Having been ‘busted’ for their manipulation of events in Ukraine (and exposing their views of the European Union), it seems US diplomats have been up to their old tricks once again… this time in Venezuela. “Go Conspire In Washington,” was the clear message sent to the US as President Maduro expelled three US diplomats from his country, accusing them of plotting with anti-government protesters in an attempt to topple his socialist government. This is the second time Maduro has kicked out US diplomats (3 more were expelled in September for ‘conspiring with government opponents’) as he blasted comments by John Kerry as “yet another maneuver” by Washington to “legitimize attempts to destabilize the Venezuelan democracy unleashed by violent groups in recent days.”
An anti-government student holds a sign reading “There is no way to peace. Peace is the way. Venezuela wake up!” during a protest in Caracas.
Venezuelan President Nicolas Maduro accused Washington of plotting with anti-government protesters and expelled three US diplomats in retaliation.
The oil-rich country is mired in a deep economic crisis that critics blame on policies that Maduro largely inherited from Chavez.
Strict controls on currency and prices have created huge bottlenecks that have fueled inflation and emptied store shelves.
“I have ordered the foreign ministry to proceed with declaring those three consular officials persona non grata and expelling them from the country. Let them go conspire in Washington!” Maduro said in a nationally broadcast address
Maduro said the US diplomats, who have not been named, had met with students involved in anti-government protests under the pretense of offering them “visas to the United States.”
In late September Maduro kicked out three other US diplomats, including the charge d’affairs Kelly Keiderling, on accusations of conspiring with government opponents. The two countries have had no ambassadors since 2010.
A foreign ministry statement also said that Maduro’s government “flatly rejects” remarks by US Secretary of State John Kerry on Saturday voicing alarm at the violence during the marches and criticizing the arrest of protesters.
Kerry’s statement is “yet another maneuver” by Washington to “legitimize attempts to destabilize the Venezuelan democracy unleashed by violent groups in recent days,” the ministry said.
Of course, it makes sense for Maduro to pitch blame on to the Americans (whether they are to blame or not) as he faces a growing tension among the working Venezuelans that the status quo is not working and a common enemy is required…
As we noted previously (via Stratfor):
The challenge that the student movement will face is in finding a way to include Venezuela’s laboring class, which for the most part still supports the government, and relies on its redistributive policies. Their inability to rouse broad support across Venezuela’s social and economic classes was in part why previous student uprisings, including significant protests in 2007, failed to generate enough momentum to trigger a significant political shift.
But the situation has changed in Venezuela, and as the economic situation deteriorates there is a chance that protests like this could begin to generate additional social momentum in rejection of the status quo. President Nicolas Maduro has been in office for less than a year, and in that time the inflation rate has surged to over 50 percent and food shortages are a daily problem. Though firmly in power, the Chavista government is still struggling to address massive social and economic challenges. Massive government spending, years of nationalization and an overreliance on imports for basic consumer goods have radically deteriorated inflation levels, and undermined industrial production.
How the government responds will play a key role in the development of these protests going forward. The government cannot afford to crack down too hard without risking even worse unrest in the future. For its part, the mainstream opposition must walk a careful line between supporting the sentiment behind open unrest and being seen as destabilizing the country. Maduro retains the power to punish opposition politicians, and reaffirmed that Feb. 11 when he stated on national television that he intends to renew the law allowing him to outlaw political candidates who threaten the peace of the country. The statement was a clear shot over the bow of opposition leaders, and may foreshadow a more aggressive government policy designed to limit political opposition.
In the meantime, protest leader Leopoldo Lopez said he’ll surrender on Feb 18th –
“If anyone has decided to illegally arrest and jail me, you know I will be there,” he said. “I have nothing to fear; I have not done anything illegal.”
as plain clothes policeman were in the back of a pick-up outside the home of the father of Venezuelan opposition leader Leopoldo Lopez. Reports said the government wants to arrest him in connection with deadly street protests in recent days. “I have committed no crime,” said Lopez. “I have been a Venezuelan committed to our country, our people, and our future.” Earlier, Lopez called Maduro a coward on Twitter. “You won’t make either me or my family bow to you,” he added.
Keynes will be remembered as “a man with a great many ideas that knew very little economics,” Friedrich Hayek notes in this brief interview and when challenged on his ‘parochial’ knowledge of economic history he was “not sheepish in the least… he was much too self-assured.” Hayek’s perspective casts Keynes in a very different light than his fan’s apostolic adoration might suggest, “he wasutterly contemptuous of anything that had been done before.” While Hayek describes Keynes as one of the most intelligent people he had known, he perhaps sums up the man’s work in this brief phrase – “economics was just a side-line for him.” As we note below, many describe Keynesian policy as ‘dumb’, however a more appropriate word would be ‘foolish’.
Hayek On Keynes
Keynesian Policies: Not Dumb, Just Foolish (via the Ludwig von Mises Institute of Canada)
A lot of my Austrian friends refer to Keynesian policies as “idiotic,” “stupid,” etc., but that’s not really accurate. Indeed, the Keynesian policy prescriptions are so counterintuitive–they so defy common sense–that only very intelligent people with plenty of schooling could have the confidence to utter them with a straight face.
Rather than describing Keynesian policies as “dumb,” I think a more appropriate word is foolish, because the technical analyses of IS/LM curves, talk of the “liquidity trap” and so on, utterly ignore political realities. A great example of this is Matt Yglesias and his handling of Argentina. Back in May 2012–not that long ago, by any stretch–Yglesias held up Argentina as a model for the eurozone countries. He wrote:
Spain is in a complete economic crisis…But perhaps there is a way out, one suggested by the recent experience of Argentina, a nation that’s currently enjoying full employment.
