visa Archives - The Automatic Earth

Credit strategists are increasingly disturbed by a sudden and rare contraction of US bank lending, fearing a synchronised slowdown in the US and China this year that could catch euphoric markets badly off guard. One key measure of US corporate borrowing is falling at the fastest rate since the onset of the Lehman Brothers crisis. Money supply growth in the US has also slowed markedly. These monetary and credit signals tend to be leading indicators for the real economy. Data from the US Federal Reserve shows that the $2 trillion market for commercial and industrial loans peaked in December. The sector has weakened abruptly as lenders tighten credit, especially for non-residential property. Over the last three months it has dropped at a rate of 5.4pc on annual basis, a pace of decline not seen since December 2008.

The deterioration in the broader $9 trillion market for loans and leases has been less dramatic but it too is shrinking, falling at a 1.6pc rate on a three-month basis. “Corporate lending has ground to a halt and I am staggered that the Fed is raising rates. They have made a very big mistake,” said Patrick Perret-Green from AD Macro. Credit experts at several big US banks have issued warnings over recent days, albeit sotto voce. “We’ve been surprised how little attention the slowdown in US bank lending has garnered,” said Matt King, global credit strategist at Citigroup.

While they are not yet alarmed, their concerns are worth heeding. Credit has tended to pick up signs of trouble several weeks before equity markets in recent episodes of financial stress. “Without another big dose of momentum, the cracks in the global reflationary consensus are liable to grow bigger. All around, existing trends are being called into question,” he said. Net corporate bond issuance has also stalled, indicating that borrowing by US firms as a whole is in decline. “So much for a Trump-driven expansion. Beneath the surface, we think a seismic battle is taking place,” he said.

Elga Bartsch and Chetan Ahya from Morgan Stanley said the credit squeeze is a warning sign and needs watching closely. “On our estimates, the credit impulse turned negative at the end of 2016. We have not seen such a sharp deceleration in bank lending to US corporates since the Great Financial Crisis,” they said. “Historically, credit downturns have led recessions. The plunge could reignite concerns that a highly leveraged US corporate sector may react strongly to even limited interest rates increases,” they said.

[..] Money and credit are certainly not flashing warnings of an imminent crisis, but they are hard to square with the exuberant view of investors that the world is on the cusp of an accelerating economic boom. That boom may already have peaked. The massive stimulus injected by the global authorities last year to counter the Chinese currency scare and any fall-out from Brexit is by now fading, and it is too early to tell whether business will pick up the baton. Any soft patch could all too easily combine with a slowdown in China as the country taps the brakes after an extreme episode of fiscal prime-pumping in 2016. Regulators are clamping down on property speculation and trying to rein in forms of pyramid lending, causing a sharp rise in Shibor lending rates. The worry in China is a maturity mismatch. Huge sums have been borrowed on the short-term markets. These debts have to be rolled over constantly to cover long-term liabilities. It was this sort of mismatch that brought down Northern Rock and Lehman Brothers.

[..] Weak US indicators are clearly at odds with the Trump rally on Wall Street, which has pushed equity valuations to nose-bleed levels. Kevin Gaynor from Nomura says his model of asset pricing suggests markets are in effect assuming global growth of 5pc and earnings increases of 30pc a year. These are heroic. “There is a time decay on this new temporary equilibrium,” he notes acidly. What is so disturbing is that each extra dollar of new debt now generates just $0.17 of extra GDP in the US, down from around $0.75 in the 1960s. Much of the corporate debt built up in this cycle has been to buy back stock or pay dividends.

“Half could be erased and still exceed historical valuation norms.” Fall 50% and still be overvalued. But not a bubble?!

• Paper Wealth In US Stocks Reaches $32 Trillion (Fed)

John Hussman comments: “Paper wealth in U.S. stocks reaches $32 trillion. Half could be erased and still exceed historical valuation norms.”

They can take out $50,000 per year but need ten times that for a golden visa.

• Rich Chinese Race to Apply for a US Golden Visa (BBG)

As members of Congress in Washington debate raising the minimum required to obtain a U.S. immigrant investor visa from $500,000 to $1.35 million, concern about the hike has set off a scramble among wealthy would-be participants in China. “Some clients are demanding that we make sure their applications are submitted before April 28,” the date the program expires unless extended or amended by Congress, said Judy Gao, director of the U.S. program at Can-Reach (Pacific), a Beijing-based agency that facilitates so-called EB-5 Immigrant Investor visas. “We’re working overtime to do that.” China’s wealthy, using not-always-legal means to skirt capital controls to get their money out and at the same time gain residency in the U.S., are continuing to dwarf all others as the largest participants in the EB-5 program, despite heightened measures by the Chinese government.

[..] Because Chinese individuals are limited to exchanging $50,000 worth of yuan a year, a 10th of what the EB-5 program requires, some agents are advising clients who don’t already have assets offshore to use a means nicknamed “smurfing” to move their money. “Our suggestion to the client is to open three to four personal accounts in the U.S. or line up three to four friends’ accounts, so they can split the money and wire it to different personal accounts without being put on a blacklist by the Chinese authorities,” said a Shanghai-based real estate agent who gave the surname Dong. “It may require a trip to the States to do so to facilitate the process.” [..] While the government in Beijing spent much of 2016 working to stop its citizens sending money abroad in order to stabilize its declining currency and foreign reserves, Chinese investors’ use of EB-5 continued anyway, totaling $3.8 billion in the fiscal year that ended Sept. 30.

The sanctions and hysteria allow and force Russia to break the chains and be creative.

• Russia’s Banking System Has SWIFT Alternative Ready (RT)

If the Society for Worldwide Interbank Financial Telecommunication (SWIFT) is shut down in Russia, the country’s banking system will not crash, according to Central Bank Governor Elvira Nabiullina. Russia has a substitute. “There were threats that we can be disconnected from SWIFT. We have finished working on our own payment system, and if something happens, all operations in SWIFT format will work inside the country. We have created an alternative,” Nabiullina said at a meeting with President Vladimir Putin on Wednesday. She also added that 90% of ATMs in Russia are ready to accept the Mir payment system, a domestic version of Visa and MasterCard. Izvestia daily reported that as of January 2016, 330 Russian banks had been connected to the SWIFT alternative, the system for transfer of financial messages (SPFS).

In 2014 and 2015, when the crisis in relations between Russia and the West were at their peak over Crimea and eastern Ukraine, some Western politicians urged disconnecting Russia from SWIFT. In November 2015, Nabiullina said the SPFS was close to being completed. The central bank’s website says the system was established “as an alternative channel for interbank cooperation with the aim of ensuring the guaranteed and uninterrupted provision of services for the transmission of electronic messages on financial transactions.” At present, the system has some drawbacks. It doesn’t work from 9pm to 5am Moscow time and costs up to five cents per wire transfer, which is regarded expensive.

Schäuble is not all stupidity.

• Erdogan Setting Back Integration In Germany By Years: Schaeuble (R.)

Turkish President Tayyip Erdogan, who accuses Chancellor Angela Merkel of using “Nazi methods” against Turks in Germany, is setting back their integration by years, Finance Minister Wolfgang Schaeuble has said. Berlin is growing increasingly frustrated about Erdogan repeatedly accusing it of applying “Nazi methods” by banning rallies aimed at drumming up support among Turks in Germany for a referendum that would strengthen the power of his presidency. Turks workers began moving to Germany in the 1960s and the country now has about 3 million people of Turkish background. Some are fully integrated while others live in ethnic communities with less contact with the majority population.

“Erdogan’s rhetoric makes me stunned,” Schaeuble, a veteran member of Merkel’s Christian Democratic (CDU) party, told the Welt am Sonntag weekly newspaper. “In a short time, it wilfully destroys the integration that has grown over years in Germany. The repair of the damage will take years,” he said. Erdogan said in a speech in Istanbul on Sunday: “You call the president of the Turkish Republic a dictator. When we call them fascists, they get annoyed. When we call them Nazis, they get annoyed.” “You are fascists, you are. Be annoyed as much as you want with Nazi practices. If you draw swastikas on the walls of our mosques and don’t hold anyone accountable, you cannot take off this stain,” Erdogan said.

According to Le Monde, one third of French (43% under 35) doesn’t know if they’re going to vote at all. And half still don’t know who to vote for. Beware the polls.

• France’s Le Pen Says The EU ‘Will Die’, Globalists To Be Defeated (R.)

The European Union will disappear, French presidential candidate Marine Le Pen told a rally on Sunday, aiming to re-enthuse core supporters in the final four weeks before voting gets underway. Buoyed by the unexpected election of Donald Trump in the United States and by Britain’s vote to leave the EU, the leader of the anti-EU and anti-immigrant National Front (FN) party, told the rally in Lille that the French election would be the next step in what she called a global rebellion of the people. “The European Union will die because the people do not want it anymore,” Le Pen said to loud cheers and applause. “The time has come to defeat globalists,” she said, adding: “My message is one of emancipation, of liberation … a call for all the patriots to gather behind our flag.”

Opinion polls forecast that Le Pen will do well in the April 23 first round of the presidential election only to lose the May 7 run-off to centrist Emmanuel Macron. Its anti-EU, anti-euro stance is one of the FN’s standard-bearing policies, both a mark of its anti-establishment stance that pleases grass-roots supporters and attracts voters angry with globalization, and a likely obstacle to its quest for power in a country where a majority oppose a return to the franc. Le Pen has over the past few months tried to accommodate this opposition to leaving the euro by continuing to criticize the unpopular EU while telling voters she would not abruptly pull France out of the bloc or the euro but instead hold a referendum after six months of renegotiating the terms of France’s EU membership.

On Sunday she told the rally she would seek to replace the EU by “another Europe,” which she called “the Europe of the people,” based on a loose cooperative of nations. “It must be done in a rational, well-prepared way,” she told Le Parisien in an interview published earlier on Sunday. “I don’t want chaos. Within the negotiation calendar I want to carry out … the euro would be the last step because I want to wait for the outcome of elections in Germany in the fall before renegotiating it.”

But is the economic failure caused only by wrong policies?

• Populism Is The Result Of Global Economic Failure (G.)

The rise of populism has rattled the global political establishment. Brexit came as a shock, as did the victory of Donald Trump. Much head-scratching has resulted as leaders seek to work out why large chunks of their electorates are so cross. The answer seems pretty simple. Populism is the result of economic failure. The 10 years since the financial crisis have shown that the system of economic governance which has held sway for the past four decades is broken. Some call this approach neoliberalism. Perhaps a better description would be unpopulism. Unpopulism meant tilting the balance of power in the workplace in favour of management and treating people like wage slaves. Unpopulism was rigged to ensure that the fruits of growth went to the few not to the many.

Unpopulism decreed that those responsible for the global financial crisis got away with it while those who were innocent bore the brunt of austerity. Anybody seeking to understand why Trump won the US presidential election should take a look at what has been happening to the division of the economic spoils. The share of national income that went to the bottom 90% of the population held steady at around 66% from 1950 to 1980. It then began a steep decline, falling to just over 50% when the financial crisis broke in 2007. Similarly, it is no longer the case that everybody benefits when the US economy is doing well. During the business cycle upswing between 1961 and 1969, the bottom 90% of Americans took 67% of the income gains. During the Reagan expansion two decades later they took 20%.

During the Greenspan housing bubble of 2001 to 2007, they got just two cents in every extra dollar of national income generated while the richest 10% took the rest. The US economist Thomas Palley* says that up until the late 1970s countries operated a virtuous circle growth model in which wages were the engine of demand growth. “Productivity growth drove wage growth which fueled demand growth. That promoted full employment, which provided the incentive to invest, which drove further productivity growth,” he says.

China doesn’t want war. Neither does Russia.

• The West is Becoming Irrelevant (Vltchek)

China, one of the oldest and greatest civilizations on Earth, went through the terrible period of ‘humiliation’. Divided, occupied and plundered by the West, it has never forgotten nor forgiven. Now the Chinese Communist state and its mixed economy are helping countries in virtually all parts of the world, from Oceania and Latin America, to the Middle East and especially Africa, to survive and to finally stand on their own feet. Despite all the vitriolic propaganda regurgitated by the West (those people in Europe or North America who know close to zero about Africa or China,habitually passing ‘confident’ and highly cynical ‘judgments’ about China’s involvement in the poor world; judgments based exclusively on the lies and fabrications produced by the Western media), China has been gaining great respect and trust in virtually all corners of the globe.

The Chinese people and their government are now standing firmly against Western imperialism. They will not allow any recurrence of the disgraceful and dreary past. The West is provoking this mighty and optimistic nation, pushing it into a terrible confrontation. China doesn’t want any military conflict. It is the most peaceful, the most non-confrontational large nation on Earth. But it is becoming clear that if pushed against the wall, this time it will not compromise: it will fight. In the last years I have spoken to many Chinese people, as I traveled to all corners of the country, and I’m convinced that by now the nation is ready to meet strength with strength. Such determination gives hope to many other countries on our Planet. The message is clear: the West cannot do whatever it wants, anymore. If it tries, it will be stopped. By reason or by force!

Russia is ready again, too. It is standing next to China, enormous and indignant. Go to Novosibirsk or Tomsk, to Khabarovsk, Vladivostok or Petropavlovsk in Kamchatka. Talk to Russian people and you will soon understand: almost nobody there believes or respects the West, anymore. Throughout history, Russia was attacked and ransacked from the West. Millions, tens of millions of its people were murdered, literally exterminated. And now, the nation is facing what some consider to be yet another imminent attack. Like the Chinese people, Russians are unwilling to compromise, anymore. The old Russian forecast is once again alive, that very one professed by Alexander Nevsky: Go tell all in foreign lands that Russia lives! Those who come to us in peace will be welcome as a guest. But those who come to us sword in hand will die by the sword! On that Russia stands and forever will we stand!

By dismantling domestic privacy laws, ….

• The US Will Lose Control Of The Global Internet (Morozov)

The numerous paradoxes that will haunt Donald Trump in the coming months were on full display during the recent Senate vote to undo privacy legislation that was passed in the last few years of the Obama administration. As part of a broader effort to treat internet service providers and telecoms operators as utility companies, Obama imposed restrictions on what these companies could do with all the user data from browsers and apps. Emboldened by Trump, the Republicans have just allowed these businesses to collect, sell and manipulate such data without user permission. From the short-sighted domestic perspective, it seems like a boon to the likes of Verizon and AT&T, especially as they increasingly find themselves confronting their data-rich counterparts in Silicon Valley.

Telecoms companies have been complaining (not entirely without reason) that the Obama administration favoured the interests of Google and Facebook which, invoking the lofty rhetoric of “keeping the internet free” only to defend their own business agenda, have traditionally faced somewhat lighter regulation. The Democrats, always happy to attack Trump, have jumped on the issue, warning that the Senate vote would foster ubiquitous and extensive surveillance by the telecoms industry – and Silicon Valley, of course, would never commit such sins. Under the new rules, complained Bill Nelson, a senator from Florida, “your broadband provider may know more about your health – and your reaction to illness – than you are willing to share with your doctor”.

Never mind that Google and Facebook already know all this – and much more – and generate little outrage from the Democrats. The Democrats, of course, only have themselves to blame for such ineptitude. From the early 1980s onwards, centre-left movements on both sides of the Atlantic no longer discussed technology policy in terms of justice, fairness or inequality. Instead, they preferred to emulate their neoliberal opponents and frame choices – about technology policy, but also about many other domains – in terms of just one goal that rules supreme above all other: innovation. The problem with building a political programme on such flimsy economistic foundations is that it immediately opens the door to competing narratives of just what kind of policy produces more innovation.

I watch the increase in global aviation with a very heavy heart. But this is smart.

• Circular Runways Proposed For Airport Efficiency (Curbed)

While airport terminal architecture has a solid history of style and innovation, rarely is a proposal put forth to utterly redesign the runway. But that’s precisely the aim of Henk Hesselink, a Dutch scientist working with the Netherlands Aerospace Centre. Dubbed the “endless runway”, Hesselink’s brainchild is a 360-degree landing strip measuring more than two miles in diameter. Since airplanes would be able to approach and take off from any direction around the proposed circle, they wouldn’t have to fight against crosswinds.

And three planes would be able to take off or land at the same time. Hesselink’s team uses flight simulators and computerized calculations to test the unconventional design, and have determined that round airports would be more efficient than existing layouts. With a central terminal, the airport would only use about a third of the land of the typical airport with the same airplane capacity. And there’s an added benefit to those living near airports: Flight paths could be more distributed, and thereby making plane noise more tolerable. So far, there have been no plans to actually build a circular runway, but Hesselink’s research continues on.

The Better Than God crowd is not done with you just yet.

• Trump Presidency “Opens Door” To Planet-Hacking Geoengineer Experiments (G.)

Harvard engineers who launched the world’s biggest solar geoengineering research program may get a dangerous boost from Donald Trump, environmental organizations are warning. Under the Trump administration, enthusiasm appears to be growing for the controversial technology of solar geo-engineering, which aims to spray sulphate particles into the atmosphere to reflect the sun’s radiation back to space and decrease the temperature of Earth. Sometime in 2018, Harvard engineers David Keith and Frank Keutsch hope to test spraying from a high-altitude balloon over Arizona, in order to assess the risks and benefits of deployment on a larger scale. Keith cancelled a similar planned experiment in New Mexico in 2012, but announced he was ready for field testing at a geoengineering forum in Washington on Friday.

“The context for discussing solar geoengineering research has changed substantially since we planned and funded this forum nearly one year ago,” a forum briefing paper noted. While geoengineering received little favour under Obama, high-level officials within the Trump administration have been long-time advocates for planetary-scale manipulation of Earth systems. David Schnare, an architect of Trump’s Environmental Protection Agency transition, has lobbied the US government and testified to Senate in favour of federal support for geoengineering. He has called for a multi-phase plan to fund research and conduct real-world testing within 18 months, deploy massive stratospheric spraying three years after, and continue spraying for a century, a duration geoengineers believe would be necessary to dial back the planet’s temperature.

“Clearly parts of the Trump administration are very willing to open the door to reckless schemes like David Keith’s, and may well have quietly given the nod to open-air experiments,” said Silvia Riberio, with technology watchdog ETC Group. “Worryingly, geoengineering may emerge as this administration’s preferred approach to global warming. In their view, building a big beautiful wall of sulphate in the sky could be a perfect excuse to allow uncontrolled fossil fuel extraction. We need to be focussing on radical emissions cuts, not dangerous and unjust technofixes.” [.] “Geoengineering holds forth the promise of addressing global warming concerns for just a few billion dollars a year,” he said in 2008, before helping launch a geoengineering unit while he ran the right-wing think tank American Economic Enterprise. “We would have an option to address global warming by rewarding scientific innovation. Bring on American ingenuity. Stop the green pig.”

We need to do Bob Geldof all over again? We are a disgrace.

• UN’s Famine Appeal Is Billions Shy of Goal (NYT)

A month ago, the secretary general of the United Nations, António Guterres, warned that 20 million people would fall into famine if his aid agencies could not corral $4.4 billion by the end of March. It is almost the end of March, and so far, the United Nations has received less than a tenth of the money – $423 million, according to its Office for the Coordination of Humanitarian Affairs. The funding appeal, and the paltry response, comes as the Trump administration is poised to make sharp cuts to its foreign aid budget, including for the United Nations. Historically, the United States has been the agency’s largest single donor for humanitarian aid. For all four countries at risk — Nigeria, Somalia, South Sudan and Yemen – the United States has given $277 million so far this year, not all of it for famine relief.

The conditions for famine are specific and not easy to meet, which is why the last time a famine was declared was in Somalia in July 2011, after 260,000 had died of hunger and related complications. The three criteria for declaring a famine are when one in five households in a certain area face extreme food shortages; more than 30% of the population is acutely malnourished; and at least two people for every 10,000 die each day. A famine has already been declared in a swath of South Sudan. A similar risk looms over Somalia, still reeling from years of conflict, and Yemen, where Houthi insurgents are battling a Saudi-led coalition supported by the United States and Britain. In northern Nigeria, a famine could already be underway, according to an early warning system funded by the United States Agency for International Development.

But the security situation is so bad there that aid workers have been unable to assess levels of hunger. On Thursday, Somalia’s newly elected president, Mohamed Abdullahi Mohamed, told the Security Council by videolink from Mogadishu that half the population faces acute food shortages. The United Nations says it needs the $4.4 billion to deliver food, clean water and basic medicine like oral rehydration salts to avert diarrhea deaths among children. Only 8% of the money the agency needs for Yemen has been funded; for Nigeria, 9%; for South Sudan, 18%; and for Somalia, 32%. Of the 20 million who are at risk of famine are 1.4 million children, who are most vulnerable. To put the $4.4 billion appeal in perspective, Britain has made slightly less, $4.1 billion, from weapons sales to Saudi Arabia in the two years since the war began in Yemen.

The most insane idea to come out of the EU yet. And there’s a lot of competition for that.

• ‘We Reached Our Limits’: Greece To Stop Taking Back Refugees (RT)

Greece will cease taking back refugees under the controversial Dublin Regulation, as the country’s limited capacities to host people are already on the brink of collapse, the Greek migration minister announced in an interview. As the European Commission pressures Athens to re-implement the Dublin Regulation – stipulating that refugees can be returned to the first EU state they arrived in – the Greek migration minister told Spiegel his country is not in a position to do so. The agreement was put on hold for Greece back in 2011 over problems in the country’s asylum system. “Greece is already shouldering a heavy burden,” Ioannis Mouzalas, the migration minister, said. “We accommodate 60,000 refugees… and it would be a mistake to make Greece’s burden heavier by the revival of the Dublin agreement,” he said, also adding that Germany, the primary destination for most refugees, “wants countries where refugees arrive first to bear a large portion of the burden.”

Under the Dublin Regulation, the European state where the asylum-seeker first arrives in the EU is responsible for examining an asylum claim. Refugees are fingerprinted in their first country of arrival to ensure irrefutable evidence of their entry. However, rights groups warn that imminent transfers from other EU countries back to Greece in line with the regulations are likely to cause more refugees than ever to go underground in western European countries, as many are desperate to stay there because of family links or successful attempts to start a new life. The scheme also adds even greater pressure to existing refugee facilities in Greece and beyond. Asked if Athens is ruling out implementation of the Dublin Regulation, Mouzalas answered in the affirmative, adding, “I want the Germans to understand that this is not because of political or ideological reasons, or failure to appreciate Germany’s assistance.” “Greece simply has no capacities to cope with additional arrival of refugees,” he said.

Erdogan will not like this. And the US must realize that the EU squeezing Greece bone dry does not help such proposals. For good cooperation, you need strong and stable partners.

• Greek-US Ties Set To Strengthen Significantly (K.)

Greece is examining US proposals for military cooperation which would widen ties to an extent not seen in the last three decades, Kathimerini understands. According to sources, Washington’s desire for stronger ties stems from its view that Greece has a significant geopolitical role to play as a pillar of stability in a volatile region. More specifically, Washington has proposed the participation of a Greek military vessel in a carrier battle group (CVBG), which consists of an aircraft carrier and a large number of escort vessels. According to the US proposals, the participation of a Greek vessel in the CVBG will be accompanied by the renewal of the Mutual Defense Cooperation Agreement (MDCA) between the two countries.

The MDCA is of utmost significance as it is through this pact that American military forces are permitted to use the Souda naval base on Crete. During a meeting last week US Secretary of Defense James Mattis and Defense Minister Panos Kammenos discussed the option of renewing the agreement for five to 10 years instead of each year, as has been the case to date. The Americans reportedly want to renew the deal every five years, as they want to expand the scope of their activities at the base. Sources have told Kathimerini that the only possible obstacle to the deal’s renewal on a five-year basis is that it must receive approval in Parliament, and the leftist-led coalition fears the possibility of dissent emanating from lawmakers of ruling SYRIZA.

And why not: recovery is not possible anyway.

• Greece Considers Capital Control Tightening (K.)

The capital controls were originally supposed to be a one-off measure that would be removed in a matter of months, with Prime Minister Alexis Tsipras stating in September 2015 that they would be lifted in early 2017. Today, 21 months since they were imposed, the capital controls are still here, and with the drop in bank deposits, it appears more likely they will be tightened than relaxed or lifted. The truth is that a full Greek recovery will not be possible as long as the capital controls remain, but the economy remains mired in uncertainty and the banks have not seen their CCC+ credit rating improve.

Bank officials note it will be a long time before the restrictions are removed, and this will require the consolidation of a basic sense of confidence among citizens that the worst is over. This is particularly difficult today given that few bailout reviews have been completed according to schedule in the last seven years – and the ongoing second review of the third bailout program was supposed to have finished 13 months ago, in February 2016. Banks therefore fear that if deposit outflow continues as it has done in the first quarter of the year, further controls are quite likely.

Debt Rattle March 3 2017

Mar 032017

March 3, 2017 Posted by Raúl Ilargi Meijer at 8:48 am Finance Tagged with: bubble, cashless, goat, Greece, IPO, refugees, REM, Snap, Titicaca, visa, World Bank 1 Response »

DPC North approach, Pedro Miguel Lock, Panama Canal 1915

• EU Votes To Suspend Visa-Free Travel To Europe For Americans (Tel.)

• Snap IPO “The Ultimate Example Of Bubble Trouble” (CNBC)

• Snap IPO: A Shareholding Monarchy (G.)

• What If The 1980-Secular Bull Is Still Running? (Roberts)

• Global Banks Have Paid $321 Billion In Fines Since Financial Crisis (BBG)

• Home Ownership In England At A 30-Year Low (G.)

• More Than Half Of New-Build Homes In England ‘Have Major Faults’ (G.)

• China’s Parliament Is Chock Full Of Billionaires (CNBC)

• The Tyranny Of A Cashless Society (Simpson)

• A Goat Would Beat Le Pen In France’s Presidential Election (CNBC)

• Elephants Are The Shortest Sleeping Mammal (BBC)

• Dishwasher Becomes Co-Owner Of World-Famous Restaurant (G.)

• Lake Once Worshipped As Birthplace Of The Sun Now A Deadly Garbage Dump (AP)

• Greece Requests Loan From World Bank (K.)

• Greece’s ‘Desperate Households’ (K.)

• EU Threatens Members With Legal Action Over Refugees (K.)

• Calais Mayor Bans Distribution Of Food To Refugees (G.)

Sure, make life harder for your own citizens.

• EU Votes To Suspend Visa-Free Travel To Europe For Americans (Tel.)

Americans should be forced to apply for visas to travel to Europe, the European Parliament has said, in response to Washington refusing to allow all Europeans to travel to the States visa-free. The vote by show of hands is the latest in the ongoing “visa war” between Brussels and the US capital, which now looks set to come to a head after MEPs today agreed that US nationals crossing the Atlantic should require additional travel documents as long as citizens from five EU countries (Bulgaria, Croatia, Cyprus, Poland and Romania) are kept from entering America without a visa. A European Parliament source told Telegraph Travel this was a “serious negative step in the EU-USA visa war”.

