the 1970s isn’t happening in spite of technology, but because of it?”, a next question should be: what is the technology used for? And if the answer to that is not “for making things”, then what do you think could its effect on productivity could possibly be?

Tyler took that graph from an article posted August 22, 2015, also on Zero Hedge, by Eugen Bohm-Bawerk, who at the time had some interesting things to say about it:

Productivity In America Now On Par With Agrarian Slave Economy

[..] it is time to take a closer look at productivity measured in terms of GDP per capita. While this is not an entirely correct way to measure productivity, it does adhere to new classical growth model theories which posit that in a developed economy, reached steady state, the only way to increase GDP per capita is through increased total factor productivity. In plain English, growth in GDP per capita equals productivity growth. The reason we use this concept instead of more advanced productivity measures is to get a long enough time series to properly understand the underlying fundamental forces driving society forward.

In our main chart we have tried to see through all the underlying noise in the annual data by looking at a 10-year rolling average and a polynomial trend line. In the period prior to the War of 1812 US productivity growth was lacklustre as the economy was mainly driven by agriculture and slaves (slaves have no incentive to work hard or innovate, only to work just hard enough to avoid being beaten). From 1790 to 1840 annual growth averaged only 0.7%. As the first industrial revolution started to take hold in the north-east, productivity growth rose rapidly, and even more during the second industrial revolution which propelled the US economy to become the world largest and eventually the global hegemon [..]

Adjusting for the WWII anomaly (which tells us that GDP is not a good measure of a country’s prosperity) US productivity growth peaked in 1972 – incidentally the year after Nixon took the US off gold. The productivity decline witnessed ever since is unprecedented. Despite the short lived boom of the 1990s US productivity growth only average 1.2% from 1975 up to today. If we isolate the last 15 years US productivity growth is on par with what an agrarian slave economy was able to achieve 200 years ago.

[..] With hindsight we know that finance did more harm than good so we can conservatively deduct finance from the GDP calculations and by doing so we essentially end up with no growth per capita at all over a timespan of more than 15 years! US real GDP per capita less contribution from finance increased by an annual average of 0.3% from 2000 to 2015. From 2008 the annual average has been negative 0.5%!

In other words, we have seen a progressive (pun intended) weakening of the US economy from the 1970s and the reason is simple enough when we know that monetary policy broken down to its most basic is a transaction of nothing (fiat money) for something (real production of goods and services). Modern monetary policy thereby violates the most sacred principle in a market based economy; namely that production creates its own demand. Only through previous production, either your own or borrowed, can one express true purchasing power on the market place.

The central bank does not need to worry about such trivial things. They can manufacture the medium of exchange at zero cost and express purchasing power on the same level as the producer. However, consumption of real goods and services paid for with zero cost money must by definition be pure capital consumption. Do this on a grand scale, over a long period of time, even a capital rich economy as the US will eventually be depleted. Capital per worker falls relative to competitors abroad, cost goes up and competitiveness falls (think rust-belt). Productive structures cannot be properly funded and the economy must regress to align funding with its level of specialization.

Eugen gets close to what I said earlier about productivity. That is, you have to make stuff, to manufacture things, in order to have, let alone grow, productivity (aka GDP per capita). An economy based -too heavily- on services and finance is not going to do it for you. Because “the most sacred principle in a market based economy” is that “production creates its own demand.”

Now, combine that graph with the next one, from Lance Roberts, which unmistakably depicts the same trendline, though on a different -shorter- time scale. Lance’s graph shows more or less the same as Tyler’s, if you allow me that freedom, namely: GDP per capita growth equals productivity equals GDP growth, but it adds a crucial component (unless you ask someone like Paul Krugman): debt.

Together, the graphs show how we have ‘solved’ the issue of falling growth and productivity: with debt. It doesn’t get simpler than that. We exported our productive capacity to China, and now we can only afford to buy their products -which are mostly inferior in quality to what our ancestors once made- by getting into -more- debt. Big simplification, granted, but we’re doing broad strokes here.

All this is simple enough for a 6-year old to grasp. It’s actually likely easier for them than for most trained economists. Problem is, the 6-year olds are probably busy on Instagram. Tyler’s right on that one. But then, at least they’re not stuck in outdated modelling.

Ergo: we have a precipitous decline in productivity, which also translates into a decline in GDP. Even if we come up with all sorts of accounting tricks to hide this fact. And what do we do, or rather, what have we done? Enter central banks, stage right. That second graph inevitably raises the question: Without all the debt, where would the growth rate stand today? And I know what you want to say, because just like you, I am afraid to ask.

We’ve used all those trillions in new debt to, as far as productivity is concerned, run to not even stand still: productivity (GDP per capita) continues to decline despite all the debt. Why is that? Well, Bohm-Bawerk answers that question earlier: “.. consumption of real goods and services paid for with zero cost money must by definition be pure capital consumption.” In other words, as I said before, if you don’t use it to actually make things, you’re basically just burning it. Plus, in the process, as we see ever clearer in the effects of QE, you can grossly distort an economy, by blowing bubbles, propping up zombies etc.

Things would look different if we used the “zero cost money” for production instead of consumption. But that’s not what the central bank money is used for at all. The net effect of all that debt, be it QE or new mortgage debt, is less than zero. Quite a bit less, actually. How do we solve that problem? The answer is deadly simple, though not easy to put into practice: start making stuff again! Or put it this way: debt must be used to raise production, not consumption.

Debt Rattle March 17 2016

Mar 172016

March 17, 2016 Posted by Raúl Ilargi Meijer at 9:12 am Finance Tagged with: budget, cash, China, coal, manufacturing, oil, pension, refugees, WMP, Yellen 9 Responses »

Christopher Helin Kissel military Highway Scout Kar at Multnomah Falls, Oregon 1918

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

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

• The Budget That Wasn’t (Halligan)

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

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

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

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

• Energy Sector Defaults Could Start Falling Like Dominoes (MW)

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

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

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

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

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

• Huge Challenges Await EU’s Refugee Plan (FT)

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

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

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

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

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

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

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

Pon Zi.

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

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

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

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

• The Budget That Wasn’t (Halligan)

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

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

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

“Yellen has surrendered after achieving victory.”

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

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

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

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

Will exporters force Beijing to devalue?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Oh yeah!

• Energy Sector Defaults Could Start Falling Like Dominoes (MW)

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

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

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

Might as well sell then, right?

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

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

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

It’s a miracle Pemex still exists.

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

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

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

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

We’ll see more of this.

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

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

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

UK rules!

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

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

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

Has this changed their policy yet?

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

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

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

• Huge Challenges Await EU’s Refugee Plan (FT)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Merry St. Paddy’s

Debt Rattle February 1 2016

Feb 012016

February 1, 2016 Posted by Raúl Ilargi Meijer at 9:50 am Finance Tagged with: austerity, deflation, humane, manufacturing, miners, oil, refugees, Saudi, shadow banks, yuan 6 Responses »

Matson Aircraft refueling at Semakh, British Mandate Palestine 1931

• China Manufacturing Shrinks At Fastest Rate For Over 3 Years (Reuters)

• Mid-Tier Chinese Banks Piling Up Trillions Of Dollars In Shadow Loans (Reuters)

• US Hedge Funds Mount New Attacks on China’s Yuan (WSJ)

• China’s Steel Sector Hit By Growing Losses (FT)

• Athens And Rome Expose Europe’s Greatest Faultlines (Münchau)

• Euro-Area Factories Cut Prices as Deflation Risks Loom Large (BBG)

• Nigeria Asks For $3.5 Billion In Global Emergency Loans (FT)

• Why Miners Have it Worse Than Oil Producers (BBG)

• Saudis Told To Embrace Austerity As Debt Defaults Loom (Tel.)

• 1 Million Investors Lose $7.6 Billion In China Online Ponzi Scheme (Reuters)

• The West Is Reduced To Looting Itself (Paul Craig Roberts)

• US, UK-Backed Saudi War & Blockade Cause Mass Starvation In Yemen (Salon)

• Europe Chokes Flow of Refugees to Buy Time for a Solution (WSJ)

• German Police ‘Should Shoot At Migrants’, Populist Politician Says (BBC)

• UK Labour MP Compares Cologne Attacks To Birmingham Night Out (Tel.)

• The EU Must Reassert Humane Control Over Chaos Around The Mediterranean (UN)

No kidding: “It is quite concerning that the significant monetary and fiscal stimulus in 2015 has only managed to slow the rate of decline in China’s industrial activity..”

• China Manufacturing Shrinks At Fastest Rate For Over 3 Years (Reuters)

Activity in China’s manufacturing sector contracted at its fastest pace in almost three-and-a-half years in January, missing market expectations, an official survey showed on Monday. The official purchasing managers’ index (PMI) stood at 49.4 in January, compared with the previous month’s reading of 49.7 and below the 50-point mark that separates growth from contraction on a monthly basis. It is the weakest index reading since August 2012. Analysts polled by Reuters predicted a reading of 49.6. The PMI marks the sixth consecutive month of factory activity contraction, underlining a weak start for the year for a manufacturing complex under severe pressure from falling prices and overcapacity in key sectors including steel and energy.

The price of oil fell on the disappointing data, which was compounded by weak export figures from South Korea. Brent crude was trading at $35.54 per barrel at 02.00 GMT, down 45 cents, or 1.25%, from the last close. China’s stock markets also fell in morning trading, although the Nikkei in Japan and the ASX/S&P 200 in Australia both swatted away the gloom to remain in positive territory. Zhou Hao, an economist at Commerzbank, said: “The electricity production remained sluggish and the crude steel output continued the weak trend in January, reflecting an ongoing deleveraging process in the industrial sectors.” “In the meantime, China has started an aggressive capacity reduction in many sectors, which could add downward pressure on the bulk commodity prices over time.”

Meanwhile, the official non-manufacturing PMI fell to 53.5 from December’s 54.4, according to the National Bureau of Statistics (NBS). The services index remained in expansionary territory highlighting continuing strength that has helped China weather the sharp slowdown in manufacturing. With manufacturing decelerating quickly, services have been a crucial source of growth and jobs for China over the past year, and analysts have been watching closely to see if the sector can maintain momentum in 2016. Angus Nicholson of IG in Melbourne said: “It is quite concerning that the significant monetary and fiscal stimulus in 2015 has only managed to slow the rate of decline in China’s industrial activity. “The first quarter of activity is always the weakest in China due to the seasonal disruption of Chinese new year, and there is the possibility of global markets reacting very negatively when the quarterly data starts filtering out in March and April.”

The China slowdown was underlined on Monday by figures showing that South Korea’s exports suffered their worst downturn in January since the depths of the global financial crisis in 2009. The trade ministry in Seoul said sluggish demand from China helped exports to fall to a worse-than-expected 18.5% from a year earlier, extending December’s slump of 14.1% and marking the 13th straight month of declines. Shipments to China, South Korea’s largest market, tumbled 21.5% on-year in January in their biggest drop since May 2009, and the trade ministry said export conditions were worsening.

There’s still not nearly enough scrutiny of the shadow banks. But that is where the real problems will be.

• Mid-Tier Chinese Banks Piling Up Trillions Of Dollars In Shadow Loans (Reuters)

Mid-tier Chinese banks are increasingly using complex instruments to make new loans and restructure existing loans that are then shown as low-risk investments on their balance sheets, masking the scale and risks of their lending to China’s slowing economy. The size of this ‘shadow loan’ book rose by a third in the first half of 2015 to an estimated $1.8 trillion, equivalent to 16.5% of all commercial loans in China, a UBS analysis shows. For smaller banks, the rate is much faster. This growing practice, which involves financial structures known as Directional Asset Management Plans (DAMPs) or Trust Beneficiary Rights (TBRs), comes at a time when some mid-tier lenders, under pressure from China’s slowest economic growth in 25 years, are already delaying the recognition of bad loans.

“These are now the fastest growing assets on the balance sheets of most listed banks, excluding the Big Five, not just in percentage terms but absolute terms,” said UBS financial institutions analyst Jason Bedford, a former bank auditor in China who focuses on the issue. “The concern is that the lack of transparency and mis-categorization of credit assets potentially hide considerable non-performing loans.” To provide a buffer against tough times, banks are required to set aside capital against their credit assets – the riskier the asset, the more capital must be set aside, earning them nothing. Loans typically carry a 100% risk weighting, but these investment products often carry a quarter of that, so banks can keep less money in reserve and lend more.

Banks must also make provision of at least 2.5% for their loan books as a prudent estimate of potential defaults, while provisions for these products ranged between just 0.02 and 0.35% of the capital value at the main Chinese banks at the end of June, Moody’s Investors Service said in a note last month. At China’s mid-tier lender Industrial Bank Co, for example, the volume of investment receivables doubled over the first nine months of 2015 to 1.76 trillion yuan ($267 billion). This is equivalent to its entire loan book – and to the total assets in the Philippine banking system, filings showed. Investment receivables may include such benign assets as government bonds, but increasingly they include TBRs and DAMPs at mid-tier lenders.

At Evergrowing Bank, investment receivables reached 397 billion yuan in September, surpassing its loan book of 290 billion yuan. The bank said last year practically all of its investment receivables were DAMPs and TBRs. China Zheshang Bank, another smaller lender, also saw its investment receivables double over the same period, the bank’s prospectus to sell shares in Hong Kong shows. Zhang Changgong, the bank’s deputy governor, said banks were increasingly becoming return-seeking asset managers, not mere lenders. “In the past banks (made loans and) held assets. Now banks manage assets,” he said.

It’s game on. “When you talk about orders of magnitude, this is much larger than the subprime crisis..”

