Today’s News 25th January 2016

• The Ultimate "Truth Bomb" – The East Knows The West Is Bankrupt

  Submitted by Bill Holter via Jim Sinclair's Mineset blog,

  What a tangled web the global geopolitical situation has become.  Geopolitics and finance have always been interrelated but recently much more so.  As many readers know, I have speculated we would be hit over the head with a “truth bomb” from the East and most likely from Mr. Putin himself.  Just this week Britain has alleged Mr. Putin personally ordered a “hit” on an ex KGB agent for calling him a pedophile.  Another story came out that Turkey shot down a NATO helicopter which made no press coverage at all in the West.  Also, Victoria Nuland recently travelled to Russia and was refused an audience by Mr. Putin.  This, after John Kerry had a meeting where he went into it saying “Assad must go” and came out saying Mr. Assad can stay …  Why all of this now?  I would simply say this reeks of desperation and also a VERY dangerous strategy to attack Mr. Putin personally.  I say “dangerous” because it raises the likelihood of a response from him.  Can you imagine the outrage were Russia to accuse president Obama or the Prime Minister Cameron of Britain for ordering the murder of someone who called them a pedophile?

  Before going any further, I believe nearly ALL of what we are seeing is centered by and on the “petrodollar”.  Will it survive or be replaced?  In my opinion it is no longer “if”, but “when” and by “what” will it be replaced with?  Just over the last two weeks we have seen three very important yet interrelated events.

  First, the sanctions against Iran in place over the last 35 years were lifted.  Along with this comes the ability for Iran to sell oil and they will now have access to up to $150 billion worth of assets and accounts previously frozen as reported by many credible non-government sources.

   

  The day after, we saw 10 U.S. captured sailors on their knees as they were said to have “strayed” into Iranian water.  The official U.S. account has changed at least twice.  We heard “mechanical failure” at first, this is unlikely as there were reportedly two separate vessels.  If one had mechanical problems, the other could have tied off and either towed it or held it steady until help could arrive.  Then the story changed to “navigational” problems.  This one I believe …but not the official story they “strayed” into Iranian water.  Again, if it was just one boat, maybe their navigation system malfunctioned …at the same time their communications failed …MAYBE?  But both boats …at the same time lost their comm and navigation systems?  Probably a better chance one of these sailors winning the Powerball lottery two weeks in a row!  Speculation on my part, I believe the electronics were somehow hacked or blocked just as happened with the Donald Cook in the Black Sea in late 2014.

   

  Just a couple of days ago, President Xi of China met with Iranian leaders one day and then the Saudis the following day.  We can only speculate what was discussed but surely oil was the centerpiece.  Naturally China wants to make and diversify oil supply deals from them both.  We have no proof but I believe it is a very good bet President Xi told the Saudis they would be expected to accept yuan for settlement instead of dollars.  There is no denying, the Chinese have done everything in their power to prepare for the dollar being dumped as the world’s reserve currency.  You can argue about timing, you cannot argue about “intent” as China/Russia have set up non Western clearing facilities similar to SWIFT but without any Western interference, trade deals, currency hubs, trading banks, and even gold and oil exchanges where the dollar will not be welcome.

  It is not tough to tie all of this together.  I ask you this, what would the world look like the day following a “truth bomb” dropped by Mr. Putin and the Chinese.  Would Americans even notice if he documented several false flags or frauds embedded in U.S. finance such as outright monetization of U.S Treasuries?  No, most certainly not.  Americans would however notice if financial markets collapsed or were shut down.  Russia and China know full well the situation in the West.  It is a bankruptcy waiting to happen as everything is fractional reserve and running on maximum margin while the underlying system is shrinking and no longer supplying enough liquidity.  The way I see it, the stage is truly set for a financial attack on anything and everything American.  Is it implausible for the Saudis to announce they will sell oil in yuan to China?  Or Iran to withdraw their funds from U.S. institutions and then bid for gold with these funds?  If the East does in fact have jamming or hacking capability of Western technology, is it far fetched for them to show it very publicly in one or several situations?  How would the “bookies” react if they saw a prize fighter enter one of the later rounds with his hands tied behind his back?

  You can laugh at the above speculation if you choose but it is all quite plausible and actually probable if you look at where things are and what posturing has already been done leading up to this.  Western markets, ALL markets are a fraud.  Our Treasury market is one where the biggest buyer is “our self” …the Fed and the ESF.  We have already seen $1 trillion of foreign reserves offloaded with no effect on yield nor the dollar itself and NO ACCOUNTING ANYWHERE as to “who” bought these offloaded central bank reserves.  Accounting fraud and no rule of law here, nothing to see …please move along!  You can laugh if you want and say Saudi Arabia will never move toward the East …  Saudi Arabia is now in very dire straits financially, who do you think they will side with when Western markets melt down?  Do you really believe they will go down trying to support our dollar?

  The stage has already been set.  The East knows the West has bankrupted.  They know we have no gold left because they have it!  They can see the finances of the various cities, states and federal government.  They know the situation in derivatives is one giant mountain of dynamite waiting for a spark.  They know our rule of law is gone and bail ins of depositor funds is next.  We are monetizing their sales of Treasury securities.  “We” are fooling no one except ourselves.  And by “ourselves” I am talking about the vast majority of the population who have grown to rely on the government for everything.  Everyone knows we are broke, yet ask anyone and the odds highly favor you will hear “the government will never let it happen”.  Even if you are silly enough to believe this you must ask yourself, what are the ramifications when markets become “make believe”?

  

  

  

  

  

• Kyle Bass Warns Of "A Lot More Pain To Come" Before This Is Over

  Having recently explained his "greatest investment opportunity for the next 3 to 5 years," Kyle Bass expands on his China discussions…

  "Given our views on credit contraction in Asia, and in China in particular, let's say they are going to go through a banking loss cycle like we went through during the Great Financial Crisis, there's one thing that is going to happen: China is going to have to dramatically devalue its currency."

  …to focus on Emerging Markets more broadly and specifically The BRICs.

  As Benzinga summed up, Bass Warns

  "we still have three tough innings to go, maybe four," he warning that emerging markets will "see a lot more pain before things are okay."

  Plenty more smoke and mirrors to be destroyed yet…

  

   

  Bass talks Emerging Markets with Wall Street Week's Gary Kaminsky…

  Specifically, as ValueWalk notes:

  Brazil

  “You look at Brazil, and the [carwash] scandal goes all the way to the President…It is a complete disaster with corruption,” he said. Bass believes that until the country roots out its corruption, the country “will keep going south.”

  Russia

  Russia faces issues related to “Putin’s global chess moves” and international sanctions.

  India

  Bass, meanwhile, called India a “semi-bright spot” in the grouping of countries, but didn’t delve deeper.

  China

  China, lastly, is “the big one,” according to the hedge fund manager. Bass cited the country’s non-performing loan growth as the key issue to watch.

   

   

  "China many years ago attached its currency to the dollar: they hitched their wagon to our star very smartly because back then our goal was to depreciate our dollar through inflation. So we issued debt to the rest of the world to depreciate the dollar. And so now the real problem is China has hitched their wagon to our star, and their currency has effectively appreciated about 60% versus the rest of the world since 2005 and it's killing them… China's effective exchange rate moving up versus the rest of the world made their goods and services a little bit more expensive each year and now that labor arbitrage is gone. And if that labor arbitrage is gone, and the banking system has expanded 400% in 7 years without a nonperforming loan cycle, my view is we are going to see a non-performing loan cycle."

  

  

  

  

  

• Big Bad China

  Submitted by $hane Obata via Tha Business blog,

  

  It seems like every day we are inundated with news out of China. Investors are already concerned. The offshore renminbi (CNH) is more international than the onshore one (CNY), which is tightly managed by the government. As such, the rising spread (CNH-CNY) between the two may be indicative of mounting skepticism about China’s economy and its markets. Likewise, capital is fleeing the country as hot money flows have accelerated:

  source: @vikramreuters

  In the following sections we will attempt to analyze China’s markets and determine the biggest risks facing its economy. Lastly, we will try to answer the following question: does it matter to us?

  Markets

  As the first week of trading in 2016 came to an end, the Chinese markets had already been halted twice. Newly minted circuit breakers, which have since been suspended, were triggered when China’s main equity index, the CSI 300, fell 7% on two separate occasions. The first selloff was triggered by a rumor that the China Securities Regulatory Commission (CSRC) was planning to suspend a short sale ban that has kept a reported ~$185 billion off the market. Subsequently, the CSRC decided to extend the ban in order to calm the markets. The second drop followed a significant devaluation of yuan by the People’s Bank of China (PBOC). China has also backtracked on that move. Basically, the Chinese markets are confusing…

  That said, the volatility is not surprising considering how unsophisticated China’s market is. One university study found that 2/3 of the new investors at the end of 2014 did not have a high school diploma:

  
  source: Bloomberg Brief

  Along the same lines, individuals account for at least 80% of trading on the mainland exchanges. In other words, there are many speculators and few investors. China’s markets are undeveloped and relatively unimportant. Nonetheless, they may offer some clues into consumer sentiment and the government’s ability (or inability) to control the economy.

  Economy

  It is hard to determine whether China is more capitalist or communism. Either way, it remains an indispensable part of the global economy. In nominal terms, China is the world’s second biggest economy with a GDP of ~$10.3 trillion. However, in terms of Purchasing Power Parity-adjusted GDP (PPP), it has surpassed the US. Moreover, it accounts for ~40% of global PPP-adjusted GDP growth:

  
  source: The Economist

  In regards to trade, China is the world’s biggest player. In 2013, it led the world in exports ($2,209 billion) and was the number two country for imports ($1,950). The combined value of its trading amounted to $4,159 billion, marginally higher than the US’ $3,909 billion.

