tax Archives - The Automatic Earth

Too much debt and not enough money remain a diagnosis for deflation and not inflation. In particular, we need to discuss why fears of inflation persist in a world where the US central bank and the US commercial banking system are now both destroying money. When both these key engines of the reserve currency creation act to destroy money, there will ultimately be a contraction in broad money growth, the first since the 1930s, if nothing changes. This analyst thinks that matters, but few, if any, agree. At this stage the interesting evidence is that this dramatic tightening of monetary policy seems to matter more outside the USA than within.

From its peak in November 2017 the level of US bank credit, when we adjust for the systems acquisition of non-banks, has posted no growth. When a commercial banking system posts no growth in bank credit over four months, it creates no money over that period. It just so happens that this is the same four months during which the Federal Reserve has been contracting its balance sheet. Sticking to the Policy Normalisation Principles (PNP) and their addendum of June 2017, the Fed has been destroying money by shrinking its balance sheet. In the period from August 2017 to February 2018 there has been a shrinkage of US$105.2bn in commercial bank reserve balances: the high-powered money. Based on the PNP, a further US$20bn will have been destroyed in March 2018.

So with a commercial banking system creating no money, and a central bank destroying money, we are looking at one of the tightest monetary policies ever pursued by a central bank. To disagree with that statement is to believe that monetary policy is judged solely by the price of money, without reference to the quantity of money. Such was the belief that led to the Great Depression. At this stage the distress associated with this policy seems to be falling primarily upon non-US companies that have borrowed USD. This has huge consequences for investors.

EU is winner takes all.

• What Trump Gets Right About Europe’s Trade Problem (Pol.)

Donald Trump may prove to be the catalyst for change the eurozone has long been looking for. The protectionist U.S. president is forcing Europeans to face the unsettling problem of their massive current account surplus, which has been the best indicator of everything that’s wrong in the monetary union in the last five years. Forget Trump’s own economic analysis or lack thereof, and forget the attention-grabbing headlines on coming trade wars that may or may not happen. The U.S. president’s attacks on German exports — his Exhibit A that the Europeans aren’t playing a fair trade game — have helped throw a harsh light on the eurozone’s No. 1 problem.

Far from being a sign of economic well-being, the eurozone’s surplus — $380 billion last year or about 3% of the region’s GDP — reflects the monetary union’s deep structural flaws, worsened by the way it addressed its long crisis. [..] For a monetary union’s economy to be balanced, it has to take into account the differences between its respective nations’ different political, economic, and social systems. What happened instead when the euro crisis took everyone by surprise in 2009 was that each member country was told to become more like Germany. But for the system to work, if everyone must become like Germany, then Germany must also become a little bit less German. Surprise — this is not what happened. Countries in trouble were told to cut costs, boost competitiveness and implement austerity policies.

It worked: Imports fell and exports rose. Spain and Italy are now showing significant surpluses. In each of these countries, the balance has improved (from deficit to surplus) by roughly $100 billion since 2009 — the same as Germany’s accounts, which went from a $200 billion to $300 billion surplus. [..]According to European rules that are even less enforced than the more talked-about ones on fiscal deficits, a member country cannot run a surplus higher than 6% of its GDP. Germany’s surplus amounted to 8% of GDP last year, while the Netherlands’ was 8.5%. As long as the narrative of the eurozone crisis keeps making a surplus the moralistic sign of economic virtue, Europeans are unlikely to dare to take steps to tackle a problem that is now the world’s. Here’s hoping that the brutality of Trump’s attack on free trade will force them to spring into action.

Something will have to happen. But nothing has so far, so why the loud voices?

• “When You’re Already $500 Billion Down, You Can’t Lose!” (G.)

Fears that Donald Trump is embroiling America in a global trade war intensified on Wednesday after China imposed on the US and stock markets plunged. The Dow Jones industrial average dropped and then rallied after markets fell in Europe and Asia on worries of an intensifying trade conflict between the world’s two biggest economies – the latest example of Trump taking his appetite for disruption to the global stage. After Washington unveiled plans to impose tariffs on $50bn in Chinese imports Tuesday, China hit back with plans to tax a matching $50bn of US products, including beef, cars, planes, soybeans and whiskey.

The US president has worn stock market success as a badge of honour and proof that, despite myriad controversies, the economy is booming under his presidency. But there are concerns that his aggressive tariffs and “America first” instincts could undermine confidence and cause a slowdown. Trump claimed last month that “trade wars are good, and easy to win”. China is the biggest market for US soy. The American Soybean Association, a lobbying group representing 21,000 producers, warned that China’s proposed 25% tariff on soybeans would be “devastating” to American farmers. It estimated that farmers lost an estimated $1.72bn on Wednesday morning alone as soybean futures tumbled.

John Heisdorffer, an Iowa farmer and the president of the association, said: “That’s real money lost for farmers, and it is entirely preventable.” He called on the White House to scrap its proposed tariffs. The car makers Ford and General Motors also issued statements calling for continued dialogue to resolve the escalating trade tensions. On Wednesday, Trump moved to play down concerns over a damaging trade war. He protested on Twitter: “We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!” The president added: “When you’re already $500 Billion DOWN, you can’t lose!”

Did anyone tell the soybeans?

• Kudlow Says Trump’s China Tariffs Are Just Proposals Right Now (BBG)

White House economic adviser Larry Kudlow stressed U.S. tariffs announced on Chinese goods are still only proposals that might never take effect as the Trump administration sought to tamp down fears of a trade war. “None of the tariffs have been put in place yet, these are all proposals,” Kudlow said in an interview Wednesday with Bloomberg News. “We’re putting it out for comment. There’s at least two months before any actions are taken.” Administration officials throughout the day emphasized the U.S. is willing to negotiate with China, helping to ease concerns among investors about a tit-for-tat trade conflict. The Dow Jones Industrial Average, after falling more than 2% at the market’s open, finished the day up almost 1%.

Commerce Secretary Wilbur Ross said China’s response isn’t expected to disrupt the U.S. economy. In an interview on CNBC on Wednesday, he said China’s announcement of retaliatory tariffs against the U.S. “shouldn’t surprise anyone.” He said the U.S. isn’t entering “World War III” and left the door open for a negotiated solution. “Even shooting wars end with negotiations,” Ross said. Earlier Wednesday, China said it would impose an additional 25% levy on about $50 billion of U.S. imports including soybeans, automobiles, chemicals and aircraft. The move matched the scale of proposed U.S. tariffs announced the previous day. The U.S. is allowing 60 days for public feedback and hasn’t specified when the tariffs would take effect, leaving a window open for talks. Chinese Ambassador to the U.S. Cui Tiankai said Wednesday his country is ready to negotiate.

Keep that number growing. And when will the press acknowledge this is not about Cambridge Analytica?

• Up To 87 Million Facebook Users’ Data Shared With Cambridge Analytica (Ind.)

Up to 87 million people may have had their Facebook data improperly passed to a third-party political firm – and most users’ public profile information could have been collected, the social media company has revealed. Initial accounts estimated the number of people affected at around 50m. But Facebook updated that number to say information from as many as 37m additional users could been shared with Cambridge Analytica. And it warned in a blog post that a now-discarded feature meant “most people on Facebook” could have had their public data scraped by “malicious actors”.

The revelations expanded the scope of a privacy scandal besieging the company just days ahead of CEO Mark Zuckerberg’s hotly anticipated appearance before Congress. It had already been revealed that researcher harvested information encompassing a vast number of Facebook users and then passed it on to Cambridge Analytica, a company that went on to work for Donald Trump’s presidential campaign. The news has sent the company’s stock plunging and stoked a political outcry on both sides of the Atlantic. Facebook said it would inform users if their information had been funnelled to Cambridge Analytica. It said roughly 70 million of those users were in the United States.

And in seeking to reassure users that it was moving to safeguard their personal information, the company made an extraordinary disclosure: chief technology officer Mike Schroepfer said the majority of its users were vulnerable to abuse of a now-disabled feature allowing people to search for other users with phone numbers and email addresses. “Given the scale and sophistication of the activity we’ve seen, we believe most people on Facebook could have had their public profile scraped in this way”, Mr Schroepfer said in the blog post.

Insane. Will he get some serious questions on Capitol Hill, or can he get away with this sort of thing?

• Zuckerberg Says Most Facebook Users Will Only Get Privacy ‘In Spirit’ (Ind.)

Facebook CEO Mark Zuckerberg has said that new data privacy laws will only apply “in spirit” to more than three quarters of the company’s users. Europe’s General Data Protection Regulation (GDPR) will force the social network to comply with strict rules about the privacy of its European users. But Mr Zuckerberg failed to commit to rolling out the protections globally. “We’re still nailing down details on this, but it should directionally be, in spirit, the whole thing,” Mr Zuckerberg said on Tuesday. With only 17 per cent of its 2.2 billion users residing within Europe, the vast majority of Facebook’s users will not benefit from the new rules.

Facebook has faced pressure in recent weeks to better protect its users’ data following revelations that the data analytics firm Cambridge Analytica harvested personal information from more than 50 million Facebook accounts in the build up to the 2016 US elections. On Monday, New York City Comptroller Scott Stringer called for Mr Zuckerberg to resign from his role as chairman of Facebook, adding that data privacy issues represented “a risk to our democracy.” The new data protection law – set to come into effect on May 25 – will give people more control over how companies store and use their personal data.

Are you kidding? They all are. Stop working there.

• We Work For Google. Our Employer Shouldn’t Be In The Business Of War (G.)

Dear Sundar,

We believe that Google should not be in the business of war. Therefore we ask that Project Maven be cancelled and that Google draft, publicize and enforce a clear policy stating that neither Google nor its contractors will ever build warfare technology. Google is implementing Project Maven, a customized AI surveillance engine that uses “wide area motion imagery” data captured by US government drones to detect vehicles and other objects, track their motions and provide results to the Department of Defense. Recently, Googlers voiced concerns about Maven internally. Diane Greene responded, assuring them that the technology will not “operate or fly drones” and “will not be used to launch weapons”.

While this eliminates a narrow set of direct applications, the technology is being built for the military, and once it’s delivered it could easily be used to assist in these tasks. This plan will irreparably damage Google’s brand and its ability to compete for talent. Amid growing fears of biased and weaponized AI, Google is already struggling to keep the public’s trust. By entering into this contract, Google will join the ranks of companies like Palantir, Raytheon and General Dynamics. The argument that other firms, like Microsoft and Amazon, are also participating doesn’t make this any less risky for Google. Google’s unique history, its motto “don’t be evil”, and its direct reach into the lives of billions of users set it apart.

We cannot outsource the moral responsibility of our technologies to third parties. Google’s stated values make this clear: every one of our users is trusting us. Never jeopardize that. Ever. This contract puts Google’s reputation at risk and stands in direct opposition to our core values. Building this technology to assist the US government in military surveillance – and potentially lethal outcomes – is not acceptable. Recognizing Google’s moral and ethical responsibility, and the threat to Google’s reputation, we request that you: 1. Cancel this project immediately. 2. Draft, publicize and enforce a clear policy stating that neither Google nor its contractors will ever build warfare technology.

Falciani was assisting the Spanish government, and now they sold him out to get to two Catalonia separatists.

• World’s Most Wanted Bank Whistleblower Arrested for Worst Possible Reason (DQ)

Hervé Falciani, the French-Italian former HSBC employee who blew the whistle on HSBC and 130,000 global tax evaders in 2008, has been arrested in Madrid on Tuesday in response to an arrest warrant issued by Switzerland for breaking the country’s bank secrecy laws. He lives in France, which rarely extradites its own citizens. But when Spanish authorities learned that he was in town to speak at a conference ominously titled, “When Telling the Truth is Heroic,” they made their move. If he is extradited to Switzerland he could face up to five years in prison. Falciani worked as a computer technician for HSBC’s Swiss subsidiary. One day in 2008, he left the office with five computer disks containing what would eventually become one of the largest leaks of banking data in history.

According to Swiss authorities, Falciani stole and then attempted to sell a trove of confidential data. Falciani says he was a whistleblower who wanted to expose a “broken” banking system, “which encouraged tax evasion.” When much of the stolen data was leaked to the press in 2015, it revealed, among other sordid things, that HSBC’s Swiss subsidiary routinely allowed clients to withdraw “bricks of cash,” often in foreign currencies of little use in Switzerland. It also colluded with clients to conceal undeclared “black” accounts from their domestic tax authorities and provided services to international criminals, corrupt businessmen, shady dictators and murky arms dealers.

As Falciani would soon find out, snitching on one of the world’s biggest banks and 130,000 of its richest clients does not make you a popular person in a country famed for its banking secrecy. In 2014 he was indicted in absentia by the Swiss federal government for violating the country’s bank secrecy laws and for industrial espionage. A year later he was sentenced by Switzerland’s federal court to five years in prison – the “longest sentence ever demanded by the confederation’s public ministry in a case of banking data theft.”

All these bubbles will burst.

• Toronto’s Epic Housing Bubble Turns to Bust (WS)

After having ballooned for 18 years with barely a dip during the Financial Crisis, Toronto’s housing market, Canada’s largest, and among the most inflated in the world, is heading south with a vengeance, both in terms of sales volume and prices, particularly at the high end. Home sales in the Greater Toronto Area (GTA) plunged 39.5% in March compared to a year ago, to 7,228 homes, according to the Toronto Real Estate Board (TREB), the local real estate lobbying group. This was spread across all types of homes, even the formerly red-hot condo sector: • Detached houses -46.3% • Semi-detached houses -30.6% • Townhouses -34.2% • Condos -32.7%.

While new listings of homes for sale fell 12.4% year-over-year, at 14,866, they’d surged 41% from the prior month, and added to the listings of homes already on the market. The total number of active listings – new listings plus the listings from prior months that hadn’t sold or been pulled without having sold – more than doubled year-over-year to 15,971 homes, and were up 20% from February. At the current sales rate, total listings pencil out to a supply of 2.1 months. The average days-on-the-market before the home is sold or the listing is pulled without having sold doubled year-over-year to 20 days. Both data points show that the market is cooling from its red-hot phase, that potential sellers aren’t panicking just yet, and that potential buyers are taking their time and getting more reluctant, or losing their appetite altogether, with the fear of missing out (FOMO) having evaporated.

Sales volume has been plunging for months while listings of homes for sale have also surged for months. Prices follow volume, and prices have been backing off, but in February they actually fell on a year-over-year basis, the first since the Financial Crisis, and in March, they fell more steeply. This is what the report called a “change in market conditions.” The average price for the Greater Toronto Area (GTA) plunged 14.3% year-over-year to C$784,588. In other words, the average buyer in March a year ago is now about C$130,000 in the hole.

Better check this out if this is you.

• Tax Trouble For -Certain- Bitcoin Traders (F.)

What do you do, come April 17, if you made a ton of money trading crypto last year and have since lost most of it? Panic, probably. A lot of last year’s winners are in deep porridge now. They owe tax on 2017 profits. They’re losing money now, so it’s not easy to come up with the cash to pay off the IRS. As for using today’s losses to offset last year’s gains, these tax naïfs are discovering, too late, that capital loss carryovers run forwards but not backwards. Suppose speculator Bob turned $200,000 into $1 million in last year’s feverish market, trading all the way—in and out of Bitcoin and Ethereum and Ripple and back in again. Now Bob has $800,000 in short-term capital gain to report on Schedule D. The state and federal tax bill is going to be upwards of $300,000.

The 2018 crash has shrunk Bob’s account value, let us suppose, to $300,000. If Bob sells out to pay the tax, he will have a $700,000 capital loss to claim. But he can claim the loss only against future capital gains, not past ones. Small consolation: Bob can use the $700,000 against up to $3,000 a year of ordinary income. If he throws in the towel on cryptocurrencies and goes back to his day job delivering pizzas, it will take him 234 years to catch even. Tyson Cross, an attorney in Reno, Nev. who has built up a specialty in crypto taxation, has been hearing many a sad tale recently. “Some alt coins are down to a tenth or less of their peak value,” he says. “The taxpayers are distraught. They don’t have any way to pay [the tax bill]. There’s only so much we can do.”

