Saturday, July 4, 2015

One way to see EU/Greece politics

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The Troika Turns Europe Into A Warzone

Posted by aurelius77 on July 4, 2015

So now they do it. Now the IMF comes out with a report that says Greece needs hefty debt restructuring.

Mind you, their numbers are still way off the mark, in the end it’s going to be easily double what they claim. Not even a Yanis Varoufakis haircut will do the trick.

Why go through 5 months of ‘negotiations’ with Greece in which you refuse any and all restructuring, only to come up with a paper that says they desperately need restructuring, mere days after they explicitly say they won’t sign any deal that doesn’t include debt restructuring?

For five whole months the troika refuses to talk debt relief, and mere days after the talks break off they come with this? What then was their intention going into the talks? Certainly not to negotiate, that much is clear, or the IMF would have spoken up a long time ago.

At the very least, all Troika negotiators had access to this IMF document prior to submitting the last proposal, which did not include any debt restructuring, and which caused Syriza to say it was unacceptable for that very reason.

Meanwhile, things are getting out of hand here. It’s not just the grandmas who can’t get to their pensions anymore, rumor has it that within days all cash will be gone from banks. And then what? Oh, that’s right, then there’s a referendum. Which will now effectively be held in a war zone.

It’s insane to see even Greeks claim that this is Alexis Tsipras’ fault, but given the unrelenting anti-Syriza ‘reporting’ in western media as well as the utterly corrupted Greek press, we shouldn’t be surprised.

The real picture is completely different. Tsipras and Varoufakis are the vanguard of a last bastion of freedom fighters who refuse to surrender their country to an occupation force called the Troika. Which seeks to conquer Greece outright through financial oppression and media propaganda.

Tsipras and Varoufakis should have everyone’s loud and clear support for what they do. And not just in Greece. But where is the support in Europe? Or the US, for that matter?

There’s no there there. Europeans are completely clueless about what’s happening here in Athens. They can’t see to save their lives that their silence protects and legitimizes a flat out war against a country that is, just like their respective countries, a member of a union that now seeks to obliterate it.

Europeans need to understand that the EU has no qualms about declaring war on one of its own member states. And that it could be theirs next time around. Where people die of hunger or preventable diseases. Or commit suicide. Or flee.

All Europeans on their TV screens can see the line-ups at ATMs, and the fainting grandmas at the banks, the hunger, the despair. How on earth can they see this as somehow normal, and somehow not connected to their own lives?

They’re part of the same political and monetary union. What happens to Greece happens to all of you. That’s the inevitable result of being in a union together.

Full article: The Troika Turns Europe Into A Warzone (The Automatic Earth)

Greece prepares for economic siege

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Greece’s Yanis Varoufakis prepares for economic siege as companies issue private currencies

Posted by aurelius77 on July 4, 2015

Greek finance minister says the country has a six-month stock of oil and four months of pharmaceuticals

Greece has stockpiled enough reserves of fuel and pharmaceutical supplies to withstand a long siege, and has set aside emergency funding to cover all the country’s vitally-needed food imports.

Yanis Varoufakis, the Greek finance minister, said the left-Wing Syriza government is still working on the assumption that Europe’s creditor powers will return to the negotiating table if the Greek people don’t agree to their austerity demands in a referendum on Sunday, but it stands ready to fight unless it secures major debt relief.

“Luckily we have six months stocks of oil and four months stocks of pharmaceuticals,” he told The Telegraph.

Mr Varoufakis said a special five-man committee from the Greek treasury, the Bank of Greece, the trade unions and the private banks is working feverishly in a “war room” near his office allocating precious reserves for top priorities.

Food has been exempted from an import freeze since capital controls were introduced last weekend. Grains, meats, dairy products, and other foodstuffs should be able to enter the country freely, averting a potential disaster as the full tourist season kicks off.

The cash reserves of the banks are dwindling fast as citizens pull the maximum €60 a day allowed under the emergency directive – already €50 at many banks. “We can last through to the weekend and probably to Monday,” Mr Varoufakis said.

Despite assurances, the crisis is likely to escalate fast if there is no resolution early next week. Businesses in Thessaloniki and other parts of the country are already creating parallel private currencies to keep trade alive and alleviate an acute shortage of liquidity.

Vasilis Papadopoulos, owner of the Maxi paper mill in Katerini, said the situation was becoming desperate for his industry. “I have enough raw materials to last until July 14. If I don’t get any more pulp, I will have to close the factory. It is a simple as that. I have 183 employees and I will have to start laying them off,” he said.

Mr Papadopoulis, who manufactures paper towels, napkins, and toilet paper – partially for export – said a consignment of 3,000 tonnes of pulp from Finland was stranded in the port of Salonica. “I can’t pay the suppliers because the bank is blocked, so they won’t release it,” he said.

Full article: Greece’s Yanis Varoufakis prepares for economic siege as companies issue private currencies (The Telegraph)

EU wants another government in Greece

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EU Openly Wants To Overthrow the Greek Government

Posted by aurelius77 on July 4, 2015

The President of the European Parliament, Martin Schulz, has stated that holding new elections in Greece is now mandatory when the people vote for the reform program of the creditors. He insists that any relief for the Greeks, which is blackmail keeping their banks closed, will be bridged with a technical transitional government until elections are held that approve only their candidates, and that this will be a requirement of further negotiations.

“If this transitional government is a reasonable agreement with the donors, then Syriza time was over. Then Greece has another chance, ” said Schulz. This is outright dictatorship for not a single member of the Troika is elected by the people including the head of the IMF Christine Lagarde.

We have been forecasting a Crisis is Democracy would emerge by 2015.75 back at our 1985 conference. This is just how all societies collapse. Unfortunately, well – it is here.

Full article: EU Openly Wants To Overthrow the Greek Government (Armstrong Economics)

EU and Greek Armageddon

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EU warns of Armageddon if Greek voters reject terms

Posted by aurelius77 on July 4, 2015

“Without new money, salaries won’t be paid, the health system will stop functioning, the power network and public transport will break down,” warns President of European Parliament

Greece risks a collapse of the medical system, power black-outs, and an import blockade, if the Greek people reject creditor demands in a make-or-break referendum tomorrow, the EU’s highest elected official has warned.

Martin Schulz, the president of the European Parliament, said the EU authorities may have to prepare emergency loans to keep basic public services functioning and to prevent the debt-stricken country spinning out of control next week.

“Without new money, salaries won’t be paid, the health system will stop functioning, the power network and public transport will break down, and they won’t be able to import vital goods because nobody can pay,” he said.

Mr Schulz earlier called for the elected Syriza government to be replaced by “technocrat” rule until stability is restored.

The alarmist warnings are part of an escalating pressure campaign by European leaders as Greeks decide their destiny in what has become – despite attempts by Syriza to present it otherwise – an in-out vote on euro membership after five years of economic depression and mass unemployment.

Yanis Varoufakis, the Greek finance minister, said his country is on “war-footing” and accused the eurozone of trying to terrify Greek voters into submission.

“What they’re doing with Greece has a name: terrorism. Why have they forced us to close the banks? To frighten people. It’s about spreading terror,” he told El Mundo.

It has emerged that European members on the board of the International Monetary Fund tried to suppress the publication of a report by the IMF showing that Greece’s debt is “unsustainable” and that the country is in grave need of debt relief.

This validates the claim by Syriza that a deal without debt restructuring fails to go to the root of the problem, and merely ensures another crisis later. Angry staff members at the IMF leaked parts of the paper to the German press, forcing full publication.

The EMU creditors have so far refused to offer any debt relief. The danger is that this hard line will backfire, forcing Greece to default on an estimated €340bn of liabilities to the eurozone system. This would entail vastly greater losses for the creditors.

Full article: EU warns of Armageddon if Greek voters reject terms (The Telegraph)

Shadow Banks

Billionaire bond investor Bill Gross, who managed more than $1.2 trillion during his tenure at PIMCO, shocked investors when he said it would only take a spark to start a “run on the shadow banks.”

These “shadow banks” include mutual funds, hedge funds, exchange traded funds, and money market accounts that aren't required to maintain reserves or emergency levels of cash like a traditional bank.

And according to Mr. Gross, a “run on the shadow banks,” sparked by “a central bank mistake, a geopolitical problem or developments in Greece or China” could trigger a run that central banks and governments can't control like they did the during the last crisis.

Mr. Gross when on to warn that these "shadow banks" are the market. And any rush to get money out would see prices falling like a rock.

