by Zero Hedge - June 30th, 2016 3:05 pm
Money, generally accepted medium of exchange, acts as a veil that confuse and blurs economic relations. This is especially true when it comes to intertemporal considerations. Whilst probably the most important institution in a free market, money can be highly destructive when politicized. Why? Because politics is about power and distribution of real wealth. And since money affect almost every single transaction, politics can span throughout society with ease when in control of money. Amchel Rothschild was spot on when he allegedly said “[g]ive me control of a nation’s money supply, and I care not who makes its laws.” Power over money is power over people and power over people is, well, pure power. Money is thus the most sacred tool in a statist’s toolbox and has become instrumental in their quest to control society and allocate resources as they see fit.
It is within this context the monstrosity called the euro need to be analyzed. By pooling Western European countries within the realm of one central bank, power over people increases immensely. There is a catch though; as power increases, greed and corruption increases with it and the temptation to go too far is obvious for all to see.
Money coordinates production with consumption, saving with investment and properly done, money will create the means for a smooth flow of resources among the millions or even billions of people transacting with each other. Politicize money and economic imbalances, between economic agents and even over time, will grow and destabilize the system. It is no exaggeration to say that the welfare and prosperity of the populace depends on a well-functioning monetary system.
The most important function money has, in our view, is its ability to create recessions, or as we like to call it, disruptions of unsustainable resource flows. In a sound system, money will make sure recession occur before the imbalance will even be felt by the broader public. Sound money will remove tensions in fault lines before they turn into a massive earthquake with devastating consequences. However, it is true that economic imbalances can be fed for years if sound money is replaced with a politicized fiduciary medium. And herein lies the crux of the problem, no power hungry politician will voluntarily end the economic prosperity a boom
by Zero Hedge - June 30th, 2016 2:47 pm
CLSA’s Chris Wood, author of the popular Greed and Fear newsletter, chimes in on the consequences for Brexit with a note titled “Disintegration Dynamic” in which he focuses not so much on Britain as Italy and specifically the proposed Italian bailout which was first reported here and which circumvents European bailout rules, however which Renzi hopes will pass as a result of scapegoating Brexit (even if Angela Merkel was quick to shut down).
This is what he says, excerpted:
GREED & fear continues to believe that the real flash point in the EU is likely to be Italy. GREED & fear was reminded of this reading this week that Italian Prime Minister Matteo Renzi is now seeking Europe’s agreement for a €40bn state-funded recapitalisation of the country’s banking system. This would seem in conflict with the EU’s new rules that taxpayer money cannot be used for bank bailouts before bank shareholders and, critically, bank bondholders are first bailed in. The tricky point here is that 29% of Italian bank bonds were still owned by retail depositors as at the end of 2015 (see Figure 1).
This Italian issue was discussed in more detail here a few months ago (see GREED & fear – The Eurozone and newborn economics, 3 March 2016). Renzi is doubtless hoping that the market turmoil created by Brexit, or at least the sense of political crisis, creates the pressure for Berlin and Brussels to agree to a breaking of the new rules. But if Berlin does agree to such a concession it will strengthen the electoral appeal of eurosceptics within Germany, just as further debt relief for Greece would – and the eurosceptics, primarily in the form of the AfD in Germany, have enjoyed a surge of support ever since last summer’s refugee crisis. Indeed Renzi’s plan has reportedly already been rebuffed by Frau Merkel and ECB board member Benoit Coeure.
The conclusion from all of the above is that it will take a political genius to hold the EU together in the next few years. And geniuses are in short supply. In this sense Brexit will only have accelerated something that was going to happen anyway.
Meanwhile, from a market standpoint, to repeat the point made here already, Brexit will serve as an excuse
by Zero Hedge - June 30th, 2016 2:25 pm
It is one of the great ironies of life that each generation believes its experiences are unique. The reality is that we have seen this movie before—with different actors, plot twists, and technological advancements.
The basic plot seems to push along a hauntingly familiar path.
In 1997, Neil Howe and William Strauss introduced the concept of Fourth Turning. They divided the population into four generational archetypes: Hero, Artist, Prophet, and Nomad. (read more about the archetypes and their characteristics here)
Each generation consists of people who were born and came of age at the same period in history. They had similar experiences and thus gravitated toward similar attitudes.