• US Hedge Funds Mount New Attacks on China’s Yuan (WSJ)

Some of the biggest names in the hedge-fund industry are piling up bets against China’s currency, setting up a showdown between Wall Street and the leaders of the world’s second-largest economy. Kyle Bass’s Hayman Capital Management has sold off the bulk of its investments in stocks, commodities and bonds so it can focus on shorting Asian currencies, including the yuan and the Hong Kong dollar. It is the biggest concentrated wager that the Dallas-based firm has made since its profitable bet years ago against the U.S. housing market. About 85% of Hayman Capital’s portfolio is now invested in trades that are expected to pay off if the yuan and Hong Kong dollar depreciate over the next three years—a bet with billions of dollars on the line, including borrowed money.

“When you talk about orders of magnitude, this is much larger than the subprime crisis,” said Mr. Bass, who believes the yuan could fall as much as 40% in that period. Billionaire trader Stanley Druckenmiller and hedge-fund manager David Tepper have staked out positions of their own against the currency, also known as the renminbi, according to people familiar with the matter. David Einhorn’s Greenlight Capital Inc. holds options on the yuan depreciating. The funds’ bets come at a time of enormous sensitivity for China’s leaders. The government is struggling on multiple fronts to manage a soft landing for the economy, deal with a heavily indebted banking system and navigate the transition to consumer-led growth.

Expectations for a weaker yuan have led to an exodus of capital by Chinese residents and foreign investors. Though it still boasts the largest holding of foreign reserves at $3.3 trillion, China has experienced huge outflows in recent months. Hedge funds are gambling that China will let its currency weaken further in a bid to halt a flood of money leaving the country and jump-start economic growth. The effort is a lot riskier, though, than taking on a currency whose value is set by the market. China’s state-run economy gives the government a number of levers to pull and tremendous resources at its disposal. Earlier this year, state institutions bought up so much yuan in the Hong Kong market where foreigners place most of their bets that overnight borrowing costs shot up to 66%, making it difficult to finance short positions and sending the yuan up sharply.

Just the beginning. They don’t dare close too many mills and make large numbers of people unemployed. But they have, in my guess, at least 50% overcapacity.

• China’s Steel Sector Hit By Growing Losses (FT)

A sharp reversal in China’s steel industry has led to more than half of major producers reporting losses last year. Member companies of the China Iron and Steel Association suffered a combined loss of Rmb64.5bn ($9.8bn), compared with profits of Rmb22.6bn in 2014. The country’s steel industry, which accounts for more than half of global production, contracted for the first time last year, with raw steel production dropping 2.3% — the first fall since 1981. Steel demand is wilting as construction and heavy industry stutter, a slowdown highlighted on Monday when China’s official manufacturing purchasing managers’ index for January fell to 49.4, from 49.7 in December. PMI readings below 50 indicate a fall-off in activity.

Li-Gang Liu, China chief economist at ANZ, said the reading suggested “the contraction in the manufacturing sector became more entrenched”. Mr Liu noted that year-on-year steel output fell 12% in both December and early January. The National Bureau of Statistics attributed the steeper than expected fall on the government’s campaign to reduce industrial overcapacity, especially in the steel and coal sectors, as well as a spillover effect from the lunar new year holiday. The holiday begins on February 7 and firms often suspend activity weeks in advance. China’s economic slowdown hit domestic steel demand hard in 2015, with steel-intensive industries, including the once-resilient property sector, unwilling to launch new projects in the face of overhanging inventories.

CISA, blaming industry losses on plummeting domestic prices, said its price index fell more than 30% over the course of 2015. Mill closures remain unlikely despite the losses, however, in part due to fears that the subsequent mass job losses could lead to social instability. The closure of so-called zombie companies alone could mean 400,000 lay-offs, according to a recent speech by Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute. Faced with these issues, ramping up export volume remains the industry’s chosen palliative for overcapacity. China’s steel exports grew more than 20 per cent in 2015 to 112m tonnes. The flood of Chinese steel is stoking trade protectionism as companies in other parts of the world struggle to compete with Chinese prices. In 2015, 37 cases were filed against Chinese steel producers, most on anti-dumping grounds.

Sure it’s not really Brussels where the deepest faultlines are?

• Athens And Rome Expose Europe’s Greatest Faultlines (Münchau)

How should we think about systemic risk in Europe today? The EU has been moderately successful at crisis management. But the ability to muddle through is reaching its limits when, as now, several crises intersect at once. You can see the problem most clearly in Greece — a country battling both an economic meltdown and a refugee crisis — with not much help from the rest of the EU. Last week when the European Commission issued a report criticising Athens over its failure to control its borders, Macedonia took the unilateral decision to close its southern crossing with Greece — leaving thousands of refugees in transit on the Greek side of the border. In Athens, meanwhile, parliament discussed pension reform, forced upon the country by their creditors as a quid pro quo for continued financial life support.

Greece may be the starkest example, but it is not the only country facing overlapping crises. It is not even the most important one facing this dilemma. That would be Italy. While Rome’s problems are different from those of Greece, the country’s long-term sustainability in the eurozone is just as uncertain, unless you believe that its economic performance will miraculously improve when there is no reason why it should. Italy was overwhelmed by the increase of refugees from north Africa last year. On top of that it faces unresolved economic problems — no productivity growth for 15 years; a large stock of public sector debt that leaves the government with virtually no fiscal room for manoeuvre; and a banking system with €200bn in non-performing loans, plus another €150bn of debt classified as troubled.

Then consider that its three main opposition parties have, at one time or another, all questioned the country’s membership of the eurozone. Even if none of them look like coming to power in the near future, it is clear that Italy only has a limited amount of time to fix its multiple problems. The struggle to repair the banking system is a good example of just how big the task is. Last week, the Italian government and the European Commission agreed a convoluted scheme to relieve the Italian banking system of some of these toxic assets. It uses all the dirty tricks of modern finance, including the infamous credit default swap, a financial product that mimics insurance against default on a bond, which was particularly popular during the pre-2007 credit bubble. These instruments allow investors to hedge against default risk. But more often than not, their true purpose is to conceal information, to fool investors, or to circumvent regulatory restrictions.

Which of course deepens the deflation. Ergo: more price cuts on the way. Rock and an impossible place.

• Euro-Area Factories Cut Prices as Deflation Risks Loom Large (BBG)

Factories in the euro area slashed prices of goods by the most in a year in January, highlighting the deflationary risks that’s keeping alarm bells ringing at the ECB. In its monthly manufacturing report, Markit Economics said price pressures “remained on the downside” and output charges fell for a fifth month. In addition, all countries in its survey reported declines, the first time that’s happened in 11 months. President Mario Draghi said the ECB’s stimulus policies will be reviewed in March as the region’s inflation rate may drop below zero again because of oil’s slump. Price growth has been slower than the central bank’s goal of just under 2% for almost three years. “The euro zone’s manufacturing economy missed a beat at the start of the year,” said Chris Williamson at Markit.

“If the slowdown in business activity wasn’t enough to worry policy makers, prices charged by producers fell at the fastest rate for a year to spur further concern about deflation becoming ingrained.” Inflation in the 19-country region accelerated to 0.4% in January, according to data last week, with the core rate rising to 1%. Still, that may only be a temporary reprieve. Markit’s headline Purchasing Managers’ Index fell to 52.3 from 53.2, matching an initial estimate published last month. Among the region’s largest countries, growth slowed in Germany and Italy, stagnated in France and accelerated in Spain. Markit said its survey signals annual manufacturing output growth of just 1.5% at the start of the year. “The data are likely to add to pressure on the ECB to expand the central bank’s stimulus programme as soon as March,” Williamson said.

Watch the dominoes go.

• Nigeria Asks For $3.5 Billion In Global Emergency Loans (FT)

Nigeria has asked the World Bank and African Development Bank for $3.5 billion in emergency loans to fill a growing gap in its budget in the latest sign of the economic damage being wrought on oil-rich nations by tumbling crude prices. The request from the eight-month-old government of President Muhammadu Buhari is intended to help fund a $15 billion deficit in a budget heavy on public spending as the west African country attempts to stimulate a slowing economy and offset the impact of slumping oil revenues. It comes as concerns grow over the impact of low oil prices on petroleum exporting economies in the developing world. Azerbaijan, which last month imposed capital controls to try and halt a slide in its currency, is in discussions with the World Bank and the IMF about emergency assistance.

Nigeria’s economy is Africa’s largest and has been hit hard by the fall in crude prices — oil revenues are expected to fall from 70% of income to just a third this year. Finance minister Kemi Adeosun told the Financial Times recently that she was planning Nigeria’s first return to bond markets since 2013. But Nigeria’s likely borrowing costs have been rising alongside its budget deficit. A projected deficit of $11bn, or 2.2% of gross domestic product, had already risen to $15bn, or 3%, as a result of the recent turmoil in oil markets. The $2.5bn loan from the World Bank and a parallel $1bn loan from the ADB, which would enjoy below-market rates, must still be approved by both banks’ boards.

Under World Bank rules its loan would be subject to an IMF endorsement of the government’s economic policies and bank officials say they would have to be confident the Nigerian government was undertaking significant structural reforms. But both loans would carry far fewer conditions than one from the IMF, which does not believe Nigeria needs a fully fledged international bailout at this point.

Can we call it a draw for now? Bit early to call, we’re just getting off the starting line.

• Why Miners Have it Worse Than Oil Producers (BBG)

“Things’ll go your way, if you hold on for one more day,” vocal group Wilson Phillips once crooned. Mining companies seem to have taken those lyrics to heart, opting to maintain production as long as their cash reserves allow and in effect delay a long-awaited resolution in the supply and demand balance of dry commodities, according to a new note from Goldman Sachs. The nature of the metals and mining business—legal considerations combined with an ability to store excess supply for the long-haul—means the industry faces a longer shakeout than in the energy sector. “Many of the [mining] structures are no longer assets but rather liabilities due to environmental regulations,” write Goldman analysts led by Head of Commodities Research Jeffrey Currie.

“This suggests that, in order to delay the environmental costs of mine rehabilitation, the penalties associated with employee layoff and non-performance of commercial obligations, owners will operate the facilities until they run out of cash and are obliged to suspend operations.” The trend is particularly true of U.S. coal miners, according to the analysts, and underscored by recent failed auctions of mining assets. “[Last] week we saw Alpha Natural Resources cancel an auction of 35 coal mines at the last minute due to a lack of interest, illustrating the fact that some mining assets burdened with outstanding liabilities and negative margins are left without any residual value,” Goldman notes.

Fundamental differences between metals and energy businesses have resulted in lower volatility for prices of gold, aluminium and similar dry commodities compared to energy-related products such as natural gas, electricity, and crude, the Goldman analysts say. “Theoretically, once an energy market breaches storage capacity, prices need to collapse below cash costs to immediately re-balance supply with demand. In practice, however, operational stress in energy is a local, not global concept as breaching storage capacity happens most likely in landlocked locations, but it does whittle away at the global supply overhang,” the analysts write. “In contrast, metals can be ‘piled high’ in low-cost locations almost anywhere in the world with far greater density, i.e. dollar per square foot, than energy.”

To illustrate the point, Goldman calculates that $1 billion worth of gold would, at current spot prices, fit into a generously-sized bedroom closet, while $1 billion worth of oil would take up 17 very large crude carriers, each with a capacity of more than a quarter of a million deadweight metric tons. With an estimated 12 months of cash reserves left for some U.S. coal miners, financial stress needs to deepen before the supply-demand balance even begins to resolve itself.

Saudi leaders have the same problem as the Chinese: they’re afraid of their people.

• Saudis Told To Embrace Austerity As Debt Defaults Loom (Tel.)

Saudi Arabia faces years of tough austerity as the worst oil price crash in the modern history forces the kingdom to make radical cuts to government largesse, the IMF has warned. The world’s largest producer of crude oil will need to “transform” its economy away from oil revenues, which make up more than 80pc of the government’s wealth, according to Masood Ahmed, head of the Middle East department at the IMF. The Saudi monarchy has already been forced to unveil the largest programme of government austerity in decades as oil prices have collapsed by more than 70pc in 18 months. “This will have to be part of a multi-year adjustment process,” Mr Ahmed told The Telegraph. He urged the kingdom to reform its generous system of oil subsidies and introduce a host of new taxes, including consumption levies such as VAT.

“There will have to be a major transformation of the Saudi economy. It is necessary and it is going to be difficult, but it is a challenge which I think the authorities have clearly laid out”, said Mr Ahmed. The warning comes as the world’s weakest oil producing nations could buckle under the pressure of the price rout. IMF officials have been in Azerbaijan this week amid fears Baku will need a $4bn international rescue package to stave off a debt default. During the world’s last major oil price crash in 1986, 17 out of 25 of the developing world’s major oil producers defaulted on their debts, according to research from Oxford Economics. Debt mountains in producer nations ballooned by 40pc of GDP on average.

“The 1980s precedents are alarming; producers that avoided sovereign defaults were the exception rather than the rule”, said Gabriel Sterne at Oxford Economics. Azerbaijan was forced to abandon its foreign exchange peg with the dollar in December, after speculators caused the currency to crash. The Saudis have been burning through their reserves at a record pace to protect the riyal’s fixed value against a soaring dollar, and should continue to preserve the peg at all costs, said the IMF. Mr Ahmed said it was “neither necessary nor appropriate” for Riyadh to move to a floating exchange rate, forcing it to undertake record levels of expenditure cuts instead.

$7.6 billion in a year and a half. Eat your heart out, Bernie.

• 1 Million Investors Lose $7.6 Billion In China Online Ponzi Scheme (Reuters)

Chinese police have arrested 21 people involved in the operation of peer-to-peer lender Ezubao, the official Xinhua news agency said on Monday, over an online scam it said took in some 50 billion yuan ($7.6 bn) from about 900,000 investors. Ezubao was a Ponzi scheme, the Xinhua report said, and more than 95% of the projects on the online financing platform were fake. Among those arrested were Ding Ning, the chairman of Yucheng Group, which launched Ezubao in July 2014. It was not possible to reach Ezubao officials for comment and it was not clear if Ding had legal representation.

