Global financial system implosion begins

[yield]

Deutsche Bank chief economist calls for EU bank bailout
Jul 11, 2016

Deutsche Bank's chief economist urged the European Union to set up a 150 billion euro ($165.39 billion) rescue fund to recapitalize European banks, German newspaper Die Welt reported on Monday.

"We won't be able to avoid setting up a bigger program to recapitalize banks," David Folkerts-Landau told the daily in an interview. "European banks can be recapitalized with 150 billion euros," he added.

European banks were threatened by a slow, long-term downward spiral and faced with two trillion euros in non-performing loans, Folkerts-Landau said, adding that the European Central Bank's negative deposit rates and low share prices made it hard for banks to acquire capital on their own.

"We are witnessing one crisis after another and I can, by no stretch of the imagination, make out growth prospects anywhere," Folkerts-Landau said.

Italy economy: IMF says country has 'two lost decades' of growth
12 July 2016

Italy's economy will not return to the levels seen before the 2008 financial crisis until the mid-2020s, the IMF has said, implying "two lost decades".

By the mid-2020s, it says the economies of other eurozone members will be 20-25% larger than levels seen in 2008.

Celebrate what? The trillions spent by central banks has been a dud, says Bank of America
July 11, 2016

It’s against this backdrop that a team led by Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, demonstrated how ineffective they believe central banks’ collective quantitative easing has been.

Central banks around the world have cut interest rates a combined 659 times since Lehman Brothers filed for bankruptcy on Sept. 15, 2008, resulting in negative rates in many major economies, according to Hartnett.

“Incited by the belief that every single interest rate in the world is heading to zero, the mountain of cash on the sidelines has induced fresh ‘irrational upside’ in government and corporate bonds,” said the strategist, in a note.

He estimated that $12.9 trillion worth of bonds were yielding less than zero, equivalent to 29% of total bonds outstanding.

 

[yield]

George Osborne intervened in HSBC money laundering probe, report says
12 July 2016

A US report has claimed the UK's Financial Services Authority "hampered" an official investigation into money laundering allegations against banking giant HSBC and that Chancellor George Osborne sought to influence the inquiry.

HSBC was not prosecuted over the allegations in the US because officials were concerned it would cause a global financial disaster, according to the report.

The bank was instead fined £1.2 billion by the US authorities in 2012 in a settlement.

The report, "Too big to jail: Inside the Obama Justice Department's decision not to hold Wall Street accountable", names Mr Osborne as having intervened in the US investigation by sending a letter in September 2012 to the chairman of the Federal Reserve.

It says: "Chancellor Osborne insinuated in his letter of September 10th that the US was unfairly targeting UK banks by seeking settlements that were significantly higher than 'comparable' settlements with US banks."

Ireland’s Economists Left Speechless by 26% Growth Figure
July 12, 2016

In a statement, Finance Minister Michael Noonan pointed out that growth numbers cut Ireland’s debt and deficit ratios. Trouble is, they carry downsides too.

For one, tax inversions artificially inflate the size of Ireland’s economy. When the headquarters of a group of companies becomes resident in Ireland, all of its global profits may be counted as part of the nation’s gross national income, according to the ministry.

Since 2008, that gauge has been boosted by about 7 billion euros thanks to corporate relocations, without accompanying substance or employment, the ministry has said. This in turn drives up the country’s contribution to the European Union budget, which is based on the size of the economy.

For a second thing, it leaves self-described “baffled” analysts like Power at a loss to explain the state of the Irish economy. Power says he’ll look at indicators like employment growth and tax revenue for a better gauge, and guesses Ireland’s underlying economic growth was 5.5 percent last year.

“To me, it looks like Ireland is growing at a reasonable, not dramatic rate,” said Power. “There are so many transactions going on that nobody understands.”

 

[yield]

Global trade slowdown worse than thought
FT. July 13, 2016

Policymakers and economists have grown increasingly concerned about a slowdown in global trade growth. But according to the latest report by Global Trade Alert, which monitors protectionism around the world, that growth has disappeared altogether with the volume of goods traded around the world stagnant since January 2015.

Such a prolonged period of no growth is rare in economic history, said Simon Evenett, professor of international trade and economic development at Switzerland’s University of St Gallen and the report’s lead author. “It really doesn’t happen very much outside of recessions,” he said.