The EU Commission now has two months to reintroduce visas for Americans wishing to travel to Europe, after MEPs agreed the EU is now “legally obliged” to suspend the Visa Waiver Programme (VWP) with the US for a year after the US administration failed to meet a deadline to respond something called visa reciprocity. Parliament and the European Council will have the chance to object to anything put forward by the Commission. The need to apply for a visa to travel to a country is widely seen as a turn-off to potential visitors, given the extra cost and time an application requires. A country looking to boost its tourism industry will often look at loosening any existing visa requirements. The resolution was passed despite warnings from the European Travel Commission (ETC) of the damage a visa war with the US might have on the continent’s tourism industry.

“We fully understand and respect the visa waiver reciprocity mechanism embedded in European legislation to ensure that all nationals of Member States part of Schengen can benefit on equal terms from exemption of visa requirement,” said Eduardo Santander, executive director of the ETC, in a joint letter with Michael de Blust, secretariat of the Network for the European Private Sector in Tourism, to MEPs. “However, we are very concerned about the economic and political impact of a suspension of visa waiver for US nationals. “Making it more difficult for US citizens to travel to Europe would certainly deprive the European travel and tourism sector of essential revenue, and put thousands of European jobs at stake in one of the few sectors which experiences a strong growth in employment.”

“Morgan Stanley and Goldman should hang their heads in shame here.”

• Snap IPO “The Ultimate Example Of Bubble Trouble” (CNBC)

Top investment banks behind the Snap Inc public listing are being slammed for the lack of voting rights that investors in the stock will receive. Snap Inc priced its initial public offering above its target range at $17 per share on Wednesday, valuing the company at $24 billion when staff stock and deal bonuses are included. The holding company, which owns social media phenomenon Snapchat, will debut on the New York Stock Exchange Thursday but investors have bought shares with no voting power. Stephen Isaacs, chairman of the investment committee at Alvine Capital, says the major investment banks behind Snap’s public debut are pushing through an unusual move that takes liberties with investors’ rights. “Morgan Stanley and Goldman should hang their heads in shame here. I mean not about the valuation but non-voting shares?

“Isn’t that the ultimate example of bubble trouble? So I say we are in a bubble, there is no value and investors should take a lot of risk off the table,” he said Thursday.Isaacs says the Snap Inc IPO could come to symbolize something bigger than just the deal itself as markets continue to bloat ever higher. “There are two views; the Warren Buffett view is that he market isn’t that expensive, the American economy is doing well and the long-term investor should always be engaged. And in the end he’s done a pretty good job of managing other people’s money. “The other view which I’m afraid I agree with is that we are in a cycle, we are at the top of the cycle, valuations show absolutely no value and then Snap comes along,” Isaacs said. “Sometimes a deal at the top of the market can be something that crystallizes the insanity”, he added.

“They could retire to an ashram in India or spend the rest of their lives writing haikus. No matter, they will still make every major decision for Snap..”

• Snap IPO: A Shareholding Monarchy (G.)

It is a paradox that a country that sought freedom from a king, the United States, is today happy to crown monarchs in commerce. Snap, which calls itself a camera company but is in fact a Silicon Valley firm behind a mobile messaging app, floated on the US stock exchange making billionaires of its two under-30 founders. True, 158 million people open the Snapchat app an average 18 times a day. But money and influence are not the only issues here. It’s also about unaccountable power. Snap’s initial public offering marks a turning point in US capitalism: it is the first time that the only shares on offer are those with no voting rights.

This form of techno-aristocratic capitalism means that the founders, 26-year-old Evan Spiegel and 28-year-old Bobby Murphy, will alone make the big decisions about Snap and maintain control over the social media phenomenon even if their employment is terminated. They could retire to an ashram in India or spend the rest of their lives writing haikus. No matter, they will still make every major decision for Snap, from appointing board members to a possible future sale. Only death will release the company from their control. Or if both sell more than 70% of their stock. It’s bizarre that in a country founded on a repudiation of old-world aristocracy, investors are pouring money into creating a nouveau US version of an ancien regime European aristocracy in business, replicating its extravagant and unaccountable wealth.

Snap is the worst example of this trend. Silicon Valley is now dominated by companies with weak or passive public shareholders. Many investors have been silly enough to hand over cash for little say in the running of tech titans such as Google, Facebook and Alibaba. Given how quickly today’s heroes are tomorrow’s zeros in technology, it seems foolhardy to cede control to listed companies that sometimes never make a profit or where incumbent managers cannot be fired to make way for new blood. Are investors so gullible that they believe the guff about new gods who see further than anyone else from Olympian-high pedestals – and are happy to get no dividends from their stock?

Multiple trends coverging.

• What If The 1980-Secular Bull Is Still Running? (Roberts)

[..] I have created the following thought experiment of examining the psychological cycle overlaid on each of the three full-cycle periods in the market.

The first full-market cycle lasted 63-years from 1871 through 1934. This period ended with the crash of 1929 and the beginning of the “Great Depression.”

The second full-market cycle lasted 45-years from 1935-1980. This cycle ended with the demise of the “Nifty-Fifty” stocks and the “Black Bear Market” of 1974. While not as economically devastating to the overall economy as the 1929-crash, it did greatly impair the investment psychology of those in the market.

The current full-market cycle is only 37-years in the making. Given the 2nd highest valuation levels in history, corporate, consumer and margin debt near historical highs, and average economic growth rates running at historical lows, it is worth questioning whether the current full-market cycle has been completed or not.

The idea the “bull market” which begin in 1980 is still intact is not a new one. As shown below a chart of the market from 1980 to present, suggests the same.

The long-term bullish trend line remains and the cycle-oscillator is only half-way through a long-term cycle. Furthermore, on a Fibonacci-retracement basis, a 61.8% retracement would current intersect with the long-term bullish trend-line around 1000 suggesting the next downturn could indeed be a nasty one. But again, this is only based on the assumption the long-term full market cycle has not been completed as of yet.I am NOT suggesting this is the case. This is just a thought-experiment about the potential outcome from the collision of weak economics, high levels of debt, and valuations and “irrational exuberance.”

Yes, this time could entirely be different.

It just never has been before.

The amount of fraud some people can engage in without doing time or losing a dime is stunning.

• Global Banks Have Paid $321 Billion In Fines Since Financial Crisis (BBG)

Banks globally have paid $321bn in fines since 2008 for an abundance of regulatory failings from money laundering to market manipulation and terrorist financing, according to data from Boston Consulting Group. That tally is set to increase in the coming years as European and Asian regulators catch up with their more aggressive US peers, who have levied the majority of charges to date, BCG said in its seventh annual study of the industry published on Thursday. Banks paid $42bn in fines in 2016 alone, a 68 per cent rise on the previous year, the data showed. “As conduct-based regulations evolve, fines and penalties, along with related legal and litigation expenses, will remain a cost of doing business,” analysts led by Gerold Grasshoff wrote. “Managing those costs will continue to be a major task for banks.”

The era of ever-increasing regulatory requirements is here to stay, BCG said, despite President Donald Trump’s pledge to roll back the 2010 Dodd-Frank Act that reshaped US banking in the aftermath of the collapse of Lehman Brothers. The number of rule changes that banks must track on a daily basis has tripled since 2011, to an average of 200 revisions a day, according to the report. “Regulation must be considered a permanent rise in sea level – not just a flowing tide that will ebb or even a cresting tsunami that will recede,” the authors wrote. “We expect this theme to hold despite recent political developments in the US.” Almost 10 years after the onset of the financial crisis, the banking industry still hasn’t completely recovered from the losses it suffered by one measure, BCG said.

While finance firms created so-called economic profit of €159bn in 2015, a fifth annual increase, the industry remains €9bn in the red on a cumulative basis for the years 2009 to 2015, the data show. BCG calculated economic profit by taking a bank’s operating results and incorporating its cost of capital.

Boy, what a mess. They’re going to have to reboot the entire country. Seriously.

• Home Ownership In England At A 30-Year Low (G.)

Home ownership in England has fallen to its lowest level for 30 years, while the number of people privately renting is now higher than in the early 1960s, according to official figures. Government data reveals that the private rented sector has doubled in size since 2004, with almost half of all people in England aged 25 to 34 paying a private landlord for their accommodation. Ministers recently admitted England’s housing market was “broken”, with home ownership a distant dream for millions. Labour claimed the figures showed that the government was “out of ideas” and had no long-term plan to fix the housing crisis. The Generation Rent campaign group said runaway house price inflation and the difficulty of saving a deposit had trapped millions in private rented housing, “even more [people] than in the days of slum landlords like Rachman”.

The latest English Housing Survey, produced by the Department for Communities and Local Government (DCLG), found that of the estimated 22.8m households in England, 14.3m – or 62.9% – were owner-occupiers in 2015-16. It stated that owner-occupation rates “remain unchanged for the third year in a row” – but Labour and others were quick to seize on an accompanying table, which showed that the rate had slipped from 63.6% the previous year. This is down from a peak of 70.9% in 2003 and is the lowest figure since 1985, when it was 62.4%. By contrast, the private rented sector has ballooned in size and now accounted for just over 4.5m households – double the 2.3m in 2004. The new figure represents 20% of the total, whereas in 2002 it was 10%.

No surprise whatsoever.

• More Than Half Of New-Build Homes In England ‘Have Major Faults’ (G.)

More than half of the buyers of new homes have experienced major problems with their properties, according to research, which comes after Bovis Homes agreed to pay £7m compensation to customers for poorly built houses. A YouGov survey for the housing charity Shelter found that 51% of homeowners of recent new builds in England said they had experienced major problems including issues with construction, unfinished fittings and faults with utilities. The survey, which polled 4,341 UK adults online, was published alongside a Shelter report that concluded that the housebuilding sector is rigged in favour of big developers and land traders rather than families looking for homes.

The current speculative system of housebuilding is failing families by producing expensive, yet poor-quality homes, according to the report, published after the government branded the housing market “broken” in its recent housing white paper. Eight in 10 working families who are renting privately cannot afford to buy a newly built home – even if they use the government’s Help to Buy scheme, Shelter said. The West Midlands ranked as the worst region, with 93% of families unable to purchase an average-priced new home. In the report, titled New Civic Housebuilding, the charity calls for a return to building good-quality, affordable homes like the model villages for Cadbury workers at Bournville, the red brick developments of the Peabody and Guinness estates, the Victorian and Georgian terraces in Edinburgh and Bath, and the garden cities of Letchworth and Welwyn.

The YouGov poll showed 41% of homeowners disagreed with the statement “I would prefer to live in a new home rather than an older one”; 29% agreed, and 26% neither agreed nor disagreed. And 45% disagreed with the statement “New homes are built to a higher standard than older homes”; 22% agreed and 23% were neutral.

Communist Party.

• China’s Parliament Is Chock Full Of Billionaires (CNBC)

Want to rub elbows with the rich? Go to China, where the country’s parliament could pass for an elite club of the world’s richest, where about 100 delegates are U.S. dollar billionaires. They made their fortune in everything from property to energy, according to data from the Hurun Report, which publishes the China Rich List. A bunch of tech entrepreneurs sit at the top of the list, including Pony Ma of Tencent, Robin Li of Baidu and Lei Jun of Xiaomi. The names are among delegates gathering for their annual meeting in Beijing starting on Friday, a roughly weeklong affair that’s big on posturing, but small on legislating. Delegates always vote to approve proposals from the ruling Communist Party. Here’s another fun fact: The richest 209 parliament delegates are each worth more than 2 billion yuan ($300 million) – their combined wealth is equivalent to the annual GDPs of Belgium and Sweden, using World Bank figures on GDP for those countries.

By comparison, the U.S. doesn’t have a single billionaire in Congress. The wealthiest member, California Republican Darrell Issa, is worth around $440 million, according to the Center for Responsive Politics. President Donald Trump claims he is a billionaire, though he has refused to release his income taxes to prove it – breaking with a practice followed by U.S. leaders since Richard Nixon. Still, China’s parliament – made up of the National People’s Congress and the Chinese People’s Political Consultative Conference – includes delegates from a wide variety of backgrounds, including those who benefited handsomely as China’s economy has grown into the world’s second largest. But there’s another reason to show up – these sessions of China’s “rubber stamp” parliament are a chance to see and be seen. In a country where business and commerce are tightly restricted, a chance to rub elbows with top Communist Party brass could mean the difference between boom and bust.

“If the minds behind a cashless society are allowed to have their way, America would become little more than a monumental ant farm..”

• The Tyranny Of A Cashless Society (Simpson)

Like many people, I am a careful person when it comes to digital commerce, yet nonetheless I had two of my credit cards hacked (twice in the last four years) — one time by a supposedly reliable online retail company, another time when I rented a trailer. And both times, it required an incredible amount of time, police reports, phone calls, etc., just to get back to square one and get my money back. But my experience was not unusual. Nearly 18 million Americans suffered from some form of identity theft in 2014 alone. Digital commerce and credit cards are very problematic and are not the panacea that companies and the government want the public to believe.

Looking to a future in which governments abolish cash in useful denominations, it follows that they will then focus on eliminating personal and commercial commerce through the use of compact high-value commodities such as gold and silver, a natural progression if $100 bills are taken out of circulation in the United States. People today who are living in the legacy of the Barack Obama economy already need a fistful of $20 bills just to buy a week’s supply of groceries. And it’s easy to spend $400 a week on fresh groceries for two people, especially if you buy premium products and organic. If we consider the increasing trend where banks, institutions and big retailers are regularly hacked, combined with identity theft, digital commerce and credit cards aren’t all they’re cracked up to be, and in reality are posing an ever-increasing level of liability on all levels through their use.

The relatively few people who may ultimately control all of the digital wealth of Americans will virtually have control of all the people in a cashless society. This results in a definite loss of freedom and liberty. There are many, many other ways for law enforcement to hammer criminals and curtail their enterprises, if that is truly the goal. But any method that inhibits or erodes the freedoms of Americans in any way, including limiting or infringing upon person-to-person commerce and personal privacy in any manner, is to be shunned and runs counter to the intents and spirit of our beloved U.S. Constitution. Digital currency transactions in lieu of cash would allow virtually 100% tracking of all Americans, including law-abiding citizens and all that we do.

We have already learned over the past eight years of the Obama-led government that governments don’t necessarily work for or even represent the will of the people. So how can anyone justify giving the government this much power over Americans? There is no such justification. The vast majority of Americans are not criminals, and therefore any action by government that affects or targets the vast majority of people in order to deal with a small factional percentage of criminals in the population is manifestly unfair. Politicians simply need to do the jobs they are being paid to do, and come up with anti-criminal tactics that strictly focus upon the bad actors, not the majority of law-abiding Americans.

If the minds behind a cashless society are allowed to have their way, America would become little more than a monumental ant farm, where the elitist class studies Americans to a much greater extent than ever before — how we move around and what we do, use, eat, watch and listen to — and then uses this deeply insightful personal information, potentially to plot how to control everyone. Things like if we’re allowed to be born (abortions already control this to some extent), how long we get to live, and what we are allowed to do in between. Orwellian, yes, but possible nonetheless.

“I want to be perfectly clear for foreigners and for investors in particular, a goat, literally a goat, at the second round against Marine Le Pen, the goat is elected.”

• A Goat Would Beat Le Pen In France’s Presidential Election (CNBC)

Those concerned that far-right leader Marine Le Pen will become France’s next president might be worrying too much, according to one political analyst. Thomas Guénolé from the Paris-based institute Sciences Po told CNBC Thursday: “I want to be perfectly clear for foreigners and for investors in particular, a goat, literally a goat, at the second round against Marine Le Pen, the goat is elected.” Guénolé added that there are many French voters who are “allergic” to the far right and would unite in the second round of the election to prevent Le Pen from winning. Le Pen is currently ahead in projections for the first round scheduled for April 23. But she is seen losing the second round to the centrist candidate Emmanuel Macron. “Basically the ideology of Mr Macron is opportunism,” Guénolé said. “He waited as long as possible before telling us what his platform is.”

Macron is due to outline his manifesto Thursday morning. This comes after French authorities decided to formally investigate the conservative candidate Francois Fillon for misusing public funds. Fillon who, until the scandal emerged, was well-placed to become the next president, announced Wednesday he is not stepping out of the race, despite previously saying he would if formal investigations were pursued. According to Guénolé, Macron has more to win from Fillon’s downfall than Le Pen. “I don’t think Marine Le Pen will benefit from this because in fact those who are right-wing voters and think Marine Le Pen is better already want to vote for Marine Le Pen. So I don’t think she’s going to win extra voters, but Emmanuel Macron can be an alternative for those who are right-wing voters and do not want to become far-right voters,” he said.

[..] Laura Slimani, spokesperson for the socialist candidate Benoit Hamon, told CNBC on Thursday that Fillon’s scandal “puts a lot of discredit on politics.” The socialist spokesperson said that all candidates to the presidential seat should disclose who’s funding their campaigns, as sentiment surrounding corruption seems to grow. “Who is today financing the campaign of Emmanuel Macron?,” Slimani said. “We know he is supported by big names in finance, in the business industry, so we want to know who is financing his campaign because this will have an impact on what kind of policies he will lead afterwards, at least it will have an impact on whether he will be a free president, if elected,” she added.

Elephants have strong memories. But they sleep just two hours a night. Given how important we think (REM) sleep is for memory, that poses some major questions.

• Elephants Are The Shortest Sleeping Mammal (BBC)

Wild African elephants sleep for the shortest time of any mammal, according to a study. Scientists tracked two elephants in Botswana to find out more about the animals’ natural sleep patterns. Elephants in zoos sleep for four to six hours a day, but in their natural surroundings the elephants rested for only two hours, mainly at night. The elephants, both matriarchs of the herd, sometimes stayed awake for several days. During this time, they travelled long distances, perhaps to escape lions or poachers. They only went into rapid eye movement (REM, or dreaming sleep, at least in humans) every three or four days, when they slept lying down rather than on their feet. Prof Paul Manger of the University of the Witwatersrand, South Africa, said this makes elephant sleep unique. “Elephants are the shortest sleeping mammal – that seems to be related to their large body size,” he told BBC News.

“It seems like elephants only dream every three to four days. Given the well-known memory of the elephant this calls into question theories associating REM sleep with memory consolidation.” Elephants living in captivity have been widely studied. To find out more about their sleeping habits in the wild, Prof Manger and his research team fitted the scientific equivalent of a fitness tracker under the skin of the animals’ trunks. The device was used to record when the elephants were sleeping, based on their trunk staying still for five minutes or more. The two elephants were also fitted with a gyroscope to assess their sleeping position. Both elephants were followed for five weeks, giving new insights into their natural sleep patterns. “We had the idea that elephants should be the shortest sleeping mammal because they’re the largest,” said Prof Manger. “Why this occurs, we’re not really sure. Sleep is one of those really unusual mysteries of biology, that along with eating and reproduction, it’s one of the biological imperatives. We must sleep to survive.”

Forgot this yesterday. Feel good news for today then.

• Dishwasher Becomes Co-Owner Of World-Famous Restaurant (G.)

A dishwasher described as the “heart and soul” of the world-class Danish restaurant Noma has been made a co-owner of the establishment he has worked in for 14 years. The decision to promote Ali Sonko, who has toiled in the Noma kitchen since it first opened in 2003, was announced at a party in Copenhagen to mark the restaurant’s last day at its waterfront location in Christianshavn. The restaurant, named the world’s best four times by Restaurant magazine and three times in the San Pellegrino World’s 50 Best, is due to move to a new location and reopen as an urban farm in December. In a Facebook post, René Redzepi, the chef who runs Noma, said it was “one of the happiest moments of my time at Noma” to announce that Ali was to become one of his new business partners, saying it was in recognition of his hard work and enduring smile.

“I don’t think people appreciate what it means to have someone like Ali in the house,” Redzepi told friends gathered for a party to mark Noma’s move. “He is all smiles, no matter how his 12 children are faring.” Sonko, 62, who moved to Denmark 34 years ago after emigrating from his native Gambia, where he worked as a farmer, described his job as “the best ever”. “I cannot describe how happy I am to work here,” he told the Danish website BT. “There are the best people to work with and I am good friends with everyone. They show enormous respect towards me and no matter what I say or ask them, they are there for me.” Redzepi, whose restaurant also has two Michelin stars, said he planned to surprise other staff “with a piece of the walls they have chosen to work so hard within”.

Alongside Sonko, Lau Richter, Noma’s service director, and James Spreadbury, an Australian who has managed the restaurant since 2009, are also to be made partners in the business. Redzepi said his father, also called Ali, had worked as a dishwasher when he arrived in Denmark as an immigrant from Macedonia.

The Automatic Earth banner shows Lake Titicaca.

• Lake Once Worshipped As Birthplace Of The Sun Now A Deadly Garbage Dump (AP)

Tucked between snow-capped mountains, Lake Titicaca was once worshipped by the Incas, who proclaimed its deep blue waters the birthplace of the sun. These days the shores of South America’s largest lake are littered with dead frogs, discarded paint buckets and bags of soggy trash. Less visible threats lurk in the water itself: toxic levels of lead and mercury. The steady deterioration of the prized tourist destination has caused a rash of health problems among the 1.3 million people in Peru and Bolivia living near Lake Titicaca’s polluted banks. Untreated sewage water drains from two dozen nearby cities and illegal gold mines high in the Andes dump up to 15 tons of mercury a year into a river leading to the lake. “If the frogs could talk they would say, ‘This is killing me,'” said Maruja Inquilla, a local environmental activist who recently showed up at the Puno governor’s house carrying plastic bags filled with hundreds of dead frogs in protest.

Increasing concern about pollution has prompted a series of scientific studies and promises of official action. The governments of Peru and Bolivia signed a pact in January 2016 to spend more than $500 million to attack the problem, though the details were vague. A year later, Peru’s new president, Pedro Pablo Kuczynski, pledged to construct 10 treatment plants around the lake, putting the cost at $437 million, “so that the most beautiful lake in the world is the cleanest lake in the world.” But details of how the plants would be funded remain unclear and promises by politicians dating back two decades have so far gone unfulfilled. Many of the more than 400,000 tourists who visit Lake Titicaca from Peru each year stop first in Juliaca, a town that produces 200 tons of trash daily, much of it winding up in a river that has turned into a conveyor belt of waste heading into the lake. Hypodermic needles, tires, old shoes and used diapers are scattered among the potato fields that line the giant lake’s shores.

“Greece’s current creditors “are not too happy about” the fresh request for funds..”

• Greece Requests Loan From World Bank (K.)

Greece has requested an unknown amount of “financial assistance” from the World Bank even as bailout talks continue amid government officials and representatives of the country’s international creditors, according to a report in Politico. “The government of Greece has asked the World Bank to provide technical and financial assistance to address pressing challenges including: long-term unemployment, economic competitiveness and growth and social protection,” Politico cited a spokesperson from the World Bank as saying in a statement. “In accordance with World Bank procedures, any final decision on providing loans would be subject to approval by the bank’s board of executive directors,” it said.

The World Bank declined to specify how much money Greece is purported to have requested, Politico reported. Greece’s current creditors “are not too happy about” the fresh request for funds, an EU official was quoted as saying. The report also cited an unnamed government source as saying that negotiations were under way but not confirming the alleged request for a loan. “Preliminary talks have taken place indeed with [the World Bank] but we cannot confirm official application,” the source was quoted as saying.

The endless litany of bad numbers continues unabated. This is from the ECB itself.

• Greece’s ‘Desperate Households’ (K.)

Greek households generally own their home and have a car; they often have a house in the village their family hails from too. However, their bank accounts are shrinking, their loans are not being serviced as promptly as they used to be and their liquidity is close to zero. Unemployment is now changing the structure of households, resulting in young and old being forced to stay under the same roof. These are the main features of Greek households during the economic crisis as recorded by the European Central Bank’s Household Finance and Consumption Survey, which covers the 2010-14 period and was presented in Greece on Thursday in the weekly bulletin of the Hellenic Federation of Enterprises (SEV).

Under the title “Desperate Households,” the bulletin highlighted that families continue to provide a safety net; however, it showed that their stamina is also running low, as is that of the friend network. The rate of Greek households that said they could seek financial support from relatives and friends dropped to 36.5% in 2014 from 59.4% in 2009. The situation is certain to have deteriorated further in the last couple of years. Few Greeks have the luxury of being able to save money: Just 13.5% of households said they added to savings on a regular basis, down from 21.9% five years earlier. This is by far the lowest rate in the European Union.

The index of liquidity as a ratio of disposable income was at just 2.8% in Greece, down from 4.9% five years earlier, and against a eurozone average of 16.7%. There was a notable decline in the rate of heads of households who are self-employed (from 18.9% to 14.4% within five years) and those who are salary workers (from 39.7% to 36.5%). In contrast, the rate of heads of households who were retired increased from 34.7% to 39.3%, and those who were out of work from 6.6 to 9.8%. Another study by the Cologne Institute for Economic Research showed on Thursday that Greece is top among European countries in terms of poverty growth, as the number of Greeks below the poverty line grew 40% from 2008 to 2015.

Worked great so far….

• EU Threatens Members With Legal Action Over Refugees (K.)

The European Commission is piling the pressure on European Union member-states that are refusing to take in asylum seekers from Greece and Italy, as they had promised in September 2015, threatening, for the first time, to take legal action if they continue to do so. Although relocations increased in February, they are a far cry from the original targets set by the Commission in 2015 when EU countries had agreed to share some 160,000 migrants and refugees who had reached Greek and Italian shores in the previous two years. Of this number, only 13,546 have since been relocated – 9,610 from Greece and 3,936 from Italy. The 2015 agreement between EU countries stipulated that there would be 3,000 relocations from Greece and 1,500 from Italy each month. In total, the agreement provided for the relocation of 63,000 from Greece by September this year.

But at the current rate achieving this target appears highly unlikely, even though Migration Commissioner Dimitris Avramopoulos said Thursday that the September target is still within reach. “There are no more excuses for the member-states not to deliver,” he said, insisting that “it is possible and feasible to relocate all those who are eligible from Italy and Greece by September.” Avramopoulos warned that if there are no tangible results by September, then the noncompliant countries will face legal action as the Commission “will not hesitate to make use of its power.” Only three EU states (Luxembourg, Malta and Finland) are close to fully meeting their obligations under the 2015 agreement. However, Hungary, Austria and Poland remain opposed to the agreement, while other countries, including the Czech Republic, Bulgaria, Croatia and Slovakia, say they are on board but will only take a limited number of asylum seekers.

With regard to the relocation of migrants and refugees from Turkey, EU countries have so far taken in 14,442 people, of whom 3,565 were Syrians. Meanwhile, the deal signed in March 2016 between Turkey and the EU to stem the flow of migrants into Europe is, so far, bearing results as the rate of daily arrivals on Greek islands has dropped significantly to about 43 per day, compared to as many as 10,000 on one day at the height of the influx in October 2015.

Refusing to feed children, including thousands who try to reach family in Britain. Words fail.

• Calais Mayor Bans Distribution Of Food To Refugees (G.)

