Jul 03

Today’s News July 3, 2015

  • The German Press Does It Again: "Give Me The Money Or I Shoot"

    When a message needs to be sent by the powers that be, the German press can always be relied upon to send it, no matter how divisive (as they did here, here, and here). So it is no surprise that with the stakes appearing to have never been higher, Handelsblatt unleashes the following…

    Translated: “Give Me The Money Or I’ll Shoot”

     

    And this is how the Greeks promptly responded on Twitter…

    *  *  *

    Thank goodness they are all ‘partners’ in the ‘union’ of Europe…

  • Why Is the American Dream Dead In The South?

    Authored by Matthew O’Brien, originally posted at The Atlantic,

    The top 1 percent aren’t killing the American Dream. Something else is—if you live in the wrong place.

    Here’s what we know. The rich are getting richer, but according to a blockbuster new study that hasn’t made it harder for the poor to become rich. The good news is that people at the bottom are just as likely to move up the income ladder today as they were 50 years ago. But the bad news is that people at the bottom are just as likely to move up the income ladder today as they were 50 years ago.

    We like to tell ourselves that America is the land of opportunity, but the reality doesn’t match the rhetoric—and hasn’t for awhile. We actually have less social mobility than countries like Denmark. And that’s more of a problem the more inequality there is. Think about it like this: Moving up matters more when there’s a bigger gap between the rich and poor. So even though mobility hasn’t gotten worse lately, it has worse consequences today because inequality is worse.

    But it’s a little deceiving to talk about “our” mobility rate. There isn’t one or two or even three Americas. There are hundreds. The research team of Raj Chetty, Nathaniel Herndon, Patrick Kline, and Emmanuel Saez looked at each “commuting zone” (CZ) within the U.S., and found that the American Dream is still alive in some parts of the country. Kids born into the bottom 20 percent of households, for example, have a 12.9 percent chance of reaching the top 20 percent if they live in San Jose. That’s about as high as it is in the highest mobility countries. But kids born in Charlotte only have a 4.4 percent chance of moving from the bottom to the top 20 percent. That’s worse than any developed country we have numbers for.

    You can see what my colleague Derek Thompson calls the geography of the American Dream in the map below. It shows where kids have the best and worst chances of moving up from the bottom to the top quintile—and that the South looks more like a banana republic. (Note: darker colors mean there is less mobility, and lighter colors mean that there’s more).

    So what makes northern California different from North Carolina? Well, we don’t know for sure, but we do know what doesn’t. The researchers found that local tax and spending decisions explain some, but not too much, of this regional mobility gap. Neither does local school quality, at least judged by class size. Local area colleges and tuition were also non-factors. And so were local labor markets, including their share of manufacturing jobs and those facing cheap, foreign competition. But here’s what we know does matter. Just how much isn’t clear.

    1. Race. The researchers found that the larger the black population, the lower the upward mobility. But this isn’t actually a black-white issue. It’s a rich-poor one. Low-income whites who live in areas with more black people also have a harder time moving up the income ladder. In other words, it’s something about the places that black people live that hurts mobility.

    2. Segregation. Something like the poor being isolated—isolated from good jobs and good schools. See, the more black people a place has, the more divided it tends to be along racial and economic lines. The more divided it is, the more sprawl there is. And the more sprawl there is, the less higher-income people are willing to invest in things like public transit. 

    That leaves the poor in the ghetto, with no way out for their American Dreams. They’re stuck with bad schools, bad jobs, and bad commutes if they do manage to find better work. So it should be no surprise that the researchers found that racial segregation, income segregation, and sprawl are all strongly negatively correlated with upward mobility. But what might surprise is that it doesn’t matter whether the rich cut themselves off from everybody else. What matters is whether the middle class cut themselves off from the poor.

    3. Social Capital. Living around the middle class doesn’t just bring better jobs and schools (which help, but probably aren’t enough). It brings better institutions too. Things like religious groups, civic groups, and any other kind of group that keeps people from bowling alone. All of these are strongly correlated with more mobility—which is why Utah, with its vast Mormon safety net and services, is one of the best places to be born poor.

    4. Inequality. The 1 percent are different from you and me—they have so much more money that they live in a different world. It’s a world of $40,000 a year preschool, “nanny consultants,” and an endless supply of private tutors. It keeps the children of the super-rich from falling too far, but it doesn’t keep the poor from rising (at least into the top quintile). There just wasn’t any correlation between the rise and rise of the 1 percent and upward mobility. In other words, it doesn’t hurt your chances of making it into the top 80 to 99 percent if the super-rich get even richer.

    But inequality does matter within the bottom 99 percent. The bigger the gap between the poor and the merely rich (as opposed to the super-rich), the less mobility there is. It makes intuitive sense: it’s easier to jump from the bottom near the top if you don’t have to jump as far. The top 1 percent are just so high now that it doesn’t matter how much higher they go; almost nobody can reach them.

    5. Family Structure. Forget race, forget jobs, forget schools, forget churches, forget neighborhoods, and forget the top 1—or maybe 10—percent. Nothing matters more for moving up than who raises you. Or, in econospeak, nothing correlates with upward mobility more than the number of single parents, divorcees, and married couples. The cliché is true: Kids do best in stable, two-parent homes.

    It’s not clear what, if any, policy lessons we should take from this truism. As my colleague Jordan Weissmann points out, we don’t really have any idea how to promote marriage. We can try telling people how great it is to get hitched. We can even get rid of the marriage penalties some low-income couples face. But these won’t, and haven’t, been making more people exchange till-death-do-us-parts. And should we even want to? Steve Waldman points out that poor women know better than upper-middle-class people yelling at them to get married whether they should or not. They know whether their boyfriend would make a good husband, a good father, a good teacher. And they know that marriage is important. That they’re not getting married tells us something. Sometimes no match is better than a bad match.

    ***

    Flat mobility is the defining Rorschach test of our time. Conservatives look at it, and say, see, we shouldn’t worry about the top 1 percent, because they’re not making the American Dream any harder to achieve. But liberals look at it, and say see, we should care about inequality, because it can make the American Dream harder to achieve—and it raises the stakes if you don’t. But both want to increase upward mobility. It’s not enough to keep it where it was 50 years ago. We need to actually become the land of opportunity. 

    The American Dream is alive in Denmark and Finland and Sweden. And in San Jose and Salt Lake City and Pittsburgh. But it’s dead in Atlanta and Raleigh and Charlotte. And in Indianapolis and Detroit and Jacksonville. Fixing that isn’t just about redistribution. It’s about building denser cities, so the poor aren’t so segregated. About good schools that you don’t have to live in the right (and expensive) neighborhood to attend. And about ending a destructive drug war that imprisons and blights the job prospects of far too many non-violent offenders—further shrinking the pool of “marriageable” men.

    Because the American Dream is dead in too much of America.

  • Chinese Government "Losing Control": Stocks Are Collapsing, Hitting New Bear Market Lows

    As one local reporter put it, despite being told not to say anything negative, “the government appeared to have lost its ability to manage the market.” Chinese stocks are down 4-5% at the open, pressing new cycle lows with Shenzhen and CHINEXT now down 25% from last week.

    As The South China Morning Post reports, many investors said the government was at least partly to blame for the collapse because it encouraged them to go into the market – for months, state-owned media have issued daily commentaries to encourage people to load up on shares.

    And now the payback: even more utter carnage:

     

    The longer-term perspective:

    Leading to the local version of “brokers with hands on their faces”:

    As The South China Morning Post explains, a series of lifelines from Beijing failed to stop the slide in the mainland’s stock market on Thursday, with the key Shanghai Composite Index closing below the critical 4,000 mark for the first time in almost three months.

    Analysts warned that the nation’s leadership would pay dearly if it failed to stabilise the market and prevent millions of small investors from losing their life savings.

     

    “The government’s response to the fall confirms that it will use all the resources at its disposal to influence the market when things do not go the way it wants and potentially puts its legitimacy at risk,” said Steve Tsang, chair of the School of Contemporary Chinese Studies at the University of Nottingham.

     

    The China Securities Regulatory Commission said last night that the stock market had recorded a significant drop, and the commission would launch an investigation into suspected market manipulation. Those suspected of committing an offence would be handed over to public security agencies.

     

    …

     

    Since falling off a seven-year peak of 5,166.35 on June 12, the Shanghai index has lost about a quarter of its value, with the mainland equity markets heading into bear territory after fears of a tightening of margin lending induced a sharp correction.

     

    Turnover in Shanghai dropped to 732 billion yuan (HK$926 billion) on Thursday, down from 1.015 trillion yuan on Wednesday. More than 1,400 mainland stocks finished down, with large state-owned banks and oil majors the big exceptions. Shanghai-traded PetroChina rose 8.8 per cent to 11.68 yuan, while Sinopec gained 6 per cent to 7.18 yuan.