Worse yet, he stated, that the “markets have not been tested during a stretch of time when prices go down and policymakers' hands are tied to perform their historical function of buyer of last resort.”

The bottom line is that we are in uncharted waters. With the market teetering on the brink of disaster right now. America is about to experience a “cash flow trap” that will make it nearly impossible for investors to get their money to safety.

Egypt on the Edge

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Egypt on the edge of a full blown civil war.

Posted by aurelius77 on July 4, 2015

In the past days there have been dozens of separate attacks in Egypt, from the Sinai up to Cairo. Probably more than 60 people have died, when the Egyptian army used F16 fighter jets to protect itself against it disgruntled population.

It is clear that the Egyptian rulers are not going to be able to contain the current situation, today could be marked as the start of Egypt’s civil war.

In 2013 the first elected president of Egypt was removed by the army. There are clear signs that anti-democratic forces were deliberately destabilizing Egypt before the coup d’etat in 2013. In the running up of the July 3th coup by General Sisi an artificial oil shortages was created that contributed to the mass protest against the elected president of Egypt.

The new army coup was financially supported by the Saudi rulers while the West was mute, the only vocalized opposition came from Turkey’s ruler Mr Erdoğan.
Washington was silent about Egypt’s coup and even resumed the delivery of military hardware to the Egyptian rulers, at the same moment Morsi received the dead penalty during a mock process.  The situation in Egypt will be much worse than the situation that we saw in Algeria in 1992.

The war that is coming to Egypt will not be limited to Egypt and will be an extend to Libya’s war, for the sole reason that a lot of fighters and weapons will come over from Lybia.

The substantial amount of impoverished Egyptians are lacking any perspective and have nothing to lose. It is their party that has been removed from power in 2013.

The Egyptian army is heavenly weaponized by the USA, there will not be any doubt that those weapons will end up in the hands of Islamist groups. The Egyptian conscript army will be a huge risk for the country’s leaders as army units might switch loyalty.

Full article: Egypt on the edge of a full blown civil war. (GEFIRA)

Friday, July 3, 2015

Stagnation and the Bubble

Economic Stagnation And The Global Bubble

by IWB · July 3, 2015

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by David Stockman

You’d think with all the “stimulus” from Washington over the fifteen years since the dotcom bust, American capitalism would be booming. It’s not. On the measures which count when it comes to sustainable growth and real wealth creation, the trends are slipping backwards — not leaping higher.

After a look at new jobs data in April, we find the number of breadwinner jobs in the US economy is still two million below where it was when Bill Clinton still had his hands on matters in the Oval Office. Since then we have had two presidents boasting about how many millions of jobs they have created and three Fed chairmen taking bows for deftly guiding the US economy toward the nirvana of “full employment.”

When you look under the hood, it’s actually worse. These “breadwinner jobs” are important because they’re the only sector of the payroll employment report where jobs generate enough annual wage income — about $50k — to actually support a family without public assistance.

Moreover, within the 70 million breadwinner jobs category, the highest paying jobs which add the most to national productivity and growth — goods production — have slipped backward even more dramatically. There were actually 21 percent fewer payroll jobs in manufacturing, construction and mining/energy production reported in April than existed in early 2000.

<p”>Now let’s look at productivity growth. If you don’t have it, incomes and living standard gains become a matter of brute labor hours thrown against the economy. In theory, of course, all the business cycle boosting and fine-tuning from fiscal and monetary policy, especially since the September 2008 crisis, should be lifting the actual GDP closer to its “potential” path, and thereby generating a robust rate of measured productivity growth.

Not so. Despite massive policy stimulus since the late 2007 peak, nonfinancial business productivity has grown at just 1.1 percent per annum. That is just half the 2.2 percent annual gain from 1953 until 2000. So Washington-engineered demand stimulus is self-evidently not pulling up productivity by its bootstraps.

Indeed, if you go back to the 1953–1973 peak-to peak period, which also encompassed several business cycles, the annual productivity growth rate averaged 2.7 percent, or two and one-half times the last fifteen year outcome.

The same picture occurs on real median household income. During the same 1953–1973 interval, real median family income grew at 3.0 percent annually, rising from $26k to $46k during the period.

By contrast, over the course of the next twenty-seven years, and after Washington ended both the Bretton Woods gold standard anchor on money and the practice of balanced budgets, real median incomes grew by only 0.8 percent annually, rising to $57k by the year 2000.

Needless to say, it’s been all downhill since then. Real median income was $53k in 2014. That means median living standards of US households have been falling at a 0.5 percent annual rate since the turn of the century. There is no prior fifteen year period that bad, including the years after the 1929 crash.

Labor Force Fundamentals Declining

The argument of the Keynesians is that capitalism is a chronic underperformer. Left to its own devices it is always leaving idle labor and capital resources on the table, and is even prone to bouts of depressionary collapse absent the counter-cyclical ministrations of the state and its central banking branch.

Well, then, given the monumental size and chronic intensity of policy stimulus during the last fifteen years, that particular disability should have been eliminated long ago. The US economy should be surfing near its full potential.

In that regard, one measure of high resource utilization most surely would be the labor force participation rate. However, after the one-time boost of increased female participation after 1980, the trend has been in a nose-dive. And it’s not due to the baby-boomers getting old and repairing to the shuffleboard courts.

Since the year 2000 — a time when the Fed’s balance sheet soared by nine-fold from $500 billion to $4.5 trillion — the prime age labor force participation rate has plummeted by 10 percentage points.

A similar trend can be seen in the measures of aggregate labor hours. Even if productivity has turned punk, it might be thought that all this policy stimulus would flush labor hours into the economy. But despite an increase from 212 million to 250 million of the working age population since the year 2000, there has been virtually no gains in labor hours utilized by the private business economy, and this is all the more obvious when we remember that not all headline jobs are created equal — even though it is well known that the BLS counts a four hour window-washing gig and a 40-hour week in a steel mill the same.

So the underlying truth is that actual apples-to-apples labor utilization has been going nowhere. In Q4 2014, the index of non-farm labor hours utilized by the business sector posted at 109.8 — virtually the identical level recorded in early 2000.

That’s right. After growing at a 1.6 percent annual rate for a half-century running (1953 to 2000), labor resources deployed have flat-lined for the past 15 years. Rather than contributing to higher utilization of resources, the massive, chronic stimulus policies of recent years have been associated with just the opposite.

So when it comes to the building blocks of prosperity, policy stimulus has not been stimulating much of anything — except a slide downhill.

And while the American economy stagnates, serious global risks remain on the horizon.

China at Risk

In China, the most fantastic credit bubble in recorded history is beginning to burst. That is, notwithstanding Wall Street’s sell-side propaganda, China’s vaunted $10 trillion GDP is not capitalist GDP in any familiar or meaningful sense; nor is it the product of organic market-based economic growth.

Instead, it is “constructed GDP” which has been fabricated out of centrally issued and allocated fiat credit. Over the past two decades the People’s Printing Press of China issued virtually unlimited bank reserves in the process of buying up dollars to peg the RMB exchange rate in support of its national policy of export mercantilism. This, in turn, has enabled China’s total public and private credit outstanding to soar from $2 trillion at the turn of the century to $28 trillion today.

In short, the overlords of red capitalism in Beijing caused the entire nation to borrow itself silly in order to fund a construction and investment mania that has no historical parallel. Indeed, the fourteen-fold explosion of debt in fourteen years has resulted in not only trillions of artificial “printing press GDP,” but, more importantly, in a stupendous accumulation of over-valued and uneconomic “assets” on both public and private accounts.

There are currently an estimated seventy million empty high rise apartment units in China, for example, because under the baleful influence of unlimited credit these apartments were built for asset appreciation, not occupancy. In fact, most of China’s tens of million of punters who have invested in these units have taken pains to keep them empty and spanking new; like contemporary works of art, appreciation potential can be impaired by marks and scrapes.

Needless to say, there is a huge problem when you turn rebar, concrete, and wallboard into tulip bulbs. Namely, when the price mania finally stops not only do the speculators who put their savings into empty apartment units get crushed, but, more importantly, demand for new units quickly evaporates, causing a devastating contraction up and down the building supply chain.

The Eurozone’s Wishful Thinking

Meanwhile, in Europe, Greece and the EU are pinned between a rock and a hard place. There is not a chance that Greece can service its monumental debt, yet the eurozone politicians are now petrified by the fiscal trap they have concocted during their can-kicking rituals since 2010.