The mayor of Calais has banned the distribution of food to migrants as part of a campaign to prevent the establishment of a new refugee camp as hundreds of people return to the port three months after the original one was demolished. Natacha Bouchart, from the centre-right Les Républicains party, said she would implement policies “to prevent the distribution of meals to migrants”, and legal documents setting out the restrictions were put up in the vicinity of the camp on Thursday. Officials have already obstructed attempts by local charities to open showers for teenage migrants in the town. Food distribution volunteers said they had been forced to do so in secret because of a heightened police presence. Refugee charities said they would ignore the ban but were taking legal advice.

The mayoral decree, dated 2 March, said the “regular, persistent and large presence of individuals distributing meals to migrants” in the area around the site of the former camp posed a threat to the peace and security of the area. It banned any “repeated, prolonged gatherings” in the area, in effect making food distribution an offence. Sarah Arrom, who has been helping to distribute food with the charity Utopia56 for the last four months, said police had fired teargas to prevent volunteers from giving breakfast to about 30 teenagers in a field near the motorway outside the city on Thursday. “They wanted to stop the distribution and they wanted to stop people from sleeping in the area,” she said. “There has never been teargas before when we’ve been trying to hand out food.”

[..] Christian Salomé, the president of the Auberge des Migrants charity, said a ban would be catastrophic for refugee children. “Adults will always find a way to buy food in the shops, but for minors it will be a real problem – they have no money at all.” He said no one had precise figures for the number of refugees around Calais. “People are arriving all the time and not many are getting through [to the UK].” Renke Meuwese, who works with Refugee Community Kitchen and Help Refugees, said the kitchens were making about 400 meals a day, up from about 50 last month. He said police seemed to be particularly concerned about reducing the visibility of refugees. “They are trying to make the refugees invisible, so they make it harder to distribute in town than the countryside. We can’t distribute at day so we have to do it at night. They are trying to push them out of sight.”

Debt Rattle February 4 2017

Feb 042017

February 4, 2017 Posted by Raúl Ilargi Meijer at 10:24 am Finance Tagged with: allegiance, Amazon, ban, euro, Grexit, hypocrisy, Iran, judge, Trump, Vancouver, visa 1 Response »

Henri Cartier Bresson Paris 1952

• Judge Blocks Trump Travel Ban Nationwide (ZH)

• Airlines Told To Allow Banned Travelers Into US After Judge’s Order (G.)

• Trump’s Travel Ban Has Revoked 60,000 Visas For Now (R.)

• If Americans Truly Cared About Muslims, They Would Stop Killing Them (BAR)

• Iran To Name US Individuals Involved In ‘Helping And Founding’ Terrorists (ZH)

• EU Flirts With Hypocrisy In Criticising Trump’s Refugee Ban (EUO)

• America Is Shedding Its Whole Middle Class (Jim Kunstler)

• Vancouver Home Sales Plummeted 40% In 2016 On Foreign Buyer Tax (AFR)

• Amazon Accounts For 43% Of US Online Retail Sales (BI)

• UniCredit Writedowns Ring Alarm Bells For Italian Banks (R.)

• Euro Too Weak For Germany But Too Strong For Others (R.)

• Eurocrats ‘Beg States To Agree To Deeper Integration To Save The Bloc’ (Exp.)

• Grexit? Greece Again On The Brink As Debt Crisis Threatens Break With EU (G.)

“It’s a case of that magnitude, it’s a case that frankly I think will ultimately end up before the U.S. Supreme Court, so that would not surprise me one way or the other.”

• Judge Blocks Trump Travel Ban Nationwide (ZH)

Following a brief moment of ‘success’ for the Trump administration as a Boston judge ruled Trump’s immigration policy was not a Muslim ban, a Bush-appointed federal judge in Seattle, who said the states of Washington and Minnesota can sue claiming their residents were harmed by the ban, granted a nationwide temporary restraining order blocking Trump’s immigration ban. District Judge James Robart ruled the executive order would be stopped nationwide effective immediately: his ruling was the most comprehensive legal rebuke of Trump’s Jan. 27 executive order prohibiting immigrants from Iran, Iraq, Syria and four other nations from entering the U.S. for 90 days. Judges in Brooklyn, New York, Los Angeles and Alexandria, Virginia, had previouslyissued orders that are less sweeping.

Washington Attorney General Bob Ferguson was delighted with the decision: “The Constitution prevailed today,” Ferguson said in a statement after the ruling. “It is not the loudest voice that prevails on the Constitution,” Ferguson continued speaking outside the courthouse. “We are a nation of laws, not even the president can violate the Constitution. It’s our president’s duty to honor this ruling and I’ll make sure he does,” Ferguson added hopefully. Good luck with that. In his ruling, Robart said that “the state has met its burden in demonstrating immediate and irreparable injury” while Fergsuon added that “Judge Robart’s decision, effective immediately, effective now, puts a halt to President Trump’s unconstitutional and unlawful executive order. It puts a stop to it immediately, nationwide.” The court order, effective immediately, will remain in place until the judge considers a motion – probably within a month – to permanently invalidate the president’s order, Ferguson said.

Ferguson, a Democrat, filed the lawsuit three days after Trump signed the executive order. The suit argued that the travel ban targets Muslims and violates constitutional rights of immigrants and their families. In his request for the order, according to Bloomberg, Ferguson had said the effects on the state included economic consequences for employers based there, including Microsoft, Starbucks and Amazon.com. Expedia, based in Bellevue, Washington, had about 1,000 customers with flight reservations in or out of the U.S. from the seven countries, he said. Minnesota, like Washington, cited the effect of the ban on students at its colleges and universities, as well as health care centers including the Mayo Clinic. The state’s 5.4 million residents included 30,000 immigrants from the affected countries, it said in the lawsuit.

According to The Hill, in a phone interview with CNN Friday evening, Ferguson said he “expected win, lose or draw” that the case would move “fairly quickly through, up to the Ninth Circuit” Court of Appeals – “just because of the magnitude of the executive order.” And hinting that the Supreme Court showdown we suggested previously now appears inevitable, Ferguson added that he is “prepared for this case to go all the way to the Supreme Court whichever way the Ninth Circuit Court of appeals goes,” he said, anticipating a challenge to Robart’s ruling. “It’s a case of that magnitude, it’s a case that frankly I think will ultimately end up before the U.S. Supreme Court, so that would not surprise me one way or the other.”

Trump’s legal team senses difficulties ahead: “..The justice department later said it would not immediately file for an emergency stay..”

• Airlines Told To Allow Banned Travelers Into US After Judge’s Order (G.)

Customs officials have reportedly told US airlines that they can board passengers who had been barred from entering the country after a federal judge in Seattle ordered a temporary halt on Donald Trump’s travel ban for refugees and people from seven predominantly-Muslim nations. District judge James Robart granted a temporary restraining order on Friday after hearing arguments from Washington state and Minnesota that the president’s order had unlawfully discriminated against Muslims and caused unreasonable harm. It was not immediately clear whether authorities would comply with the broad order, especially after officials reacted in confusion a week earlier, detaining valid visa holders and arguing with lawyers.

Late on Friday, the White House released a statement saying that it would seek an emergency stay against Robart’s ruling; an earlier request for a stay by a justice department attorney had been denied by the judge. “At the earliest possible time, the Department of Justice intends to file an emergency stay of this outrageous order and defend the executive order of the President, which we believe is lawful and appropriate. The president’s order is intended to protect the homeland and he has the constitutional authority and responsibility to protect the American people,” press secretary Sean Spicer said. In a second “updated” statement, the White House removed the word “outrageous”. The justice department later said it would not immediately file for an emergency stay, at least on Friday night, and reports said Customs and Border Protection (CBP) had informed US airlines that they should board travelers who had been barred by an executive order last week.

Looks like the worst of the chaos may be over. Trump can’t afford too many court battles, certainly if he loses them. He’s being told to confer with the lawyers first now.

• Trump’s Travel Ban Has Revoked 60,000 Visas For Now (R.)

About 60,000 visas were revoked under U.S. President Donald Trump’s executive order temporarily halting immigration from seven Muslim-majority countries, the State Department said on Friday, in one of several government communications clarifying how the order is being rolled out. The revocation means the government voided travel visas for people trying to enter the United States but the visas could be restored later without a new application, said William Cocks, a spokesman for consular affairs at the State Department. “We will communicate updates to affected travelers following the 90-day review,” he said. Earlier news reports, citing a government attorney at a federal court hearing, put the figure at more than 100,000 visas.

The government issued over 11 million immigrant and non-immigrant visas in fiscal year 2015, the State Department said. The immigration executive order signed by Trump a week ago temporarily halted the U.S. refugee program and imposed a 90-day suspension on people traveling from Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen. Trump said the measures would help protect Americans from terrorist attacks. Under President Barack Obama, Trump’s predecessor, the United States added those seven countries as “countries of concern” under its visa waiver program, effectively toughening U.S. visa procedures for individuals who visited those places during the past five years.

Trump’s executive order was at least in part informed by those restrictions. The new president, who took office on Jan. 20, went further by temporarily barring passport holders from those seven countries. The State Department first issued the guidance about revoking the visas on Jan. 27, the day Trump signed his executive order, according to a memo filed in a court case in Massachusetts. But confusion about the roll out of the order sparked protests at airports across the country where people had been detained and led to a wave of lawsuits filed by individuals, states and civil rights groups.

“.. so much American hatred is directed at Muslims that Democrats and establishment Republicans must struggle to keep the Russians in the “hate zone” of the American popular psyche.”

• If Americans Truly Cared About Muslims, They Would Stop Killing Them (BAR)

In the most dramatic expression of insider opposition to a sitting administration’s policies in generations, over 1,000 U.S. State Department employees signed on to a memo protesting President Donald Trump’s temporary ban on people from seven predominantly Muslim countries setting foot on U.S. soil. Another recent high point in dissent among the State Department’s 18,000 worldwide employees occurred in June of last year, when 51 diplomats called for U.S. air strikes against the Syrian government of President Bashar al Assad. Neither outburst of dissent was directed against the U.S. wars and economic sanctions that have killed and displaced millions of people in the affected countries: Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen.

Rather, the diplomatic “rebellion” of last summer sought to pressure the Obama administration to join with Hillary Clinton and her “Big Tent” full of war hawks to confront Russia in the skies over Syria, while the memo currently making the rounds of State Department employees claims to uphold “core American and constitutional values,” preserve “good will towards Americans” and prevent “potential damage to the U.S. economy from the loss of revenue from foreign travelers and students.” In neither memo is there a word of support for world peace, nor a hint of respect for the national sovereignty of other peoples – which is probably appropriate, since these are not, and never have been, “core American and constitutional values.” “The diplomatic ‘rebellion’ of last summer sought to pressure the Obama administration to join with Hillary Clinton and her ‘Big Tent’ full of war hawks to confront Russia in the skies over Syria.”

Ironically, the State Department “dissent channel” was established during one of those rare moments in U.S. history when “peace” was popular: 1971, when a defeated U.S. war machine was very reluctantly winding down support for its puppet regime in South Vietnam. Back then, lots of Americans, including denizens of the U.S. government, wanted to take credit for the “peace” that was on the verge of being won by the Vietnamese, at a cost of at least four million Southeast Asian dead. But, those days are long gone. Since 2001, war has been normalized in the U.S. – especially war against Muslims, which now ranks at the top of actual “core American values.” Indeed, so much American hatred is directed at Muslims that Democrats and establishment Republicans must struggle to keep the Russians in the “hate zone” of the American popular psyche.

Could be interesting.

• Iran To Name US Individuals Involved In ‘Helping And Founding’ Terrorists (ZH)

Following the escalation on Friday morning, in which the US Treasury Department published a list of 13 Iranian individuals and 12 Iranian entities facing new restrictions following Iran’s recent ballistic missile test, Tehran promptly denounced the latest round of sanctions imposed by the US and said it would retaliate – something it has previously said it would do – however added a new twist when Tehran announced it would impose legal restrictions on American individuals and entities helping “regional terrorist groups”, a Foreign Ministry statement read as quoted by TV. For obvious reasons, this naming and shaming of US-based terrorists promises to be far more interesting than if Iran were to actually ban, say, the US national chess team. Such an action will quickly coalesce the world’s attention on a handful of US entities, putting under a microscope all of their offshore activities.

“The new sanctions … are not compatible with America’s commitments and resolution 2231 of the U.N. Security Council that endorsed the nuclear deal reached between Iran and six powers,” the Iranian Foreign Ministry statement said late on Friday.Tehran said it will react accordingly to any U.S. measure aimed at the Iranian nation’s interests. “In retaliation for the U.S. sanctions, Iran will impose legal restrictions on some American individuals and entities that were involved in helping and founding regional terrorist groups,” the Foreign Ministry statement said. It said names of the entities and individuals would be announced later, although it was not clear when exactly that is. As reported earlier, on Friday, the US Treasury Department blacklisted 13 individuals and a dozen businesses as part of the sanctions. The majority of the individuals in question are from Iran, as well as three Chinese nationals and two Arabs.

“Iran’s continued support for terrorism and development of its ballistic missile program poses a threat to the region, to our partners worldwide, and to the United States,” John E. Smith, acting director of the Treasury Department’s Office of Foreign Assets Control, said. He added that in countering what he called “Iranian malign activity,” Washington will not hesitate to put more pressure and restrictions “to address this behavior.” Countering rising US rhetoric, Iran’s foreign minister, Javad Zarif, said in a twitter post that “Iran unmoved by threats as we derive security from our people.” “We’ll never initiate war, but we can only rely on our own means of defense,” he stressed. Iran’s Defense Minister Brigadier General Hossein Dehqan noted that Tehran “will not allow foreigners to interfere” in the country’s defense issues and insisted “the test did not violate the nuclear deal or (UN) Resolution 2231.”

Understatement of the year.

• EU Flirts With Hypocrisy In Criticising Trump’s Refugee Ban (EUO)

The EU rightly spoke out against Donald Trump’s entry ban on asylum seekers from Syria. But its own track record leaves much to be desired. EU foreign policy chief Federica Mogherini said on Monday (Jan 30) that the EU would continue to host refugees. “It’s our identity: we celebrate when walls are brought down and bridges are built,” she said in a tweet. Her comments appeared the same day a young man from Pakistan suffocated to death in a tent at the Moria camp on the Greek island of Lesbos. He was trying to keep warm. It was the third death at the camp in a week. The misery of people is well documented in so-called hotspots set up by the EU in both Italy and in Greece. The conditions are so bad that many, including Syrian refugees, have volunteered to return to Turkey from the Greek islands.

The EU blames the Greek government. The Greek government blames EU states for not relocating asylum seekers and for sealing off the Western Balkan route. When Hungary erected a wall on its border with Serbia, the European Commission said it was a national issue. When a Syrian refugee protested against the barrier, Hungarian authorities gave him a 10-year prison sentence. The EU talks endlessly about solidarity. But in reality, solidarity does not exist except among the nameless volunteers on the ground. And some of those are risking jail for their efforts. One Danish woman went on trial for people-smuggling after giving a family of refugees a ride to Copenhagen. A similar case is unfolding in Sweden. Only around 10,000 people have been relocated from Italy and Greece to other EU states.

The two-year scheme, which ends in September, had called for 160,000. Many more have been kicked out. Almost 11,000 people were sent home last year, a four-fold increase compared with 2015 when 3,565 migrants were returned in 66 operations. Both EU commission and member states now appear to oppose issuing humanitarian visas for people in need. Germany may stand out as an exception after welcoming some 1 million in 2015. But the fact that the world’s richest nations are unwilling to properly care for the thousands stranded in Greece and on its islands is a disgrace. The task has largely been delegated to volunteers, NGOs and international aid organisations. With populist parties gaining ground in the Netherlands, France and Germany, the anti-immigrant discourse has also gone mainstream.

Dutch prime minister Mark Rutte last week told Muslims to “act normal, or go away”. France’s conservative presidential contender Francois Fillon has promised to erect national borders and German interior minister Thomas de Maiziere wants zones outside Europe to screen applicants before arrival. De Maiziere’s proposal is gaining traction. The plan is to offshore the problem to war-torn Libya. The job is already under way in a handful of other African states and Afghanistan. This is the EU’s invisible wall.

Good to see Jim is still reading the Automatic Earth.

• America Is Shedding Its Whole Middle Class (Jim Kunstler)

I guess you’ve noticed by now that the center didn’t hold. Instead of a secure platform for political premises like tradition, precedent, rationality, and cultural norms, you see a fiery maw of sheer emotion between the camps of the so-called Left and the so-called Right. I say so-called because the campus Left and the Trump Right have escaped the categorical corrals they formerly occupied. And they may have left their customary official parties stranded and dying too. It may be fatuous to say whether that is a good or bad thing; it just is, for the moment. They are two halves of a polity so broken and so far apart that it is also hard to see how they might ever come back together into a consensus about how a society might operate successfully.

Not having a consensus — some substantial overlap between circles of perspective — it’s not surprising that America can’t construct a coherent view of what is happening, or make a plan for what to do about it. Mainly what’s happening is the running down of fossil fuel based techno-industrial economies, and the main symptom is falling standards of living, with fading prospects for future happiness and security. As I’ve said before, our economic picture is basically untenable due to the falling energy-return-on-investment of the crucial oil supply. At the high point of 1920s oil production the ratio was around 100-1. The shale oil “miracle” is good for about 5-1. The aggregate of all oil these days is under 30-1. Below that number, you’ve got to shed some activities in our complex economy (or they just get too expensive to support) — things like high-paying labor jobs, medical care, tourism, college, commuting, heating 2500 square foot homes…).

Oddly the way it’s actually working out is that America is simply shedding its whole middle class and all its accustomed habits and luxuries. At least that’s how it adds up in effect. Naturally, that produces a lot of bad feeling. President Trump is unlikely to be able to fix that essential problem, unless he can pilot the whole political-economy into a glide-path leading toward neo-medievalism — what I call the World Made By Hand. Trump’s call for restoring the factory economy of 1962 is a low-percentage prospect. Instead, he’ll be saddled with the collateral damage caused by the dishonest effort of his recent predecessors to borrow from the future to pay for the way we live now — that is, racking up debt.

This mighty debt-load, never before seen in history, and the accounting fraud that enables it, has helped produce all kinds of distortions, perversities, and fragilities in our money system (finance and banking) which can easily slip into collapse if a crucial prop fails here or there, and that is exactly what I think will happen under Trump. It will not be his fault, but he’ll get blamed for it. And when it happens, he won’t be able to give his attention to anything but that.

People don’t recognize it yet, but this is how you spell success.

• Vancouver Home Sales Plummeted 40% In 2016 On Foreign Buyer Tax (AFR)

Home sales in Vancouver plummeted 39.5% in January from a year ago and fell 11% from December, five months after the government slapped a tax on foreign buyers. January marked the sixth consecutive month of falling sales in Canada’s hottest real estate market, where an influx of mainly Chinese offshore buyers has helped push the price of a typical home to more than 12 times the median resident’s household income. Vancouver topped a list of cities around the world that UBS has identified as most at risk of a housing bubble. Sydney placed fourth after London and Stockholm. The Real Estate Board of Greater Vancouver said the monthly sales – 1523 homes sold in January – marked a 10.3pc drop on the 10-year average for the month.

‘It’s a lukewarm start to the year compared to 2016,” said Dan Morrison, the board’s president. “While we saw near record-breaking sales at this time last year, home buyers and sellers are more reluctant to engage so far in 2017.” The government of British Columbia – Vancouver is the province’s biggest city – acted last year to cool the market, slapping a new 15% tax on offshore buyers in August. The average benchmark price for detached properties in the Pacific port has fallen 17.8% to $C1,474,800 from a record high of $C1.83 million in January 2016. The average price has fallen 6.6% in the past six months and edged 0.6% lower from December. The composite benchmark price for all residential properties – detached, units and townhomes – has fallen 3.7% since June.

The BC Ministry of Finance earlier reported that the %age of sales in Vancouver to foreign residents had plummetted since the new foreign buyers’ tax went into effect on August 2. In September, foreign purchasers were involved in 1.3% of all transactions in the city of 1.5 million people. “From June 10 to August 1, the period before the additional tax took effect, foreign purchasers were involved in 13.2% of residential property transfers in Metro Vancouver,” a ministry statement said.

Companies like Google, Facebook and Amazon have become far too big for anyone’s good. Time to cut them down to size.

• Amazon Accounts For 43% Of US Online Retail Sales (BI)

An analysis by Slice Intelligence released this week found that 43% of all online retail sales in the US went through Amazon in 2016, as the e-commerce giant’s market share continues to grow. According to the study, which analyzed more than 4 million online purchases, Amazon accounted for the majority (53%) of the growth in US e-commerce sales for the year. Simply put, Amazon’s already dominant share of the US e-commerce market is only increasing. It reportedly captured 33% of all US online purchases in 2015, according to Internet Retailer, up from 25% in 2012. If those estimates are correct, then the company increased its share of the US e-commerce market by 10% in 2016, an incredible accomplishment given that it already controlled such a sizeable chunk of the space.

Slice said that Amazon’s growth in 2016 was driven by sales in the electronics, home, and apparel categories. Electronics contributed to an estimated 18% of the company’s sales growth in 2016, as the number of US households that own an Amazon Echo device more than doubled from 2015. The next biggest contributors were the home and kitchen category (15%), apparel and accessories (12%), food (11%), and health and beauty (10%), illustrating that Amazon is seeing significant growth in consumer packaged goods (CPGs). The company’s recent expansion of its Dash Buttons to its online site and mobile app should help fuel further growth in these categories. Amazon’s success has also been fueled by high customer loyalty and brand awareness.

The Amazon Prime subscription service continues to grow: One study released last September by Consumer Intelligence Research Partners found that 20% of all US consumers are Prime members. Meanwhile, an Internet Retailer survey of 500 US consumers last December found that more than half of them (52%) go directly to Amazon when they shop online. Although the company faces a wide range of competition in the e-commerce market from both legacy retailers and new entrants, none of them can match Amazon’s customer loyalty and brand awareness when it comes to online shopping. Other online retailers will have to build up their brand awareness to compete with Amazon, but they’ll also likely need to sell through Amazon’s marketplace to stay relevant as its market share keeps growing.

Slo-mo suffocation. Much better to swallow the bitterness and start afresh.

• UniCredit Writedowns Ring Alarm Bells For Italian Banks (R.)

UniCredit has heavily written down the value of its €700 million ($756 million) investment in Italy’s bank rescue fund and other investors are likely to follow suit, sources told Reuters, complicating efforts to stabilize the nation’s banking sector. Italy biggest bank has cut the value of its investment in the Atlante fund by significantly more than a third on its books, according to two sources familiar with the matter. The move is part of its plan to clean up its balance sheet before it taps the market for 13 billion euros in a share issue next week. By writing down the stake, UniCredit is indicating that it does not believe it will make money on the investment it made into the state-managed fund created to recapitalize a number of failing Italian banks and help the industry offload bad loans.

A source at another bank estimated UniCredit’s writedown could be closer to 70%. Intesa Sanpaolo, which together with UniCredit is Atlante’s biggest investor, on Friday said it had written down the value of its stake in the fund by 33%. A group of about half a dozen other banks that have invested in Atlante have held a series of meetings in recent days to discuss the scale of their own possible writedowns, said another source with direct knowledge of the talks. They are also likely to write down their investments by 30%, according to the source, who did not name the lenders. Atlante executives have acknowledged that the value of investments has fallen but have said the fund created last April has an investment horizon of five years and aims to create value for its backers over that period.

And that in a nutshell is what condemns the single currency.

• Euro Too Weak For Germany But Too Strong For Others (R.)

In an attack on Germany, U.S. President Donald Trump’s top trade adviser said the euro was “grossly undervalued”, a charge which may ring true for the German economy but not for the 19-member currency zone as a whole. The adviser, Peter Navarro, said Germany, the euro zone’s economic powerhouse, was exploiting the euro exchange rate for trade purposes, a charge rejected by German Chancellor Angela Merkel. There’s no clear method of establishing how much a currency is under or overvalued but many economists think that some economic measures show the German economy could easily cope with a stronger euro. It hit a 14-year low of $1.0339 last month. Even German Finance Minister Wolfgang Schaeuble said on Friday the single currency could be a bit stronger for Germany.

But he agreed with economists that this would make life hard for other euro members. For weaker economies such as Greece, economic measures show the exchange rate is too strong, and for the whole currency area it is only moderately underpriced. “The euro is below most estimates of fair value. And German exporters appear to be benefiting more than most,” said Jennifer McKeown at Capital Economics. The White House is concerned about the exchange rate because German companies sell cars, vehicle parts, pharmaceuticals, planes and helicopters around the world, competing with American, as well as other European, manufacturers. Exports account for nearly half Germany’s economic output, with 9.5% going to the United States and around 35% to euro zone countries.

In 2015, the United States became the top destination for German exports, overtaking France for the first time since 1961 due to an upturn in the U.S. economy but also due to the weaker euro. The currency has lost more than 20% of its value against the U.S. dollar since mid 2014. A handful of recent reports found that while the euro was undervalued for Germany it was too strong for other countries. The World Price Index (WPI) published by research firm World Economics each month found that the euro was undervalued on a purchasing power parity basis, a measure that takes into account what money can buy in two different currencies based on inflation and the cost of living. A “German euro” was nearly 17% undervalued against the dollar in PPP terms, while a “French euro” was overvalued by nearly 5%. A “Greek euro” was overvalued by 7%.

“German exporters remain the beneficiaries of a system that is causing stagnation and unemployment in the rest of Europe,” World Economics said in the report. The IMF also said last year that the euro was undervalued by anywhere from 0 to 10% for the region as a whole. But for Germany that undervaluation was anywhere between 10 and 20%, making it the most undervalued exchange rate for any of the 29 countries and jurisdictions around the world covered in the report.

The last gasps: ..Mr Tusk will reportedly urge leaders to pledge allegiance to the crumbling Brussels bloc..”

• Eurocrats ‘Beg States To Agree To Deeper Integration To Save The Bloc’ (Exp.)

Desperate Eurocrat Donald Tusk will urge EU nations to agree to deeper integration and recommit to the sprawling superstate, a leaked report has hinted. Mr Tusk will reportedly urge leaders to pledge allegiance to the crumbling Brussels bloc and agree to “an ambitious vision” of “political consolidation”. The European Council president will cite “unprecedented external threats” during a meeting in Malta with leaders from EU nations as a reason for recommitting to the European project. According to Politico, the document which will be proposed to officials later today, says “the EU is at a historical turning point” and is “facing important internal challenges as exemplified by Brexit”. Tusk’s lackeys, along with Italian and Maltese officials, will use Friday’s meeting to draft the proposed “Rome declaration” which will outline a future vision for the bloc.

The document urges leaders to commit to “greater unity in foreign policy and more investments in our defence” and “further deepening the Economic and Monetary Union” – two key reasons why Britain chose to divorce itself from the EU. EU leaders will also be told to sign up to an ever-increasing swathe of legislative measure in June following the “Rome declaration” a few months earlier. The report moans that Trump, Brexit, terrorism, increased military expansion by Russia and the migrant crisis pose serious threats to the stability of the EU. It also details the financial instability in Greece as another hinderance to the volatile political union. It adds that the upcoming meeting in Rome in March should “offer an ambitious vision on how to preserve unity and achieve political consolidation”. The EU is set to celebrate the 60th anniversary of the Treaty of Rome – which laid the basis for “ever closer union” between nation states and which critics argue has forced countries towards a federal Europe.