  Debt

  China’s aggregate debt level is one of the highest in the world, although it may not seem to be at first glance. China’s government debt-to-GDP ratio is 55%. To put that in perspective, the US and Japan are at 89% & 234%, respectively. Even so, it is always prudent to consider a country’s debt composition. China’s mounting debt comes into focus when we account for non-financial corporate debt (125% of GDP), financial institution debt (65%) and household debt (38%). The grand total is an astounding 282% of GDP, or $28.2 trillion:

  
  source: McKinsey

  The rate of debt growth is also a concern. Non-financial corporate debt, increased from 72% to 125% of GDP from 2007 to 2Q14, a 73.6% increase.

  China’s debt load is a global risk because of how tightly managed its economy is. The government has allowed unprofitable companies to stay in business. Though defaults have been very limited, China must allow these companies to fail eventually. Otherwise, it will continue to suffer from high debt servicing costs ( ~30% of GDP).

  Overcapacity

  Government investment has been a big part of China’s economy. Massive amounts of stimulus went into factories, leading to overcapacity in sectors such as coal and steel. This is making it very difficult for companies that operate within those sectors to make profits – both domestically and abroad. Fiscal stimulus also went into housing and infrastructure, which are both clearly overbuilt. Despite the overcapacity, gross capital formation still represents ~45% of GDP:

  
  source: Gordon T. Long

  That is more than twice as high as it is in both the US and the European Union.

  Monetary Policy & FX

  The PBOC has been very active trying to support the economy. It has cut rates 6 times since November of 2014. Likewise, it has been lowering its Reserve Requirement Ratio and selling its foreign reserves in an attempt to prevent excessive devaluation of the yuan (CNY). They are down more than $400 billion (from a peak of ~$4 trillion) since mid-2014:

  
  source: @TomOrlik

  FX is also a risk because China has a lot of USD-denominated debt. In mid-2015, non-bank borrowers held ~$1.2 trillion worth of it. This is an issue because Dollar debt becomes more expensive when USDCNY rises, which is exactly what the markets expect to happen.

  Corruption Crackdown

  China’s anti-corruption campaign is a step in the right direction. That said, it is a big political risk for foreign investors. High profile businessmen and officials have been disappearing while others are being investigated. Moreover, securities regulators have been cracking down on market manipulators, “ensnaring some of the nation’s most high-profile money managers and announcing more than 2 billion yuan of fines and confiscated gains” (source: BBG Brief). Critics of the campaign suggest that it may deter business while failing to address the corruption that exists amongst the ruling party.

  Implications

  As investors, we should be concerned because China is one of the biggest economies and the world’s leading trader. Therefore, if it slows down then so will global growth:

  

  source: $GS

  China is also important because it is a massive source of demand for many commodities. Thus, its weakness is spreading to undiversified economies such as Russia, Brazil and South Africa. Recessions in those countries might not carry over to the rest of the world. Nevertheless, it is important to consider the amount of debt they have taken on since the financial crisis. In the US, credit is already tightening. If borrowing costs rise for the emerging markets, especially China, then we may see a wave of defaults with untold consequences.

  

  

  

  

  

• With EMs And SWFs Pushing Markets Lower, Here Are The Three Dramatic Conclusions

  Earlier today we showed an amazing schematic courtesy of Citi’s Matt King: if one includes the reserve liquidation by various EMs and SWF, and nets it against liquidity injections by DM central banks (and the PBOC), one gets a perfect quantitative, not just qualitative, walk-thru on how to trade markets: in other words one can measure, using high frequency data in real-time, just where markets should trade based on liquidity flows, and promptly profit from any arbitrage opportunities.

  

   

  But aside from the potential for substantial profits, there are more profound implications. Matt King lays them out as follows:

  If this relationship were to continue to drive markets, it would point to three conclusions.

   

  First, if outflows from EM continue to be “worse than previously thought”, as the IIF put it this week, that may continue to weigh also on developed markets. We recommend the IIF’s monthly ‘portfolio flows tracker’ as the best high-frequency indicator as to how those flows are developing; we also use data from those EM central banks that promptly publish reserves information as a guide to the broader universe.

   

  Second, the relationship suggests individual central banks are considerably less in control of their own destinies than they might have hoped. Our rates strategists have already pointed out that long-term inflation expectations in Europe and the US have more in common with a global – Chinese – factor than with domestic wage and price developments. With the current magnitude of EM outflows seemingly entirely offsetting ongoing ECB and BoJ QE, it seems fair to wonder whether the sorts of increases likely from the BoJ next week and the ECB in March will have as great an effect as investors seem to be hoping.

   

  Third, the fact that just one variable, with nothing in common with credit or equity fundamentals at all, does such a good job of explaining changes in market prices is in itself disturbing. It points to just the sort of herding effects we have argued were in play all along, and suggests that recent complaints of illiquidity, and sudden bouts of volatility, are being driven by more than just regulatory constraints on dealer balance sheets. Such a relationship leaves little room for heterogeneous market views.

  King’s summary:

  To sum up, it does not follow that everything need evolve in a bearish direction; what strikes us mostly is how interlinked, even circular, the outlook remains.

   

  While we are suspicious of the reasoning behind the last day or so’s rally – Aramco may find oil prices “irrational”, but if neither it nor anyone else is prepared to cut production, our commodities strategists see little reason for near-term optimism – that does not mean it cannot continue. As in August and September last year, there is a great deal of bearishness in market pricing already. If investors are bracing themselves for outflows which fail to materialize, the resultant short squeeze can be vicious. The more bearish the pricing, the greater the risk that reasonably stable economic data (as recent Chinese and European numbers have been) produce just such a squeeze. If that in turn helps to reverse the recent trend towards mutual fund outflows, as is suggested by our latest investor survey, the chance grows that this will come to be seen as just another example of the market predicting a recession that never happened, as in 2011. It is just such a view that underpins our house forecasts, and continues – just – to seem the most likely overall scenario.

   

  But this will not address the underlying issue for economists and investors alike. Weak multipliers in the economy away from EM and commodities have left us overly dependent on monetary policy. When monetary stimulus’ effect on markets fails to be matched by a corresponding improvement in the real economy, we are inevitably vulnerable to a correction.

   

  Perhaps if this sell-off fizzles out by itself, as it did last October, central banks will again be spared the need to face up to the distortive effect they have had upon markets, and can continue the pretence that markets are still following fundamentals.  After all, for many of them, this has been the sell-off which ‘isn’t supposed to be happening’.

   

  As in many a nursery game of ring-a-ring-a-roses, the problem is not just that, once we have all linked hands, we really do all end up either standing up or falling down together. It is also that, in the giddy excitement induced by running round in circles, sometimes you end up falling down even when you didn’t intend to.

  What is the implication of all of the above?

  The reality is that the vast majority of market participants are not only idiots, they are also very lazy: they have no desire to read any of the above, and certainly no interest in understanding what it means, or what truly makes the market tick. Back in 2007 this meant blaming the rating agencies for everyone’s blow up. This time the scapegoat will likely be HFTs.

  However, a small handful of people will read the full Matt King note – which is a must read – and understand just how close we are to the event horizon in which central banks lose not credibility but control over risk assets. This also means an end to the fiat system: a truly epochal outcome and the biggest phase shift in modern economics and financial markets.

  But the real rub is the following: most market participants already have had a suspicion of what Matt King has so eloquently explained. They likewise had a sense days before Lehman collapsed that something historic was brewing. Back then, it was Matt King’s note “Are the Brokers Broken” issued on September 5, 2008 that explained to everyone just how broken the system was, and allowed everyone to visualize the Lehman failure. Ten days later it was realized.

  Now, Matt King has done one better, and has explained not only how central banks rigged everything, but how the loss of control could and will look like. Which makes us wonder: will it be sufficient to explain just how broken everything is – with the source being not some tinfoil fringe blog but the head credit strategist of Citi – for said breakage to migrate from the merely hypothetical to the realized?

  We look forward to finding out very soon.

  

  

  

  

  

• Even Goldman No Longer Believes China's GDP Fiction

  When even that bastion of statist groputhink and legacy conventional wisdom accuses China of fabricating its most important economic number, then surely some violently volatile event is in the immediate future as China’s goalseeked cognitive dissonance is forced to reallign with reality in an event which even the bank that does god’s work on earth implies is now overdue.

  From Goldman’s David Kostin:

  In China, the government reported 4Q GDP growth of 6.8%. However, during the same time period our China CAI (Current Activity  Indicator) expanded at an average of just 4.5%, 230 bp slower than the official measure. Earlier this week our December CAI reading suggested China economic growth has decelerated to just 4.2%.

   

  

  And if China is indeed growing at 4.5% (or less), that means that its total debt is now growing three time as fast as the underlying economy, a recipe for not just an epic bubble, but its even more epic collapse.

  Meanwhile, as the NYT writes, fears about China’s economy are now “festering” even among the world’s if not brightest then certainly richest.

  

  

  

  

  

• Exposing The Fiction Of Mainstream Macroeconomics (In 9 Simple Questions)

  Submitted by Alasdair Macleod via GoldMoney.com,

  Parents will tell you the most difficult questions to answer sometimes come from their children.

  Here are some apparently innocent questions to ask of economists, journalists, financial commentators and central bankers, which are designed to expose the contradictions in their economic beliefs. They are at their most effective using a combination of empirical evidence and simple, unarguable logic. References to economic theory are minimal, but in all cases, the respondent is invited to present a valid theoretical justification for what invariably are little more than baseless assumptions.