So the baleful facts bear repeating. The eurozone governments have committed to $200 billion of direct fiscal guarantees to Greece, but in cobbling these expedients together during the 2010 and 2011 crises what the politicians of Brussels really did was to stick the ECB with the ultimate Old Maid’s card.

Stated differently, in the process of bailing out their own banks, which were stuffed with Greek sovereign and private credits, Brussels did just enough to stabilize the private credit markets and ward off the vultures. This, in turn, allowed the ECB to pretend that Greek collateral was money and to pacify the German monetary sticklers about the sin of monetizing state debt. At length, the ECB became the money market for the entire Greek economy.

Greece owes the ECB upward of $140 billion. That is, the Greek state and banking system owes the ECB more money than the entire deposits of the Greek banking system!

Altogether then, Greece owes the politicians and apparatchiks who rule the continent from Brussels and Frankfurt the staggering sum of $340 billion. In fact, the sum is not staggering; it is lunacy itself. The cowardly, self-perpetuating rulers of the European superstate have managed to loan Greece what amounts to 3 percent of their own GDP when Greece itself only accounts for 2 percent of eurozone economic output.

In the event of a blow-up and Grexit, exactly how would this mountain of Greek collateral be collected? Would it be done by the German army sent in to occupy the Greek ports and railway stations?

The Serial Bubble Machine

With our own flat-lining economy at home and serious risks of implosions abroad, one would think that now is a good time to take an honest look at the state of the global economy and do some serious planning.

But there’s no danger of that happening because the monetary politburo in the Eccles Building ignores all these fundamentals in order to focus on the short-run “incoming data.” It actually believes it can steer the business cycle as in times of yesteryear when the credit channel of monetary transmission still functioned effectively — even if destructively in the long-run.

But that was a one-time parlor trick. Nowadays, American households are at “peak debt” and on a net basis can no longer raise their leverage ratios to supplement wage- and salary-based income with more borrowings. Likewise, business borrows hand-over-fist in response to the Fed’s dirt-cheap cost of debt, but the proceeds go into financial engineering, not productive investment.

So the Fed blunders forward, oblivious to the fact that it is now 2015, not 1965, maintaining the lunacy of zero or soon near-zero interest rates. That maneuver creates floods of new credits, but in the form of gambling stakes which never leave the canyons of Wall Street. In so doing, they inflate financial assets values until they reach such absurd heights that they collapse of their own weight.

The Fed has thus become little more than a serial bubble machine. Tracking the incoming data during the intervals between financial boom and bust, it mistakes unsustainable short-run gains for real economic growth. But overwhelmingly, the incoming data has been recording temporary GDP and born again jobs.

For the second time this century we have had a boom in the part-time economy of jobs in bars, restaurants, retail, leisure and personal services. These jobs on average represent twenty-six hours of work per week and average wage rates of around $14/hour, thereby generating less than $20k on an annual basis.

Since the top 10 percent of households account for upward of 40 percent of consumer spending it is not hard to see what will happen next. When this third and greatest financial bubble of this century finally collapses, the bread and circuses jobs will vanish in a heartbeat.

Read more at http://investmentwatchblog.com/economic-stagnation-and-the-global-bubble/#PStBweECDOAKuuBO.99

Why Big Banks like TiSA

LEAKED: How the Biggest Banks Are Conspiring to Rip Up Financial Regulations around the World

by IWB · July 3, 2015

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

It’s almost impossible to keep anything secret these days – not even the core text of a hyper-secret trade deal, the Trade in Services Agreement (TiSA), which has spent the last two years taking shape behind the hermetically sealed doors of highly secure locations around the world.

According to the agreement’s provisional text, the document is supposed to remain confidential and concealed from public view for at least five years after being signed! But now, thanks to WikiLeaks, it has seeped to the surface.

The Really, Really Good Friends of Services

TiSA is arguably the most important – yet least well-known – of the new generation of global trade agreements. According to WikiLeaks, it “is the largest component of the United States’ strategic ‘trade’ treaty triumvirate,” which also includes the Trans Pacific Partnership (TPP) and the TransAtlantic Trade and Investment Pact (TTIP).

“Together, the three treaties form not only a new legal order shaped for transnational corporations, but a new economic ‘grand enclosure,’ which excludes China and all other BRICS countries” declared WikiLeaks publisher Julian Assange in a press statement. If allowed to take universal effect, this new enclosure system will impose on all our governments a rigid framework of international corporate law designed to exclusively protect the interests of corporations, relieving them of financial risk, and social and environmental responsibility.

Thanks to an innocuous-sounding provision called the Investor-State Dispute Settlement, every investment they make will effectively be backstopped by our governments (and by extension, you and me); it will be too-big-to-fail writ on an unimaginable scale.

Yet it is a system that is almost universally supported by our political leaders. In the case of TiSA, it involves more countries than TTIP and TPP combined: The United States and all 28 members of the European Union, Australia, Canada, Chile, Colombia, Costa Rica, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mexico, New Zealand, Norway, Pakistan, Panama, Paraguay, Peru, South Korea, Switzerland, Taiwan and Turkey.

Together, these 52 nations form the charmingly named “Really Good Friends of Services” group, which represents almost 70% of all trade in services worldwide.

As WOLF STREET previously reported, one explicit goal of the TiSA negotiations is to overcome the exceptions in GATS that protect certain non-tariff trade barriers such as data protection. For example, the draft Financial Services Annex of TiSA, published by Wikileaks in June 2014, would allow financial institutions, such as banks, to transfer data freely, including personal data, from one country to another – in direct contravention of EU data protection laws.

But that is just the tip of the iceberg. According to the treaty’s Annex on Financial Services, we now know that TiSA would effectively strip signatory governments of all remaining ability to regulate the financial industry in the interest of depositors, small-time investors, or the public at large.

1. TiSA will restrict the ability of governments to limit systemic financial risks. TiSA’s sweeping market access rules conflict with commonsense financial regulations that apply equally to foreign and domestic firms. One of those rules means that any governments that seeks to place limits on the trading of derivative contracts — the largely unregulated weapons of mass financial destruction that helped trigger the 2007-08 Global Financial Crisis — could be dragged in front of corporate arbitration panels and forced to pay millions or billions in damages.

2. TiSA will force governments to “predict” all regulations that could at some point fall foul of TiSA. The leaked TISA text even prohibits policies that are “formally identical” for domestic and foreign firms if they inadvertently “modif[y] the conditions of competition” in favor of domestic firms:

For example, many governments require all banks to maintain a minimum amount of capital to guard against bank collapse. Even if the same minimum is required of domestic and foreign-owned banks alike, it could be construed as disproportionately impacting foreign-owned banks… This common financial protection could thus be challenged under TISA for “modifying the conditions of competition” in favor of domestic banks, despite governments’ prerogative to ensure the stability of foreign-owned banks operating in their territory.

3. TiSA will indefinitely bar new financial regulations that do not conform to deregulatory rules. Signatory governments will essentially agree not to apply new financial policy measures which in any way contradict the agreement’s emphasis on deregulatory measures.

4. TiSA will prohibit national governments from using capital controls to prevent or mitigate financial crises. As we are seeing in Greece right now, capital controls are terrible. But for a government facing the complete breakdown of the financial system, they serve as a last resort for restoring some semblance of order. Even the IMF, which urged countries to abandon capital controls in the Washington Consensus years of the 1990s, recently endorsed capital controls as a means of maintaining the stability of the financial system. But if TiSA is signed, the signatory governments will be prohibited from using them:

The leaked texts prohibit restrictions on financial inflows – used to prevent rapid currency appreciation, asset bubbles and other macroeconomic problems – and financial outflows, used to prevent sudden capital flight in times of crisis.

5. TiSA will require acceptance of financial products not yet invented. Despite the pivotal role that new, complex financial products played in the Financial Crisis, TISA would require governments to allow all new financial products and services, including ones not yet invented, to be sold within their territories.

6. TiSA will provide opportunities for financial firms to delay financial regulations. If signed, TISA will require governments to address financial firms’ criticism of a regulatory proposal when publishing a final version of the regulation. Even then, governments would be obliged to wait a “reasonable time” before allowing the new regulation to take effect. In the United States, such requirements have produced delays sometimes lasting years in the enactment of urgently needed financial and other safeguards. If the same process is applied across the globe, it would make it almost impossible for government to constrain the activities of the world’s largest banks.

What that would likely mean is that when (not if) a new global financial crisis takes place in the not-too-distant future, the banks will once again be on hand to lead efforts to clean up and rebuild with taxpayer money the very sector that they themselves have destroyed. Lather, rinse, repeat. Only this time, on an even grander scale. By Don Quijones, Raging Bull-Shit.