…[W]hen the world economy hit a snag in 2001, trouble emerged for Argentina. Unrelated hidden risks were revealed elsewhere in the global investment landscape and everywhere people got nervous. The foreign capital began to abandon Argentina, reducing investment, employment, and incomes. This in turn sharply reduced the Argentine government’s tax revenues and led to calls for sharp budgetary consolidation…Protesters and rioters took to the streets. President Fernando de la Rua’s party took a beating at the polls. Argentina defaulted on its external debt, broke the rigid linkage between the peso and the dollar, and went back to pursuing an independent monetary policy….
Default and devaluation were hardly a party. They destroyed the country’s banking system and wiped out many Argentines’ savings. But it did work. Argentina has grown rapidly in subsequent years and its unemployment rate has fallen steadily…
So Yglesias was recommending that Spain and other troubled countries ditch the euro and default on their sovereign debts, so they could free their printing press from the shackles of Brussels. The obvious Austrian (and generally free-market) response would be to warn that debasing the currency is hardly the path to prosperity, and that “solving” a crisis in this way would merely sow the seeds of a greater problem down the road. The prosperity coming from the printing press was an illusion.
Well, the economy in Argentina is now “melting down”–Yglesias’ own term. But our fearless Keynesian pundit has nothing for which to apologize. He explains in a January 2014 post:
With Argentina’s economy melting down, I’ve gotten various queries from people asking whether I regret having praised the country’s successful 2002 devaluation and default back in 2012 as an example for Spain and Greece to emulate.
The answer is: absolutely not!
Argentina is a country that has not, historically speaking, been well-governed. In fact one reason that the 2002 default was necessary was that Argentina previously embarked on a deeply misguided currency board scheme. To say that Argentina’s 2002 default and devaluation was the right thing to do and that there are important lessons to be learned from it is not to say that all countries should always emulate Argentina in all respects.
So there you have it, folks: Countries that historically have been ill-governed should follow Argentina’s lead by defaulting on their debts and debasing their currencies, but they should stop right before the bad consequences of these actions come home to roost. Simple as pie. Sort of like giving a bottle of Jack Daniels to some frat guys and sending them to the library to study–what could possibly go wrong?
Fertilizer could be too much of a good thing for the world’s grasslands, according to study findings to be published online Feb. 16 by the journal Nature.
|This map shows Nutrient Network sites studied|
The three-year study monitored real-world grasslands at 41 locations on five continents. The sites included alpine grasslands in China, tallgrass prairies in the United States, pasture in Switzerland, savanna in Tanzania and old fields in Germany. Two sites in Nebraska were part of the study, the Cedar Point Biological Station near Ogallala and the Barta Brothers Ranch in the Sandhills near Valentine.
The study found common trends among grasslands around the world:
- Natural — unfertilized — grasslands with a variety of grass species have more stability because of species “asynchrony,” which means that different species thrive at different times so that the grassland produces more consistently over time. This finding was consistent with the findings of previous, single-site studies as well as previous biodiversity experiments conducted in Europe.
- Fertilized plots saw declines in the numbers of species compared to unfertilized control plots. The plots averaged from 4.4 species to 32.3 species per square meter and declined by an average of 1.3 species per site.
- Fertilization reduced species asynchrony and increased the variation in production levels over time compared to control plots. This weakened the benefits of species diversity seen in the un-manipulated plots.
While public attention has grown about elevated levels of carbon dioxide and global warming, Knops said elevated levels of mineral nitrogen in the environment also are concerning. While it’s rare for ranchers and farmers to fertilize rangeland and pasture, grasslands are affected by nitrogen deposition that results from burning fossil fuels, as well as from fertilizer runoff and ammonia volatilization from cropland.
Knops said fertilizer overuse could intensify the detrimental effects of drought on grasslands, such as the drought that devastated cattle herds in Texas and Oklahoma from 2011-13, when Texas lost about 15 percent of its cattle herd, or about 2 million animals.
It also could have ripple effects during bad years by reducing the plant cover, which increases erosion, and decreases water filtration and carbon sequestration benefits provided by grasslands.
The Nature article, “Eutrophication weakens stabilizing effects of diversity in natural grasslands,” is one of several research articles on the relationships between grassland diversity, productivity and stability, generated by the Nutrient Network experiment. Knops called it an unprecedented experiment.
“In the past you didn’t see a collaborative effort at a really large scale like this in biology or in ecology,” he said.
For more information about the Nutrient Network effort, visit http://www.nutnet.org
Douglas Adams’ brilliant comic farce The Hitchhiker’s Guide to the Galaxy describes Earth as residing in sector ZZ9 Plural Z Alpha, one of “the uncharted backwaters of the unfashionable end of the Western Spiral Arm of the Galaxy” and being inhabited by “ape-descended life forms” who “are so amazingly primitive that they still think digital watches are a pretty neat idea”.
Sometimes when I return to Australia, I feel that I’ve arrived in the planet’s sector ZZ9 Plural Z Alpha. Here the economic debate is so primitive that people still think the economy can be controlled by tinkering with the rate of interest.
Is inflation rising? Then put the rate of interest up one and a half times as fast as inflation is increasing. Is output falling below trend? Then drop the rate of interest by half as much as output has fallen. Then adjourn for drinks.
This formula, known as the Taylor Rule, was all the rage in Central Banks from the early 1990s until the mid-2000s. Economists were so confident that they had economic management nailed that they invented the phrase “The Great Moderation” to describe the Goldilocks state of the economy, and took credit for bringing it about:
The sources of the Great Moderation remain somewhat controversial, but as I have argued elsewhere, there is evidence for the view that improved control of inflation has contributed in important measure to this welcome change in the economy (Bernanke 2004, emphasis added).