“We have become a society that has no hope, not even a slice or piece of hope for the future,” he sighed. “The only reason people want to stay in the euro is because they fear the consequences if we were to leave, but if things don’t get better that will change too.”

• Grexit? Greece Again On The Brink As Debt Crisis Threatens Break With EU (G.)

Syriza, like every governing party before it, has been hollowed out by the eviscerating effects of having to apply policies that it came to power vowing to oppose. On Tuesday its parliamentary spokesman took Greeks by storm proposing that Grexit be discussed “without taboo” in the 300-member house. The once unassailable popularity of Tsipras, meanwhile, has been pummelled by the implementation of some of the harshest measures to date and few believe he has the political capital to enforce another round of austerity. “It is not a can but a bomb being kicked down the road,” said one western diplomat. “In a world where liberal values are under threat we could be looking at a very dangerous scenario where the cradle of democracy also collapses.”

Bereft of growth and battered by cuts and tax increases, Greeks have become poorer and ever more cognizant of their own insolvency in a state where sovereignty exists in little more than name. One in three now live below the poverty line and unemployment hovers around 23%. The latest impasse has not only seen emigration levels rise and non-repayment of household and business loans soar but also nostalgia for the drachma grow. That is what worries Panagopoulos, the pollster, most. What was once a minority view is changing fast, with the majority of Greeks in a recent Alco survey saying it was wrong to have joined the euro. “We have become a society that has no hope, not even a slice or piece of hope for the future,” he sighed. “The only reason people want to stay in the euro is because they fear the consequences if we were to leave, but if things don’t get better that will change too.”

Debt Rattle August 15 2016

Aug 152016

August 15, 2016 Posted by Raúl Ilargi Meijer at 8:45 am Finance Tagged with: Abenomics, Brexit, buybacks, cash, ECB, G20, pensions, QE, stimulus, visa, wind 2 Responses »

NPC R.P. Andrews fire, 628 D Street N.W, Washington, DC 1912

• Younger Generation In UK Face Overwhelming Pensions Bill (G.)

• British Millennials Are ‘Collateral Damage’ as Pension Gap Grows (BBG)

• A Simple Test to Dispel the Illusion Behind Stock Buybacks (NYT)

• The Bank of Japan’s Unstoppable Rise to Shareholder No. 1 (BBG)

• Japan’s Economy Stalls In April-June, Casts Doubts On Abe’s Policies (R.)

• China Is Hoarding Cash At The Fastest Pace Since Lehman (ZH)

• China Signals Growth, Not Political Disputes, Should Dominate G20 (R.)

• Cheap Money Fuels Boom In Germany, But Fails To Lift France And Italy (CNBC)

• Enough Austerity. More Fiscal Stimulus, Please (BBG Ed.)

• London Set To Bear Brunt Of Post-Brexit Downturn (G.)

• Give Us EU Visa Freedom In October Or Abandon Migrant Deal, Turkey Says (R.)

• Britain’s Vast National Gamble On Wind Power May Yet Pay Off (AEP)

“.. it leaves young people paying twice, saving for their own pensions while also paying for the pensions of older generations through taxation.”

“Since 2007, the real disposal income of pensioners has risen by almost 10%. Those over the age of 65 have harvested fully two-thirds of that £2.7tn increase in national wealth. By contrast, since 2007, working-age households with children have achieved income gains of only about 3%, while the incomes of those without children have fallen by 3%,” he said.

This can only go horribly wrong, there is no other possible outcome, but it’s a topic politicians either don’t understand or don’t want to touch. Which is why I wrote Basic Income in The Time of Crisis a month ago. There is not much time left.

• Younger Generation In UK Face Overwhelming Pensions Bill (G.)

Older people have saddled the younger generation with an excessive bill for state pensions while grabbing an ever-greater share of NHS spending, according to a report that calls for intergenerational rebalancing. The report from the Intergenerational Foundation (IF) said spending promises on state and public sector pensions are “overwhelming young people’s prospects”. The thinktank is calling on the prime minister, Theresa May, to abandon triple lock protection, which promises that the state pension will rise each year by whatever is highest out of inflation measured by the consumer price index, average earnings growth or 2.5%. The former pensions minister Ros Altmann has called for the triple lock to be scrapped. The Department for Work and Pensions has declined to rule out a review of the “totemic” policy in the coming months.

The report estimates that workers are paying £2,846 a year each to cover the cost of paying state pensions. Public sector pension liabilities, for schemes such as retired civil servants, have risen by 12% to nearly £44,000 per worker, with total liabilities at £1.4tn, it added. Angus Hanton, the co-founder of IF, said: “Public sector pensions represent one of the largest unfunded burdens for younger taxpayers, who will not retire at the same age, or on the same terms, while having to contribute more to their own pensions. “Increasing retirement ages and moving to career average pensions will not be enough to stall the pension burden avalanche that is bearing down on the young.

Auto-enrolment is an apparent success, except that it leaves young people paying twice, saving for their own pensions while also paying for the pensions of older generations through taxation.” But charity Age UK said the vast majority of pensioners have contributed throughout their life to the state pension, which remains lower than the amount paid in many other western countries. Caroline Abrahams, the charity director at Age UK, pointed out that 1.6 million older people live in poverty in the UK. “A strong pensions system that provides a decent quality of life in retirement is central to a civilised society and in the best interests of us all,” she said.

“Postal-service operator Royal Mail said last week it may not be able to keep its program running beyond 2018. That’s because its annual contributions could more than double to over £900 million.”

• British Millennials Are ‘Collateral Damage’ as Pension Gap Grows (BBG)

Britain’s millennials, already suffering for the economic mistakes of the past, now face the prospect of having to pay for the country’s future. Pension-fund liabilities in the U.K. increased to a record £1 trillion ($1.3 trillion) after the Bank of England’s interest-rate cut this month, hurt by quantitative easing and razor-thin yields. It’s Britain’s version of what Duquesne Chairman Stanley Druckenmiller calls “Generational Theft” in the U.S. Plunging bond yields have caused pension liabilities to balloon and it could get even worse because the BOE will probably reduce interest rates further this year. Deficits for defined-benefit-pension funds already rose by more than 40% in the two months through July, following the vote to leave the EU and the central bank’s subsequent decision to increase quantitative easing, according to consulting firm Mercer.

“The Bank of England clearly believes that the effect on our pension system is acceptable long-term collateral damage” to prevent a short-term recession, said David Blake, professor of pension economics at London’s Cass Business School. Younger workers will “have to save more – which they appear reluctant to do – or be prepared to work much longer.” The increased bond-purchase program has had a relatively limited impact on pension deficits, according to the minutes of the BOE’s Monetary Policy Committee meeting on Aug. 3. While the fund managers have to move into riskier assets, that helps to support the economy, Governor Mark Carney said Aug. 4. “That makes it less likely that we will have a very long period of high unemployment, low output, and very low interest rates,” Carney said.

Money managers, however, appear to be unwilling to offload their higher-yielding gilts because they’re worried about generating enough returns to pay their members. The BOE last week failed to find enough investors who were prepared to sell their longer-maturity gilts, a slice of the credit market dominated by pensions and insurers. Companies that run defined-benefit pension funds are also starting to worry. Postal-service operator Royal Mail said last week it may not be able to keep its program running beyond 2018. That’s because its annual contributions could more than double to over £900 million.

“..who really wants to own a company in the process of liquidating itself?”

• A Simple Test to Dispel the Illusion Behind Stock Buybacks (NYT)

Stock investors have had one sweet summer so far watching the markets edge higher. With the Standard & Poor’s 500-stock index at record highs and nearing 2,200, what’s not to like? Here’s something. As shares climb, so too do the prices companies are paying to repurchase their stock. And the companies doing so are legion. Through July of this year, United States corporations authorized $391 billion in repurchases, according to an analysis by Birinyi Associates. Although 29% below the dollar amount of such programs last year, that’s still a big number. The buyback beat goes on even as complaints about these deals intensify. Some critics say that top managers who preside over big stock repurchases are failing at one of their most basic tasks: allocating capital so their businesses grow.

Even worse, buybacks can be a way for executives to make a company’s earnings per share look better because the purchases reduce the amount of stock it has outstanding. And when per-share earnings are a sizable component of executive pay, the motivation to do buybacks only increases. Of course, companies that conduct major buybacks often contend that the purchases are an optimal use of corporate cash. But William Lazonick, professor of economics at the University of Massachusetts Lowell, and co-director of its Center for Industrial Competitiveness, disagrees. “Executives who get into that mode of thinking no longer have the ability to even think about how to invest in their companies for the long term,” Mr. Lazonick said in an interview. “Companies that grow to be big and productive can be more productive, but they have to be reinvesting.”

[..] The net profit test, said Gary Lutin, a former investment banker who heads the forum, “cuts through to the essential logic of comparing a process that grows a bigger pie – reinvestment – to a process that divides a shrunken pie among fewer people: share buybacks. “It’s pretty obvious,” he continued, “that even mediocre returns from reinvesting in the production of goods and services will beat what’s effectively a liquidation plan.” Investors may be dazzled by the earnings-per-share gains that buybacks can achieve, but who really wants to own a company in the process of liquidating itself? Maybe it’s time to ask harder questions of corporate executives about why their companies aren’t deploying their precious resources more effectively elsewhere.

And if companies don’t buy stocks, central banks will. It’s the only way left to delay a giant crash.

• The Bank of Japan’s Unstoppable Rise to Shareholder No. 1 (BBG)

The Bank of Japan’s controversial march to the top of shareholder rankings in the world’s third-largest equity market is picking up pace. Already a top-five owner of 81 companies in Japan’s Nikkei 225 Stock Average, the BOJ is on course to become the No. 1 shareholder in 55 of those firms by the end of next year, according to estimates compiled by Bloomberg from the central bank’s exchange-traded fund holdings. BOJ Governor Haruhiko Kuroda almost doubled his annual ETF buying target last month, adding to an unprecedented campaign to revitalize Japan’s stagnant economy. While bulls have cheered the tailwind from BOJ purchases, opponents say the central bank is artificially inflating equity valuations and undercutting efforts to make public companies more efficient.

Traders worry that the monetary authority’s outsized presence will make some shares harder to buy and sell, a phenomenon that led to convulsions in Japan’s government bond market this year. “Only in Japan does the central bank show its face in the stock market this much,” said Masahiro Ichikawa at Sumitomo Mitsui Asset Management. “Investors are asking whether this is really right.” While the BOJ doesn’t acquire individual shares directly, it’s the ultimate buyer of stakes purchased through ETFs. Estimates of the central bank’s underlying holdings can be gleaned from the BOJ’s public records, regulatory filings by companies and ETF managers, and statistics from the Investment Trusts Association of Japan. Forecasts of the BOJ’s future shareholder rankings assume that other major investors keep their positions stable and that policy makers maintain the historical composition of their purchases.

[..] Japan’s government bond market offers a guide to the risks of further intervention in stocks, said Akihiro Murakami, the chief quantitative strategist for Japan at Nomura in Tokyo. JGB volatility soared to the highest level since 1999 in April, while trading volume has slumped as the central bank’s holdings swelled to about a third of the market. It’s still buying at an annual rate of 80 trillion yen. “If the BOJ does not sell stocks, then liquidity will disappear,” Murakami said. “As liquidity falls, the number of shares you can buy starts to decline – the same thing that’s happening in the JGB market.” The central bank owned about 60% of Japan’s domestic ETFs at the end of June, according to Investment Trusts Association figures, BOJ disclosures and data compiled by Bloomberg. Based on a report released on Friday by the Investment Trusts Association, that figure rose to about 62% in July.

Abenomics is way beyond doubts.

• Japan’s Economy Stalls In April-June, Casts Doubts On Abe’s Policies (R.)

Japan’s economic growth ground to a halt in April-June after a stellar expansion in the previous quarter on weak exports and capital expenditure, putting even more pressure on premier Shinzo Abe to come up with policies that produce more sustainable growth. The world’s third-largest economy expanded by an annualized 0.2% in the second quarter, less than a median market forecast for a 0.7% increase and a marked slowdown from a revised 2.0% increase in January-March, Cabinet Office data showed on Monday. The weak reading underscores the challenges policymakers face in putting a sustained end to two decades of deflation with the initial boost from Abe’s stimulus programs, dubbed “Abenomics,” fading. “Overall it looks like the economy is stagnating. Consumer spending is weak, and the reason is low wage gains.

There is a lot of uncertainty about overseas economies, and this is holding back capital expenditure,” said Norio Miyagawa, senior economist at Mizuho Securities. “The government has already announced a big stimulus package, so the next question is how the Bank of Japan will respond after its comprehensive policy review, which is sure to lead to a delay in its price target.” On a quarter-on-quarter basis, GDP marked flat growth in April-June, weaker than a median market forecast for a 0.2% rise. Private consumption, which accounts for roughly 60% of GDP, rose 0.2% in April-June, matching a median market forecast but slowing from a 0.7% increase in the previous quarter. Capital expenditure declined 0.4% in April-June after a 0.7% drop in the first quarter, the data showed, suggesting that uncertainty over the global economic outlook and weak domestic markets are keeping firms from boosting spending.

One word: FEAR.

• China Is Hoarding Cash At The Fastest Pace Since Lehman (ZH)

The last few months have seen trillions of dollars of fresh credit puked into existence in China to enable goal-seeked growth numbers to creep lower (as opposed to utterly collapse). The problem is… the Chinese are hoarding that cash at the fastest pace since Lehman as liquidity concerns flood through the nation. China’s M2, a broad gauge of money supply including savings deposits, rose at the slowest pace in 15 months and trailed the government’s full-year target of +11% in July. But, as Bloomberg details, by contrast, M1, the total of cash, checks and demand deposits, rose at the quickest pace in six years…

That shows companies “are holding all this cash, but investment returns are low and there are few options for projects,” said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen.

In fact, no matter what has been done since the Chinese stock market crashed, the Chinese have been hoarding cash…

In fact, the hoarding of cash in China corresponded with the top in 1999/2000, and the top in 2007…

“..If people don’t feel like they are beneficiaries of economic development, if they don’t think their lot in life is improving, that’s when they start getting all kinds of ideas.” We wouldn’t want that, would we?

• China Signals Growth, Not Political Disputes, Should Dominate G20 (R.)

China expects next month’s summit of the G20 which it is hosting will focus on boosting economic growth and other financial issues rather than disputes like the South China Sea, senior officials said on Monday. The summit of the world’s 20 biggest economies in the eastern city of Hangzhou will be the highlight of President Xi Jinping’s diplomatic agenda this year, and the government is keen to ensure it proceeds smoothly. The Sept 4-5 leaders’ meeting comes as clouds continue to hover over global growth prospects and worries about China’s own slowing economy. Last month’s meeting of G20 policymakers was dominated by the impact of Britain’s exit from Europe and fears of rising protectionism.

Yi Gang, a vice governor of the People’s Bank of China, said the summit will focus on how to stimulate sluggish global economic growth through open, inclusive trade and the development of robust financial markets. “We need to instil market confidence and ensure there are no competitive devaluations but rather let the market determine exchange rates,” Yi told a news briefing, adding this would be the first G20 to discuss foreign exchange markets in such detail. The G20 will also discuss how to better monitor and respond to risks presented by global capital flows, he said. Despite increasingly protectionist rhetoric around the world, the G20 is strongly opposed to anti-trade and anti-investment sentiment, Vice Finance Minister Zhu Guangyao said.

“We really do need to make sure that the people, the public, benefit from economic development and growth. If people don’t feel like they are beneficiaries of economic development, if they don’t think their lot in life is improving, that’s when they start getting all kinds of ideas.”

Why the euro is hammering the EU. And will be the end of it.

• Cheap Money Fuels Boom In Germany, But Fails To Lift France And Italy (CNBC)

Germany, for example, does not want zero interest rates and those trillions of euros created through ECB’s massive asset purchases. Germany is a fully-employed economy with balanced public finances and an exploding current account surplus of 9% of GDP. With a 1.8% annual growth in the first half of this year, the economy is running almost an entire percentage point above its potential and noninflationary growth. [..] Now, for a sharp contrast, take a look at Italy. On a quarterly basis, there has been virtually no growth in the first half of this year. In fact, the economy has been declining and stagnating over the last four years, and is currently experiencing a price deflation. Italy’s 3 million of unemployed in June (10.6% of the labor force) are only slightly below that level in the same month of last year. A shocking 36.5% of the country’s youth is out of work.

[..] Germany, close to one-third of the euro area’s products and services, does not need, and does not want, the ECB’s extraordinarily loose monetary policy. But the hard-pressed economies of France, Italy, Spain, Portugal and Greece – another 50% of the euro area output – need that oxygen to survive. Easy money is all they got. Their budget deficits of 2-5% of GDP, and their rising public debt of 120-185% of GDP, leave no room for fiscal policy to support demand, output and employment. The EU authorities, whoever they are, have relented from imposing penalties on Spain and Portugal – and have looked the other way in the case of France – for transgressing the euro area budget deficit commitments. But they continue to insist on labor market deregulations and on other socially and politically sensitive measures that act as short-term growth and employment killers.

Bloomberg editorials blow wherever the wind does.

• Enough Austerity. More Fiscal Stimulus, Please (BBG Ed.)

Budget deficits may be coming out of retirement. With economies all over the world growing too slowly and little scope left for new monetary stimulus, governments are turning their attention back to fiscal policy. This shift in thinking is overdue. In many countries, though not all, fiscal expansion is not just possible but also necessary. A resumption of budget activism, if it happens, won’t be riskless, so caution will be needed. A stubborn commitment to fiscal austerity, though, would be riskier still. The immediate response to the 2008 crash included fiscal easing – sometimes deliberate and sometimes the automatic consequence (higher public spending, lower tax revenues) of slumping activity. In most cases, expansionary budgets lessened the impact of collapsing demand, but they also pushed up public debt.

Before long, governments started tightening their budgets to get debt back under control. With demand still lacking, the hope was that monetary expansion would be enough to support recovery. It wasn’t. Governments have found that monetary policy is losing its potency. Interest rates are close to zero in many countries, and in some even negative. Huge bond-buying programs – QE – have delivered an additional monetary punch, but again with diminishing effects, and with a growing risk of financial instability as well. So fiscal policy, despite the recent growth of public debt, is back on the agenda. Central banks have been leading the call. In June, Fed Chair Janet Yellen told the Senate Banking Committee that U.S. fiscal policy had “not played a supportive role.”

In July, the ECB’s chief economist, Peter Praet, said “monetary policy cannot be the only remedy to our current economic challenges.” Governments are responding. Following the U.K.’s decision to quit the EU, the new Chancellor of the Exchequer, Philip Hammond, has promised a break with his predecessor’s approach and says he will “reset” fiscal policy. Added investment in infrastructure is under consideration as part of a new industrial strategy.

Blame it on the bubble, not the Brexit. That would be shooting the messenger.

• London Set To Bear Brunt Of Post-Brexit Downturn (G.)

London could bear the brunt of a post-Brexit vote downturn, according to economic indicators in the weeks since the EU referendum pointing to job cuts, falling house prices and a decline in business activity in the capital. London’s economy was relatively unaffected by the previous downturn, compared with other UK regions, but early signs from the latest bout of turmoil suggest that it might not get off so lightly again, economists have said. This could have consequences for the government’s tax receipts and overall growth, given the city’s contribution to the UK economy. One key concern about the impact on London of the vote to leave the EU stems from the capital’s dependence on financial services.

London could lose its status as Europe’s financial capital if the UK leaves the single market and City banks are stripped of their lucrative EU “passports” that allow them to sell services to the rest of the bloc. Samuel Tombs, the chief UK economist at consultancy Pantheon Macroeconomics, said: “London was unscathed by the last recession, but its dependence on finance now is its achilles heel.” He highlighted a potential change of fortunes for London in a note to clients after surveys showed that companies in the capital had taken a hit from the referendum result. London has been the UK’s growth star for the past two decades, outperforming the rest of the country, Tombs said. “Surveys since the referendum, however, indicate that the capital is at the sharp end of the post-referendum downturn.” added.

London was the worst performer out of 12 regions on one measure of business activity for the weeks following 23 June, the day of the referendum. Companies in the capital cut jobs and suffered the sharpest fall in output since early 2009, when the UK was mired in recession, according to the Lloyds Bank regional purchasing managers’ index. Clients appeared reluctant to commit to new contracts, London businesses said, leading to a slump in order books. “The capital was hit harder than any other UK region,” said Paul Evans, the regional director for London at Lloyds commercial banking.

How deep a whole will Merkel dig this time around?

• Give Us EU Visa Freedom In October Or Abandon Migrant Deal, Turkey Says (R.)

The EU should grant Turks visa-free travel in October or the migrant deal that involves Turkey stemming the flow of illegal migrants to the bloc should put be put aside, Foreign Minister Mevlut Cavusoglu told a German newspaper. Asked whether hundreds of thousands of refugees in Turkey would head to Europe if the EU did not grant Turks visa freedom from October, he told Bild newspaper’s Monday edition: “I don’t want to talk about the worst case scenario – talks with the EU are continuing but it’s clear that we either apply all treaties at the same time or we put them all aside.” Visa-free access to the EU – the main reward for Ankara’s collaboration in choking off an influx of migrants into Europe – has been subject to delays due to a dispute over Turkish anti-terrorism legislation and Ankara’s crackdown after a failed coup.

When Ambrose starts talking about energy -or anything other than finance, for that matter- I brace myself. He tends to go into cheerleading mode. In this piece, the only problem he sees is intermittency, and even that mostly as not a real issue. Advancements in technology, don’t you know…

• Britain’s Vast National Gamble On Wind Power May Yet Pay Off (AEP)

Wind power has few friends on the political Right. No other industry elicits such protest from the conservative press, Tory backbenchers, and free market economists. The vehemence is odd since wind generates home-made energy and could be considered a ‘patriotic choice’. It dates back to the 1990s and early 2000s when the national wind venture seemed a bottomless pit for taxpayer subsidies. Pre-modern turbines captured trivial amounts of energy. The electrical control systems and gearboxes broke down. Repair costs were prohibitive. Yet as so often with infant industries, early mishaps tell us little. Costs are coming down faster than almost anybody thought possible. As the technology comes of age – akin to gains in US shale fracking – the calculus is starting to vindicate Britain’s vast investment in wind power.

The UK is already world leader in offshore wind. The strategic choice now is whether to go for broke, tripling offshore capacity to 15 gigawatts (GW) by 2030. The decision is doubly-hard because there is no point dabbling in offshore wind. Scale is the crucial factor in slashing costs, so either we do it with conviction or we do not do it all. My own view is that the gamble is worth taking. Shallow British waters to offer optimal sites of 40m depth. The oil and gas industry knows how to operate offshore. Atkins has switched its North Sea skills seamlessly to building substations for wind. JDR in Hartlepool sells submarine cables across the world. Wind power is a natural fit.

Debt Rattle June 14 2016

Jun 142016

June 14, 2016 Posted by Raúl Ilargi Meijer at 8:00 am Finance Tagged with: Assange, asylum, Brexit, China, freeloaders, Libor, mammal, Merkel, stocks, Troika, visa 2 Responses »

G. G. Bain Metropolitan Opera baritone Giuseppe De Luca, New York 1920

• Donald Tusk: Brexit Could Destroy Western Political Civilisation (BBC)

• Dutch PM Says He’s ‘Totally Against Referendums’ (EuA)

• ECB Says Oil-Price Slump Not the Global Boon It Might Have Been (BBG)

• What American Consumers Owe Uncle Sam (BBG)

• There’s a Seismic Change Coming to Money Markets (BBG)

• Silicon Valley’s Audacious Plan to Create a New Stock Exchange (BBG)

• How China Tamed Stocks (WSJ)

• Bringing the Troika to Paris (Weisbrot)

• Executive Pay Is Obscene (Mason)

• More Freeloaders Than Free Market (G.)

• Rethinking Robin Hood (Angus Deaton)

• Wikileaks To Publish ‘Enough Evidence’ To Indict Hillary – Assange (RT)

• First Mammal Species Wiped Out By Human-Induced Climate Change (G.)

• Merkel Ready To Give In To ‘Blackmail’ Over Turkish Visas (BB)

• Stranded Refugees Line Up For Greek Asylum Cards (Kath.)

On June 24, you will see pigs fly! Tusk wants Cameron to lose, I guess.

• Donald Tusk: Brexit Could Destroy Western Political Civilisation (BBC)

European Council president Donald Tusk has warned that a UK vote to leave the EU could threaten “Western political civilisation”. Mr Tusk said a vote to leave the EU would boost anti-European forces. “As a historian I fear Brexit could be the beginning of the destruction of not only the EU but also Western political civilisation in its entirety,” he told the German newspaper Bild. UKIP MP Douglas Carswell said the Remain campaign was “falling apart”. He tweeted: “Why hasn’t Western civilisation come to an end already seeing as how most countries are self governing?” The UK votes on whether to remain in the EU or leave on 23 June. Mr Tusk said everyone in the EU would lose out economically if Britain left.

“Every family knows that a divorce is traumatic for everyone,” he said. “Everyone in the EU, but especially the Brits themselves, would lose out economically.” In the interview he also said Turkey would not become a member of the European Union “in its current state”. Leave campaigners have regularly accused Remain of scaremongering after repeated warnings from high-profile figures against leaving the EU. Employment Minister Priti Patel said: “This is extraordinary language from the EU president, and serves only to reveal his own desperation. “The only thing that is destroying civilisations is the euro, which has ruined economies and led to youth unemployment soaring to nearly 50% in southern Europe.”

Not sure you could say anything less appropriate as a PM of a democracy. But he’ll keep trying.

• Dutch PM Says He’s ‘Totally Against Referendums’ (EuA)

Dutch Prime Minister Mark Rutte today (13 June) admitted a referendum called by eurosceptic groups on whether to back closer ties between Ukraine and the EU had been “disastrous” after voters soundly rejected the pact. “I’m totally against referenda, and I’m totally, totally, totally against referenda on multilateral agreements, because it makes no sense as we have seen with the Dutch referendum,” Rutte told a conference of European MPs. “The referendum led to disastrous results,” he added. His comments were his toughest since the 6 April Dutch referendum, which had been closely watched by eurosceptic groups in Britain, who hailed the results as a blow to EU unity.

Although the Dutch referendum only scraped past the 30% voter turnout to be valid, over 60% of those who cast ballots rejected the EU-Ukraine cooperation accord. The Netherlands, which currently holds the rotating presidency of the European Union, is the only country in the 28-nation bloc which has still not ratified the deal. Even though April’s vote is non-binding Rutte’s coalition government is now left with a dilemma of how to proceed. Although Rutte did not mention the June 23 referendum when British voters will choose whether to leave the EU, Britain’s eurosceptic parties have seized upon the Dutch results as supporting their own campaign to leave the European Union.