  A pretence of economic ignorance by the questioner is best, because it is most disarming. Avoid asking questions couched in anything but the simplest logical terms. You will probably only get two or three questions in before the respondent sees you as a trouble-maker and refuses to cooperate further.

  The nine questions that follow are best asked so that they are answered in front of witnesses, adding to the respondent's discomfort. Equally, journalists and financial commentators, who make a living from mindlessly recycling others' beliefs, can be great sport for an interrogator. The game is simple: we know that macroeconomics is a fiction from top to bottom, the challenge is to expose it as such. If appropriate, preface the question with an earlier statement by the respondent, which he cannot deny; i.e. "Last week you said that…"

  Commentary follows each question, which is in bold.

  1. How do you improve economic prospects when monetary policy destroys wealth by devaluing earnings and savings?

  Central bankers and financial commentators are always ready to point out the supposed merits of monetary expansion, but are never willing to admit to the true cost. You can add that Lenin, Keynes and Friedman agreed that debasing money destroyed wealth for the masses, if the respondent prevaricates. Often politicians will duck the question with the excuse that monetary policy is delegated to the central bank.

  The argument in favour of devaluation relies on fooling all of the people some of the time by encouraging them through lower interest rates to spend instead of save. However, monetary debasement has become a permanent and continuing fixture today, instead of a short-term fix.

  2. What makes you think that targeting a continual rise in the general price level allows you to overturn the normal price relationship between supply and demand?

  Simple price theory posits that higher prices reduce demand, while lower prices stimulate it. For evidence, look no further than the electronics and data industries. Look no further than any product, which a salesman will offer at a discount in order to sell it. The confusion over price formation is highlighted by economists' response to falling energy prices. Far from being a bad thing, unlike falling prices of other goods, apparently it leaves more money to spend on those other things!

  Enjoy the subsequent attempt to justify the impossible. Animal spirits may be mentioned as an escape, which is the focus of the next question.

  3. What are "animal spirits", and how do you measure them?

  The reference to animal spirits, which cannot be actually defined, is supposed to be a reflection of consumer confidence. However, an increase in animal spirits can only mean a change in overall preference towards buying goods and against holding cash, usually driven by a growing fear of a falling purchasing power for money, and not consumer greed. This is the route to runaway price inflation, and if the policy succeeds in promoting so-called animal spirits, the outcome is impossible to control, without raising interest rates to a level that crashes the economy. It is also impossible to quantify animal spirits, because they are a bad concept.

  The reference to animal spirits was always a cop-out for effects that refuse to be modelled. It is in its own small way an admission that the mathematical treatment of economics is fundamentally flawed.

  4. It's commonly believed that a lower currency stimulates production. If this is the case, how did Germany and Japan in the post-war years develop into the strongest economies despite their currencies consistently rising against those of their trading partners?

  This should stump all mainstream macroeconomists, except perhaps the few remaining sound-money practitioners in Germany. While Germany's and Japan's economies developed successfully, Britain actively weakened the pound, the French the franc and the Italians the lira as a matter of competitive policy with abysmal results. Furthermore, since Japan implemented aggressive Keynesianism following its financial crisis in 1990, its economic record has been appalling. It is time for this canard to be well and truly nailed.

  5. Experience of government intervention in the economy clearly shows that it usually fails. Why do you continue to support intervention, when the evidence is so clearly against it?

  Central bankers and economists in the pay of governments are conditioned to believe that the state can fix the apparent shortcomings of free markets. Furthermore, politicians will always promote an advisor who comes to them with a positive solution involving intervention, and demote one that argues the merits of doing nothing. They usually argue something on the lines that it is unfair to ordinary people to expose them to the uncertainties and brutality of markets when they go wrong. In which case, follow up with Question 1, since they obviously care so much about ordinary folk.

  6. The difference between national socialism and communism was that the former controlled people through regulation, while the latter compulsorily acquired their property. Is the government at all troubled to be pursuing the economic policies of the fascists?

  This one is best used for poking fun at left-wing journalists. When Tony Blair was seeking office in the 1990s, the British Labour Party did away with Clause 4 in its constitution, the commitment for the state to acquire the means of production. From that moment, British socialism embraced the previously fascist policy of regulation as the means of state control. Not one commentator picked up on this aspect of a change that was heralded as necessary to make Labour electable.

  7. You say you are a socialist and yet you despise communism. Isn't socialism just a milder form of communism? Please explain where, other than in their degree, these beliefs differ in their economic effect.

  The root of this problem was encapsulated in the socialist calculation debate, where it was proven beyond any doubt that the state could never organize production and prices effectively. Socialists like to think that the obvious failure of state control under communism does not apply to modern socialism. They usually argue that modern socialism is based on Christian ethics and has nothing in common with the godless statism of Lenin and Mao. They overlook the fact that the problem is one of government economic intervention.

  8. Keynesians believe that deficit spending is necessary to make free markets work when they fail. If deficit spending is needed to supplement free markets when this apparently happens, why is it not appropriate at other times as well?

  Deficit spending is almost always introduced in an attempt to deal with the results of earlier policy errors, usually made by central banks allowing credit booms to develop. It may sound reasonable to stop a recession from throwing people out of work needlessly, but the state is merely permitting past errors to accumulate. The purpose of the question is to expose the lack of any economic basis for deficit spending, and to expose the policy as purely political.

  And lastly, a Royal question:

  9. If these things [signs of financial failure] were so large, how come everyone missed them?

  This was the question Queen Elizabeth famously asked the professors at the London School of Economics about the symptoms that foretold the financial crisis in 2008, when opening the LSE's New Academic Building later that year. The result was that a group of the foremost British economists met seven months later for a roundtable discussion to answer her question. You read that right: it took seven months to cook up a reply.

  This was it: "Risk calculations were most often confined to slices of financial activity, using some of the best mathematical minds in our country and abroad. But they frequently lost sight of the bigger picture."

  It is a public admission that macroeconomists are unable to see the big picture. This defies the meaning of the word macro.

  

  

  

  

  

• "Bowels Emptied! Women Molested!" German Media Reveals "Monstrous" CCTV Footage Of Refugee Pool Mayham

  Europeans are struggling to come to terms with the wave of Mid-East refugees that have inundated the bloc over the course of the last 12 months.

  The challenge, for those inclined to believe that German Chancellor Angela Merkel’s multicultural utopia is feasible, is to adopt an open minded approach to the prospect of integrating millions of Muslim asylum seekers into a largely Christian society while retaining a healthy level of skepticism with regard to the prospect of unifying two vastly divergent cultures.

  Even those who are predisposed to being patient with the integration process are beginning to question the wisdom behind Berlin’s open-door policy.

  Interestingly, it wasn’t the murder of 130 people in Paris that served as the catalyst for what amounts to a wholesale shift in sentiment towards migrants. While there was certainly a public outcry in the wake of the Paris attacks, the backlash coalesced after New Year’s Eve, when scores of women were reportedly assaulted by men of “Arab origin.”

  Since then, voters have moved to express their discontent with the bloc’s handling of the refugee crisis by taking to the streets in what on many occasions have turned out to be violent protests.

  The official response has been mixed. Germany has endeavored to keep the faith (as it were) by preserving the “yes we can” narrative in public, but in private, many German politicians claim the country is on the verge of closing its borders. Austria has apparently had enough, has suspended Schengen, and is now requiring refugees to learn German or risk losing access to welfare. The country has also developed a pictographic flyer designed to coach migrants on what types of behaviors are acceptable in polite Western European society.

  Switzerland has adopted the Austrian flyer and Germany has developed its own cartoons the government hopes will to clear up any “confusion” about how asylum seekers should act once settled in Europe.

  A particularly sensitive issue is pool etiquette. If you believe the media, refugees are having a particularly difficult time figuring out how to behave when swimming in public. The controversy led one small German town near Cologne (the site of the New Year’s Eve assaults) to ban adult male asylum seekers from swimming.

  Well, despite the best efforts of European cartoonists, some refugees apparently didn’t get the message about proper pool behavior because according to “reports,” some asylum seekers were caught on closed circuit TV doing some rather lewd things at the Johannisbad baths in Zwickau. Below, find the story from Bild, which we present without further comment because frankly, there’s not much we can add here.

  *  *  *

  From “In The Swimming Pool, Bowels Emptied! Women Molested!”, originally published in Bild and Google translated for your amusement

  According bathrooms GmbH have masturbated refugees when visiting swimming baths in pools and emptied their bowels in the water. They are women in sauna harassed and have tried to storm the ladies’ locker!

  All this is evident from a letter from clerk’s office manager Rainer Kallweit to his superior departmental head Bernd Meyer. In the letter dated 19 January (Image exists) summarizes Kallweit a report of the security that service the city’s baths GmbH. The city administration has towards BILD confirm their authenticity letter!

  Kallweit reports of a memorandum from the Johannisbad. It states inter alia: “An asylum seeker has masturbated in the hot tub and ejaculated into the basin. This is also recorded on the surveillance camera “And further:”. The lifeguards threw him out. The asylee came with his, cronies’ but again purely to get his cell phone.Together, visitors have ‘in the hot tub a hooting, Selfie’ done. “

  “The users of this contaminated pool by there got rid of one’s own intestinal contents. Native people have immediately leave the bathroom. “

  The memo continues: “Furthermore, the lifeguards have to protect women and girls from the asylum. Young men wanted to forcibly penetrate into the dressing of women and girls. These actions could previously be blocked.”