Then in late 2007 the world went to hell in a handbasket when the global financial crisis began. Mainstream economists were forced to abandon the belief that getting the rate of interest right was all that was necessary to keep the economy on an even keel. Instead, the rate was dropped to near-zero to in an attempt to stop the economy sinking below the waves.
The USA? A cash rate of 0.13 per cent. Japan? 0.1 per cent. Europe? 0.25 per cent. The UK? 0.5 per cent. No-one asks what the central bank will do to interest rates at its next meeting at one of those more fashionable sectors of this planet, because the conceit that the central bank can fine-tune the economy by varying its interest rate is long dead.
Figure 1: Cash rates around the world.
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But not in Australia. Here, what the Reserve Bank will do to the interest rate at its monthly meeting is big news. And because it’s big news, every month Sky News asks about 20 economists three (and lately four) questions about the RBA rates meeting on the first Tuesday of the month:
1) Do you expect the RBA to move on Tuesday? And if so, in which direction and by how much?
2) Where will the official cash rate likely sit by the end of the calendar year?
3) One thing you’re looking for in the RBA statement?
4) What do you THINK the RBA should do on Tuesday? (we’re asking for your opinion)
The first question I’ve likened to betting on which cockroach will get outside a circle first inChangi prison; it’s just gambling. On the second, I’ve consistently called for rates to be lowered, because in my opinion the main impact of our high cash rate – compared to the USA, Europe, UK and Japan in Figure 1 – has been an overvalued dollar that has decimated Australian manufacturing.
On the third and fourth, since March of last year, I’ve added a call that the RBA to introduce loan to valuation ratio controls to stop a property bubble forming. (Strictly, APRA would make such a call, but if the RBA said jump, APRA would do it.)
My answer to Sky News’ poll in March 2013 was:
1) I think the RBA will hold, but if there is any move it will be down;
2) 2 per cent
3) Realisation that (a) the cash rate is the main factor keeping the Australian dollar overvalued and (b) it has to do something to stop a housing bubble forming if it lowers rates–for example, reintroduce a maximum level for LVRs of say 90%.
But that’s all so yesterday. For last week’s poll, I changed my answers in a rather radical way:
- 3.5 percent [1 per cent higher than today]
- Realisation that they are stuck with 4 competing goals: declining employment, rising inflation, a housing bubble and an overvalued dollar, and whatever they do with rates will stuff up at least 3 of those 4 things
- Introduce loan to valuation controls like those in NZ (via APRA), persuade the government to introduce limits on non-resident buying of properties, raise rates by half a percent to help burst the property bubble they’ve allowed to develop.
The answers were partly in exasperation, since the whole idea that all the Reserve Bank can and should do to control the economy is vary the interest rate is nonsense. I felt rather likeFord Prefect, livid at the inability of the Golgafrinchans to design the wheel:
‘And the wheel,’ said the captain . ‘What about this wheel thingy? It sounds a terribly interesting project.’ ‘Ah,’ said the marketing girl, ‘well, we’re having a little difficulty there.’ ‘Difficulty?’ exclaimed Ford. ‘Difficulty? What do you mean, difficulty? It’s the single simplest machine in the entire Universe!’ The marketing girl soured him with a look. ‘All right, Mr Wiseguy,’ she said, ‘you’re so clever, you tell us what colour it should be.’
So I answered that the colour should be “square”. And, by analogy, the interest rate decision is about as useful as a square wheel in controlling the economy. There are at least four factors the RBA should care about, and they’re giving conflicting signs:
- The economy: this has been heading down for some time, and is still generally heading down—which indicates that rates should be cut. So tick the ‘down’ box.
- Housing: We now have a housing bubble because of the RBA rate cuts since 2012—rate cuts that it didn’t expect to make since against its expectations, the economy has been going down (check Figure 1 again: the RBA was alone in raising rates from 2010 since it falsely thought that the economic crisis was over and inflation was about to rise once more). Since the RBA has been and remains too gutless to introduce prudential controls on mortgage lending—unlike the New Zealanders, who did so in August 2013—then it should put interest rates up to prick the housing bubble. So tick the ‘up‘ box.
- The currency: this has been overvalued for the last four years, thanks to our high interest rates, and though it’s fallen it is still above the RBA’s comfort level, let alone where the actual economy needs it to be (around 70 cents in my opinion). So tick the ‘down’ box.
- Inflation: though this has been consistently lower than the RBA has expected, it is now potentially moving up because the currency has fallen. So tick the ‘up‘ box.
That gives us two “up” signals and two “down” signals. So what to do? Sit on our hands, or stay in a bath for 5 years, like the captain of the Golgafrinchans.
Bugger that, I thought. The one thing the RBA has done courtesy of its primitive belief that interest rates alone can control the economy is allow a housing bubble to form once more. So let’s prick that – hence my call for a 3.5 per cent rate by June 30 (this month’s question asked for the rate by the end of this financial year).
Of course, if the RBA did that – which it won’t – then the currency would fly back over a dollar for sure. There’s no way I actually thought that would be the rate. But please, let’s stop being digital watch fans, and join the rest of the world in realising that there’s more to managing the economy than tinkering with the rate of interest.
Now I think I’ll go have a drink with Marvin…
The Devil pens a motivational letter to his minions in America.
Through means I am unable to disclose, I have obtained a copy of the Devil’s New Year’s missive to his minions in America. Though it appears He delivered his letter on January 1, it has taken me until after Lunar New Year to obtain a copy. The Devil’s gleeful anticipation of America’s ruination by 2015 should give us pause.
Though my minions have long sown festering seeds of hate and disharmony in that now-benighted land, only recently have my favored weapons of destruction–leverage, debt, half-truths and endless, preening justifications for self-aggrandizement, greed, sloth, lust, pride, envy, anger and gluttony–have been unleashed to worm their way into the stricken heart of that Republic.