     

    All four big state-owned banks posted major gains as investors looked for safe havens.

     

    “The deleveraging process in the stock markets and the over-the-counter platforms trading shares and futures is ongoing, leading to a big price movement regardless of Beijing’s proactive monetary policies,” said Ben Kwong Man-bun, the head of research at brokerage KGI Asia.

     

    Those proactive policies included a fourth round of interest-rate cuts last weekend and the reduction in reserve requirements for some banks.

     

    Many investors said the government was at least partly to blame for the collapse because it encouraged them to go into the market. For months, state-owned media have issued daily commentaries to encourage people to load up on shares.

     

    Tsang said the government appeared to have lost its ability to manage the market.

     

    “Will the government be able to change market sentiment if its initial interventions prove ineffective? Time will tell,” he said.

     

    The central bank said it would pursue a prudent monetary policy and keep the economy growing at a “healthy” rate.

    And considering the HSBC Service PMI just plunged from 53.5 to 51.8, the lowest print of the year, that may be complicated especially if the government is truly helpless to halt the crashing stock market,

  • China Completes Airstrip On Reef, Builds Military Facility On Second Island

    China has reportedly completed an airstrip on Fiery Cross Reef, one of the islands Beijing has constructed in the South China Sea.

    Back in April, satellite images which appeared to show that construction had commenced on the runway set off alarm bells in the US and among Washington’s regional allies in the South Pacific. 

    Since then, China’s land reclamation efforts in the disputed waters around the Spratlys have sparked an international furor and touched off a war of words between Washington and Beijing, with the Pentagon assuring China that the US Navy will continue to operate as before in the region and the PLA claiming it will enforce a no-fly zone over the islands “if threatened.” 

    Although China recently claimed to have largely finished the dredging effort, construction atop the islands is moving forward and as Reuters reports, the airstrip on Fiery Cross, first spotted some three months ago, looks to be complete. Here’s more:

    China has almost finished building a 3,000-meter-long (10,000-foot) airstrip on one of its artificial islands in the disputed Spratly archipelago of the South China Sea, new satellite photographs of the area show.

     

    A U.S. military commander had told Reuters in May that the airstrip on Fiery Cross Reef could be operational by year-end, although the June 28 images suggest that could now be sooner.

     

    The airstrip will be long enough to accommodate most Chinese military aircraft, security experts have said, giving Beijing greater reach into the heart of maritime Southeast Asia.

     

    The latest photographs were taken by satellite imagery firm DigitalGlobe and published by the Asia Maritime Transparency Initiative (AMTI) at the Center for Strategic and International Studies in Washington. (amti.csis.org/)

     

    AMTI said the airstrip was being paved and marked, while an apron and taxiway had been added adjacent to the runway.

     

    Two helipads, up to 10 satellite communications antennas and one possible radar tower were visible on Fiery Cross Reef, it said. The images also showed a Chinese naval vessel moored in a port.

    Here’s the latest image and commentary on Fiery Cross from AMTI…

    As of June 28, 2015, China is expanding the construction of its island facilities on Fiery Cross Reef. The construction of a 3,000 meter airstrip is nearly complete. China continues to pave and mark the airstrip and an apron and taxiway have been added adjacent to the runway. Prior photos showed that a small lake existed in the middle of the island; this has since been filled in. Personnel are now visible walking around the island.A sensor array has also been constructed and additional support facilities are being built. Meanwhile, a naval vessel is moored in the port. The size of the island is estimated at 2,740,000 square meters. The island has a partially-developed port with nine temporary loading piers. The harbor area is approximately 630,000 square meters. Two helipads, up to 10 satellite communications antennas, and one possible radar tower are also visible. Also visible are two lighthouses and one cement plant.

     


     

    …and here’s more on Johnson South Reef

    South Johnson Reef was one of the first facilities to finish principal land reclamation. Since the seawalls have gone up, China has added a small port with limited berth space and two loading stations. The harbor area is approximately 3,000 square meters with an entrance 125 meters wide. There are two helipads on the reef and up to three satellite communications antennas. A large multi-level military facility is in the center of the reef with two possible radar towers under construction. Up to six security and surveillance towers are being built with four possible weapons towers also under construction. Agricultural facilities, a lighthouse, and a possible solar farm with 44 panels, in addition to two wind turbines, have been sighted.

     


    As for the Chinese foreign ministry’s contention that Beijing’s construction efforts are nearly complete, that remains to be seen and indeed, Reuters notes that construction is continuing on two nearby islets. Their names: “Subi” and “Mischief“.

    (Photo taken from Philippine military plane appears to show mischief at Mischief)

  • Government Trolls Are Using "Psychology-Based Influence Techniques" On YouTube, Facebook And Twitter

    Submitted by Michael Snyder via The End of The American Dream blog,

    Have you ever come across someone on the Internet that you suspected was a paid government troll?  Well, there is a very good chance that you were not imagining things.  Thanks to Edward Snowden, we now have solid proof that paid government trolls are using “psychology-based influence techniques” on social media websites such as YouTube, Facebook and Twitter.  Documents leaked by Snowden also reveal that government agents have been conducting denial-of-service attacks, flooding social media websites with thinly veiled propaganda and have been purposely attempting to warp public discourse online.  If we do not stand up and object to this kind of Orwellian behavior, it is only going to get worse and worse.

    In the UK, the Joint Threat Research Intelligence Group (JTRIG) is a specialized unit within the Government Communications Headquarters (GCHQ).  If it wasn’t for Edward Snowden, we probably still would never have heard of them.  This particular specialized unit is engaged in some very “questionable” online activities.  The following is an excerpt from a recent piece by Glenn Greenwald and Andrew Fishman…

    Though its existence was secret until last year, JTRIG quickly developed a distinctive profile in the public understanding, after documents from NSA whistleblower Edward Snowden revealed that the unit had engaged in “dirty tricks” like deploying sexual “honey traps” designed to discredit targets, launching denial-of-service attacks to shut down Internet chat rooms, pushing veiled propaganda onto social networks and generally warping discourse online.

    We are told that JTRIG only uses these techniques to go after the “bad guys”.

    But precisely who are the “bad guys”?

    It turns out that their definition of who the “bad guys” are is quite broad.  Here is more from Glenn Greenwald and Andrew Fishman…

    JTRIG’s domestic and law enforcement operations are made clear. The report states that the controversial unit “currently collaborates with other agencies” including the Metropolitan police, Security Service (MI5), Serious Organised Crime Agency (SOCA), Border Agency, Revenue and Customs (HMRC), and National Public Order and Intelligence Unit (NPOIU). The document highlights that key JTRIG objectives include “providing intelligence for judicial outcomes”; monitoring “domestic extremist groups such as the English Defence League by conducting online HUMINT”; “denying, deterring or dissuading” criminals and “hacktivists”; and “deterring, disrupting or degrading online consumerism of stolen data or child porn.”

    Particularly disturbing to me is the phrase “domestic extremist groups”.  What does someone have to say or do to be considered an “extremist”?  For example, the English Defence League is a non-violent street protest movement in the UK that is strongly against the spread of radical Islam and sharia law in the UK.  So if they are “extremists”, how many millions upon millions of ordinary citizens in the United States would fit that definition?

    When conducting operations against “extremists”, psychology-based influence techniques are among the tools that JTRIG uses to combat them online.  The following comes from one of the documents that was posted by Greenwald and Fishman…

    Psychology-Based Influence Techniques

    In other words, these government trolls try to mess with people’s minds.

    And here is another document that was posted by Greenwald and Fishman that talks about how JTRIG uses YouTube, Facebook and Twitter to accomplish their goals…

    Government Trolls

    It is very disturbing to think that some of the people that we may be interacting with on YouTube, Facebook and Twitter are actually paid government agents that are purposely trying to feed us propaganda and misinformation.

    And of course this kind of thing does not just happen in the United Kingdom.  In Canada, it has been publicly admitted that the government uses paid trolls to warp Internet discourse.  The following comes from Natural News…

    You’ve probably run into them before — those seemingly random antagonizers who always end up diverting the conversation in an online chat room or article comment section away from the issue at hand, and towards a much different agenda. Hot-button issues like illegal immigration, the two-party political system, the “war on terror” and even alternative medicine are among the most common targets of such attackers, known as internet “trolls” or “shills,” who in many cases are nothing more than paid lackeys hired by the federal government and other international organizations to sway and ultimately control public opinion.