  

  

  

  

  

  

• Meet China's Largest Empty Building – The Ghost 'Pentagon'

  While China's ghost cities are now a well-known occurrence – massive empty spaces built "Fields of Dream" style for when 'they' come from the countryside – the following massive 500,000 square meters of 'Ghost Pentagon' surely takes the proverbial biscuit when it comes to mal-investment mania. As The BBC reports, the Pentagonal Mart – a shopping mall in Shanghai built in 2009 – inspired by the Pentagon in the United States – has now gained the dubious title of China's largest empty building.

   

   

  And from the inside out, the 70-acre site – only slightly smaller than the largest shopping mall in the world, the Dubai Mall in the United Arab Emirates – is almost entirely vacant…

  

  

  

  

  

  

  

  

  

• Risk Management Lessons From A Drunk Welshman

  By Chris at www.CapitalistExploits.at

  If I was to watch the world news every day I would be filled with a burning desire to build myself a hut in the hills, don my hazmat suit and wait for the impending collapse of humanity.

  I met a guy who’d done pretty much that. He was Welsh and drunk most of the time. But once, in the local pub he’d decided to venture into after spending a year living in solitude, he confided in me that all the things that had driven him to his fearful state didn’t seem all that important any longer.

  He told me this as he glanced occasionally at a TV above the bar, where David Attenborough was magically making a previously boring looking swallow seem like the most amazing creature you’d ever seen. Perhaps he realised that the world in fact wasn’t in quite so terrible a state as it seemed to be if you took your information from the 6’o clock news.

  Indeed, media studies indicate negative news reports outweigh positive news reports by 17 to 1!

  Given a 17:1 barrage of mayhem, death, destruction, and Tony Blair this poor miserable Welshman was on the brink of hanging himself, and a little quiet time providing perspective had brought him back from the brink. Sure it hadn’t cured his drinking problem but then again he was Welsh.

  I bumped into him again a month or so later and he’d taken up a regular spot in the pub playing his guitar. Apparently he was pretty good because the bartender told me he’d spent the previous night being ridden around his bedroom by some South American backpacker wearing a cowboy hat who must have mistaken him for Jon Bon Jovi. He had a glint in his eye that wasn’t there before. This perspective and media diet had clearly changed his world for the better.

  The reason for this poor sod’s previous state of fear can be explained by an almond-shaped mass of nuclei deep in the brain’s temporal lobe – the amygdala. According to men in white coats who play with rats and still wear Brylcreem this highly sensitive part of our brain contributes heavily to threat detection.

  From an evolutionary and neuro-scientific perspective we are hardwired to look for dramatic and negative news and when we find it, we share it.

  The clansman who spotted a sabre-toothed tiger would immediately share the information with his clan. Being eaten was a pretty big deal and you didn’t want to be the guy explaining to Joey’s wife as she sat grieving over his mauled body that, “Ah yeah, now you mention it, I did see that horrid beast up on Woolly Mammoth point just yesterday. I guess I should have mentioned it to him. Sorry about that.” 

  Social sharing of danger was therefore immensely important.

  Today, however, we don’t wait to catch up with Billy for a drink on the weekend to tell him about the car crash on the highway that we just drove past. We snap it on our smartphone and post it on a dozen social media sites where it is then re-posted and shared by hundreds of others, thus amplifying the visibility of the crash.

  The fact is that unless you live in Kandahar, or maybe Detroit, unusual scary things just don’t tend to happen that often to most people. If you live in a small town of a few hundred thousand people it’s a big deal when someone is murdered.

  On the other hand, when you have a murder in a city of a million plus people it’s just a fact that you’re more likely to hear about it. Take a city like New York and London with over 8.5 million people, or Shanghai with 25 million; there are a few murders going down and they will be blasted all across the 6 o’clock news.

  Many studies have shown that we care more about the threat of bad things than we do about the prospect of good things. Our negative brain tripwires are far more sensitive than our positive triggers. We tend to get more fearful than happy. Clearly taken to its extreme this can result in radical emotion driven decisions which don’t produce positive results.

  An Experiment

  In a now-famous experiment done by two researchers, Amos Tversky and Daniel Kahneman, they examined how people make decisions involving risk. These gents were working in an area of research known as behavioral finance but the results can be extrapolated to any actions involving risk.

  In their experiment subjects where provided the following scenario:

  • Suppose you have been given $1,000 and must choose between a sure gain of another $500 or, alternately, a 50% chance to gain $1,000 and a 50% chance to gain nothing.
  • Another group of subjects were given a different scenario: You are given $2,000 and must choose between a sure loss of $500 or, alternately, a 50% chance to lose $1,000 and a 50% chance to lose nothing.

  Both situations are identical in terms of the net financial benefit to the individuals but Tversky and Kahneman found that most members of the first group chose the sure gain of $500. A majority of the second group, however, opted for the gamble between a loss of $1,000 and loss of nothing.

  The simple phrasing of the question – the fact that one is presented in terms of gain and the other in terms of loss – is what causes them to be interpreted differently?

  The conclusion of the experiment, which has been proven many times since was that people are willing to run greater risks to avoid losses than they are to make gains. 

  Next week I’m going to discuss how this ties into another mathematics principle uncovered centuries ago by an Italian mathematician and how most investors focus on the completely wrong sectors and asset classes at the wrong times.

  We’ll top if off with asubscriber-only report on the 8 investment biases that screw with your investing that a good friend of mine and part of our global network put together.

  Until then, have a fantastic weekend!

  – Chris 

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  Liked this article? You can read more from us here.

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• The Bernie & Hillary 'Group Think' Show – Cynics, Cowards, Or Populist Propagandists

  Submitted by Robert Parry via ConsortiumNews.com,

  A curious reality about Official Washington is that to have “credibility” you must accept the dominant “group thinks” whether they have any truth to them or not, a rule that applies to both the mainstream news media and the political world, even to people who deviate from the pack on other topics.

  For instance, Sen. Bernie Sanders may proudly declare himself a “democratic socialist” – far outside the acceptable Washington norm – but he will still echo the typical propaganda about Syria, Russia, Iran and other “designated villains.” Like other progressives who spend years in Washington, he gets what you might called “Senate-ized,” adopting that institution’s conventional wisdom about “enemies” even if he may differ on whether to bomb them or not.

  That pattern goes in spades for former Secretary of State Hillary Clinton and other consciously “centrist” politicians as well as media stars, like NBC’s Andrea Mitchell and Lester Holt, who were the moderators of Sunday’s Democratic presidential debate. They know what they know based on what “everybody who’s important” says, regardless of the evidence or lack thereof.

  So, you had Mitchell and Holt framing questions based on Official Washington’s “group thinks” – and Sanders and Clinton responding accordingly.

  Regarding Iran, Sanders may have gone as far as would be considered safe in this political environment, welcoming the implementation of the agreement to restrain Iran’s nuclear program but accepting the “group think” about Iran’s “terrorism” and hesitant to call for resumption of diplomatic relations.

  “Understanding that Iran’s behavior in so many ways is something that we disagree with; their support of terrorism, the anti-American rhetoric that we’re hearing from their leadership is something that is not acceptable,” Sanders said. “Can I tell you that we should open an embassy in Tehran tomorrow? No, I don’t think we should.”

  Blaming Iran

  In her response, Clinton settled safely behind the Israeli-preferred position – to lambaste Iran for supposedly fomenting the trouble in the Middle East, though more objective observers might say that the U.S. government and its “allies” – including Israel, Saudi Arabia and Turkey – have wreaked much more regional havoc than Iran has.

  “We have to go after them [the Iranians] on a lot of their other bad behavior in the region which is causing enormous problems in Syria, Yemen, Iraq and elsewhere,” Clinton said.

  Yet, how exactly Iran is responsible for “enormous problems” across the region doesn’t get explained. Everybody just “knows” it to be true, since the claim is asserted by Israel’s right-wing government and repeated by U.S. pols and pundits endlessly.

  Yet, in Iraq, the chaos was not caused by Iran, but by the U.S. government’s invasion in 2003, which then-Sen. Clinton supported (while Sen. Sanders opposed it). In Yemen, it is the Saudis and their Sunni coalition that created a humanitarian disaster by bombing the impoverished country after wildly exaggerating Iran’s support for Houthi rebels.

  In Syria, the core reason for the bloodshed is not Iran, but decisions of the Bush-43 administration last decade and the Obama administration this decade to seek another “regime change,” ousting President Bashar al-Assad.

  Supported by Turkey, Saudi Arabia and other Sunni powers, this U.S.-backed “covert” intervention instigated both political unrest and terrorist violence inside Syria, including arming jihadist forces such as Al Qaeda’s Nusra Front and its close ally, Ahrar al-Sham and – to a lesser degree – Al Qaeda’s spinoff, the Islamic State. [See Consortiumnews.com’s “Hidden Origins of Syria’s Civil War.“]

  The desire of these Sunni powers — along with Israel and America’s neoconservatives — was to shatter the so-called “Shiite crescent” that they saw reaching from Iran through Iraq and Syria to Lebanon. Since Assad is an Alawite, a branch of Shiite Islam, he had to be removed even though he was regarded as the principal protector of Syria’s Christian, Shiite and Alawite minorities. [See Consortiumnews.com’s “Did Money Seal Saudi-Israeli Alliance?’]

  However, while Israel and the Sunni powers get a pass for their role in the carnage, Iran is blamed for its assistance to the Syrian military in battling these jihadist groups. Official Washington’s version of this tragedy is that the culprits are Assad, the Iranians and now the Russians, who also intervened to help the Syrian government resist the jihadists, both the Islamic State and Al Qaeda’s various friends and associates. [See Consortiumnews.com’s “Climbing into Bed with Al Qaeda.”]