My most treasured hopes of destitution and conflict in the U.S.A. are nearing fruition.
First, my minions in the Federal Reserve–such loyal servants!–and the Federal government have continued to flood the land with leverage and debt, spreading the seeds of destruction under the false guise of prosperity. What a delicious irony, that the fools doomed to eternal damnation in my Empire believe themselves prosperous as they absorb the poison of exponentially rising leverage, debt and phantom collateral.
They have made a mockery of the rule of law, openly flouting “no one is above the law” by letting financial crimes go not just unpunished but rewarded. There are two sets of laws and two sets of books now firmly in place, one for the financial Elites and their political toadies, and another one for the tax donkeys beneath them. This blatant injustice that roams the land like a foul, slobbering beast will eventually ignite the firestorm I seek.
American extravagance has surpassed even my highest expectations, as purveyors of luxury goods reap record profits, and the childish desire for instant gratification has become the unspoken ruler of the land. Convenience is now worshipped as a god, sitting triumphant beside entitlement, greed and willful ignorance.
Convenience is, as you all know, the name of a peculiarly slick slide into Hell.
One of my favorite sins, gluttony, is running amok, with half of the people groaning under their own weight, sickened and weakened. My loyal minions in the fast-food and packaged food industries have followed my plans to perfection, and my lackeys in the marketing and media have fueled the instant gratification and ignorance which insidiously undermine even the greatest empires.
Pride–oh, how the Americans excel at hubris and pride! The Federal Reserve chair, bless her doomed soul, has declared herself confident about an economy that is nothing but a confidence game. Oh, what joy to hear her lies spoken with such confidence!
The mere thought of the word greed cause me to chuckle delightedly, as the U.S. excels as a haven for greed without bounds, a greed so boundless that the entire universe would be insufficient to satisfy its bankers, hedge fund managers, high-frequency traders, Imperial factotums and politicians. How happy I am to see their greed grease their way into Hell.
I feel like dancing a jig when I hear the unbridled sense of entitlement which has poisoned the American spirit. Cloaking their greed and avarice with rationalizations–“I was promised,” “It’s my right,” “I deserve it”–brings them closer to me and my Domain with every bleated plea for more, more, more. It is wondrous indeed how my secret invention, “free money,” debilitates once-independent souls, and places them on a one-way street to servitude.
Anger is now overflowing everywhere, building my empire with every thoughtless word. Politicians rage against each other, the people rage against the politicians, and behind the scenes my servants in the political action committees feed the anger with billions of dollars in campaign donations. How amusing to see the politicos lay claim to noble ideals even as they scramble on their knees to collect the millions tossed at their feet to do my bidding.
Oh yes, my bidding, for their greed, pride and anger are my bidding. By all means, politicians, do my work: give tax breaks to the ultra-wealthy, let financial crimes go unpunished, allow the financial Elites’ looting to go unhindered, transfer the wealth earned by the citizens’ sweat to the Central State’s financial Elites when their trillion-dollar bets go bad–fuel the anger which will tear you from power, and tear the country apart.
I laughed with glee a few years ago when One Beholden To Me announced that he was doing “God’s work”–how I love twisting together irony and lies! He fooled no one, of course, for even the most deluded souls know he is doing My Work, not the Lord’s, but they are too distracted by games and ginned-up contests to care. Nothing has changed since the corrupt system tasted a whiff of what lies ahead in 2008; oh, how deliciously the lies and the debts are piling ever higher!
Not caring is doing my work, too, of course; in fact, it one of my favorite tools.
The nation bled itself for a decade with unwinnable wars, sacrificing its best youth on the altar of endless war–how can I not rejoice at this orgy of death, destruction and sowing of hate? The feeble liars at the nation’s helm print endless sums to fund war and to prop up vile tyrants, but offer nothing for libraries or literacy or the curing of malaria. How can I not rejoice at a nation which finds trillions for war and next to nothing to fight the diseases of the poor residents of former colonies, including that Prince of Disease, ignorance.
As for sloth–that millions are being paid to sit around watching television instead of being productive creates the perfect breeding ground for resentment, malice and envy. How perfect to pay people to sit at home and rot away, with only their discontent and despair for company.
As you know all too well, idle hands end up doing my piecework for free.
It was almost beyond my dreams to find the nation’s wealth and politics so dominated by a tiny handful of wealthy financial plutocrats–they are doing my bidding without hindrance, though I see by their troubled sleep that they know where their greed and rationalizations are taking them. To channel the nation’s wealth to a few hands–what better way to nurture envy and anger?
If ignorance were treasure, the American political class must be declared wealthier than Midas, for its ignorance has reached a pinnacle I can truly admire. Ensnared by their lust for power, blinded by their greed for fame and perquisites, they look no further than the next election cycle, dooming their nation to division, disharmony and the desolation of permanent conflict over the dwindling productive assets of this once-great nation.
The people cry out to be saved by the government, as if it was a Savior instead of a vast combine chewing through the wealth of the nation, “investing” it in corruption, parasitic financial Elites, military misadventures, Homeland “Security”–ha, isn’t that a jewel, as the nation withers from within–and the steady, unyielding oppression of the remaining productive members of society.
When the people cheer “We’re number One,” I cheer with them, for pride goeth before a fall. When they believe the half-truths, the illusions, the mispresentations, the misdirections and yes, the outright lies of the ruling class repeated by their toadies in the media, I can no longer restrain my delight, for lies and half-truths are my favored weapons of destruction. The leaders are themselves leaderless, blank, hollowed-out souls doing the bidding of their parasitic masters, focused only on keeping the corrupt and venal status quo together for a few more months, never looking out ten years.