Global banking behemoth HSBC is not having a good 2015. Now, is it just in dire financial straits? Read…  Does HSBC Know Something Other Banks Don’t?

Read more at http://investmentwatchblog.com/leaked-how-the-biggest-banks-are-conspiring-to-rip-up-financial-regulations-around-the-world/#9g7RGTC1VPVcXxTG.99

IMF—sorry?

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IMF admits: we failed to realise the damage austerity would do to Greece

Posted by aurelius77 on July 3, 2015

The International Monetary Fund admitted it had failed to realise the damage austerity would do to Greece as the Washington-based organisation catalogued mistakes made during the bailout of the stricken eurozone country.

In an assessment of the rescue conducted jointly with the European Central Bank (ECB) and the European commission, the IMF said it had been forced to override its normal rules for providing financial assistance in order to put money into Greece.

Fund officials had severe doubts about whether Greece’s debt would be sustainable even after the first bailout was provided in May 2010 and only agreed to the plan because of fears of contagion.

While it succeeded in keeping Greece in the eurozone, the report admitted the bailout included notable failures.

“Market confidence was not restored, the banking system lost 30% of its deposits and the economy encountered a much deeper than expected recession with exceptionally high unemployment.”

In Athens, officials reacted with barely disguised glee to the report, saying it confirmed that the price exacted for the €110bn (£93bn) emergency package was too high for a country beset by massive debts, tax evasion and a large black economy.”

Under the weight of such measures – applied across the board and hitting the poorest hardest – the economy, they said, was always bound to dive into an economic death spiral.

“For too long they [troika officials] refused to accept that the programme was simply off-target by hiding behind our failure to implement structural reforms,” said one insider. “Now that reforms are being applied they’ve had to accept the bitter truth.”

The IMF said: “The Fund approved an exceptionally large loan to Greece under an stand-by agreement in May 2010 despite having considerable misgivings about Greece’s debt sustainability. The decision required the Fund to depart from its established rules on exceptional access. However, Greece came late to the Fund and the time available to negotiate the programme was short.”

Full article: IMF admits: we failed to realise the damage austerity would do to Greece (GAEB)

“On War footing” in Greece

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Greece crisis: Country on ‘war footing’ as banks days away from collapse

Posted by aurelius77 on July 3, 2015

The Greek finance minister has said the country is on ‘war footing’ as money runs so low at the banks that they would collapse within hours were they to open again on Tuesday.

“We are on a war footing in this country,” Yanis Varoufakis said.

“We are reliably informed that the cash reserves of the banks are down to €500 million,” said Constantine Michalos, head of the Hellenic Chambers of Commerce. Anybody who thinks they are going to open again on Tuesday is day-dreaming. The cash would not last an hour,” he said.

Meanwhile the limit on cash withdrawals from ATM machines has been reduced from €60 to €50. The official line is that €20 are running out, however some reports have said this is a sign of financial contagion. Petrol stations and small businesses have also reportedly stopped accepting credit cards.

Full article: Greece crisis: Country on ‘war footing’ as banks days away from collapse (The Telegraph)

As China goes, so goes . . .

Guess What Happened The Last Time The Chinese Stock Market Crashed Like This?

By Michael Snyder, on July 2nd, 2015

Question Button - Public DomainThe second largest stock market in the entire world is collapsing right in front of our eyes.  Since hitting a peak in June, the most important Chinese stock market index has plummeted by well over 20 percent, and more than 3 trillion dollars of “paper wealth” has been wiped out.  Of course the Shanghai Composite Index is still way above the level it was sitting at exactly one year ago, but what is so disturbing about this current crash is that it is so similar to what we witnessed just prior to the great financial crisis of 2008 in the United States.  From October 2006 to October 2007, the Shanghai Composite Index more than tripled in value.  It was the greatest stock market surge in Chinese history.  But after hitting a peak, it began to fall dramatically.  From October 2007 to October 2008, the Shanghai Composite Index absolutely crashed.  In the end, more than two-thirds of all wealth in the market was completely wiped out.  You can see all of this on a chart that you can find right here.  What makes this so important to U.S. investors is the fact that Chinese stocks started crashing well before U.S. stocks started crashing during the last financial crisis, and now it is happening again.  Is this yet another sign that a U.S. stock market crash is imminent?

Over the past several months, I have been trying to hammer home the comparisons between what we are experiencing right now and the lead up to the U.S. financial crisis in the second half of 2008.  Today, I want to share with you an excerpt from a New York Times article that was published in April 2008.  At that time, the Chinese stock market crash was already well underway, but U.S. stocks were still in great shape…

The Shanghai composite index has plunged 45 percent from its high, reached last October. The first quarter of this year, which ended Monday with a huge sell-off, was the worst ever for the market.

Suddenly, millions of small investors who were crowding into brokerage houses, spending the entire day there playing cards, trading stocks, eating noodles and cheering on the markets with other day traders and retirees, are feeling depressed and angry.

This sounds almost exactly like what is happening in China right now.  First we witnessed a ridiculous Chinese stock market bubble form, and now we are watching a nightmarish sell off take place.  This next excerpt is from a Reuters article that was just published…

Shanghai’s benchmark share index crashed below 4,000 points for the first time since April – a key support level that analysts said had been seen as a line in the sand that Beijing had to defend, below which more conservative investors would start ejecting from their leveraged positions, widening the rout.

Chinese markets, which had risen as much as 110 percent from November to a peak in June, have collapsed at an incredibly rapid pace in since June 12, losing more than 20 percent in jaw-dropping volatility as money surges in and out of the market.

That drop has wiped out nearly $3 trillion in market capitalization, more than the GDP of Brazil.

Did you catch that last part?

The amount of wealth that has been wiped out during this Chinese stock market crash is already greater than the entire yearly GDP of Brazil.

To me, that is absolutely incredible.

And now that the global financial system is more interconnected than ever, what goes on over in China has a greater impact on the rest of the globe than ever before.  Today, China has the largest economy on the planet on a purchasing power basis, and the Chinese stock market “is the second largest in the world in terms of market capitalization”

Just as in 1929, flighty retail investors make up the bulk of China’s stock market and, just as in 1929 in the U.S., they have heavily margined their accounts. The Financial Times puts the number of retail investors in the Chinese stock market at 80 to 90 percent of the total market. Retail investors, unlike sophisticated institutional investors, are prone to panic selling, which explains the wild intraday swings in the Shanghai Composite over the past week.

Last night, the Shanghai Composite broke a key technical support level, closing below 4,000 at 3,912.77. The index is now down 24 percent since it peaked earlier this month and has wiped out more than $2.4 trillion in value. China’s stock market is the second largest in the world in terms of market capitalization, with the U.S. ranking number one.

Making world markets even more worried about the situation in China, its regulators are showing a similar brand of leadership as Mario Draghi. After previously pledging to trim back risky margin lending, they have now done a complete flip flop and are permitting individual brokerage firms to avoid selling out accounts that miss margin calls by setting their own guidelines on the amount of collateral needed.

I know that a lot of Americans don’t really care about what happens over in Asia, but when the second largest stock market in the entire world crashes, it is a very big deal.

The great financial crisis of 2015 has now begun, and it is just going to get much, much worse.  On Thursday, Ron Paul declared that “the day of reckoning is at hand“, and I agree with him.

So what comes next?

The following is what Phoenix Capital Research is anticipating…

By the time it’s all over, I expect:

1)   Numerous emerging market countries to default and most emerging market stocks to lose 50% of their value.

2)   The Euro to break below parity before the Eurozone is broken up (eventually some new version of the Euro to be introduced and remain below parity with the US Dollar).

3)   Japan to have defaulted and very likely enter hyperinflation.

4)   US stocks to lose at least 50% of their value and possibly fall as far as 400 on the S&P 500.

5)   Numerous “bail-ins” in which deposits are frozen and used to prop up insolvent banks.

I tend to agree with most of that. I don’t agree that the euro is going to go away, but I do agree that the eurozone is going to break up and be reconstituted in a new form eventually.  And yes, we are going to see tremendous inflation all over the world down the road, but I wouldn’t say that it is imminent in Japan or anywhere else.  But overall, I think that is a pretty good list.

EU’s Future—Maybe

The EU's Future in the Wake of the Greek Crisis

Arthur Goldhammer

July 2, 2015

This weekend may mark a turning point for Greece's debt crisis, but Europe's problems don't stop there. 