  Blaming Assad

  Official Washington also accepts as undeniably true that Assad is responsible for all 250,000 deaths in the Syrian civil war – even those inflicted by the Sunni jihadists against the Syrian military and Syrian civilians – a logic that would have accused President Abraham Lincoln of slaughtering all 750,000 or so people – North and South – who died in the U.S. Civil War.

  The “group think” also holds that Assad was behind the sarin gas attack near Damascus on Aug. 21, 2013, despite growing evidence that it was a jihadist group, possibly with the help of Turkish intelligence, that staged the outrage as a provocation to draw the U.S. military into the conflict against Syria’s military by creating the appearance that Assad had crossed Obama’s “red line” on using chemical weapons.

  Mitchell cited Assad’s presumed guilt in the sarin attack in asking Clinton: “Should the President have stuck to his red line once he drew it?”

  Trying to defend President Obama in South Carolina where he is popular especially with the black community, Clinton dodged the implicit criticism of Obama but accepted Mitchell’s premise.

  “I know from my own experience as Secretary of State that we were deeply worried about Assad’s forces using chemical weapons because it would have had not only a horrific effect on people in Syria, but it could very well have affected the surrounding states, Jordan, Israel, Lebanon, Turkey. …

   

  “If there is any blame to be spread around, it starts with the prime minister of Iraq, who sectarianized his military, setting Shia against Sunni. It is amplified by Assad, who has waged one of the bloodiest, most terrible attacks on his own people: 250,000-plus dead, millions fleeing. Causing this vacuum that has been filled unfortunately, by terrorist groups, including ISIS.”

  Clinton’s account – which ignores the central role that the U.S. invasion of Iraq and outside support for the jihadists in Syria played in creating ISIS – represents a thoroughly twisted account of how the Mideast crisis evolved. But Sanders seconded Clinton’s recitation of the “group think” on Syria, saying:

  "I agree with most of what she said. … And we all know, no argument, the Secretary is absolutely right, Assad is a butcher of his own people, man using chemical weapons against his own people. This is beyond disgusting. But I think in terms of our priorities in the region, our first priority must be the destruction of ISIS. Our second priority must be getting rid of Assad, through some political settlement, working with Iran, working with Russia.” [See Consortiumnews.com’s “A Blind Eye Toward Turkey’s Crimes.”]

  Sanders also repeated his talking point that Saudi Arabia and Qatar must “start putting some skin in the game” – ignoring the fact that the Saudis and Qataris have been principal supporters of the Sunni jihadists inflicting much of the carnage in Syria. Those two rich countries have put plenty of “skin in the game” except it comes in the slaughter of Syrian Christians, Alawites, Shiites and other religious minorities.

  Blaming Russia

  NBC anchor Lester Holt then recited the “group think” about “Russian aggression” in Ukraine – ignoring the U.S. role in instigating the Feb. 22, 2014 coup that overthrew elected President Viktor Yanukovych. Holt also asserted Moscow’s guilt in the July 17, 2014 shoot-down of Malaysia Airlines Flight 17 despite the lack of any solid evidence to support that claim.

  Holt asked: “Secretary Clinton, you famously handed Russia’s foreign minister a reset button in 2009. Since then, Russia has annexed Crimea, fomented a war in Ukraine, provided weapons that downed an airliner and launched operations, as we just did discuss, to support Assad in Syria. As president, would you hand Vladimir Putin a reset button?”

  While noting some positive achievements from the Russian “reset” such as a new nuclear weapons treaty, help resupplying U.S. troops in Afghanistan and assistance in the nuclear deal with Iran, Clinton quickly returned to Official Washington’s bash-Putin imperative:

  “When Putin came back in the fall of 2011, it was very clear he came back with a mission. And I began speaking out as soon as that happened because there were some fraudulent elections held, and Russians poured out into the streets to demand their freedom, and he cracked down. And in fact, accused me of fomenting it. So we now know that he has a mixed record to say the least and we have to figure out how to deal with him. …

   

  “And I know that he’s someone that you have to continuingly stand up to because, like many bullies, he is somebody who will take as much as he possibly can unless you do. And we need to get the Europeans to be more willing to stand up, I was pleased they put sanctions on after Crimea and eastern Ukraine and the downing of the airliner, but we’ve got to be more united in preventing Putin from taking a more aggressive stance in Europe and the Middle East.”

  In such situations, with millions of Americans watching, no one in Official Washington would think to  challenge the premises behind these “group thinks,” not even Bernie Sanders. No one would note that the U.S. government hasn’t provided a single verifiable fact to support its claims blaming Assad for the sarin attack or Putin for the plane shoot-down. No one would dare question the absurdity of blaming Assad for every death in Syria’s civil war or Putin for all the tensions in Ukraine. [See, for instance, Consortiumnews.com’s “MH-17’s Unnecessary Mystery.”]

  Those dubious “group thinks” are simply accepted as true regardless of the absence of evidence or the presence of significant counter-evidence.

  The two possibilities for such behavior are both scary:

  either these people, including prospective presidents, believe the propaganda…

   

  or that they are so cynical and cowardly that they won’t demand proof of serious charges that could lead the United States and the world into more war and devastation.

  

  

  

  

  

• Norway's Biggest Bank Demands Cash Ban

  The war on cash is escalating faster than many had imagined. Having documented the growing calls from the elites and propagandist explanations of the "benefits" to their serfs over the last few years, with China, and The IMF entering the "cashless society" call most recently, International Business Times reports that Norway – suffering from its own economic collapse as oil revenues crash – has joined its Scandi peers Denmark and Sweden in a call to "ban cash."

  By way of background, as we explained previously, What exactly does a “war on cash” mean?

  It means governments are limiting the use of cash and a variety of official-mouthpiece economists are calling for the outright abolition of cash. Authorities are both restricting the amount of cash that can be withdrawn from banks, and limiting what can be purchased with cash.

  These limits are broadly called “capital controls.”

  Why Now? Why are governments suddenly so keen to ban physical cash?

  The answer appears to be that the banks and government authorities are anticipating bail-ins, steeply negative interest rates and hefty fees on cash, and they want to close any opening regular depositors might have to escape these forms of officially sanctioned theft. The escape mechanism from bail-ins and fees on cash deposits is physical cash, and hence the sudden flurry of calls to eliminate cash as a relic of a bygone age — that is, an age when commoners had some way to safeguard their money from bail-ins and bankers’ control.

  Forcing Those With Cash To Spend or Gamble Their Cash

  The conventional answer voiced by Mr. Buiter is that recession and credit contraction result from households and enterprises hoarding cash instead of spending it. The solution to recession is thus to force all those stingy cash hoarders to spend their money.

  And the benefits of a cashless society to banks and governments are self-evident:

  1. Every financial transaction can be taxed.

   

  2. Every financial transaction can be charged a fee.

   

  3. Bank runs are eliminated.

   

  In fractional reserve systems such as ours, banks are only required to hold a fraction of their assets in cash. Thus a bank might only have 1 percent of its assets in cash. If customers fear the bank might be insolvent, they crowd the bank and demand their deposits in physical cash. The bank quickly runs out of physical cash and closes its doors, further fueling a panic.

   

  The federal government began insuring deposits after the Great Depression triggered the collapse of hundreds of banks, and that guarantee limited bank runs, as depositors no longer needed to fear a bank closing would mean their money on deposit was lost.

   

  But since people could conceivably sense a disturbance in the Financial Force and decide to turn digital cash into physical cash as a precaution, eliminating physical cash also eliminates the possibility of bank runs, as there will be no form of cash that isn’t controlled by banks.

  So, when the dust has settled who ultimately benefits by this war on cash – government and the central banks, pure and simple.

  Which explains why Norway's biggest bank, DNB, has called for the country to stop using cash which is just the latest move in a country that has been leading the global charge toward electronic money in recent years, with several banks already not offering cash in their branch offices and some industries seeking to cut back on paper currency.

  DNB's proposal suggests eliminating the use of cash would cut down on black market sales and crimes such as money laundering.

   

  “Today, there is approximately 50 billion kroner in circulation and [the country’s central bank] Norges Bank can only account for 40 percent of its use. That means that 60 percent of money usage is outside of any control. We believe that is due to under-the-table money and laundering,” Trond Bentestuen, a DNB executive, told Norwegian website VG, the Local reported.

   

  “There are so many dangers and disadvantages associated with cash, we have concluded that it should be phased out,” he added.

   

  The country has already moved in this direction. Bentestuen estimated that only about 6 percent of Norwegians use cash on a daily basis, with the numbers higher among elderly people.

  Norway’s Ministry of Finance is opposed to the proposal, however, and other critics have raised concerns about privacy issues as well as how the change would affect tourists. Privacy advocates in Norway have expressed worries for years that, without cash, there would be no way for an individual to purchase something without being tracked.

  In 2014, Finans Norge, a financial industry organization in Norway, said the country was on pace to be a cashless society by 2020, Ice News reported. While DNB said its proposal will take time to complete, executives suggested the country start phasing out cash by discontinuing the 1,000 kroner note so it could focus on updating its banking system.

  “Eighty-five percent of our customers say that they never or only very rarely go to the bank. Therefore we think it is a mistake to maintain a very old structure with local branch offices. It is better to follow the customers and improve the offers where the customers are: digital,” Bentestuen said.

   

  In the meantime, DNB and Norway’s second largest bank, Nordea, have already stopped using cash in their branch offices. And the movement toward a goal of no cash has been going on for a while. The Norwegian Hospitality Association pushed to eliminate consumers’ right to pay cash at all stores and restaurants in 2013, The Local reported.

   

  Other countries including Denmark and Sweden have made similar pushes as their populations also rely largely on electronic money.

  If allowed to continue, state wealth control will exist.