You heard it here first. Oil is such an integral part of so much of the economy that any large price swing will have outsize consequences.

• ECB Says Oil-Price Slump Not the Global Boon It Might Have Been (BBG)

Cheaper oil prices since 2014 have probably been of little net benefit to the global economy and may even have been a drag on growth, according to the ECB. “While most of the oil-price decline in 2014 could be explained by the significant increase in the supply of oil, more recently the lower price has reflected weaker global demand,” the ECB said on Monday in an article from its Economic Bulletin. “Although the low oil price may still support domestic demand through rising real incomes in net oil-importing countries, it would not necessarily offset the broader effects of weaker global demand.”

The analysis strikes at the ECB’s debate over whether it should be adding monetary stimulus to the euro-area economy as lower heating and fuel bills give consumers more spending power. President Mario Draghi has argued that as well as depressing inflation — the ECB’s main challenge – a drop in energy prices can be a sign of subdued economic activity that needs to be countered. “Assuming that, for example, 60% of the oil price decline since mid-2014 has been supply driven and the remainder demand driven, the models suggest that the combined impact of these two shocks on world activity would be close to zero, or even slightly negative,” the ECB report showed.

The economy can survive only by digging itself ever deeper into debt.

• What American Consumers Owe Uncle Sam (BBG)

U.S. consumers have long had an impressive propensity to get into debt. Lately, though, one lender has been playing a much bigger role in enabling them: Uncle Sam. Total U.S. consumer credit – which includes credit cards, auto loans and student debt, but not mortgages – stood at $3.54 trillion at the end of March, according to the latest data from the Federal Reserve. That’s the most on record, both in dollar terms and as a share of GDP. What’s really unusual, though, is the source of the money: The federal government accounted for almost 28% of the total. That’s up from less than 5% before the 2007-2009 recession, thanks in large part to the government’s efforts to promote education by making hundreds of billions of dollars in student loans directly, rather than going through banks. Here’s how that looks:

To some extent, the government’s growing role makes sense. Amid a deep economic slump and slow recovery, it was best equipped to satisfy the demand for credit among Americans looking to improve their job prospects through education. Without the government’s involvement, consumer credit as a share of gross domestic product would still be well below the pre-recession level (all else equal). Here’s how that looks:

That said, the government assist has helped push total student debt to a record $1.3 trillion, much of which has been spent on rising tuition costs or on courses that didn’t do much to improve people’s earning potential. Because student debt is extremely difficult to discharge through bankruptcy, it will weigh on the borrowers – and on the U.S. economy – for many years to come.

Seismic? A Libor successor?

• There’s a Seismic Change Coming to Money Markets (BBG)

Bankers seeking to manipulate the London Interbank Offered Rate with a flurry of tactless messages probably had little idea that the impact of their actions would be felt all the way to the Federal Reserve target rate. But—like bubbles from a bottle of Bollinger champagne—the effects of the Libor scandal are still emanating across money markets many years later. In 2014, the Financial Stability Oversight Council (FSOC) asked U.S. regulators to look into creating a replacement for Libor—one that would prove more immune to the subjective, scandalous, scurrilous whims of traders. The Alternative Reference Rates Committee (ARRC), as the resulting body is known, last month suggested two potential replacements for the much-maligned Libor.

While the new reference rate would be important simply by dint of underpinning trillions of dollars worth of derivatives contracts, its significance could go much further. Fresh research from Credit Suisse Securities USA LLC suggests the chosen rate could also become the new target rate for the Federal Reserve, replacing the federal funds rate that has dominated money markets for decades but has been neutered by recent regulation and asset purchase programs. “The question of alternative reference rates and alternative policy rates are [sic] intertwined: ideally, they would be the same,” writes Zoltan Pozsar, director of U.S. economics at the Swiss bank. “So it is likely that the rate the ARRC will ultimately choose will also be the Fed’s new target rate. But there are problems with both alternatives.”

“..compensation plans designed to make sure executive pay is not tied to short-term stock performance..”

• Silicon Valley’s Audacious Plan to Create a New Stock Exchange (BBG)

Five years ago, when Eric Ries was working on the book that would become his best-selling entrepreneurship manifesto “The Lean Startup,” he floated a provocative idea in the epilogue: Someone should build a new, “long-term” stock exchange. Its reforms, he wrote, would amend the frantic quarterly cycle to encourage investors and companies to make better decisions for the years ahead. When he showed a draft around, many readers gave him the same piece of advice: Kill that crazy part about the exchange. “It ruined my credibility for everything that had come before,” Ries said he was told. Now Ries is laying the groundwork to prove his early skeptics wrong.

To bring the Long-Term Stock Exchange to life, he’s assembled a team of about 20 engineers, finance executives and attorneys and raised a seed round from more than 30 investors, including venture capitalist Marc Andreessen; technology evangelist Tim O’Reilly; and Aneesh Chopra, the former chief technology officer of the United States. Ries has started early discussions with the U.S. Securities and Exchange Commission, but launching the LTSE could take several years. Wannabe exchanges typically go through months of informal talks with the SEC before filing a draft application, which LTSE plans to do this year. Regulators can then take months to decide whether to approve or delay applications. If all goes according to plan, the LTSE could be the stock exchange that fixes what Ries sees as the plague of today’s public markets: short-term thinking that squashes rational economic decisions.

It’s the same stigma that’s driving more of Silicon Valley’s multi-billion-dollar unicorn startups to say they’re not even thinking of an IPO. “Everyone’s being told, ‘Don’t go public,'” Ries said. “The most common conventional wisdom now is that going public will mean the end of your ability to innovate.” [..] A company that wants to list its stock on Ries’s exchange will have to choose from a menu of LTSE-approved compensation plans designed to make sure executive pay is not tied to short-term stock performance. Ries complains that it’s common to see CEOs or top management getting quarterly or annual bonuses tied to certain metrics like earnings per share, which pushes them to goose the numbers. Ries wants to encourage companies to adopt stock packages that continue vesting even after executives have left the company, which will push them to make healthy long-term moves.

It’s a really bright idea for a government to control its markets whenever it doesn’t like what they do. Kill price discovery. Why should anyone want to know what things are really worth?

• How China Tamed Stocks (WSJ)

Chinese stocks are at an odd crossroads this week: A key decision by index provider Morgan Stanley Capital International could make them a bigger part of international investors’ portfolios, even as a regulatory clampdown drives local traders away. Average daily trading turnover of shares on China’s two main markets, in Shanghai and Shenzhen—so-called A-shares—plunged last month to less than one-third of its level at its peak in June 2015. The amount of money that investors are borrowing from brokers to trade, known as margin debt, has dropped to its lowest level since December 2014.

And despite a 3.2% drop on Monday, the Shanghai stock market has just passed one of its least-eventful months ever, having moved less than 1% either way on all but two trading days in the past three weeks. Observers attribute the calm to heavy-handed intervention by Chinese officials who have tried to tame the country’s roller-coaster stock markets with support from state funds, curbs on some trading and direct hints to investors. All of that presents a forbidding backdrop for global investors ahead of MSCI’s decision, due Tuesday evening in New York, on whether to include mainland-listed shares in a key index tracked by international fund managers.

French protests are not over.

• Bringing the Troika to Paris (Weisbrot)

I have argued for years, and in my last post on this blog, that a big part of the story we have seen in Europe over the past eight years is a result of social engineering. This has involved a major offensive by the European authorities, taking advantage of an economic crisis, to transform Europe into a different kind of society, with a smaller social safety net, lower median wages, and – whether intended or not – increasing inequality as a result. In recent weeks France has faced strikes and protests as the battle has come to their terrain, over a new, sweeping labor law. Among other provisions, the law would weaken workers’ protections regarding overtime pay, the length of the work week, and job security. But most damaging of all are the provisions that would structurally weaken unions and undermine their bargaining power.

These would push collective bargaining away from the sectoral level, and toward the level of individual companies, thus making it more difficult for unions to establish industry standards for wages, hours and working conditions. Such structural “reforms” have been promoted by the European authorities (including the IMF) for years, and the ostensible rationale is to reduce unemployment. Economist Thomas Piketty succinctly sums up the major flaw in that argument: In the labor law you find the same mixture of lack of preparation and cynicism. If unemployment hasn’t stopped climbing since 2008, with an additional 1.5 million unemployed workers (and 2.1 million category A jobseekers in mid 2008, 2.8 million in mid 2012, 3.5 million in mid 2016) it’s not because the [current] labor law has suddenly become more rigid.

It’s because France and the Eurozone have provoked, through excessive austerity, an absurd slowdown of activity from 2011 to 2013, contrary to the U.S. and to the rest of the world, thereby transforming the financial crisis that came from the other side of the Atlantic into an interminable European recession. In a recent discussion, economist Yanis Varoufakis recounts a conversation that he had with his German counterpart Wolfgang Schäuble. It was at the height of the conflict between Greece and the European authorities last summer: “I had many interesting conversations with the Finance Minister of Germany, Dr. Wolfgang Schäuble. At some point, when I showed him this ultimatum, and I said to him… “Would you sign this? Just, let’s take off our hats as Finance Ministers for a moment. I’ve been in politics for five months. You’ve been in politics for 40 years.

You keep barking in my ear that I should sign it. Stop telling me what to do. As human beings, you know that my people, now, are suffering a Great Depression. We have children at school that faint as a result of malnutrition. Can you just do me the favor and advise me on what to do? Don’t tell me what to do. As somebody with 40 years, a Europeanist, somebody who comes from a democratic country, just Wolfgang to Yanis, not Finance Minister to Finance Minister.” And to his credit, he looked out of the window for a while. .. and he turned around and he said, “As a patriot I wouldn’t.” Of course the next question was, “so why are you forcing me to do it?” He said, “Don’t you understand?! I did this in the Baltics, in Portugal, in Ireland, you know, we have discipline to look after. And I want to take the Troika to Paris.” The Troika has arrived.

Shock doctrine in the UK.

• Executive Pay Is Obscene (Mason)

[..] if you want to prevent wealth flowing from productive people to the elite, you have to restructure the economy. You have to stop believing £24m annual paydays are the result of an accident. You have to make property speculation a crime and pursue policies that can suppress boom and bust, whether it is in the property market, the stock market or any other market. And you have to tax assets, not just income. Executive pay is structured around share options, not just salaries and bonuses, because it is more “tax efficient”. A tax on shares held; a tax on the value of property designed to stop it rising faster than GDP – these are the measures that would actually work. Plus, make a positive case for rent controls.

If Jeremy Corbyn’s Labour can become the first advanced-country government to suppress the causes of obscene executive pay, it will reap a massive first-mover advantage. The property market will stabilise; housing will become affordable as billionaires – foreign and domestic – take their money elsewhere. The stock market then will move in line with the real economy, not the fantasy economy created by a shortage of housing and a glut of money. Finally, the overpaid elite will drag their sorrows through the world to another jurisdiction. Personally, I cannot wait to see them go.

Still surprised Britain will vote against anything Cameron does or says?

• More Freeloaders Than Free Market (G.)

On Wednesday, two very different men will have to explain themselves. Both appear in London, to a room full of authority figures – but their finances and their status place them at opposite ends of our power structure. Yet put them together and a picture emerges of the skewedness of today’s Britain. For the Rev Paul Nicolson, the venue will be a magistrate’s court in London. His “crime” is refusing to pay his council tax, in protest against David Cameron’s effective scrapping of council tax benefit, part of his swingeing cuts to social security. In order to pay for a financial crisis they didn’t cause, millions of families already on low incomes are sinking deeper into poverty. In order to pay bills they can’t afford, neighbours of the retired vicar are going without food.

The 84-year-old faces jail this week, for the sake of £2,831. Meanwhile, a chauffeur will drive Philip Green to parliament, where he’ll be quizzed by MPs over his part in the collapse of BHS. A business nearly as old as the Queen will die within a few weeks, leaving 11,000 workers out of a job and 22,000 members of its pension scheme facing a poorer retirement. There the similarities peter out. Nicolson was summoned to court; Green wasn’t going to bother showing up at Westminster. When the multibillionaire was invited by Frank Field to make up BHS’s £600m pension black hole, he demanded the MP resign as chair of the work and pensions select committee.

But then, Green is used to cherry-picking which rules he plays by. Take this example: he buys Arcadia, the company that owns Topshop, then arranges for it to give his wife a dividend of £1.2bn. Since Tina Green is, conveniently, a resident of Monaco, the tax savings on that one payment alone are worth an estimated £300m. That would fund the building of 10 large secondary schools – or two-thirds of the annual cut to council tax benefits.

Sorry Angus, but “cosmopolitan prioritarianism” sounds like a real silly term. Maybe you should talk to people in words they can understand.

• Rethinking Robin Hood (Angus Deaton)

International development aid is based on the Robin Hood principle: take from the rich and give to the poor. National development agencies, multilateral organizations, and NGOs currently transfer more than $135 billion a year from rich countries to poor countries with this idea in mind. A more formal term for the Robin Hood principle is “cosmopolitan prioritarianism,” an ethical rule that says we should think of everyone in the world in the same way, no matter where they live, and then focus help where it helps the most. Those who have less have priority over those who have more. This philosophy implicitly or explicitly guides the aid for economic development, aid for health, and aid for humanitarian emergencies.

On its face, cosmopolitan prioritarianism makes sense. People in poor countries have needs that are more pressing, and price levels are much lower in poor countries, so that a dollar or euro goes twice or three times further than it does at home. Spending at home is not only more expensive, but it also goes to those who are already well off (at least relatively, judged by global standards), and so does less good. I have thought about and tried to measure global poverty for many years, and this guide has always seemed broadly right. But I currently find myself feeling increasingly unsure about it. Both facts and ethics pose problems. Huge strides have undoubtedly been made in reducing global poverty, more through growth and globalization than through aid from abroad.

The number of poor people has fallen in the past 40 years from more than two billion to just under one billion – a remarkable feat, given the increase in world population and the long-term slowing of global economic growth, especially since 2008. While impressive and wholly welcome, poverty reduction has not come without a cost. The globalization that has rescued so many in poor countries has harmed some people in rich countries, as factories and jobs migrated to where labor is cheaper. This seemed to be an ethically acceptable price to pay, because those who were losing were already so much wealthier (and healthier) than those who were gaining.

Can’t wait.

• Wikileaks To Publish ‘Enough Evidence’ To Indict Hillary – Assange (RT)

Wikileaks co-founder Julian Assange warns more information will be published about Hillary Clinton, enough to indict her if the US government is courageous enough to do so, in what he predicts will be “a very big year” for the whistleblowing website. Expressing concerns in an ITV interview about the Democratic presidential candidate, who he claims is monitoring him, Assange described Republican presumptive nominee Donald Trump as an “unpredictable phenomenon”, but predictably, given their divergent political views, didn’t say if he preferred the billionaire to be president.

“We have emails relating to Hillary Clinton which are pending publication,” Assange told Peston on Sunday when asked if more of her leaked electronic communications would be published. About 32,000 emails from her private server have been leaked by Wikileaks so far, but Assange would not confirm the number of emails or when they are expected to be published. Speaking via video link from the Ecuadorian Embassy in London, Assange said that there was enough information in the emails to indict Clinton, but that was unlikely to happen under the current Attorney General, Obama appointee Loretta Lynch. He does think “the FBI can push for concessions from the new Clinton government in exchange for its lack of indictment.”

Well done, boys. Next!

• First Mammal Species Wiped Out By Human-Induced Climate Change (G.)

The Bramble Cay melomys has become extinct, Australian scientists say (/span)

Human-caused climate change appears to have driven the Great Barrier Reef’s only endemic mammal species into the history books, with the Bramble Cay melomys, a small rodent that lives on a tiny island in the eastern Torres Strait, being completely wiped-out from its only known location. It is also the first recorded extinction of a mammal anywhere in the world thought to be primarily due to human-caused climate change. An expert says this extinction is likely just the tip of the iceberg, with climate change exerting increasing pressures on species everywhere. The rodent, also called the mosaic-tailed rat, was only known to live on Bramble Cay a small coral cay, just 340m long and 150m wide off the north coast of Queensland, Australia, which sits at most 3m above sea level.

It had the most isolated and restricted range of any Australian mammal, and was considered the only mammal species endemic to the Great Barrier Reef. When its existence was first recorded by Europeans in 1845, it was seen in high density on the island, with sailors reporting they shot the “large rats” with bows and arrows. In 1978, it was estimated there were several hundred on the small island. But the melomys were last seen in 2009, and after an extensive search for the animal in 2014, a report has recommended its status be changed from “endangered” to “extinct”.

Led by Ian Gynther from Queensland’s Department of Environment and Heritage Protection, and in partnership with the University of Queensland, the survey laid 150 traps on the island for six nights, and involved extensive measurements of the island and its vegetation. In their report, co-authored by Natalie Waller and Luke Leung from the University of Queensland, the researchers concluded the “root cause” of the extinction was sea-level rise. As a result of rising seas, the island was inundated on multiple occasions, they said, killing the animals and also destroying their habitat.

It’s starting to look like Merkel no longer understands the limits of her powers.

• Merkel Ready To Give In To ‘Blackmail’ Over Turkish Visas (BB)

According to a British diplomat, Chancellor Angela Merkel is ready to give visa-free travel in the Schengen zone to 75 million Turkish citizens despite the failure to meet key EU conditions. In starkly undiplomatic language, British Ambassador to Germany Sir Sebastian Wood has said that Chancellor Merkel’s officials are ready to strike a “compromise formulation” on the Turkish terrorism law which was a sticking point to the proposed EU-Turkey migrant deal. The Turkish leader, President Erdogan, recently said that telling his country to soften its counter-terror laws was tantamount to asking it to give up its struggle against terrorism. In saying so he was threatening to scupper the deal which is designed to give Turks visa-free travel to Europe in return for stemming the flow of illegal migrants to the continent.

At first the EU said it would not give in to Turkish pressure, but now The Daily Telegraph reports that a leaked diplomatic telegram (‘DipTel’) written last month by Sir Sebastian suggests otherwise. In the May 13 memo, Sir Sebastian said President Erdogan’s pursuit of German satirist Jan Böhmermann “only strengthened the view that he is an authoritarian bully who is trying to blackmail Europe.” He also wrote, regarding the migrant deal: “Despite the tough public line, there are straws in the wind to suggest that in extremis the Germans would compromise further to preserve the EU-Turkey deal. “Merkel has begun to paint the deal in humanitarian terms, (pointing out that since it came into force, only 9 people have drowned), to pre-empt human rights opposition. Officials here have shown some interest, behind the scenes, about possible compromise formulations on the anti-terror law.”

As I said before: the plan is to leave them all stranded in Greece.

• Stranded Refugees Line Up For Greek Asylum Cards (Kath.)

Greece aims to register 1,400 people a day in its new asylum access system in a bid to expedite asylum applications by refugees, to relocate them to other EU member-states or reunite them with their families. The operation, which began last Wednesday, seeks to deal with the some 48,000 migrants – many with expired papers – who got stranded on the Greek mainland after the Balkan route into Europe was closed. So far, 1,200 people have been “pre-registered” – as the process has been dubbed – in Athens and Thessaloniki. Pre-registration will grant refugees and migrants the legal right to stay in Greece for one year and access to basic services.

According to the head of Greece’s asylum service, Maria Stavropoulou, “pre-registration” will be “a first step either for relocation to other member-states, or for family reunification, or to apply for international protection in Greece.” Once they are registered, refugees receive an asylum applicant’s card which means they will get an interview in the next few months with the asylum service. The program will last for two months and aims to pre-register all applicants that arrived in Greece from January 1 2015 until March 19, 2016, the day before the treaty between the EU and Turkey to stem their flow went into effect. The process is open to three different groups: those with the right to move to EU countries where they have relatives as part of the family reunion program, those that will be part of the resettlement program (Syrians and Iraqis), and those who want to apply for asylum in Greece.

Debt Rattle May 21 2016

May 212016

May 21, 2016 Posted by Raúl Ilargi Meijer at 9:17 am Finance Tagged with: currency war, debt, FX, G7, Greece, Monsanto, oil, refugees, Turkey, visa, zombies 2 Responses »

NPC National Service Co. front, 1610 14th Street N.W., Washington DC 1920

• One-Third Of Chinese Real Estate Companies Are “Zombies” (Nikkei)

• Defaults Throw Wrench in China’s $3 Trillion Company Bond Engine (BBG)

• Easy Money = Overcapacity = Deflation (Rubino)

• Cash-Stuffed US Balance Sheets No Match for Even Bigger Debt Loads (BBG)

• US, Japan FX Row Overshadows G7 Meeting (R.)

• Crude Tanker Storage Fleet Off Singapore Points To Stubborn Oil Glut (R.)

• How Freddie and Fannie Are Held Captive (Morgenson)

• TTIP: The Most Toxic Acronym In Europe (G.)

• Monsanto Weedkiller Faces Recall From Europe After EU Fail To Agree Deal (G.)

• Turkey Faces United EU Front in Row Over Visa-Free Travel (BBG)

• EU Ministers Press Greece to Send More Syrians Back to Turkey (WSJ)

• Syrian Refugee Wins Appeal Against Forced Return To Turkey (G.)

“..on the brink of default but still taking on more debt.”

• One-Third Of Chinese Real Estate Companies Are “Zombies” (Nikkei)

As China’s economy continues to sputter, many local companies are having difficulty servicing their debts. A look at 3,000 listed Chinese businesses by French investment bank Natixis found that interest costs exceeded cash flow for 18.5% of them last year, compared with 8% in 2010. Real estate, the most debt-ridden sector, saw its leverage level reach 197% last year, nearly double the figure for 2008, according to Natixis. The investment bank estimates that almost one-third of listed companies in the sector are “zombies” – businesses that are on the brink of default but still taking on more debt.

“The share of zombies in the real estate sector literally doubles the average in [corporate] China,” said Iris Pang, senior economist for greater China at Natixis. Evergrande Real Estate, for example, saw its ratio of total liabilities to earnings before interest, taxes, depreciation and amortization – or EBITDA – leap to 15.4% at the end of 2015 from 8.5% a year earlier. The figure climbed to 28.6% from 14.9% at Greenland Holdings, 26.8% from 9.7% at Sunac China Holdings, and 58.5% from 20% at Shui On Land. A study released in May by brokerage CLSA of China’s property, mining, manufacturing, utilities, construction, and wholesale and retail sectors counted potential problem debts of 14 trillion yuan ($2.14 trillion) as of the end of 2015.

The property sector represented over half the total, at 54.1%, with industries plagued by excess capacity, such as utilities, steel and coal, accounting for much of the rest. Notably, most of the recent corporate bond defaults have come from these loss-making sectors too, including state-owned power equipment manufacturer Baoding Tianwei and Dongbei Special Steel. Worries about large-scale layoffs, especially in the steel and coal industries, have held the government back from pushing strongly on necessary capacity cutbacks. Instead, state banks have continued to extend more loans, said Francis Cheung at CLSA. Cheung estimates that the actual proportion of questionable debts on the books of China’s banks stands at 15-20%, compared with the 5.76% total reported by the central bank at the end of the first quarter for nonperforming loans and so-called special mention loans.

Needing new debt to pay off the old. 72% of new debt is one year or less. Hmm..

• Defaults Throw Wrench in China’s $3 Trillion Company Bond Engine (BBG)

Defaults and pulled sales are starting to gum up China’s bond refinancing machine. Chinese companies issued 382.7 billion yuan ($58.5 billion) of notes onshore this month, down 11% from the same period in April and 57% March, data compiled by Bloomberg show. With just eight trading days to go, fundraising may fall short of the record 547.3 billion yuan of debt due. That would mark a shift after sales were 83% more than maturities in April and almost three times higher in March. The faltering $3 trillion corporate bond market will test Premier Li Keqiang’s determination to weed out zombie companies dragging on growth in the world’s second-biggest economy. At least 10 issuers have reneged on onshore debt obligations this year, while 153 Chinese firms have pulled 175 billion yuan of domestic sales this quarter.

Shandong Iron & Steel, which canceled a 3 billion yuan bond offering on May 4, has 3 billion yuan of securities due this month and 30 billion yuan to repay this year. “Many Chinese companies are relying on new borrowings to repay their old debt,” said Liu Dongliang, a senior analyst at China Merchants Bank in Shenzhen. “If they can’t get the money they need, more will default.” Debt-laden companies are struggling to lock in stable, longer-term financing. Sales of onshore bonds maturing in one year or less accounted for 72% of issuance by Chinese coal and steel producers from May 2015 to April 2016, as many were unable to sell longer debt, according to Fitch Ratings. Most of the proceeds were used to refinance maturing notes, Fitch wrote in a May 13 report. “Only the best companies, which have strong profitability or trustworthy credit profiles, are able to sell bonds,” said Qiu Xinhong at First State Cinda Fund Management. “Confidence won’t rebound in the short term.”

It really is that easy.

• Easy Money = Overcapacity = Deflation (Rubino)

Somewhere back in the depths of time the world got the idea that easy money — that is, low interest rates and high levels of government spending — would produce sustainable growth with modest but positive inflation. And for a while it seemed to work. But that was an illusion. What actually happened was textbook, long-term, surreally-vast misallocation of capital in which individuals, companies and governments were fooled into thinking that adding new factories, stores and infrastructure at a rate several times that of population growth would somehow work out for the best.

China, as with so many other things, was the epicenter of this delusion. In response to the 2008-2009 financial crisis it borrowed more money than any other country ever, and spent most of the proceeds on infrastructure and basic industry. It’s steel-making capacity, already huge by 2008, kept growing right through the Great Recession, and now dwarfs that of any other country.

The result was indeed higher prices for iron ore and finished steel up front (that is, the inflation the architects of the easy money era expected and desired). But this was soon followed by falling prices as the rest of the world’s steel makers tried to stay in the game.

It’s the same story pretty much everywhere. Miners that produced the raw materials for the infrastructure/industrial build-out started projects based on inflated price projections and now have no choice but to keep producing to cover variable costs and avoid bankruptcy. Prices of virtually every commodity have as a result plunged. In the US, retailers built new stores at a pace that vastly exceeded population growth, apparently on the assumption that consumers would keep borrowing in order to buy ever-greater amounts of semi-useless stuff. And now bricks and mortar retailing is suffering a mass-die-off.

Something’s got to give at some point.

• Cash-Stuffed US Balance Sheets No Match for Even Bigger Debt Loads (BBG)

There’s more cash sitting on company balance sheets than ever before. For the first time since 2012, that’s not enough. Combining all of the corporate cash in the U.S. wouldn’t cover the $1.8 trillion of corporate debt that’s coming due in the next five years, according to a report by Moody’s Investors Service on Friday. That’s because U.S. companies have been borrowing more quickly than they’ve built up the record $1.68 trillion of cash on their balance sheets. And more of that debt comes due sooner. “You’re seeing more and more borrowing,” Richard Lane, a senior vice president at Moody’s, said by phone. “The increase in leverage has been notable. Cash coverage of near-term maturities hasn’t fallen below 100% since 2012, and hasn’t been as low as its current 93% since the year before that, according to Moody’s.