There were no laws. Heroin was candy.

• How Advertising Shaped the First Opioid Epidemic (Smithsonian)

When historians trace back the roots of today’s opioid epidemic, they often find themselves returning to the wave of addiction that swept the U.S. in the late 19th century. That was when physicians first got their hands on morphine: a truly effective treatment for pain, delivered first by tablet and then by the newly invented hypodermic syringe. With no criminal regulations on morphine, opium or heroin, many of these drugs became the “secret ingredient” in readily available, dubiously effective medicines. In the 19th century, after all, there was no Food and Drug Administration (FDA) to regulate the advertising claims of health products. In such a climate, a popular so-called “patent medicine” market flourished.

Manufacturers of these nostrums often made misleading claims and kept their full ingredients list and formulas proprietary, though we now know they often contained cocaine, opium, morphine, alcohol and other intoxicants or toxins. Products like heroin cough drops and cocaine-laced toothache medicine were sold openly and freely over the counter, using colorful advertisements that can be downright shocking to modern eyes. Take this 1885 print ad for Mrs. Winslow’s Soothing Syrup for Teething Children, for instance, showing a mother and her two children looking suspiciously beatific. The morphine content may have helped. Yet while it’s easy to blame patent medicines and American negligence for the start of the first opioid epidemic, the real story is more complicated.

First, it would be a mistake to assume that Victorian era Americans were just hunky dory with giving infants morphine syrup. The problem was, they just didn’t know. It took the work of muckraking journalists such as Samuel Hopkins Adams, whose exposé series, “The Great American Fraud” appeared in Colliers from 1905 to 1906, to pull back the curtain. But more than that, widespread opiate use in Victorian America didn’t start with the patent medicines. It started with doctors.

Debt Rattle April 27 2017

Apr 272017

April 27, 2017 Posted by Raúl Ilargi Meijer at 8:41 am Finance Tagged with: buybacks, Canada, fake news, Greece, IMF, mortgage, NAFTA, recession, splurge, tax, Trump 4 Responses »

Pablo Picasso Self portrait with palette 1906

• The Destruction Of Greece – “Only A Down Payment” According To The IMF (Bilbo)

• Greek Supermarkets Report Dramatic Recession (K.)

• US Student Loan Implosion (PolCal)

• If Mortgage Rates Rise, What Happens to Canada’s House Price Bubble? (WS)

• Canada’s Housing Bubble Explodes As Biggest Lender Crashes (ZH)

• Canada’s Housing Watchdog Warns of ‘Problematic Conditions’ (BI)

• It’s Tough Being Canada These Days (BBG)

• Trump Tells Canada, Mexico, He Won’t Terminate NAFTA Treaty Yet (R.)

• Trump Tax Plan Would Raise US Debt by $5.5 Trillion, 20% of 2027 GDP (CRFB)

• What Happened Last Time US Companies Got A Break On Overseas Profits (CNBC)

• New Zealand Plans Spending Splurge to Keep ‘Growing Like Sydney’ (BBG)

• Russian Spokeswoman On ‘Ridiculous’ Airstrikes In Syria, Fake News (Y!)

• German Court Upholds Greek Teacher’s Case Against Pay Cut (AP)

Excellent lenghty takedown by Bill Mitchell.

• The Destruction Of Greece – “Only A Down Payment” According To The IMF (Bilbo)

With Greece still wallowing in the depths of recession, it is clear that the IMF hasn’t finished with the destruction of that formerly independent nation. The destruction to date (27% contraction and increased poverty) are considered by the IMF to be “only a down payment” on what Greece has to do so satisfy the Troika. At what point do people start to realise that the on-going costs of this austerity dwarf the significant costs that would accompany exit? And the Troika is not done with Greece yet. They intend to screw it down even further. And the costs of remaining in the dysfunctional monetary union escalate by the day. At some point, the Greeks will realise they have been dudded. What is left is anyone’s guess – but it won’t be pretty. The destruction of Greece is “only a down payment” according to the IMF – keep that mentality in mind when you are working out whether Greece should remain obedient or tell them all to f*ck off and regain their currency independence and restore prosperity.

[..] The ‘event’ that brought Greece to heal in June 2015 was the ECB decision to starve the Greek banks of liquidity – in total violation of its charter to maintain financial stability within its jurisdiction. How many Greek people lost income over that blackmail? How many took their own lives? How many plunged into mental illness? Did the IMF come up with a measure of their sordid part in all that? And now Thomsen is back – threatening and haranguing a subservient polity in Greece who call themselves Socialists but have done more damage to their own nation by taking the obedience option that the conservatives could have ever dreamed of doing. The Troika are now claiming (largely at the behest of the IMF) that if Greece cuts further it will receive debt relief.

Why the Greeks are worried about their external debt is beyond me. Why not just refuse to pay it and let the debtors (largely the ECB these days as a result of the deals done with the previous bailouts (which insulated the private German and French banks from exposure) sort out the implications of that? Why not threaten Brussels with default (redenomination) and exit if they don’t allow the Greek government to expand its fiscal deficit to stimulate growth – along the lines of Spain, which only is growing because its fiscal position is in violation with the fiscal rules – conveniently ignored by Brussels as it wanted the PP government returned? Why not demand that the ECB include Greek government debt in its QE program – thereby ‘funding’ the deficit. If not, we leave!

Then the bullies would be on call and the compromises would come thick and fast. But the spinelessness of the Greek polity combined with the sociopathological joy of the Troika in bringing this rogue nation to heel will ensure no such confrontation occurs and Greece will continue to wallow at the bottom of the Eurozone. It is forecast that Greece currently needs an injection of around “€100 billion in emergency bailout cash” to stay afloat for a while. This would further add to its “already massive debt burden, that could also deepen the budget cuts and economic overhauls required to get Athens’ balance sheets back into the black and prolong what has already been a near decadelong ordeal for the country.” And the costs of staying in – huge and getting bigger.

A “dramatic drop in consumption of basic commodities such as milk and bread..”

• Greek Supermarkets Report Dramatic Recession (K.)

The supermarket sector in Greece is experiencing a deep recession ranging from 8 to 15% year-on-year across its categories, according to the marketing and strategic planning director of AB Vassilopoulos, Zeta Cheimonidou. Her statements at a corporate event confirmed the general mood in the industry and data compiled by researchers surveying the sector. Cheimonidou went on to estimate that 2017 will see a 4 to 5% decline in supermarket turnover compared with 2016. “The market is experiencing a much steeper decline than last year. There is a very deep recession,” Cheimonidou stated, although she added that it would be safer to wait and see how demand evolves up until the end of May before drawing any conclusions for the entire year.

If proven correct, her estimate for a 4% drop in turnover will come on the back of a major decline in 2016 compared to 2015, which, depending on the surveying company, ranges from 4.5 to 6.5%. In its recent annual general meeting, the Hellenic Food Industry Federation (SEVT) noted the dramatic drop in consumption of basic commodities such as milk and bread, while a senior market research company official told Kathimerini that “our clients, suppliers and retailers, were crying in the first quarter.”

Congress wil have to address this soon.

• US Student Loan Implosion (PolCal)

The Consumer Federation of America recently put out a press release that reports that they’ve found that 1.1 million student loan borrowers in the United States have gone 270 or more days without making payments on their Federal Direct Student Loans, with more than $137 billion worth of the loans issued by the U.S. government now qualifying as being in default by that standard. Data from the CFA’s press release has made the rounds among multiple news outlets, but we have a pretty basic question: Are those big numbers? They certainly seem like big numbers, what with all the millions and billions being thrown about, but how do these numbers fit into the bigger U.S. government-issued student loan story? Let’s start with the biggest numbers, where we discover that $137 billion worth of Federal Direct Student Loans are in default, against the larger total of $1.3 trillion worth of Federal Direct Student Loans that have been issued through the end of December 2016.

Here, we calculate that the percentage of student loans that have gone 270 or more days without having had a payment made upon them represents about 11% of the total amount borrowed. That means that some 1.1 million people whose student loans require that they make some sort of scheduled payment went more than 9 months without making any. To tell if that’s a big number or not requires that we put that number into some kind of context. Here, we’ll draw on the U.S. Federal Reserve’s data for the delinquency rates on loans and leases issued by all commercial banks in the U.S., where for the fourth quarter of 2016, we find that the total delinquency rate is 2.04%. That value had previously peaked at 7.4% back in the first quarter of 2010, following the bottoming of the Great Recession.

But another important thing to consider is that delinquency rate would include all private-sector issued loans and leases that have payments that are past due, including those that have gone without payment for much less than 270 days. That figure tells us that the default rate of 11% for Federal Direct Student Loans is, to put it in Trumpian terms, “Yuge!” [..] The average student loan balance in the U.S. is $30,650. For Americans who haven’t defaulted on their student loans, that average figure drops to $28,150. But for Americans who have defaulted on their payments to their U.S. government creditor, the average balance on their Federal Direct Student Loan is $124,545.

If you were not scared yet…

• If Mortgage Rates Rise, What Happens to Canada’s House Price Bubble? (WS)

Housing affordability is a function of down payment, monthly payment, and household income. With home prices skyrocketing while household incomes were lagging far behind, low mortgage rates were the grease that kept it going. But what happens when mortgage rates begin to tick up? A “payment shock.” “An increase in interest rates of 100 bps [1 percentage point] on a 5 year term would represent a rise of C$388 for the monthly mortgage payment in the Vancouver market (+9% to C$4,669) and C$239 in Toronto (+7% to C$3,692). With housing affordability problem in these markets being already acute, we doubt current home prices could resist such an interest rate hike.”

This chart via NBF Economics and Strategy shows by how much monthly mortgage payments would rise if mortgage rates ticked up just 1 percentage point. Note the impact on monthly payments for homes in Toronto (Ontario) and Victoria and Vancouver (British Columbia):

So just how big is the Canadian housing bubble? The chart below by NBF Economics and Strategy compares US home prices (Case-Shiller 20-City index) to Canadian home prices (Teranet-National Bank 26-city index). Both indices are based on similar methodologies of comparing pairs of sales of the same home over time. The shaded areas denote recessions in Canada. The brief dip during the last recession in Canada pales against the multi-year housing bust in the US:

Like so many other assets classes in central-bank nirvana, this one too has reached ludicrous levels. But there’s a difference. People don’t live in stocks, bonds, classic cars, or art, and these asset bubbles have less impact on the real economy. But people do have to live in homes. Now that the results are clearer than daylight, central banks and governments worry about the consequences: Bubbles don’t just plateau. Now they wonder, belatedly, how to get out of it without bringing the whole construct down. The fact that a 1-percentage point increase in mortgage rates poses existential questions for some of the hottest markets shows how far policy makers have painted themselves into a corner.

“Home Capital shares dropped by 61% in Toronto..”

• Canada’s Housing Bubble Explodes As Biggest Lender Crashes (ZH)

Call it Canada’s “New Century” moment. We first introduced readers to the company we said was the “tip of the iceberg in Canada’s magnificent housing bubble” nearly two years ago, in July 2015 when we exposed a major problem that we predicted would haunt Home Capital Group, Canada’s largest non-bank mortgage lender: liar loans in particular, and a generally overzealous lending business model with little regard for fundamentals. In the interim period, many other voices – most prominently noted short-seller Marc Cohodes – would constantly remind traders and investors about the threat posed by HCG.

Today, all those warnings came true, when the stock of Home Capital Group cratered by over 60%, its biggest drop on record, after the company disclosed that it struck an emergency liquidity arrangement for a C$2 billion ($1.5 billion) credit line to counter evaporating deposits at terms that will leave the alternative mortgage lender unable to meet financial targets, and worse, may leave it insolvent in very short notice. As part of this inevitable outcome, one which presages the company’s eventual disintegration and likely liquidation, Bloomberg reports that the non-binding rescue loan with an unnamed counterparty will be secured by a portfolio of mortgage loans originated by Home Trust, the Toronto-based firm said in a statement Wednesday.

Home Capital shares dropped by 61% in Toronto to the lowest since 2003, dragging down other home lenders. Equitable fell 17%, Street Capital fell 13%, while First National declined 7.6%. In short, the Canadian mortgage bubble has finally burst. refundable commitment fee of C$100 million, while standby fee on undrawn funds is 2.5%. The initial draw must be C$1 billion. The loan has an effective – and very much distressed – interest rate of 22.5% on the first C$1 billion, declining to 15% if fully utilized, according to a note from Jaeme Gloyn, an analyst at National Bank of Canada. Home Capital said the credit line is intended to “mitigate” a sharp drop in Home Trust’s high-interest savings account balances, which sank by $591 million from March 28 to April 24, at which point the total balance was $1.4 billion. Home Capital warned on Wednesday that further outflows are anticipated. Translated: what until last night was a depositor bank jog just became a sprint.

Dangerous shoptalk: “..overvaluation has been downgraded to moderate from a previously strong assessment..”

• Canada’s Housing Watchdog Warns of ‘Problematic Conditions’ (BI)

Canada’s housing watchdog maintained its view that there is “strong evidence of problematic conditions” in the market that some economists have classified as being in a bubble. The market is characterized by imbalances, defined as when demand and prices are far from their historical averages, Canada Mortgage and Housing Corporation said in second-quarter report. “While the overall assessment of problematic conditions remains strong for Canada, overvaluation has been downgraded to moderate from a previously strong assessment,” CMHC said.

“Careful analysis by geography shows that local differences continue to divide the Canadian housing market into several markets: centers in the East are showing weak evidence of overvaluation, while centres in Southern Ontario and the West are showing moderate to strong evidence of overvaluation,” it added. In Victoria, for example, the CMHC determined that overvaluation had accelerated from “moderate” to “strong.” The Teranet and National Bank of Canada house-price index showed a 24.8% gain year-on-year in March. It jumped 12.2% for Vancouver. Separately on Wednesday, shares of Canada’s home lenders fell after Home Capital Group said it obtained a $1.5 billion credit line to cope with falling deposits. Home Capital shares plunged by more than 60%.

“George Washington used to complain about British lumber coming in from Canada..”

• It’s Tough Being Canada These Days (BBG)

It’s tough being Canada these days. There’s no other way, really, to explain why the Trump administration announced on Tuesday that it was imposing tariffs on exports of Canadian softwood lumber – tariffs that will cost the Canadian lumber industry $1 billion annually. The Canadian dairy industry is also in Trump’s crosshairs, as he made plain in a threatening tweet Tuesday morning. Trump spent much of his campaign railing about China’s “unfair” trade practices, and all the “American jobs” that have migrated to Mexico. But now that he’s president, he’s apparently been made to understand that slapping tariffs on Chinese goods could lead to a catastrophic trade war. And any moves that might destabilize Mexico would have negative consequences for the U.S.

Ah, but hit Canada with a tariff, and you get all of the political upside of looking tough with no downside. This is not just because Canadians are nice. It’s because the Canadian economy is more U.S.-dependent than any other. “20% of Canada’s GDP relies on the U.S.,” said Laura Dawson, the director of the Canada Institute at the Wilson Center. “And 70% of Canada’s exports go to the U.S.” Even if Canada wanted to retaliate, what exactly could it do? Stop the Ford plants in Canada from shipping cars to Ford in Detroit? A rational administration would never let these minor disputes get in the way of a smooth-functioning economic relationship with Canada. To start with, there’s the fact that Canada is the staunchest U.S. ally, which you would think would count for something.

And the U.S. benefits enormously from trade with Canada, which buys 18% of all American exports, more than any other country. Last year, Canada’s trade surplus with the U.S. was a minuscule $11.2 billion. The integration of the two economies has been beneficial to both. Nor are the two disputes anything new. The American lumber industry has been complaining about Canadian softwood lumber since pretty much forever. “George Washington used to complain about British lumber coming in from Canada,” Dawson said with a chuckle. The basic allegation is that most timberland in Canada is owned by its provinces, which sell logging rights at below-market prices. The U.S. views this as a government subsidy, a notion Canada rejects. Although Americans and the Canadians have never been able to put this dispute to rest, they have been able to negotiate a truce on three separate occasions since the early 1980s.