Their worship of greed and self-aggandizement is worship of Me, and their frantic efforts to prop up pseudo-democracy and pseudo-free markets serve Me most effectively.
I delight in shortsightedness, an abject fear of change and transformation, the clinging to failure and pride, and the refusal to face reality.
For the U.S.A. is now an Empire of Debt and Lies, its fraudulent financial system built on misrepresentations of risk and value, and its “economy of confidence” a con game based on illusory wealth, parasitic skimming, government gaming and tax donkeys paying for their Financial Masters’ idiotic mistakes.
This adolescent desire to believe the lies, because in believing the lies then nothing need change–this might be my most powerful destructive tool.
A hunger for fantasy and illusion, a fear of adaptation, a childish demand for instant gratification–these are forces I can rely on to lead the once-great country to absolute ruin.
And here is the beautifully evil part, my minions–no external enemy is required.The Americans are destroying themselves with their reliance on leverage, debt, denial, half-truths and overflowing servings of the Seven Deadly Sins, all of which they have elevated to “assets” in their hopelessly twisted values. To be supremely unproductive, a churner of lies and financial trickery, is now the most rewarded and admired state in America.
The spiritual rot is now so deep and pervasive that the people no longer even recognize the decay –they have been lulled into a false belief that this culture of fraud, embezzlement, manipulations, propaganda and parasitic financial Elites has always held sway. This is precisely how a people act when they have lost their way, spiritually and morally: they elevate sins to virtues, and forget the lessons of their past.
And of course everyone claiming that there is no spiritual vacuum sucking the nation dry, that the status quo is simply “business as usual”–they are doing my work, too, for habituating to all that is corrupt and reprehensible, all that is lacking in integrity and honesty, this is doing my work most admirably.
Americans no longer hate me, they hate sacrifice and honest introspection, with a passion that enlivens my enthusiasm for their self-destruction.
How can I not be pleased this New Year? At long last, the destruction of the United States by its own citizens is close at hand. Give me two years, minions, no more than four, and I shall insure they will finally begin reaping what they have sown.
Ignorance, my poor dear Americans, will not save you, nor will your ceaseless pathetic bleatings of excuses, justifications and rationalizations save you from the rank harvest of what you have so assiduously sown for the past five years. Indeed, your excuses and rationalizations push My poisoned blade deeper into your nation’s heart with every lie, every excuse, every frantic justification for your own entitlement.
I await 2014 with high expectations, so crack on, My minions; our goal is within reach.
Most sincerely yours,
It may not be one of the core three (somewhat) realistic and accurate econometric indicators of China’s economy (which as a reminder according to premier Li Keqiang are electricity consumption, rail cargo volume and bank lending), but when it comes to getting a sense of capacity bottlenecks in China’s fixed investment pipeline – be it in ghost cities or the latest skyscraper building spree – nothing is quite as handy as commodity, and particularly iron ore (if not copper, which as we have explained before has a far more “monetary/letter of credit” function in China’s markets), stockpiles at China’s major ports. The logic is simple: no stockpiles means end demand by steelmakers is brisk and there is no inventory build up which in turns keep Australia, Brazil and other emerging markets happy. Alternatively, large stockpiles indicates something is very wrong with final demand, and hence, the overall economy.
One look at the chart below, which shows how much iron ore has been stockpiled at China’s 34 major ports (spoiler alert: it just hit an all time high), should explain at which of these two extremes China currently finds itself.
Here is what happened as explained by Market News:
Weak demand from steelmakers saw iron ore stockpiles at major ports hitting record highs, according to data from industry website umetal.com. Iron ore inventory at China’s 34 major ports jumped 4.56 million tons last week to 100.86 million tons as of February 14, the 2nd time it has surpassed the 100 million-ton level and matching the record of 2012. Iron ore imports were also at a record high in January, at 86.83 million tons, as steel traders boosted imports to bet on rising steel prices this year. But data from the China Iron and Steel Association showed crude steel output falling around 2% m/m in January. Average steel prices fell 0.79% last week, according to data compiled by mysteel.com.
There is another, more finely spun, explanation: monetary financing, or in other words, when it comes to China’s peculiar “generally accepted collateral”, iron is the new copper. Bloomberg explains:
Iron ore stockpiles in China, the world’s biggest buyer, climbed to a record as traders increased imports to use the steel-making raw material as collateral for credit and domestic demand remained weak.
“Imports kept piling up at ports as more cargoes are being hauled in for trade-financing deals,” Gao Bo, chief iron ore analyst at Mysteel.com, a researcher in Shanghai, said by phone from Beijing today.
While this may suggest end demand has not completely imploded, it does bring up a different set of complications: steel mill funding difficulties – perhaps the most sore topic in China nowadays.
Steel mills and trading firms in China are contending with increasing difficulty in getting funding, said Mysteel’s Gao.
“The funding situation in the steel industry was getting worse last month,” he said.
The weighted average lending rate in China was 7.2 percent in December, up from 6.22 percent a year earlier, central bank data released earlier this month show. In December, 63.4 percent of loans had interest rates above benchmarks, up from 59.7 percent a year earlier, according to the central bank.
However one spins it though, there is no denying that in addition to its on again, off again infautation with tapering and deleveraging, which usually continues right until the moment yet another shadow bank has to be bailed out, construction in China has slammed on the brakes:
Stockpiles of steel products also rose as construction activity remained weak after the Lunar New Year holidays, Gao said. Traders’ stockpiles of rebar, a building material, jumped by 65 percent this year to 8.55 million tons last week, according to Shanghai Steelhome.
One thing is certain – the biggest loser, as iron prices are set to tumble, will be Australia
Prices may average $119 a ton this quarter, $110 in second quarter and drop to $100 in the final period of this year, Goldman Sachs analysts led by Christian Lelong said in the Feb. 11 report.