     

    Several years ago, Canada’s CTV News aired a short segment about how its own government had been exposed for hiring secret agents to monitor social media and track online conversations, as well as the activities of certain dissenting individuals. This report, which in obvious whitewashing language referred to such activities as the government simply “weighing in and correcting” allegedly false information posted online, basically admitted that the Canadian government had assumed the role of secret online police.

    You can actually watch a video news report about what is happening up in Canada right here.

    Needless to say, the U.S. government is also engaged in this kind of activity as well.  For instance, the U.S. government has actually been caught manipulating discourse on Reddit and editing Wikipedia.  When it comes to spying, there is nobody that is off limits for our spooks.  It just came out recently that we even spied on three French presidents, and they are supposed to be our “friends”.

    And just like the UK, the U.S. government has a very broad definition of “extremists”.  This has especially been true since Barack Obama has been in the White House.  If you doubt this, please see my previous article entitled “72 Types Of Americans That Are Considered ‘Potential Terrorists’ In Official Government Documents“.

    All of this is very disturbing.  Why can’t they just leave us alone and let us talk to one another?  Why do they have to spy on everything that we do and purposely try to manipulate public discourse?  Why do they have to be such control freaks?

  • NSA Leak Reveals Both Merkel And Schauble Saw Greek Debt As Unsustainable Even After Haircut

    Several days ago, we posted a NSA cable leaked by Wikileaks, in which then French finance minister Moscovici (currently a European commissioner) was admitted that the French economic situation was “worse than anyone [could] imagine and drastic measures [would] have to be taken in the next two years.” It has not improved since then.   

    Overnight, in another perhaps even more relevant to the current quagmire in Greece leak, Wikileaks has released another intercepted NSA communication between German Chancellor Angela Merkel and her personal assistant reveals that not only Merkel, but Schauble, were well aware that even with a debt haircut (which took place in 2012 but only for private creditors and whose impact was promptly countered with the debt from the second bailout) Greek debt would be unsustainable. Technically, she did not use that word: she said that “Athens would be unable to overcome its problems even with an additional haircut, since it would not be able to handle the remaining debt.”

    She was right. And yet here she is, telling Tsipras and the Greek people that all Greece needs is to comply with the existing program when she knows well by her own admission that Greece is insolvent in its current state – precisely what Syriza is arguing and demanding be part of any deal.

    Because why bother making a deal if Greece will once again be in default a few months down the line, just as Varoufakis said earlier today.

    But where it gets really humorous is where the cable notes that even “Finance Minister Wolfgang Schaeuble alone continued to strongly back another haircut, despite Merkel’s efforts to rein him in… with IMF Managing Director Christine Lagarde described as undecided on the issue.”

    Fast forward to today and now Lagarde is decided, and the IMF admits a 30% Greek haircut is necessary. So, one wonders, why is Syriza getting hell for pushing what both Germany in 2011 and the IMF now admit has to happen in order to have a viable Greek nation. Unless, of course, they don’t want a viable Greek nation, and instead want a vassal state that is constantly on the brink of collapse and thus creating enough systemic risk to constantly push the EUR lower.

    Becuase, just in case anyone has forgotten, the real issue here is not the fate of Greece or even the rest of the PIIGS, but how can Germany continue enjoying a currency that is substantially weaker than what a far stronger, and export-crushing Deutsche Mark would be at this very moment.

    From Wikileaks:

    Eurozone Crisis: Merkel Uncertain on Solution to Greek Problems, Would Press U.S. and UK (TS//SI-G//OC/REL TO USA, FVEY)

     

    (TS//SI-G//OC/REL TO USA, FVEY) Discussing the Greek financial crisis with her personal assistant on 11 October, German Chancellor Angela Merkel professed to be at a loss as to which option–another haircut or a transfer union–would be best for addressing the situation. (The term “haircut” refers to the losses that private investors would incur on the current net value of their Greek bond holdings.) Merkel’s fear was that Athens would be unable to overcome its problems even with an additional haircut, since it would not be able to handle the remaining debt. Furthermore, she doubted that sending financial experts to Greece would be of much help in bringing the financial system there under control. Within the German cabinet, Finance Minister Wolfgang Schnaeuble alone continued to strongly back another haircut, despite Merkel’s efforts to rein him in, while France and European Commission President Jose Manuel Barroso were seen to be in favor of a gentler approach. European Central Bank President Jean-Claude Trichet was solidly opposed, with IMF Managing Director Christine Lagarde described as undecided on the issue. Finally, Merkel believed that action must be taken to enact a Financial Transaction Tax (FTT); doing so next year, she assessed, would be a major step toward achieving some balance in relief for banks. In that regard, the Germans thought that pressure could be brought to bear on the U.S. and British governments to help bring about an FTT.

     

    Unconventional

    Full pdf

  • Shale Drillers About To Be "Zero Hedged" As Loss Protection Expires

    In many ways, the US shale industry is emblematic of why failing to normalize monetary policy after seven years of largesse can be extremely dangerous.

    As discussed at length in these pages and then subsequently everywhere else, access to cheap cash via capital markets allows otherwise insolvent producers to keep drilling even as prices collapse, creating what are effectively zombie companies (to use Matt King’s words) on the way to delaying the Schumpeterian endgame and embedding an enormous amount of risk in HY credit by flooding the market with supply just as demand from investors (who are delirious from hunger after being starved of yield by the Fed) peaks and secondary market liquidity continues to dry up. 

    This dynamic has served to create a supply glut in a number of industries and has suppressed commodity prices in a self-feeding deflationary loop.

    Thanks to SEC rules on how drillers are required to value their reserves, producers are effectively forced to overstate the value of their O&G businesses by nearly two-thirds, which can lead unsophisticated investors who don’t bother to read the 10K fine print to believe that the businesses are healthier than they actually are.

    Furthermore, the next round of revolver raids for the industry isn’t due until October, meaning investors may also believe the industry has easier access to liquidity than it actually does. As a reminder:

    As if all of the above weren’t enough, there’s yet another reason why the shale default cascade has thus far been forestalled, giving many the impression that perhaps a “crude” awakening (pardon the terrible pun) has been averted: hedges.

    Here’s Bloomberg with more on why some US shale drillers may soon be zero hedged (ahem):

    The insurance protecting shale drillers against plummeting prices has become so crucial that for one company, SandRidge Energy Inc., payments from the hedges accounted for a stunning 64 percent of first-quarter revenue.

     

    Now the safety net is going away.

     

    The insurance that producers bought before the collapse in oil — much of which guaranteed minimum prices of $90 a barrel or more — is expiring. As they do, investors are left to wonder how these companies will make up the $3.7 billion the hedges earned them in the first quarter after crude sunk below $60 from a peak of $107 in mid-2014.

     

    “A year ago, you could hedge at $85 to $90, and now it’s in the low $60s,” said Chris Lang, a senior vice president with Asset Risk Management, a hedging adviser for more than 100 exploration and production companies. “Next year it’s really going to come to a head.”

     

    The hedges staved off an acute shortage of cash for shale companies and helped keep lenders from cutting credit lines, many of which are up for renewal in October. With drillers burdened by interest payments on $235 billion of debt, $89 billion of it high-yield, a U.S. regulator has warned banks to beware of the “emerging risk” of lending to energy companies.

     

    Payments from hedges accounted for at least 15 percent of first-quarter revenue at 30 of the 62 oil and gas companies in the Bloomberg Intelligence North America Exploration and Production Index. Revenue, already down 37 percent in the last year, will fall further as drillers cash out contracts that paid $90 a barrel even when oil fell below $44.

     

    For SandRidge and other drillers, the hedges, required by some lenders, gave them enough time to cut spending. Costs in shale fields have fallen by 20 to 30 percent and productivity has increased as producers moved rigs to the most prolific regions. Producers were able to raise about $44 billion in equity and debt in the first quarter, according to UBS AG.

     

    “That postponed the day of reckoning,” said Carl Tricoli, co-founder of private-equity firm Denham Capital Management.

     

    At Goodrich Petroleum Corp., hedges accounted for 35 percent of revenue in the first three months of 2015. Most of its insurance runs out at the end of the year, company records show.

    In short, the last line of defense against terminal cash burn for the beleagured US shale complex is about to fall and when it does, it’s going to take bank credit lines down with it.

    This means October is the expiration date for heavily indebted US drillers and perhaps for HY credit as well, because once the defaults begin in earnest and HY spreads start to blow out, the BTFD-ing retail crowd will head for the exits, triggering a very non-diversifiable, unidirectional flow for bond fund managers who will then be forced to hold their noses and dive into the ever-thinner secondary corporate credit market.

    It is precisely at that point when everyone’s worst nightmares about shrinking dealer inventories and illiquid credit markets will suddenly be realized.