 

[ferrelhadley]

Aberdeen Asset Management lifts its suspension on withdrawls. My uninformed guess is the drop in the pound plus the drop on their valuation means extracting money will be a big loss in value. So many more will hope that the pound and property markets are more likely to recover over the next couple of years than to suffer bigger falls. Others will disagree. Also private property sales have apparently dropped by about 36%. Will this just be temporary? Some will jump into the market hoping for bargains others will be wary. The "mini-panic" phase seems over and now its just waiting for all the dull data like jobs, PMI, consumer sentiment, inflation and so on to try to gauge what Brexit has done\ where the world economy is leading us.

 

[gosub]

Aberdeen Asset Management lifts its suspension on withdrawls. My uninformed guess is the drop in the pound plus the drop on their valuation means extracting money will be a big loss in value. So many more will hope that the pound and property markets are more likely to recover over the next couple of years than to suffer bigger falls. Others will disagree. Also private property sales have apparently dropped by about 36%. Will this just be temporary? Some will jump into the market hoping for bargains others will be wary. The "mini-panic" phase seems over and now its just waiting for all the dull data like jobs, PMI, consumer sentiment, inflation and so on to try to gauge what Brexit has done\ where the world economy is leading us.

We have well under 50% home ownership and an economy too enthralled to the money shufflers, easier to spin its change In the right direction, only that's bollocks coz what you can't do is project 2 years off 1 month especially since we ain't even signed Art50 YET

 

[Falcon]

Global trade slowdown worse than thought
FT. July 13, 2016

It’s one of those things that’s so obvious that it hides in plain sight. It’s like water to a fish - there but invisible.

Nothing gets made or done without energy.

The higher the price of energy, the less gets done.

There is a price of energy, above which, nothing gets done.

When that price is reached, three things happen: debt gets issued to temporarily fund making and doing (unsustainable); less gets made and done (contraction); and things get made and done by reusing what’s already been made and done (industrial cannibalism).

Economists call things getting made and done ‘capital formation’. There is a price, above which, capital formation stops. Some estimate it at an oil price of $80/90 a barrel. The 2008 financial crash commenced a month after the oil price broke through $80/bbl. The current oil price is not the measure - that’s set by supply/demand which is now debt driven on both sides, so price has dropped. It’s set by the cost of getting it out of the ground - about $80/bbl now.

Capital formation has observably ceased. Debt has doubled since 2008. US driving miles are back down to their 1998 levels and commercial aircraft departures are one third lower than their 2008 forecasts - we’re contracting. Many parts of the US are decommissioning parts of their road network and transferring the maintenance resource to the working bits (cannibalism).

 

[mauvais]

Not the first time we've done this, but ^ completely wrong.

 

[Falcon]

Not the first time we've done this, but ^ completely wrong.

It’s worth sitting down with a cup of strong tea and a chocolate hobnob and having a proper think about the assertion that the claim “nothing gets made without energy” is completely wrong.

 

[mauvais]

Economic growth is roughly proportional to the affordability of energy. That's about all you get right.

The current price of energy is at a relative low, largely because the speculative component (above the production cost) of the oil price has been crushed. You can try various contortions to get out of that, but they're a fallacy.

The GFC or debt crisis was not primarily about energy, as you imply. Nor is lending in general for most of our contemporary history. Nor is the average production cost anywhere near $80/bbl. Shale isn't even that high for the most part.

US road mileage is not a bellwether, and I don't think your aircraft stat is even true. I've no idea what the road decommissioning thing is meant to be about. This is conspiracy theory grade stuff.

The world is falling apart for all kinds of reasons, but amazingly, you miss them all.

 

[Falcon]

Yup. Pretty standard stuff. You could deploy this kind of thing a couple of years ago on this thread without much comment, but people are more aware now.

I won’t convince mauvais, and don’t need to. This response addresses the other participants in the thread:

1. Oil price is capped at $50 because of the ‘fraclog’ - a backlog of drilled, unfractured wells. Their owners get finance (debt) when the oil price exceeds $50 (their breakeven cost is around $80 - this is speculative finance). They take a couple of weeks to fracture. Production drives the price back down again. The process continues for as long as the Wall Street ponzi scheme manufactures the requisite debt. Which is to say for as long as it takes to exhaust the supply of credulous, the greedy, and the desperate, or for the Belief Fairy to die under the weight of mounting improbability, whichever comes first. Your pension fund, which is a major purchaser of such debt, is never going to pay you any money out of these ‘investments’, but there is no shortage yet of people buying such pensions in the misplaced belief that they will when the time comes.