One reason may be that companies are making less money from merely running their businesses. Cash flow from operations declined 0.2% to $1.54 trillion in the 12 months ended in December 2015, the first time the metric declined in Moody’s data going back to 2007. To cope with sluggish global growth, companies went to the bond market to raise cash at rock-bottom rates. They issued a record $1.4 trillion of bonds last year, according to data compiled by Bloomberg. That helped lead to a 17% increase in the amount of company debt outstanding that matures in the next five years. In contrast, cash holdings only increased by 1.8% among U.S. non-financial companies at the end of 2015, according to Moody’s. The credit rater’s definition of cash includes short-term investments and liquid long-term investments.

Was always inevitable.

• US, Japan FX Row Overshadows G7 Meeting (R.)

The United States issued a fresh warning to Japan against competitive currency devaluation on Saturday, exposing a rift on exchange-rate policy that overshadowed a Group of 7 finance leaders gathering hosted by the Asian nation. Japan and the United States are at logger-heads over currency policy with Washington saying Tokyo has no justification to intervene in the market to stem yen gains, given the currency’s moves remain “orderly”. In bilateral talks ahead of the second day of G7 talks in Sendai, Japan on Saturday, U.S. Treasury Secretary Jack Lew told Japanese Finance Minister Taro Aso that it was important to refrain from competitive currency devaluation.

“Secretary Lew underscored that the commitments made by the G-20 in Shanghai to use all policy tools to promote growth – fiscal policy, monetary policy and structural reforms – and to refrain from competitive devaluation and communicate closely have helped to contribute to confidence in the global economy in recent months,” according to a statement by the Treasury Department.

“He noted the importance of countries continuing to adhere to those commitments,” the statement said. As years of aggressive money printing stretch the limits of monetary policy, the G7 policy response to anemic inflation and subdued growth has become increasingly splintered. Germany has shown no signs of responding to calls from Japan and the United States to boost fiscal spending. Washington also warned Tokyo against relying too much on monetary policy with a senior U.S. Treasury official saying structural reforms are being put in place in Japan “but slowly.”

“..traders fully aware that they will not make a profit from storing the oil. This isn’t a trade play, it’s the oil market looking for places to store unsold fuel..”

• Crude Tanker Storage Fleet Off Singapore Points To Stubborn Oil Glut (R.)

Prices for oil futures have jumped by almost a quarter since April, lifted by severe supply disruptions caused by triggers such as Canadian wildfires, acts of sabotage in Nigeria, and civil war in Libya. Yet flying into Singapore, the oil trading hub for the world’s biggest consumer region, Asia, reveals another picture: that a global glut that pulled down prices by over 70% between 2014 and early 2016 is nowhere near over, and that financial traders betting on higher crude oil futures may be in for a surprise from the physical market. “I’ve been coming to Singapore once a year for the last 15 years, and flying in I have never seen the waters so full of idle tankers,” said a senior European oil trader a day after arriving in the city-state.

Red dots are ships at anchor or barely moving, oil tankers or cargo (ZH)

As Asia’s main physical oil trading hub, the number of parked tankers sitting off Singapore’s coast or in nearby Malaysian waters is seen by many as a gauge of the industry’s health. Judging by this, oil markets are still sickly: a fleet of 40 supertankers is currently anchored in the region’s coastal waters for use as floating storage facilities. The tankers are filled with 47.7 million barrels of oil, mostly crude, up 10% from the previous week, according to newly collected freight data in Thomson Reuters Eikon. That’s enough oil to satisfy five working days of Chinese demand, suggesting recent supply disruptions – which have mostly occurred in the Americas, Africa and Europe – have done little to tighten supply in Asia as Middle East producers keep output near record volumes in a bid to win market share.

[..] the need to store oil is so strong that traders are calling up banks to finance storage charters despite there being no profit in keeping fuel in tankers at current rates. “We are receiving unusually high amounts of queries to finance storage charters,” said a senior oil trade financier with a major bank in Asia. “These queries come from traders fully aware that they will not make a profit from storing the oil. This isn’t a trade play, it’s the oil market looking for places to store unsold fuel,” he added.

This story is getting very strange. The level of secrecy is off the charts.

• How Freddie and Fannie Are Held Captive (Morgenson)

When Washington took over the beleaguered mortgage giants Fannie Mae and Freddie Mac during the collapse of the housing market and the financial crisis of 2008, it was with the implicit promise that they would be returned to shareholders after being nursed back to health. But now, with the unsealing of documents this week that were produced as part of a lawsuit filed against the government, new evidence is coming to light on how intimately the White House was involved in the Treasury’s decision in August 2012 to divert all the companies’ profits to the Treasury Department. That move effectively maintained Fannie and Freddie’s status as wards of the state.

An email from Jim Parrott, then a top White House official on housing finance, was sent the day the so-called profit sweep was announced. It said that the change was structured to ensure that the companies couldn’t “repay their debt and escape as it were.” The documents also show Treasury moving to modify the terms of the mortgage finance giants’ $187.5 billion bailout shortly after a July 2012 meeting when the Federal Housing Finance Agency, Fannie’s and Freddie’s regulator, learned that they were about to enter “the golden years” of profitability. Since then, Fannie and Freddie have returned to the Treasury over $50 billion more than they received in the bailout. The amount they owe to the government remains outstanding.

The new materials cast further doubt on arguments made in court by government lawyers that the profit sweep came about because Fannie and Freddie were in a death spiral and taxpayers needed protection from future losses. Documents unsealed last month also served to undermine that legal stance. The trickle of documents comes years after Fannie and Freddie shareholders filed suits against the government, contending that its decision regarding the companies’ profits was illegal. Defending against an array of these suits, lawyers for the Justice Department have requested confidential treatment for thousands of pages of materials. In a case brought in Federal Claims Court, the government’s lawyers asserted presidential privilege in 45 documents.

Falling apart pretty fast.

• TTIP: The Most Toxic Acronym In Europe (G.)

David Cameron narrowly avoided the parliamentary defeat of his Queen’s speech this week – an event that, theoretically, triggers the fall of a government and hasn’t happened since 1924. That was only achieved through an embarrassing U-turn on TTIP, the Transatlantic Trade and Investment Partnership, which he ardently supports. One of the primary concerns about TTIP is that it could pave the way to further privatisation of the NHS. Yesterday, a group of MPs gave notice that they would table an amendment to the Queen’s speech, lamenting the fact that the government had not included a bill to protect the NHS from TTIP in its programme. The cross-party group was led by Peter Lilley, a long-time supporter of free trade and a former minister under Margaret Thatcher and John Major, and was supported by at least 25 Tory MPs – easily enough to overturn the government’s majority.

Though many were Brexiters, by no means all were, and some, such as Sarah Wollaston, appear to have changed their position on TTIP. Realising he faced one of the most embarrassing defeats of his premiership – one not suffered since a similar motion removed Stanley Baldwin from office in 1924 – Cameron quickly said he’d support the amendment. Make no bones about it, this is a humiliation. The prime minister has repeatedly told MPs that TTIP poses no threat to the NHS. Yet to avoid the abyss, his government has supported an amendment contrary to these assertions. We must be under no illusions that he has any intention of moving to protect the NHS in TTIP. How did it come to this? The obvious answer is the EU referendum, which has brought into the open fundamental divisions within the Tory party.

But this only provided the opportunity for parliamentary defeat. If this had gone to a vote, the vast majority of MPs opposing the government in fact support remaining in the EU, and wouldn’t take part in anything that would make Brexit more likely. The reasons go deeper – and they mirror what is happening all over the EU and US. TTIP started out as an obscure trade agreement that would create the world’s biggest “free trade zone” between the US and EU, and received little media coverage or parliamentary debate. Two years ago very few politicians or journalists had even heard of it. Yet a movement has built against this deal, one that has stunned the negotiators and forced the EU trade commissioner to call TTIP “the most toxic acronym in Europe”.

“More than 99% of people in one recent German survey were found to have traces of the compound in their urine, 75% of them at levels five times the safe limit for water or above.”

• Monsanto Weedkiller Faces Recall From Europe After EU Fail To Agree Deal (G.)

Bestselling weedkillers by Monsanto, Dow and Syngenta could be removed from shops across Europe by July, after an EU committee failed for a second time to agree on a new license for its core ingredient, glyphosate. The issue has divided EU nations, academics and the WHO itself. One WHO agency found it to be “probably carcinogenic to humans” while another ruled that glyphosate was unlikely to pose any health risk to humans, in an assessment shaded by conflict of interests allegations earlier this week. EU officials say that while there could be a voluntary grace period of six-12 months, unless a compromise can be found, the product’s license will be allowed to expire on 30 June. One told the Guardian that after its proposal to cutting the authorisation to nine years was rejected, the bloc was now in “uncharted territory” with no clear path to a deal that could reach consensus.

“Our position is clear,” he said. “If we can reach a qualified majority on a text we will go ahead. Otherwise, we have to leave the authorisation to expire and on 30 June member states will need to start withdrawing products containing glyphosate from the market.” Glyphosate is Europe’s most widely used weedkiller, and its parent RoundUp herbicide accounts for a third of Monsanto’s total earnings. The compound is routinely – but not exclusively – used on crops that have been genetically engineered to resist it. Several studies have linked blanket spraying with damage to surrounding flora, fauna and the entire food chain. But the commission moved to relicense it last November, after a crucial European food safety authority (Efsa) report declared it unlikely to cause cancer, although that paper sparked controversy.

Philip Miller, Monsanto’s vice president of global regulatory affairs, condemned the EU’s failure to reapprove glyphosate as “scientifically unwarranted” and “an unprecedented deviation from the EU’s legislative framework”. Writing in a blog post, he said: “This delay undermines the credibility of the European regulatory process and threatens to put European farmers and the European agriculture and chemical industries at a competitive disadvantage.” Richard Garnett, the head of Monsanto’s regulatory affairs unit said that the situation was “discriminatory, disproportionate and wholly unjustified”. The US agri-giant is currently the subject of a takeover bid by the German chemicals multinational, Bayer. Under bloc rules, the commission could now go to an appeals committee but this would have the same balance of countries as the standing committee that has now twice failed to take a decision.

It could also go over the heads of the EU states and independently reauthorise glyphosate as a draft measure. EU president Jean-Claude Juncker has said that he opposes doing this and officials doubt it will happen, although the procedure has been used to approve GM crops for import. A short-term license might also be possible. Glyphosate is so ubiquitous that its residues are commonly found in breads, beers and human bodies. More than 99% of people in one recent German survey were found to have traces of the compound in their urine, 75% of them at levels five times the safe limit for water or above. But the very definition of a safe limit for chemicals such as glyphosate is contested, and linked to a broader regulatory divide between the US’s risk-based approach which errs towards product approvals where doubt cannot be quantified, and the EU’s hazard-based approach, which leans towards a precautionary principle in such situations.

“.. If not, well, then not. It’s as simple as that.”

• Turkey Faces United EU Front in Row Over Visa-Free Travel (BBG)

EU governments showed Turkey a united front in the battle over visa-free travel, insisting Ankara narrow its terrorism legislation to qualify for the perk. The stance by European home-affairs ministers underscores a threat to an EU-Turkey agreement that has stemmed Europe’s biggest refugee wave since World War II and eased domestic political pressure on leaders including German Chancellor Angela Merkel. Turkey sought EU visa-free status in return for signing up to the mid-March deal, under which irregular migrants who enter the EU in Greece are sent back to Turkey and Syrian refugees in Turkish camps are resettled in Europe. The EU has said Turks can win visa-free status by mid-year as long as the Turkish government fulfills five remaining criteria – including on the terrorism law – out of a total of 72.

Turkish President Recep Tayyip Erdogan has signaled he won’t bow to the European demand over terrorism legislation, citing terror risks in Turkey that his critics say are being used as cover to jail political opponents. “We have a clear statement and a clear agreement on visa liberalization: it goes through if you meet the criteria,” Klaas Dijkhoff, migration minister of the Netherlands, current holder of the 28-nation EU’s rotating presidency, told reporters on Friday in Brussels after chairing a meeting with his counterparts from the bloc. “We will see if, over the next few weeks, the criteria are met. If so, we will go ahead. If not, well, then not. It’s as simple as that.” The standoff pits EU political principles against Turkish geopolitical power. Migrant flows into Europe via Turkey during the past year have handed Erdogan leverage over the EU, which has lambasted him for cracking down on domestic dissenters and kept Turkey’s longstanding bid for membership of the bloc largely on hold.

Along with the reintroduction of internal European border checks that shut a migratory route north from Greece, the March 18 EU agreement with Ankara has caused a slump in refugee sea crossings from the Turkish coast to nearby Greek islands. Arrivals in Greece fell to 3,650 last month from 26,971 in March and 57,066 in February, according to the UN refugee agency. On May 6, when commenting on the EU call for Turkish terrorism-rule changes, Erdogan said “we are going our way and you go yours.” He also dared the bloc to “go make a deal with whoever you can.” Erdogan’s position poses a “problem,” said Theo Francken, Belgium’s state secretary for asylum and migration. “It’s clear that all the conditions have to be fulfilled,” Francken told reporters at Friday’s EU meeting. “To get visa liberalization, it’s important that they change their terrorism law.”

Europe speaks with forked tongue.

• EU Ministers Press Greece to Send More Syrians Back to Turkey (WSJ)

European interior ministers on Friday pressured Greece to speed up asylum procedures and send more Syrians back to Turkey. Under a deal signed in March between the EU and Turkey, all migrants, including Syrian refugees are to be sent back to Turkey once they have their asylum applications assessed and rejected by Greek judges. But the first decisions—coming nearly two months after the deal went into effect—ruled mostly in favor of the Syrians applying for asylum. These early figures are raising concerns among EU officials that the intent of the plant to serve as a deterrent will be lost. Austrian minister Wolfgang Sobotka said if the trend continues, it would “at least undermine, if not annul the Turkey agreement.”

Germany, which championed the EU-Turkey deal, in particular pressed Greece for an acceleration in returning migrants to Turkey. German Interior Minister Thomas De Maiziere said that while Turkey is sticking to its part of the deal and arrivals in Greece have dropped, “on the Greek side, procedures take too long and the returns to Turkey are not happening with enough determination.” Mr. De Maiziere said he spoke to his Greek counterpart about the first appeal case won by a Syrian on Friday against a ruling to send him back to Turkey. He said “it was up to Greek authorities to establish what happened,” while insisting that Turkey is a safe country for Syrian refugees.

“Turkey has sheltered 2.5 million refugees, this is a tremendous performance. Despite all political debates that we can have and which are justified. we can’t doubt Turkey’s safe country status,” Mr. De Maiziere said, in reference to a decision Friday by Turkey’s parliament to strip lawmakers critical of the government of their immunity. Given that the Greek appeals body isn’t controlled by the government, the Greek minister asked for support from the EU to state that Turkey is a safe country where Syrian refugees can be sent back, according to one participant in the debate. “Member states today made it clear that they support Greece in considering Turkey a safe country for the return of migrants,” EU migration commissioner Dimitris Avramopoulos said.

Can’t very well ignore your own judges. But the pressure will be relentless.

• Syrian Refugee Wins Appeal Against Forced Return To Turkey (G.)

The EU-Turkey migration deal has been thrown further into chaos after an independent authority examining appeals claims in Greece ruled against sending a Syrian refugee back to Turkey, potentially creating a precedent for thousands of other similar cases. In a landmark case, the appeals committee upheld the appeal of an asylum seeker who had been one of the first Syrians listed for deportation under the terms of the EU-Turkey deal. In a document seen by the Guardian, a three-person appeals committee said Turkey would not give Syrian refugees the rights they were owed under international treaties and therefore overturned the applicant’s deportation order by a verdict of two to one. The case will now be re-assessed from scratch.

The committee’s conclusion stated: “The committee has judged that the temporary protection which could be offered by Turkey to the applicant, as a Syrian citizen, does not offer him rights equivalent to those required by the Geneva convention.” The decision undermines the legal and practical basis for the EU-Turkey deal, which European leaders had hoped would deter refugees from sailing to Europe by ensuring the swift deportation of most people landing on the Greek islands. After signing the deal on 18 March, EU officials claimed these deportations would be legally justified on the basis that Turkey respects refugee rights. But the EU’s executive has little control over Greek asylum protocols. The committee rejected the logic of the EU-Turkey deal, citing some of the EU’s own previous directives as explanations for their decision.

While nearly 400 other asylum seekers have been returned to Turkey under the terms of the deal, no one of Syrian nationality had been sent back against their will – making Friday’s decision a watershed moment. “At its very first test, the EU-Turkey deal crumbles,” said Gauri van Gulik, Amnesty International’s deputy Europe director. The Greek government, which played no part in the independent decision, admitted the judgment had created “a very difficult situation”. Greece’s deputy minister in charge of migration policy, Yannis Mouzalas, said by phone from Brussels: “I have only just learned of the decision by the appeals committee and I have to be in Greece to study it. They are, as you know, independent committees so it is very difficult for me to say anything – but if they think this way, we will have a very difficult situation.” Such a decision goes against all the directives of the UN and UNHCR, Mouzalas claimed. “Really I don’t know how they arrived at it.”

Debt Rattle May 12 2016

May 122016

May 12, 2016 Posted by Raúl Ilargi Meijer at 8:55 am Finance Tagged with: Blackstone, Bud, euro, excess supply, infrastructure, Italy, property, recession, refugees, Turkey, visa 2 Responses »

DPC Betsy Ross house, Philadelphia. Birthplace of Old Glory 1900

• The Next US President Will Face A Recession (BBG)

• America’s Middle Class Meltdown (FT)

• ‘Fed Doesn’t Get It About Global Excess Supply’ (MW)

• The New Kings Of Wall Street (Forbes)

• Italy Must Choose Between The Euro And Its Own Economic Survival (AEP)

• Hong Kong Property Market in Free Fall: Kyle Bass (BBG)

• China Eyes $724 Billion Of Transport Investment Over Next Three Years (R.)

• Defying Debt Fears, China Bets On Infrastructure, Property (R.)

• Budweiser’s ‘America’ No Longer Exists (MW)

• US Anti-Poverty Campaigner Is Worried About Australia (DL)

• Berlin Should Be Careful What It Wishes For (FT)

• EU Parliament Raises the Rhetoric Over Turkey’s Visa-Waiver Bid (BBG)

• European Rights Watchdog Complains About Greek Refugee Camps Conditions (R.)

Look what the Fed bought you! “The 83-month-old expansion is already the fourth-longest in more than 150 years..”

• The Next US President Will Face A Recession (BBG)

Talk about a poisoned chalice. No matter who is elected to the White House in November, the next president will probably face a recession. The 83-month-old expansion is already the fourth-longest in more than 150 years and starting to show some signs of aging as corporate profits peak and wage pressures build. It also remains vulnerable to a shock because growth has been so feeble, averaging just about 2% since the last downturn ended in June 2009. “If the next president is not going to have a recession, it will be a U.S. record,” said Gad Levanon, chief economist for North America at the Conference Board in New York. “The longest expansion we ever had was 10 years,” beginning in 1991.

The history of cyclical fluctuations suggests that the “odds are significantly better than 50-50 that we will have a recession within the next three years,” according to former Treasury Secretary Lawrence Summers. Michael Feroli, chief U.S. economist for JPMorgan Chase & Co. in New York, puts the probability of a downturn during that time frame at about two in three. The U.S. doesn’t look all that well-equipped to handle a contraction should one occur during the next president’s term, former Federal Reserve Vice Chairman Alan Blinder said. Monetary policy is stretched near its limit while fiscal policy is hamstrung by ideological battles.

This wouldn’t be the first time that a new president was forced to tackle a contraction in GDP. The nation was in the midst of its deepest slump since the Great Depression when Barack Obama took office on January 20, 2009. His predecessor, George W. Bush, started his tenure as president in 2001 with the economy about to be mired in a downturn as well, albeit a much milder one than greeted Obama. The biggest near-term threat comes from abroad. Former IMF official Desmond Lachman said a June 23 vote by the U.K. to leave the European Union, a steeper-than-anticipated Chinese slowdown and a renewed recession in Japan are among potential developments that could upend financial markets and the global economy in the coming months. “There’s a non-negligible risk that by the time the next president takes office in January you would have the world in a pretty bad place,” said Lachman, who put the odds of that happening at 30% to 40%.

A strange combo of how great Raleigh is and how decrepit at the same time. ‘Remarkable success story’ blah blah. The FT blows up America’s economic myths, but it does so reluctantly.

• America’s Middle Class Meltdown (FT)

The erosion of America’s middle class and the resulting voter frustration that has helped fuel the presidential campaigns of Republican Donald Trump and Bernie Sanders, the populist Democratic senator from Vermont, is often portrayed as a phenomenon brought about by the collapse of well-paying manufacturing jobs over the past three decades thanks to increased automation and competition from China. But a new study by the non-partisan Pew Research Center, shared with the Financial Times, points to just how widespread the damage to America’s middle has been and how divided the country’s class structures are becoming. Median incomes fell in four-fifths of the 229 metropolitan areas studied by Pew, with the share of middle-income adults decreasing in 203 areas.

At the same time the portion of lower-income adults rose in 160 metropolitan areas between 1999 and 2014 while the share of upper-income households rose in 172. Of the metropolitan areas analysed by Pew, none saw faster population growth this century than Raleigh. Together with neighbouring Durham and the Research Triangle Park, it is celebrated as an example of how cities can transform themselves into sparky science and technology-driven hubs of innovation, or key outposts for America’s new “knowledge economy”. “It is one of the most remarkable success stories of the last 20 years, or even 30 years,” says Enrico Moretti, a University of California, Berkeley, economist and author of The New Geography of Jobs.

[..] But while Raleigh’s population continues to grow, the new data from Pew shows that the robust population growth has not necessarily translated into higher incomes for its new residents. The benefits of the boom have been shared unequally. The inflation-adjusted annual median income for a household of three in Raleigh fell by more than $10,000 to $74,283 in 2014 from $85,784 in 1999, even as its population grew by two-thirds to more than 1.3m people from just under 800,000. More surprisingly, the only income group to grow as a share of the population was its poorest. In 1999 one in five residents of the metropolitan area lived in households making two-thirds or less of the median income. By 2014 that figure had grown to one in four.

“..the Forecaster of the Month contest for April..”? Geez, that’s for real? But the point made is relevant, even if I’m not convinced the Fed ‘doesn’t get it’.

• ‘Fed Doesn’t Get It About Global Excess Supply’ (MW)

The Federal Reserve is blowing it because it thinks the economy could be overheating, but the real problem is excess supply and deflationary pressure, says Steven Ricchiuto, chief economist for Mizuho Securities USA and the winner of the Forecaster of the Month contest for April. “The dynamics of supply and demand have shifted,” Ricchiuto said in an interview. “I don’t think they get it yet,” he said of the Fed. The central bank is trying to manage the economy as if excess demand were still the major problem it was in the 1970s and 1980s. But today’s global economy suffers from a different imbalance, Ricchiuto says: Excess supply. When excess demand is the normal state of the economy, then inflation is the perennial problem.

But if the economy is stuck in a rut of excess supply, then slow growth and deflation will persist. “We should be immunizing the nation against deflation,” Ricchiuto said. But, instead, the Fed still seems to be living in the 1970s, worried that the unemployment rate will go too low and that the economy will overheat. That’s why the Fed “blew it in December” when it raised interest rates. The myopic focus on unemployment is misguided, in Ricchiuto’s view. Almost all of the economic data on the production side of the economy (such as industrial output, business sales and gross domestic product) show a tepid economy. But the labor market is doing great, comparatively. The Fed reacts to the strong job news, but ignores the rest of the story. If the Fed cared about the supply side of the economy, it would see that idle resources are pulling the economy toward stagnation and deflation.

Of course, excess supply is a global problem, not just in the U.S. Other economies are trying to reduce their excess supply the quickest way they can: Devaluing their currency in hopes that they can push the problem of excess capacity onto the country with the strongest currency. These beggar-thy-neighbor policies don’t really solve the problem, at least not quickly. Everybody around the world needs to figure out how to increase domestic demand to bring supply and demand back into balance, he said. Although the Fed doesn’t get it, many voters do, and so do candidates like Bernie Sanders, Ricchiuto said. “People are recognizing deep, fundamental flaws” in the economy. They are clamoring for policies such as more spending on infrastructure, measures to reduce the concentration of wealth, and tax reform.

In a nutshell: Banks are regulated. Blackstone is not.

• The New Kings Of Wall Street (Forbes)

In March 2015 Stephen Schwarzman got a telephone call from JPMorgan vice chairman Jimmy Lee, one of Wall Street’s legendary power brokers. Lee, who died three months later, was helping General Electric unload $30 billion in commercial real estate assets lingering on its books. GE boss Jeffrey Immelt was uncomfortable with the massive financial services business his predecessor, Jack Welch, had slowly built up. During the 2008 meltdown, frozen credit markets put GE Capital’s $101 billion in commercial paper funding in peril, bringing the mighty industrial conglomerate to its knees. Lee told Schwarzman that the real estate sale was the keystone to Immelt’s reinvention plan for the 123-year-old company.

The hang-up: finding a single buyer for a portfolio that included financing for everything from Mexican warehouses to Parisian office buildings to commercial mortgages in Australia. The billions in real estate and commercial mortgages were scattered across six countries, comprising all sorts of risks. Lee, Immelt and GE Capital boss Keith Sherin knew that Blackstone Group was the only firm with three key traits: the global reach to understand all the different assets, the resources to close a deal quickly and the financial firepower to swallow the entire package. The first call went to Blackstone’s global real estate chief, Jonathan Gray, who quickly darted over to GE’s 30 Rockefeller Center offices in Manhattan.

There Sherin offered Blackstone an exclusive look for three weeks–a minuscule period of time given the scope of the assets, but also a huge opportunity. Gray agreed, and before even getting off the elevator, he was marshaling an army of 100 Blackstone real estate professionals to tear through GE Capital’s portfolio. Four weeks later, on Apr. 10, Immelt announced that Blackstone would purchase $14 billion of GE’s assets, with Wells Fargo WFC -0.65% taking $9 billion of GE’s commercial real estate mortgages. For Immelt, Blackstone was a savior. GE’s languishing stock jumped 11% on the news. It was an even better transaction for Blackstone. The private equity firm had the inside track and thus more control over the deal terms and price, which was ultimately discounted.

“It was a perfect deal for us,” Schwarzman says. “No one else in the world is set up to buy both equity assets and real estate debt on a global basis.” Indeed, Blackstone’s massive 2015 purchase, executed flawlessly, announced to the world that the bankers at JPMorgan and Goldman Sachs–who had been the premier financiers for many decades–were no longer the kings of Wall Street. There was a new pecking order that put private equity firms on top–with Blackstone at the apex and its chairman and chief executive, Schwarzman, as the most powerful banker on the planet.

All that’s missing is a spark to start the fire.