Ezubao’s website has been shut down and it appeared Yucheng Group’s Beijing office had been closed when Reuters reporters visited before Monday’s Xinhua report. Chinese police said they had sealed, frozen and seized the assets of Ezubao and its linked companies as part of investigations into China’s largest P2P online platform by lending figures. The Ezubao case has underscored the risks created by China’s fast-growing $2.6 trillion wealth management product industry. Many products are sold through loosely regulated channels, including online financial investment platforms and privately run exchanges.

“The combination of propaganda, financial power, stupidity and bribes means that there is no hope for European peoples.”

• The West Is Reduced To Looting Itself (Paul Craig Roberts)

I, Michael Hudson, John Perkins, and a few others have reported the multi-pronged looting of peoples by Western economic institutions, principally the big New York Banks with the aid of the International Monetary Fund (IMF). Third World countries were and are looted by being inticed into development plans for electrification or some such purpose. The gullible and trusting governments are told that they can make their countries rich by taking out foreign loans to implement a Western-presented development plan, with the result being sufficient tax revenues from economic development to service the foreign loan. Seldom, if ever, does this happen. What happens is that the plan results in the country becoming indebted to the limit and beyond of its foreign currency earnings.

When the country is unable to service the development loan, the creditors send the IMF to tell the indebted government that the IMF will protect the government’s credit rating by lending it the money to pay its bank creditors. However, the conditions are that the government take necessary austerity measures so that the government can repay the IMF. These measures are to curtail public services and the government sector, reduce public pensions, and sell national resources to foreigners. The money saved by reduced social benefits and raised by selling off the country’s assets to foreigners serves to repay the IMF. This is the way the West has historically looted Third World countries. If a country’s president is reluctant to enter into such a deal, he is simply paid bribes, as the Greek governments were, to go along with the looting of the country the president pretends to represent.

When this method of looting became exhausted, the West bought up agricultural lands and pushed a policy on Third World countries of abandoning food self-sufficiency and producing one or two crops for export earnings. This policy makes Third World populations dependent on food imports from the West. Typically the export earnings are drained off by corrupt governments or by foreign purchasers who pay little while the foreigners selling food charge much. Thus, self-sufficiency is transformed into indebtedness. With the entire Third World now exploited to the limits possible, the West has turned to looting its own. Ireland has been looted, and the looting of Greece and Portugal is so severe that it has forced large numbers of young women into prostitution. But this doesn’t bother the Western conscience.

Previously, when a sovereign country found itself with more debt than could be serviced, creditors had to write down the debt to an amount that the country could service. In the 21st century, as I relate in my book, The Failure of Laissez Faire Capitalism, this traditional rule was abandoned. The new rule is that the people of a country, even a country whose top offiials accepted bribes in order to indebt the country to foreigners, must have their pensions, employment, and social services slashed and valuable national resources such as municipal water systems, ports, the national lottery, and protected national lands, such as the protected Greek islands, sold to foreigners, who have the freedom to raise water prices, deny the Greek government the revenues from the national lottery, and sell the protected national heritage of Greece to real estate developers.

What has happened to Greece and Portugal is underway in Spain and Italy. The peoples are powerless because their governments do not represent them. Not only are their governments receiving bribes, the members of the governments are brainwashed that their countries must be in the European Union. Otherwise, they are bypassed by history. The oppressed and suffering peoples themselves are brainwashed in the same way. For example, in Greece the government elected to prevent the looting of Greece was powerless, because the Greek people are brainwashed that no matter the cost to them, they must be in the EU. The combination of propaganda, financial power, stupidity and bribes means that there is no hope for European peoples.

Humanity? Morals? Not us.

• US, UK-Backed Saudi War & Blockade Cause Mass Starvation In Yemen (Salon)

Mass starvation is ongoing in Yemen, the United Nations warns, calling it a “forgotten crisis.” The poorest country in the Middle East may be on the brink of famine, while it faces bombing and a blockade from a Saudi-led coalition, backed by the U.S. and the U.K. Approximately 14.4 million Yemenis — more than half of the population of the country — are food insecure, according to a new report by the Food and Agriculture Organization of the United Nations, also known as the FAO. The U.N. estimates there are 25 million people in Yemen. This means at least 58% of the population is food insecure. Hunger is growing. In the seven months since June 2015, the number of food insecure Yemenis has grown by 12%. Since late 2014, the number has grown by 36%. “The numbers are staggering,” remarked Etienne Peterschmitt, FAO deputy representative and emergency response team leader in Yemen.

Peterschmitt called the mass starvation “a forgotten crisis, with millions of people in urgent need across the country.” The FAO says “ongoing conflict and import restrictions have reduced the availability of essential foods and sent prices soaring.” What the FAO does not mention in its report, however, is that these import restrictions are a result of the Saudi blockade on Yemen. Since the war broke out in March, with the backing of the U.S. and U.K., Saudi Arabia has imposed a naval, land and air blockade on Yemen — which imports more than 90% of its staple foods. Because of the Saudi-led blockade and war, for more than six months, humanitarian organizations have warned that 80% of the Yemeni population, 21 million people, desperately need food, water, medical supplies and fuel.

The U.N. has insisted for over half a year that Yemenis are enduring a “humanitarian catastrophe.” Salon sent the FAO multiple requests for comment, inquiring as to why the agency did not directly acknowledge the Saudi blockade, yet did not receive a response. The U.S. media and government have devoted very little attention to the Saudi blockade, and the U.N. has not mentioned it much in its reports on Yemen. Journalist Sharif Abdel Kouddous has warned that “Yemen is now the world’s worst humanitarian crisis.” [..] The Obama administration has sold more than $100 billion in weapons to the Saudi absolute monarchy in the past five years. The Saudi military has dropped U.S.-made cluster munitions, which are banned in 118 countries, on civilian neighborhoods in Yemen, in what Human Rights Watch called “outrageous” and a “war crime.”

The unholy union on its last legs.

• Europe Chokes Flow of Refugees to Buy Time for a Solution (WSJ)

Europe is bottling up migrants at the foot of the Balkans as its other plans for stemming the migration crisis flounder. EU member states have sent border guards, police vehicles and fingerprinting machines to Macedonia, which isn’t a member of the bloc. The goal: to squeeze the river of people still streaming north from Greece toward Germany into a trickle, turning away all but those from war-torn countries such as Syria and Iraq. The mounting restrictions are buying German Chancellor Angela Merkel time as she asks voters for patience and lobbies fellow EU leaders to implement what she promises will be a comprehensive solution to the migration crisis.

Ms. Merkel wants Turkey to dismantle smuggling networks that bring migrants across the Aegean Sea to Greece, and she wants Greece to set up large registration camps that would allow recognized refugees to be settled across the EU. But with the chancellor’s approach making little headway, many European policy makers say they have only until March to reduce the numbers from the Middle East, South Asia and Africa who are arriving in the Continent’s core, mainly Germany. Soon, spring weather on the Aegean is expected to accelerate the arrivals, just as Ms. Merkel’s conservatives face state elections in which an anti-immigration party is poised for unprecedented gains. Within Ms. Merkel’s ruling coalition, demands to shut Germany’s own border are multiplying. Support for her open-door policy is waning abroad too. Even her ally Austria has announced an annual cap on asylum places.

Mounting political pressure around Europe to cut the numbers arriving, coupled with security fears about potential terrorists using the migrant trail, is leading to measures that could effectively redraw Europe’s border at the Balkans. In Macedonia, a small, impoverished ex-Yugoslav republic, officials warn that European governments are discussing a Plan B that would have the Macedonian-Greek border sealed off entirely, with the help of EU and Balkan countries further north. “We aren’t three months away, but weeks” from cutting off Greece, Macedonian Foreign Minister Nikola Poposki said in an interview. “Actually, this is the second-worst option, because the worst option isn’t doing anything, and then each of the [EU] member states would be sealing off its own borders,” he said.

“The last German politician under whom refugees were shot at was Erich Honecker..”

• German Police ‘Should Shoot At Migrants’, Populist Politician Says (BBC)

German police should “if necessary” shoot at migrants seeking to enter the country illegally, the leader of a right-wing populist party has said. Frauke Petry, head of the eurosceptic Alternativ fuer Deutschland (AfD) party, told a regional newspaper: “I don’t want this either. But the use of armed force is there as a last resort.” Her comments were condemned by leftwing parties and by the German police union. More than 1.1 million migrants arrived in Germany last year. Also on Saturday, German Chancellor Angela Merkel said most migrants from Syria and Iraq would go home once the wars in their countries had ended. She told a conference of her centre-right CDU party that tougher measures adopted last week should reduce the influx of migrants, but a European solution was still needed.

Police must stop migrants crossing illegally from Austria, Ms Petry told the Mannheimer Morgen newspaper (in German), and “if necessary” use firearms. “That is what the law says,” she added. A prominent member of the centre-left Social Democrats, Thomas Oppermann, said: “The last German politician under whom refugees were shot at was Erich Honecker” – the leader of Communist East Germany. Germany’s police union, the Gewerkschaft der Polizei, said (in German) officers would never shoot at migrants. It said Ms Petry’s comments revealed a radical and inhumane mentality. The number of attacks on refugee accommodation in Germany rose to 1,005 last year – five times more than in 2014.

Not PC. “They” are the enemy, not “We”.

• UK Labour MP Compares Cologne Attacks To Birmingham Night Out (Tel.)

The Labour MP Jess Phillips is facing calls to resign after comparing the organised sexual assaults committed by gangs of migrants in Cologne to the regular harassment of women on the streets of Birmingham. The city’s residents and business owners have hit back, saying her comments were “irresponsible, highly inaccurate and misleading”. Ms Phillips, the MP for Birmingham Yardley, suggested this week that the recent attacks in Germany are no different to the situation women find themselves in the centre of Birmingham. Her remarks have incensed locals who have called on her to resign from her post and “identify the error of her ways in what she said”. Mike Olley, manager of the West Side business improvement district, said that Birmingham’s Broad Street is “not like the Wild West”.

Speaking on BBC Radio 4’s Today programme, he said that sexual harassment is “not an institutionalised part of what goes on there” On New Year’s Eve in Cologne, Germany, dozens of women found themselves trapped in a crowd of around 1,000 men, who groped them, tore off their underwear, and shouted lewd insults. German authorities have since said that almost all of the New Year’s Eve sex attackers have a “migrant background”. Superintendent Andy Parsons, Police Commander for Central Birmingham, said that Ms Phillips’ comments “aren’t born out certainly in terms of crime statistics”. He added: “But I also appreciate it’s not just about statistics. I’ve got recent experience myself policing New Year on Broad Street, it was extremely busy and the atmosphere was one of celebration rather than one of sexual overtones.

“In a night time economy …there will be activity that is alcohol fuelled – but is it fair to compare it to incidents in Cologne on New Year? I don’t think it is.” However, some acknowledged that sexual harassment is a problem in the city. Michael Mclean, chairman of Broad Street Pub Watch said that sexual harassment is “something that we see and if I turned round and said that we didn’t, I’d be lying”. He went on: “Does it happen? Yes it does. Is it true what people are saying relating it to the cologne sex attacks? Absolutely not. The correlation between the two is a massive over exaggeration.”

Sutherland has consistently been that lonely civilized voice.

• The EU Must Reassert Humane Control Over Chaos Around The Mediterranean (UN)

by Peter Sutherland, UN’s special representative for migration

The European refugee debate reached a new nadir with a proposal to expel Greece from the Schengen zone and effectively transform it into an open-air holding pen for countless thousands of asylum seekers. The idea is not only inhumane and a gross violation of basic European principles; it also would prove vastly more costly than the alternative – a truly common EU policy that quells the chaos of the past year. Six countries have already reimposed border controls, and the European commission is preparing to allow them, and presumably others, to do the same for two years. The financial price of this alone is enormous – in the order of at least €40bn (including costs to fortify borders and those incurred by travellers and shippers). It would be much less expensive, financially and politically, to establish a common EU border and coastguard, and a functioning EU asylum agency.

This has proved to be, effectively, a zero-sum game. The rush by member states last year to seal their own perimeters left them unable to help shore up the EU’s external borders. They failed to send Greece the personnel and ships it had been promised. As such, the need for national border controls has become a self-fulfilling prophecy. A selfish, unilateral approach to borders constitutes a repeat of the tragedy of 2015, when EU member states individually spent about €40bn to address the crisis after it had reached European shores. In early 2015, the UN asked for a small fraction of that to feed, house and school the four million refugees in Turkey, Jordan, and Lebanon, but the international community and Europe failed to deliver (and many EU members still haven’t paid their share).

Unable to feed and educate their children, thousands of refugees ceded their savings to smugglers for a chance to reach Europe – precisely what you and I would have done had we been in their place. Europe cannot afford another such failure. The EU, working with the international community, must reassert humane control over the chaos around the Mediterranean. This entails immediate action on three fronts: first, raising the necessary tens of billions to allow refugees in frontline countries to live, work, and go to school there; states and the private sector must also help to create jobs both for refugees and natives through investments in the region and free-trade regimes.

Second, EU members must agree to accept several hundred thousand refugees directly from the region via safe, secure pathways and to match them to communities in Europe able to host them; failing to do this will alienate the frontline countries that bear most of the burden. Third, EU states must focus on creating a common-border regime, coastguard and asylum agency rather than return to the era of the Berlin Wall. The EU is hurtling towards disintegration, not due to some insurmountable challenge or outside force. It is instead succumbing to a self-induced panic that has paralysed its common sense. It is time to end the nightmare.