AP Photo/Daniel Ochoa de Olza

A man sells Greek and European Union flags during a rally organized by supporters of the YES vote for the upcoming referendum in front of the Greek Parliament in Athens, Tuesday, June 30, 2015. 

The endgame in the Greek crisis remains murky at this hour despite Alexis Tsipras’s apparent capitulation to the demands of Greece’s creditors: the so-called Troika or “Institutions” consisting of the International Monetary Fund (IMF), the European Commission (EC), and the European Central Bank (ECB). With surprise developments occurring daily if not hourly, it is difficult to stand back from what has transpired to date in order to assess the implications for the future of the European Union and the Eurozone. Still, the exercise is worth attempting. A number of depressing conclusions emerge.

No matter how the saga ends—whether in “Grexit” (Greek abandonment of the euro) and the self-imposed austerity that must inevitably follow, or in an agreement with the creditors to accept austerity on their terms, or in some intermediate and almost unimaginable limbo in which Greece remains in the Eurozone but without external financial support, which Tsipras’s alter ego seems to be calling for with his recommendation of a ‘no’ vote in Sunday’s referendum—the course of the negotiations, recounted here (in French and considerable detail) by the excellent Greek political scientist Gerassimos Moschonas, has demonstrated a remarkable combination of intransigence, incompetence, and insensitivity on both sides.

The Troika bears the lion’s share of responsibility for the bitter deadlock. It has clung tenaciously to the doctrine of “expansionary contraction” promoted by economist Alberto Alesina, despite research by the IMF itself suggesting that it seldom works. It has resisted the judgment of numerous economists, including former IMF head Dominique Strauss-Kahn, that too much of the burden of adjustment was imposed on Greece and too little on the creditor countries that profited from excessive lending and whose banks were bailed out in 2010 at the behest of Strauss-Kahn himself. It has pretended that Greece will some day pay back its debt, when this is merely a political fiction aimed at reassuring voters in creditor countries that they will not eventually have to pay what Greece can’t. As Daniel Davies puts it: “Everyone knows [Greece’s debt] is going to be restructured at some politically convenient time in the future; it simply can’t be paid back, and so it simply won’t be.” Finally, the Troika has attempted to micromanage the Greek economy from afar, placing too much emphasis on slashing salaries and benefits while paying too little attention to measures that would promote growth.

The Troika has compounded this economic obtuseness with a remarkable display of political insensitivity. To be sure, the Greek people elected the Syriza government in January with a contradictory mandate: voters told their government to remain in the Eurozone but to mount an all-out assault on the austerity policies imposed by institutions with the power to force Greece out. Yet at the first sign that Greek Prime Minister Alexis Tsipras was prepared to make the hard compromises necessary in any tough negotiation, German Finance Minister Wolfgang’s Schäuble oozed contempt: “The Greek government will certainly have difficulty explaining this to its voters.”

Obliging one’s adversary to commit political suicide by betraying all his electoral promises is not likely to elicit a productive response or blaze a path to agreement.

Germans should remember their history. The hyperinflation they often invoke as justification for their aversion to debt stemmed from a similar failure of magnanimity on the part of the more powerful parties in the negotiations over reparations after World War I. Small gestures of generosity on the part of “the Institutions” might have gone a long way to alleviate the mutual distrust that has poisoned these talks. Instead, the Troika chose to insist on further pension cuts on top of those already approved by previous Greek governments, refusing to spare even pensioners at the bottom end of the scale. IMF Chief Economist Oliver Blanchard observes, rightly, that pensions account for 16 percent of Greek GDP, implying that the Troika had no choice but to go where the money is, but the appearance of vindictiveness and indifference to the suffering of tens of thousands of people remained. Obliging one’s adversary to commit political suicide by betraying all his electoral promises is not likely to elicit a productive response or blaze a path to agreement.

On the Greek side, according to Euklides Tsakalotos, who replaced Finance Minister Yanis Varoufakis as head of the negotiating team, the intention was “deliberately to create uncertainty.” Previous governments, he insisted, had been too eager to declare that they would never abandon the euro, thus hamstringing their negotiators from the start. But if the Troika lacked magnanimity, Syriza lacked agility and finesse in pursuing this strategy of deliberate ambiguity, making concessions with one hand and provocative gestures with the other.

It was not just small cosmetic matters, such as the chilly reception accorded to Eurogroup Chief Jeroen Dijsselbloem when he flew to Athens immediately after the election. Greece entered the negotiations as the weaker party. Its best course would therefore have been to try to exploit differences within the Troika. Moschonas points to the desire of Jean-Claude Juncker, the new president of the Commission, to increase his own autonomy and therefore to part company with other players. Following the breakdown of negotiations, Michel Sapin, the French finance minister, has made numerous public statements at odds with those coming from Schäuble and German Chancellor Angela Merkel. Although it is difficult for anyone not privy to the details of the talks to know for sure, these expressions of disagreement suggest a less monolithic Troika than one finds in some accounts—differences that a more adroit Greek side might have exploited. In fairness, they may well have tried such an approach and failed. In any event, it became evident that hostility to Greece within the Eurogroup increased rather than diminished as the talks progressed.

The economist James Galbraith, who possesses far better information about the negotiations than I do, wrote yesterday that Europe’s “sheltered” leaders have failed to figure Tsipras out. That may be, but Tsipras certainly hasn’t made their task easy. On June 30 he submitted a letter to the Troika accepting, with certain amendments, the “staff level agreement” he had rejected just days before. Not only did he accept it, he went out of his way to say that “our amendments are concrete and they fully respect the robustness and credibility of the design of the overall program” (emphasis added). But the next day a very different Alexis Tsipras went on TV and bitterly denounced “the creditors’ blackmail,” describing his adversaries as “extreme conservative forces” and calling for a ‘no’ vote on Sunday’s referendum, whose purpose is ostensibly to accept or reject the “overall program” he had seemingly approved the day before. Such mercurial changes of tone and substance may be a deliberate feature of his negotiating style, intended to maximize the uncertainty whose tactical value Tsakalotos stressed, but they are hardly of a nature to inspire confidence in a situation where trust that the government will follow through on its commitments is the central issue.

What does this acrimonious history reveal about the current state of the EU? First, it has become increasingly apparent that a monetary union without a more robust political union will be hard put to avoid further clashes between the ill-defined central authorities in this confederation without a constitution, and member states uncertain of where the limits of their sovereignty lie. The Troika is not a formal institution. It is an ad hoc committee, torn by invisible internal force fields, which conceals underlying interests more than it represents them. Hence it gathers about itself accusations of the darkest conspiracies. It is alleged that its true mission is to promote neoliberal hegemony, to snuff out democratic expression, to prevent the emergence of leftist parties in Europe, or to destroy any country that steps out of line in order to keep a tight leash on the rest. Such allegations are made as if they required no substantiating evidence, and they cannot be refuted because the Troika’s essential business is to engage in the kinds of discussions that in a properly functioning polity would properly remain private. It is a technocratic rather than a democratic institution, but in certain ambiguous ways it is answerable to heads of state, to the European Parliament, and to the European Council. It is a hybrid beast, a disquieting chimera. This needs to be changed.

The current negotiations have also called attention to the unsavory politics of resentment created by European enlargement. Following the collapse of the Soviet Union, a number of former Eastern bloc states entered the EU. Many of these new member countries are poorer than the original core states and, indeed, poorer than Greece. A major obstacle to flexibility in handling the Greek debt has been the resistance of these relatively poor new members to anything they construe as special treatment of Greece. Yes, they say, there is suffering in Greece, but our pensioners live on even less. Hence there is a refusal of compassion and a revival of the very national jealousies and animosities that the EU was meant to contain. This must be combated.

Finally, the IMF has no business in Europe. It was Wolfgang Schäuble who pressed this point forcefully when the subject was first broached, but Chancellor Merkel insisted on the need for an institution with the staff and expertise necessary to oversee a distressed economy and to specify and enforce conditions on financial support. She got more than she bargained for. The IMF, and especially its European Department director Poul Thomsen, have proved to be the most rigid of the creditors. Europe is wealthy enough to repair its own house, if only it can muster the political will and social solidarity to do so, and it should not allow itself to be distracted by the interests of developing nations on the IMF board, whose resistance to special treatment for Greece is even stiffer than the resistance from within the EU.