The change of control from one generation to the next is called a “turning” in the Strauss/Howe scheme. On a Fourth Turning, the cycle repeats, sparking a generational crisis.
When Howe uses that word, he doesn’t mean a short period of difficulty. He means an existential crisis—one in which society’s strongest institutions collapse (or are severely challenged and stressed) and national survival is in serious doubt.
By Neil Howe’s timeline, we are today about halfway through the Fourth Turning’s Crisis phase. If this Fourth Turning is like previous ones, here is what we should see.
See how the following Fourth Turning characteristics match today’s landscape…
Notice in the Orlando shooting coverage how often people use the word community to designate the different groups with which people identify.
Following the tragic nightclub events, Orlando’s communities drew together to support their members and each other. We see the same behavior in other stressful events. “Je suis Charlie,” the motto that emerged from the January 2015 Paris shootings, comes to mind.
Think of all the other disasters we have seen in recent times, and the public response to them. I am not suggesting that community comes to the fore only during a Fourth Turning—far from it. But it does gain strength during such periods.
Small-government conservatives like me, and possibly you, are on the defensive. We live in a time when most voters would rather enlarge government than shrink it. We can expect to see stronger government action regardless of who wins this year’s presidential election.
Donald Trump is obviously changing the Republican Party into something
by Zero Hedge - June 30th, 2016 2:09 pm
A day after the most awkward three-way handshake in history between Obama, Trudeau, and Nieto, the latter’s central bank just pushed rates higher by a bigger than expected 50bps to 4.25% (exp +25bps). The Peso is surging back (extending its bounce off January lows) retracing all the post-Brexit losses… on what seems like fears of a surge in food inflation.
- *WORSENED GLOBAL CONDITIONS COULD IMPACT CPI: BANXICO
- *BANXICO LOOKS TO KEEP MXN FROM HITTING INFLATION EXPECTATIONS
- *BANXICO SAW STEEP RISE IN FOOD MERCHANDISE PRICES
- *BANXICO: EXTERNAL CONDITIONS DETERIORATED IN SIGNIFICANT WAY
- *BANXICO TO ALSO WATCH CURRENT ACCOUNT DEFICIT
- *BANXICO TO ALSO WATCH MONETARY POSITION RELATIVE TO U.S.
- *BANXICO SAYS MORE PUBLIC FINANCE TIGHTENING WOULD BE DESIRABLE
Sparking a rapid bid for pesos…
But well off the mid-April recent highs..
by Zero Hedge - June 30th, 2016 2:05 pm
Throughout oil’s torrid rally from the February lows, one major driver of demand – namely China – had been broadly ignored by the punditry which instead focused on supply, whether excess OPEC oversupply or lack thereof, due to production disruptions in Canada or Nigeria. And yet, China and specifically its demand, may have been the elephant in the room all along.
Two months ago we reported that “China Is Hoarding Crude At The Fastest Pace On Record“, a move which among other things was attributed to China’s aggressively filling up its Strategic Petroleum Reserve. However, just a few weeks ago, we followed up with “China Oil Imports Drop To Four Month Low As Demand Is Expected To “Moderate Significantly” In 2016.”
We now may have an answer what has caused this drop.
As Bloomberg says, citing a JPM report, “one of the pillars of oil’s recovery from the lowest price in 12 years may be on the verge of crumbling.”
The reason: as many speculated, a big source of China’s demand in the past 5 months was Beijing’s decision to stockpile oil for its SPR. However, that is now over as China is likely close to filling its strategic petroleum reserves after doubling purchases for it this year as prices plunged. JPM estimates that China’s SPR demand was equivalent to approximately 1mm bpd. More importantly, stopping shipments for the reserve would wipe out about 15 percent of the country’s imports, according to the bank.