Debt Rattle October 17 2015

Oct 172015

October 17, 2015 Posted by Raúl Ilargi Meijer at 9:17 am Finance Tagged with: China, debt, deflation, EM, exports, immigration, living wage, manufacturing, poor, refugees, Turkey 3 Responses »

Wyland Stanley Indian guides and Nash auto at Covelo stables., Mendocino County CA 1925

• Last 30 Years Of Global Economic History Are About To Go Out The Window (Quartz)

• Nowhere in US Can A Single Adult Live On Less Than $14/Hr In 40-Hour Week (DK)

• US Manufacturing Falls for a Second Month (Bloomberg)

• US Export Industries Are Losing 50,000 Jobs A Month (Bloomberg)

• Wrath of Financial Engineering: It’s Now Eating into Earnings (WolfStreet)

• Megamergers Will Depend on Huge Amounts of Debt (Barron’s)

• China’s Exporters Downcast As Orders Slow, Costs Rise (Reuters)

• PBOC Data Suggest Capital Outflows Stayed Strong in September (Bloomberg)

• Good News Is Bad News for China (Bloomberg)

• Eurozone Inflation Confirmed At -0.1% In September (Reuters)

• Party Time Is Over For Norway’s Oil Capital – And The Country (Reuters)

• Africa’s Poor Grow By 100 Million Since 1990: World Bank (Reuters)

• Stress Building in Kenyan Credit Markets Spells Doom for Growth (Bloomberg)

• Ancient Rome and Today’s Migrant Crisis (WSJ)

• Immigrants To Account For 88% Of US Population Increase In Next 50 Years (Pew)

• Hungary Seals Border With Croatia to Stem Flow of Refugees (Bloomberg)

• Remote Greek Village Becomes Doorway To Europe (Omaira Gill)

• Turkey Pours Cold Water On Migrant Plan, Ridicules EU (AFP)

“..the story of fast Chinese growth—a story that has soothed investors and corporate managers around the world since the 1980s—is looking increasingly tough to square with the evidence. ..”

• Last 30 Years Of Global Economic History Are About To Go Out The Window (Quartz)

Over the last 30 years, a near constant flow of cash has inundated China and other emerging markets. It has lifted those economies, pulled hundreds of millions of people out of poverty, and dictated corporate expansion plans worldwide. That wave is now ebbing. This year will see the first net outflow of capital from emerging markets in 27 years, according to the Institute of International Finance, a trade group representing international bankers. The group expects more than $500 billion worth of cash previously invested in things like Chinese factories, Brazilian government bonds, and Nigerian stocks to cascade out of such markets this year. What’s going on? In a word: China. In a profound change of narrative for both the global economy and markets that are closely tied to it, the story of fast Chinese growth—a story that has soothed investors and corporate managers around the world since the 1980s—is looking increasingly tough to square with the evidence.

And it’s even tougher to imagine anything else like China—a billion new consumers joining the global economy—emerging any time soon. Of course, the slowdown in China isn’t confined to China. Over the last 30 years, countries worldwide have built their economies to service the needs of the People’s Republic. Brazil would be a case in point. The South American giant has done a brisk business digging up and selling China the iron needed to feed booming steel mills. (Brazil is the world’s second largest iron ore exporter, behind Australia.) But Chinese steel mills aren’t roaring like they used to. Crude steel production fell 2% during the first eight months of the year, a decline unprecedented in data going back roughly 20 years. As Chinese steel plants cooled, iron ore prices fell sharply. At roughly $55 a tonne, iron ore prices are down 60% from where they were at the end of 2013. And as prices for iron plummeted, so did revenues of big iron-ore exporters such as Brazil.

“..In no state is a living wage less than $14.26 per hour..”

• Nowhere in US Can A Single Adult Live On Less Than $14/Hr In 40-Hour Week (DK)

You read that right. Alliance for a Just Society just released a report. In it they looked at living expenses in every state, for singles as well as families. This is an attempt to figure out what a reasonable living wage would be. What’s a “living wage”? The study’s definition includes the ability to pay for luxuries items like housing, child care, utilities and savings. The conclusions, while known anecdotally by virtually every American (sans conservatives), are still chilling: Though $15 per hour is significantly higher than any minimum wage in the country, it is not a living wage in most states. A living wage was calculated for all 50 states and for Washington DC In 35 states and in Washington DC, a living wage for a single adult is more than $15 per hour. In no state is a living wage less than $14.26 per hour.

In fact, nationally, the living wage for a single adult is $16.87 per hour ($35,087 annually) – the weighted average of single adult living wages for all 50 states and Washington, D.C. Some of the people who have it the hardest? Childcare workers. In 2014, 582,970 people worked as child care providers at a median wage of $9.48 per hour. Let’s put it into perspective. According to the study, in order to get by on minimum wage as it is in each state right now, you would have to work an almost 111 hour week in Hawaii. You’d be better off in Virginia, where for $7.25 it would only take a touch over 103 hours a week to get by. IF YOU ARE SINGLE. If you’re a real lazybones or don’t like a little hard work, you can move to Washington or South Dakota where you only have to work for about 67 and half hours a week to get by.

Ominous.

• US Manufacturing Falls for a Second Month (Bloomberg)

Factory output fell in September for a second month as high inventories and lukewarm demand from overseas customers kept American producers bogged down. The 0.1% drop at manufacturers, which make up 75% of all production, followed a revised 0.4% decrease the prior month, a Federal Reserve report showed Friday. Total industrial production, which also includes mines and utilities, dropped 0.2%. A surge in the dollar since mid-2014 has made U.S. products more expensive in foreign markets at the same time the oil industry cuts back and companies contend with bloated stockpiles. Manufacturing’s woes are only partially being cushioned by steady purchases of automobiles that have led consumer spending in underpinning the economy.

“Manufacturing continues to be kind of soft,” said Joshua Shapiro at Maria Fiorini Ramirez in New York. “It’s a combination of weak foreign demand and inventories getting rebalanced. I’d expect another few months of flat-to-down manufacturing output.” Utility output climbed 1.3% for a second month as warmer September weather boosted demand for air conditioning. Mining production, which includes oil drilling, slumped 2%, the most in four months. Oil and gas well drilling decreased 4%. [..] manufacturing accounts for about 12% of the economy. The previous month’s reading was revised from a 0.5% drop.

“The drag from job losses in export industries will linger on for some time at least.” Considering export-oriented jobs are among the better paying ones, that’s a pretty sobering forecast.”

• US Export Industries Are Losing 50,000 Jobs A Month (Bloomberg)

Employment is taking a dive in industries that sell a lot of U.S.-made goods abroad, and things could get worse before they get better. The double whammy to exports from the stronger dollar and cooling overseas markets was bound to hit employment in the world’s largest economy. JPMorgan has put numbers to the damage. Export-oriented industries have been losing about 50,000 jobs a month for most of this year, after adding 9,000 a month on average in 2014, according to JPMorgan economist Jesse Edgerton. Recent manufacturing surveys hint the impact could worsen, and the employment erosion may extend into the first half of 2016, he predicts. In effect, that would mean private payrolls growth takes a step down to around 150,000 a month, from the booming 250,000-plus average of 2014.

“Employment is declining in industries exposed to exports, and we haven’t seen any sign the decline is slowing down,” Edgerton said. “The drag from job losses in export industries will linger on for some time at least.” Considering export-oriented jobs are among the better paying ones, that’s a pretty sobering forecast. U.S. jobs supported by goods exports, for example, pay as much as 18% more than the national average, according to government estimates. At a time of increased concern that growth is losing momentum, a strong labor market backed by jobs that pay well is key to sustaining consumer spending, the biggest part of the economy. Edgerton has pieced out the hit to employment, which isn’t easy to gauge from the Labor Department’s monthly payrolls report.

He developed a way to measure the share of each industry’s output that is exported, both directly and indirectly through sales to other industries that cater to overseas demand. Using that, he worked out how payrolls are faring in those businesses compared with counterparts that focus on the U.S. market. Trends in the top four industries with the largest export share — transportation equipment excluding motor vehicles; machinery; computer and electronic products; and primary metals — offer another reason for concern, Edgerton said. Payrolls have been slowing for decades in capital-intensive manufacturing businesses that dominate exports. So there’s little reason to expect export jobs will see a return to positive territory.

“..companies’ ability to pay these interest expenses, as measured by the interest coverage ratio, dropped to the lowest level since 2009. Companies also have to refinance that debt when it comes due.”

• Wrath of Financial Engineering: It’s Now Eating into Earnings (WolfStreet)

Companies with investment-grade credit ratings – the cream-of-the-crop “high-grade” corporate borrowers – have gorged on borrowed money at super-low interest rates over the past few years, as monetary policies put investors into trance. And interest on that mountain of debt, which grew another 4% in the second quarter, is now eating their earnings like never before. These companies – according to JPMorgan analysts cited by Bloomberg – have incurred $119 billion in interest expense over the 12 months through the second quarter. The most ever. With impeccable timing: for S&P 500 companies, revenues have been in a recession all year, and the last thing companies need now is higher expenses.

Risks are piling up too: according to Bloomberg, companies’ ability to pay these interest expenses, as measured by the interest coverage ratio, dropped to the lowest level since 2009. Companies also have to refinance that debt when it comes due. If they can’t, they’ll end up going through what their beaten-down brethren in the energy and mining sectors are undergoing right now: reshuffling assets and debts, some of it in bankruptcy court. But high-grade borrowers can always borrow – as long as they remain “high-grade.” And for years, they were on the gravy train riding toward ever lower interest rates: they could replace old higher-interest debt with new lower-interest debt. But now the bonanza is ending. Bloomberg:

As recently as 2012, companies were refinancing at interest rates that were 0.83 percentage point cheaper than the rates on the debt they were replacing, JPMorgan analysts said. That gap narrowed to 0.26 percentage point last year, even without a rise in interest rates, because the average coupon on newly issued debt increased. Companies saved a mere 0.21 percentage point in the second quarter on refinancings as investors demanded average yields of 3.12% to own high-grade corporate debt – about half a percentage point more than the post-crisis low in May 2013.

That was in the second quarter. Since then, conditions have worsened. Moody’s Aaa Corporate Bond Yield index, which tracks the highest-rated borrowers, was at 3.29% in early February. In July last year, it was even lower for a few moments. So refinancing old debt at these super-low interest rates was a deal. But last week, the index was over 4%. It currently sits at 3.93%. And the benefits of refinancing at ever lower yields are disappearing fast. What’s left is a record amount of debt, generating a record amount of interest expense, even at these still very low yields. “Increasingly alarming” is what Goldman’s credit strategists led by Lotfi Karoui called this deterioration of corporate balance sheets. And it will get worse as yields edge up and as corporate revenues and earnings sink deeper into the mire of the slowing global economy.

But these are the cream of the credit crop. At the other end of the spectrum – which the JPMorgan analysts (probably holding their nose) did not address – are the junk-rated masses of over-indebted corporate America. For deep-junk CCC-rated borrowers, replacing old debt with new debt has suddenly gotten to be much more expensive or even impossible, as yields have shot up from the low last June of around 8% to around 14% these days. Yields have risen not because of the Fed’s policies – ZIRP is still in place – but because investors are coming out of their trance and are opening their eyes and are finally demanding higher returns to take on these risks. Even high-grade borrowers are feeling the long-dormant urge by investors to be once again compensated for risk, at least a tiny bit.

More financial engineering to come:

• Megamergers Will Depend on Huge Amounts of Debt (Barron’s)

History doesn’t repeat, but it often rhymes, as Mark Twain may (or may not) have said. And one of those repetitions is the preponderance of megamergers and acquisitions late in economic expansions and bull markets, which are the results of confidence brimming over in C-suites and the sense that opportunities are endless. And so the announcement of not one but two megadeals—privately held Dell mating with data-storage outfit EMC, and Anheuser-BuschInBev linking up with fellow brewer SABMiller —provoked a spate of commentary that they represented some fin-de-cycle phenomenon. As usual, these nuptials are expected to produce that most desired benefit of such unions: often-elusive synergies. That’s mainly a euphemism for cost-cutting, largely through reduced head counts, rather than the rare phenomenon of one plus one adding up to three, something seen mainly in the consultant community, not the real world.

But what really drives deals isn’t so much what’s happening with companies’ stocks as with the credit markets. And the Dell-EMC and AB InBev-SABMiller nuptials, if approved by regulators, will be made possible by nearly $120 billion from the corporate bond and loan markets. The brewers’ $106 billion merger reportedly would involve some $70 billion of borrowing, including about $55 billion in bonds and the rest in loans. The $67 billion Dell-EMC deal, meanwhile, would be funded by $49.5 billion in debt, along with new common equity and cash in the coffers. If either of those financing plans come to fruition, they would eclipse the record set by Verizon, which issued $49 billion in bonds to fund its acquisition of Vodafone’s minority stake in Verizon Wireless. The question is whether there is any limit to what Carl Sagan would describe as the billions and billions that the credit markets can conjure. The answer may determine how long the deal making can continue.

The amount of overindebted overinvestment across China based on false expectations of growth will prove to be staggering and often deadly.

• China’s Exporters Downcast As Orders Slow, Costs Rise (Reuters)

Around two-thirds of exporters at China’s largest trade fair expect the slowdown in their markets to persist for at least six months, a Reuters poll has found, with the country expected to announce its weakest economic growth in decades early next week. Many economists expect data released on Monday to show China’s third quarter GDP dipped below 7%, the slowest rate since the global financial crisis. A weak showing could possibly prompt Beijing to take more steps to stimulate the economy. In the vast, booth-filled halls of the biannual Canton Fair on the banks of the Pearl River in Guangzhou this week, a poll of 103 mostly small to medium sized Chinese manufacturers found they expected orders to rise an average of 1.83% this year, though production costs were expected to rise 5.6% in the coming 12 months.