Advisers can’t agree.

• Trump Tells Canada, Mexico, He Won’t Terminate NAFTA Treaty Yet (R.)

U.S. President Donald Trump told the leaders of Canada and Mexico on Wednesday that he will not terminate the NAFTA treaty at this stage, but will move quickly to begin renegotiating it with them, a White House said. The announcement came after White House officials disclosed that Trump and his advisers had been considering issuing an executive order to withdraw the United States from the trade pact with Canada and Mexico, one of the world’s biggest trading blocs. The White House said Trump spoke by telephone with Mexican President Enrique Pena Nieto and Canadian Prime Minister Justin Trudeau and that he would hold back from a speedy termination of NAFTA, in what was described as a “pleasant and productive” conversation.

“President Trump agreed not to terminate NAFTA at this time and the leaders agreed to proceed swiftly, according to their required internal procedures, to enable the renegotiation of the NAFTA deal to the benefit of all three countries,” a White House statement said. “It is my privilege to bring NAFTA up to date through renegotiation. It is an honor to deal with both President Peña Nieto and Prime Minister Trudeau, and I believe that the end result will make all three countries stronger and better,” Trump was quoted as saying in the statement. The Mexican and Canadian currencies rebounded in Asian trading after Trump said the U.S. would stay in NAFTA for now. The U.S. dollar dropped 0.6% on its Canadian counterpart and 1% on the peso.

This is not going to be easy to pass.

• Trump Tax Plan Would Raise US Debt by $5.5 Trillion, 20% of 2027 GDP (CRFB)

The White House released principles and a framework for tax reform today. We applaud the President’s focus on tax reform, but the plan includes far more detail on how the Administration would cut taxes than on how they would pay for those cuts. Based on what we know so far, the plan could cost $3 to $7 trillion over a decade– our base-case estimate is $5.5 trillion in revenue loss over a decade. Without adequate offsets, tax reform could drive up the federal debt, harming economic growth instead of boosting it. The framework proposes a number of specific changes including: consolidating and reducing individual income tax rates to 10, 25, and 35%; doubling the standard deduction; cutting the business tax rate to 15% on both corporations and pass-through businesses; repealing the Alternative Minimum Tax (AMT) and estate tax; repealing the 3.8% investment surtax from the Affordable Care Act (“Obamacare”); moving to a territorial tax system; and imposing a one-time tax on money held overseas.

The plan also includes some vaguer proposals, including “providing tax relief for families with child and dependent care expenses” and eliminating “targeted tax breaks that mainly benefit the wealthiest taxpayers.” Although the framework itself is vague on the latter, at their press conference Secretary of the Treasury Steven Mnuchin and National Economic Director Gary Cohn seemed to imply it meant repealing all individual deductions unrelated to savings, charitable giving, or mortgage interest (revenue would come mostly from repealing the state and local tax deduction). Even with the detailed portions of the plan, there are not enough parameters specified to provide a certain revenue estimate of the tax plan. But making some assumptions based on prior proposals, our best rough estimate suggests the specified parts of the plan would cost $5.5 trillion. Assuming tax break limits only apply only to higher earners, that cost could be as high as $7 trillion; assuming credits and exclusions are eliminated as well as deductions, it would cost $3 trillion.

“..as much as 91 cents on the dollar went to share repurchases, even though that, along with compensation increases, was an expressly prohibited use by Congress.”

• What Happened Last Time US Companies Got A Break On Overseas Profits (CNBC)

The Trump administration wants to give companies a break on profits earned overseas and brought back to the United States — a program that’s been tried before to little effect. Current estimates put the total stockpile that U.S firms are holding abroad so as to avoid U.S. taxes at somewhere in the $2.5 trillion range. Back in 2004, Congress approved a plan to “repatriate” such overseas funds that companies could bring back home at a reduced rate. The program was part of the American Jobs Creation Act. The hope then, as now, was that companies would shovel that money back into the economy in the form of investment and job creation. It didn’t quite work out that way. Contrary to the intent, the benefits skewed toward a select few companies in a select few industries.

Rather than use the money for hiring and capital purchases, companies plowed the cash into share buybacks and dividends, and many of the biggest beneficiaries actually cut American jobs in the years after the repatriation. “While empirical evidence is clear that this provision resulted in a significant increase in repatriated earnings, empirical evidence is unable to show a corresponding increase in domestic investment or employment,” the Congressional Research Service, Congress’ nonpartisan think tank, said in a report. The CRS cited a series of reports into the benefits of repatriation, with a common theme that the 2004 program was “an ineffective means of increasing economic growth.” In the 2004 case, 9,700 companies were eligible to take part in a tax holiday that would bring the overseas cash back at a rate of 5.25%, well below the 35% rate for profits earned abroad.

Of that group, 843 firms participated. They brought home $312 billion in qualified earnings, or about one-third of the total cash held overseas, according to the CRS. That translated into total deductions of $265 billion. [..] In the 2005-06 time frame, Pfizer, which repatriated $37 billion, slashed 10,000 jobs. Merck, which brought back $15.9 billion, cut 7,000 jobs, and HP pared its employment rolls by 14,500 after repatriating $14.5 billion. Most of the money went to repairing balance sheets and rewarding shareholders, according to the CRS. According to one study cited, as much as 91 cents on the dollar went to share repurchases, even though that, along with compensation increases, was an expressly prohibited use by Congress.

Once was a nice country.

• New Zealand Plans Spending Splurge to Keep ‘Growing Like Sydney’ (BBG)

New Zealand’s government announced plans to substantially increase infrastructure spending to help sustain economic growth and cope with a swelling population. In its May 25 budget, the government will allocate NZ$11 billion ($7.6 billion) in additional spending on infrastructure like schools, roads, hospitals and housing between 2017 and 2020, Finance Minister Steven Joyce said in a speech in Wellington Thursday. When added to already-planned investments, a total of around NZ$23 billion would be spent over the four-year period, representing “the biggest addition to the government’s capital stock in decades,” he said. New Zealand’s economy is among the fastest-growing in the developed world, expanding at around 3% a year, and the government predicts rising budget surpluses.

Growth is being driven in part by record immigration and fewer New Zealanders seeking work abroad, which is straining infrastructure. “As a country we are now growing a bit like South-East Queensland or Sydney, when in the past we were used to growing in fits and starts,” Joyce said. “That’s great because we used to send our kids to South-East Queensland and Sydney to work, and now they come back here.” Details of the first tranche of spending would be unveiled in the budget, and Joyce said the government wants to make greater use of public-private partnerships and joint ventures to boost infrastructure further.

[..] The government will aim to cut net debt to 10-15% of GDP by 2025, from an estimated 24.3% at June 30 this year. Its current target is to reduce net debt to 20% of GDP by 2020. Joyce said the government borrowed heavily to help the country through the global financial crisis and a devastating earthquake in Christchurch in 2011. “Shocks can come along at any time, and sometimes they come in pairs,” he said. “We are a geologically young country, and we are also a small country in an often turbulent world – so there are plenty of shocks ahead of us.”

“I just want any example of Russia spreading fake news, just show me one example.. I can present you tons, dozens, billions of examples of Western media spreading false news about Russia..”

• Russian Spokeswoman On ‘Ridiculous’ Airstrikes In Syria, Fake News (Y!)

Recent U.S. airstrikes against Syria were “ridiculous,” according to Russian Foreign Ministry spokesperson Maria Zakharova. In a blunt, at times contentious, interview with Yahoo Global News Anchor Katie Couric, Zakharova called the strikes “unacceptable” and said they violated international law and made no military or political sense. “They brought the situation nowhere,” she said. She went on to say that the goal of the West to oust Syrian President Bashar Assad is “not a way out, it is a dead end.” When pressed on whether Assad was responsible for the chemical attacks that led to the U.S. military action, she said, “Our decisions should be based on real evidence,” detailing Russia’s desire to have independent investigators determine blame.

She pointed to U.S. claims in 2003 that Iraq had weapons of mass destruction, which later turned out to be false. “That was the worst thing that happened to the Security Council, to the United States, to the Middle East region,” Zakharova said. The wide-ranging, exclusive conversation began with Zakharova objecting to Couric’s characterization of the Russian government as a “regime.” “I think if a president is elected by the people of his country, it’s not about being a regime, it’s about being a democracy,” she said. Zakharova said that relations between the U.S. and Russia began to deteriorate during the Obama administration, in part because of what she called “fake news” reports about her country that were disseminated during those years.

“What I’m facing today is, the main role of the media is to separate people (in order) to divide the world into separate parts. I think it’s dangerous.” She dismissed claims from American and European intelligence officials that, in actuality, Russia is disseminating fake news to achieve its geopolitical goals. “I just want any example of Russia spreading fake news, just show me one example,” she said. “I can present you tons, dozens, billions of examples of Western media spreading false news about Russia,” she told Couric.

Germany forces Greece to take measures that are illegal under German law. Both are -equal- members of an economic union.

• German Court Upholds Greek Teacher’s Case Against Pay Cut (AP)

A German federal court has upheld a complaint by a teacher at a Greek school in Germany against a pay cut that the Greek government imposed at the height of the country’s financial crisis. The teacher, a Greek citizen, works at a Greek government-run school in Nuremberg but his contract is subject to German law. He sued after his pay was cut in 2010. A lower court granted his demand for some €20,000 ($21,780) in extra pay for Oct. 2010-Dec. 2012 — the amount by which his salary was lowered. The Federal Labor Court said Wednesday it has rejected a Greek appeal against that ruling. It ruled that Greek austerity legislation isn’t directly applicable on German territory and that Greece doesn’t have legal immunity over the labor contract.

Debt Rattle December 22 2016

Dec 222016

December 22, 2016 Posted by Raúl Ilargi Meijer at 10:06 am Finance Tagged with: bigly, bonus, data, debt, Greece, hacks, imports, Monte Paschi, recession, tax, Trump 2 Responses »

Shirley Temple Chrismas 1939

• Americans Are Now In More Debt Than They Were Before The Financial Crisis (MW)

• Americans Want To ‘Live Big’ In The Trump Era (CNBC)

• Percentage of Young Americans Living With Parents Rises to 75-Year High (WSJ)

• Republican Presidents Can’t Seem To Avoid Recessions (BBG)

• Plan To Tax US Imports Has Better Odds Of Becoming Law Than Many Think (CNBC)

• Home Ownership Among 25-Year-Olds In England, Wales Halved In 20 Years (G.)

• Monte Paschi Headed for Nationalization After Sale Failure (BBG)

• China’s Currency Outflows Are Much Larger Than They Appear (MW)

• Glenn Greenwald Weighs In On Election Hacks (MSNBC)

• EU To Boost Border Checks On Cash, Gold To Tackle ‘Terrorism Financing’ (R.)

• EU Court Says Mass Data Retention Illegal (R.)

• Greek Low-Pensioners Stand Long Queues For The Christmas Bonus (KTG)

• The Automatic Earth in Greece: Big Dreams for 2017 (Automatic Earth)

What a surprise.

• Americans Are Now In More Debt Than They Were Before The Financial Crisis (MW)

Americans may soon exceed the amount of credit-card debt they racked up during the Great Recession. The average household with credit card debt owes $16,061, up 10% from $14,546 10 years ago and $15,762 last year, according to a new analysis of Federal Reserve Bank of New York and U.S. Census Bureau data by the personal finance company NerdWallet. The amount of household credit card debt is still down from a recent high of $16,912 in 2008 at the height of the recession. The U.S. won’t hit pre-recession credit card debt levels until the end of 2019, NerdWallet’s analysis projects. Total debt (including mortgages, auto loans and student loans) is expected to surpass the amounts owed at the beginning of the Great Recession by the end of 2016, NerdWallet found, mostly due to mortgages and student loans.

Mortgage debt jumped from $159,020 per household in 2010 to $172,806 in 2016, and debt from auto loans grew from $20,032 in 2010 to $28,535 in 2016. Nationwide, total household debt (including mortgages, auto loans and student loans) now equals almost $12.4 trillion, up from about $11.7 trillion in 2010. Why the growth in debt, given that many consumers should be skittish about living beyond their needs after the credit bubble of the Great Recession? The reason concerns a problem that has long dogged Americans. Median household income has grown 28% over the last 13 years, said Sean McQuay, a personal finance expert at NerdWallet, but expenses have outpaced it significantly. Case in point: Medical costs increased by 57% and food and beverage prices by 36% in that period.

Many Americans find it difficult to stick to savings goals. And that’s even worse if you have a family. The amount that a two-parent, two-child family needs just to pay the bills (but not have money left over for savings) ranges from about $50,000 to more than $100,000 depending on where a family lives, according to data from the nonprofit and nonpartisan think tank the Economic Policy Institute. Rent has risen 3.9% in the last year alone, according to the Bureau of Labor Statistics. “The economy is doing better, but we’re really not seeing that trickle down to individual households the way we’d hope,” McQuay said. Rising living costs mean, if anything, consumers should pay extra attention to their budgets in the next year, he said. “We’re allergic to the idea of budgeting,” he said. “It sounds just as awful as dieting.”

No contradiction whatsoever with the article above.

• Americans Want To ‘Live Big(ly)’ In The Trump Era (CNBC)

In the Trump era, excess is in and modesty is out. After years of stealth wealth, humility and downsizing, the president-elect is ushering in a new era of living large, Nobel Prize-winning economist Robert Shiller said Wednesday. “We used to be more into modest living,” the Yale professor told CNBC, speaking about the years after the financial crisis. “Now people are thinking, ‘[that] doesn’t work.’ You know? You have to live big-league and you’re on your way. While there’s no empirical evidence pointing to this shift, Shiller said the excitement is visible at Trump rallies and in the stock market. Despite a slight dip on Wednesday, the Dow Jones industrial average remained near 20,000.

Shiller’s comments add to budding sentiment that America’s new billionaire-in-chief — with his gold-plated penthouse, private jumbo jet and multiple mansions — could shift American attitudes away from inequality and toward the 1980s-style aspiration and worship of wealth. That quest for the good life could also stimulate spending — particularly in housing, Shiller said. “Trump is a real estate man, right? He talks about living big, living large. I can imagine that this will boost housing demand as well, among at least those who are excited by Trump,” he said. Still, Shiller cautioned that investors shouldn’t get too comfortable, as the Trump rally could end up like Calvin Coolidge’s run nearly a century ago. Coolidge was president during the Roaring ’20s, before the decade-long Great Depression started in 1929. “It could be like … Coolidge prosperity. It went for a while and it ended badly,” he said.

“There’s a difference, though, between Calvin Coolidge and Donald Trump, if you haven’t noticed. Trump is way more controversial,” Shiller added.

But bigly.

• Percentage of Young Americans Living With Parents Rises to 75-Year High (WSJ)

Almost 40% of young Americans were living with their parents, siblings or other relatives in 2015, the largest percentage since 1940, according to an analysis of census data by real estate tracker Trulia. Despite a rebounding economy and recent job growth, the share of those between the ages of 18 and 34 doubling up with parents or other family members has been rising since 2005.

Back then, before the start of the last recession, roughly one out of three were living with family. The trend runs counter to that of previous economic cycles, when after a recession-related spike, the number of younger Americans living with relatives declined as the economy improved. [..] The share of young Americans living with parents hit a high of 40.9% in 1940, just a year after the official end of the Great Depression, and fell to a low of 24.1% in 1960. It hovered between about 31% and 33% from 1980 to the mid-2000s, when the rate started climbing steadily.

The result is that there is far less demand for housing than would be expected for the millennial generation, now the largest in U.S. history. The number of adults under age 30 has increased by 5 million over the last decade, but the number of households for that age group grew by just 200,000 over the same period, according to the Harvard Joint Center for Housing Studies. Analysts point to rising rents in many cities and tough mortgage-lending standards as the culprit, making it difficult for younger Americans to strike out on their own.

It’s been a while. Anything to do with QE?