A guard stands before the oil SPR tanks at Zhoushan
Here are the details from JPM:
China has taken the opportunity of lower oil prices since early-2015 to accelerate the strategic petroleum reserve (SPR) builds at c.1mbd, pushing the total oil in stock under SPR to an estimated 400mmbbl, or 53 days of net crude oil import equivalent, based on JPM calculation of multiple data points announced publicly. This volume might be close to the capacity limit, in our view, and together with potential teapot utilization pullback and slower-than-expected demand from China could increase near-term risks to global oil prices (c.1.2mbd impact). We stay cautious on upstream plays and continue with our relative bias on the downstream.
JPM SPR methodology. China regularly publishes
by Zero Hedge - June 30th, 2016 1:50 pm
Any clique in the E.U. that thinks the U.S. will sit idly by while they “punish” the U.K. had better recalibrate their core interests and the potential for blowback.
One constant in a fast-shifting global chess board is the special relationship between the United Kingdom and the United States. The term special relationship defines a close collaboration diplomatically, militarily and financially.
Some might go so far as to speak of an Anglo-American Empire in terms of finance.
Needless to say, this special relationship impacts the European Union and the longer term impacts of Brexit.
Alliances are as complex as marriages. Just as marriages unite families as well as individuals, so alliances and treaties bind various sectors and agencies of nations in different ways and with different degrees of bonding.
Ties between France and Britain, for example, go back to the Norman invasion of England in 1066. The two have been rivals, adversaries and allies.
Nations that share borders almost always have special relationships due to the histories that go with borders--trade, war, occupation, alliances, etc.
The U.S. also has special relationships with a variety of other nations, relationships that are not like the U.K./U.S. ties but unique and powerful nonetheless.
The U.S. and Russia go way back, to the era of Pacific imperial rivalries in the 19th century, U.S. backing of anti-Communist forces in Russia’s civil war, an alliance in World War II, the rivalries of the Cold War and a number of critical cooperative advances such as the SALT limitations on nuclear weapons and the International Space Station (Russia has done the heavy lifting of resupply and provided cosmonauts since the beginning).
China and the U.S. also have a special relationship due to the size and interconnectedness of their economies and their mutual need for cooperation despite the jostling for Great Power influence.
Japan and the U.S. also have a special relationship, from mortal enemies in World War II to the occupation of Japan and the strong economic and diplomatic ties of the postwar era.
France and the Etats-Unis (United States) have long, deep and often fractious ties, stretching back to the French fleet’s critical role in sealing the defeat of the British Army in the Revolutionary War (1781). Thousands of American soldiers killed defending France in World
by Zero Hedge - June 30th, 2016 1:35 pm
“Lyin’” Jean-Claude Juncker, president of the European Commission, tries to prevent photographers from snapping Nigel Farage, who looks on with justifiable schadenfreude.
Why is Juncker doing this? Apparently to remind the photographer that Farage is a non-person whose image must not be seen in the newspapers.
by Zero Hedge - June 30th, 2016 1:20 pm
Where’s all the news – where are all the headlines? A major event has taken place yesterday and another event is about to unfold tomorrow. Puerto Rico is going to default on its debt and the US government is A-OK with it.
Once again, the American taxpayers have been on the short end of the stick. This story is receiving little to no press, and it is truly baffling given the ramifications and meaning behind it. Perhaps this is exactly why it is receiving so little attention.
The story of the Puerto Rican default is just another example of the crumpling system of the elites. The establishment is desperately trying to keep this broken fiat system together for as long as they possibly can, sucking maximum profits from it before it implodes.
The U.S. Senate has done its part in this farce, as they passed the bailout bill with overwhelming support yesterday, ensuring that Puerto Rico, like Greece, can put off its consequences of overspending for the time being and continue to stagnate. It’s another stellar example of extend and pretend by the elites.
Tomorrow, the government of Puerto Rico was supposed to be paying back $2 billion in debt repayments – no small sum of money, but a drop in the bucket when you look at the massive $70 billion that they owe in debt payments.
Fortunately and unfortunately for them, they are being given a “free” pass by the U.S. government this time. I say unfortunately, because the trade-off for them is their freedom and liberty. As part of the bailout deal, the elites will install overseers that will monitor the Puerto Rican government. Essentially, they are giving up their free will.