• Italy Must Choose Between The Euro And Its Own Economic Survival (AEP)

Italy is running out of economic time. Seven years into an ageing global expansion, the country is still stuck in debt-deflation and still grappling with a banking crisis that it cannot combat within the paralyzing constraints of monetary union. “We have lost nine %age points of GDP since the peak of the crisis, and a quarter of our industrial production,” says Ignazio Visco, the rueful governor of the Banca d’Italia. Each year Rome hopefully pencils in a fall in the ratio of public debt to GDP, and each year the ratio rises. The reason is always the same. Deflationary conditions prevent nominal GDP rising fast enough to outgrow the debt. The putative savings from drastic fiscal austerity – cuts in public investment – were overwhelmed by the crushing arithmetic of the ‘denominator effect’. Debt was 121pc in 2011, 123pc in 2012, 129pc in 2013.

It came close to levelling out last year at 132.7pc, helped by the tailwinds of a cheap euro, cheap oil, and Mario Draghi’s fairy dust of quantitative easing. This triple stimulus is already fading before the country escapes the stagnation trap. The IMF expects growth of just 1pc this year. The global window is closing in any case. US wage growth will probably force the Federal Reserve to raise interest rates and wild speculation will certainly force China to rein in its latest credit boom. Italy will enter the next downturn – perhaps early next year – with every macro-economic indicator in worse shape than in 2008, and half the country already near political revolt. “Italy is enormously vulnerable. It has gone through a whole global recovery with no growth,” said Simon Tilford from the Centre for European Reform.

“Core inflation is at dangerously low levels. The government has almost no policy ammunition to fight recession.” Italy needs root-and-branch reform but that is by nature contractionary in the short-run. It is viable only with a blast of investment to cushion the shock, says Mr Tilford, but no such New Deal is on the horizon. Legally, the EU Fiscal Compact obliges Italy to do the exact opposite: to run budget surpluses large enough to cut its debt ratio by 3.6pc of GDP every year for twenty years. Do you laugh or cry? “There is a very real risk that Matteo Renzi will come to the conclusion that his only way to hold on to power is to go into the next election on an openly anti-euro platform. People are being very complacent about the political risks,” said Mr Tilford. Indeed. The latest Ipsos MORI survey shows that 48pc of Italians would vote to leave the EU as well as the euro if given a chance.

The rebel Five Star movement of comedian Beppe Grillo has not faded away, and Mr Grillo is still calling for debt default and a restoration of the Italian lira to break out of the German mercantilist grip (as he sees it). His party leads the national polls at 28pc, and looks poised to take Rome in municipal elections next month. The rising star on the Italian Right, the Northern League’s Matteo Salvini, told me at a forum in Pescara that the euro was “a crime against humanity” – no less – which gives you some idea of where this political debate is going. The official unemployment rate is 11.4pc. That is deceptively low. The European Commission says a further 12pc have dropped out of the data, three times the average EU for discouraged workers.

Italy’s industrial output has fallen back to the levels of the 1980s. It has been catastrophic Credit: St Louis Fed

The youth jobless rate is 65pc in Calabria, 56pc in Sicily, and 53pc in Campania, despite an exodus of 100,000 a year from the Mezzogiorno – often in the direction of London. The research institute SVIMEZ says the birth rate in these former Bourbon territories is the lowest since 1862, when the Kingdom of the Two Sicilies in Naples began collecting data. Pauperisation is roughly comparable to that in Greece. Industrial output has dropped by 35pc since 2008, and investment by 59pc. SVIMEZ warns that the downward spiral is turning a cyclical crisis into a “permanent state of underdevelopment”. In short, southern Italy is close to social collapse, and there is precious little that premier Renzi can do about it without reclaiming Italian economic sovereignty.

“The Chinese credit system, according to Bass, is “one of the biggest macro imbalances the world has ever seen”..”

• Hong Kong Property Market in Free Fall: Kyle Bass (BBG)

Kyle Bass, the hedge-fund manager who’s wagering on a slowdown in China’s economy, said Hong Kong’s property market is in “free fall” and the credit expansion in Southeast Asian emerging markets will unravel. “Hong Kong’s in a worse position than it was in prior to the ’97 crisis today,” Bass said at the SkyBridge Alternatives Conference in Las Vegas on Wednesday. He said credit in Asian emerging markets has grown “recklessly,” citing Malaysia and Thailand. Hong Kong property prices have declined and sales are hovering near a 25-year low as the city grapples with the repercussions of a slowing Chinese economy. Home prices have dropped about 13% from a peak in September, according to data compiled by Centaline Property Agency.

The last major housing crash in the former British colony saw prices tumble almost 50% in the 12 months from October 1997. They eventually bottomed in mid-2003 when the city was swept up by the severe acute respiratory syndrome epidemic and have almost quadrupled since then. Bass, famed for betting against U.S. subprime mortgages prior to the housing crash, is predicting losses for China’s banks and raising money to start a dedicated fund for bets in the nation. He said last week at a conference that investors putting money in Asia should ask themselves if they can handle 30% to 40% writedowns in Chinese investments.

“China may be able to not tell the truth about specific output levels, or GDP figures – they might be able to fudge those numbers for a while,” Bass said at a panel discussion, moderated by Bloomberg TV’s Erik Schatzker. “But their trading partners kind of tell the truth, and you’re already seeing what’s happening in their primary trading partners.” The Chinese credit system, according to Bass, is “one of the biggest macro imbalances the world has ever seen.” The fund manager said China is already experiencing a “hard landing as we speak.” He said he isn’t a “permanent bear” on China, instead describing himself as a pragmatist.

In lieu of welfare?! BTW, where will they borrow the money?

• China Eyes $724 Billion Of Transport Investment Over Next Three Years (R.)

China will invest around 4.7 trillion yuan ($724 billion) in transport infrastructure projects over the next three years, the country’s transport ministry said in an article posted on its website late on Wednesday. The 2016-2018 plan from China’s Ministry of Transport and National Development and Reform Commission (NDRC) will see the country push forward 303 key transportation projects including railways, highways, waterways, airports and urban rail, it said. The investment splurge underlines China’s reliance on high-levels of public sector spending, credited by economists as being behind recent signs of improvement in the country’s economy, but also as creating a risk as debt levels rise.

The article, posted on the Ministry of Transport’s website, said the investment plan would improve the country’s high-speed transport networks and inter-city links to meet the demands of China’s wider economic and social development. China’s first quarter investment in infrastructure surged almost 20%, as the government looks to transport-related sectors to help support wider economic growth. The official Xinhua news agency reported earlier this month that China will invest around $12 billion this year in building aviation infrastructure.

And yes, this is where they’ll borrow, and that means shadow banks: “..Beijing has given local governments its blessings to raise funds in the bond market, much of it through local government financing vehicles (LGFVs) that skirt official spending limits..”

• Defying Debt Fears, China Bets On Infrastructure, Property (R.)

Local governments across China are binging on debt again to pump-prime their slack economies. But this time round, they are not wasting money propping up zombie factories or loss-making steel plants. Investment in industries hit by chronic overcapacity is drying up quickly. Investment in mining tumbled 18% in the first quarter from a year earlier, the most since at least the second quarter of 2004, while investment in manufacturing grew just 6%, the slowest in the same period, according to the latest data from the National Bureau of Statistics. In recent years, miners and manufacturers had tapped easy-to-access bank credit and government subsidies to fire up production even as demand began to wilt.

In a landmark move, Beijing has ordered the closure of debt-ridden zombie firms as its policy priority for 2016. In contrast, first-quarter investment in infrastructure and real estate surged 19.6% and 6.2%, respectively. The numbers reflect the government’s strategy of re-allocating capital to other engines of the economy, and in turn, providing a little respite to the steel, cement, energy and related services sectors. China will invest $11.9 billion in aviation infrastructure this year alone. It has also approved a 27.4 billion yuan high-speed rail project linking Beijing’s new airport with neighboring Hebei province. In real estate, China’s March home prices rose at the fastest clip in almost two years on the back of a boom in top-tier cities amid easy bank credit.

To boost infrastructure investment, Beijing has given local governments its blessings to raise funds in the bond market, much of it through local government financing vehicles (LGFVs) that skirt official spending limits. LGFVs have raised tens of billions of dollars through bonds in the first quarter, according to brokerage estimates, even as China skeptics warn of another debt bust. The AA-rated LGFV issuances have appealed to investors increasingly unsure of the quality of corporate paper. Overall local government bond issuances in the quarter totaled 955.4 billion yuan, according to investment firm China International Capital. Investment in infrastructure and real estate is more organized and demand-based this time, and will have a better chance of success than more speculative developments in the past, some economists say. But that’s a subject for debate.

Fun with beer. The kind of stuff to bore your guests with while serving them ‘America’.

• Budweiser’s ‘America’ No Longer Exists (MW)

Oh, Budweiser is American all right — just not in the way its cans want you to think it is. Earlier this week, the folks behind Anheuser-Busch InBev’s Budweiser brand announced their intention to relabel Budweiser as “America” from late May through the November presidential election. They’re going to sub in “US” for “AB” in the logo, switch out “King of Beers” for “E Pluribus Unum” and include the entire first stanza of “The Star-Spangled Banner” on the head of the label. Now, you could write this off by saying that A-B takes some sort of patriotic measure with Budweiser cans every year, and you’d be right, but this particular rebrand says more about Budweiser’s American tale than it likely wants to admit. For starters, “Budweiser” traces its origins back to the South Bohemia region of what is now the Czech Republic.

The city of Ceske Budejovice has been brewing beer since the 1400s, and its German-speaking residents — who called it “Budweis” — began brewing Budweiser Bürgerbräu in 1795. They began shipping that beer to the U.S. in 1875, or about a year before a German immigrant named Adolphus Busch made a trip to Bohemia and decided to name his own U.S. beer Budweiser in tribute to the Bohemian brand. Though Anheuser-Busch InBev now owns that brand, another Czech brewery — state-owned Budejovicky Budvar , founded in 1895 — has laid claim to the Budweiser name, saying it is indicative of the city where it was first made. While A-B InBev can call its beer Budweiser in North America, the United Kingdom and much of the rest of the world, Budvar has the rights to the Budweiser name in much of Europe and forces Anheuser-Busch InBev to name its version “Bud.”

When challenged in court, Budvar simply reminds folks of what Adolphus Busch himself testified in a New York courthouse in 1896: “The Budweiser beer is brewed according to the Budweiser Bohemian process. The idea was simply to brew a beer similar in quality, color, flavor and taste to the beer then made at Budweis, or in Bohemia.” If the loss of its identity in Europe didn’t sever Budweiser’s ties to the Old World, the sale of Anheuser-Busch to InBev for $52 billion back in 2008 certainly did. Not only had A-B been taken over by a company with headquarters in Belgium and Brazil — enabling it to engage in the grand American tradition of tax inversion — but cost-cutting measures reduced U.S. jobs, removed German Hallertauer Mittelfrüh hops from the equation and put pressure on suppliers of everything from rice grains to the beechwood used in “beechwood-aged” Budweiser’s touted brewing process.

“You’re gonna lift the tax-free threshold for rich people. If you lift my tax-free threshold, that changes my life. That means that I get to say to my little girls, ‘Daddy’s not broke this weekend, we can go to the pictures.’ Rich people don’t even notice their tax-free threshold lift.”

• US Anti-Poverty Campaigner Is Worried About Australia (DL)

Linda Tirado is in the green room of the ABC on Monday night during the broadcast of Q&A and she is getting madder and madder; and it’s not just from hearing #IStandWithDuncan Duncan Storrar be real in the audience that evening. Tirado, a US anti-poverty campaigner (a job we should all do), is overwhelmed by what Storrar, the 45 year-old Geelong father of two and part-time truck driver had to say about the federal government’s planned tax cuts. “You’re gonna lift the tax-free threshold for rich people. Why don’t I get it? Why do they get it?” he asked assistant treasurer Kelly O’Dwyer.

“I’ve got a disability and a low education – that means I’ve spent my whole life working off a minimum wage. You’re gonna lift the tax-free threshold for rich people. If you lift my tax-free threshold, that changes my life. That means that I get to say to my little girls, ‘Daddy’s not broke this weekend, we can go to the pictures.’ Rich people don’t even notice their tax-free threshold lift.” So, Duncan Storrar is talking, Kelly O’Dwyer is responding and Tirado is sitting in the green room, furious. She’s wondering exactly what’s been happening to Australia over the last 12 months. “Obviously I cannot tell you what a hero he is and what a sacrifice he made. To say something like that in public, to say you don’t make enough to make ends meet, that is incredibly brave.”

But she fears the change she has seen in the Australian political landscape since she was last here. She’s here as part of the Anti-Poverty Network’s conference but is keen to stay a little longer and cover the Australian election from the eyes of a survivor of the US class war. [..] “In America, we have this idea of meritocracy. If you deserve it, you will have it. If you don’t have it, it is because you don’t deserve it and the fact remains 45 million Americans are living in poverty, most of those people are in work. They’re holding down multiple jobs and we call them lazy. By definition anybody who works three jobs is not lazy and if you think so I dare you to get out of your air conditioned office and try it for yourself.”

“..a disease whose main cause is now Germany’s own current account surplus.”

• Berlin Should Be Careful What It Wishes For (FT)

Greece’s parliament this week approved reforms to the country’s creaking pensions and tax system by a larger margin than had been anticipated. But significant differences remain, notably on how large a primary budget surplus should be targeted over the next few years, and above all on the question of debt relief. The disagreement between the IMF and European governments on the latter point has come into the open. On this, the IMF is right and those Europeans who oppose relief are wrong: there can be no solution to the Greek crisis without it. Germany, driven by Wolfgang Schäuble, its finance minister, remains doggedly opposed, but even within the German government, open opposition to Mr Schäuble’s hard line has come recently from Sigmar Gabriel, economics minister.

Chancellor Angela Merkel may be tempted to ignore Mr Gabriel, whose Social Democratic party is polling poorly and whose own future as its leader is in question. German public opinion sees relief as a favour the Greeks have done little or nothing to deserve, and asks whether it will stop with Greece. The issue is not a winning one for a chancellor already under siege. Nevertheless, she would be wise to recognise the stakes for Europe as a whole. Berlin’s tenacious enforcement of austerity across the eurozone mistakes a symptom — the continued difficulties of countries like Greece — for a disease whose main cause is now Germany’s own current account surplus. The Germans have been able to persist in this illusion because without the low interest rates that Germany’s affluent voters now complain about it is doubtful whether the eurozone would have weathered the last six years at all.

Mr Schäuble might believe that the eurozone is safe come what may, even if his hard line leads to Grexit, but saving the euro will count for little if the cost is massive damage to the EU itself. Is this putting it too strongly? Perhaps it was two or three years ago but things have moved on since then. The refugee crisis has mushroomed and openly authoritarian Eurosceptic parties have profited and threaten some of the EU’s core values and principles. Euclid Tsakalotos, the Greek finance minister, warned his European counterparts recently of turning the country into a “failed state”. Even though some of his frustrated partners might think it already is, he is right: things could get much worse. It is not just about the refugee crisis although that is one factor.

There is a good deal of wishful thinking right now on this in much of central and eastern Europe. The Greeks, who despite their own deep difficulties are actually doing a great deal to help the refugees, know better: the neo-Habsburg military frontier going up across south-eastern Europe to keep out refugees will not work. There is no good alternative to helping the Greeks in the massive task that confronts them. Then there is the question of the Balkans as a whole. In Bosnia the Dayton peace settlement did one thing: it stopped the fighting. But two decades on, Bosnia remains a genuinely failed state, and Kosovo and Macedonia, too, are deeply fragile polities. The EU needs Greece to serve as a force for growth right across the Balkans and not as some kind of confirmation that the EU has decided to abandon the entire region.

Does the parliament have the guts to say no? It’s starting to look that way. EP president Schulz has refused to send the necessary documents to be appraised.

• EU Parliament Raises the Rhetoric Over Turkey’s Visa-Waiver Bid (BBG)

The European Parliament added to the war of words with Turkey over its bid for visa-free travel to Europe, highlighting the risk that a hard-fought agreement with Ankara to curb the influx of Mideast refugees will collapse. Members of the European Union assembly said Turkey must narrow the scope of its terrorism legislation to qualify for EU visa-free status. That is a prize the Turkish government sought in return for signing up to the mid-March migrant accord, which has stemmed Europe’s biggest refugee wave since World War II and eased domestic political pressure on leaders including Angela Merkel. Turkish President Recep Tayyip Erdogan has signaled he won’t bow to the European demand over terrorism legislation, citing terror threats in Turkey that his critics say are being used as cover to jail political opponents.

Adding Turkey to a list of around 60 countries whose citizens benefit from hassle-free travel to Europe requires approval by EU governments and the 28-nation Parliament. “The liberalization can only be granted if all of the criteria are fulfilled,” Mariya Gabriel, a Bulgarian member of the Christian Democrats, the EU Parliament’s biggest faction, said during a debate on Wednesday in Strasbourg, France. Tanja Fajon, a Slovenian member of the No. 2 Socialists, said: “Turkey is very important to the solution to the migration crisis, but this does not mean that we should be making promises to Turkey without ensuring that all the conditions are fulfilled.” The EU-Turkey sparring is a test of geopolitical power that combines high politics, principles and pride.

The migrant flows into Europe via Turkey over the past year have handed Erdogan leverage over the EU, which has lambasted him for cracking down on domestic dissenters and kept Turkey’s longstanding bid for membership of the bloc largely on hold. Last Friday, when commenting on the EU call for Turkish terrorism-rule changes, Erdogan said “we are going our way and you go yours.” He also dared the bloc to “go make a deal with whoever you can.” In a further sign of Ankara’s renewed confidence in dealing with the EU, Burhan Kuzu, a former adviser to Erdogan, said earlier on Wednesday that Turkey would send refugees to Europe should the EU Parliament make a “wrong decision” in the deliberations over visa-free status for Turkey. “That is blackmail,” said Sophie in ’t Veld, a Dutch member of the EU Parliament’s Liberal group. She called Erdogan a “dictator.” Cecilia Wikstroem, a Swedish Liberal, said “something is rotten in this.”

This is Europe’s epic failure. And that is what the UK Brexit vote next month is really about: do you want to be part of this?

• European Rights Watchdog Complains About Greek Refugee Camps Conditions (R.)

Urgent measures are need to address overcrowding and poor living conditions in refugee and migrant camps in Greece, Europe’s top rights watchdog warned on Wednesday. The Council of Europe, which brings together 47 countries, said some facilities were “sub-standard” and able to provide no more than the most basic needs such as food, hygiene products and blankets. The report echoes warnings by other rights groups and aid agencies who say Greece has been unable to care properly for the more than 800,000 people reaching its shores in the last year, fleeing wars or poverty in the Middle East and Africa. The Council described dire living conditions in several sites visited on a March 7-11 trip, just before the EU and Turkey reached a deal that reduced arrivals but increased the number of people held in detention awaiting asylum decisions or deportation.

It said in its report that people who reached Greece were locked away in violation of international human rights standards and lacked legal access. At Greece’s Nea Kavala temporary transit camp, people were left burning trash to keep warm and sleeping in mud-soaked tents, according to the report. The Council called for the closure of a makeshift camp in Idomeni, where some 10,000 people have been stranded en route to northern Europe due to the closure of Macedonia’s border. Germany has taken in most of the 1.3 million refugees and migrants who reached Europe across the Mediterranean in the past year, triggering bitter disputes among the 28 EU member states on how to handle the influx. Europe’s deal with Turkey last month gave its leaders some breathing space but has come under pressure since Prime Minister Ahmet Davutoglu, one of the sponsors of the accord, stepped down.

The morality and legality of the deal has been challenged by human rights groups, however, and a provision to grant Turkish citizens visa-free travel to Europe in exchange for Ankara’s help remains politically contentious. In a separate report, a trio of European Parliamentarians on Tuesday described the poor conditions faced by people who have been returned to Turkey under the deal. “We have seen how the migration policies imposed by the European Union have terrible consequences on the lives of thousands of people,” said Cornelia Ernst, a German member of the European Parliament and a co-author of that report. “Turkey has been hired as a deportation agency, putting into practice the migration policies designed in Brussels.”

Debt Rattle April 24 2016

Apr 242016

April 24, 2016 Posted by Raúl Ilargi Meijer at 9:52 am Finance Tagged with: biodiversity, Brexit, bubble.commodities, deflation, derivatives, fracking, Merkel, refugees, visa 4 Responses »

NPC Shad fishing on the Potomac 1920

• China’s Commodity Futures Bubble Insanity (ZH)

• Where Have All Britain’s Shoppers Gone? (Observer)

• Why America’s Impressive 5% Unemployment Rate Still Feels Like A Lie (Qz)

• The Lemmings Of Wall Street (Stockman)

• A Pro-EU ‘Study’ Straight From The Ministry Of Truth (Tel.)

• ECB’s Nowotny Says Negative Rates Necessary To Avoid Deflation (Reuters)

• Schaeuble Sees No Greece Debt Relief as Long as Debt Sustainable (BBG)

• Why Juncker Should Worry About Panama Papers (Politico)

• EU Finmins To Focus On Spending Cap To Cut Morass Of Budget Rules (R.)

• UK Issues Travel Warning For Southern US States (CNBC)

• US Government Is a Major Counterparty to Wall Street Derivatives (Martens)

• Australian Politician Sets River On Fire (AFP)

• In This Jungle, Mowgli Might Not Have Any Playmates Left (CNBC)

• Visa-Free Travel A Stumbling Block For Turkey and EU (DW)

• Merkel Accused Of Turning Blind Eye To Plight Of Syrian Refugees In Turkey (O.)

• Tomorrow, We Have A Chance To Stop The Death Of Innocents (Observer)

It’s not just the next bubble in line: each bubble is crazier than the one before.

• China’s Commodity Futures Bubble Insanity (ZH)

The credit-fueled speculative bubble in China’s commodity market, as we detailed previously, exploded this week as the mainstream slowly comes to realize that the gains in industrial metals are not a “sign of strength in China’s and the world’s economic recovery” but merely the next rotation of fast-money slooshing from Chinese equities to Chinese corporate bonds to Chinese real estate and now to Chinese commodity futures… Trading in futures on everything from steel reinforcement bars and hot-rolled coils to cotton and polyvinyl chloride has soared this week, prompting exchanges in Shanghai, Dalian and Zhengzhou to boost fees or issue warnings to investors. Deutsche Bank details the total crazinesss…

The onshore China commodity markets this week traded (conservatively) $350bn notional, a 17x increase on the $20bn notional that traded on Feb 1st 2016 i.e. a month ago (is it coincidence that the notional is about the same as at the peak of the equity frenzy?).

My calculations are pretty basic; I’ve trawled the screens and chosen 32 commodities in agri, metals and coke/coal and done a quick (contracts x value)/CNY for a dollar amount. I have not used the largest day’s volume either (e.g. Deformed Bar, RBTA has traded close to $100bn, but I used closer to $60bn). Cotton (VVA Comdty) has been trading $15bn, up from $500mm in Feb. In the US, the long established cotton contract (CT1 Comdty) trades $600mm. China listed Sugar (CBA Comdty) has traded $14bn versus the US listed sugar beet at $850mm.

This is what insanity looks like!!

Deflation=slowing consumer spending=lower money velocity. Simple. But the only answer they can come up with is “We need some warm weather…”

• Where Have All Britain’s Shoppers Gone? (Observer)

Shopping is the national pastime. High streets, malls and retail parks have long been places people went for a day out, rather than on a mission to buy a particular item, and their spending helped lift the country out of recession. But a big drop in footfall – the number of people visiting high street and retail centres – over the past year has exposed fresh cracks in the high street, leaving retail chiefs wondering where all their customers have gone. Analysts are reporting declines in the number of shopper visits to high streets and shopping centres around the country of as much as 10% in some cities over the past year. Worries about the economic outlook, coupled with the rise of internet shopping, jitters about the EU referendum and more spending on eating out and leisure leave little cash left over for splurging in the shops.

“There is a lot of nervousness around [among retailers],” says Tim Denison, retail analyst at Ipsos Retail Performance. “People have had more disposable income but retailers have not been as successful as they could have been in taking their share. Instead any spare money has gone on leisure and holidays rather than pure retail spend.” According to Ipsos’s retail traffic index, overall footfall was down 0.9% in the first quarter of 2016 compared with the same period a year ago. But that headline masks the fact that some towns and cities are faring much worse than the national picture would suggest. The Ipsos data singles out Newcastle upon Tyne as the worst performer, with shopper numbers down a hefty 9.95% over the past year, closely followed by Stoke-on-Trent, down 8.1%. Other pockets of particular weakness were Chelmsford, Lincoln and Cambridge.

By comparison Ashford in Kent, Crawley in West Sussex and Epsom in Surrey were among the best-performing retail centres – the result, according to Denison, of wealth radiating out from London. Even in those towns, however, growth is not exactly rampant. Five of the top seven best-performing shopping centres were up less than 1% year on year. A number of retail chains have already blamed poor performance on declining numbers of shoppers. Poundland has pointed directly to the fact there are fewer people on the high street as a key reason behind its slowing sales. Last week value fashion retailer Primark revealed its first drop in UK underlying sales for 12 years, although boss George Weston said it was not yet time to press the panic button, given that chilly spring weather had weighed on all sales for all fashion retailers. “We need some warm weather and then we will know if there is a real problem on the high street,” he said.

“..the labor participation rate has fallen from a high of 67.3% in 2000 to 62.6% today. That 62.2% represents a 38-year low, which puts Bloomberg’s claim of a 42-year-low in joblessness in perspective.”

• Why America’s Impressive 5% Unemployment Rate Still Feels Like A Lie (Qz)

On Apr. 14, Bloomberg News announced that jobless claims in the US have reached their lowest level since 1973. “All other labor market data are telling us that the economy is creating a lot of jobs,” economist Patrick Newport told the outlet. “This is further confirmation that the labor market is strong.” That same day, thousands of fast food workers, airport workers, home care workers, and adjunct professors took to the streets across the country to protest brutal labor conditions and demand a $15 minimum wage. Most of these workers make far below $15 per hour. Some make as low as $7.25 per hour, the current federal minimum wage. Most lack benefits. Some, like adjunct professors, have contingent, temporary jobs, sometimes consisting of only one poorly paid course per year.

Many low-wage employees work two or even three jobs in an attempt to cobble together enough income to cover basic needs. According to the US Bureau of Labor, all of these workers are considered “employed.” They are viewed as part of the American economy’s success story, a big part of which is our 5% unemployment rate. As president Barack Obama boasted in February: “The United States of America right now has the strongest, most durable economy in the world.” Obama’s claims of a strong economy ring hollow for the many thousands of workers who say they cannot make enough to survive. But Obama’s claims of a strong economy ring hollow for the many thousands of workers—in professions ranging from those which require a GED to those which require a PhD—who say they cannot make enough money to survive.

And these people, at least, are working. Those who cannot find work at all tell an even grimmer story.] There are three main reasons the vaunted economic recovery still feels false to so many. The first is the labor participation rate, which plunged at the start of the Great Recession and discounts the millions of Americans who have been out of work for six months or more. The second is “the 1099 economy,” a term The New Republic’s David Dayen coined to refer to the soaring number of temps, contractors, freelancers, and other often involuntarily self-employed workers. The third is a surge in low-wage service jobs, coupled with a corresponding decrease in middle-class jobs.