2. The linkage between debt and energy was a statement, not an implication. The economic system on this planet is - observably - a subset of a finite, physical system (I can’t speak for galactic economies). The mortgages comprising the weakest link in the system at 2008 were held by people who could either pay gas to get to work, or their mortgage, but not both. (Technically, energy presented a systemic risk in a financial theory of portfolio risk management that is forced to deny systemic risk). Mauvais got causality reversed in his head. But then, if even the Bank of England took 250 years to confess they’d got such things reversed, (s)he can be extended some latitude.

3. The road milage and commercial flight data is taken from the US Department of Transport. The reason it’s a bellwether is because conventional economic measures, in a debt based, fractional lending financial system in which ’sentiment’ (i.e. confidence) is a stability criterion, are manipulated to maintain confidence. So for example, the long term unemployed are deemed to have voluntarily absented themselves from work and removed from the unemployment statistic in order to sustain the growth illusion. In the US system, driving is inelastically linked to economic activity (working, moving stuff around a distribution system, and buying it), so road milage is the more accurate measure of economic contraction.

Unlike physical sciences, which often finds the standard of reasoning and proof in social sciences embarrassing, conventional financial theory is, formally, a psuedoscience — you can’t falsify it experimentally, so you are free to make up anything that gives you comfort and/or serves your ideological preferences. Capitalism needed to provide ‘plausible deniability’ for the fundamental irreconcilability between a system that requires unbounded exponential growth as a stability criterion, and a system that can’t sustain it. So they invented the intellectual equivalent of astrology - the neoclassical economics that mauvais defends.

Like all pseudoscience, it does have to allocate more and more time building secondary theory to protect its core theory against its inability to predict or explain observable reality. You can watch this unfold - are we on a double, triple, or quadruple dip recession? It’s so easy to lose count.

The pre-Copernicans, like mauvais here, went batshit crazy trying to refine their predictions of where the planets would be based on the belief that the earth was the centre of celestial rotation. In their case, they preserved their comfort by excommunicating heretics. In these secular days we call them ‘conspiracy theorists’, which connotes the same idea that something unlawful or harmful is being perpetrated when the paradigm is questioned. Having reversed physical/financial causation, they are forced into the same rhetorical boat.

 

[Crispy]

I've no idea what the road decommissioning thing is meant to be about

Cash-Strapped Towns Are Un-Paving Roads They Can’t Afford to Fix

 

[mauvais]

Cash-Strapped Towns Are Un-Paving Roads They Can’t Afford to Fix

Interesting. That's effectively austerity by choice though, rather than fundamental inability to borrow because the economy won't support it.

 

[Falcon]

Interesting. That's effectively austerity by choice though, rather than fundamental inability to borrow because the economy won't support it.

Observers: this is what pseudoscientific protective theory looks like.

In neo-classical economic core theory, which has lots to say about what is supposed to happen when finite resources become ’temporarily' scarce, the recent broaching of energy offtake limits was supposed to generate a signal which stimulated the economy into producing the next round of efficiencies: new energy sources, higher productivity, etc.

Real wages weren’t supposed to plummet, Detroit wasn’t supposed to get bulldozed, people weren’t supposed to take up residence in the Las Vegas storm drain system, healthcare and public sector pension liabilities weren’t supposed to get so grotesquely unfunded, banks weren’t supposed to start setting negative interest rates, etc.

So just as the Irish Potato famine was a suddenly drop in demand for potatoes, society converting its roads back into fields is an elective austerity choice.

 

[mauvais]

Yup. Pretty standard stuff. You could deploy this kind of thing a couple of years ago on this thread without much comment, but people are more aware now.

I won’t convince mauvais, and don’t need to. This response addresses the other participants in the thread:

1. Oil price is capped at $50 because of the ‘fraclog’ - a backlog of drilled, unfractured wells. Their owners get finance (debt) when the oil price exceeds $50 (their breakeven cost is around $80 - this is speculative finance).