• Republican Presidents Can’t Seem To Avoid Recessions (BBG)

Here’s a frightening factoid for Donald Trump as he prepares to take office next month: Every Republican president since World War II has been in power during at least one recession. Of course, as the saying goes, past performance is not necessarily indicative of future results and the billionaire developer may well avoid a downturn on his watch. But with the economic expansion soon to become the third-longest on record, the risk of a contraction occurring during his time in office can’t be cavalierly dismissed. “Republican presidents seemingly can’t do without” recessions, Joachim Fels, global economic adviser for PIMCO, wrote in a blog post dated Dec. 12. The same can’t be said of Democrats. Outgoing President Barack Obama did preside over an economic downturn in his first six months in office – one he inherited from his predecessor, Republican George W. Bush.

John F. Kennedy took office just before a recession ended. And the U.S. entered and exited slumps when Jimmy Carter and Harry Truman were in charge. But it was recession-free during the tenures of Democrats Lyndon Johnson in the 1960s and Bill Clinton in the 1990s. “The U.S. economy has performed better when the president of the United States is a Democrat rather than a Republican,” Princeton University professors Alan Blinder and Mark Watson wrote in a paper published in the American Economic Review this year. The difference isn’t due to more expansionary fiscal and monetary policies under Democrats, according to Blinder, who served in the Clinton White House, and Watson. Instead it appears to stem from less costly oil shocks, a more favorable international environment, productivity-boosting technological advances and perhaps more optimistic consumers, they wrote. Some of those disparities may be down to better policies, but luck also played a role.

It’ll happen.

• Plan To Tax US Imports Has Better Odds Of Becoming Law Than Many Think (CNBC)

A controversial proposal to tax all goods and services coming into the United States has a better chance of becoming law than many on Wall Street suspect. The so-called “border-adjusted” tax is part of the House tax overhaul plan that also would reduce the corporate rate from 35% to 20%. The idea is to tax goods as they come into the country from overseas, but to avoid taxing U.S. exports at all. For instance, a car imported into the U.S. from Mexico would be taxed, but the American-made steel sent to Mexico would not.

Proponents say the proposed “destination tax” would encourage more U.S. production of goods and create U.S. jobs. But opponents say it will send prices higher, unfairly cut profits for some sectors, particularly the retail industry, and could prompt retaliation. The idea is similar but not quite like a VAT, or value added tax, common in other countries. The stock market has been celebrating promises of lower corporate taxes that could boost business spending, but it has been ignoring proposals that could sting some companies’ bottom lines. Retailers, automakers and refiners are among the industries that could be hit if imports are taxed.

What you get from blowing bubbles. You destroy societies.

• Home Ownership Among 25-Year-Olds In England, Wales Halved In 20 Years (G.)

The proportion of 25-year-olds who own a home has more than halved over the past 20 years, according to a report that points to the generational impact of the housing crisis. Home ownership has dropped from 46% of all 25-year-olds two decades ago to 20% now, the Local Government Association said. The LGA, which represents more than 370 councils in England and Wales, said more homes for affordable or social rent are needed to allow people to save up for a deposit and get on the housing ladder. The LGA’s housing spokesman, Cllr Martin Tett, said: “Our figures show just how wide the generational home ownership gap is in this country. A shortage of houses is a top concern for people as homes are too often unavailable, unaffordable and not appropriate for the different needs in our communities.

“The housing crisis is complex and is forcing difficult choices on families, distorting places, and hampering growth. But there is a huge opportunity, as investment in building the right homes in the right places has massive wider benefits for people and places.” Analysis for the LGA by the estate agent Savills found that the construction of social rented homes – owned and managed by local authorities and housing associations – plunged by 88% between 1995-96 and 2015-16. The association warned that the sharp fall, combined with rents rising at a faster pace than incomes, meant that home ownership was becoming more difficult for an increasing number of people. Home ownership across all age groups has fallen by 4.4% since 2008, while private renters increased by 5.1%, the LGA said.

Beppe Grillo wants full nationalization. The political class just blunders on.

• Monte Paschi Headed for Nationalization After Sale Failure (BBG)

Banca Monte dei Paschi di Siena SpA will probably fail to lure sufficient demand for a €5 billion capital increase, leading to what would be the country’s biggest bank nationalization in decades, said people with knowledge of the matter. No anchor investor has shown interest in the stocks sale, the Siena-based company said in a statement late Wednesday. Two debt-for-equity swap offers will raise about €2 billion, with investors converting bonds for about €2.5 billion, the lender said. The interest is probably insufficient to pull the deal off, said the people, who asked not to be identified before a final assessment. Qatar’s sovereign-wealth fund, which had considered an investment, hasn’t committed to buying shares, people with knowledge of the matter have said.

Other institutions that were considering buying shares have indicated that they would put funds in the troubled bank only if it’s able to raise €1 billion from cornerstone investors, according to the people. Monte Paschi Chief Executive Officer Marco Morelli had crisscrossed the globe looking for investors to back the bank’s reorganization plan, which included a share sale, a debt-for-equity swap and the sale of €28 billion worth of soured loans. A nationalization of Monte Paschi, the biggest in Italy since the 1930s, could be followed by rescues for lenders including Veneto Banca and Banca Popolare di Vicenza as part of a €20 billion government package. State intervention and a hit to bondholders is the most likely scenario for Monte Paschi, Manuela Meroni, an analyst at Intesa Sanpaolo SpA wrote in a note to clients Thursday. “The solution to the Monte Paschi issue could reduce the systemic risk for the sector,” Meroni wrote.

Monte Paschi shares failed to open in Milan on Thursday after being indicated lower. The shares have dropped 87% this year, trimming the bank’s value to €478 million. If government funds are used in the bank’s recapitalization, bondholders will probably have to take losses under European burden-sharing rules. The cabinet is considering a so-called precautionary recapitalization that may reduce the potential losses. A cabinet meeting may be held as early as Thursday evening to rescue Monte Paschi, newspaper La Stampa reported, without saying where it got the information.

Especially in the rear-view mirror.

• China’s Currency Outflows Are Much Larger Than They Appear (MW)

Investors have been drastically underestimating the pace at which money is leaving China. Since June, the People’s Bank of China has liquidated $1.1 trillion in foreign-currency reserves, according to a calculation by a team of analysts at Goldman Sachs. That’s nearly double the $540 billion reported by the PBOC, when adjusted for shifts in the yuan’s valuation, between August 2015 and November 2016. Goldman arrived at its figure by incorporating data provided by the State Authority on Foreign Exchange, the arm of the PBOC responsible for currency flows. That data details flows that are considered approved Chinese corporate demand, as well as money flowing through the offshore yuan market. If one factors in these outflows, the total amount of capital that has left China in that time period balloons from the reported $540 billion to $1.1 trillion, Goldman said. Goldman illustrates these flows in a chart, below:

“Since June, this data has continued to suggest significantly larger [foreign exchange] sales by the PBOC than is implied by FX reserve data [the gap is about $25 billion a month on average in the last several months],” said the team, led by MK Tang, executive director of global investment research Asia, in a research note released to the media on Monday. The PBOC has been selling its foreign currency reserves, which have declined for 14 straight months through November, to help support its rapidly weakened currency, the yuan. After selling off earlier in the year, the dollar has strengthened rapidly against most major currencies including the yuan. In fact, dollar gains accelerated following President-elect Donald Trump’s Nov. 8 electoral victory. Presently, the yuan, USDCNY, +0.0706% also known as the renminbi, is trading near its weakest level against the dollar since late 2008.

Greenwald is very clear. But help me out: does the interviewer try to imply that there is circumstantial evidence regardless of there not being any? That because a lot of so-and-so’s have said there is, that somehow means there must be?

• Glenn Greenwald Weighs In On Election Hacks (MSNBC)

Co-founding editor of The Intercept, Glenn Greenwald, talks to Ari Melber about the investigation into Russian hacks involving the 2016 election.

Never let a good crisis go to waste. Zero credibility.

• EU To Boost Border Checks On Cash, Gold To Tackle ‘Terrorism Financing’ (R.)

The European Commission proposed tightening controls on cash and precious metals transfers from outside the EU on Wednesday, in a bid to shut down one route for funding of militant attacks on the continent. The move follows Monday’s attack on a Christmas market in Berlin, where 12 people were killed as a truck plowed into a crowd. It is part of an EU “action plan against terrorist financing” unveiled after the bombings and shootings in Paris in November 2015. Under the new proposals, customs officials in EU states will be able to step up checks on cash and prepaid payment cards transferred via the post or through freight shipments.

Authorities will also be given the power to seize cash or precious metals carried by suspect individuals entering the EU. People carrying more than 10,000 euros ($10,391.00) in cash are already required to declare this at customs upon entering the EU. The new rules would allow authorities to seize money even below that threshold “where there are suspicions of criminal activity,” the EU executive commission said in a note. “With today’s proposals, we strengthen our legal means to disrupt and cut off the financial sources of terrorists and criminals,” the commission vice-president Frans Timmermans said.

Not every European is a complete fool yet.

• EU Court Says Mass Data Retention Illegal (R.)

The mass retention of data is illegal, the European Union’s highest court said on Wednesday, dealing a blow to Britain’s newly passed surveillance law and signaling that security concerns do not justify excessive privacy infringements. The Court of Justice of the European Union (ECJ) said its ruling was based on the view that holding traffic and location data en masse allowed “very precise conclusions to be drawn concerning the private lives of the persons whose data has been retained”. Such interference with people’s privacy could only be justified by the objective of fighting serious crime and access to data should be subject to prior review by a court or independent body except in urgent cases, it said.

The ruling is likely to upset governments seeking to deal with the threat of attacks such as those in Paris and Brussels and, on Monday, in Berlin. Those attacks have reinforced calls from governments for security agencies to be given greater powers to protect citizens, while privacy advocates – who welcomed the ruling – say mass retention of data is ineffective in the fight against such crimes. The perpetual debate over privacy versus security took on an extra dimension after Edward Snowden leaked details of mass spying by U.S. and British agents in 2013. The ECJ said governments could demand targeted data retention subject to strict safeguards such as limiting it to a particular geographic location but the data must be stored within the EU given the risk of unlawful access.

The court was responding to challenges against data retention laws in Britain and Sweden on the grounds that they were no longer valid after the ECJ struck down an EU-wide data retention law in 2014. A spokesman for Britain’s interior ministry said it was disappointed with the judgment and would be considering its potential implications in the case launched before Britain voted in June to quit the European Union. “Given the importance of communications data to preventing and detecting crime, we will ensure plans are in place so that the police and other public authorities can continue to acquire such data in a way that is consistent with EU law and our obligation to protect the public,” he said.

Pretty cold for Athens too.

• Greek Low-Pensioners Stand Long Queues For The Christmas Bonus (KTG)

Greece’s low-pensioners have been waiting for the extra Christmas bonus announced by Prime Minister Alexis Tsipras for days. The magic, sparkling moment was set as December 22nd. The money started to flow into bank accounts already since Wednesday afternoon. Defying the icy-cold weather and Schaeuble’s objections, dozens of elderly rushed to ATMs to withdraw the unexpected Christmas present together with the pension for January. Those unable to use cards rushed to the banks as early as possible in the morning and stood line for many hours before the doors opened. 1.6 million low-pensioners receive the Christmas bonus which is the difference of the pension and lump sum to the amount of €850.

If a pensioner receives €600, the Christmas bonus will be €250. Due to capital controls, the amount that can be withdrawn within two weeks is €840. At the same time, 240,000 low pensioners will see the poverty allowance (EKAS) cut by 50%. It means they will lose €1,380 per year. I asked a neighbor how will he spend the Christmas bonus. “I will have my bones warmed,” the 87-year-old answered with a bright smile. He has been living without heating for the last three years. He went broke and spent all his savings after austerity cuts in 2010 deprived him of the 13th and 14th pension. He lost €1,200 per year.

My article from yesterday. Please help us help.

• The Automatic Earth in Greece: Big Dreams for 2017 (Automatic Earth)

Both Konstantinos and myself -and all the other volunteers at O Allos Anthropos- want to thank you so much for all the help you’ve given over the past year -and in 2015-. We’re around $30,000 for 2016 alone, another $5000 since my last article 4 weeks ago. I swear, for as long as I live, this will never cease to amaze me. And then of course what happens is people start thinking and dreaming about what more they can do for those in peril. Wouldn’t you know…

A Merry Christmas to all of you, to all of us. Very Merry. God bless us, every one. Thank you for everything.

If I may make a last suggestion, please forward this ‘dream’ to anyone you know -and even those you don’t-, by mail, Twitter, Facebook, Instagram, word of mouth, any which way you can think of. Go to your local mayor or town council, suggest they can help and get -loudly- recognized for it. There may be a dream involved for 2017, but that was our notion a year ago as well, and look what we’ve achieved a year later: it is very real indeed. And anyone, everyone can become part of that reality for just a few bucks. If the institutions won’t do it, perhaps the people themselves should. That doesn’t even sound all that crazy or farfetched. There’s a lot of us.

Konstantinos Polychronopoulos, Athens December 2016

Debt Rattle May 18 2016

May 182016

May 18, 2016 Posted by Raúl Ilargi Meijer at 8:54 am Finance Tagged with: casino, China, debt, depression, EU, NIRP, refugees, shadow banks, steel, tax, ZIRP 3 Responses »

Russell Lee South Side market, Chicago 1941

• US Debt Dump Deepens In 2016 (CNN)

• The Humungous Depression (Gore)

• Negative Rates Are A Form Of Tax (MW)

• The Negative Interest Rate Gap (Dmitry Orlov)

• The EU Has “Run Its Historical Course” (ZH)

• Italy Wins Brussels’ ‘Flexibility’ On Debt Reduction Targets (FT)

• US Raises China Steel Taxes By 522% (BBC)

• Chinas Debt Bubble Is Getting Only More Dangerous (WSJ)

• China To Curb Shadow Banking Via Checks On Fund House Subsidiaries (R.)

• Abenomics: The Reboot, Rebooted (R.)

• Trump and Sanders Shift Mood in Congress Against Trade Deals (BBG)

• Smugglers Made $5-6 Billion Off Refugees To Europe In 2015 (R.)

• Refugees Will Repay EU Spending Almost Twice Over In Five Years (G.)

“There’s still this fear of ‘everything is going to fall apart.'”

• US Debt Dump Deepens In 2016 (CNN)

China, Russia and Brazil sold off U.S. Treasury bonds as they tried to soften the blow of the global economic slowdown. They each sold off at least $1 billion in U.S. Treasury bonds in March. In all, central banks sold a net $17 billion. Sales had hit a record $57 billion in January. So far this year, the global bank debt dump has reached $123 billion. It’s the fastest pace for a U.S. debt selloff by global central banks since at least 1978, according to Treasury Department data published Monday afternoon. Treasuries are considered one of the safest assets in the world, but some experts say a sense of panic about the global economy drove the selloff.

“It’s more of global fear than anything,” says Ihab Salib, head of international fixed income at Federated Investors. “There’s still this fear of ‘everything is going to fall apart.'” Judging by the selloff, policymakers across the globe were hitting the panic button often and early in the year as oil prices fell, concerns about China’s economy rose and stock markets were very volatile. In response, countries may be selling Treasuries to prop up their currencies, some of which lost lots of value against the dollar last year. By selling U.S. debt, central banks can get hard cash to buy up their local currency and prevent it from losing too much value.

Also, as investors have pulled money out of developing countries, central bankers seek to replenish those lost funds by selling their foreign reserves. The leader in the selloff: China. “We’ve seen Chinese central bank foreign reserves fall dramatically,” says Gus Faucher, senior economist at PNC Financial. “Their currency is under pressure.” Between December and February, China’s central bank sold off an alarming $236 billion to help support its currency, which China is slowly letting become more controlled by markets and less by the government. In March, China sold $3.5 billion in U.S. Treasury bonds, Treasury data shows. Experts say the sell off may be slowing down now that global concerns have eased. If anything, demand is still high for U.S. Treasury bonds – it’s just coming from private investors.

ZIRP and NIRP feed the casino.