  • Trading Stocks – It's Easier Than Farmwork… And Porn

    While the Chinese recently found out that making money from trading is, in fact, not “easier than farmwork,” it appears in America, trading stocks is back en vogue… Meet 2014 Playmate of the Year, Kennedy Summers, who has given it all up to become a day trader…

     

    Brings to mind the terms “all in” and “tight stops”…

  • JPMorgan Banker: "We Can't Make Money Anymore…"

    Submitted by Simon Black via Sovereign Man blog,

    Yesterday over coffee, a friend of mine leaked the news that JP Morgan’s private banking division here in Singapore is going to start charging negative interest rates.

    I almost fell out of my chair.

    He’s a successful hedge fund manager and one of their best customers. So when he received the notice, he rang up his private banker and demanded to know why.

    Between ridiculously low interest rates (banks are closing loans here for 0.9% or lower) and the increasing costs of compliance, “we can’t make money anymore…” was the response.

    It certainly paints a clear picture of how screwed up the entire financial system is.

    Compliance is a major component in this. Bankers around the world are buried up to their eyeballs in paperwork and regulations now.

    They can’t make a move or approve a single transaction without first doing anti-money laundering, terrorist financing, and tax evasion due diligence.

    Imagine it like this: your banker rings you up tomorrow and says,

    “The government of China requires us to have all of our depositors fill out this paperwork. So I need you to send this form back to me ASAP…”

    You’d probably think it was a joke.

    Or at a minimum think, “Wait, what? I’m not Chinese. You’re not a Chinese bank. Who cares about some stupid Chinese regulation?”

    And you’d be right.

    Except that’s precisely what the United States is doing right now.

    All over the world, bankers are contacting their customers and forcing them to fill out paperwork to comply with idiotic US government regulations. Even when there’s no connection to the US.

    Here in Singapore, the bankers are completely miserable about it.

    They’re so angry for having to call customers and say, “Yes I know you’re in India, and I know we’re in Singapore, and I know you’ve been a customer for 10 years. But you still have to fill out this US government form or else we’ll close your account.”

    It’s ridiculous– all of this because the US government is bankrupt.

    A few years ago they passed the Foreign Account Tax Compliance Act (FATCA)– a major part of their crusade to stamp out tax evasion and bring in more tax revenue.

    FATCA is now in full force. Banks all over the world have been forced to enter into information sharing agreements with the IRS, meaning that they have to report on all of their customers and force them to fill out meaningless forms.

    Needless to say, this costs a lot of money.

    If you own a business, you can just imagine how frustrating and expensive it would be to have your employees toil away on senseless paperwork instead of… you know, doing real business.

    The US government tells us that all of these disclosure programs have brought in about $6.5 billion in tax revenue.

    Yet the costs of compliance are estimated to cost at least $8 billion, with some estimates over 10x higher.

    Now that’s a neat trick. Uncle Sam gets the money and passes off the costs to everyone else.

    And those who don’t comply with America’s rules are destroyed.

    The most blatant example of this was last year, when a French bank was fined $9 billion for doing business with countries that Uncle Sam didn’t like.

    Bear in mind, this was a French bank, not an American bank.

    They violated no French laws. Yet they had to pay the US government $9 billion for doing business with places like Cuba.

    (Ironically, Cuba is now BFFs with the United States, but it’s not like the bank is going to get a refund.)

    More recently, the US government destroyed an Andorran bank that was accused of weak anti-money laundering controls.

    And a few years ago they took down the oldest private bank in Switzerland.

    Every bank in the world has seen these incidents, and they’re scared. They could be next.

    And that’s why you can’t get a single financial transaction done anymore without first submitting a mountain of paperwork to prove that you’re not a terrorist. Or financing terrorists. Or laundering money. Or doing business with the Axis of Evil.

    Even outside of banking it has become utterly ridiculous.

    A friend of mine here runs one of the largest bullion depositories in Singapore; he wanted to buy some raw gold and have it made into bars, so he contacted a refiner.

     

    The refiner said, “Sure no problem. I just need you to send us some compliance documentation before we get started.”

     

    Then he sent a list of no fewer than 22 items that he needed to submit– copies of licenses, passports, certificates, etc.

     

    22 items. Just to have a refiner make some gold bars. Ridiculous.

    So obviously they’re not going to waste their time. Which means there’s some business that could have been done, but won’t, simply because of the compliance costs.

    The US government has really screwed the world on this. Paperwork is the priority. Not business.

    And all because America is bankrupt.

    This trip to Singapore has been very eye-opening for me as I’m just now starting to understand how much people within the financial system despise the US government.

    They feel like they’re being forced at gunpoint to be volunteer spies and tax collectors, simply because US politicians have been financially irresponsible.

    And to me, it’s the biggest sign yet that America’s financial dominance is coming to an end. They’ve essentially engineered it themselves by alienating the whole world.

    The transition isn’t going to be smooth. And it won’t happen overnight. But there will come a time, and likely soon, when the United States gets displaced.

    And the rest of the world can hardly wait.

  • 17 Year Federal Judge Savages 'War On Drugs': "This Is A War I Saw Destroy Lives… Makes No Sense"

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    The “war on drugs” is one of the most irrational, idiotic and destructive public policy failures in American history, and that’s saying a lot. I’ve covered this topic many times at Liberty Blitzkrieg, but nothing spells it out like the repentant words of a former federal judge, who admittedly ruined countless lives for no reason.

    From the Atlantic:

    ASPEN, Colo.—Former Federal Judge Nancy Gertner was appointed to the federal bench by Bill Clinton in 1994. She presided over trials for 17 years. And Sunday, she stood before a crowd at The Aspen Ideas Festival to denounce most punishments that she imposed.

     

    Among 500 sanctions that she handed down, “80 percent I believe were unfair and disproportionate,” she said. “I left the bench in 2011 to join the Harvard faculty to write about those stories––to write about how it came to pass that I was obliged to sentence people to terms that, frankly, made no sense under any philosophy.”

     

    She went on to savage the War on Drugs at greater length. “This is a war that I saw destroy lives,” she said. “It eliminated a generation of African American men, covered our racism in ostensibly neutral guidelines and mandatory minimums… and created an intergenerational problem––although I wasn’t on the bench long enough to see this, we know that the sons and daughters of the people we sentenced are in trouble, and are in trouble with the criminal justice system.”

     

    She added that the War on Drugs eliminated the political participation of its casualties. “We were not leveling cities as we did in WWII with bombs, but with prosecution, prison, and punishment,” she said, explaining that her life’s work is now focused on trying to reconstruct the lives that she undermined––as a general matter, by advocating for reform, and as a specific project: she is trying to go through the list of all the people she sentenced to see who deserves executive clemency.

    Enough is enough. Let’s end this stupidity once and for all.

    *  *  *

  • Greek Banks To Run Out Of Physical Cash "In A Matter Of Days"

    Over the past several weeks we’ve documented the acute cash crunch that’s crippled the Greek banking sector and ultimately brought the country to its knees. 

    Since March, Greek banks have subsisted on a slow liquidity drip administered by the ECB through the Bank of Greece. Once Syriza swept to power on an anti-austerity platform in January, it quickly became clear to Mario Draghi that accepting collateral backed by the full faith and credit of the new Greek government in exchange for cash loans wasn’t a safe bet and so, the ECB shifted the burden to the Bank of Greece, making it more expensive for the Greek banking sector to obtain emergency funding. 

    As the crisis unfolded and Athens’ negotiations with creditors became increasingly contentious, Greek banks began to bleed cash. Eventually it became clear that the banks were relying entirely on the Eurosystem to meet outflows.

    Meanwhile, banknotes in circulation surged, as cash usage jumped 44%, prompting Barclays to note that “the amount of banknotes in excess of the quota for Greece represents a liability of the BoG to the Eurosystem.” Essentially, we said, Greece was quietly printing billions of euros.

    Now, with the ECB holding steady on the ELA cap and the banking system still hemorrhaging deposits despite the imposition of capital controls, Greek banks are running out of cash — literally.

    WSJ has more:

    How long the remaining cash lasts and how unsettled Greeks become will be big factors in Sunday’s referendum on creditors’ demands for more austerity in exchange for more bailout funds. The tighter the squeeze, the more Greeks might vote “yes” to reconcile with creditors, analysts say.

     

    As of Wednesday, Greece’s banking system had about €1 billion in cash left, according to a person familiar with the situation. Even with the €60-a-day limit on ATM withdrawals from Greek’s closed banks, “it’s a matter of a few days” until the money runs out, this person said.

     

    By Wednesday, many ATMs in central Athens had constant lines of people waiting to withdraw their daily limit. The crunch has suffused the economy. Merchants report lower spending. Wholesalers can’t pay for supplies. Importers’ foreign counterparts won’t trade.