Global oil price has an upper limit, or rather, throttling on higher prices because there is a pending supply that becomes cost-effective at high prices. Primarily this is shale, fracking, whatever. They're high cost projects that are only viable at a high market price. You seem to be focusing on this as if that were all oil itself. Are you American?

But the cost of getting a barrel out of the ground in Saudi, where oil actually comes from, is not $80. It's about $10. The oil price being $50 or whatever does not reflect a changing cost in Saudi, it reflects commodity speculation and various entities willingness to sacrifice profit for political ends.

In this scenario, our current one, the fracking industry has to fiddle around with debt to stay alive. But this tells you that the fracking industry is a load of shit. It doesn't inherently tell you a damn thing about global energy, or global debt, or really very much directly at all.

2. The linkage between debt and energy was a statement, not an implication. The economic system on this planet is - observably - a subset of a finite, physical system (I can’t speak for galactic economies). The mortgages comprising the weakest link in the system at 2008 were held by people who could either pay gas to get to work, or their mortgage, but not both. (Technically, energy presented a systemic risk in a financial theory of portfolio risk management that is forced to deny systemic risk). Mauvais got causality reversed in his head. But then, if even the Bank of England took 250 years to confess they’d got such things reversed, (s)he can be extended some latitude.

This is exactly why I said it wasn't primarily about energy. Yes, you can energy-price people into foreclosure. But that's not what happened. They lent to people that they should never have lent to in the first place. Those people's situations didn't materially change, certainly not because of energy. The market came to realise that the emperor had no clothes and it went into freefall.

In the US system, driving is inelastically linked to economic activity (working, moving stuff around a distribution system, and buying it), so road milage is the more accurate measure of economic contraction.

About a millionth in line behind measures like GDP. Decreasing road mileage apparently tells you the economy is contracting. It tells someone else that more people are working from home, living in metropolitan areas, flying instead of driving, and whatever else. It's a useless metric.

Unlike physical sciences, which often finds the standard of reasoning and proof in social sciences embarrassing, conventional financial theory is, formally, a psuedoscience — you can’t falsify it experimentally, so you are free to make up anything that gives you comfort and/or serves your ideological preferences. Capitalism needed to provide ‘plausible deniability’ for the fundamental irreconcilability between a system that requires unbounded exponential growth as a stability criterion, and a system that can’t sustain it. So they invented the intellectual equivalent of astrology - the neoclassical economics that mauvais defends.

It certainly is a pseudoscience, and you certainly are free to make anything up. It generally looks more credible if you don't write it in crayon though.

And I'm not defending neoclassical economics, which doesn't even make any sense as a claim. Very clearly the system is failing. It's simply that you are completely unable to point at it and say how or why. Not even what is failing.

The pre-Copernicans, like mauvais here, went batshit crazy trying to refine their predictions of where the planets would be based on the belief that the earth was the centre of celestial rotation. In their case, they preserved their comfort by excommunicating heretics. In these secular days we call them ‘conspiracy theorists’, which connotes the same idea that something unlawful or harmful is being perpetrated when the paradigm is questioned. Having reversed physical/financial causation, they are forced into the same rhetorical boat.

Fun.

 

[mauvais]

Observers: this is what pseudoscientific protective theory looks like.

In neo-classical economic core theory, which has lots to say about what is supposed to happen when finite resources become ’temporarily' scarce, the recent broaching of energy offtake limits was supposed to generate a signal which stimulated the economy into producing the next round of efficiencies: new energy sources, higher productivity, etc.

Real wages weren’t supposed to plummet, Detroit wasn’t supposed to get bulldozed, people weren’t supposed to take up residence in the Las Vegas storm drain system, healthcare and public sector pension liabilities weren’t supposed to get so grotesquely unfunded, banks weren’t supposed to start setting negative interest rates, etc.

So just as the Irish Potato famine was a suddenly drop in demand for potatoes, society converting its roads back into fields is an elective austerity choice.

More guff.