• The Humungous Depression (Gore)

Economic depressions unfold slowly, which obscures their analysis, although they are simple to understand. Governments and central banks turn recessions into depressions, which are preceded by unsustainable expansions of debt untethered from the real economy. The reduction and resolution of excess debt takes time, and governments and central banks usually act counterproductively, retarding necessary adjustments and lengthening the adjustment, and consequently, the depression. If one dates the beginning of a depression from the beginning of the unsustainable expansion of debt that preceded it, then the current depression began in 1987. Newly installed chairman of the Fed Alan Greenspan quelled a stock market crash, flooding the financial system with fiat liquidity. It was a well from which he and his successors would draw repeatedly.

Throughout the 1990s he would pump whenever it appeared the market and the US economy were about to dump. In 1999, he pumped because the Y2K computer transition might adversely affect the economy and financial system (it didn’t). If one dates the beginning of a depression from the time when the benefits of debt are, in the aggregate, outweighed by its burdens, the depression began in 2000, with the implosion of the fiat-credit fueled, high-tech and Internet stock market bubble. Unsustainable debt and artificially low interest rates lower the rate of return on productive investment and saving, increasing the relative attractiveness of speculation. Central bankers and their minions refer to this as “forcing investors out on the risk curve,” crawling way out on a limb for fruitful returns. They have no term for when markets saw off the branch, as they did in 2000 and again in 2008.

Most people don’t see 2000 as the beginning of a depression, but Washington and Wall Street cloud their vision. Stock markets were once essential avenues for raising capital and valuing corporations. Since central bankers’ remit was broadened to their care and feeding, stock markets have become engines of obfuscation. The “wealth effect” supposedly justified solicitude for markets: a rising stock market would increase wealth, spending, and economic growth. For seven years a rising market has coexisted with an anemic rebound and one hears little about the wealth effect anymore. The stock market is the preeminent symbol of economic health, so keeping it afloat has become a political exercise. Sure, central bankers and governments know what they’re doing, just look at those stock indices.

“They impose a levy on the banking system that has to be paid by someone..”

• Negative Rates Are A Form Of Tax (MW)

Central banks have slashed interest rates to nothing. They have printed money on a vast scale. Where that has not quite worked, and if we are being honest that is most places, they now have a new tool. Negative interest rates. Across a third of the global economy, money you put in the bank does not only generate nothing in the way of a return. You actually get charged for keeping it there. That is already producing strange, Alice-in-Wonderland economics, where nothing is quite what it seems. Governments want you to delay paying taxes as long as possible, the mortgage company pays you to stay in the house, and cash becomes so sought after there is even talk of abolishing it. But the real problem with negative rates may be something quite different.

As a fascinating new paper from the St. Louis Fed argues, they are in fact a form of tax. They impose a levy on the banking system that has to be paid by someone — and that someone is probably us. That may explain why central banks and governments are so keen on them. Hugely indebted governments are always in the market for a new tax, especially one that their voters probably won’t notice. But it also explains why they don’t really work — because most of the economics in trouble, especially in Europe, are already suffocating under an impossible high tax burden. Negative interest rates have, like a fast-mutating virus, started to spread across the world. The Swiss first tried them out all the way back in the 1970s.

In June 1972 it imposed a penalty rate of 2% a quarter on foreigners parking money in Swiss francs amid the turmoil of the early part of that decade, but the experiment only lasted a couple of years. In the modern era, the ECB kicked off the trend in June 2014 with a negative rate on selected deposits. Since then, they have spread to Sweden, Denmark, Switzerland (again), and more recently Japan, while the ECB has cut even deeper into negative territory. They already cover about a third of the global economy, and there is no reason why they should not reach further. The Fed might be raising rates this year, but it is the only major central bank to do so, and if, or rather when, there is another major downturn, it may have no choice but to impose negative rates as well.

“..how can an interest rate be negative? Does it become a “disinterest rate”?

• The Negative Interest Rate Gap (Dmitry Orlov)

Back in the early 1980s the US economy was experiencing stagflation: a stagnant economy and an inflating currency. Paul Volcker, who at the time was Chairman of the Federal Reserve, took a decisive step and raised the Federal Funds Rate, which determines the rate at which most other economic players get to borrow, to 18%, freezing out inflation. This was a bold step, not without negative consequences, but it did get inflation under control and, after a while, the US economy stopped stagnating. Well, not quite. Wages didn’t stop stagnating; they’ve been stagnant ever since. But the fortunes of the 1% of the richest Americans have certainly improved nicely! Moreover, the US economy grew quite a bit since that time.

Of course, most of this growth came at the expense of staggering structural deficits and an explosion of indebtedness at every level, but so what? Sure, the national debt went exponential and the government’s unfunded liabilities are now over $200 trillion, but that’s OK. You just have to like debt. Keep saying to yourself: “Debt is good!” Because if everyone started thinking that debt is bad, then the entire financial house of cards would implode and we would be left with nothing. But once interest rates peaked in the early 1980s, they’ve been on a downward trend ever since, with little ups and downs now and again but an unmistakable overall downward trend.

The Federal Reserve had to do this in order to, in Fed-speak, “support economic activity and job creation by making financial conditions more accommodative.” Once it started doing this, it found that it couldn’t stop. The US had entered a downward spiral—of sloth, obesity, ignorance, substance abuse, expensive and disastrous foreign military adventures, bureaucratic insanity, massive corruption at every level—and under these circumstances it needed ever-cheaper money in order to keep the financial house of cards from imploding. And then, in late 2008, the Fed finally reached the ultimate target: the Fed Funds Rate went all the way to zero. This is known as ZIRP, for Zero Interest Rate Policy. And, unfortunately, it stayed there.

It stayed there, instead of continuing to gently drift down as before, because of a conceptual difficulty: how can an interest rate be negative? Does it become a “disinterest rate”? How can that work? After all, lenders are “interested” in lending because they get back more than they lend out (accepting some amount of risk); and depositors are “interested” in keeping money in banks because they get back more than they put in. And if these activities become “of zero interest,” why would lenders lend and depositors deposit? They wouldn’t, now, would they? They’d buy gold, or Bitcoin, or bid up real estate.

As long as we can see things only in terms of money nothing we do has any real value.

• The EU Has “Run Its Historical Course” (ZH)

None other than the former head of MI6 (the British Secret Intelligence Service) Richard Dearlove expressed his quite candid thoughts on the immigration crisis, as well as the possibility of a British exit from the EU during a speech recently at the BBC. The speech is well worth the listen. Here are some notable quotes from the speech as it relates to the immigration crisis. The former head of intelligence is quick to point out that despite what the public perception may be, the reality is that there are terrorists already among us.

“When massive social forces are at work, and mass migration is such a force, a whole government response is required, and a high degree of international cooperation.” “In the real world, there are no miraculous James Bond style solutions. Simply shutting the door on migration is not an option. History tells us that human tides are irresistible, unless the gravitational pull that causes them is removed. Edward Gibbon elegantly charted how Rome, with all it’s civic and administrative sophistication and military prowess, could not stop its empire from being overrun by the mass movement of Europe’s tribes.”

“We should not conflate the problem of migration with the threat of terrorism. High levels of immigration, particularly from the Middle East, coupled with freedom of movement inside the EU, make effective border conrol more difficult. Terrorists can, and do exploit these circumstances as we saw recently in their movement between Brussels and Paris, and to and from Syria. With large numbers of people on the move, a few of them will inevitably carry the terrorist virus.” A number of the most lethal terrorists are from inside Europe, including the UK. They are already among us.” “The EU, as opposed to its member states, has no operational counter-terrorist capability to speak of. Many of the European states look to the UK for training.”

“The argument that we would be less secure if we left the EU, is in reality rather difficult to make. There would in fact be some gains if we left, because the UK would be fully master of its own house. Counter-terrorist coordination across Europe would certainly continue, and the UK would remain a leader in the field. The idea that the quality of that cooperation depends in any significant way on our EU membership is misleading.” “Is the EU, faced with the problem of mass migration, able to coordinate an effective response from its member countries. Should the UK stay in and continue struggle for fundamental change, or do we conclude that the effort would be wasted, and that the EU in its extended form has run its historical course. For each of us, this is possibly the most important choice we may ever have to make.”

“Whether we will each be worse off, whether our national security might be damaged, even whether the economy might falter, and sterling be devalued, are subsidiary to the key question, which is whether we have confidence in the EU to manage Europe’s future. If Europe cannot act together to persuade a majority of its citizens that it can gain control of its migrant crisis, then the EU will find itself at the mercy of a populist uprising which is already stirring. The stakes are very high, and the UK referendum is the first roll of the dice in a bigger geopolitical game.”

Unlike Greece, Italy is so big it can make or break the EU. So goalposts are moved as they go along.

• Italy Wins Brussels’ ‘Flexibility’ On Debt Reduction Targets (FT)

Brussels has granted Italy “unprecedented” flexibility in meeting EU debt reduction targets, using its political leeway to the full as it cautiously polices the eurozone’s fiscal rule book. Italy has emerged as a big winner from the European Commission’s latest review of national budget policies, which is set to pull back from — or postpone — painful corrective measures it had the power to impose. The decisions have sparked an intense debate within the commission over what critics see as its record of tolerating fiscal lapses by countries such as France, Italy and Spain. Some officials were on Tuesday pushing to delay parts of the package to avoid punishing Spain and Portugal before Spain’s election on June 26.

The need for the debate on timing shows the commission under Jean-Claude Juncker has acted as a self-described political body, even at the risk of undermining the credibility of the eurozone’s strengthened fiscal regime. After months of heavy lobbying from Matteo Renzi, the Italian premier, Rome secured most of the “budgetary flexibility” it sought, helping it avoid so-called excessive deficit procedures for failing to bring down its debt levels fast enough. Italy would be allowed extra fiscal room equivalent to 0.85%of GDP — or about €14bn — this year compared with the target mandated under EU budget rules. Such “flexibility” approaches the 0.9% of GDP Italy demanded in drawn-out negotiations with Brussels.

Valdis Dombrovskis and Pierre Moscovici, the two European commissioners responsible for eurozone budget issues, said in a letter to Rome that “no other member state has requested nor received anything close to this unprecedented amount of flexibility”. Zsolt Darvas of the Bruegel think-tank said that “if the rules were taken literally” Italy would be placed under the excessive deficit procedure. Overall the EU fiscal rules “have very low credibility”, he added. “Many countries are violating the rules almost constantly from one year to the next.” Mr Renzi’s government is not completely in the clear, however. In exchange for the flexibility, the commission demanded a “clear and credible commitment” that Italy would respect its budget targets in 2017 to reduce the country’s high debt-to-GDP ratio, which stood at 132.7%of GDP last year.

Brilliant! What’s not to like? Can’t wait for the response.

• US Raises China Steel Taxes By 522% (BBC)

The US has raised its import duties on Chinese steelmakers by more than five-fold after accusing them of selling their products below market prices. The taxes specifically apply to Chinese-made cold-rolled flat steel, which is used in car manufacturing, shipping containers and construction. The US Commerce Department ruling comes amid heightened trade tensions between the two sides over several products, including chicken parts. Steel is an especially sensitive issue. US and European steel producers claim China is distorting the global market and undercutting them by dumping its excess supply abroad. The ruling itself is only directed at what is small amount of steel from China and Japan and won’t have much of an impact – but it is the politics of the ruling that’s worth noting.

It is an election year, and US presidential candidates have been ramping up the rhetoric on what they say are unfair trade practices by China. US steel makers say that the Chinese government unfairly subsidises its steel exports. Meanwhile China has been under pressure to save its steel sector, which is suffering from over-capacity issues because of slowing demand at home. China’s Ministry of Finance has not directly responded to the US ruling but on its website this morning it has said that China will maintain its tax rebate policy for steel exports as part of its efforts to help the bloated steel sector recover. These tax rebates are seen as favourable policies to shore up ailing steel companies in China, and to avoid massive job losses. Expect more fiery rhetoric from the US on China’s unfair trading practices soon.

“..China’s richest man — at least on paper — lost half of his wealth in less than half an hour.”

• Chinas Debt Bubble Is Getting Only More Dangerous (WSJ)

It would be like finding out Warren Buffett’s financial empire may have been, quite possibly, a sham. That’s what happened last year when China’s richest man — at least on paper — lost half of his wealth in less than half an hour. It turned out that his company Hanergy may well just be Enron with Chinese characteristics: Its stock could only go up as long as it was borrowing money, and it could only borrow money as long as its stock was going up. Those kind of things work until they don’t. The question now, though, is how much the rest of China’s economy has come down with Hanergy syndrome, papering over problems with debt until they can’t be anymore. And the answer might be a lot more than anyone wants to admit. Although we should be careful not to get too carried away here.

Hanergy is now a nothing that used debt to look like a very big something, while China’s economy actually is a very big something that is using debt to look even bigger. In other words, one looks like a boondoggle and the other a bubble. But in both cases, excessive borrowing — especially from unregulated “shadow banks,” such as trading firms — has made things look better today at the expense of a worse tomorrow. In Hanergy’s case, there will, of course, be no tomorrow. To step back, the first thing to know about Hanergy is that it’s really two companies. There’s the privately owned parent corporation Hanergy Group, and the publicly traded subsidiary Hanergy Thin Film Power (HTF). The latter, believe it or not, started out as a toymaker, somehow switched over to manufacturing solar panel parts, and was then bought by Hanergy Chairman Li Hejun.

And that’s when things really got strange. The majority of HTF’s sales, you see, were to its now-parent company Hanergy — and supposedly at a 50% net profit margin! — but it wasn’t actually getting paid, you know, money for them. It was just racking up receivables. Why? Well, the question answers itself. Hanergy must not have had the cash to pay HTF. Its factories were supposed to be putting solar panels together out of the parts it was getting from HTF, but they were barely running — if at all. Hedge-fund manager John Hempton didn’t see anything going on at the one he paid a surprise visit to last year. It’s hard to make money if you’re not making things to sell. But it’s a lot easier to borrow money and pretend that you’re making it. At least as long as you have the collateral to do so — which Hanergy did when HTF’s stock was shooting up.

Indeed, it increased 20-fold from the start of 2013 to the middle of 2015. But it was how more than how much it went up that raised eyebrows. It all happened in the last 10 minutes of trading every day. Suppose you’d bought $1,o00 of HTF stock every morning at 9 a.m. and sold it every afternoon at 3:30 p.m. from the beginning of 2013 to 2015. How much would you have made? Well, according to the Financial Times, the answer is nothing. You would have lost $365. If you’d waited until 3:50 p.m. to sell, though, that would have turned into a $285 gain. And if you’d been a little more patient and held on to the stock till the 4 p.m. close, you would have come out $7,430 ahead. (Those numbers don’t include the stock’s overnight changes).

Problem is: curb shadow banks and you curb local governments. Not at all what Xi is looking for.

• China To Curb Shadow Banking Via Checks On Fund House Subsidiaries (R.)

China plans to tighten supervision over fund houses’ subsidiaries and rein in the expansion of a sector worth nearly 10 trillion yuan ($1.53 trillion) as regulators target a key channel for so-called shadow banking to contain financial risks, according to a copy of the draft rules seen by Reuters. The Asset Management Association of China (AMAC) will set thresholds for fund houses to establish subsidiaries and use capital ratios to limit the subsidiaries’ ability to expand businesses, the draft rules said. Loosely-regulated subsidiaries set up by mutual fund firms have grown rapidly over the past year, managing 9.8 trillion yuan worth of assets by the end of March, according to the AMAC, and becoming a key channel for shadow banking activities.

Under the proposed rules, fund houses applying to set up subsidiaries must manage at least 20 billion yuan in assets excluding money-market funds, and have a minimum 600 million yuan in net assets. Current thresholds are much lower. The new rules would also require that a subsidiary’s net capital not be lower than the company’s total risk assets, while net assets must not be lower than 20% of its liability, in effect slashing the leverage ratio of the business. China’s prolonged crackdown on riskier practices in the lesser-regulated shadow banking system has taken on fresh urgency amid a growing number of corporate defaults as the economy struggles, and as top policymakers appear increasingly worried about the risks of relying on too much debt-fuelled stimulus.