Mine supply of iron ore reached a record over the fourth quarter of 2013, “with the natural destination being China,” Macquarie Group Ltd. said in a Feb. 13 report. “With inventory build being evidenced on the back of higher imports, this will act as a buffer to buyers in the coming months,” it said.
China’s shipments from Australia’s Port Hedland, the largest ore-export terminal, rose 27 percent to 23.3 million tons last month. Increased supply from Australia, the top ore shipper, may push the global seaborne surplus to 94.2 million tons this year from 9.1 million tons in 2013, UBS AG estimates.
Rio Tinto Group (RIO), the world’s second-biggest exporter, said last month that output rose 7 percent to 55.5 million tons last quarter from 52 million tons a year earlier. Fortescue Metals Group Ltd. is boosting capacity to 155 million tons by the end of March.
And speaking of Australian iron miners, it was in late summer of 2012 when Chinese iron ore stockpiles were once again in the 100 million ton range, when iron prices crashed so bad, that Fortescue was on insolvency watch. Should the current episode of collapsing Chinese end demand persist and construction freeze persist, it may be time to short to FMGAU bonds once again.
Unless of course, China once again unleashes the ghost cities building spree. Which it inevitably will: after all it has become all too clear that not one nation – neither Developing nor Emerging – will dare deviate from the current status quo course of unsustainable, superglued house of cards “muddle-through” until external, and internal, instability finally forces events into a world where everyone now has their head in the proverbial sand.
This is a particularly unpleasant subject to write about and I thought long and hard before deciding to write about my findings in the hope it will prompt others to take note and raise the issues within their families, communities and with those whom you have elected to power, so we can do something constructive about it before it is too late.
By way of coincidence the Government has just announced its response to findings that as a nation we ‘must quickly’ find ways of growing more of our own food and to waste much less as the world’s population grows and acknowledging we will not be able to rely upon imported food to meet our needs.
Yet it concerns me deeply when, in the face of overwhelming evidence, the world’s Governments, Major Charities, Health Organizations and News Media all appear to be silent or very timid in dealing with the impending worldwide catastrophe that will almost certainly occur within the next two generations, unless bold and difficult decisions are made and adhered to.
Upon examining objectively the wealth of evidence, (summarized below), I believe it is reasonable to assume, without such intervention, only a natural disaster such as the global spread of a virus, like a more aggressive mutated strain of Swine Flu to deplete the world population by at least 1 Billion people if we are to avoid otherwise inevitable global wars. (Please bear in mind in 1919 the Spanish Flu was conservatively estimated to have killed somewhere between 20 to 50 Million people at a time when the world population was just 2 Billion and far less mobile).
This is a chilling and rather unpleasant prediction, which you may feel to be far fetched but it is a rational one, made after careful study of the available evidence.
Whilst I am unable to provide the evidential links within this article,
Here are a few basic statistics from respected sources:
1. The World population is set to grow from circa 6 Billion to 10 billion by 2050.
2. Almost all of that growth is expected in the developing nations.
3. In the UK the ‘natural’ population is growing by circa 187,000 per year, largely due to an ageing population, (that is population growth excluding immigration)
4. To put that into perspective the population of Milton Keynes is circa 185,000. Thus our natural population growth in the UK is a town the size of Milton Keynes every year.
5. By 2050 the UK is expected to have a population increase of 17,000,000, (it is already have one of the most densely populated countries in the world).
6. In the developed world we are experiencing a rapidly aging population. In the US the average age is expected to increase from 34 to 43 by 2025.
7. In 2008, those over age 65 numbered 506,Million. By 2040 that is forecast to increase to 1.3 Billion. Going from 7% to 14% of the world’s population. Most of that growth will be in the developing world.
8. New entrants into the labour force in the developed world are set to fall by circa 33% by 2025.
9. It has been predicted that by 2030, we will need ‘two earths’ to live on and provide the necessary food to feed the expected population
10. 1 in 5 of the world’s population has no access to fresh water.
11. The UN expects the major conflicts in Africa over the next generation will be over water supplies.
12. The growing population will place an ever increasing demand upon the available water supplies, expected to be a 40% increase in demand over the next 20 years
13. Only 2.5% of the world’s water is not salty.Of that 70% is frozen, leaving only 1% of the world’s water as accessible for consumption
14. By 2020 the world’s fresh water supplies are only expected to meet 17% of the demand for consumption, industry and farming.
15. In China the ground water table is shrinking by 1.5 Metres per year.
16. Changing weather patterns are resulting in dry regions becoming arid, forcing migration of the population.
17. Over consumption of the ground water supplies in many countries is causing salinization of the ground as salt water pushes in to take over the space, leaving it no longer able to support the growing of traditional crops, live stock and wildlife.
18. With current technology, we have circa 50 years worth of economically accessible fossil fuels.
We see on a daily basis the desperate attempts by those eager to come to Britain and other developed countries, as their lives in their home countries becomes ever more hopeless.Based on the evidence I have seen, this is set to increase on an exponential scale and it is this I believe will lead to major conflict.
I do not purport to have all of the right answers but I do know we are going to have to take decisions that, as caring and compassionate people do not sit well with our consciences. As developed nations we will also have ever increasing pressure on our financial resources to provide improved medical and social care. This is already barely sustainable and in the near future, as the balance shifts between those younger people in employment paying most of the taxes and those in retirement using most of the social care budget, it will simply not be sustainable.
I suspect we will have to say no to medical help that extends the life of the elderly still further. As we will have to limit other life saving medical help to others who need it. I have no doubt this is not acceptable to most of us who are seeing a loved one suffer. We are also likely to have to reduce aide to developing countries, yet we will be reliant upon immigrants to staff many of our service sector posts, including the care sector, if we are to have enough staff to look after our ageing population. This will place even more strain upon farming land, housing supply, water supplies, transport infrastructure, etc.