  And thus, as we concluded previously, if you can’t withdraw your money as cash, you have two choices: You can deal with negative interest rates…or you can spend your money. Ultimately, that’s what our Keynesian central planners want. They are using negative interest rates and the War on Cash to force you to spend and “stimulate” the economy.

  If you ask us, these radical and insane measures are a sign of desperation.

  The War on Cash and negative interest rates are huge threats to your financial security. Central planners are playing with fire and inviting a currency catastrophe.

  

  

  

  

  

• Four Stunning Timelapse Videos Of "The Blizzard Of 2016"

  For those who enjoy truncating 24 hour blocks into 45 seconds or less, here are four time lapse videos of winter storm Jonas, a/k/a Snowmageddon, dumping near-record amounts of snow across the northeastern United States.

  First here is a clip showing 24 hours of footage, from 12:30 pm on January 22 to 12:30 pm on January 23. It consists of nearly 3000 photos.

   

  Next is the WSJ’s visual summary of how New York City was blanketed in what ended up being the third biggest snow accumulation in history:

   

  Here is one from across the river, in the middle of Brooklyn:

   

  Finally, here is timelapse somewhere in Pennsylvania, this time caught on Twitter:

  Time lapse: My iPad took a picture every 3 minutes for the last 24 hours or so! Started it about 4pm Friday?????? pic.twitter.com/4nktcJ802o

  — Gino Mollica (@gmollica98) January 24, 2016

  

  

  

  

• Leaked Document Reveals Why China Will Not Unleash Any Major Monetary Stimulus

  Update: moments ago the WSJ confirmed all of this when it reported that  PBOC PRIORITIZES STRONG YUAN IN MANAGING LIQUIDITY: WSJ

  Goodbye stimulus.
  

  * * *

  In a world in which every nation is now part of the race to debase their currency, or as the Brazilian finance minister first dubbed it in 2010, a “global currency war”, the first and foremost imperative on every central bank’s agenda is to devalue its currency faster than its net exporting peers. But not too fast: indeed, there is a problem, when the threat of devaluation becomes too great and the risk resulting from a flood of capital outflow surpasses than that from the economic contraction that would persist should the currency not devalue fast enough.

  This is precisely what is happening in China, where as we reported two weeks ago, the nation has, over the past 18 months, seen $1 trillion in capital quietly exiting the otherwise closed system which has terrified the Politburo that even its $3.5 trillion in foreign reserves (of which about $1.5 trillion are said to be liquid) won’t be enough if the capital outflow accelerates.

  This has in turn put the Chinese central bank in a very uncomfortable position: while the PBOC desperately needs to boost monetary stimulus to facilitate debt creation in a nation where company have to issue new debt just to pay their interest, or as Minsky called it, the endgame…

  

  … any further stimulus will also lead to even greater currency debasement and devaluation, more capital outflows, more FX reserve spending, and ultimately the perception that Beijing is panicking and those $35 trillion in Chinese bank assets are about to the NPLed into oblivion as the rollover of bad debt becomes impossible.

  This was confirmed earlier today when the South China Morning Post reported that according to a leaked document “the People’s Bank of China is reluctant to further reduce the required reserve ratio (or RRR) for fear of such a move resulting in the weakening of the yuan.”

  The information, reportedly leaked from minutes of Tuesday’s meeting between the central bank and commercial lenders, was shared widely after it was published on major mainland online portals including Sina.com and Netease.com.

  As a reminder, the RRR along with the core interest rate, are the two “shotgun” methods that China’s central bank has to easy (or tighten) monetary conditions. As such, every time Chinese economic indicators take another leg down, every one in the sellside screams for more PBOC stimulus, mostly in the form of a RRR cut.

  However, that now appears won’t be happening.  SCMP explains why the PBOC is suddenly reluctant to ease aggressively over fears such a move can unleash another torrent of capital outflows:

  The memo sheds light on the challenge the PBOC faces in trying to achieve two conflicting goals. It has to ease monetary supply to raise liquidity to boost the ailing economy. But it also has to stop the yuan from weakening too much, which could happen in the case of increased liquidity.

   

  According to the memo, Zhang Xiaohui, an assistant central bank governor in charge of monetary policy, told commercial bankers that the PBOC had to be very careful in maintaining the renminbi’s exchange rate stability when managing liquidity.

   

  A key lesson for the central bank was the aftermath of its move in late October to cut interest rates and the reserve ratio. The move greatly loosened liquidity conditions and “increased yuan depreciation expectations and added pressure on the yuan to weaken”, Zhang said.

   

  The PBOC had to balance ensuring sufficient liquidity in the banking system and managing the stability of the yuan exchange rate, the official said.

   

  “A too-loose liquidity situation may result in relatively big pressure on the yuan exchange rate,” Zhang was quoted as saying. “A cut in the required reserve ratio would be too strong a signal [to send to the market], and we can use other tools to provide the market with liquidity.”

  Instead of the shotgun approach, the PBOC will therefore be expected to increase liquidity in the economy through open-market operations that were less drastic than cutting the reserve ratio, the memo said.

  Indeed, we observed just that last week when the PBOC injected a whopping 400 billion yuan into the banking system – the most in three years – in an overnight operation using 7 and 28-day reverse repos, the same operations it was aggressively relying on in 2011 until 2013, when it resumed RRR and rate cuts once again, only to see a surge in capital outflows starting in mid-2014.

  

   

  Furthermore, since the Lunar New Year period which falls in early February this year, is when cash demand peaks, it is likely that over the coming week the the PBOC will release an extra 1.6 trillion yuan, nearly a quarter trillion dollars, into the banking system to help banks cope with the increased cash demand.

  However, and liquidity junkies expecting a flood of short-term funding may be disappointed: Zhang said banks had lent out money too rapidly in the first half of the month – over 1.7 trillion yuan – and that they had to slow down their lending process. The SCMP quotes Yi Gang, a vice-governor of the PBOC, who again warned banks not to repeat their mistake in the 2009 lending spree, during which many loans turned bad when they could not be collected back, according to the memo.

  Of course, if China’s growth contracts any further, and if the central bank is indeed precluded from RRR and interest rate cuts, then a lending spree is precisely what banks will engage in.

  Meanwhile, the biggest threat facing China remains its porous capital controls, which despite a max quote of $50,000 in annual outflows, has seen hundreds of billions in funding exit the “closed” capital account system, which in retrospect is not only not closed but very much open.

  The central bank was determined to keep the yuan stable, Yi said. “The personal annual quota of $50,000 has not changed. Some individual bank clients are sending messages to their clients, encouraging dollar buying … If you spread false information to cause panic, relevant authorities will come after you,” he said.

  As we said in September, when bitcoin was trading 40% lower than its current price, the big question is whether the Chinese population (which has over $20 trillion on deposit in the local banks) has realized that one of the best means of circumventing capital controls is with the digital currency, which however provides a window of opportunity which may not last too long, now that the PBOC is contemplating rolling out its own “digital currency.”

  Of course, since the particular “currency” will be nothing like bitcoin, and every transaction will be logged, absolutely nobody will use it voluntarily unless China does what it does so well, and threatens with arrest, bodily harm or worse, anyone who keeps using bitcoin in lieu of the government-mandated currency. Based on history, such an escalation would only make the “forbidden” alternative even more attractive.

  The PBOC’s news division did not respond to requests for confirmation of the leaked memo.

  

  

  

  

  

• The Other Revenant

  Is “The Bear” back from the dead…

   

  

  Source: Townhall.com

   

  You decide… 

   

  

   

  As the business cycle beats the centrally-planned committee’s manipulation once again.
  

  

  

  

  

  

• The One Chart Which Explains "Why Markets Are All Falling Down"

  Yesterday we felt like a brief moment of gloating was deserved, when we noted that, based on the WSJ’s reporting, the somber mood among Davos “prominent investors” and billionaires was “irritated, bordering on affronted, with what they say has been central-bank intervention that has gone on too long…. from this anecdotal sampling, at least, that has created growing distortions in nearly all asset prices—from stocks to bonds to real estate.”

  In other words, precisely what we have said all along. But there is much more work to do before the victory lap, most importantly in explaining what happens next.

  Well, since it is now common knowledge that it is all about central bank and rigged markets, the next logical step is to predict what happens to markets when looking at “asset prices” from a purely central bank liquidity standpoint, aka the Austrian money flow perspective.

  Here, we remind readers that in early 2013, just as the BOJ was preparing to unleash an epic QE episode in order to offset the lost liquidity injections which the Fed’s upcoming taper would lead to, we explained that instead of looking at central banks as standalone entities operating within their own liquidity domains, one has to look at global liquidity as a coordinated whole, one in which every central bank is now an integral cog and where inside money liquidity is not only globally fungible, but transferable from point A to point B at the push of a buy or sell button.

  And while for the longest time many, including us, were focused on DM central banks, over the past year a new market participant emerged: Emerging Markets, whose $7 trillion in reserve assets had become a source of reverse liquidity, or “quantitative tightening” as dubbed here over the summer, as numerous nations have been forced to liquidate USD-denominated assets to compensate for the loss of trade exports and oil revenue in the aftermath of the death of the Petrodollar which initially was noticed on this site alone and subsequently everywhere else.

  Which brings us to the topic of this post, namely “why are markets all falling down?” and the answer by Citigroup’s iconic, and one of Wall Street’s very best, analyst Matt King who adds that “many investors have been struggling to explain the magnitude and violence of the recent sell-off. Why are EM and commodity price weakness proving such negatives for DM as a whole?”