You don’t have to watch it to know it’s a failure. That was clear from the start.

• Abenomics: The Reboot, Rebooted (R.)

Abenomics has over-promised and under-delivered. Japanese Prime Minister Shinzo Abe’s bid to revive anaemic growth, reverse falling prices and rein in government debt has relied too heavily on the central bank and been sideswiped by a global slowdown. Keeping the project alive now requires fresh boldness. When he took office in December 2012, Abe set out to lift real economic growth to 2% a year, with consumer prices rising at the same rate. His main weapons were the famous “three arrows” of aggressive monetary policy, a flexible fiscal stance, and widespread structural reform. Abe has achieved some success. Unemployment is just 3.2%, a low last seen in 1997. In his first three calendar years in office, the economy expanded about 5% in nominal terms.

A weaker yen has helped deliver record corporate earnings; as of May 13 the Topix stock index had returned 70% including dividends. Prices have inched upwards. But the core targets remain out of reach. The IMF expects Japan’s GDP to grow just 0.5% this year. Even after cutting out volatile prices for fresh food and energy, the Bank of Japan’s preferred measure of inflation is running at just 1.1%. And the central bank keeps delaying its deadline for hitting the 2% target, which it now expects to reach in the year ending March 2018. Analysts still think that optimistic. Meanwhile, the yen has rallied unhelpfully and the BOJ faces accusations it is ineffective, after unexpectedly making no change to policy at its last meeting.

One snag is psychological: the deflationary mindset is hard to shake. Firms can borrow very cheaply yet hoard lots of cash and resist big pay rises. Workers are not pushy about wage hikes, and reluctant to spend. There were errors, too. Abe faced concerns that Japan’s government debt, at 2.4 times GDP, could become unsustainable. So he kept fiscal policy relatively orthodox, promising that taxes would cover public spending, excluding interest payments, by 2020. He hiked the country’s sales tax in 2014, denting growth and confidence. And he relied heavily on BOJ Governor Haruhiko Kuroda, whose institution now buys an extraordinary 80 trillion yen a year ($740 billion) of bonds. Meanwhile, structural reforms remain far from complete – in everything from encouraging more women into the workforce to reconsidering a deep aversion to immigration.

We can hope…

• Trump and Sanders Shift Mood in Congress Against Trade Deals (BBG)

Congress has embraced free trade for two generations, but the protectionist bent of the 2016 election campaign may mark the end of that era. The first casualty may be the 12-nation Trans-Pacific Partnership, which was already facing a skeptical Congress. A European trade pact in the works may also be in trouble. Lawmakers from both parties are taking lessons from the insurgent campaigns of Donald Trump and Bernie Sanders, which have harnessed a wave of discontent on job losses by linking them to free-trade deals. Even Hillary Clinton has stepped up criticism of the pacts. While past presidential candidates have softened their stance on trade after winning election, the resonance of the anti-free-trade attacks among voters in the primaries may create a more decisive shift. Opponents of these deals are already sensing new openings.

“The gravity has shifted,” said Representative Marcy Kaptur, an Ohio Democrat. She said it could give new traction to proposals like one she’s put forth that would reopen trade deals with nations that have a trade deficit of $10 billion with the U.S. for three years in a row. The success of Trump and Sanders in Rust Belt states and elsewhere will make it even harder, if not impossible, for Congress to back TPP, even in a lame-duck session after the election. Lawmakers say it could also hamper a looming agreement between the U.S. and the EU if it looks like the next president would change course. “It’s a very heavy lift at this point,” said Representative Charlie Dent, a Pennsylvania Republican and longtime free-trade advocate, noting that all three remaining presidential contenders have expressed reservations about the TPP.

We never stood a chance. They’re oh so cunning and devious: “..smugglers ran their proceeds through [..] grocery stores..”. My question would be: how much of this went to the Erdogan family?

• Smugglers Made $5-6 Billion Off Refugees To Europe In 2015 (R.)

People smugglers made over $5 billion from the wave of migration into southern Europe last year, a report by international crime-fighting agencies Interpol and Europol said on Tuesday. Nine out of 10 migrants and refugees entering the European Union in 2015 relied on “facilitation services”, mainly loose networks of criminals along the routes, and the proportion was likely to be even higher this year, the report said. About 1 million migrants entered the EU in 2015. Most paid 3,000-6,000 euros ($3,400-$6,800), so the average turnover was likely between $5 billion and $6 billion, the report said. To launder the money and integrate it into the legitimate economy, couriers carried large amounts of cash over borders, and smugglers ran their proceeds through car dealerships, grocery stores, restaurants or transport companies.

The main organisers came from the same countries as the migrants, but often had EU residence permits or passports. “The basic structure of migrant smuggling networks includes leaders who coordinate activities along a given route, organisers who manage activities locally through personal contacts, and opportunistic low-level facilitators who mostly assist organisers and may assist in recruitment activities,” the report said. Corrupt officials may let vehicles through border checks or release ships for bribes, as there was so much money in the trafficking trade. About 250 smuggling “hotspots”, often at railway stations, airports or coach stations, had been identified along the routes – 170 inside the EU and 80 outside.

People understand things only when expressed in monetary terms. Maybe we need a real deep collapse to change that. Meanwhile, it looks like refugees make everyone rich except for themselves.

• Refugees Will Repay EU Spending Almost Twice Over In Five Years (G.)

Refugees who arrived in Europe last year could repay spending on them almost twice over within just five years, according to one of the first in-depth investigations into the impact incomers have on host communities. Refugees will create more jobs, increase demand for services and products, and fill gaps in European workforces – while their wages will help fund dwindling pensions pots and public finances, says Philippe Legrain, a former economic adviser to the president of the European commission. Simultaneously refugees are unlikely to decrease wages or raise unemployment for native workers, Legrain says, citing past studies by labour economists.

Most significantly, Legrain calculates that while the absorption of so many refugees will increase public debt by almost €69bn (£54bn) between 2015 and 2020, during the same period refugees will help GDP grow by €126.6bn – a ratio of almost two to one. “Investing one euro in welcoming refugees can yield nearly two euros in economic benefits within five years,” concludes Refugees Work: A Humanitarian Investment That Yields Economic Dividends, a report released on Wednesday by the Tent Foundation, a non-government organisation that aims to help displaced people.

A fellow at the London School of Economics, Legrain says he hopes the report will dispel the myth that refugees will cause economic problems for western society. “The main misconception is that refugees are a burden – and that’s a misconception shared even by people who are in favour of letting them in, who think they’re costly but it’s still the right thing to do,” said Legrain in an interview. “But that’s incorrect. While of course the primary motivation to let in refugees is that they’re fleeing death, once they arrive they can contribute to the economy.” While their absorption puts a short-term strain on public finances, Legrain says, it also increases short-term economic demand, which acts as a welcome fiscal stimulus in countries where demand would otherwise be low.

Debt Rattle March 30 2015

Mar 302015

March 30, 2015 Posted by Raúl Ilargi Meijer at 9:31 am Finance Tagged with: Antarctica, China, Cinderella, Draghi, Fed, Greece, oil, proxy war, tax, Ukraine 6 Responses »

John M. Fox “The new Hudson” 1948

• How The Fed Is ‘Screwed,’ And What Happens Next (CNBC)

• Cinderella’s New Moral: Be Rich Or Be A Pumpkin (Lynn Stuart Parramore)

• The ECB’s Put – Explained By Draghi (CNBC)

• Angola Joins Venezuela Among Biggest Losers Of Oil’s Tumble (CNBC)

• China’s Developers Face More Price Pain (FT)

• China Central Bank Governor Calls For Vigilance On Deflation (Reuters)

• Greece Says Not Backing Down On Debt Relief Goal (Reuters)

• How Greece Pushed Europe’s Creditors To The Edge (Telegraph)

• Greek Bailout Proposals Lack Necessary Detail, Officials Say (WSJ)

• Investors Fear Greece Will Impose Capital Controls (AFR)

• Greek Markets Show All at Risk Should Mistake Trigger a Default (Bloomberg)

• ECB Nerves Fray on Greece as Supervisors Rile Central Bankers (Bloomberg)

• Globalist Financiers Fleece Greece (StealthFlation)

• Australia To Introduce Tax On Bank Deposits (ABC)

• Swiss Banking Model Is ‘Dead’, Says Abu Dhabi Finance Centre Chief (FT)

• Kim Dotcom Loses $67 Million Of Assets To US Government (RT)

• Who’s Fighting For Whom In Yemen’s Proxy War? (Reuters)

• Ukraine’s Oligarchs Turn on Each Other (Robert Parry)

• Risks Involved In UK Smart Meter Scheme Are ‘Staggering’ (BBC)

• Antarctica Recorded Its Hottest Temperature Ever This Week (CP)

“There will never be a good time to raise rates off zero when you’ve been there for six years..”

• How The Fed Is ‘Screwed,’ And What Happens Next (CNBC)

Call it a box, or perhaps even a paradox, but the Federal Reserve finds itself in an uncomfortable position heading into its first rate-hiking cycle in nearly a decade. A central bank that has prided itself on transparency during its ultra-easy cycle following the financial crisis is now doing an awkward dance with a market not quite sure what to make of the road to tightening financial conditions. The essential problem is this: When the Fed could have raised rates it didn’t want to. Now that it wants to raise rates, it may not be able to, at least not without causing substantial turmoil in the same financial markets it has sought so strenuously to soothe. The Fed hasn’t raised rates since June 2006. “There will never be a good time to raise rates off zero when you’ve been there for six years,” Peter Boockvar at The Lindsey Group, told CNBC. “The Fed’s screwed, essentially.”

The extension of the central bank’s dilemma, or box, or paradox, goes like this, as highlighted in Boockvar’s argument: Zero interest rates were a response to the worst U.S. economic crisis since the Great Depression. The economy, though, is far removed from its crisis days. The recession ended in mid-2009, gross domestic product has been on a steady if uninspiring march higher and financial markets, which have received by far the most benefit from Fed programs, have soared. While all that happened, the Fed could have begun the tightening process without disrupting the recovery. What’s left now, though, is a point where the Fed has indicated a desire to tighten at a time when its biggest global counterparts are easing. That’s resulted in a firming of the dollar, a looming earnings recession in which U.S. profits are forecast to decline in two consecutive quarters—and could well turn negative for the year—and first-quarter GDP gains that could be anemic or nonexistent.

“Zero … is just an unnatural rate six years into a recovery.” Boockvar said. “But the problem is that GDP growth hasn’t averaged more than 2.5% (during the recovery), so they’re stuck in this lackluster, mediocre-type growth rate.” Investors have recoiled amid the current conditions. Outflows from equity-based funds have reached their highest level since the darkest days of 2009, just as the recession was ending and the Fed was kicking its zero interest rate policy and quantitative easing into high gear. The central bank expanded its balance sheet to $4.5 trillion during QE as it bought bonds and injected liquidity into the capital markets.

“..your chances of marrying outside your income bracket have been dropping since the 1950s because of something called assortative mating..”

• Cinderella’s New Moral: Be Rich Or Be A Pumpkin (Lynn Stuart Parramore)

Once upon a time, during a brief egalitarian period in postwar America, people of different classes did not live in separate worlds. The promise of mobility and prosperity was alive throughout the land. In 1950, Walt Disney Productions was saved from bankruptcy with its smash hit Cinderella, which audiences cheered at a time when the future looked bright and it was still possible for the dream of marrying up to come true. A new Disney film of Cinderella is a big box-office success today, but how different things look! Cinderella marriages are getting to be as rare as golden coaches. Economist Jeremy Greenwood has found that your chances of marrying outside your income bracket have been dropping since the 1950s because of something called assortative mating, which means that we are increasingly drawn to people in similar circumstances.

Since the 1980s, inequality has grown and mobility has stalled. Today, the rich forge their unions in exclusive social clubs, Ivy League colleges and gated communities. Unless you have a fortune or a fairy godmother, you’re probably out of luck. Without that magic, the gates remain closed. At first glance, Kenneth Branagh’s remake of the classic Disney film seems to offer a sunny romp through the magic kingdom. But a closer look reveals a troubling economic message. Economists like Thomas Piketty have been warning that if we don’t do something to stop growing income inequality, we may end up back in a 19th-century world, where hard work won’t lift you up the economic ladder because the income you can expect from labor is no match for inherited wealth. This is the world of the new Cinderella.

More so than the original Disney film, Branagh’s version highlights what happens when people are forced to compete for illusive rewards in a harsh economy. Families turn on each other, chances to get ahead are few and you’d better hope for a magic wand. Subtle changes to the story bring the point home. In the original animated version, the father is a gentleman, a widower who remarries and then promptly dies, leaving a jealous stepmother and her mean-girl daughters to torment his beloved only child. But in Branagh’s film, the father is a merchant, and his death deprives the family of his income — leaving them all in straitened circumstances.

The stepmother’s first thought on hearing of her husband’s demise is entirely practical: How shall we survive economically? Her answer: Turn Cinderella into a servant and search for wealthy matches for her two daughters. The marriage market illustrated in the movie reflects what economists like Robert H. Frank describe as a tournament, a “winner-take-all” game associated with economies where wealth is increasingly concentrated at the top. In these cutthroat markets, only a handful of people can win big, while the rest are left with little.

He makes it up afresh every morning.

• The ECB’s Put – Explained By Draghi (CNBC)

Investors in euro-denominated assets can get very useful insights from important points that European Central Bank (ECB) President Mario Draghi made last week while addressing several committees of the Italian Parliament. At the outset, Draghi pointed out that the main purpose of the ECB’s asset purchase program (“quantitative easing”) was to create a more favorable environment for structural reforms. These reforms are an absolutely essential part of freeing up market mechanisms in Europe’s rigid economies and bloated welfare systems. They are supposed to create conditions necessary for steady and balanced economic growth. The rub is that the short-term impact of these reforms also creates flammable socio-political problems of rising unemployment and falling revenues.

No euro area government has a mandate for such policy outcomes. Those who tried sank to oblivion. Witness the social turmoil and political changes in Greece, France, Italy, Spain and Portugal. All of these countries are currently experiencing a powerful pushback to reforms and austerity policies. The new leftwing government in Greece got an overwhelming popular vote to roll back most of the socially painful structural reforms and accompanying austerity policies. Last week’s regional elections in France showed a similar result. Spain’s Podemos party, an upstart anti-austerity movement, is breaking up the country’s traditional two-party system, leading to a huge defeat of the center-right government in regional parliamentary elections a week ago.

And tens of thousands of people were marching in Rome last Saturday to protest against new regulations introducing a bit of much-needed flexibility to an excessively rigid Italian labor market. These are the people Mario Draghi was addressing while speaking two days earlier to Budget, Finance and European Affairs Committees of the Italian Parliament. What he said there is that the ECB can help with expansionary monetary policies to ease the (short-term) pain of structural reforms, but that without these reforms the euro area recovery will peter out, bringing the economies back to stagnation, falling output and rising unemployment. [That reminded me of a good old Spanish proverb: “Pan de hoy, hambre de mañana,” literally translated as “bread today, hunger tomorrow”.]

Elaborating on this argument, Draghi told Italian legislators that the encouraging signs of improving economic activity in the euro area are mainly the result of falling energy costs, cheap credit (and the sinking euro)and favorable effects of structural reforms in some member countries. But he warned that what he sees is a “cyclical recovery” rather than a more sustainable “structural recovery,” which rests on flexible markets, rising productivity and an increasing non-inflationary growth potential.

Emerging countries are no longer that.

• Angola Joins Venezuela Among Biggest Losers Of Oil’s Tumble (CNBC)

Plunging oil prices have been an economic windfall for U.S. consumers, primarily through greater savings at the pump. In energy-reliant countries around the world like Angola, however, the effect has been far less beneficial. Social and economic turmoil in countries like Venezuela and Russia—largely because of the swoon in global oil prices—has drawn attention away from Angola, an OPEC member that is Africa’s second-largest oil producer. The country churns out 1.75 million barrels of oil per day, according to the Energy Information Agency (EIA). The sub-Saharan country is hugely dependent on oil production to generate revenue for its economy, which the International Monetary Fund (IMF) says accounted for 97% of total export revenues in 2012, marginally more than Venezuela’s 95%.