If not carefully addressed, it may to lead to age related prejudices and conflicts as the young come to begrudge being excessively taxed to provide for those who want to live longer and be provided for at the expense of the working tax payer.
Green, fruitful countries with good harvests, good water supplies and a benign climate, may well may become the focus of aggression to secure the new world wealth, ‘Fresh Water and Food’.
In short, I believe we are left with three unpalatable options:
1. Make the tough decisions, which I doubt we will do, as it is too upsetting and there will be a lack of political and social will. In short, the population of the developed world will continue to bury their heads and hope the problem will go away.
2. We can hope for nature to step in with one or two enormous natural disasters, such as viral pandemics. Very tragic for so many of us who will lose loved ones but at least we did not have to make the uncomfortable decisions.
3. We can wait for various nations to start attacking those countries on their borders and further afield to secure their food and water supplies, for these will be the new oil. Then we will have the ultimate catastrophe!
I would like to think I am wrong in what I have stated and would dearly like someone to prove me wrong but following extensive research, all of the information I have gathered has simply compounded my initial concerns.
Validation of all of the above statements, can be found on my website, where the article is reproduced with all of the links to the background research.
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The Libyan “Revolutionaries Operations Room” (ROR) said that it acquired “documented information” regarding plots by the UAE and Egyptian military-led authorities to meddle in Libyan affairs and to abort the Libyan revolution.
According to the Middle East Monitor, in a Facebook statement the ROR claimed that UAE’s security agencies has recently formed two “cells” to circumvent the Libyan revolution and to stop Libyan oil exports.
The statement read: “We received information that UAE’s security apparatus has formed two high level cells. The first aims at overthrowing the new Libyan regime, the Libyan National Congress, and confronting the rise of Islamists. The second cell is a specialized media one based in Amman, Jordan.”
According to the statement, the “media cell” is primarily tasked with disseminating news that would serve the agenda of the “security cell”. Part of its agenda is to distort the image of Islamists, particularly with their rising popularity in Libya, the statement claims.
The ROR claimed that it obtained all information related to the “security cell” in Libya, and that it is led and funded by the UAE. It claimed that the cell has been operating in Libya since January 26, 2013.
“A high level Libyan source told ROR that a group affiliated with Mahmoud Gebril abducted Abu Anas Al-Libi based on a request from the UAE which immediately handed him over to the American CIA.”
The statement claimed that Sheikh Tahnoun Bin Zayed Al-Nahyan leads the security cell, while the members of the cell are counter-revolutionary figures in Libya, including Al-Saadi Al-Ghadhafi who managed to escape from the rebels, and a Libyan close to the Egyptian coup leader Abdel-Fattah Al-Sisi.
The ROR affirmed that the “security cell” is based in Abu Dhabi, and convenes regularly with the protection of UAE security.
China Folds On Reforms – Bails Out 2nd Shadow-Banking Default After “Last Drop Of Blood” Threats | Zero Hedge
As we showed over the weekend, it is abundantly clear that for all the talk of reform, Chinese authorities have found the gap between words and deeds uncrossable. First, Chinese authorities bailed out the relatively small CEG#1 Trust (for fear of contagion); second, the PBOC injects CNY 375 bn into short-term repo to save banks from a liquidity crisis at year-end; third, total social financing rose by the largest amount on record in January (despite all the talk of deleveraging following the Plenum); and now, fourth, thanks to a CNY 2bn loan (to an entirely insolvent coal company), Chinese authorities have bailed out a 2nd wealth-management product – this time even smaller.
We noted the “technical default” of Jilin Trust last week, and despite its de minimus size, China Development Bank loaned CNY 2bn to the verge-of-bankruptcy Liansheng coal company, and thus bailed out investors in the trust – piling on the moral hazard.
The Jilin Trust default, as we noted last week, was the second notable ‘technical’ default among Chinese wealth management products recently and caused consternation among investors:
Investors in the Jilin Trust product are demanding that CCB also take responsibility for compensating investors, 21st Century Business Herald reported on Friday.
Bankers have warned that China’s lenders are exposed to vast swathes of loans extended by their non-bank partners and sold to bank clients as off-balance-sheet wealth management products. Though banks are not legally responsible for repaying investors in such cases, they may face pressure to do so in order to maintain their reputations and uphold social stability.
“A few days ago, we went looking for CCB. CCB’s leader in Shanxi still says it’s not his responsibility. In the end, if they really don’t take responsibility, we’ll go to CCB and fight a war to the last drop of blood,” the paper quoted an unnamed product investor as saying.
Investors told the paper that all paperwork and fund transfers related to their purchase of the Jilin Trust product had occurred on CCB’s premises and CCB sales staff had verbally assured investors that the product carried no risk. They also said their willingness to invest was based on their confidence in CCB as a large state-owned bank.
And so what do the Chinese authorities do? Instead of letting a small trust face actual losses, they do what JPMorgan warned would “amplify future losses”…
China Development Bank lent 2b yuan to coal company Shanxi Liansheng, which owes almost 30b yuan to lenders including banks, trusts and asset management firms, 21st Century Business Herald reports, citing unidentified people.
The policy bank is the co.’s largest creditor, with 4.51b yuan in outstanding loans, the report says
The loan will be used to repay maturing trust products sold to retail investors: report
Three local firms will also pay 3b yuan to buy 50 percent of Liansheng, which is based in the northern province of Shanxi, the report says, without identifying cos buying stake
Funds from the stake sale will also be used to repay maturing trust products: report
Repayment of bank loans and single trusts will be delayed
Liansheng, the largest private coal miner in Shanxi, is owned by Chinese entrepreneur Xing Libin, according to the report
Liansheng borrowed more than 5b yuan through 6 Chinese trust firms including Jilin Province Trust and Chang’an Trust, China Securities Journal reports separately, citing unidentified people.