     

    Greece’s cash crunch hit small merchants first. They are less able to get credit from their suppliers, especially those dealing in perishable products that are continually imported. Christos Georgiopoulos owns a gourmet supermarket in Plaka, a picturesque Athens neighborhood frequented by tourists. He sells Champagne and Russian crab legs.

     

    Nobody is buying. “I haven’t had a single customer in two days,” he said Wednesday. He is shutting down his shop and says he doesn’t know when he will reopen. He gave some crab legs to his workers and is taking some home. “I haven’t paid my staff and don’t know if and when I will,” he added.

     

    Cash is king. “Now you have almost every cardholder going to the ATM every day,” said Stefanos Kotronakis of payment-processing provider ACI Worldwide in Athens, which operates systems that drive ATMs. “Cash has a higher value now.”

     

    Ellie Tzortzi, a partner at a Vienna-based digital-design and market research firm, is flying to Athens this weekend to pay her employees here in cash. “The last time I traveled with a wad of cash to pay someone’s salary was 10 years ago in Kosovo,” she said.

    And AFP has more color on the crisis facing Greek businesses:

    Greece’s dive into financial uncertainty is forcing struggling businesses to take unusual steps to survive, including hoarding euros in cash.

     

    The government’s announcement it was closing banks this week to stem a panicked rush to withdraw money, left many ordinary Greeks high and dry.

     

    “I put aside as much cash as possible” in advance, said an Athens baker Taso Paraskevopoulos, who had expected the controls to be imposed as the country staggered towards a default on a debt repayment to the International Monetary Fund.

     

    “I sometimes need hundreds of euros a day to pay suppliers and expenses, I can’t allow myself to be caught short,” he said, making it quite clear he blames the radical left ruling party SYRIZA for the crisis.

     

    The capital controls forbid money transfers abroad, except by express permission from the Finance Ministry.

     

    Businesses which import their raw materials have been the hardest hit, says Vassilis Korkidis, head of the National Confederation of Hellenic Commerce (ESEE).

     

    As unease spreads, getting ones hands on cash has become a sort of national sport, with businesses from restaurants to car mechanics telling customers paying by card is no longer an option.

     

    And what if the crisis drags on? asked Sotiris Papantonopoulos, head of online insurance broker Insurancemarket, which employs 70 people.

     

    Launched in 2011 despite the financial crisis, the company was in expansion and had intended to take on other 60 people in the coming months, “but now everything is on hold,” said Papantonopoulos, visibly upset after having to ask some of his employees not to come to work this week.

     

    “If the measures remain in place for two months, well close, it’s over.”

    So there you have it. The unthinkable — which we have of course been warning about for months — is unfolding before Europe’s very eyes. 

    The crisis has officially moved beyond the negotiating table and has now manifested itself in a shortage of physical banknotes and the inability of Greek businesses to stock the shelves, leaving all of those who accused the tin foil hat crowd of fearmongering to look on in horror as the ATMs go dark, imports grind to a halt, and Greece rapidly descends into the Third World.

    This is no longer speculation, it is a stark reality, and as Constantine Michalos, the president of the Athens Chamber of Commerce and Industry told WSJ, “in one week, two weeks, three weeks, it will be finished.”

  • Church Elder Defrauds Investors With "Holy Spirit" Day Trading System

    Submitted by Daniel Drew via Dark-Bid.com,

    Holy Spirit

    While it remains unclear if the Holy Spirit was behind these trades, one thing is for sure: When Charles Erickson's investors opened their recent statements, they said, "Holy Shit!"

    As reported by Ponzi Tracker, Charles Erickson of Uxbridge, Massachusetts was looking for a way to supplement his retirement income. Despite having no day trading experience, Erickson jumped head first into the E-Mini Russell 2000 futures contract. In testimony provided to the Massachusetts Securities Division, he said,

    It's going to sound a little strange to you, but … I believe the Holy Spirit showed me this system.

    Apparently, the machinations of the Holy Spirit are proprietary. When asked for further disclosure, he said, "I don't want to give my system away." However, he certainly had no reservations about letting his investors give their money away. He promised them monthly returns of 4%. It seems like a small number, but annually, that's about 50%. The 25 "investors" were convinced, and they gave him $3.5 million.

    The plan started unraveling in 2013 when Erickson sustained significant trading losses. He eventually halted payments in September 2014, and in December, he told investors he had "zero capital and almost zero assets." Erickson later disclosed that the "system" did not generate returns every month and that he would use reserves to pay other investors during those situations, which is the definition of a Ponzi scheme.

    Optimistic investors should consider this as a bump in the road. Eventually, we will see a "Holy Spirit ETF" that will work out the kinks in Erickson's system, and we'll all be on the road to riches.

  • "There Are Obvious Signs Of Distress" In The Manufacturing Industry

    In April, we noted the NACM's comments that "there are big, big problems" underlying the economy as a surge in unfavorable factors suggested credit conditions were tightening dramatically (only to see that data revised away suddenly). June's data has confirmed this weakness with credit rejections soaring to their highest since 2009 with the biggest spike in 9 years, with NACM CEO Kuehl exclaiming, "There are some obvious signs of distress in the manufacturing community, as the expected wave of consumer demand has yet to manifest… companies that have been awaiting it are getting in trouble with their creditors."

    As NACM reports,

    “This has been a tale of two directions,” Kuehl noted. “On the one hand, there is some hope for better numbers in the future as the favorables look better than in a long while. However, the present is not so positive, as the unfavorables are worsening, which signals that many companies are not in the shape they would like to be and are falling behind in their obligations.”

    5 of the 6 unfavorable factors for Credit Managers weakened dramatically…

     

    Among the unfavorable factors in NACM's credit index, "Rejections" have soared…

     

    The bad news came with the index of unfavorable factors…

    The overall reading dove from 51.4 to 49.2, a point not seen in more than a year and a dubious trip into contraction territory for the first time since September’s 49.9.

     

    The sub-readings illustrate the problem. The category of “rejections of credit applications” slid into the contraction at 49.5. That is a dramatic and alarming trend that suggests some in the new applicants pool are far from creditworthy. The category of “accounts placed for collection” traveled a similar path, from 51.6 to 48.3—it’s the first time in the contraction zone in more than three years for the category. “There are some obvious signs of distress in the manufacturing community, as the expected wave of consumer demand has yet to manifest,” Kuehl said. “As such, companies that have been awaiting it are getting in trouble with their creditors.”

    And for those who still believe 2015 is on its way to escape velocity (because why else would The Fed think about raising rates)… it's not!

    “The year-over-year trend is not encouraging,” Kuehl said. “There has been a distinct downward slide, and it is apparent that conditions were far better in mid-2014 than they are now. That was neither expected nor wanted at this stage of a recovery.”

    As Kuehl concludes, rather ominously,

     “The overall sense is that the long-delayed recovery has been taking its toll, as businesses are finding it harder and harder to struggle on."

    As we noted previously, despite all the IPO fanfare and claims of liquidity styill flowing, the big news is access to credit. It is suddenly very hard to get and this looks like the situation that existed at the start of the recession in 2008. The overall economy didn’t look all that bad in late 2008, except that there was a dearth of credit and that soon led to business failures and struggles.

    The pattern is the same whether one is discussing the manufacturing or service side—too many seeking credit that are not going to get what they are seeking—either because there are doubts as to their credit status or because those issuing credit are in a very cautious mood.

  • How Greece Has Fallen Victim To "Economic Hit Men"

    "Greece is being 'hit', there's no doubt about it," exclaims John Perkins, author of Confessions of an Economic Hit Man, noting that "[Indebted countries] become servants to what I call the corporatocracy … today we have a global empire, and it's not an American empire. It's not a national empire… It's a corporate empire, and the big corporations rule."

     

    Via Truth-Out.org,

    John Perkins, author of Confessions of an Economic Hit Man, discusses how Greece and other eurozone countries have become the new victims of "economic hit men."

    John Perkins is no stranger to making confessions. His well-known book, Confessions of an Economic Hit Man, revealed how international organizations such as the International Monetary Fund (IMF) and the World Bank, while publicly professing to "save" suffering countries and economies, instead pull a bait-and-switch on their governments: promising startling growth, gleaming new infrastructure projects and a future of economic prosperity – all of which would occur if those countries borrow huge loans from those organizations. Far from achieving runaway economic growth and success, however, these countries instead fall victim to a crippling and unsustainable debt burden.