“I feel great pressure right now,” said Kelvin Qiu, the manager of a factory making heaters and radiators based in northeastern China. “I have around 40% less customers than before and the fair is quieter,” he said, comparing activity with the previous Canton fair in April. The Canton fair draws tens of thousands of Chinese exporters and foreign buyers into one gargantuan venue, and has long been regarded as barometer for an economy that has been the world’s biggest exporter since 2009. The poll’s results reflect a gathering pessimism in the export sector, a major driver of the world’s second largest economy. A similar Reuters survey in April had been more bullish, as it showed expectations that orders would rise 3.1%. Exports, however, fell 5.5% in August and 3.7% in September, reflecting anaemic global demand for China-made goods.

36% of exporters polled saying they expected a fresh wave of factory closures. 36% also said they expected an export rebound within 6 months, though 32% said the export slowdown would persist for over one year given continued weakness in core markets like Europe and the United States. Since the previous Canton Fair in April, China’s stock market crash and surprise currency depreciation have clouded the economic outlook, with Beijing taking a series of desperate measures – including interest rate cuts and ramped up fiscal spending – to galvanize growth. Its efforts have had limited success so far. China’s dominance as an exporter has been undermined by its previously strengthening currency, soaring labor costs, and a strategic shift by the authorities away from an excessive reliance on exports to domestic consumption.

Beijing in a bind.

• PBOC Data Suggest Capital Outflows Stayed Strong in September (Bloomberg)

Chinese financial institutions including the central bank sold a record amount of foreign exchange in September, a sign capital outflows were more severe last month than was previously thought. The offshore yuan fell to a two-week low. A gauge of their foreign-currency assets declined by the equivalent of 761.3 billion yuan ($120 billion), exceeding an August drop of 723.8 billion yuan, People’s Bank of China data showed Friday. China devalued its currency on Aug. 11 and concerns about further depreciation and slowing economic growth, coupled with the prospect of a U.S. interest-rate increase, are spurring outflows of funds.

“This shows although outflows probably did slow in September from August, they didn’t slow as much as previously expected,” said Chen Xingdong, chief China economist at BNP Paribas in Beijing. “If you look at commercial banks and the central bank as a unit, in August the central bank took more of the outflows and in September commercial banks took more.” Previous data showed the decline in the central bank’s foreign reserves moderated last month, giving rise to speculation that pressure for the yuan to weaken had eased from August. The holdings declined by $43.3 billion to $3.51 trillion, after sliding a record $93.9 billion the previous month, as the PBOC sold dollars to support China’s exchange rate.

This sounds like a death sentence: “..debt will increase to 254% of GDP in 2015, up from 248% last year.” 46% of GDP was investment, not production.

• Good News Is Bad News for China (Bloomberg)

On Monday, the Chinese government will once again try to convince the world its troubled economy is not that bad off after all. Third-quarter GDP data will be released, and whether the growth rate beats or misses consensus estimates, it’s likely to be touted by the government as proof of the economy’s continued resilience. No doubt that’ll help further calm investors, whose worst fears about China have ebbed recently. Overly bearish perceptions of China’s economy have become “thoroughly divorced from facts on the ground” proclaims the latest China Beige Book study. In a survey conducted in October by Bank of America-Merrill Lynch, only 39% of fund managers queried considered China the biggest “tail risk,” down significantly from 54% a month earlier.

Those investors shouldn’t get too comfortable. The panic that roiled global stock and currency markets over the summer may well have been overblown. But the real risks to China’s economic well-being are long-term, and they haven’t diminished. In fact, the strong growth rates could be setting the stage for a harder landing later. Even the regime agrees that China’s economy is seriously flawed. Excess capacity is rampant in steel, cement and other industries. Debt has risen to astronomical levels. The growth model China used during its hyper-charged decades — unleashing productivity by tossing its 1.3 billion poor workers into the global supply chain – has lost steam as costs rise and the workforce ages.

How well is China tackling these problems? Not very. Debt continues to rise even as growth slows. IHS Global Insight estimates debt will increase to 254% of GDP in 2015, up from 248% last year. In all-too-many sick industries, zombie companies are being kept afloat by creditors and the government. Deeper free-market reform is needed to spur entrepreneurship and innovation and better allocate financial resources to the most efficient companies. Yet despite much talk from President Xi Jinping and his Communist Party comrades, progress has been glacial. The government’s new plan to improve the performance of bloated state enterprises is underwhelming.

Authorities have done little to make the banking sector more commercially oriented or to open the economy to greater foreign competition or capital flows. The government’s heavy-handed intervention to quell a mid-summer stock market swoon was rightly seen a step backwards. Above all, the economy needs to “rebalance” away from its unhealthy reliance on investment – which according to Goldman Sachs’ Ha Jiming, totaled 46% of GDP last year, more than during Mao’s disastrous Great Leap Forward.

Bad data.

• Eurozone Inflation Confirmed At -0.1% In September (Reuters)

Annual inflation in the euro zone turned negative in September due to sharply lower energy prices, the EU’s statistics office confirmed on Friday, maintaining pressure on the ECB to increase its asset purchases to boost prices. Eurostat said consumer prices in the 19 countries sharing the euro fell by 0.1% in the year to September, dipping below zero for the first time since March, and confirming its earlier estimate. Compared to the previous month, prices were 0.2% higher in September. Eurostat said milk, cheese and eggs were cheaper, while heating oil and motor fuel stripped almost a full percentage point from the annual rate. Restaurants and cafes, vegetables and tobacco had the biggest upward impact.

Excluding the most volatile components of unprocessed food and energy – what the ECB calls core inflation – prices were 0.8% up year-on-year, slightly down from the previous reading of 0.9%. Month-on-month, they rose 0.4%. Long term inflation expectations have dropped to their lowest since February, before the ECB’s asset purchases started, as China’s economic slowdown, the commodity rout and paltry euro zone lending growth reinforce pessimistic predictions. Under its money-printing quantitative easing scheme, the ECB is buying government bonds and other assets to pump around €1 trillion into the economy, aiming to lift inflation towards its target rate of just under 2%.

Race to the bottom.

• Party Time Is Over For Norway’s Oil Capital – And The Country (Reuters)

In Norway’s oil capital Stavanger, house prices are falling, unemployment is rising and orders of champagne and sushi sprinkled with gold are down – a taste of things to come for the rest of the country as slumping crude prices hit the economy. The oil-producing nation used to be the exception in Europe. At the height of the financial crisis in 2009, unemployment reached just 2.7%; when other nations have had to cut welfare spending, Oslo could rely on its $856-billion sovereign wealth fund to plug any budget deficit. But now it is joining the rest of Europe in its economic slump as oil prices have halved. GDP growth is expected to stagnate at 1.2% in 2015 and 2016. And the government expects to make its first ever net withdrawal from the fund next year as state oil revenues decline with crude prices.

“It is a new era for the Norwegian economy. We are no longer in a league of our own,” Governor Oeystein Olsen said when the central bank unexpectedly cut rates to 0.75% on Sept. 24 to support a slowing economy. Business conditions for companies in Stavanger and the surrounding region got even worse in the third quarter and the weaker sentiment is spreading to firms outside the energy industry, a survey said in September. Demand is lower and profitability is down, it said. Boosting competitiveness has been the mantra of the right-wing minority government of Prime Minister Erna Solberg, which is proposing to cut corporate tax to boost firms’ international competitiveness. Norway as an exception was most on show in Stavanger, the country’s fourth-largest city, with its compact center of white wooden houses and oil industry ships anchored in the harbor. It enjoyed the good times more than anywhere else.

“Citizens of resource-rich countries tended to be less literate, live 4.5 years less and have higher rates of malnutrition among women and children than other African states..”

• Africa’s Poor Grow By 100 Million Since 1990: World Bank (Reuters)

The number of Africans trapped in poverty has surged by around 100 million over the past quarter century, the World Bank said on Friday, despite years of economic growth and multi-million dollar aid programs. The report’s figures, described as “staggering” by the bank’s Africa head Makhtar Diop, showed widespread malnutrition, and rising violence against civilians, particularly in central regions and the Horn of Africa. “It is projected that the world’s extreme poor will be increasingly concentrated in Africa,” Diop added in a foreword. A surge in population meant the proportion of Africans in poverty had actually fallen since 1990, but the actual numbers were up. In a major study of households taking stock of African economies and societies after two decades of relatively strong growth, the Bank said 388 million – 43% of the sub-Saharan region’s 900 million people – lived on less than $1.90 a day.

In 1990, at the start of the study period, the ratio was 56%, or 284 million. The findings present a mixed bag for countries that, on average, enjoyed economic growth of 4.5% over the last two decades, dubbed the era of ‘Africa Rising’ in contrast to the post-independence stagnation, war and decay that typified the 1970s and 1980s. A child born in Africa now is likely to live more than six years longer than one born in 1995, the study found, while adult literacy rates over the same period have risen 4 percentage points. However, the Bank defined Africa’s social achievements as “low in all domains” – for instance, tolerance of domestic violence in Africa is twice as high as other developing regions – and noted that the rates of improvement were leveling off.

“Despite the increase in school enrolment, today more than two out of five adults are unable to read or write,” the report said. “Nearly 2 in 5 children are malnourished and 1 in 8 women is underweight,” it continued. “At the other end of the spectrum, obesity is emerging as a new health concern.” Perhaps most disturbingly, the study presented more evidence of the ‘resource curse’ that afflicts states endowed with plentiful reserves of hydrocarbons or minerals, often the source of internal or external conflict, or corruption and government ineptitude. Citizens of resource-rich countries tended to be less literate, live 4.5 years less and have higher rates of malnutrition among women and children than other African states, the study found.

Weaker emerging markets will be hit hardest.

• Stress Building in Kenyan Credit Markets Spells Doom for Growth (Bloomberg)

Doubts are growing about Kenya’s ability to keep economic growth on the boil as it battles a plunging stock market, surging debt costs and a weaker currency. Kenyan shilling bonds have lost more money this month than the local securities of 31 emerging markets, while equities in East Africa’s largest economy dropped the most out of 93 global indexes. Efforts to stabilize the shilling have sucked liquidity out of foreign exchange and money markets, spurring a scurry for cash that is driving short-term borrowing costs higher just as the central bank takes over the management of two lenders. An economic expansion that outstripped peers in sub-Saharan Africa since 2011 is slowing as attacks by Islamist militants decimate Kenya’s tourism industry and a drought cuts exports of tea, the two largest sources of foreign exchange.

As President Uhuru Kenyatta’s administration ramps up spending on transport and energy projects to keep fueling growth, budget and current-account deficits are swelling and interest rates are rising. “It’s not looking like there will be an inflexion point for the better any time soon,” Bryan Carter at Acadian Asset Management, who cut all his Kenya bond holdings earlier this year, said by phone from Boston. “The currency looks overvalued.” Yields on short-term Treasury bills have surged above longer-dated bonds, an anomaly known as an inverted yield curve that signals investors are more concerned about near-term repayment risks than economic prospects further out. Rates on 91-day T-bills jumped to 21.4% at an auction on Oct. 8, a record high. That compares with yields of 14.6% on 21 billion shillings ($204 million) of bonds maturing in March 2025.

The inverted curve is “indicative of short-term funding stress in the economy, which is typically followed by a slowdown of credit growth and cyclical economic growth,” Chris Becker at Investec in Johannesburg, said in a note. The World Bank cut its estimate for 2015 growth in Kenya to 5.4% on Thursday, compared with a December forecast of 6%, saying volatility in foreign-exchange markets and the subsequent monetary policy response will curb output. Kenya’s shilling has weakened 12% against the dollar this year amid a rout in emerging-market currencies. The central bank’s Monetary Policy Committee countered by raising the benchmark rate 300 basis points to 11.5%. Investors have been unnerved by the seizure of two small banks in as many months. Regulators placed Imperial Bank under administration on Tuesday, the same day the closely held lender was due to start trading bonds on the Nairobi Securities Exchange.

Great historical perspective.

• Ancient Rome and Today’s Migrant Crisis (WSJ)

When ancient Romans looked back to their origins, they told two very different stories, but each had a similar message. One founder of the Roman race was Aeneas, a refugee from the losing side in the Trojan War, who endured storm and shipwreck around the Mediterranean before landing in Italy to establish his new home. The other was Romulus who, in order to find citizens for the little settlement he was building on the banks of the Tiber, declared it an “asylum” and welcomed any runaways and criminals who wanted to join. It was a remarkable story even in antiquity. Some of Rome’s enemies were known to have observed sharply that you could never trust men descended from a band of ruffians.

In the past 500 years, politicians in the West have often returned to ancient Rome and ancient Greece in search of models for their own decisions and policies (or, more often, for self-serving justifications). On questions of citizenship, they have found two wildly conflicting examples. The stories told by the democracy of ancient Athens were typical of the Greek cities. When they looked back to their origins, they imagined that the first Athenians sprang directly out of the soil of Athens itself. The difference was significant. The Athenians rigidly restricted the rights of citizenship, eventually insisting that people should have both a citizen father and a citizen mother to qualify. Ancient democracy came at a price: It was only possible to share political power equally if you severely limited those who were to be allowed to be equals and to join the democratic club.

That is a price that many European democracies are now wondering whether they must pay too. Rome was never a democracy in the Athenian sense. The Roman Empire, brutal as it could often be, was founded on very different principles of incorporation and of the free movement of people. Over the first thousand years of its history, from the eighth century B.C., it gradually shared the rights and protection of full Roman citizenship with the people that it had conquered, turning one-time enemies into Romans. That process culminated in 212 A.D., when the emperor Caracalla made every free inhabitant of the empire a citizen—perhaps 30 million people at once, the single biggest grant of citizenship in the history of the world.