We have a snapshot of America. It is that local authorities can't afford to repair a road. There are lots of possibilities for why that is. For example:

1. The road no longer goes anywhere useful - e.g. the mines have shut or the factory has relocated
2. America has decided that austerity is preferable to Keynesian spend-to-make-more, and that the road does not make a good business case, so let it rot
3. America has decided that a section of the demographic or economy is not important or deserving of equitable treatment in the first place, so who cares about it, let it rot
4. There has been a nuclear war and society as we know it is destroyed
5. America cannot borrow any more money - not unwilling to, cannot, there are no lenders - and it literally cannot afford to repair the road

Or something else.

You've decided on one narrative, in which the event is economically driven with a root cause of energy costs, but you're so far totally unable to prop it up.

For the hard of thinking, I'm not arguing that the road is being fixed, or that it shouldn't be fixed, or that any of it means the economy is fine. I'm telling you that as a standalone anecdote, it's useless as evidence of anything.

 

[Xenonxenon]

Falcon, peak oil thread that way >>>

Road paving booming in nth Africa, in much poorer nations, Egypt, Algeria, Maroc, Tunisia.

 

[ferrelhadley]

An aside.
MPs decry 'failed' effort to stop UK property money laundering
Committee says £100bn is being laundered each year and its chairman says system for tackling problem is ‘futile and impotent’

More topical
Lowcost Holidays demise blamed on Brexit vote
The "Lexit" job losses are starting. thanks folks.

And the biggie....

Construction output slumps in May

On an annual basis construction output fell 1.9% compared with May 2015.
The most recent figures from the ONS showed UK economic growth slowed to 0.4% in the three months to the end of March.
The first estimate of second quarter economic growth is due on 27 July.

We will be lucky to avoid two quarters of consecutive retraction in GDP, that is a technical recession.

Spoiler

Just as an aside, I have no interest in the "debate" but if you claim economics is a psuedoscience or false rather than simply current economic theories are wrong, then you cannot claim a recession exists in the form I am describing. GDP is inherently an economic and econometric concept.

 

[hot air baboon]

The "Lexit" job losses are starting. thanks folks.

....presumably we have to net these off against other marginally profitable companies that have been thrown a life line by the fall in the pound...although we may never get to hear about those ofcourse....

....most other countries seem to be trying to manipulate their exchange rate lower as a matter of policy afaics...

 

[1927]

Lowcost holidays have been in trouble for years. Their demise has nothing to do with Brexit.

 

[Xenonxenon]

It does, just the final nail that's all. Only 120 jobs tho.

 

[gosub]

European banks prepare for possible shockwaves from stress test results

 

[yield]

Can the World Deal With a New Bank Crisis?
Bloomberg July 27, 2016

As Europe braces for the release of its bank stress tests on Friday, the world could be on the verge of another banking crisis. The signs are obvious to all. The World Bank estimates the ratio of non-performing loans to total gross loans in 2015 reached 4.3 percent. Before the 2009 global financial crisis, they stood at 4.2 percent.

If anything, the problem is starker now than then: There are more than $3 trillion in stressed loan assets worldwide, compared to the roughly $1 trillion of U.S. subprime loans that triggered the 2009 crisis. European banks are saddled with $1.3 trillion in non-performing loans, nearly $400 billion of them in Italy. The IMF estimates that risky loans in China also total $1.3 trillion, although private forecasts are higher. India’s stressed loans top $150 billion.

German Finance Minister Wolfgang Schäuble bails out Spain, Portugal
7/27/16

Ahead of Wednesday’s meeting of the EU’s 27 commissioners, Spain and Portugal looked to be headed for the eurozone’s version of politically embarrassing fiscal purgatory.

There was no question that the Iberian duo’s budget deficits were in blatant breach of the single currency zone’s rules. Momentum was growing for the Commission to impose, for the first time ever, a fine totaling in the millions of euros. Even Jean-Claude Juncker, the Commission chief, had seemingly changed his previously skeptical views on sanctions, pushing his colleagues in recent weeks to enforce the rules and shore up Brussels’ credibility on eurozone governance.

Then salvation arrived from an unlikely source: Wolfgang Schäuble.

The reversal of roles — with Schäuble, who had pushed the hardest line during the Greek debt crisis, calling for clemency and the deficit dove Juncker asking for overdue discipline of the Iberians — struck a discordant note in Brussels.