Despite this being a major story, don’t expect to hear much about it. The elites don’t want to embolden other states or countries to default on their debt as well. The illusion of debt and fiat money must be maintained at all cost, or they risk completely losing the crumbling empire
by Zero Hedge - June 30th, 2016 1:20 pm
Earlier this week we noted that Hillary’s lead over Donald Trump in the polls was either 1% or 12%, depending on which poll you believed. We also pointed out that the polls were taken prior to the UK referendum, and as both candidates held different views on the matter, we were looking forward to the next round of polling to find out if either Trump or Clinton were able to sway voters further after that historic event.
Today, Rasmussen released a new presidential poll based on a survey conducted on June 28-29 of 1,000 likely voters – the result was quite stunning. In a complete reversal from last week, Rasmussen finds Donald Trump is leading Hillary Clinton 43% to 39%.
The tables have turned in this week’s White House Watch. After trailing Hillary Clinton by five points for the prior two weeks, Donald Trump has now taken a four-point lead.
The latest Rasmussen Reports national telephone and online survey of Likely U.S. Voters finds Trump with 43% of the vote, while Clinton earns 39%. Twelve percent (12%) still like another candidate, and five percent (5%) are undecided.
Last week at this time, it was Clinton 44%, Trump 39%. This is Trump’s highest level of support in Rasmussen Reports’ matchups with Clinton since last October. His support has been hovering around the 40% mark since April, but it remains to be seen whether he’s just having a good week or this actually represents a real move forward among voters.
Trump now earns 75% support among his fellow Republicans and picks up 14% of the Democratic vote. Seventy-six percent (76%) of Democrats like Clinton, as do 10% of GOP voters. Both candidates face a sizable number of potential defections because of unhappiness with them in their own parties.
Clinton appears to have emerged relatively unscathed from the release this week of the House Select Committee on Benghazi’s report on her actions as secretary of State in connection with the murder of the U.S. ambassador to Libya and three other Americans by Islamic terrorists in September 2012. Rasmussen Reports will be releasing new numbers on Clinton and Benghazi at 10:30 a.m. Eastern today.
Trump made a major speech on jobs and trade on
by Zero Hedge - June 30th, 2016 1:06 pm
First S&P downgraded the UK, now it’s the EU’s turn.
Long-Term Rating On Supranational Institution The European Union Lowered To ‘AA’ On Brexit Referendum; Outlook Stable
The European Union (EU) supranational borrows on the capital markets to lend to member states and certain other governments on a back-to-back basis. The long-term rating on the EU partly relies on the capacity and willingness of its 28 members to support it. We currently rate the EU at ‘AA’.) OVERVIEW
- After the decision by the U.K. electorate to leave the EU as a consequence of the June 23 consultative referendum, we have reassessed our opinion of cohesion within the EU, which we now consider to be a neutral rather than positive rating factor.
- We think that, going forward, revenue forecasting, long-term capital planning, and adjustments to key financial buffers of the EU will be subject to greater uncertainty.
- As a consequence, we are lowering our long-term rating on the supranational European Union to ‘AA’ from ‘AA+’ and affirming the ‘A-1+’ short-term rating.
- The outlook is stable, reflecting our opinion that under most scenarios, including a U.K. withdrawal from future (though not current) budgetary commitments, our anchor ratings on the EU will remain at the current level of ‘AA/A-1+’.
On June 30, 2016, S&P Global Ratings lowered its long-term issuer credit rating on supranational institution, the European Union (EU), to ‘AA’ from ‘AA+’. The ‘A-1+’ short-term rating was affirmed. The outlook is stable.
The rating action stems from S&P Global Ratings’ view that the U.K. government’s declared intention to leave the union lessens the supranational’s fiscal flexibility, while reflecting weakening political cohesion. As a consequence of the decision by the U.K. electorate to leave the EU following the June 23 referendum, we have reassessed our previously favorable opinion of solidarity within the EU to neutral from positive. Our baseline scenario was previously that all 28 member states would remain inside the EU. While we expect the remaining 27 members to reaffirm their commitment to the union, we think the U.K.’s departure will inevitably require new and complicated negotiations on the next seven-year budgetary framework, known as the Multiannual Financial Framework (MFF), from 2021-2027. Going forward, revenue forecasting, long-term capital planning, and adjustments to key financial buffers of the EU will in our view be subject to