    That's where the "economic hit men" come in: seemingly ordinary men, with ordinary backgrounds, who travel to these countries and impose the harsh austerity policies prescribed by the IMF and World Bank as "solutions" to the economic hardship they are now experiencing. Men like Perkins were trained to squeeze every last drop of wealth and resources from these sputtering economies, and continue to do so to this day. In this interview, which aired on Dialogos Radio, Perkins talks about how Greece and the eurozone have become the new victims of such "economic hit men."

    Michael Nevradakis: In your book, you write about how you were, for many years, a so-called "economic hit man." Who are these economic hit men, and what do they do?

    John Perkins: Essentially, my job was to identify countries that had resources that our corporations want, and that could be things like oil – or it could be markets – it could be transportation systems. There're so many different things. Once we identified these countries, we arranged huge loans to them, but the money would never actually go to the countries; instead it would go to our own corporations to build infrastructure projects in those countries, things like power plants and highways that benefitted a few wealthy people as well as our own corporations, but not the majority of people who couldn't afford to buy into these things, and yet they were left holding a huge debt, very much like what Greece has today, a phenomenal debt.

    "[Indebted countries] become servants to what I call the corporatocracy … today we have a global empire, and it's not an American empire. It's not a national empire … It's a corporate empire, and the big corporations rule."

    And once [they were] bound by that debt, we would go back, usually in the form of the IMF – and in the case of Greece today, it's the IMF and the EU [European Union] – and make tremendous demands on the country: increase taxes, cut back on spending, sell public sector utilities to private companies, things like power companies and water systems, transportation systems, privatize those, and basically become a slave to us, to the corporations, to the IMF, in your case to the EU, and basically, organizations like the World Bank, the IMF, the EU, are tools of the big corporations, what I call the "corporatocracy."

    And before turning specifically to the case of Greece, let's talk a little bit more about the manner in which these economic hit men and these organizations like the IMF operate. You mentioned, of course, how they go in and they work to get these countries into massive debt, that money goes in and then goes straight back out. You also mentioned in your book these overly optimistic growth forecasts that are sold to the politicians of these countries but which really have no resemblance to reality.

    Exactly, we'd show that if these investments were made in things like electric energy systems that the economy would grow at phenomenally high rates. The fact of the matter is, when you invest in these big infrastructure projects, you do see economic growth, however, most of that growth reflects the wealthy getting wealthier and wealthier; it doesn't reflect the majority of the people, and we're seeing that in the United States today.

    "In the case of Greece, my reaction was that 'Greece is being hit.' There's no question about it."

    For example, where we can show economic growth, growth in the GDP, but at the same time unemployment may be going up or staying level, and foreclosures on houses may be going up or staying stable. These numbers tend to reflect the very wealthy, since they have a huge percentage of the economy, statistically speaking. Nevertheless, we would show that when you invest in these infrastructure projects, your economy does grow, and yet, we would even show it growing much faster than it ever conceivably would, and that was only used to justify these horrendous, incredibly debilitating loans.

    Is there a common theme with respect to the countries typically targeted? Are they, for instance, rich in resources or do they typically possess some other strategic importance to the powers that be?

    Yes, all of those. Resources can take many different forms: One is the material resources like minerals or oil; another resource is strategic location; another resource is a big marketplace or cheap labor. So, different countries make different requirements. I think what we're seeing in Europe today isn't any different, and that includes Greece.

    What happens once these countries that are targeted are indebted? How do these major powers, these economic hit men, these international organizations come back and get their "pound of flesh," if you will, from the countries that are heavily in debt?

    By insisting that the countries adopt policies that will sell their publicly owned utility companies, water and sewage systems, maybe schools, transportation systems, even jails, to the big corporations. Privatize, privatize. Allow us to build military bases on their soil. Many things can be done, but basically, they become servants to what I call the corporatocracy. You have to remember that today we have a global empire, and it's not an American empire. It's not a national empire. It doesn't help the American people very much. It's a corporate empire, and the big corporations rule. They control the politics of the United States, and to a large degree they control a great deal of the policies of countries like China, around the world.

    John, looking specifically now at the case of Greece, of course you mentioned your belief that the country has become the victim of economic hit men and these international organizations . . . what was your reaction when you first heard about the crisis in Greece and the measures that were to be implemented in the country?

    I've been following Greece for a long time. I was on Greek television. A Greek film company did a documentary called "Apology of an Economic Hit Man," and I also spent a lot of time in Iceland and in Ireland. I was invited to Iceland to help encourage the people there to vote on a referendum not to repay their debts, and I did that and encouraged them not to, and they did vote no, and as a result, Iceland is doing quite well now economically compared to the rest of Europe. Ireland, on the other hand: I tried to do the same thing there, but the Irish people apparently voted against the referendum, though there's been many reports that there was a lot of corruption.

    "That's part of the game: convince people that they're wrong, that they're inferior. The corporatocracy is incredibly good at that."

    In the case of Greece, my reaction was that "Greece is being hit." There's no question about it. Sure, Greece made mistakes, your leaders made some mistakes, but the people didn't really make the mistakes, and now the people are being asked to pay for the mistakes made by their leaders, often in cahoots with the big banks. So, people make tremendous amounts of money off of these so-called "mistakes," and now, the people who didn't make the mistakes are being asked to pay the price. That's consistent around the world: We've seen it in Latin America. We've seen it in Asia. We've seen it in so many places around the world.

    This leads directly to the next question I had: From my observation, at least in Greece, the crisis has been accompanied by an increase in self-blame or self-loathing; there's this sentiment in Greece that many people have that the country failed, that the people failed . . . there's hardly even protest in Greece anymore, and of course there's a huge "brain drain" – there's a lot of people that are leaving the country. Does this all seem familiar to you when comparing to other countries in which you've had personal experience?

    Sure, that's part of the game: convince people that they're wrong, that they're inferior. The corporatocracy is incredibly good at that, whether it is back during the Vietnam War, convincing the world that the North Vietnamese were evil; today it's the Muslims. It's a policy of them versus us: We are good. We are right. We do everything right. You're wrong. And in this case, all of this energy has been directed at the Greek people to say "you're lazy; you didn't do the right thing; you didn't follow the right policies," when in actuality, an awful lot of the blame needs to be laid on the financial community that encouraged Greece to go down this route. And I would say that we have something very similar going on in the United States, where people here are being led to believe that because their house is being foreclosed that they were stupid, that they bought the wrong houses; they overspent themselves.

    "We know that austerity does not work in these situations."

    The fact of the matter is their bankers told them to do this, and around the world, we've come to trust bankers – or we used to. In the United States, we never believed that a banker would tell us to buy a $500,000 house if in fact we could really only afford a $300,000 house. We thought it was in the bank's interest not to foreclose. But that changed a few years ago, and bankers told people who they knew could only afford a $300,000 house to buy a $500,000 house.

    "Tighten your belt, in a few years that house will be worth a million dollars; you'll make a lot of money" . . . in fact, the value of the house went down; the market dropped out; the banks foreclosed on these houses, repackaged them, and sold them again. Double whammy. The people were told, "you were stupid; you were greedy; why did you buy such an expensive house?" But in actuality, the bankers told them to do this, and we've grown up to believe that we can trust our bankers. Something very similar on a larger scale happened in so many countries around the world, including Greece.

    In Greece, the traditional major political parties are, of course, overwhelmingly in favor of the harsh austerity measures that have been imposed, but also we see that the major business and media interests are also overwhelmingly in support. Does this surprise you in the slightest?

    No, it doesn't surprise me and yet it's ridiculous because austerity does not work. We've proven that time and time again, and perhaps the greatest proof was the opposite, in the United States during the Great Depression, when President Roosevelt initiated all these policies to put people back to work, to pump money into the economy. That's what works. We know that austerity does not work in these situations.

    "What I didn't realize during any of this period was how much corporatocracy does not want a united Europe."

    We also have to understand that, in the United States for example, over the past 40 years, the middle class has been on the decline on a real dollar basis, while the economy has been increasing. In fact, that's pretty much happened around the world. Globally, the middle class has been in decline. Big business needs to recognize – it hasn't yet, but it needs to recognize – that that serves nobody's long-term interest, that the middle class is the market. And if the middle class continues to be in decline, whether it's in Greece or the United States or globally, ultimately businesses will pay the price; they won't have customers. Henry Ford once said: "I want to pay all my workers enough money so they can go out and buy Ford cars." That's a very good policy. That's wise. This austerity program moves in the opposite direction and it's a foolish policy.

    In your book, which was written in 2004, you expressed hope that the euro would serve as a counterweight to American global hegemony, to the hegemony of the US dollar. Did you ever expect that we would see in the European Union what we are seeing today, with austerity that is not just in Greece but also in Spain, Portugal, Ireland, Italy, and also several other countries as well?