Officials pointed to various political reasons for Schäuble’s move. Primarily, the de facto number two in Germany’s government doesn’t want to hurt an ally in Mariano Rajoy, the center-right Spanish leader who is struggling to put together a government after last month’s elections. With France and Italy in the hands of the Left, Germany’s CDU-led coalition prefers to see a fellow conservative take power in the eurozone’s fourth-largest economy. During his conversations at the G20 in China, Schäuble stressed the need for “political stability” in southwestern Europe, according to someone familiar with the conversation. Portugal’s leftist government got a free ride on the Schäuble train.

 

[Pickman's model]

We're doomed again

 

[ska invita]

Schaubles politicking is enough to make you want to leave the EU!

 

[pocketscience]

Can anyone explain to me why, throughout the entire Greece/ troika debt stand-off and subsequent referendum, Schäuble the German fanance minister was front row and center for Team Troika* during the negotiations?
* the troika beiing the ECB, the European Commission and the IMF???
And here he is overriding the commision agian.
Who put Juncker in charge of the commision?

 

[Ming]

I wonder if this stuff is systemic or this is just a 'bad apple'. 1MDB: The inside story of the world’s biggest financial scandal | Randeep Ramesh

 

[yield]

I wonder if this stuff is systemic or this is just a 'bad apple'. 1MDB: The inside story of the world’s biggest financial scandal | Randeep Ramesh

Thanks for the link. It's not the world's biggest financial scandal. Enron, Lehman Brothers, Bernard Madoff were all bigger.

It's not a bug it's a feature. They financed the Wolf of Wall Street?

Tony Blair was also involved with the companies in the 1MDB scandal. And they worried about his companies being opaque.

Tony Blair: the former PM for hire
Thursday 28 April 2016

Tarek Obaid and Blair did meet privately in early July 2010, and apparently discussed a working relationship. A month later Blair’s company was on a retainer fee of $65,000 and a “success fee equal to 2%” of any deal that TBA brought to the company – which PetroSaudi admitted could “potentially be a very large sum”.

 

[yield]

US subpoenas Goldman Sachs in 1MDB scandal investigation – report
30 July 2016

More Defaults Likely to Come: What Puerto Rico Owes on Aug. 1
July 29, 2016

The commonwealth and its agencies owe about $346 million in bond payments on Aug. 1, most of which goes toward repaying sales-tax supported debt. The deadline follows the island’s July 1 default on nearly $1 billion of principal and interest, the largest such payment failure in the history of the $3.7 trillion municipal bond market.

No clean bill of health for EU banks in stress test

Eight years since the collapse of Lehman Brothers sparked a global banking meltdown, many of Europe's banks are still saddled with billions of euros in poorly performing loans, crimping their ability to lend and putting off investors.

"While a number of individual banks have clearly fared badly, the overall finding of the European Banking Authority - that Europe's banks are resilient to another crisis - is heartening," Anthony Kruizinga at PwC said.

Italy's Monte dei Paschi (BMPS.MI), Austria's Raiffeisen (RBIV.VI), Spain's Banco Popular (POP.MC) and two of Ireland's main banks came out with the worst results in the EBA's test of 51 European Union (EU) lenders.

"Whilst we recognize the extensive capital raising done so far, this is not a clean bill of health," EBA Chairman Andrea Enria said in a statement. "There remains work to do."

Italy's largest lender, UniCredit (CRDI.MI), was also among those banks which fared badly, and it said it will work with supervisors to see if it should take further measures.
Germany's biggest banks, Deutsche Bank (DBKGn.DE) and Commerzbank (CBKG.DE), were also among the 12 weakest banks in the test, along with British rival Barclays (BARC.L).

Monte dei Paschi, Italy's third largest lender, had been scrambling to pull together a rescue plan and win approval for it from the European Central Bank ahead of the test results.

The Italian bank confirmed less than an hour before the results that it had finalised a plan to sell off its entire portfolio of non-performing loans and had assembled a consortium of banks to back a 5 billion euro capital increase.

 

[ska invita]

according to the metro's front page reporting of a paper from the adam smith institute, the UK banks generally passing stress tests on friday is a farce, that uk tests are designed to make UK banks look stronger than they are, and if they had to take the US stress test they would all have failed!
Fears of new financial crisis after new report
Any thoughts on that?

 

[not-bono-ever]

,