Although Angola’s economic tumult is not as bad as Venezuela’s, the situation in the country is pretty grim. Last year, Angola saw net oil export revenue plunge by more than 12% to $24 billion, due to tumbling production and crude prices, EIA data notes. Its oil exports account for 50% of its domestic economy, and Angola had to drastically slash its 2015 oil price assumptions to $40 per barrel, from $81 per barrel. The tumble in black gold has precipitated massive created wrenching adjustment in the country, which Rabah Arezki, head of the commodities research team at IMF, said puts upward pressure on domestic oil prices, resulting in “social unrest” and a recently proposed $14 billion in budget belt-tightening.

The massive budget cuts “is of course a huge shock,” Arezki told CNBC, suggesting that “the government may decide to cushion the shock using fiscal buffers.” And not unlike Venezuela, Angola’s oil crisis has created a crisis that has sent its currency, the Kwanza, to an all-time low. Arezki points out that is likely to hinder the effectiveness of monetary policy. The situation has put Angolan president Jose Eduardo dos Santos in the crosshairs of public anger. Luanda has been forced to reach out to international lenders for at least $1 billion in loans, the Financial Times reported recently, and is reportedly soliciting banks like Goldman Sachs for millions in private loans.

China saw the west lying about its wealth and thought: why stop there?

• China’s Developers Face More Price Pain (FT)

Chinese property developers are finding themselves forced to sacrifice profits to boost sales, as the downturn in the housing market saddles them with bulging inventories and limited access to new funding. Most listed mainland homebuilders recorded a steady rise in revenue last year but sharp declines in profit for many are a symptom of aggressive price-cutting designed to shift stock and generate much-needed cash in the debt-laden sector. Revenue at Agile Property increased 8% in 2014, the company said in its latest earnings report yet profits sank 11%. Profit fell by 15% at Guangzhou R&F and by 8% at Yuzhou Properties, even as both reported growth in sales. “We expect prices will remain under pressure over the next few months as developers continue to offer price incentives for their projects,” Moody’s analysts wrote in a report.

Margins at some of the more successful companies also have come under pressure. Country Garden’s income rose by more than a third last year, yet profit was up by only a fifth. Still, China Vanke – the country’s largest builder by sales – reports earnings on Monday, and is expected to show operating profit rising by over 30%. Weakness in the housing market has been a key factor in China’s broad slowdown. The economy grew 7.4% last year, the slowest pace in more than 20 years, as the government sought to reduce dependence on credit-fuelled construction. Overall home sales dropped 8% last year, according to official figures.

“With the downward pressure on the economy, the real estate industry will continue to undergo a period of profound correction,” said Cao He, chairman of Hong Kong-listed builder Franshion. “Property developers will face challenges including shrinking profit margins and intensifying competition.” Kiyan Zandiyeh and Daili Wang of Roubini Global Economics warn that the current “supply glut” in Chinese housing is likely to get even more severe. “With companies trying to meet sales growth and defend market share, the incentive has been to keep building – meaning today’s excess supply in the market will only worsen,” they wrote in a report. “Developers will struggle with stronger headwinds from falling house prices, given that most of them are operating with unsustainable levels of inventory and debt.”

Spending in China is way down, so deflation is a fact.

• China Central Bank Governor Calls For Vigilance On Deflation (Reuters)

China’s central bank governor Zhou Xiaochuan warned on Sunday that the country needs to be vigilant for signs of deflation and said policymakers were closely watching slowing global economic growth and declining commodity prices. Zhou’s comments are likely to add to concerns that China is in danger of slipping into deflation and underline increasing nervousness among policymakers as the economy continues to lose momentum despite a raft of stimulus measures. “Inflation in China is also declining. We need to have vigilance if this can go further to reach some sort of deflation or not,” Zhou said at a high-level forum in Boao, on the southern Chinese island of Hainan.

Zhou added that the speed with which inflation was slowing was a “little too quick”, though this was part of China’s ongoing market readjustment and reforms. Beijing is determined to keep the world’s second-largest economy from taking the same path of recession and deflation that has blighted its neighbor Japan for the past 20 years. The central bank’s newspaper warned last month that China is dangerously close to slipping into deflation. The People’s Bank of China (PBOC) has cut interest rates twice since November and taken other steps to support growth, but economists believe it will be forced to take more aggressive measures in coming months if prices and the economy weaken further.

Zhou also said China had a “clear direction” in terms of interest rate liberalization – a long-term goal – although he added it was difficult to put a clear timetable on the move. He pointed to comments made last year when he said the country’s deposit rates were likely to liberalized in one to two years. Last week, Zhou said China could undermine structural reforms if it adopts an excessively loose monetary policy, while pledging to relax capital controls to help make the yuan currency fully convertible. Zhou also said on Sunday that China hoped to work on streamlining regulations around foreign exchange this year and that through the adoption of new rules China would eventually be able to achieve capital account convertibility.

And they won’t.

• Greece Says Not Backing Down On Debt Relief Goal (Reuters)

– Greece has not given up on its aim to renegotiate its debt to render it manageable, the country’s deputy finance minister said on Monday as talks between Athens and its lenders on reforms to unlock aid continue. “The government has not abandoned any claim regarding its aim to make the country’s debt viable,” Deputy Finance Minister Dimitris Mardas told financial daily Naftemporiki. Greece’s public debt burden reached more than 177% of national output last year. The country’s new government came to power in January promising to demand that its euro zone partners let it write off a large part of that debt.

But it has said little about the issue in recent weeks, as Greece struggles to cope with a cash crunch and the government focuses on reaching agreement with its lenders on reforms that would unlock the remaining funds of the country’s bailout. “The solutions are known — either there will be a haircut or it will be extended, or (repayment) will be linked to an increase in output or exports, or there will be lower interest rates,” Mardas told the paper. He reiterated a plan to link the repayment of Greece’s 318 billion euros of debt with economic growth or exports, along the lines of a deal applied for post-World War Two Germany.

“The ECB has always been the most powerful but least accountable player in bail-out talks”.

• How Greece Pushed Europe’s Creditors To The Edge (Telegraph)

Greece has pleaded for forbearance from its creditors. The parlous state of the government’s coffers has led to fears it could run out of cash to make wage and pensions bill in the coming weeks. After a brief reprieve, deposit flight has resumed apace. A primary budget surplus registered over the same period last year, has disappeared. Ratings agency Fitch slashed the country’s sovereign bonds citing the “tight liquidity conditions” that have put “extreme pressure on Greek government funding”. The spectre of an “accidental” Greek exit – or “Grexident” – now looms over the eurozone. “Grexit will not happen” assured Greece’s central bank governor Yannis Stournaras to an audience at the London School of Economics last week. “The eurozone has all the tools to ensure a Grexident cannot occur.”

But of the all the institutions that has pushed his country to the brink, it is the European Central Bank’s role in the saga that has come under the fiercest criticism from Athens. The ECB has long disbanded providing its ordinary loans to Greece’s banks, who have been reliant on emergency funding to keep themselves alive. The limits on this lifeline have been repeatedly hit as deposits flee the country. ECB funding for Greek banks has now topped €100bn. “The ECB has always been the most powerful but least accountable player in bail-out talks” says Raoul Ruparel, head of economic research at Open Europe. “As in Cyprus, they have the power to squeeze liquidity, but it’s a power that has never been properly scrutinised. It’s a concern the eurozone is not paying attention to,” adds Mr Ruparel.

Moves to withdraw a collateral waiver on Greek bonds, and officially ban banks from increasing their holdings of treasury debt has led to accusations the central bank is acting “ultra vires”. When asked about the Bank’s position, the ECB’s chief economist Peter Praet chose to exercise “verbal constraint in a moment of crisis” – itself a tacit admission that the Greek saga still has a way to run before the ECB will alleviate the funding pressures on the nascent government. In a drama littered with soft deadlines, Greece has now promised to present a final list of fleshed out reforms to creditors on Monday. Yet the pattern of over-promising and under-delivering is one that may well repeat itself in April, says Mr Ruparel. “Negotiations have gone in such a way that Greece presents the reforms, and the list underwhelms. This could well happen again – the key is where the eurogroup now draws the line. Maybe the Greeks have convinced them the situation is now dire enough.”

Well, what a surprise.

• Greek Bailout Proposals Lack Necessary Detail, Officials Say (WSJ)

Greek proposals for a revised bailout program don’t have enough detail to satisfy the government’s international creditors, eurozone officials said, making it more likely that Athens will need to go several more weeks without a new infusion of desperately-needed cash. Officials from Greece’s leftist government were in Brussels over the weekend to present the proposals to officials from the European Commission, the European Central Bank and the International Monetary Fund—the trio of institutions representing the government’s creditors. Getting their thumbs-ups is crucial for Athens to regain access to bailout funds and restore normal lending from the ECB. The Greek government is facing a dire shortage of cash: It must pay salaries and pensions at the end of the month and repay debts to the IMF on April 9.

While talks over the weekend were friendly, officials said, mistrust at a political level continues to stew between the outspoken government in Athens and the rest of the eurozone. Following a meeting last week between Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel, Greece said it would submit a list of bailout proposals to its creditors on Monday. Officials hoped that discussions over the weekend would ensure the list is roughly in line with the creditors’ demands. But officials say crucial details were again missing from the Greek proposals after talks that started Friday night, lasted all day Saturday and continued on Sunday. “The proposals were piecemeal, vague and the Greek colleagues could not explain technically what some of them actually implied,” a eurozone official said. “So, let’s hope that they present something more competent next week.”

Sure, real scary.

• Investors Fear Greece Will Impose Capital Controls (AFR)

Will Athens be able to avoid imposing capital controls? That’s the question anxious investors are asking as they wait to see whether the long-awaited reform package proposed by the radical leftist government of Alexis Tsipras does the trick in terms of unlocking billions of euros in badly needed cash. Representatives of Greece’s Troika lenders spent the weekend debating the draft list of economic reforms sent through by Athens on Friday. The approval of the “Brussels Group” (formerly known as the “troika”), followed by the blessing of eurozone finance ministers, will be needed for Athens to be able to tap the frozen aid money and stave off bankruptcy.

The list of reforms include 18 measures aimed at boosting state revenues by €3 billion in 2015, and allowing the country to achieve a primary budget surplus (which excludes debt servicing costs) of 1.5% of GDP. The Greek government is counting on economic growth of 1.4% this year. The main thrust of the reforms is aimed at combating tax evasion and increasing the amount of tax paid by the wealthy. The government’s coffers will also be boosted by measures such as raising the sales tax on certain luxury products, and forcing Greek television chains to pay licence fees. Although Athens has previously ruled out lifting the retirement age or cutting pension payments, the reform package also includes some restrictions on the payment of early pensions,

In addition, the Tsipras government has agreed to proceed with planned privatisations, even though it wants to retain some management control of the businesses after selling off stakes. Investors are hoping that intensive negotiations between Athens and Brussels over the next few days result in a compromise package that goes far enough to persuade the European Union and the IMF to unfreeze at least some of the €7.2 billion that remains from Greece’s last international bailout, allowing the country to stave off bankruptcy. Cash-strapped Greece is hoping that eurozone finance ministers will meet and approve its reform program this week. The head of the group of eurozone finance ministers, Jeroen Dijsselbloem, has previously signalled that €1 to €2 billion Greece’s remaining aid money could be released quickly if Athens is able to reach agreement with its lenders.

But Brussels is in less of a hurry. EU officials are refusing to call a new meeting of the region’s finance ministers unless Athens is prepared to agree to “significant” reforms. As a result, the crucial meeting of euro zone finance meetings may not take place until after Easter. The Europeans are confident that the immediate risk of a Greek default has receded because the Tsipras government has forced state-controlled corporations and social security funds to transfer their cash reserves to the central bank. As a result, the country now has enough money to pay the €1.7 billion bill for pensions and public-sector wages at the end of March.

“The only feasible solution in the absolute extreme would be to turn all the official debt into a perpetual bond so it never gets repaid.”

• Greek Markets Show All at Risk Should Mistake Trigger a Default (Bloomberg)

In Athens, the unspeakable is at risk of becoming the inevitable. Market metrics show Greece is in danger of sinking under the burden of its debt, putting repayments of about €500 billion owed to European taxpayers, rescue funds, banks and bondholders in jeopardy. PM Alexis Tsipras is locked in talks with creditors over measures attached to Greece’s bailout loans and a government official said on Friday the country won’t service its debt if creditors don’t release the funds. The government has also floated a restructuring that would link some future payments to economic growth, reduce interest rates and allow more time for repayments. While their intention is to exclude private bondholders, the danger is that talks collapse and Greece leaves the euro, leaving all parties facing losses.

“The biggest fear now is that Greece exits by mistake,” said Padhraic Garvey at ING in London. “The only feasible solution in the absolute extreme would be to turn all the official debt into a perpetual bond so it never gets repaid.” With the country running out of cash, credit-default swaps indicate a 72% chance of Greece reneging on its debt within five years compared with 67% at the start of the month, according to CMA. Three-year note yields are almost 10 %age points higher than 10-year rates. Typically investors get more to lend for a longer period to compensate for inflation. With Greece, the immediate worry is whether they get their cash back. The price of five-year securities has tumbled to 68% of face value, from almost 100% after they were sold a year ago.

Greece sold the current three-year notes in July 2014, its second tap of capital markets within three months, after a five-year debt offering in April that year had been hailed by German Chancellor Angela Merkel as a step toward normalcy. Sales of those securities, which totaled about €6 billion, increased the amount of Greek bonds outstanding to €67.5 billion, of which the ECB and national central banks own about 40%, according to data compiled by Bloomberg. The market was reduced when Greece enacted the biggest-ever debt restructuring in 2012, which saw private bondholders write off about €100 billion. The 10-year yield went as high as 44.21% in March 2012 as the country moved to restructure its debt.

Infighting!

• ECB Nerves Fray on Greece as Supervisors Rile Central Bankers (Bloomberg)

Inside the five-month-old union between monetary policy and financial oversight at the ECB, nerves are beginning to fray. As officials seek to replace deposits fleeing Greek banks without blatantly financing the state, the efforts of the institution’s new Single Supervisory Mechanism to do its part are irking the old guard. Central bankers under ECB President Mario Draghi worry that overly-strict orders to lenders could worsen the Greek turmoil. After building an institutional pillar that has supervised the euro area’s largest banks since November, the ECB is now facing one of the worst flare-ups in six years of sovereign-debt crisis. Officials must work out how to align their two policy arms in a way that can find a path through the Greek turmoil and set a template for handling banking turbulence to come.

“Clearly there is tension, and it was obvious from the beginning that there would be,” said Nicolas Veron, a fellow at the Brussels-based Bruegel research group. “But there’s a productive kind of tension, like there was between Treasury Secretary Tim Geithner and Federal Deposit Insurance Corporation Chair Sheila Bair in 2008. It could end up creating the right mix of policy.” Just as those U.S. policy makers in the 2008 financial crisis had to choose between the moral hazard of bailing out banks and the economic chaos of watching them fail, European officials are trapped between giving in to Greek cash demands and the political debacle of letting the country leave the euro.

That stress is bubbling up inside the ECB, affecting the interaction between central bankers in their new premises in Frankfurt’s east end, and bank supervisors installed in a temporary home two kilometers away. SSM Chair Daniele Nouy may give clues on the relationship with the Governing Council when she testifies to the European Parliament on Tuesday. Her officials sought this month to prevent Greek banks from increasing holdings of short-term government debt, hours before critical meetings including Prime Minister Alexis Tsipras and Draghi. The move, which makes it harder for the state to fund itself, initially floundered as the ECB’s Governing Council balked at its severity and the monetary-policy goals that it referred to.