    What I didn't realize during any of this period was how much corporatocracy does not want a united Europe. We need to understand this. They may be happy enough with the euro, with one currency – they are happy to a certain degree by having it united enough that markets are open – but they do not want standardized rules and regulations. Let's face it, big corporations, the corporatocracy, take advantage of the fact that some countries in Europe have much more lenient tax laws, some have much more lenient environmental and social laws, and they can pit them against each other.

    "[Rafael Correa] … has to be aware that if you stand up too strongly against the system, if the economic hit men are not happy, if they don't get their way, then the jackals will come in and assassinate you or overthrow you in a coup."

    What would it be like for big corporations if they didn't have their tax havens in places like Malta or other places? I think we need to recognize that what the corporatocracy saw at first, the solid euro, a European union seemed like a very good thing, but as it moved forward, they could see that what was going to happen was that social and environmental laws and regulations were going to be standardized. They didn't want that, so to a certain degree what's been going on in Europe has been because the corporatocracy wants Europe to fail, at least on a certain level.

    You wrote about the examples of Ecuador and other countries, which after the collapse of oil prices in the late '80s found themselves with huge debts and this, of course, led to massive austerity measures . . . sounds all very similar to what we are now seeing in Greece. How did the people of Ecuador and other countries that found themselves in similar situations eventually resist?

    Ecuador elected a pretty remarkable president, Rafael Correa, who has a PhD in economics from a United States university. He understands the system, and he understood that Ecuador took on these debts back when I was an economic hit man and the country was ruled by a military junta that was under the control of the CIA and the US. That junta took on these huge debts, put Ecuador in deep debt; the people didn't agree to that. When Rafael Correa was democratically elected, he immediately said, "We're not paying these debts; the people did not take on these debts; maybe the IMF should pay the debts and maybe the junta, which of course was long gone – moved to Miami or someplace – should pay the debts, maybe John Perkins and the other economic hit men should pay the debts, but the people shouldn't."

    And since then, he's been renegotiating and bringing the debts way down and saying, "We might be willing to pay some of them." That was a very smart move; it reflected similar things that had been done at different times in places like Brazil and Argentina, and more recently, following that model, Iceland, with great success. I have to say that Correa has had some real setbacks since then . . . he, like so many presidents, has to be aware that if you stand up too strongly against the system, if the economic hit men are not happy, if they don't get their way, then the jackals will come in and assassinate you or overthrow you in a coup. There was an attempted coup against him; there was a successful coup in a country not too far away from him, Honduras, because these presidents stood up.

    We have to realize that these presidents are in very, very vulnerable positions, and ultimately we the people have to stand up, because leaders can only do a certain amount. Today, in many places, leaders are not just vulnerable; it doesn't take a bullet to bring down a leader anymore. A scandal – a sex scandal, a drug scandal – can bring down a leader. We saw that happen to Bill Clinton, to Strauss-Kahn of the IMF; we've seen it happen a number of times. These leaders are very aware that they are in very vulnerable positions: If they stand up or go against the status quo too strongly, they're going to be taken out, one way or another. They're aware of that, and it behooves we the people to really stand up for our own rights.

    You mentioned the recent example of Iceland . . . other than the referendum that was held, what other measures did the country adopt to get out of this spiral of austerity and to return to growth and to a much more positive outlook for the country?

    It's been investing money in programs that put people back to work and it's also been putting on trial some of the bankers that caused the problems, which has been a big uplift in terms of morale for the people. So Iceland has launched some programs that say "No, we're not going to go into austerity; we're not going to pay back these loans; we're going to put the money into putting people back to work," and ultimately that's what drives an economy, people working. If you've got high unemployment, like you do in Greece today, extremely high unemployment, the country's always going to be in trouble. You've got to bring down that unemployment, you've got to hire people. It's so important to put people back to work. Your unemployment is about 28 percent; it's staggering, and disposable income has dropped 40 percent and it's going to continue to drop if you have high unemployment. So, the important thing for an economy is to get the employment up and get disposable income back up, so that people will invest in their country and in goods and services.

    In closing, what message would you like to share with the people of Greece, as they continue to experience and to live through the very harsh results of the austerity policies that have been implemented in the country for the past three years?

    I want to draw upon Greece's history. You're a proud, strong country, a country of warriors. The mythology of the warrior to some degree comes out of Greece, and so does democracy! And to realize that the marketplace is a democracy today, and how we spend our money is casting our ballot. Most political democracies are corrupt, including that of the United States. Democracy is not really working on a governmental basis because the corporations are in charge. But it is working on a market basis. I would encourage the people of Greece to stand up: Don't pay off those debts; have your own referendums; refuse to pay them off; go to the streets and strike.

    And so, I would encourage the Greek people to continue to do this. Don't accept this criticism that it's your fault, you're to blame, you've got to suffer austerity, austerity, austerity. That only works for the rich people; it does not work for the average person or the middle class. Build up that middle class; bring employment back; bring disposable income back to the average citizen of Greece. Fight for that; make it happen; stand up for your rights; respect your history as fighters and leaders in democracy, and show the world!

  • Jobs Jolt Sparks Bond Bid; Stocks Skid As "Day Of Greckoning" Looms

    A little premature but…

     

    Deja Vu all over again…

     

    Greece still doesn't matter…

     

    Stocks limped higher into the payroll print – running stops above yesterday's highs… then dropped to yesterday's lows before trying to melt up into the last illiqui hour…

     

    Small Caps were weak out of the gate today…

     

    On the week, Small Caps are worst…

     

    But since the peak of "Greece is rescued" last weekend, Trannies are the biggest loser…

     

    Bonds rallied on the weaker than expected payrolls data, stocks slowly caught down, accelerated by the comments by The IMF…

     

    European risk is now double that of American stocks – the highest spread in 13 years…

     

    Social media darlings continue to take it on the chin (not Yelp's big dump today)…

     

    Bond yields ripped lower on the jobs data, stabilized then squeezed into the close… NOTE that 30Y tagged unchanged perfectly before payrolls snapped yields lower…

     

    The US Dollar drifted sideways to lower with a jolt lower on the jobs data…

     

    Commodities were mixed but had some precious metal turmoil aroun dthe jobs data…

     

    Gold & Silver ended the week lower after a number of crazy moves…

     

    Crude was whipsawed as rig count increases and Iran Deal rumors dominated any BTFD hopes… on target for the worst week in 4 months – lowest weekly close sicnce April 17th

     

     

    Charts: Bloomberg

    Bonus Chart: Feeling spooked?

     

  • "It Could Never Happen Here" – America Is Not Greece

    Tick, tock… "it could never happen here?"

     

    Source: Townhall.com

    But as Jared "The 10th Man" Dillian writes on MauldinEconomics, a financial crisis of similar magnitude will happen in the US someday… it's just a matter of when…

    I was watching the 6 o’clock news and saw images of closed banks in Greece and people lined up at ATMs. I’m sure you did, too.

    This must seem surreal to most people because it seems so remote. But put yourself in these people’s shoes for a second. You have money in the bank. Suddenly you can’t get to it. After standing in long lines, you can only get 60 euros at a time, which isn’t going to last you very long.

    What if you didn’t plan adequately and haven’t stashed away any cash? The banks will be closed for a while. What happens?

    How do you pay for rent? Or food?

    How does your employer pay you?

    Do you go homeless? Or hungry?

    Do you get really angry, take to the streets, blame someone or something (probably the wrong thing), break stuff, set things on fire?

    Will Greece descend into anarchy?

    It might.

    Doomsday Preppers

    Of course, not everyone in Greece is hurting. Many people saw this coming and took action. They took all their money out of the banks, put it under the mattress, or maybe stored it in a safe. Maybe they bought gold, or diamonds, or something else. These people aren’t standing in lines at ATMs. They aren’t going to go homeless or hungry.

    But these people get a pretty bad rap—at least here in the US, where we call them “doomsday preppers.” Or “bunker monkeys.” Or “conspiracy theorists.” Or “gold bugs.” They take a beating.

    Jim Rickards tweeted the other day, “I’ll bet there a lot of Greeks saying, ‘I wish I had bought some gold.’” Truer words have never been spoken.

    This week’s issue of The 10th Man is not a gold promotion, but rather a broader discussion about how you can prepare for financial catastrophe. People keep fire extinguishers and first aid kits in their cars. They test their smoke alarms twice a year. They purchase flood insurance or, in my neighborhood, hurricane shutters.

    Why would you do all these things but just leave your money in the bank and hope for the best?

    I have studied all kinds of financial crises in all parts of the world, from depressions to hyperinflations. The thing they all have in common is that people who do not prepare get crushed. People who are not appropriately paranoid get crushed.