When the Romans looked back to their beginnings, they saw themselves as a city of asylum seekers. John F. Kennedy, in his “Ich bin ein Berliner” speech in the middle of the Cold War, praised ideas of Roman citizenship as an inspiration for Western liberty. “Two thousand years ago,” he said, “the proudest boast was ‘civis Romanus sum’”: that is, “I am a Roman citizen.” He was referring to the freedoms guaranteed by citizen status, particularly rights of legal protection and, in the Roman context, immunity from particularly degrading forms of punishment, including crucifixion.

And a great future perspective.

• Immigrants To Account For 88% Of US Population Increase In Next 50 Years (Pew)

Fifty years after passage of the landmark law that rewrote U.S. immigration policy, nearly 59 million immigrants have arrived in the United States, pushing the country’s foreign-born share to a near record 14%. For the past half-century, these modern-era immigrants and their descendants have accounted for just over half the nation’s population growth and have reshaped its racial and ethnic composition. Looking ahead, new Pew Research Center U.S. population projections show that if current demographic trends continue, future immigrants and their descendants will be an even bigger source of population growth.

Between 2015 and 2065, they are projected to account for 88% of the U.S. population increase, or 103 million people, as the nation grows to 441 million. These are some key findings of a new Pew Research analysis of U.S. Census Bureau data and new Pew Research U.S. population projections through 2065, which provide a 100-year look at immigration’s impact on population growth and on racial and ethnic change. In addition, this report uses newly released Pew Research survey data to examine U.S. public attitudes toward immigration, and it employs census data to analyze changes in the characteristics of recently arrived immigrants and paint a statistical portrait of the historical and 2013 foreign-born populations.

More footage of razor wire and news of drowning children. Europe is completely lost.

• Hungary Seals Border With Croatia to Stem Flow of Refugees (Bloomberg)

Hungary will seal its border with Croatia from midnight on Friday, expanding one of the European Union’s toughest set of measures to stem the influx of refugees, Foreign Minister Peter Szijjarto said in Budapest. “This is the second-best option,” Szijjarto told reporters. “The best option, setting up an EU force to defend Greece’s external borders, was rejected in Brussels yesterday.” An EU summit on Thursday failed to reach a final agreement on recruiting Turkey to help control the flow of refugees as Russia’s bombing campaign in Syria threatens to push more people to seek safety. The bloc’s leaders also made little progress on how to redesign the system of distributing immigrants, forming an EU border-guard corps or on ensuring arrivals are properly processed.

Hungary has extended an existing barbed-wire fence on its border with Serbia to cover its frontier with Croatia. Prime Minister Viktor Orban warned this week that his government would complete the barrier if EU leaders fail to agree on closing the Greek border, the main entry point for Syrian and other Middle Eastern refugees into the 28-nation bloc. Croatia will now help transport migrants to its border with Slovenia, in agreement with its northwestern neighbor, Croatian Deputy Prime Minister Vesna Pusic told state TV late Friday. From Slovenia refugees are likely to travel to Austria and on to Germany. “Slovenia will not close its border unless Germany closes its border, in which case Croatia will be forced to do the same,” Pusic said. “We will discuss with Slovenia the number of people we can bring to them.”

More than 180,000 migrants have entered Croatia from Serbia since they started arriving in mid-September, according to police data. Most of them have since left the country to Hungary, while a minority entered Slovenia as they seek to reach western European countries. Several eastern European countries are trying to avoid hosting migrants and are against mandatory quotas for the distribution of refugees within the EU. More than 380,000 asylum seekers have crossed into Hungary from the western Balkans this year and the number may reach 700,000 by the end of 2015, government spokesman Zoltan Kovacs told reporters in Budapest on Friday. From Saturday, refugees won’t be able to enter Hungary from Croatia except at designated border crossings.

“..on an average day around 5,000 people make the crossing..” That’s 150,000 a month. 1.8 million a year. Just one border crossing.

• Remote Greek Village Becomes Doorway To Europe (Omaira Gill)

Idomeni is a small village sitting within comfortable walking distance of Greece’s border with Macedonia. The 2011 census put its population at just 154 inhabitants. The locals themselves tell you there is nothing remarkable about the place, except for the stream of refugees flocking to this outpost to cross into Macedonia. Yiannis Panagiotopoulos, an Athenian taxi driver recently ferried a newly arrived group of Syrians from Athens to Idomeni. “They were so well dressed. I asked for €1,000 expecting them to protest, and they immediately paid me in cash. The were Coptic Christians and said Saudi Arabia is giving each non-Muslim $2,000 and a smartphone to leave because they want Syria for Muslims only.” Everyone wants to get to Idomeni, and if you can’t afford a taxi, there are plenty of unofficial buses that’ll take you there for €35.

The buses are more or less an illegal operation. Certain cafes near Victoria Square sell the tickets for cash, no receipts, and the trip that should take five and a half hours ends up taking nine because of various meandering detours to avoid rumored police checkpoints. Along the way, service stations have bumped up their prices to cash in on this unexpected windfall. At one, hot meals carry a starting price of eight euros, an extortionate amount for crisis-era Greece. Sitting in the front of one such coach, crammed to the last seat as children sleep on coats laid in the aisle, was 34-year-old Yahyah Abbas from Aleppo in Syria. Before the war, he used to work in a cosmetics distribution company. Now, he said, there is nothing in Syria, “only the devil.” “Syria was the best country in the world. It was ruined by terrorists. I love Bashar al Assad, he is the best. But I cannot live in my country because of terrorists.”

[..] After months of chaos and violent scenes at the border this summer the operation at the border has now fallen into an efficient routine that works “most of the time,” Greek authorities say. The border with Macedonia opens every 15 minutes to accept a group of 50-80 people. When the buses finally arrive at Idomeni, they offload passengers at a rate relevant to the pace of the crossings. Greek police issue each bus load with a number for their group which represents the order in which they will cross. They estimate that on an average day around 5,000 people make the crossing. Volunteers meet the groups straight off the bus and direct them to food, water, toiletries, clothes and medical attention. Then, they wait in huge white UNHCR tents until their turn comes.

“They announce they’ll take in 30,000 to 40,000 refugees and then they are nominated for the Nobel for that. We are hosting two and a half million refugees but nobody cares..”

• Turkey Pours Cold Water On Migrant Plan, Ridicules EU (AFP)

The EUs much-hyped deal with Turkey to stem the flow of migrants looked shaky on Friday after Ankara said Brussels had offered too little money and mocked Europe’s efforts to tackle the refugee crisis. Just hours after the EU announced the accord with great fanfare at a leaders’ summit, Ankara said the plan to cope with a crisis that has seen some 600,000 mostly Syrian migrants enter the EU this year was just a draft. Cracks in the deal emerged as Bulgaria’s president apologised after an Afghan refugee was shot dead crossing the border from Turkey. In the latest in a series of jabs at Europe over the crisis, Turkish President Recep Tayyip Erdogan ridiculed the bloc’s efforts to help Syrian refugees and challenged it to take Ankaras bid for EU membership more seriously.

“They announce they’ll take in 30,000 to 40,000 refugees and then they are nominated for the Nobel for that. We are hosting two and a half million refugees but nobody cares,” said Erdogan. Turkish Foreign Minister Feridun Sinirlioglu then slammed an offer of financial help made by top European Commission officials during a visit on Wednesday, saying his country needed at least €3 billion in the first year of the deal. “There is a financial package proposed by the EU and we told them it is unacceptable,” Sinirlioglu told reporters, adding that the action plan is “not final” and merely “a draft on which we are working.” Under the tentative agreement, Turkey had agreed to tackle people smugglers, cooperate with EU border authorities and put a brake on refugees fleeing the Syrian conflict from crossing by sea to Europe.

In exchange, European leaders agreed to speed up easing visa restrictions on Turkish citizens travelling to Europe and give Ankara more funds to tackle the problem, although it did not specify how much. As he announced the agreement on Thursday night, European Council President Donald Tusk had hailed the pact as a “major step forward” but warned that it “only makes sense if it effectively contains the flow of refugees.” European officials said they were still waiting for concrete steps from Turkey and said that the €3 billion demanded by Ankara would be a problem for the EUs 28 member states. Even as the summit was underway, the volatile situation on the EUs frontier with Turkey exploded into violence with the fatal Bulgarian border shooting, which the UN refugee agency said was the first of its kind.

The victim was among a group of 54 migrants spotted by a patrol near the southeastern town of Sredets close to the Turkish border and was wounded by a ricochet after border guards fired warning shots into the air, officials said. The migrants were not armed but they did not obey a police order to stop and put up resistance, they said. Bulgarian president Rosen Plevneliev said he “deeply regrets” the shooting but said it showed the need for “rapid common European measures to tackle the roots of the crisis.” The death adds to the toll of over 3,000 migrants who have died while trying to get to Europe this year, most of them drowning in the Mediterranean while trying to sail across in rubber dinghies or flimsy boats.

Debt Rattle May 17 2015

May 172015

May 17, 2015 Posted by Raúl Ilargi Meijer at 10:35 am Finance Tagged with: Amazon, arctic, Banks, bubble, crash, debt, equality, gold, Greece, IMF, manufacturing, pope, recession, ZIRP 2 Responses »

Harris&Ewing Painless Dentist, Washington, DC 1918

• Most of US Domestic Manufacturing Now in Technical Recession (Tonelson)

• When Fools Rush In… (Reuters)

• The Coming Crash of All Crashes – but in Debt (Martin Armstrong)

• Are You Ready For The Coming Debt Revolution? (Bill Bonner)

• Exit Strategy, Part One: ZIRP (Mehrling)

• Why Most Gold Bugs Are Dead Wrong (Jim Rickards)

• US Wakes Up To New -Silk- World Order (Pepe Escobar)

• Tsipras Told Lagarde Greece Could Not Pay IMF (Kathimerini)

• Alexis’s Choice (Macropolis)

• German EconMin Says Greece Can Only Get More Aid If It Reforms (Reuters)

• Top German Judge Says Greece Has Valid Claim Over WWII Forced Loan (Kathimerini)

• The 2012 Greek-German Breakthrough That Didn’t Come (Kathimerini)

• Banks Rule the World, but Who Rules the Banks? (Katasonov)

• Pope Francis Extends Agenda Of Change To Vatican Diplomacy (Reuters)

• China’s Amazon Railway Threatens ‘Uncontacted Tribes’ And Rainforest (Guardian)

• ‘Paddle in Seattle’ Arctic Oil Drilling Protest Targets Shell (BBC)

• Early Human Societies Had Gender Equality (Guardian)

Not looking good.

• Most of US Domestic Manufacturing Now in Technical Recession (Tonelson)

[..] the durable goods sub-sector – which represents more than half of domestic manufacturing – entered a technical recession (six months or more of cumulative real output decline), and several industries within durable goods extended their slumps. Here are the manufacturing highlights of the Federal Reserve’s new release on April industrial production:

• According to the Fed, constant dollar manufacturing production in April topped March’s level by just 0.01%. March’s real manufacturing output growth was revised up from 0.13% to 0.29%, but February’s initially revised 0.22% decrease was revised down to a 0.24% drop.

• As a result, after-inflation manufacturing output is 0.54% smaller than last November. Moreover, since January, this production has advanced by only 0.05%.

• The April Fed figures also show that durable goods manufacturing entered a technical recession (with real production down cumulatively by 0.32% since October), and such downturns grew longer in several critical durable goods sub-sectors. In particular,

• although inflation-adjusted automotive output rose by a healthy 1.30% on month in April, its production is still 4.22% lower than in July, 2014;

• thanks to a 0.85% monthly decrease in real output in April, machinery production is now down 0.52% since last August;

“The thing about bubbles is that speculators often realize stocks are overpriced, but think they’ll get out before the crash.”

• When Fools Rush In… (Reuters)

If you want to see the greater fool theory in action, look no further than at what’s happening in the stock market. Since the year 2000 the average small-cap stock in the Russell 2000 Index is up 151% while the average blue chip in the Dow Jones Industrial Average has gained only 57%. As a result, small-cap stocks now seem absurdly overpriced. According to investment research firm MSCI, the average small-cap stock’s price-earnings ratio is 29. The historical average P/E for stocks is about 15.

That’s why GMO, a well-respected mutual fund shop, recently put out one of its grimmest forecasts for small stocks — returns of -1% annualized for the next seven years or -3.2% after deducting inflation. High quality blue chips, by contrast, are expected to deliver 2.7% a year. Yet investors keep pouring money into small-caps. According to Morningstar, small-cap exchange traded funds have experienced $3.3 billion in inflows in 2015 while large-cap ones have seen $35.9 billion in outflows in 2015. The thing about bubbles is that speculators often realize stocks are overpriced, but think they’ll get out before the crash. Both fools and angels know that’s always easier said than done.

“Banks will give secured car loans at around 4% while their cost of funds is really 0%. This is the widest spread since the Panic of 1899.”

• The Coming Crash of All Crashes – but in Debt (Martin Armstrong)

Why are governments rushing to eliminate cash? During previous recoveries following the recessionary declines from the peaks in the Economic Confidence Model, the central banks were able to build up their credibility and ammunition so to speak by raising interest rates during the recovery. This time, ever since we began moving toward Transactional Banking with the repeal of Glass Steagall in 1999, banks have looked at profits rather than their role within the economic landscape. They shifted to structuring products and no longer was there any relationship with the client. This reduced capital formation for it has been followed by rising unemployment among the youth and/or their inability to find jobs within their fields of study.

The VELOCITY of money peaked with our ECM 1998.55 turning point from which we warned of the pending crash in Russia. The damage inflicted with the collapse of Russia and the implosion of Long-Term Capital Management in the end of 1998, has demonstrated that the VELOCITY of money has continued to decline. There has been no long-term recovery. This current mild recovery in the USA has been shallow at best and as the rest of the world declines still from the 2007.15 high with a target low in 2020, the Federal Reserve has been unable to raise interest rates sufficiently to demonstrate any recovery for the spreads at the banks between bid and ask for money is also at historical highs. Banks will give secured car loans at around 4% while their cost of funds is really 0%. This is the widest spread between bid and ask since the Panic of 1899.