The European Union is at present being sorely tested on several fronts. Its response to the refugee crisis has been so dismaying in its lack of solidarity and compassion that Italian Prime Minister Matteo Renzi told his colleagues at an EU summit that “if this is your idea of Europe, you can keep it.” Terror attacks in Paris and Copenhagen and an ISIS-style beheading in a suburb of Lyon have stirred anti-Muslim sentiment across the continent. Xenophobic parties stand high in the polls in several countries. In France the extreme right Front National has made the EU a target of predilection, taking the plight of Greece as an object lesson. What is being done to Greece, Marine Le Pen tells her acolytes, is also being done to you. She claims she will restore full sovereignty over France’s economy.

But French voters are no more eager than Greek voters to leave the EU. They just want a different EU, an EU more responsive to human needs and less preoccupied with accounting spreadsheets. Hence the failure of “the Institutions” to find a more creative response to the comprehensible and legitimate demand for something other than “expansionary austerity” poses a threat to the entire European project and its increasingly elusive promise of “ever closer union.”

Thursday, July 2, 2015

Little Puerto Rico Huge Threat

Why The Puerto Rico Debt Crisis Is Such A Huge Threat To The U.S. Financial System

By Michael Snyder, on July 1st, 2015

Puerto Rico Map On A Globe - Photo by TUBSThe debt crisis in Puerto Rico could potentially cost financial institutions in the United States tens of billions of dollars in losses.  This week, Puerto Rico Governor Alejandro Garcia Padilla publicly announced that Puerto Rico’s  73 billion dollar debt is “not payable,” and a special adviser that was recently appointed to help straighten out the island’s finances said that it is “insolvent” and will totally run out of cash very shortly.  At this point, Puerto Rico’s debt is approximately 15 times larger than the per capita median debt of the 50 U.S. states.  Yes, the Greek debt crisis is larger, as Greece currently owes about $350 billion to the rest of the planet.  But only about $14 billion of that total is owed to U.S. financial institutions.  But with Puerto Rico, things are very different.  Just about the entire 73 billion dollar debt is owed to U.S. financial institutions, and this could potentially cause massive problems for some extremely leveraged Wall Street firms.

There is a reason why Puerto Rico is called “America’s Greece”.  In Puerto Rico today, more than 40 percent of the population is living in poverty, the unemployment rate is over 12 percent, and the economy of the small island nation has continually been in recession since 2006.

Yet all this time Puerto Rico has continued to pile up even more debt.  Finally, it has gotten to the point where all of this debt is simply unpayable

Steven Rhodes, the retired U.S. bankruptcy judge who oversaw Detroit’s historic bankruptcy and has now been retained by Puerto Rico to help solve its problems, gave a blunt assessment on Monday.

Puerto Rico “urgently needs our help,” Rhodes said. “It can no longer pay its debts, it will soon run out of cash to operate, its residents and businesses will suffer,” he added.

This is why I hammer on the danger of U.S. government debt so often.  As we see with the examples of Greece and Puerto Rico, eventually a day of reckoning always arrives.  And when the day of reckoning arrives, power shifts into the hands of those that you owe the money too.

It would be hard to understate just how severe the debt crisis in Puerto Rico has become.  Former IMF economist Anne Krueger has gone so far as to say that it is “really dire”

The situation is dire, and I mean really dire,” said former IMF economist Anne Krueger, co-author of the report commissioned by the U.S. territory, which recommended debt restructuring, tax hikes and spending cuts. “The needed measures may face political resistance but failure to address the issues would affect even more the people of Puerto Rico.”

So who is going to get left holding the bag?

As I mentioned at the top of this article, major U.S. financial institutions are very heavily exposed.  Income from Puerto Rican bonds is exempt from state and federal taxation, and so that made them very attractive to many U.S. investors.  According to USA Today, there are 180 mutual funds that have “at least 5% of their portfolios in Puerto Rican bonds”…

The inability of the U.S. territory to repay its debt, combined with the financial crisis in Greece, would have far-reaching implications for financial markets and unsuspecting American investors. Morningstar, an investment research firm based in Chicago, estimated in 2013 that 180 mutual funds in the United States and elsewhere have at least 5% of their portfolios in Puerto Rican bonds.

It is important to keep in mind that many of these financial institutions are very highly leveraged.  So just a “couple of percentage points” could mean the different between life and death for some of these firms.

And unlike what is happening with Greece, the private financial institutions that hold Puerto Rican bonds are not likely to be very eager to “negotiate”.  In fact, the largest holder of Puerto Rican debt has already stated that it is very much against any kind of restructuring

U.S. fund manager OppenheimerFunds, the largest holder of Puerto Rico debt among U.S. municipal bond funds, warned the island it stands ready to defend the terms of bonds it holds, a day after the governor said he wanted to restructure debt and postpone bond payments.

What Oppenheimer is essentially saying is that it does not plan to give Puerto Rico any slack at all.  Here is more from the article that I just quoted above

OppenheimerFunds, with about $4.5 billion exposure to Puerto Rico according to Morningstar, said it believed the island could repay bondholders while providing essential services to citizens and growing the economy. It said it stood ready “to defend the previously agreed to terms in each and every bond indenture.”

“We are disheartened that Governor Padilla, in a public forum, has called for negotiations with other creditors, representing and including the millions of individual Americans that hold Puerto Rico municipal bonds,” a spokesman for Oppenheimer said in a statement.

But Puerto Rico simply does not have the money to meet all of their debt obligations.

So somebody is not going to get paid at some point.

When that happens, those that insure Puerto Rican bonds are also going to take tremendous losses.  The following comes from a recent piece by Stephen Flood

Now, bondholders are at risk as are the funds which hold Puerto Rican bonds and, more importantly, those who insure them in the derivatives market.

Dave Kranzler, from Investment Research Dynamics has warned that there are signs that the Puerto Rico situation may not remain a local crisis for much longer.

He points out that share prices of MBIA, the bond insurers, have been plummeting. MBIA are valued at $3.9 billion whereas their exposure to Puerto Rican debt is around $4.5 billion. Kranzler reckons their exposure could even be multiples of that figure. A default could wipe them out.

He also points out that the firm’s largest shareholders are Warburg Pincus, the firm to which Timothy Geithner went after his stint as Treasury Secretary, when he helped paper over the chasms opening up in the financial system.

Did you notice the word “derivatives” in that quote?

Hmmm – who has been writing endless articles warning about the danger of derivatives for years?

Who has been warning that “this gigantic time bomb is going to go off and absolutely cripple the entire global financial system“?

When Puerto Rico defaults, bond insurers are going to be expected to step up and make huge debt service payments to investors.

But this just might bankrupt some of these big bond insurers.  In fact, we have already started to see the stock prices of some of these bond insurers begin to plummet.  The following comes from the Wall Street Journal

Bond insurers MBIA Inc. and Ambac Financial Group Inc. are down again Tuesday as concerns over Puerto Rico’s ability to repay its debt multiply.

Investors fear that both firms face the potential for steep losses on their promises to backstop billions of Puerto Rico’s $72 billion of debt.

MBIA’s stock closed down 23% Monday, and fell more than 10% before rebounding Tuesday. By late afternoon, the stock was down 6%. Ambac’s stock fell 12% Monday and was off 14% Tuesday.

Of course Puerto Rico is just the tip of the iceberg of the coming debt crisis in the western hemisphere, just like Greece is just the tip of the iceberg of the coming debt crisis in Europe.

So stay tuned, because the second half of 2015 has now begun, and the remainder of this calendar year promises to be extremely “interesting”.

How Crisis Plays Out

Here’s How This New Crisis Will Play Out

by IWB · July 2, 2015

by Phoenix Capital Research

As I noted yesterday, the Fuse on the Global Debt Bomb has been lit. We are now officially in the Crisis to which the 2008 Meltdown was just the warm up.

The process will take time to unfold. The Tech Bubble, arguably the single biggest stock market bubble of all time, was both obvious to investors AND isolated to a single asset class: stocks. In spite of this, it took two years for stocks to finally bottom.

tech bubble.jpg

In contrast, the current Crisis that we are facing involves bonds… the bedrock of the financial system.

Every asset class in the world trades based on the pricing of bonds. So the fact that bonds are in a bubble (arguably the biggest bubble in financial history), means that EVERY asset class is in a bubble.

And what a bubble it is.

All told, globally there are $100 trillion in bonds in existence today.

A little over a third of this is in the US. About half comes from developed nations outside of the US. And finally, emerging markets make up the remaining 14%.

Over $100 trillion…the size of the bond bubble alone should be enough to give pause.