    There is such a thing as being too paranoid (if everything you own is in gold and hard assets, you can miss out on some meaty returns in financial assets), but a little paranoia is healthy. For a few years, I had a pretty concrete escape plan, with assets, just in case.

    In case of what?

    In case of anything.

    No Sympathy Whatsoever

    I don’t feel sorry for Greece. I don’t feel sorry for the people in the ATM lines. They have had years to prepare for this day. Most people in similar situations don’t have so much time. I’m shocked that the banks had any deposits left at all.

    Probably what will happen is that the banks will require a Cyprus-like bail-in and the depositors will take a massive haircut, getting only a fraction of what they once owned. There are no wealthy Russians to go after. The burden will fall on ordinary Greeks.

    It’s also hard to feel badly for a nation of people who have chosen to pursue this ruinous political path—people who cast 52% of their votes for communists or neo-Nazis, and who have proven completely unable to take any responsibility for what has transpired.

    Greece will probably respond to the failure of extreme-left Syriza by electing even more extreme politicians. It seems likely that they will choose a strongman to “get things done.” I think people fail to understand how totalitarianism can happen in the 21st century. Think of this as a YouTube tutorial video on the subject.

    Full Faith and Credit

    A financial crisis of similar magnitude will happen in the US someday. The only question is whether it will happen in 20 years or 50 or 100 or 200. But it is a virtual certainty. My only hope is that I won’t live long enough to see it.

    Still, I know how to prepare for it. You know, in the old days before deposit insurance, people used to keep their money in five to ten different banks to diversify their counterparty risk. If a bank was perceived to be less creditworthy, the banknotes would trade at a discount.

    I think that in the days of FDIC and various investor protections, we are lulled to sleep, believing that things really are safe when in reality, they are not. We were hours away from a complete and total financial collapse when the Reserve Primary fund broke the buck and there was a run on the money market mutual funds. We were that close.

    After those dark days in 2008, I vowed that I’d never be in that position again.

    You do sacrifice investment returns when you do this kind of stuff. Cash or gold or diamonds doesn’t yield anything. But then again, nowadays, neither do bonds. Don’t let the financial media shame you into thinking that taking basic emergency precautions to protect yourself financially is somehow “crazy.”

    You can overdo it, though. You don’t need that many cans of pork and beans.

  • Did The IMF Just Open Pandora's Box?

    By now it should be clear to all that the only reason why Germany has been so steadfast in its negotiating stance with Greece is because it knows very well that if it concedes to a public debt reduction (as opposed to haircut on debt held mostly by private entities such as hedge funds which already happened in 2012), then the rest of the PIIGS will come pouring in: first Italy, then Spain, then Portugal, then Ireland.

    The problem is that while it took Europe some 5 years to transfer a little over €200 billion in Greek private debt exposure to the public balance sheet (by way of the ECB, EFSF, ESM and countless other ad hoc acronyms) at a cost of countless summits and endless negotiations, which may or may not result with the first casualty of the common currency which may prove to be reversible as soon as next week, nobody in Europe harbors any doubt that the same exercise can be repeated with Italy, or Spain, or even Portugal. They are just too big (and their nonperforming loans are in the hundreds of billions).

    And yet, today, in a stunning display of the schism within the Troika, it was the IMF itself which explicitly stated that Greece is no longer viable unless there is both additional funding provided to the country, which can only happen if there is another massive debt haircut.

    This is what the IMF said:

    Even with concessional financing through 2018, debt would remain very high for decades and highly vulnerable to shocks. Assuming official (concessional) financing through end–2018, the debt-to-GDP ratio is projected at about 150 percent in 2020, and close to 140 percent in 2022 (see Figure 4ii). Using the thresholds agreed in November 2012, a haircut that yields a reduction in debt of over 30 percent of GDP would be required to meet the November 2012 debt targets. With debt remaining very high, any further deterioration in growth rates or in the mediumterm primary surplus relative to the revised baseline scenario discussed here would result in significant increases in debt and gross financing needs (see robustness tests in the next section below). This points to the high vulnerability of the debt dynamics.

    And the kicker:

    • “these new financing needs render the debt dynamics unsustainable.”

    Bingo, because that is, in a nutshell, precisely what Tsipras and Varoufakis have been claiming since day one. As expected, a Greek government spokesman promptly said that the IMF report is in line with the Greek government’s view on debt.

    What makes the IMF report even more odd, is not so much its content and position which have been largely known for quite some time now, but its timing: just three days before the Sunday referendum, Tsipras now has prima facie evidence to wave in front of the Greek people and say “see, we were right all along.”

    It is exactly the case that only a “No” vote at this point would allow Greece to continue a negotiation which has already seen one of the three Troika members side with the Greek position. Should Greece vote “Yes”, it will make any future negotiation with the Troika impossible, and while the country will get a few months respite the resultant bank run after the bank reopen with the ECB’s blessing will mean that all Greece will do is buy itself a few months time. Only this time all the debt will still be due.

    And, should hey vote “Yes”, this time the Greeks will only have themselves to blame for all the future pain, pain which will continue well after the mid-point of this century.

    But ignoring Greece for a minute, what the IMF’s “debt sustainability analysis” has just done is open the door for every single other comparably insolvent peripheral European nation to knock on Christine Lagarde’s door and politely ask: “Mme Lagarde, if Greece is unsustainable, then why aren’t we?“

    Because as the chart below shows, the debt situations of all the other peripheral European nations is just as “unsustainable.”

     

    In this way, while the outcome of the Greek situation is currently unknown, it has also become moot, because at this very moment, politicians from Spain’s Podemos to Italy’s Five Star movement are drafting memos demanding that the IMF evaluate their own debt sustainability. Or rather unsustainability.

    Perhaps more importantly, these same politicians will now dangle the prospect of an IMF admission that they, too, deserve a haircut as the catalyst to be elected into power. After all who can refuse that their life would be made so much better if only the country was permitted to selectively “default” on €50, €100, €200 billion or more in debt? Just elect this politician, or that, and watch your living standard soar…

    And since the IMF has no choice but to agree that just like Greece all these nations are accordingly drowning in debt, Syriza’s sacrifice (assuming Tsipras fails to outnegotiate Merkel) will not have been in vain. In fact, it may very well end up that today the IMF opened up the Pandora’s box, one which, more than a Grexit, will destroy Merkel’s “united Europe” legacy.

  • Friday Humor: How To Use A Fax Machine

    Hillary Clinton figuring out how to work a fax machine… and this is who may become America’s next President?

     

  • China State Official Hints Beijing May Bailout Greece

    On Monday, after Greek PM Alexis Tsipras’ dramatic referendum call sparked a run on Greek ATMs, grocery stores, and gas stations, we did our part to help ameliorate the situation by sending a subtle message to Athens:

    Indeed, now may be an opportune time to tap Beijing for a few billion given that China officially launched the AIIB this week. As a reminder, the success of China’s AIIB membership drive was a political disaster for The White House, which expended considerable effort to discourage US allies from supporting the new China-led venture.

    As such, it would be difficult to imagine a more fitting pilot program for the world’s newest supranational lender than a rescue package for the birthplace of Western democracy which has been brought to its knees by that most Western of all multilateral institutions, the IMF. 

    And while any funding to Greece from China would likely be channeled through the Silk Road fund (at least for now, given that the AIIB is just a few days old, officially), any aid from Xi Jingping’s deep pockets to Athens would represent a spectacular coup on both an economic and political level.

    While the world is by now likely incredulous about the prospects for a Greek “Eastern” pivot (around a half dozen Russian headfakes have made us somewhat numb to the idea), Chinese assistance might be more likely than Europe cares to admit. Sputnik News has more:

    China may help Greece directly through its new financial instruments, director of the Quantitative Finance Department at China’s Institute of Quantitative and Technical Economics told Sputnik China.

     

    Goldman Sachs predicted in a report published on Wednesday that in a worst-case scenaria China’s exports would decline 2.2 percent as a result of Greece’s economic crisis. Other than exports to Greece itself, the crisis could also hurt the economies of nearby countries, where Chinese businessmen have also made considerable investments.

     

    “The Greek crisis has an undoubtedly seriously influence on China’s trade with Greece and investment into the country. But I think that European countries together with China can help Greece overcome the problems that arose,” Fan Mingtao said.

     

    “I believe there are two ways to give Greece Chinese aid. First, within the framework of the international aid through EU countries. Second, China could aid Greece directly. Especially considering the Silk Road Economic Belt and the Asian Infrastructure Investment Bank. China has this ability,” Fan added.

    And while it’s impossible to overstate how hilariously ironic it is that Communist China could be the world’s best hope for preventing the birthplace of Western civilization from careening into the Third World, there’s a more subtle joke here as well. We’ll let readers discern what that joke is with the help of the following graphic:

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