We face a frightening collapse in the VELOCITY of money and all this talk of eliminating cash is in part due to the rising hoarding of cash by households both in the USA and Europe. This is a major problem for the central banks have also lost control to be able to stimulate anything.The loss of traditional stimulus ability by the central banks is now threatening the nationalization of banks be it directly, or indirectly. We face a cliff that government refuses to acknowledge and their solution will be to grab more power – never reform.

“..grandparents prey on their grandchildren..”

• Are You Ready For The Coming Debt Revolution? (Bill Bonner)

There is a specter haunting America… and all the developed nations of the world. It is the specter of a debt revolution. We left off yesterday talking about how the economy of the last 30 years – and especially that of the last six years – has favored the old over the young. “Rise up, ye young’uns,” we as much as said, “you have nothing to lose but your parents’ debts.” We showed how the value of U.S. corporate equity, mainly held by older people, had multiplied by 28 times since 1981. That was no honest bull market in stocks; it was a market sent soaring by an explosion of credit. But what did it do for young people whose only assets are their time and their youthful energy? Alas, the real economy has increased by only five times over the same period.

And when you look more closely at work and wages, the specter grows grimmer and more menacing. Average hourly wages have barely budged in the last 30 years. And average household incomes have fallen – from $57,000 to $52,000 – in the 21st century. But as our fingers came to rest yesterday, there was one question hanging in the air, like the smoke from an exploded hand grenade: Why? Was this huge shift – of trillions of dollars of wealth from young working people to old asset holders – an accident? Was it just the maturing of a market economy in the electronic age? Was it because China took the capitalist road in 1979? Or because robots were competing with young people for jobs? Nope… on all three counts.

First, old people, not young people, control government. Ultra-wealthy campaign funders like Sheldon Adelman and the Koch brothers were all born in the 1930s. The big money comes from wealthy geezers like these, eager to buy candidates early in the season when they are still relatively cheap. Old companies fund most Washington lobbyists, too. And old people decide elections: There are a lot of them… and they vote. They know where the money is. Second, the government – doing the bidding of old people – restricts competition, subsidizes well-entrenched industries, raises the cost of employing young people, and directs its bailouts, cheap credit, and contracts to the graybeards. Third, the credit-based money system increases the profits and prices of existing capital. It encourages borrowing and spending.

This rewards the current generation while pushing the costs into the future. None of this was an accident. None of it would have happened without the active intervention of the old folks, using the government to get what they could never have gotten honestly. This is not the same as saying they were completely aware of what they were doing and what consequences their actions would have. We doubt the Nixon administration had any idea what would happen after it tore up the Bretton Woods monetary system in 1971. It was behind the eight ball, fearing foreign governments would call away America’s gold. Few in the White House realized they had made such a calamitous mistake when the president ended the convertibility of the dollar into gold.

And yet it created a world in which parents and grandparents could prey on their grandchildren… for the next 44 years. And it’s still not over. The new credit money – which could be borrowed into existence with no need for any savings or gold backing – was just what old people needed. We have estimated that it increased spending by about $33 trillion over and above what the old, gold-backed system would have allowed.

Rates must rise first.

• Exit Strategy, Part One: ZIRP (Mehrling)

The Fed has announced plans to raise rates in the imminent future, but the market does not believe it. Why not? Conventional wisdom appears to be that the Fed will chicken out, just as it did during the so-called Taper Tantrum. The Fed has signaled its appreciation that “liftoff” will involve increased volatility, and has stated its resolve this time simply to let that volatility happen, but markets don’t believe it. I want to suggest a slightly different source of disconnect, concerning expectations about what exactly will happen in the monetary plumbing when the Fed raises rates. Case in point is the recent Credit Suisse memo, apparently the first of a series, that forecasts “a much larger RRP facility–think north of a trillion” whereas the FOMC itself “expects that it will be appropriate to reduce the capacity of the [RRP] facility soon after it commences policy firming”.

That’s a pretty big disconnect. Pozsar and Sweeney (authors of the CS memo) think about the exit from ZIRP (Zero Interest Rate Policy) from the perspective of wholesale money demand, which they insist is “a structural feature of the system” and “the dominant source of funding in the US money market”. Before the crisis, that money demand was funding the shadow banking system, largely through the intermediation of repo dealer balance sheets. Now, it is funding the Fed’s balance sheet, largely through the intermediation of prime money funds and US bank balance sheets, both of which issue money-like liabilities and invest the proceeds in excess reserves held at the Fed. The big problem that now looms is that neither prime money funds nor banks want that business any more.

Capital regulations have made the bank side of the business unprofitable, and looming requirements that prime money funds mark to market (so-called floating NAV rather than constant NAV) will force them out of the business as well. Where is that money demand going to go? Pozsar and Sweeney say it will go directly to the Fed, causing the swelling of the Reverse Repo Facility pari passu with the shrinking of excess reserves. The mechanism will be a shift from prime money funds and bank deposits into government-only money funds, which will absorb the flow by accumulating RRP.

In other words, the Fed will not be able to shrink its balance sheet as part of this first stage of exit from quantitative easing. It will only be able to shift the way that balance sheet is funded–much less excess reserves held by banks, much more RRP held by government-only money funds. Nevertheless, because this shift will allow the Fed to regain control over the Fed Funds rate, it will accept that consequence. Exit from ZIRP comes before exit from QE.

“China is not trying to destroy the old boys’ club — they are trying to join it.”

• Why Most Gold Bugs Are Dead Wrong (Jim Rickards)

One of the most persistent story lines among gold bugs and market participants who foresee the collapse of the dollar goes something like this: China and many emerging markets including the other BRICS are looking for a way out of the global fiat currency system. That system is dominated today by the U.S. dollar. This dollar dominance allows the U.S. to force certain kinds of behavior in foreign policy and energy markets. Countries that don’t comply with U.S. wishes find themselves frozen out of global payment systems and find their banks unable to transact in dollars for needed imports or to get paid for their exports. Russia, Iran, and Syria have all been subjected to this treatment recently. China does not like this system any more than Russia or Iran but is unwilling to confront the U.S. head-on.

Instead, China is quietly accumulating massive amounts of gold and building alternative financial institutions such as the Asia Infrastructure Investment Bank, AIIB, and the BRICS-sponsored New Development Bank, NDB. When the time is right, China will suddenly announce its actual gold holdings to the world and simultaneously turn its back on the Bretton Woods institutions such as the IMF and World Bank. China will back its currency with its own gold and use the AIIB and NDB and other institutions to lead a new global financial order. Russia and others will be invited to join the Chinese in this new international monetary system. As a result, the dollar will collapse, the price of gold will skyrocket, and China will be the new global financial hegemon. The gold bugs will live happily ever after. The only problem with this story is that the most important parts of it are wrong. As usual, the truth is much more intriguing than the popular version.

Here’s what’s really going on. As with most myths, parts of the story are true. China is secretly acquiring thousands of tons of gold. China is creating new multilateral lending institutions. No doubt, China will announce an upward revision in its official gold holdings sometime in the next year or so. In fact, Bloomberg News reported on April 20, 2015, under the headline “The Mystery of China’s Gold Stash May Soon Be Solved,” that “China may be preparing to update its disclosed holdings…” But the reasons for the acquisition of gold and the updated disclosures, if they happen, are not the ones the blogosphere believes. China is not trying to destroy the old boys’ club — they are trying to join it.

Precious little has been reported on Kerry’s trip to Sochi, even though it was a big turnaround.

• US Wakes Up To New -Silk- World Order (Pepe Escobar)

The real Masters of the Universe in the U.S. are no weathermen, but arguably they’re starting to feel which way the wind is blowing. History may signal it all started with this week’s trip to Sochi, led by their paperboy, Secretary of State John Kerry, who met with Foreign Minister Lavrov and then with President Putin. Arguably, a visual reminder clicked the bells for the real Masters of the Universe; the PLA marching in Red Square on Victory Day side by side with the Russian military. Even under the Stalin-Mao alliance Chinese troops did not march in Red Square. As a screamer, that rivals the Russian S-500 missile systems. Adults in the Beltway may have done the math and concluded Moscow and Beijing may be on the verge of signing secret military protocols as in the Molotov-Ribbentrop pact.

The new game of musical chairs is surely bound to leave Eurasian-obsessed Dr. Zbig “Grand Chessboard” Brzezinski apoplectic. And suddenly, instead of relentless demonization and NATO spewing out “Russian aggression!” every ten seconds, we have Kerry saying that respecting Minsk-2 is the only way out in Ukraine, and that he would strongly caution vassal Poroshenko against his bragging on bombing Donetsk airport and environs back into Ukrainian “democracy”. The ever level-headed Lavrov, for his part, described the meeting with Kerry as “wonderful,” and Kremlin spokesman Dmitry Peskov described the new U.S.-Russia entente as “extremely positive”.

So now the self-described “Don’t Do Stupid Stuff” Obama administration, at least apparently, seems to finally understand that this “isolating Russia” business is over – and that Moscow simply won’t back down from two red lines; no Ukraine in NATO, and no chance of popular republics of Donetsk and Lugansk being smashed, by Kiev, NATO or anybody else. Thus what was really discussed – but not leaked – out of Sochi is how the Obama administration can get some sort of face-saving exit out of the Russian western borderland geopolitical mess it invited on itself in the first place.

Who leaks what, and why?

• Tsipras Told Lagarde Greece Could Not Pay IMF (Kathimerini)

The Greek government is hoping that it will be able to reach a technical agreement with lenders this week, paving the way for it to receive the funds that would allow it to continue meeting its obligations. The difficulty the coalition is facing in servicing its debt and paying pensions and salaries was highlighted by events a few days ago, when – as Kathimerini can reveal – Prime Minister Alexis Tsipras wrote to IMF Managing Director Christine Lagarde to inform her that Athens would not be able to pay the €750 million due to the Fund on May 12 unless the ECB allowed Greece to issue T-bills. Kathimerini understands that the letter, sent on Friday, May 8, was also delivered to European Commission President Jean-Claude Juncker and ECB President Mario Draghi.

Sources also said that Tsipras called US Treasury Secretary Jack Lew to inform him of the situation. It was only over the weekend that a decision to pay the IMF was taken after it emerged that Greece could use some €650 million denominated in Special Drawing Rights issued by the IMF and held in a reserve account to meet the debt repayment. The government provided another €90 millions from other sources to make the payment on May 12. An internal IMF memo leaked by Channel 4 in the UK indicated that Fund officials see Greece’s negotiations with its lenders as being finely balanced. They note that some progress has been made but that the “process is still problematic” as Greek negotiators seem to have “limited room” for maneuver and staff at the institutions do not have access to ministers in Athens.

The note sees progress in the areas of value-added tax, tax administration and an insolvency framework but says that there have been no advances at all in other areas, including on setting new fiscal targets. The IMF officials also express concern that the government is reversing some of the reforms implemented in previous years, especially in terms of the labor market. The memo also raises again the issue of the sustainability of Greece’s debt, saying that there is an “inverse relationship” between the reforms being asked of Greece and the sustainability of its debt. The note, however, says that the Fund is not “pushing European partners to consider a debt relief.”

He had always already chosen his path.

• Alexis’s Choice (Macropolis)

Alexis Tsipras seems to have chosen his path. Whether he will manage to reach the end of it is another matter, but the prime minister’s decision to shake up Greece’s negotiating team and to issue a common statement with European Commission President Jean-Claude Juncker last week made it clear that he prefers the option of agreeing with lenders rather than being left in limbo, or worse. Securing a deal will be some feat. The suggestion last week that the red lines on pensions and labour market reform may be crossed would mean Tsipras entering treacherous territory. It is worth remembering that less than six months ago, his predecessor Antonis Samaras was unwilling – or not able – to pass pension and labour reforms through Parliament, triggering the early presidential election and national vote.

If Tsipras is somehow able to agree to a package that includes policies in these two areas, but is also able to pass it through Parliament and keep his government intact, he will have perhaps completed the most impressive balancing act in modern Greek political history. Whether he is able to do it will depend on the content of the agreement. If most of the measures agreed are seen as restoring fairness in the way that the burden of Greece’s fiscal and structural adjustment is shared, he will have some grounds to argue with SYRIZA MPs and members that the compromise is worth making and the anxiety of the last few months has not been in vain.

However, while the party may accept some of the measures – even the creation of a single VAT rate of around 18% for almost all goods and services – it is difficult to imagine SYRIZA’s most radical personalities sitting back and accepting changes that will affect the majority of pensioners or working Greeks. There is a world of difference between slashing high-end supplementary pensions and having to implement a zero deficit rule that will lead to all of these auxiliary payments being cut or abolished – even though the vast majority come to less than €200 per month. Once Tsipras and his party go behind closed doors to mull the details of an agreement with the institutions (if one actually comes about), there can be no guarantee of what state they will be in when they come out.

There may be a mass walkout, or a few of the more principled or ideologically driven MPs could decide to turn their back on the prime minister. The first scenario would probably lead to the collapse of the government (Tsipras is unlikely to turn to PASOK or Potami to save his administration), while the second would allow the wounded prime minister to hobble on. The third option of holding a referendum to throw the decision back to the Greek electorate is a popular idea among many within SYRIZA but is unlikely to be a risk that Tsipras wants to take.

Regurgitating parrots.