However, when you consider that these bonds are pledged as collateral for other securities (usually over-the-counter derivatives) the full impact of the bond bubble explodes higher to $555 TRILLION.

To put this into perspective, the Credit Default Swap  (CDS) market that nearly took down the financial system in 2008 was only a tenth of this ($50-$60 trillion).

What does all of this mean?

The $100 trillion bond bubble will implode. As it does, the financial system will begin to deleverage as debt is defaulted on or restructured (reducing the amount of US Dollars in the system, pushing the US Dollar higher).

By the time it’s all over, I expect:

1)   Numerous emerging market countries to default and most emerging market stocks to lose 50% of their value.

2)   The Euro to break below parity before the Eurozone is broken up (eventually some new version of the Euro to be introduced and remain below parity with the US Dollar).

3)   Japan to have defaulted and very likely enter hyperinflation.

4)   US stocks to lose at least 50% of their value and possibly fall as far as 400 on the S&P 500.

5)   Numerous “bail-ins” in which deposits are frozen and used to prop up insolvent banks.

This process has already begun in Europe. It will be spreading elsewhere in the months to come. Smart investors are preparing now BEFORE it hits so they are in a position to profit from it, instead of getting slaughtered

Best Regards

Graham Summers

Phoenix Capital Research

Read more at http://investmentwatchblog.com/heres-how-this-new-crisis-will-play-out/#f2kZwWQA4edAOBqj.99

The Great Destroyer

Global Geopolitics

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Troika – The Great Destroyer

Posted by aurelius77 on July 2, 2015

You cannot achieve peace by means of oppression. It was often a common practice to kill the family of one’s political opponent for the offspring would rise to avenge their father’s murder The Troika are now afraid to compromise and place all the blame upon Greece. They truly despise the new government in Greece for they fear any conciliation will result in encouraging more left-wing political government who stand-up against austerity. They have the same goal as the US did in Russia – oppress the people to force they to overthrow their government. This made Putin stronger. The Troika run the same risk in Greece. Their plane to overthrow the Greek government may haunt them in the years ahead.

There is simply no resolution to the Euro Crisis for what info we are getting from behind the curtain shows a dangerous attitude akin to we do not negotiate with terrorists. The Troika views yielding to any opposition will lead to the demise of their Euro dream. This economic design is just unsupportable and we are going to see and very serious crack in the political system of Europe over the next four years.

Full article: Troika – The Great Destroyer (Armstrong Economics)

Wednesday, July 1, 2015

TVIX--first wave up in

When TVIX hit 10.50 yesterday that was the end of first wave up from bottom.  The drop to around 9.50 was wave a and the rise back to 10 was wave b.  This morning drop to around 8.58 is wave c, which is where wave iv of prior wave started.  All textbook stuff.  With VIX above 2 std deviations, we needed a big slide--we got it this morning.  Sell this morning's open.  GL 

Visit StockCharts.com to see more great charts.

Just one of hundreds of special interest subsidies

Contra News and Views

Exim Bank Bites The Dust Today——Good Riddance To A Crony Capitalist Heist

by Forbes • June 30, 2015

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By Doug Bandow at Forbes

The Export-Import Bank dies tonight when its charter expires. After 81 years, what is commonly known as Boeing’s Bank is headed toward Washington’s trash bin.

When Congress returns it could revive Ex-Im, which primarily subsidizes big business exports. But a proper burial for what Barack Obama once called “corporate welfare” would save Americans money, reduce economic injustice, and promote economic growth.

The Bank was established in 1934 to promote trade with the Soviet Union, ExIm now is one of a score of federal agencies tasked with encouraging exports. The agency exists to borrow at government rates to provide credit at less than market rates for select exporters, mostly corporate behemoths.

ExIm claims to be friendly to small business, but cherchez the money: it goes to Big Business. According to Veronique de Rugy of the Mercatus Center, between 2007 and 2013 the Bank subsidized $66.7 billion in sales by Boeing. ExIm also underwrote $8.3 billion for General Electric, $5.2 billion for Bechtel, $4.9 billion for Caterpillar and its subsidiary Solar Turbine, $3.2 billion for CBI Americas, $3.0 for Exxon Mobil, $2.1 billion for Applied Materials, $2.0 billion for Westinghouse, and $1.4 billion for Noble Drilling. During that period Boeing enjoyed 35 percent, GE 4.4 percent, and Bechtel 2.7 percent of the Bank’s largesse.

In 2012, noted Timothy Carney of the Washington Examiner, the aircraft maker accounted for 83 percent of all loan guarantees. The following year just five firms collected 93 percent of the loan guarantees. Also in 2013 the top ten ExIm beneficiaries accounted for two-thirds of the Bank’s total activities: Boeing, General Electric, Bechtel, Applied Materials, Caterpillar, Space Systems/Loral, Komatsu America, Case New Holland, Ford, and Sikorsky Aircraft. Other frequent beneficiaries include Dow Chemical, John Deere, and Lockheed Martin.

Giants of the financial world, such as Citibank and JP Morgan Chase, also do well by the Bank. Loren Thompson of the Lexington Institute thought he was arguing in favor of ExIm when he observed: “Private lenders often don’t like the risk profile of countries seeking export assistance” and “want the kind of protections available to lenders who finance the exports of other countries.” Of course they do. But the U.S. government’s role is not to protect profit-making private firms from risks at home or abroad.

The Bank denies providing subsidies since it charges fees and interest and claims to make a “profit”—more than $1.6 billion since 2008. But if ExIm operated like a normal commercial bank there would be no need for it. Anyway, economists Jason Delisle and Christopher Papagianis explained that the Bank’s “profits are almost surely an accounting illusion” because “the government’s official accounting rules effectively force budget analysts to understate the cost of loan programs like those managed by the Ex-Im Bank.” Most important, there is no calculation for market risk. Including that would provide “a more comprehensive measure of federal costs” concluded the Congressional Budget Office.

Alas, politicians understandably hate accurate assessments of costs. Delisle and Papagianis estimate counting everything would make ExIm’s actual expense more than $200 million a year. CBO comes to a similar conclusion, figuring real losses over the coming decade likely to exceed $2 billion. However, this might be on the low side. Federal Reserve economist John H. Boyd also looked at the “opportunity cost, a payment to taxpayers for investing their funds in this agency rather than somewhere else.” He estimated that the Bank’s real cost averaged around $200 million annually in the late 1970s and rose to between $521 million and $653 million by 1980.

If the financial markets get ugly again—witness the ongoing global shock waves from le affaire Greece—taxpayers could get hit with a big default bill. Total outstanding credit is $110 billion, yet the agency’s own inspector general warned that Bank practices create the risk of “severe portfolio losses.”

The agency is supposed to create jobs by throwing cheap money at purchasers of American products. However, if business subsidies are the way to prosperity, why stop with exporters? More business handouts generally would mean more deals and jobs. Underwriting domestic producers would have the added advantage of keeping all the economic benefits at home. The higher the subsidy, the more jobs would be created. If government paid the entire bill, the benefits should be infinite.

Well, no.
First, the Bank backs only about two percent of U.S. exports. That’s not enough to redress the trade deficit, which Thompson cited as an argument for ExIm. The Bank simply doesn’t matter much in an $18 trillion economy.

Moreover, there is plenty of private money available for trade deals. A Goldman Sachs analysis last year predicted that the impact of a Bank closure “would be fairly limited given the robust financing environment at present.” Even Boeing CFO Kostya Zolotusky went off-message two years ago when he indicated his confidence that buyers would find “alternative funding sources” if the Bank closed. No doubt foreign buyers prefer that Uncle Sam bankroll American companies, but the U.S. was a major exporter before the Bank was created and will remain so long after the Bank is gone.

Indeed, subsidies do not correlate with exports. Overall commercial flows largely reflect macroeconomic factors and international competitiveness. My Cato Institute colleague Sallie James found that since 2000 “Germany and the United States, historically two of the smallest users of export credit programs, had the highest export growth in absolute terms out of the rich countries.” Reforming capital gains and corporate tax rates, and rationalizing regulation would do more to aid exporters. So would dropping economic sanctions which Washington uses so prolifically but often ineffectively against a host of nations.

Second, no one knows which deals are sealed only with ExIm funding. A host of factors affect any purchase decision, starting with price and quality. One study of aircraft sales, heavily subsidized by what has been called “Boeing’s Bank,” rated financing as only eighth out of twelve factors. Often purchasers would have bought anyway, but everyone in the process has an incentive to claim that ExIm assistance was vital.