  The answer, hopefully not a surprise to our readers, is as follows:

  The violence of the recent sell-off has left many an economist struggling for an explanation. The question is not so much whether oil prices will hit $20, and whether China will have a hard landing. It is why such prospects are having such a profoundly negative effect on developed markets. After all, every economic model says that DM is not particularly exposed to EM, and that lower commodity prices ought in principle to be a net positive for commodity-consuming countries, and at worst neutral for the world as a whole. Does the market know something the economists’ models don’t, or is this an exceptional buying opportunity?

   

  Answering this question has proved hard, in large part because of the potential for circularity. Strategists are basing their market view on what economists tell them about the fundamental outlook. But economists are increasingly anxious that the fundamental outlook is susceptible to the moves in markets.

   

  We think there are three reasons EM and commodity weakness will continue to matter for DM… They suggest that markets have been following global rather than domestic central bank liquidity, and that it may be difficult for them to stabilize without significant further central bank stimulus.

   

  As we have argued for a while, it is not that we are straight bearish, and that these developments can only be resolved in a new crisis. Rather, it is the profound uncertainty, which comes in part from the potential for a regime change, and in part from the circular feedback loops at work in markets, which we have found it so hard to reflect in point forecasts and yet argued should be the central feature of investors’ portfolio positioning. What is concerning at present is that some policymakers still seem in denial about how interlinked everything is.

  We hope that after they see the following chart, which shows not only DM net liquidity injections (i.e., q-easing), but also EM net liquidity outflows (i.e., quantitative tightening) and which explains not only the recent selloff, but also shows how to trade global central bank and sovereign wealth fund and reserve manager flows, all confusion and denial will end.

  

  Or perhaps not. As King himself pessimistically concludes, “Perhaps if this sell-off fizzles out by itself, as it did last October, central banks will again be spared the need to face up to the distortive effect they have had upon markets, and can continue the pretence that markets are still following fundamentals. After all, for many of them, this has been the sell-off which ‘isn’t supposed to be happening’.”

  We couldn’t have said it better ourselves.

  

  

  

  

  

• "How Bad Can Texas Get?" Goldman Answers

  On Friday, we noted that at least some local businesses in Texas are sympathetic to the pitiable plight of the state’s beleaguered oil patch workers.

  Houston-based Gramercy Cleaners on Richmond avenue, we observed, is demonstrating their compassion for the imploding energy sector by offering service discounts.

  

  Much like Calgary and many other oil boom towns north of the border, many a Texas city is feeling the squeeze of rock bottom crude prices. As we documented in “The Next Chicago? Houston Faces Pension Crisis In Latest Example Of Local Government Fiscal Folly,” Houston is staring down a $3.2 billion funding gap and reduced revenue from oil and gas ops isn’t doing anything to help.

  “Home sellers are slashing prices and offering incentives to keep buyers from walking away from contracts as an 18-month oil slump buffets this city’s once-booming housing market,” WSJ wrote last week, underscoring the impact “lower for longer” is having on the city. “Home-construction permits in the area plunged 26% from a year earlier in the third quarter, while December sales of existing single-family houses fell nearly 10% from the same month of 2014.”

  In short, a year of crude carnage has wreaked havoc upon what, until last year anyway, was the engine driving the “robust” US labor market. 

  As we showed in November, layoffs in Lone Star land far outrun job losses in any other state:

  

  “The Texas recession is only in its early innings,” we said on Friday, because we are just now beginning to witness the bankruptcies and shut-ins that will soon become endemic and sweep across the entire US oil patch as revolvers are reigned in and Wall Street suddenly refuses to finance uneconomic producers’ funding gaps.

  So what happens when the pain really begins to hit home in Texas, you ask? And what are the implications for the broader economy considering the state has for years served as a kind of counterbalance to a job market that increasingly resembles a feudal system as opposed to the manufacturing-led middle class utopia American enjoyed five decades ago?

  Here with some answers is Goldman who sets out to address the US oil patch’s burning question: “How bad can Texas get?”

  *  *  * 

  From Goldman

  The historical episode most similar to today’s ‘lower for longer’ environment is the oil bust of the 1980s, when WTI oil prices fell from $31/bbl in 1984 to $10/bbl in 1986. Given its high exposure to the energy sector, Texas experienced significant stress in the 1980s. The unemployment rate in Texas rose sharply to 9.2% in 1986, an all-time high for the state. Real house prices fell 30% peak to trough, and the number of bankruptcy filings (including both business and non-business filings) more than doubled from 1984 to 1986.

  The experience of the 1980s has naturally raised concerns over oil and Texas today. When banks reported their 2015Q4 earnings recently, bank executives stated that they are increasing reserves in anticipation of losses in the energy sector. In this Global Markets Daily, we compare the experience of households and businesses in Texas during the two oil busts. We find that damages in Texas have been significantly more contained thus far relative to the 1980s.

  Loans backed by properties in the oil-producing states of Texas, North Dakota, Oklahoma and Louisiana comprise 10% of US commercial mortgage-backed security collateral, so the performance of commercial real estate in these areas is in focus for structured product investors. The office vacancy rate in Houston increased sharply in the early 1980s, likely driven by a combination of two recessions, elevated supplies and the oil price plunge. In 2015, the vacancy rate of Houston office properties also moved up, but remains far below the levels seen in the 1980s. We expect the vacancy rate to climb further over the next few quarters, posing downside risk to loans backed by Houston commercial properties. But we do not think default rates will match the 1980s experience.

  Turning to the residential sector, the 2014 oil price decline has so far manifested itself in the housing market quite differently from the 1980s experience. The right panel of Exhibit 1 shows that the share of residential mortgages in foreclosure in Texas increased sharply after the 1985 oil price peak. In contrast, the Texas foreclosure inventory has continued to edge down over the past year. One explanation for this difference may be that the housing market is still recovering from the 2009-2011 foreclosure crisis. The impulse from the healing process so far outweighs the shockwaves from lower oil prices.

  The Texas housing market may be more resistant to mortgage defaults and foreclosures than other states in the US. Even with the large house price decline in the 1980s, foreclosure inventory in Texas peaked at below 2%. In contrast, foreclosure inventory surged to 6% in Arizona and California in 2009 and over 10% in Florida and Nevada in 2010. One reason for this difference may be the home equity restrictions in place in Texas. Texas residents are generally prohibited from taking out cash-out refinancings or second liens that would raise the total loan-to-value ratio to above 80%.

  Five quarters after oil prices peaked, business and non- business bankruptcy filings increased 30% and 70%, respectively, in the 1980s. In contrast, both types of bankruptcy filings fell by about 10% from 2014Q2 to 2015Q3. In the case of non-business filings, the more limited response in the current episode may partly be due to effects of the 2005 US bankruptcy legal reform, which introduced tighter eligibility requirements for consumers filing for bankruptcy. 2015Q4 US bank earnings releases featured increases in loss reserves, in anticipation of possible future losses on energy exposures. However, the losses experienced by the banks to date have so far been limited. Our bank analysts believe the recent sell-off in bank equity is pricing in a worse loss scenario than is likely.

  *  *  *

  In other words, things are going to get bad but not, Goldman figures, as bad as they could be.

  Muppets should take that with a grain of salt because as Scott Merovitch, Houston division president for builder Chesmar Homes told WSJ, Texas may have figured out “how to diversify [its industry makeup] a lot, but it’s still going to ebb and flow with oil and gas.”

  

  

  

  

  

• Wrong For The Right Reasons: And Why It Matters

  Authored by Mark St.Cyr,

  There’s been a consistent theme of retort from many across the financial media. It consists of a two-sided response. The first sounds something like this: “How long have you been saying things were dire while the markets have continually risen?” This is a backhanded way of dismissing anything one has said previously, currently, as well as followup during the discussion. i.e., You’ve been labeled a scare monger. And a poor one at that.

  The other is the outright or, blatant dismissive. It sounds something like this, “Well that’s your opinion. I should state there are many more who take the opposite view.”

  Well, yes there are. However, that doesn’t mean they are either correct in their assumptions or, can argue why their view is correct. Yet, this is what’s done when someone wants to invalidate your point. It’s a snarky little way to dampen any legitimacy to one’s argument without further discussion. It’s a technique that’s used by many across the financial media as well as others. It’s subtle, however, to a trained ear – it speaks volumes about the user.

  Personally I’ve had such things thrown at me and I detest them, for they’re vapid statements made by people who have either lost an argument they can not win or; think they are so smart they openly tout they don’t need deodorizers in their bathrooms. When I’ve been faced with the latter response my knee-jerk reaction has been to cite something similar to following:

  “Well, that may be the case. But let’s just remember: Many a bull or pig believed based on valid assumptions that indeed; the farmer has their best interest at heart. After all who could argue otherwise based on all the free food, room, and board they receive? Unless you’re one of the few that escaped the “stock” yard and seen where the happy-trail ends. The one’s remaining in the yard can argue the other side all they want – it doesn’t mean they are right or, have a valid argument. Does it?”

  Usually that’s when the conversation truly ends. There’s no further follow-up except for the ensuing stink-eye I’ll then be showered with. However, at least it ends with the snark now being called into question rather, than the other way around. (I know N. N. Taleb uses the turkey analogy which I’m of the same idea. It’s just my roots began in the beef business.)

  Remember: These are techniques used or employed as to invalidate legitimate arguments with vapid reasoning. Once you understand and can discern them in real-time – you’ll never see an argument or discussion in the same light again. And these forms of discussions are now coming across both the financial airwaves, as well as print, at a fast and furious pace.

  Why you might ask? Easy: everything you were told by that media that should no longer happen – is happening – at – an ever-growing fast and furious pace. So much so the “everything is awesome” crowd are now looking more like “deer in the headlights” with every passing market movement.