• German EconMin Says Greece Can Only Get More Aid If It Reforms (Reuters)

German Economy Minister Sigmar Gabriel warned the Greek government that Greece could only get further funds if it carried out reforms in a German newspaper interview published on Sunday. Greece’s cash reserves are dwindling and negotiations between Prime Minister Alexis Tsipras’s new left-led government and its lenders over a cash-for-reforms deal have been fraught with delays for months. Asked if Greece could still be saved, Gabriel told Bild am Sonntag that this was up to Athens and said a referendum on the necessary reforms could perhaps speed up decisions. On Monday German Finance Minister Wolfgang Schaeuble suggested Greece might need a referendum to approve painful economic reforms on which its creditors are insisting, but Athens said it had no such plan for now.

Gabriel stressed that the government needed to take action in any case: “A third aid package for Athens is only possible if the reforms are implemented. We can’t simply send money there.” He warned about the consequences of Greece quitting the single currency bloc, saying: “A Greek exit would not only be highly dangerous economically but also politically.” Gabriel said if one country were to leave the euro zone, the rest of the world would look at Europe differently: “Nobody would have any confidence in Europe anymore if we break up in our first big crisis. We shouldn’t talk ourselves into a Grexit.”

There are videos playing in Athens subway stations that deal with war reparations.

• Top German Judge Says Greece Has Valid Claim Over WWII Forced Loan (Kathimerini)

A top German judge has said that Greece has a just claim in its demands for Berlin to repay a loan Athens was forced to issue its Nazi occupiers during World War II. In an interview with Der Spiegel magazine published on Saturday, Dieter Deiseroth, a judge at the Supreme Administrative Court, said that the Greek claim for compensation regarding the money given by the Bank of Greece (estimated at some 11 billion euros in today’s money) has a strong basis as “there’s a lot of evidence to suggest it was a loan.” Deiseroth also argued that private claims for compensation are also valid. “Greece has not waived its demands,” said the judge, who added that an absence of legal action from Athens so far does not constitute an abandoning of claims.

Part 3 in a series on Merkel and Greece.

• The 2012 Greek-German Breakthrough That Didn’t Come (Kathimerini)

Even after the formation of the pro-bailout government under Antonis Samaras following the June 2012 elections, eurozone hawks continued to press for a clean break from Greece. The same pressure was also being applied within the German government: The “infected limb” camp, led by Finance Minister Wolfgang Schaeuble, tried to convince Chancellor Angela Merkel that a Greek exit from the eurozone was not only manageable but also in Europe’s long-term interest. This was the time the so-called Plan Z (leaked to the Financial Times last year) was also put forward. The circle of officials who knew about this contingency plan for handling a Greek eurozone exit was tiny. Joerg Asmussen, Germany’s former state secretary at the Finance Ministry and a member of the ECB’s executive board since the start of 2012, was one of its main overseers.

Asmussen had briefed Merkel on the plan, but the Chancellery had played no role in designing it. In the opposing camp were those who feared a domino effect, arguing that a Greek exit would lead to the collapse of the eurozone. Asmussen and Merkel’s former adviser, Bundesbank chief Jens Weidmann, told the chancellor that they could not know which of the two camps was right. They questioned whether it was possible to shield Portugal from possible Grexit. Merkel became convinced that the risks of a rupture were unpredictably high. By the time she returned from her summer hiking holiday in northern Italy in mid-August, the chancellor had decided to put an end to all discussion of a Greek exit. However, she still needed a partner in Athens she could count on. A few days later she was due to meet with Samaras in Berlin, to ascertain whether he was someone she could do business with.

A circle jerk that leaves the highest levels invisible.

• Banks Rule the World, but Who Rules the Banks? (Katasonov)

These days, it is already a truism that the hegemony of the US is based on the Federal Reserve System’s (FRS) printing press. It is also more or less clear that the shareholders of the FRS are major international banks. These include not just US (Wall Street) banks, but also European banks (London City banks and several in continental Europe). During the 2007-2009 global financial crisis, the FRS quietly gave out more than $16 trillion worth of credit (virtually interest free) to various banks. The owners of the money gave out the credit to themselves, that is to the main shareholder banks of the Federal Reserve. Under strong pressure from US Congress, a partial audit of the FRS was carried out at the beginning of this decade and the results were published in the summer of 2011. The list of credit recipients is also a list of the FRS’ main shareholders.

They are as follows (the amount of credit received is shown in brackets in billions of dollars): Citigroup (2,500); Morgan Staley (2,004); Merrill Lynch (1,949); Bank of America (1,344); Barclays PLC (868); Bear Sterns (853); Goldman Sachs (814); Royal Bank of Scotland (541); JP Morgan (391); Deutsche Bank (354); Credit Swiss (262); UBS (287); Leman Brothers (183); Bank of Scotland (181); and BNP Paribas (175). It is interesting that a number of the recipients of FRS credit are not American, but foreign banks: British (Barclays PLC, Royal Bank of Scotland, Bank of Scotland); Swiss (Credit Swiss, UBS); the German Deutche Bank; and the French BNP Paribas. These banks received nearly $2.5 trillion from the Federal Reserve. We would not be mistaken in assuming that these are the Federal Reserve’s foreign shareholders.

While the makeup of the Federal Reserve’s main shareholders is more or less clear, however, the same cannot be said of the shareholders of those banks who essentially own the FRS’ printing press. Who exactly are the shareholders of the Federal Reserve’s shareholders? To begin with, let us take a good look at the leading US banks. Six banks currently represent the core of the US banking system. The ‘big six’ includes Bank of America, JP Morgan Chase, Morgan Stanley, Goldman Sachs, Wells Fargo, and Citigroup. They occupy the top spots in US bank ratings in terms of indices such as amount of capital, controlled assets, deposits attracted, capitalisation and profit. If we were to rank the banks in terms of assets, then JP Morgan Chase would be in first place ($2,075 billion at the end of 2014), while Wells Fargo is in the lead in terms of capitalisation ($261.7 billion in the autumn of 2014).

In terms of this index, incidentally, Wells Fargo came out on top not only in America, but in the world (although in terms of assets, the bank is only fourth in America and does not even figure in the world’s top twenty). There is some shareholder information on the official websites of these banks. The bulk of the big six US banks’ capital is in the hands of so-called institutional shareholders – various financial companies. These include banks, which means there is cross shareholding. At the beginning of 2015, the number of institutional shareholders of each bank were: Bank of America – 1,410; JP Morgan Chase – 1,795; Morgan Stanley – 826; Goldman Sachs – 1,018; Wells Fargo – 1,729; and Citigroup – 1,247. Each of these banks also has a fairly clear group of major investors (shareholders). These are investors (shareholders) with more than one per cent of capital each and there are usually between 10 and 20 such shareholders. It is striking that exactly the same companies and organisations appear in the group of major investors for every bank.

Above all parties, and above all politics. A unique position.

• Pope Francis Extends Agenda Of Change To Vatican Diplomacy (Reuters)

Pope Francis’ hard-hitting criticisms of globalization and inequality long ago set him out as a leader unafraid of mixing theology and politics. He is now flexing the Vatican’s diplomatic muscles as well. Last year, he helped to broker an historic accord between Cuba and the United States after half a century of hostility. This past week, his office announced the first formal accord between the Vatican and the State of Palestine — a treaty that gives legal weight to the Holy See’s longstanding recognition of de-facto Palestinian statehood despite clear Israeli annoyance. The pope ruffled even more feathers in Turkey last month by referring to the massacre of up to 1.5 million Armenians in the early 20th century as a “genocide”, something Ankara denies.

After the inward-looking pontificate of his scholarly predecessor, Pope Benedict, Francis has in some ways returned to the active Vatican diplomacy practiced by the globetrotting Pope John Paul II, widely credited for helping to end the Cold War. Much of his effort has concentrated on improving relations between different faiths and protecting the embattled Middle East Christians, a clear priority for the Catholic Church. However in an increasingly fractured geopolitical world, his diplomacy is less obviously aligned to one side in a global standoff between competing blocs than that of John Paul’s 27-year-long papacy.

This is reinforced by his status as the world’s first pope from Latin America, a region whose turbulent history, widespread poverty and love-hate relationship with the United States has given him an entirely different political grounding from any of his European predecessors. “Under this pope, the Vatican’s foreign policy looks South,” said Massimo Franco, a prominent Italian political commentator and author of several books on the Vatican. He said the pope has been careful to avoid taking sides on issues like Ukraine, where he has never defined Russia as an aggressor, but has always referred to the conflict between the government and Moscow-backed rebels as a civil war.

China buys the world as its economy is self-destructing. How do you explain that to your grandchildren?

• China’s Amazon Railway Threatens ‘Uncontacted Tribes’ And Rainforest (Guardian)

Chinese premier Li Keqiang is to push controversial plans for a railway through the Amazon rainforest during a visit to South America next week, despite concerns about the possible impact on the environment and on indigenous tribes. Currently just a line on a map, the proposed 5,300km route in Brazil and Peru would reduce the transport costs for oil, iron ore, soya beans and other commodities, but cut through some of the world’s most biodiverse forest. The six-year plan is the latest in a series of ambitious Chinese infrastructure projects in Latin America, which also include a canal through Nicaragua and a railway across Colombia. The trans-Amazonian railway has high-level backing.

Last year, President Xi Jinping signed a memorandum on the project with his counterparts in Brazil and Peru. Next week, during his four-nation tour of the region starting on Sunday, Li will, according to state-run Chinese media, suggest a feasibility study. Starting near Açu Port in Rio de Janeiro state, the proposed track would connect Brazil’s Atlantic coast with Peru’s Pacific coast, via the states of Goiás, Mato Grosso and Rondônia. The logistical challenges are considerable because the line will pass through dense forest, swamps and then either desert or mountains (there are two options for the Peruvian end of the route), as well as areas of conflict between tribes and drug traffickers.

Near the Bolivian border, it will come close to the “Devil’s Railway”, an ill-fated link built in 1912 between Porto Velho in Brazil and Guajará-Mirim in Bolivia. It cost 6,000 lives and was barely used after the collapse of the rubber industry. Financing is likely to come from the China Development Bank, with construction carried out by local firms and the China International Water and Electric Corporation. China’s involvement is partly explained by a desire to reduce freight costs, but it also hopes to create business for domestic steel and engineering firms that have been hit by the slowdown of the Chinese economy.

Done deal. Unless prices go to $20.

• ‘Paddle in Seattle’ Arctic Oil Drilling Protest Targets Shell (BBC)

Hundreds of people in kayaks and small boats have staged a protest in the north-western US port city of Seattle against oil drilling in the Arctic by the Shell energy giant. Paddle in Seattle was held by activists who said the firm’s drilling would damage the environment. It comes after the first of Shell’s two massive oil rigs arrived at the port. The firm wants to move them in the coming months to explore for oil off Alaska’s northern coast. Earlier this week, Shell won conditional approval from the US Department of Interior for oil exploration in the Arctic. The Anglo-Dutch company still must obtain permits from the federal government and the state of Alaska to begin drilling. It says Arctic resources could be vital for supplying future energy needs.

A solar-powered barge – The People’s Platform – joined the protesters, who chanted slogans and also sang songs. “This weekend is another opportunity for the people to demand that their voices be heard,” Alli Harvey, Alaska representative for the Sierra Club’s Our Wild America campaign, was quoted as saying by the Associated Press news agency. “Science is as clear as day when it comes to drilling in the Arctic – the only safe place for these dirty fuels is in the ground.” The protesters later gathered in formation and unveiled a big sign which read “Climate justice now”. They mostly stayed outside the official 100-yard (91m) buffer zone around the Polar Pioneer, the Seattle Times newspaper reports. Police and coastguard monitored the flotilla, saying it was peaceful.

The demonstrators are now planning to hold a day of peaceful civil disobedience on Monday in an attempt to shut down Shell operations in the port, the newspaper adds. The port’s Terminal 5 has been at the centre of a stand-off between environmentalists and the city authorities after a decision earlier this year to allow Shell use the terminal as a home base for the company’s vessels and oil rigs. Shell stopped Arctic exploration more than two years ago after problems including an oil rig fire and safety failures. The company has spent about $6bn on exploration in the Arctic – a region estimated to have about 20% of the world’s undiscovered oil and gas.

Agriculture killed off women’s equal status. And we’re still paying a dear price for that.

• Early Human Societies Had Gender Equality (Guardian)

Our prehistoric forebears are often portrayed as spear-wielding savages, but the earliest human societies are likely to have been founded on enlightened egalitarian principles, according to scientists. A study has shown that in contemporary hunter-gatherer tribes, men and women tend to have equal influence on where their group lives and who they live with. The findings challenge the idea that sexual equality is a recent invention, suggesting that it has been the norm for humans for most of our evolutionary history. Mark Dyble, an anthropologist who led the study at University College London, said: “There is still this wider perception that hunter-gatherers are more macho or male-dominated. We’d argue it was only with the emergence of agriculture, when people could start to accumulate resources, that inequality emerged.”

Dyble says the latest findings suggest that equality between the sexes may have been a survival advantage and played an important role in shaping human society and evolution. “Sexual equality is one of a important suite of changes to social organisation, including things like pair-bonding, our big, social brains, and language, that distinguishes humans,” he said. “It’s an important one that hasn’t really been highlighted before.” The study, published in the journal Science, set out to investigate the apparent paradox that while people in hunter-gatherer societies show strong preferences for living with family members, in practice the groups they live in tend to comprise few closely related individuals.

The scientists collected genealogical data from two hunter-gatherer populations, one in the Congo and one in the Philippines, including kinship relations, movement between camps and residence patterns, through hundreds of interviews. In both cases, people tend to live in groups of around 20, moving roughly every 10 days and subsisting on hunted game, fish and gathered fruit, vegetables and honey. [..] The authors argue that sexual equality may have proved an evolutionary advantage for early human societies, as it would have fostered wider-ranging social networks and closer cooperation between unrelated individuals. “It gives you a far more expansive social network with a wider choice of mates, so inbreeding would be less of an issue,” said Dyble. “And you come into contact with more people and you can share innovations, which is something that humans do par excellence.”

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