Years ago Congress barred the Bank from participating in sales involving China’s environmentally-destructive Three Gorges Dam. ExIm President Martin Kamarck told corporate America not to worry: “This decision does not in any way limit or impede U.S. companies from doing business in the Three Gorges project on private terms and with financing from other sources. Already, several U.S. companies have sold between $60 million and $100 million worth of equipment and services to this project without ExIm Bank support.”

Third, even when a deal is sealed with federal backing, all that we know is that the buyer chose a subsidized American product over one or more alternatives—including unsubsidized American products. The Bank does not aid against foreign competition but against all competition, including other U.S. concerns. In that case the jobs gained by one company might be lost by another. Years ago CBO acknowledged that subsidies increased jobs in favored industries but only “at the expense of non-subsidized industries.”

Fourth, the Bank underwrites foreign companies which compete against U.S. concerns. ExIm isn’t supposed to make deals causing “substantial injury” to American companies, but the Bank polices itself. The most obvious problem comes from subsidies for direct rivals of U.S. concerns, almost always the case with Boeing aircraft sales, for instance.American miners objected to agency backing for an Australian iron mine. U.S. financial institutions which concentrate on international transactions, such as American International Group and DC Factoring, also compete with ExIm and private financial firms backed by the Bank.


That’s not all, however. Many U.S. companies effectively pay to subsidize a few exporters. My Cato Institute colleague Dan Ikenson estimated that the agency’s activities were equivalent to an annual tax of $2.8 billion on U.S. competitors of both domestic exporters and foreign consumers. He explained: “for nearly every ExIm financing authorization that might advance the fortunes of a single U.S. company, there is at least one U.S. industry—and often dozens or scores of industries—whose firms are adversely impacted because supply is being diverted, market power is being shifted, and the cost of capital is being lowered for their foreign competition.”


Fifth, if government subsidies really create jobs and wealth, it would be better to keep the money at home, underwriting American rather than foreign buyers. Then U.S. citizens would benefit on both sides of the commercial equation. As AEI economist Michael Strain testified on Capitol Hill, “even if the Congress chooses to offer financing to selected sectors to support employment, exports would not be high on the list of firms or industries to target.” Economists would recommend different beneficiaries.

Sixth, as Nobel Laureate Milton Friedman once observed, there ain’t no such thing as a free lunch. The government can’t create wealth ex nihilo. Unless the money being lent was a gift—perhaps from some oil-rich sheikh—it had to come from other Americans. If those resources didn’t go to ExIm’s lucky clients, they would have gone to someone else. Thus, the unsubsidized someone else produces and sells fewer goods and services, and creates fewer jobs. Moreover, explained de Rugy, “capital market distortions have ripple effects. Subsidized projects attract more private capital while other worthy projects are overlooked. The subsidized get richer while the unsubsidized get poorer—or go out of business.”

Moreover, increasing purchases of exporters’ products increases their demand for goods and services, raising the price to other American firms. Shifting resources to export firms also reduces domestic production, raising prices in those industries. As Strain testified, this puts companies in unsubsidized industries at a disadvantage.

The Bank’s most important flaw is that it redirects rather than creates economic activity. This is common sense as well as basic economics. For instance, the World Bank’s Heywood Fleisig and Catharine Hill warned that devoting scarce financial resources to export promotion cuts “domestic investment, consumption, or government expenditure.” Such subsidies only increase export-related employment “at the expense of employment elsewhere.” No one knows the exact trade-off, which likely varies depending on economic conditions. Years ago University of Arizona economist Herbert Kaufman figured that $1 billion in federal loan guarantees eliminated between $736 million and $1.32 billion in private financial activity.

Government economists have made the same point. Shayerah Ilias with the Congressional Research Service concluded that export subsidies perform “poorly as a jobs creation mechanism” because they don’t raise employment levels, but instead merely alter “the composition of employment among the various sectors of the economy.” The Government Accounting Office’s JayEtta Hecker similarly testified that “government export finance assistance programs may largely shift production among sectors within the economy rather than raise the overall level of employment in the economy.” Thus, ExIm claims of jobs created “may not represent net job gains.”

Is there any other argument for ExIm? The expansion of global capital markets puts the lie to the contention that there is a “market failure” in providing export financing. The mere fact someone somewhere said no to a deal is not a “market failure.” Most international commerce is privately financed. The Bank’s foreign clients are mostly prosperous participants in the global marketplace with many other potential sources of funds.

The best argument for ExIm is that there are 59 foreign credit subsidy agencies like the Bank, though most are smaller. But “everyone else does it” never is a good reason to do something stupid. Foreign subsidies play only a small role in global commerce. As noted earlier, just two percent of export transactions are backed by the Bank. Of those, between 2002 and 2010 ExIm tagged less than 40 percent as necessary to “meet competition.” That number certainly is too high, since the seller and Bank both want to justify more subsidized-credit. Against any lost business from foreign subsidies must be balanced the lost business of companies harmed by ExIm’s activities.


Proving that Samuel Johnson was correct when he said patriotism was the last refuge of the scoundrel, a gaggle of former national security officials called the Bank a “critical element” of U.S. security. The Senate’s advocates of constant war, John McCain and Lindsey Graham, also back ExIm as a tool of American foreign policy. Retired Gen. James Jones warned that killing the Bank would result in “a less stable and secure world.” David Petraeus, one-time military commander and CIA director, and Michael O’Hanlon of the Brookings Institution, contended that the Bank strengthens America’s declining manufacturing base, which is critical for the nation’s international position. Conservative blogger and radio commentator Hugh Hewitt called the Bank “Soft power at its best.”

But the interests of particular exporters are not the same as of all Americans. The U.S. economy, not a federal agency, is real soft power. And the economy is not strengthened by allowing politicians to redirect resources for political reasons. Ikenson warned Congress that ExIm penalizes newer, more dynamic firms in a process that “undermines the strength of the U.S. economy, which is crucial to reaching U.S. security and foreign policy goals going forward.”

Thompson complained that even with the Bank the U.S. was losing ground economically to China, yet last year, noted Carney, the biggest recipient of ExIm largesse wasChina, America’s most important geopolitical competitor! Russia, with whom the U.S. is involved in a bitter confrontation over Ukraine, was number five. Some of the foreign firms benefited have exported arms and nuclear technology, contrary to U.S. policy. The Bank even subsidies the foreign export agencies used to justify the agency’s existence. Explained Carney: “The largest foreign companies and banks all get subsidies from U.S. ExIm, and China’s ExIm gets direct subsidies from U.S. ExIm.” If Washington believes it has a geopolitical reason to underwrite a foreign government, it should do so directly, through Defense, State, or U.S. AID, rather than pretend the deal is a commercial transaction.

Nor does the Bank promote Third World development. In the energy field, for instance, Americans have subsidized Brazil’s Petrobras, Mexico’s Pemex, and even Russia’s Gazprom. Alas, explained James: “When the Bank finances public-sector borrowers, it delays privatization and other free-market reforms that would aid economic development.” De Rugy noted that ExIm also has inflated the debts of half of the countries listed as Heavily Indebted Poor Countries by the World Bank and IMF.

Finally, export subsidies have a more basic, debilitating political effect: encouraging more companies to engage in what economists call “rent-seeking,” using government to extract rather than create wealth. Complained Chris Rufer, founder of The Morning Star Co.: “I have observed too many of my fellow business leaders blatantly work with the government to increase their profits at taxpayer expense.” The Chamber of Commerce and National Association of Manufacturers launched major lobbying campaigns for what can rightly be described as corporate welfare. The U.S. has sacrificed its republican roots for spoiled corporatist fruit.


Should the U.S. help American exporters? Absolutely. Encourage free trade. Roll back economic sanctions. Adopt responsible budget policies. Lower and simplify the corporate income tax. Cut regulations on business. Stop subsidizing the defense of prosperous trade competitors. But don’t turn the U.S. Treasury into a source of corporate welfare.

ExIm’s closure is a very rare victory for the good guys in Washington. Crony capitalism is running rampant in America, undermining confidence in a market economy. As usual, the capitalists are proving to be the greatest enemies of capitalism, with many businesses trekking to Washington seeking handouts. Although the Bank’s Lazarus-like return can’t be ruled out, tomorrow Boeing and the rest of America’s corporate elite will enjoy one less special privilege at everyone else’s expense. One down. Hundreds more special interest subsidies to go.

Source: Export-Import Bank Closes: Kill Subsidies To Cut Federal Liabilities, Promote Economic Fairness