Employment statistics in particular have a habit of eclipsing the real story. As any worker will tell you, it is not the number of jobs that matters most, but what kind of jobs are available, what they pay, and how that pay measures against the cost of living. The 5% unemployment rate, other words, is hiding the devastating story of underemployment, wage loss, and precariousness that defines life for millions of Americans. Since 2008, the labor participation rate has fallen from a high of 67.3% in 2000 to 62.6% today. That 62.2% represents a 38-year low, which puts Bloomberg’s claim of a 42-year-low in joblessness in perspective. The jobless number is “low” only because more people are no longer considered to be participating in the workforce.

“..the visage of an old age colony being hurtled toward the edge of a debt cliff by central bankers who have taken leave of their faculties does not bring the idea of economic recovery and growth immediately to mind.”

• The Lemmings Of Wall Street (Stockman)

I mistakenly took Squawk Box off mute this morning. It was just in time to hear one of the regular anchors – the one who makes Joe Kernen sound slightly insightful by comparison – forecast a pick-up in global growth on the grounds that “China is recovering”. Yes, the credit intoxicated land of the Red Ponzi just tied one on for the record books. During Q1 it generated new debt at a madcap annual rate of $4 trillion or nearly 40% of GDP. And that incendiary deposit of more unpayable debt, which came on top of the $30 trillion already smothering history’s greatest construction site and open air gambling den, did indeed goose China’s real estate prices, state company CapEx, infrastructure building and steel production. Call it fiat growth because even pyramid building adds to stated GDP, at first.

Even then, the overwhelming share of this explosion of new credit went to pay interest on the existing mountain of IOUs. Charles Ponzi could never have imagined a scam so audacious. Nor are the red suzerains of Beijing unique in the headlong dash toward the financial cliff. Except for the nicety that Japan’s 30-year and 40-year bonds are trading at a microscopic fraction this side of zero (0.3%), Kuroda and his tiny band of mad men at the BOJ have driven the entirety of Japan’s monumental public debt – which is now actually measured in the quadrillions of yen – into the netherworld of negative yield. Needless to say, the visage of an old age colony being hurtled toward the edge of a debt cliff by central bankers who have taken leave of their faculties does not bring the idea of economic recovery and growth immediately to mind.

The same can be said for the ECB’s $90 billion per month bond buying bacchanalia. Having made German bunds so scarce as to have eviscerated any semblance of yield and turned Italy’s sovereign junk into super-bluechips, the ECB will soon be slurping up the corporate bonds of any global company that can fog a BBB credit breathalyzer and plant an SPV within the borders of the EU-19. What happens when Draghi is finally stopped and the Big Fat Bid of the ECB and its fast money front-runners disappears? The hopeful CNBC anchor-lady didn’t say. And about what happens if he isn’t stopped, she didn’t say, either.

The fact is, Simple Janet has already proven the end game. Money printing central bankers can’t stop. Were they to allow financial prices to normalize and trillions of bad credit to be liquidated, the whole financial house of cards they have built around the planet would blow sky high. The “soft landing” case is a null set.

“The sole purpose of this “sober and serious” text, there can be no doubt, was to produce one conclusion – an alarming headline “finding” which, however dubious, can be repeated again and again in the weeks to come, until it lodges in the public consciousness.”

• A Pro-EU ‘Study’ Straight From The Ministry Of Truth (Tel.)

Earlier this month, the government published a leaflet strongly urging us to vote “Remain” in the European Union – and sent it to all 27m UK households. Not only did the multi-million pound cost of producing and distributing this leaflet undermine the carefully-negotiated spending rules relating to the referendum on June 23, designed to stop the campaign becoming a money-driven free-for-all. The text itself was blatant propaganda – full of statistical sleights of hand disguised as reasoned arguments, a master-class in passive aggressive manipulation. It turns out, though, this tawdry leaflet was just the start when it comes to “Remain” using taxpayer cash and “the government machine” to bolster its cause.

For last week, Chancellor George Osborne launched a thumping 200-page “Treasury study” into the long-term implications of leaving the EU, which “forecast a £4,300 fall in GDP per household” if we leave. For many millions of voters, that’s a scary number – around a quarter of today’s average disposable income. Once again, this huge Treasury document represents a clear breach of long-standing rules that Whitehall remains detached from political campaigning, rules of particular relevance during a knife-edge referendum contest. And, reading through it, one is constantly stuck by the grotesque extent to which, for all the scientific pretence, the “analysis” is deliberately skewed.

The sole purpose of this “sober and serious” text, there can be no doubt, was to produce one conclusion – an alarming headline “finding” which, however dubious, can be repeated again and again in the weeks to come, until it lodges in the public consciousness. Rather than Her Majesty’s Treasury, this document could have been produced by Orwell’s Ministry of Truth. Unusually for a newspaper pundit, perhaps, I’m a trained economist. And in all my many years of studying official economic documents – budgets, comprehensive spending reviews and the like – through all that sifting and weighing of fine-print, I’ve never come across methodology and assumptions so blatantly rigged.

Ergo: the ECB doesn’t understand what deflation is.

• ECB’s Nowotny Says Negative Rates Necessary To Avoid Deflation (Reuters)

The euro zone needs negative interest rates to avoid sliding into deflation, ECB Governing Council member Ewald Nowotny said in an Austrian newspaper interview, defending the policy against widespread criticism in Germany. The ECB kept the cost of borrowing for banks at zero on Thursday and will continue to charge them 0.4% for parking money at the central bank. A slew of German politicians have complained in recent weeks that low interest rates are hurting savers. But Nowotny defended the policy. “You have to discuss negative rates in a broad context,” the head of the Austrian central bank was quoted as saying by the newspaper Der Standard on Saturday.

They are part of the central bank’s efforts to stabilize Europe’s economic situation after a severe crisis, he said. “Now it is all about preventing Europe from dropping into deflation.” He said that he would welcome it if interest rates could be raised again “the sooner the better”, but that the conditions must be right. “This will happen as soon as the economy is doing better, business activity picks up and inflation gets higher.” Countering the criticism of low interest rates, Draghi himself said on Thursday that some of it could be seen as endangering its independence, which could delay investment and hence prolong its current policies.

Next step is demand for more austerity in Greece.

• Schaeuble Sees No Greece Debt Relief as Long as Debt Sustainable (BBG)

German Finance Minister Wolfgang Schaeuble said Greece doesn’t need debt relief now and won’t require an easing of its debt burden as long as the troika of creditors determines that debt sustainability is ensured. The European Stability Mechanism, the euro region’s financial backstop, will seek to lock in the favorable refinancing costs it’s passing on to Greece for an extended period of time, Schaeuble said in Amsterdam. While not part of the Greek program, these operations – if in place – would help ease pressure on Greece, he said. “The debt sustainability analysis determines whether measures are needed” to help the cash-strapped country, Schaeuble told reporters after a two-day meeting of EU finance ministers. “It is my conviction that this is not necessary for the coming years.”

Greece’s government bonds rose for a third day on Friday after euro-area finance ministers and the IMF signaled that a deal on the nation’s next bailout installment is in sight. Schaeuble said “we have no desire” to repeat the confrontation between Greece and its creditors from last summer. The nation’s government submitted a bill to parliament on Friday evening, overhauling the Greek pension system and raising income tax for middle and high earners. The bill, which also raises taxation on gambling and dividends, is part of a €5.4 billion belt-tightening package required by creditors for the conclusion of the bailout review. The government still has to negotiate with representatives of creditor institutions a set of contingency measures equal to 2% of Greek GDP, which will only be triggered if it fails to meet its budget targets. An agreement on the bailout package and the target for Greece to reach a primary surplus of 3.5% of GDP by 2018 “appear possible,” Schaeuble said.

He has little to fear unless and until the documents are released Wikileaks style. Once that is done, Juncker is not the biggest fish.

• Why Juncker Should Worry About Panama Papers (Politico)

[..] The European Council chose to forget or ignore that Juncker had long resisted attempts to improve banking transparency and improve cross-border taxation – which had given Luxembourg a particular competitive advantage over its neighbors. A lot now depends on the extent to which LuxLeaks and/or the Panama Papers erode Juncker’s defense that everything was legal and he was ignorant of any wrongdoing. If there was law-breaking, then the ex-prime minister is vulnerable to the charge that either he didn’t know what was going on and should have, or he knew what was going on and allowed it. He is vulnerable also to whispers that Luxembourg’s business and political community is so small and tightly knit that complete ignorance is implausible.

What is more difficult to guess – at this moment of shifting standards – is whether Juncker will be condemned for allowing practices in Luxembourg that though legal were morally questionable. (You do not have to be a tax lawyer to see that what Juncker calls “the logic of non-harmonization” was compounded by Luxembourg’s culture of secrecy/discretion, which meant that companies could keep secret their tax arrangements and individuals could hide their revenue.) It is entirely possible that the government leaders who put Juncker in place – and their successors – will stick to the view that bygones should be bygones and Juncker’s past policies should not affect his standing as Commission president.

But what I detect, in at least some parts of Europe, is a readiness to revisit the past and to apply the standards of the present — meaning that what was legally correct may yet be found morally unacceptable in the court of public opinion. Juncker may choose to argue that his Commission is at the vanguard of reform. But what if his past record embarrasses the likes of Margrethe Vestager, as she turns over tax rulings made by national authorities with multinational corporations? Or Jonathan Hill, as he advances his proposal for increasing the tax transparency rules applying to multinationals? Or Pierre Moscovici, arguing for measures against tax evasion and money-laundering? Is this a sinner who repents, an opportunist, or just a hypocrite?

Whether Juncker is credible will also be important in the context of the Commission’s attempt to enforce fiscal discipline in Greece (or anywhere else). How does the Commission argue for improving revenue collection while LuxLeaks and Panama Papers paint a picture of a Juncker-run Grand-Duchy promoting tax-avoidance?

The blind moving goalposts as they ‘see’ fit.

• EU Finmins To Focus On Spending Cap To Cut Morass Of Budget Rules (R.)

EU finance ministers agreed on Saturday to discuss whether they can regain some control over a morass of EU budget rules by focusing mainly on an annual spending cap as the best measure of compliance. Years of changes and additions to EU rules, called the Stability and Growth Pact, have made meeting targets extremely complex, prompting an attempt to simplify them, European Commissioner Vice President Valdis Dombrovskis told a news conference after the meeting of EU finance ministers. “We did not discuss how to change the Pact, just how to choose the indicators to assess the compliance with the Pact,” Dutch Finance Minister Jeroen Dijsselbloem said.

The Dutch, who currently preside over the EU, proposed that the ministers consider using a single indicator with which to judge budgetary compliance, called the expenditure rule. It already exists in EU law as one indicator to be used to judge the fiscal performance of an EU country, but has so far been more in the background. The focus until now was on the development of the structural budget balance, a measure that strips off changes to budget revenue and expenditure stemming from the phase of the business cycle as well as all one-offs. Because the structural deficit is a complex and volatile indicator, the Dutch instead proposed putting more emphasis on the expenditure rule, which says a government cannot increase annual spending more than its medium-term potential growth rate.

“It is directly in the hands of finance ministers. It gives us more guidance in the process of designing the budget. It says in advance what you have to do, and you have the control in your hands,” Dijsselbloem said. He said that while the structural deficit, which is the key indicator mentioned in EU economic legislation, was a valuable theoretical concept, it could not be directly controlled by finance ministers. “There was general agreement that we need an indicator that takes out all the cyclical elements and one-offs but preferably it should be more stable and not change all the time, and we could put more emphasis on indicators that we can actually directly influence as finance ministers,” he said.

Dijsselbloem said EU deputy finance ministers would further work on what measurement to use to better assess compliance and the ministers would return to the discussion in the third quarter of 2016. The aim of the EU budget rules, created in 1997, is to keep nominal budget deficits below 3% of gross domestic product and public debt below 60%. But as the rules were revised in 2005, 2011 and 2013 to take account of economic and political realities and to incorporate intergovernmental treaties, they became more and more complex. “The sheer number of indicators in the current framework poses a massive challenge for the national implementation of the fiscal framework,” the Dutch presidency said in a paper prepared for the ministers’ meeting. “It contains targets, upper limits and benchmarks for the nominal balance, structural balance, expenditure growth and debt development,” the paper said.

While Obama was talking up the special relationship.

• UK Issues Travel Warning For Southern US States (CNBC)

The U.K. government has updated foreign travel advice, warning British citizens about risks visiting America’s Southern states. Specifically the new advice draws attention to potential difficulties for lesbians, gays, bisexuals and transgenders. “The U.S. is an extremely diverse society and attitudes towards LGBT people differ hugely across the country,” the U.K. Foreign Office website says. “LGBT travelers may be affected by legislation passed recently in the states of North Carolina and Mississippi,” it said. North Carolina and Mississippi have introduced laws that negatively affect people in the LGBT community. The North Carolina “bathroom” law is a statewide policy banning individuals from using public bathrooms that don’t correspond to their sex as stated on their birth certificate.

Celebrities including Bruce Springsteen, Ringo Starr and Pearl Jam have canceled concerts there in protest. And tech giant PayPal has canceled a large-scale investment plan after the legislation was rubber stamped. In Mississippi a “religious liberties” law will take effect in July. That legislation again blocks cities from allowing transgender people to use public bathrooms for the sex they identify as. It also aims to protect dozens of forms of businesses and services from being prosecuted if they refuse to serve LGBT people. A similar transgender “bathroom bill” in the Tennessee state failed Monday after it was withdrawn by its sponsor.

By design.

• US Government Is a Major Counterparty to Wall Street Derivatives (Martens)

According to a study released by the Federal Reserve Bank of New York in March of last year, U.S. taxpayers have already injected $187.5 billion into Fannie Mae and Freddie Mac, two companies that prior to the 2008 financial crash traded on the New York Stock Exchange, had shareholders and their own Board of Directors while also receiving an implicit taxpayer guarantee on their debt. The U.S. government put the pair into conservatorship on September 6, 2008. The public has been led to believe that the $187.5 billion bailout of the pair was the full extent of the taxpayers’ tab. But in an astonishing acknowledgement on February 25 of this year, the Government Accountability Office, the nonpartisan investigative arm of Congress, issued an audit report of the U.S. government’s finances, revealing that the government’s “remaining contractual commitment to the GSEs, if needed, is $258.1 billion.”

This suggests that somehow, without the American public’s awareness, the U.S. government is on the hook to two failed companies for $445.6 billion dollars. And that may be just the tip of the iceberg of this story. The official narrative around the bailout of Fannie and Freddie is that they were loaded up with toxic subprime debt piled high by the Wall Street banks that sold them dodgy mortgages. While that is factually true, the other potentially more important part of this story is the counterparty exposure the Wall Street banks had to Fannie and Freddie’s derivatives if the firms had been allowed to fail.

The New York Fed’s staff report of March 2015 concedes the following: “Fannie Mae and Freddie Mac held large positions in interest rate derivatives for hedging. A disorderly failure of these firms would have caused serious disruptions for their derivative counterparties.” Exactly how big was this derivatives exposure and which Wall Street banks were being protected by the government takeover of these public-private partnerships that had spiraled out of control into gambling casinos? According to Fannie and Freddie’s regulator of 2003, OFHEO, “The notional amount of the combined financial derivatives outstanding of Fannie Mae and Freddie Mac increased from $72 billion at the end of 1993, the first year for which comparable data were reported, to $1.6 trillion at year-end 2001.”

“Unbelievable. A river on fire. Don’t let it burn the boat..”

• Australian Politician Sets River On Fire (AFP)

An Australian politician has set fire to a river to draw attention to methane gas he says is seeping into the water due to fracking, with the dramatic video attracting more than two millions views. Greens MP Jeremy Buckingham used a kitchen lighter to ignite bubbles of methane in the Condamine River in Queensland, about 220 kilometres (140 miles) west of Brisbane. The video shows him jumping back in surprise, using an expletive as flames shoot up around the dinghy. “Unbelievable. A river on fire. Don’t let it burn the boat,” Buckingham, from New South Wales, said in the footage posted on Facebook on Friday evening, which has been viewed more than two million times. “Unbelievable, the most incredible thing I’ve seen. A tragedy in the Murray-Darling Basin (river system),” he said, blaming it on nearby coal-seam gas mining, or fracking.

Australia is a major gas exporter, but the controversial fracking industry has faced a public backlash in some parts of the country over fears about the environmental impact. Farmers and other landowners are concerned that fracking, an extraction method under which high-pressure water and chemicals are used to split rockbeds, could contaminate groundwater sources. The Murray-Darling Basin is a river network sprawling for one million square kilometres (400,000 square miles) across five Australian states. But the industry has said the practice is safe and that coal seam gas mining is a vital part of the energy mix as the world looks for cleaner fuel sources.

Origin Energy, which operates wells in the region, said it was monitoring the bubbling. “We’re aware of concerns regarding bubbling of the Condamine River, in particular, recent videos demonstrating that this naturally occurring gas is flammable when ignited,” the company said in a statement to the Australian Broadcasting Corporation. “We understand that this can be worrying, however, the seeps pose no risk to the environment, or to public safety, providing people show common sense and act responsibly around them.” The Australian energy firm said the methane seeps could be due to several factors, including natural geology and faults, drought and flood cycles, as well as human activity including water bores and coal seam gas operations.

The planet’s future is its past: cockroaches and jellyfish. “We’re gradually destroying our planet’s ability to support our way of life..” Eh, gradually?!

• In This Jungle, Mowgli Might Not Have Any Playmates Left (CNBC)

In Disney’s live-action remake of “The Jungle Book,” young human Mowgli is still palling around with bears and panthers. In reality, however, the world has changed since Rudyard Kipling’s tales first hit shelves more than a century ago. Speaking figuratively, biodiversity’s bag of Skittles has not only gotten smaller, it now has fewer flavors. Just how different are things? One expert puts it this way: If Mowgli were around today, he would most likely be raised by cows, goats and chickens instead of wolves and panthers and orangutans. If he were really unfortunate, his compatriots could be even worse. “Maybe even rats and cockroaches, if things go badly,” said Charles Barber, former forest chief at the U.S. Department of State’s Bureau of Oceans and International Environmental and Scientific Affairs, in an interview with CNBC.

The problem, according to some scientific experts, is that humans have changed the world so dramatically that it has also altered the diversity of life on Earth. “Most of these changes represent a loss of biodiversity,” analysts wrote in the Millennium Ecosystem Assessment in 2005, a report that chronicled the effects of human activity on nature produced by the United Nations and the World Resources Institute, where Barber now works. Among the Millennium Assessment’s findings were that humans have “changed ecosystems more rapidly and extensively than in any comparable period in human history,” due to food, fresh water and fuel needs. The spillover from those changes has contributed to big gains in humanity’s development, but “have been achieved at growing costs in the form of the degradation of many ecosystem services,” researchers wrote at the time.

This means that “plants and animals are now sharing the planet with a whole lot of people,” Barber said, adding that “we’re dealing with a fantastically different world.” One measure of biodiversity loss is just how fast certain species are now disappearing. Organizations like the Center for Biological Diversity state that an “extinction crisis” is underway that is wiping out plants and animals at a breathtaking pace. The last few hundred years have borne witness to mass extinctions that occur much quicker than the so-called natural “background rate” of one to five species per year. The CBD estimates that “literally dozens” of species are dying every day, which could see 30-50% of endangered populations being wiped out by midcentury.

Today, scientists say nearly a quarter of all mammals and coniferous trees are threatened with extinction. [..] A recent report by the World Wildlife Fund found that between 1970 (the year Earth Day was born) and 2010, the number of mammals, birds, reptiles and fish fell by more than 50%. “We’re gradually destroying our planet’s ability to support our way of life,” said WWF CEO Carter Roberts, at the time the report was published.

If Brussels tries to push this through, it’ll mean the end of the EU. If it doesn’t, it’ll mean the refugee flow will start all over again and at the very least Schengen dies. Can’t win.

• Visa-Free Travel A Stumbling Block For Turkey and EU (DW)

The refugee deal between the European Union and Turkey is stalled on the complexities of visa liberalization. EU officials say they won’t sacrifice their principles, but will they follow through? Turkish and EU leaders appear optimistic: 78 million Turkish citizens will gain long-coveted visa-free travel to the Schengen zone by June. After all, they have to in order to prevent a controversial deal on deportations from crumbling. Ankara has threatened to withdraw from the EU-Turkey migrant deal if visa liberalization is not in place by the end of June, putting in jeopardy a plan on which the European Union has pinned all of its hopes for slowing the arrival of people fleeing conflict and poverty.

Under the deal, reached in March, Turkey agreed to take back irregular migrants and refugees who crossed the Aegean to Greece in exchange for the European Union’s taking in Syrian refugees directly, as well as financial aid, visa liberalization and the acceleration of Turkey’s EU membership talks. While several parts of the migration deal have come under criticism, Turkey’s long-running struggle to gain unfettered access to the European Union for its citizens raises its own questions and remains a major sticking point. The EU executive, the European Commission, will present its third visa-liberalization progress report on May 4, and, if Turkey fulfills all 72 criteria to bring the country into compliance with EU and international law, a legislative proposal will be put forward to transfer the country to the visa-free list.

Less than two weeks before May 4, the European Commission said this week that Turkey was making progress but had only met 35 of 72 criteria for visa-free travel. On Thursday, however, European Migration Commissioner Dimitris Avramopoulos told reporters that he believed all benchmarks would be met. In a troubling sign, Turkey and the EU appear unable to even agree on what criteria have been met so far, with Turkish Prime Minister Ahmet Davutoglu saying this week that his government had brought the number down to the “single digits.” He has vowed to push the remaining criteria through parliament. According to Angeliki Dimitriadi, a visiting fellow at the European Council on Foreign Relations in Berlin, a major issue is what the EU means by “implementing.”

“It’s unclear how we measure benchmarks,” Dimitriadi told DW. “Are we looking at the benchmark as laws being passed or looking for actual implementation of all 72 criteria? Questions remain whether they have fulfilled this on paper or in reality.” Noting that the technical aspects of meeting EU criteria -implementing biometric passports, for example – take time, Dimitriadi said it would be nearly impossible to meet the June deadline. “I would be extremely surprised if they succeeded, and it has nothing to do with Turkey,” she said. “Any country would have a problem.”

“..only a third of the children go to school – partly because of a lack of capacity, and partly because they are put to work by their parents.”

• Merkel Accused Of Turning Blind Eye To Plight Of Syrian Refugees In Turkey (O.)

Merkel and her European colleagues have been accused of pandering too much to Turkey, amid calls for stronger international criticism of its crackdown on the political opposition. On Saturday Can Dundar, one of two prominent Turkish journalists on trial for reporting that Turkey was supplying arms to Syrian rebels, said Merkel was betraying the principles of democracy and free speech. “When you arrive, we’ll be on trial – alongside several academics who signed a petition calling for peace,” Dundar wrote in Der Spiegel, the German weekly magazine. “Will you again leave, behaving as if none of this pressure exists? Or will you lend an ear to us, and those who stand with us, in support of free expression?”

There are also concerns that Merkel is undermining free speech in Germany, after she acceded to a request from Ankara to prosecute a German comedian who made fun of President Erdogan. By going ahead with the EU-Turkey deal, Merkel was also accused of turning a blind eye to the predicament of Syrians in Turkey; many are due to be deported back there on the basis that Turkey guarantees their rights. But, despite recent legislative changes, only a tiny minority of Syrians have the right to work in Turkey. The majority work in the black market and live in urban poverty, far from camps like the one Merkel visited – which house just 10% of Turkey’s 2.7 million Syrians. And some have been deported back to Syria, according to research by Amnesty International.

In the areas surrounding the camp, Syrians praised Merkel for her wider support for refugees in 2015 – but reminded her of the predicament of the majority who did not have homes provided for them by the Turkish state. “It’s true the camp in Nizip is very nice,” said Abu Shihab, Syrian manager of a sweatshop in Gaziantep that employs Syrian children. “But what about those who live outside the camps?” While Merkel’s visit to a child-protection centre highlighted her intention to help Syrian children, solving the humanitarian crisis requires a more concerted effort. In Gaziantep, surveys of refugees by the Syria Relief Network, a coalition of NGOs, suggest only a third of the children go to school – partly because of a lack of capacity, and partly because they are put to work by their parents.

We’re dead set to do much worse tomorrow than we did yesterday. So much for progress.

• Tomorrow, We Have A Chance To Stop The Death Of Innocents (Observer)

Rabbi Harry Jacobi was one of 10,000 Jewish children saved from Nazi-controlled territory on the eve of the Second World War by those who recognised their plight and the necessity to act. Born in Berlin, his family sent him to Amsterdam, as his uncle had agreed to sponsor him. It was assumed that he would be safe in the neutral Netherlands and he joined other children in the orphanage. In May 1940, the Nazis invaded the Netherlands and began their rapid march on the capital. On 15 May, a Dutch woman, Truus Wijsmuller, the head of the refugee committee, went straight to the orphanage, rounded up the children and had them bussed directly to the nearest port. There, on the docks, she nagged and cajoled and twisted arms until the captain of a cargo ship, De Bodegraven, finally agreed to take the children and set sail for Britain and safety.

No permission was sought or given; Wijsmuller and the ship’s captain simply ignored the red tape. The children were in danger and something had to be done. Ten minutes after they sailed, the radio announced that the Netherlands had capitulated. They survived the journey, although the boat was strafed by Nazi fighter planes, and at last arrived in Falmouth. There, they were held on the boat for three days while the authorities weighed up whether to let them in or not; three days of anxious uncertainty aboard a boat that the Nazis has reported sunk. Thankfully, permission was given to dock in Liverpool and Harry became one of the very lucky 10,000 children who avoided near-certain death, were welcomed to Britain and offered a secure future.

Ten thousand children. Hauntingly, just the same figure has surfaced recently in the discussions around tomorrow’s Commons debate on amendments to the immigration bill that calls on the UK to take a lead in protecting unaccompanied minors in Europe. Seventy-six years after Harry Jacobi’s rescue, the figure of 10,000 is the number of children that Europol has identified as having disappeared on our continent in the process of fleeing from danger and suffering elsewhere. Ten thousand children who will have disappeared into trafficking networks across Europe, forced into drug abuse, child labour, sexual exploitation. Independent medical assessments have found that nearly half of all unaccompanied minors carry a sexually transmitted disease, testament to the terrible dangers they face along the way to Europe.

Some will have died. In the past three months, two minors have died trying to reach their family members in the UK from Calais. These 10,000 are a small percentage of the 95,000 migrant children estimated to be alone in Europe. And the “Dubs amendment” to be debated tomorrow, named for Alf (Lord) Dubs, who has sponsored it and is himself a survivor of the Kindertransport, calls for the resettlement of only 3,000 in the UK. A tiny proportion of those at risk, but it’s a start in securing safe and legal routes out of danger. Anything is better than the appallingly unsafe and illegal routes currently creating such havoc.