  Let me illustrate it using the first line or technique I started with. The line of: “How long have you been saying things were dire while the markets have continually risen?” Well, let’s look at the most current example to show just how “dire” these markets truly are shall we?

  As of today just how much worth (as well as wealth) has been wiped out as I iterated “at a fast and furious pace?” Suddenly, over the last 6 months; Trillions of $Dollars in market cap have been wiped out across the U.S. capital markets alone. If one uses a global index the wealth destruction is now double-digit Trillions. (e.g., $17 Trillion and rising) To put that into context:

  In the last few months more than half, repeat, 50% plus, of the “wealth” affect everyone was so keen on singing its praises reminiscent of “happy times are here again” from 2011 till now globally: has been evaporated. i.e., gone, wiped out, you don’t collect $200 for passing Go. Thanks for playing.

  All of this is happening against the backdrop where both the so-called “smart crowd” along with the Ivory Towered set expressed; a 25 basis point rate hike in the current climate was a non issue. In effect it was touted: It’s a good thing because the economy is in much better shape to withstand it. Or best yet, “just do it.” Suddenly all that “much better – just do it” emphasis has turned into “Please make it stop – things are going from bad to worse!”

  This isn’t conjecture. To think 50% plus of capital being evaporated within months wiping out years of profits, principal, as well as interest assumptions for carry trades, let alone solvency concerns of counter party exposures or, currency upheavals throughout the global financial world won’t result in far more volatile market swings within the U.S. going forward, let alone what has already transpired just this year alone is nonsensical at best. Idiocy at worst. We just happen to be the laggard as to feel the full brunt of what is transpiring throughout the global markets in my opinion.

  Something that was scoffed at as “unimaginable” is suddenly not only the opposite – it’s arriving on our shores with voracity to what appears a totally unprepared market. All taking place against the backdrop the so-called “smart crowd” touted for years things like this – were behind us. So much so that even the “smart crowd” is beginning to openly worry or, raise concerns. So, with that in mind: do you think things are about to get better or more stable? Let’s postulate that using the following:

  Remember the above analogies? Who do you think has the valid argument? An escapee from the “stock” yard? Or, the bull that’s currently sitting with his fat profits, and snarky demeanor currently holding his position tagged at #436 in the middle of the line? After all, it would seem more agree with him than does you. So: Think he has a valid point? Again, as proof to bolster his argument he’ll also throw out, “Look at you! You’re now so skinny compared to him. How many meals have you missed since getting out?”

  See what I mean? Doesn’t sound so “smart” or “definitive” as to back up any “everything is awesome” based argument any longer once you understand does it? Yet, that won’t stop many across the media from positing such an argument. While as much as the above may represent those remaining in the “stock” yard. What truly should be unnerving for many a bull is that the owners of those yards (i.e., the current guest list flying home via private jets from Davos) are themselves frantically trying to explain (or plead) why “everything is awesome” is not turning into a bona fide shite storm.

  Premier hedge-funds are closing at an alarming rate. Once seemingly “can’t lose” funds (see Ray Dalio’s “All Weather” for clues) and strategies are doing exactly the opposite. Some funds have needed to gate their investors entirely until further notice. And there’s a whole lot more. And when has all this taken place? Or, better yet: what has been the catalyst for all this mayhem? The one thing people like myself and others have banged our fists and keyboards to anyone that would listen. The ending of the only thing that made up this “market.” QE (quantitative easing) along with a protracted stranglehold to remain at the zero bound. (e.g., ZIRP)

  Over these ensuing years of Fed. interventionist monetary policy, all the one’s that donned their investing “genius” or, monetary policy analytic “brilliance” caps were the first and loudest to the TV cameras, microphones, or keyboards to denounce people like myself and others as “conspiracy whack jobs,” “gloom crew,” “tinfoil hatted kooks,” and a whole lot more. However, today?

  Unlike many a financial guru, next in rotation fund manager, Ivory Leagued or, Towered academic that touted their economic brilliance or, stock picks ad infinitum to anyone still listening. People like myself and others have consistently argued against the validity of manipulated data points (see “double seasonally adjusted” for starters) and expressed the consequences that would follow to anyone foolishly doing the opposite.

  Again, unlike those aforementioned: We didn’t argue why adulterated data should be believed. We didn’t argue why people should take solace in the current employment picture of 5% as “a good jobs number.” We wouldn’t submit to the relentless brow beating or, ambush styled financial reporting (see any Bill Fleckenstein or a Peter Schiff CNBC™ interview for clues) handed out on many a financial channel and others. Quite the opposite. Regardless how high the “market” kept ascending.

  What is currently transpiring in the markets today is exactly what the “everything is awesome” crowd stated wouldn’t happen – and exactly what people like myself and others argued – was inevitable. And, suddenly it is they who are finding out the rarefied air of “brilliance” the Fed. enabled them to breathe has indeed been shut off – and all that’s left to inhale is their own exhaust fumes.

  I recommend this might be a good time they stock up on that much dismissed deodorizer. Because, in my opinion – they’re going to need it by the time this rout is over in the coming weeks and months. Unless it leaves them scared sh–less much like the poor investors and others that continued to believe their assertions are currently finding themselves.

  

  

  

  

  

• Here Come The Blackouts: Largest Ever Muni Restructuring Falls Apart As Puerto Rico's Power Authority Balks At $9 Billion Deal

  Early last month, just as Puerto Rico Governor Alejandro García Padilla traveled to Capitol Hill in an ill-fated effort to convince lawmakers that the island’s various bankrupt public entities should be allowed to utilize US bankruptcy laws, PREPA (the commonwealth’s heavily indebted power utility) was busy cementing the largest restructuring in muni market history.

  The deal was actually sealed months earlier, but the monolines were holding things up. Ultimately, all sides finally agreed that it was in everyone’s best interest to strike a deal and once MBIA and Assured Guaranty were on board, the stage was set for an $8.2 billion restructuring.

  As part of the deal, creditors agreed to take a 15% haircut and the insurers would put up a $450 million surety bond. The agreement would have knocked $700 million off the utility’s debt service burden. It also would have reduced PREPA’s principal owed by $600 million.

  We say “would have” because that deal is apparently off the table.

  “Chances of Puerto Rico’s power utility PREPA reaching a deal with creditors to restructure its $8 billion debt were cast in uncertainty on Friday as one deadline passed and the utility baulked at the new terms offered for a new one,” Reuters reported on Saturday. “PREPA said in December that it had reached a deal with 70 percent of all creditors [but] for that to work, Puerto Rico needs to pass legislation enabling PREPA to create a new charge on customer invoices specifically to pay the debt, so that the new bonds could earn the higher ratings that creditors expect.”

  Lawmakers needed to vote by Friday on the new tax and when that deadline came and went, creditors found themselves right back where they were last year: owed nearly $9 billion with no plan on how to get repaid.

  “The group of bondholders negotiating with the Puerto Rico Electric Power Authority, known as Prepa, had accepted a 15 per cent haircut on the debt in exchange for new securitised notes after more than a year of discussion,” FT notes. “Prepa said on Saturday that it had offered to extend the restructuring deal by an additional three weeks with the ad hoc group of bondholders to give the legislative assembly additional time to review the act.”

  Now, everyone is apparently confused as to what’s actually going on. 

  “We are disappointed that the ad hoc group did not grant our requested extension,” Lisa Donahue, Prepa’s chief restructuring officer said. “Prepa remains willing to continue discussions with the ad hoc group and other stakeholders.”

  Bondholders, on the other hand, say they find the stalemate “extremely disappointing and perplexing.” 

  “The creditors blamed the utility for scuttling the talks, saying Prepa officials had decided to let a critical expiration date pass without taking action,” The New York Times writes. “But Prepa said it was the creditors’ fault for trying to impose a requirement that Prepa had already rejected.”

  “As part of their proposed extension, bondholders were also offering to provide $115 million of additional capital,” Reuters goes on to note. “PREPA said the bondholders changed the terms of that offer, conditioning it on regulatory approval by Puerto Rico’s energy commission for the imposition of the additional charges to customers.”

  While all of this sounds like a petty dispute between recalcitrant Puerto Rican lawmakers and belligerent creditors, it actually has serious implications for the island’s prospects as it relates to restructuring a debt burden that amounts to some $70 billion. 

  The market had held up the PREPA deal as a kind of blueprint for how the island’s other debt might be restructured. Now, it seems more likely that the effort will be presented as evidence of how difficult it will ultimately be for the commonwealth to strike deals with creditors. 

  PREPA needs to make a $400 million payment on July 1. Without a restructuring agreement, it’s likely the utility will default, an event PREPA’s chief restructuring officer says would be “a disaster.” PREPA “also owes about $700 million to two institutions that finance the shipments of fuel that Prepa burns to produce energy,” The New York Times continues, “if the utility failed to make those payments fuel shipments could then stop, and blackouts across the island would result.”

  Yes, “blackouts across the island,” at which point the debt crisis will finally hit home for everyday Puerto Ricans who will promptly take to the streets to ask why the lights are out.

  The real question here is this: did Puerto Rico deliberately undercut the PREPA restructuring deal in order to prove to US lawmakers that bankruptcy is the island’s only option? 

  Remember, Padilla has long said the PREPA deal shouldn’t be seen as an excuse for denying the island access to bankruptcy proceedings.

  We’ll leave it to readers to decide and simply close with a quote from the president of Puerto Rico’s Senate, Eduardo Bhatia.

  “PREPA had no incentives whatsoever to be efficient. This is incredible. Our power plants look like the cars in Cuba.”

  

  

  

  

  

• Sanders' Success Simplified

  Go Fish…

   

  

   

  Source: Townhall.com

  

  

  

  

  

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