From the supervisory point of view, the proposal reflected the ECB’s restrictions on Emergency Liquidity Assistance for the Greek banking system. Since last month, the Governing Council has approved only small weekly increases in central- bank cash to its lenders, on concern funds might be used directly to buy illiquid government debt, violating European Union law. For some central bankers, the SSM proposal was a clumsy intervention in crisis policy that threatened to upset the Governing Council’s measured strategy of addressing the Greek turmoil, according to officials familiar with the discussions.

Angry Bruno!

• Globalist Financiers Fleece Greece (StealthFlation)

Greece was brought to her knees at the hands of its corrupt political class elites with the full support of an avaricious international banking cabal. Please don’t put the blame on the little old lady pushing her Gyro cart up the steep streets of Kolonaki. She was perfectly within her rights to assume that the leadership of her country knew what the hell they were doing whilst managing her distinguished nation’s finances. Yet today, she has taken the full brunt of the fiscal pain, while those most responsible for this massive over leveraged abomination, namely the Greek political family dynasties and their complicit int’l banksters, continue to bask in the sun off of Mykonos on their luxury yachts. Along with the privilege of leadership comes responsibility, it’s way too easy to simply blame the little people. According to Atlantic Media today:

The Greek government might run out of money in two weeks. Or perhaps four. Capital controls are either imminent or a month away. Whatever the case, depositors are draining Greek banks dry, which could hasten a state default and, potentially, ejection from the euro zone altogether. The four-month bailout extension that Greece got in February now seems a distant memory, with €7.2 billion in much-needed funds still contingent on Greece drawing up a detailed list of reforms, which creditors are vetting this weekend. If they don’t like what they see, it might mark the beginning of the end for Greece’s membership in the euro.

The first mandate SYRIZA obtained from a sovereign electorate, who rightly rejected the corrupt old-guard Greek political establishment, was to offer to negotiate a more rational, realistic and productive debt repayment schedule/structure with the TROIKA. That is what Alexis Tsipras & Yanis Varoufakis have tried diligently to accomplish thus far, if they fail because Brussels insists on sucking blood from a rock, then the next momentous mandate will be to leave the Eurozone altogether, and for that they will require a national referendum from the Greek people themselves. Tsipras is much smarter than many give him credit for, he knows that he must be perceived to progress cautiously and as constructively as possible, in order not to be pigeonholed as an extreme radical, which the EU establishment is so desperately trying to paint him as.

Make no mistake, the international banking cartel of our times our are on a mission to dismantle the sovereignty of all people. Greece is the first nation to fully recognize and realize this craven conniving cataclysm, as pain often gives people proper perspective. This Multilateral Central Banking Cabal and its high finance agents are planning to transition to a new international monetary order by devaluing the USD, as they fold it into the SDR world reserve currency, backed by a basket of the existing currencies of the major trading block nations. This will serve to both ease the burden of the most indebted nation in history, the U.S., by permitting its outstanding debt denominated USDs to be debased, as well as appease the creditor nations, who will agree to have their US dollar denominated debt holdings devalued, because they now require a true stake in the globe’s future monetary system moving forward. The only question remaining is will the global economy disintegrate before we get there……..

There’s already no interest left on deposits, and now the government wants to take more? Judging from prices on just about everything, but especially alcohol and tobacco, people here may have not much left anyway at the end of the day.

• Australia To Introduce Tax On Bank Deposits (ABC)

The Federal Government looks set to introduce a tax on bank deposits in the May budget. The idea of a bank deposit tax was raised by Labor in 2013 and was criticised by Tony Abbott at the time. Assistant Treasurer Josh Frydenberg has indicated an announcement on the new tax could be made before the budget. The Government is heading for a fight with the banking industry, which has warned it will have to pass the cost back onto customers. Mr Frydenberg is a member of the Government’s Expenditure Review Committee but has refused to provide any details. “Any announcements or decisions around this proposed policy which we discussed at the last election will be made in the lead up or on budget night,” he said. Speaking at the Victorian Liberal State Council meeting Mr Abbott has repeated his budget message, focusing on families and small businesses.

“There will be tough decisions in this year’s budget as there must be, but there will also be good news.” The banking industry has raised concerns about a deposit tax, saying it will have to pass the cost back onto customers. Steven Munchenberg from the Australian Bankers’ Association said it would be a damaging move for the Government. “It’s going to make it harder for banks to raise deposits which are an important way of funding banks. And therefore for us to fund the economy,” he said. “And we also oppose it because particularly at this point in time with low interest rates a lot of people who are relying on their savings for their incomes are already seeing very low returns and this will actually mean they get even less money.”

The new off-shore?

• Swiss Banking Model Is ‘Dead’, Says Abu Dhabi Finance Centre Chief (FT)

Abu Dhabi intends to set itself up as a new hub for wealth management, with the head of its nascent international financial centre declaring Switzerland’s old model of private bank secrecy to be “dead”. Abu Dhabi Global Markets is an expression of world ambition, intended to elevate the oil-and-gas-rich emirate to the tables of the most influential global institutions, such as the Basel Committee on Banking Supervision and the Group of 20 Nations, using Singapore rather than Switzerland as its model, its chairman told the Financial Times. “Innovation is coming from this new, emerging market.

This is why Asian financial centres are sitting on Basel committees and legislating for the west, because they didn’t make one mistake in 15 years,” Ahmed Ali al-Sayegh said in London as he set out ADGM’s stall to banks. “We have a similar ambition.” His comments come as the centre of gravity of such institutions has shifted palpably from west to east, and as Asia is developing its own bodies to rival those in the west, such as the China-led Asian Infrastructure Investment Bank. ADGM, which will have its own regulator and courts based on English common law, is an attempt to diversify the UAE capital’s economy. Its heavy-hitting sovereign wealth funds, the Abu Dhabi Investment Authority and Mubadala, will both be based in the free zone, built on al-Marya island in the capital.

That has worried some in neighbouring Dubai, whose own International Financial Centre opened a decade ago, attracting the world’s biggest banks and law firms. Mr Sayegh and his team, which includes Sir Hector Sants, the former head of the UK’s financial watchdog, are adamant that there is room for two financial centres within two hours’ drive of each other, stressing that not only will Abu Dhabi focus specific areas such as wealth management but also that nearby centres can complement each other.

Still a crazy story.

• Kim Dotcom Loses $67 Million Of Assets To US Government (RT)

Megaupload streaming service mogul Kim Dotcom has just been slapped with a civil penalty from the US government. The lawsuit will cost him $67 million worth of assets, including cars, property and luxury goods. The victory by the US court comes as he lost the right to contest the seizure of the assets. Dotcom, who is wanted in the United States for copyright infringement through the former file-sharing website, told the Herald on Sunday that this is indicative of the “sad state” of the US justice system. “By labeling me a fugitive, the US court has allowed the US government to legally steal all of my assets without any trial, without any due process, without any test of the merits,” he said, vowing to appeal the decision, which his legal team says would likely not hold up in New Zealand or Hong Kong courts.

“The asset forfeiture was a default judgment. I was disentitled to defend myself,” the internet guru went on. “First the US judge ruled that I can’t mount any defense in the asset forfeiture case because according to him I’m a ‘fugitive’… Think about that for a moment. I have always said that I’m innocent. There was no conspiracy. I have done nothing wrong.” He also claims the US government had to act in this way to spare the New Zealand authorities from having to return all of his assets in mid-April, when he claims he will have gone to the Appeals Court and won them back. “They would have had to return everything. Imagine all of the New Zealand media at the mansion when the police has to return everything, all my cars, my TVs, my servers and me directing them where to put my stuff.”

Complicated.

• Who’s Fighting For Whom In Yemen’s Proxy War? (Reuters)

An aerial campaign on Yemen’s capital, launched by a Saudi-led pan-Arab force, has escalated what had in many ways been a proxy war between Iran and Saudi Arabia. While the worsening war in Yemen shares similarities with other conflicts in the Arab world, it is the role of foreign powers in Yemen’s descent into leaderless chaos that is particularly striking. Because Yemen is viewed as the Arab world’s poor brother — inconsequential and with little influence over the region as a whole — it serves as an avenue for the Arab world to push back against Iran. There is little other incentive for Arab governments to become involved with Yemen’s internal quagmire, other than not having a hostile government in a nation bordering the Bab al-Mandeb strait, a highly trafficked shipping line leading to the Suez Canal.

Though Yemen’s domestic power struggle since the end of President Ali Abdullah Saleh’s reign three years ago was based largely on local grievances, these two historical foes, Shi’ite Iran and Sunni Saudi Arabia, worked to use who they could in Yemen for political advantage. The Saudi kingdom long was Yemen’s largest benefactor and held sway over powerful Yemeni tribal leaders. Yet following Saleh’s resignation in November 2011, Iran swiftly worked to increase its influence in Yemen by creating ties with whomever shared a common disdain for Saudi Arabia, including liberal anti-Saleh activists. The Houthi rebels, an oft-ignored militia from Yemen’s far north, were an obvious ally for Iran. Houthi fighters, who follow a sect of Shi’ite Islam known as Zaydism, consolidated power in the wake of the 2011 government collapse.

They are staunchly anti-Saudi. They believe that the Kingdom was involved in the systematic corruption of their distinct Zaydi culture via the promotion of Wahhabism (a strict interpretation of Sunni Islam that began in Saudi Arabia) in the Houthis’ traditional homeland in the north. Then last September, Houthi militia swept into Yemen’s capital, Sanaa, taking over government institutions and effectively forcing the resignation of President Abd- Rabbu Mansour Hadi — a man whose power stemmed from Western governments and the United Nations, which crafted and promulgated the transition agreement that made him president. There was no real attempt at a democratic transition in Yemen. Hadi was propped up by the West despite his lack of leadership experience, local support and political savvy.

Only one gets full US support, though.

• Ukraine’s Oligarchs Turn on Each Other (Robert Parry)

In the never-never land of how the mainstream U.S. press covers the Ukraine crisis, the appointment last year of thuggish oligarch Igor Kolomoisky to govern one of the country’s eastern provinces was pitched as a democratic “reform” because he was supposedly too rich to bribe, without noting that his wealth had come from plundering the country’s economy. In other words, the new U.S.-backed “democratic” regime, after overthrowing democratically elected President Viktor Yanukovych because he was “corrupt,” was rewarding one of Ukraine’s top thieves by letting him lord over his own province, Dnipropetrovsk Oblast, with the help of his personal army. Ukrainian oligarch Igor Kolomoisky confronting journalists after he led an armed team in a raid at the government-owned energy company on March 19, 2015. (Screen shot from YouTube)

Last year, Kolomoisky’s brutal militias, which include neo-Nazi brigades, were praised for their fierce fighting against ethnic Russians from the east who were resisting the removal of their president. But now Kolomoisky, whose financial empire is crumbling as Ukraine’s economy founders, has turned his hired guns against the Ukrainian government led by another oligarch, President Petro Poroshenko. Last Thursday night, Kolomoisky and his armed men went to Kiev after the government tried to wrest control of the state-owned energy company UkrTransNafta from one of his associates. Kolomoisky and his men raided the company offices to seize and apparently destroy records. As he left the building, he cursed out journalists who had arrived to ask what was going on. He ranted about “Russian saboteurs.”

It was a revealing display of how the corrupt Ukrainian political-economic system works and the nature of the “reformers” whom the U.S. State Department has pushed into positions of power. According to BusinessInsider, the Kiev government tried to smooth Kolomoisky’s ruffled feathers by announcing “that the new company chairman [at UkrTransNafta] would not be carrying out any investigations of its finances.” Yet, it remained unclear whether Kolomoisky would be satisfied with what amounts to an offer to let any past thievery go unpunished. But if this promised amnesty wasn’t enough, Kolomoisky appeared ready to use his private army to discourage any accountability.

On Monday, Valentyn Nalyvaychenko, chief of the State Security Service, accused Dnipropetrovsk officials of financing armed gangs and threatening investigators, Bloomberg News reported, while noting that Ukraine has sunk to 142nd place out of 175 countries in Transparency International’s Corruptions Perception Index, the worst in Europe. The see-no-evil approach to how the current Ukrainian authorities do business relates as well to Ukraine’s new Finance Minister Natalie Jaresko, who appears to have enriched herself at the expense of a $150 million U.S.-taxpayer-financed investment fund for Ukraine. Jaresko, a former U.S. diplomat who received overnight Ukrainian citizenship in December to become Finance Minister, had been in charge of the Western NIS Enterprise Fund (WNISEF), which became the center of insider-dealing and conflicts of interest, although the U.S. Agency for International Development showed little desire to examine the ethical problems – even after Jaresko’s ex-husband tried to blow the whistle.

Not so smart.

• Risks Involved In UK Smart Meter Scheme Are ‘Staggering’ (BBC)

The government’s smart meter scheme could be an “IT disaster”, the Institute of Directors (IoD) has said. The risks involved with “the largest UK government-run IT project in history” were “staggering”, a report said. It recommended that the government drastically scale back the programme or abandon it altogether. Smart Energy GB, the independent body set up to publicise smart meters, said the IoD wanted to take the UK “back to an analogue dark age”. Energy-saving digital smart meters, designed to replace existing analogue gas and electricity meters, should help householders to monitor their energy-use far more accurately, and energy companies to do away with estimated bills. By some estimates, the new meters could save us £17bn on our energy bills.

But the IoD believes the government’s plan to roll out smart meters to all 30 million UK households by 2020 is far too ambitious. “The pace of technological innovation may well leave the current generation of meters behind and leave consumers in a cycle of installation, de-installation and re-installation,” it said. Under the scheme, energy companies must begin offering free smart meters to their customers from the autumn. Despite the £11bn estimated cost to the industry, it will not be compulsory to have one. Responding to the IoD report, Sacha Deshmukh, chief executive of Smart Energy GB, said: “The IoD does not understand what’s needed to secure Britain’s energy infrastructure for the future. “The smart meter rollout must be for everybody. It will only deliver the national transformation Britain needs if every home is part of this national upgrade.” Nearly 1.4 million households have already had a smart meter installed, he added.

And you’re sitting on your asses watching it happen. What are you thinking, someone else is going to solve it for you?

• Antarctica Recorded Its Hottest Temperature Ever This Week (CP)

The coldest place on Earth just got warmer than has ever been recorded. According to the weather blog Weather Underground, on Tuesday, March 24, the temperature in Antarctica rose to 63.5°F (17.5C) – a record for the polar continent. Part of a longer heat wave, the record high came just a day after the previous record was set at 63.3°F. Tuesday’s temperature was taken at the Argentina’s Esperanza Base, located near the northern tip of the Antarctic Peninsula. The Monday record was from Marambio Base, about 60 miles southeast of Esperanza. Both are records for the locations, however the World Meteorological Organization is yet to certify that the temperatures are all-time weather records for Antarctica.

Before these two chart-toppers, the highest recorded temperature from these outposts was 62.8°F in 1961. Setting a new all-time temperature record for an entire continent is rare and requires the synthesizing of a lot of data. As Weather Underground’s weather historian, Christopher C. Burt, explains, there is debate over what exactly is included in the continent Antarctica, and by the narrowest interpretation, which would include only sites south of the Antarctic Circle, Esperanza would not be part of the continent. According to the WMO, the official keeper of global temperature records, the all-time high temperature for Antarctica was 59°F in 1974. As Mashable reports, the verification process for these new records could take months as the readings must be checked for accuracy.

Even in their unofficial capacity, the readings are stunning. As Burt reports, these temperature records occurred nearly three months past the warmest time of year in the Antarctic Peninsula, December, when the average high is 37.8°F. The average high for March is 31.3°F, making this week’s records more than 30°F above average. Burt also points out that temperature records for Esperanza have previously occurred in October and April, so these spikes are not unheard of. They should also not be unexpected: the poles are warming faster than any part of the planet and rapid ice melt is being observed at increased rates in Antarctica. According to a new study, ice shelves in West Antarctica have lost as much as 18% of their volume over the last two decades, with rapid acceleration occurring over the last decade. The study found that from 1994 to 2003, the overall loss of ice shelf volume across the continent was negligible, but over the last decade West Antarctic losses increased by 70%.