As a reminder, this is what one analyst said of the Chinese coal industry that just got yet another bailout:
Shares of China’s biggest listed coal producers have dropped to their lowest valuations on record as falling fuel prices make it harder to repay debt.
China’s coal industry is “dead,” said Laban Yu, a Jefferies Group LLC analyst in Hong Kong with an underperform rating on all three stocks. “There are 10,000 producers in China. A lot of them are taking on debt. It gets harder and harder to service debts when coal prices keep falling.
Of course, it’s not over yet – as the following chart shows, there are a lot more “maturing” trusts to come in the next 3 months alone…
Allowing investors to be bailed out merely exacerbates the risk-taking mentality and solidifies a belief in a government back-stop (to 10%-yielding highly risky loans to an insolvent industry!!)…
…borrowers are facing rising pressures for loan repayments in an environment of overcapacity and unprofitable investments. Unable to generate cash to service their loans, they have to turn to the shadow-banking sector for credit and avoid default. The result is an explosive growth of the size of the shadow-banking sector (now conservatively estimated to account for 20-30 percent of GDP).
Understandably, the PBOC does not look upon the shadow banking sector favorably. Since shadow-banking sector gets its short-term liquidity mainly through interbanking loans, the PBOC thought that it could put a painful squeeze on this sector through reducing liquidity. Apparently, the PBOC underestimated the effects of its measure. Largely because Chinese borrowers tend to cross-guarantee each other’s debt, squeezing even a relatively small number of borrowers could produce a cascade of default. The reaction in the credit market was thus almost instant and frightening. Borrowers facing imminent default are willing to borrow at any rate while banks with money are unwilling to loan it out no matter how attractive the terms are.
Should this situation continue, China’s real economy would suffer a nasty shock. Chain default would produce a paralyzing effect on economic activities even though there is no run on the banks. Clearly, this is not a prospect the CCP’s top leadership relishes.
So the PBOC’s efforts are merely exacerbating the situation for the worst companies…
“Guidance” is the new organizing credo of US financial life with Janet Yellen officially installed as the new Wizard of Oz at the Federal Reserve. Guidance refers to periodic cryptic utterances made by the Wizard in staged appearances before congress or in the “minutes” (i.e. transcribed notes) from meetings of the Fed’s Open Market Committee. The cryptic utterances don’t necessarily have any bearing on reality, but are issued with the hope that they will be mistaken for it, especially by managers in the financial markets where assets are priced and traded.
One such infamous moment of guidance was Ben Bernanke’s May 2007 statement saying that percolating sub-prime mortgage problems were “contained.” If that was a signal for anything it was a green light for banks not yet deemed too big to fail to continue constructing swindles called collateralized debt obligations (CDOs), which were bundles of already bundled mortgage backed securities based on janky mortgages for million-dollar houses owned by Las Vegas busboys, and the like, that had no prospect of ever being paid. The banks kept at it sedulously for another year, and then in September of 2008 this stream of combustible financial garbage blew up the banking system. Nobody at the Fed saw it coming, least of all Janet Yellen.
And then the banking system was “rescued” by the “program” (free money bailouts) enacted by congress called TARP, while the Fed set up a carry trade system that would enable the floundering (now) too big to fail banks to convert massive volumes of zero-interest no-risk loans into a dependable revenue flow to “build reserves,” that is, allow them to appear solvent while engaging in new dodges, swindles, and manipulations of markets, currencies and interest rates.
Which brings us very near the present. Fed chairperson Yellen gave a marathon six-hour audience to the House Committee on Financial Services last week. It was so devoid of substance and meaning that the TV network covering it switched the feed a few times to the exciting Olympic event of curling, in which “athletes” wield brooms to induce giant polished stones to glide across a length of ice at a scoring target — that is, an entirely artificial and purposeless activity aimed at producing a trance of contentment among viewers who have nothing better to do in the middle of the day.
Last May’s remarks by then Fed Chairperson Ben Bernanke that the Fed might consider “tapering” its gigantic monthly purchases of US Treasury bonds plus an equal amount of stranded mortgage paper made the markets so nervous that stock indexes had a seizure and the interest rate on the lodestar ten-year treasury bill shot up 150 basis points — into a zone that would cripple the government’s ability to keep its credit revolving. These dire portents prompted Bernanke to take back what he’d said, but then three months later, in the fall, he restated the taper guidance. By then, market watchers and playas were sure that he was just juking them, and anyway they were too busy stuffing their Christmas bonus stockings to take him seriously.
Lo, the taper is still on under Wizard Yellen, for the simple reason that if she backed out of it now, before she officially chaired her first meeting of the Fed governors, her outfit would lose whatever shreds of credibility it still hangs onto. Even with the taper on, it is for now still pumping over half a trillion dollars a year into the banking system. There is some reason to think that it made the markets puke two weeks ago. But then a really bad employment number came out, and in the inverse climate of bad-news-being-good-news for bubble markets, that was construed as a sure sign that the Fed might have to un-taper sometime around late spring with Yellen’s chairpersonship fully established. I suspect they’ll do something else: they’ll continue to taper down purchases of treasuries and mortgage detritus via the direct TBTF bank channel and they’ll establish a new “back door” for shoveling money into the system. Nobody knows what this is yet, and it may be some time even after it starts that the mechanism is discovered. In the meantime, the seeming placidity of the renewed “risk on” mood should be a warning to market cheerleaders. Something’s got to give and I think it will be the US dollar index, which has been in Zombieland since November. The world has never been so ready for a change in direction. Expect no real guidance from your leaders.