Month: September 2018

Authored by Ruchi Shroff via Common Dreams,

Cancelling out Monsanto’s name and keeping only that of Bayer, does not mean forgetting the wrongdoings of a company which, according to the verdict of the Monsanto Tribunal of The Hague, is stained with crimes of ecocide. With Bayer’s official takeover of Monsanto, the giant multinational also inherits its liabilities.

On the eve of the start of the integration process, Monsanto has been held liable for causing cancer through the use of its glyphosate-based weedkiller Roundup and ordered to pay $289 million of damages to the plaintiff Dewayne Lee Johnson in the first landmark case, settled in California in mid August 2018. The jury also found that Monsanto “acted with malice or oppression.”

According to Reuters, the number of lawsuits brought against Bayer’s newly acquired Monsanto is approximately 8000 in the US alone. UN experts Ms Hilal Elver, Special Rapporteur on the right to food and Mr. Dainius Pūras, Special Rapporteur on the right to physical and mental health, defined the ruling “a significant recognition of the human rights of victims, and the responsibilities of chemical companies.”

Revelations in reports published last year, most notably the “Monsanto Papers” and the “Poison Papers“, have shed light on strategies of big agrochemical groups to expand their empires: from lobbying, interference in government agencies’ proceedings, attacks in collusion with institutions on independent science, to mega mergers and acquisitions.

For the first time part of these documents were shown to a jury, which were able, among other things to also see that, “at least starting 20 years ago, Monsanto has known that their product can cause cancer, and has gone out of its way to ignore it and/or fight any science that suggests a link”, as declared to Democracy Now by Brent Wisner, the lead trial counsel for Dewayne Lee Johnson in his lawsuit against Monsanto. Added to this, in the same week, California’s Supreme Court rejected a challenge by Monsanto to the state’s decision to include glyphosate in its Proposition 65 list of carcinogens.

On other fronts, other lawsuits have been filed in the US by farmers’groups, and seed sellers are pushing environmental regulators to bar farmers from spraying dicamba weed killer, key ingredient of the new Monsanto-Bayer and Basf products, which has been causing drift-related crop injuries sweeping across rural America in the last 2 years; in Europe, the special committee on pesticides authorization process reacted to the US court’s decision by calling once again for a ban of glyphosate in the continent; in Sri Lanka, where a fatal chronic kidney disease (CKDu) has been linked to glyphosate use, a group formed by farmers’ organizations, scientists and affected families declared that they are ready to take Bayer/Monsanto and other glyphosate herbicide manufacturers to the Supreme Court.

Vietnam is also demanding compensation for victims of exposure to the Agent Orange, the chemical produced by Monsanto for the US military during the Vietnam War.

A clear signal of the fact that Monsanto’s past is set to haunt Bayer in spite of all efforts to eliminate the brand name, is that the week following the verdict, Bayer’s shares fell sharply, approximately by 10 – 12% ($12.5 Billion).  It is interesting to note that the stock exchange, the very core of today’s globalized economy, seems to be quite unforgiving.

Navdanya, along with civil society organizations around the world, will continue to monitor, report and protest so that the agroecological, transition also recently discussed at the FAO‘s Symposium on Agroecology, becomes a reality and that local, circular and inclusive economies, nutritious and healthy food, become the norm once again After fifty years of an intensive, unhealthy food production model that has devastated our agriculture system by polluting the environment, producing poisonous food and without remotely solving the hunger problem, has instead further undermined people’s food sovereignty. Industrial agriculture in fact can claim only a relatively small portion of the global food production. The majority of the food we consume is, actually, still produced by small and medium farmers, while the vast majority of crops coming from the industrial sector, such as maize and soya, is mainly used as animal feed or to produce biofuels.

Navdanya International has invited leading experts from around the world for the drafting of the Manifesto “Food for Health. Cultivating Biodiversity, Cultivating Health.” The Manifesto, which will be widely disseminated to farmers and citizens, governments and stakeholders, aims at highlighting the inseparable link between food and health, developing comprehensive strategies to overcome the model of industrial agriculture, encouraging the convergence and action of the movement for Agroecology and Public Health movements to reach a common vision of sustainable development, which must be equitable and inclusive, based on biodiversity and poison-free food and farming systems.

The work of Navdanya International, from the creation of the International Commission on the Future of Food and Agriculture, and the publication of four Manifestos, has focused on promoting a new agricultural and economic paradigm, and the belief that solutions to the multiple crises facing humanity today can come from a determined shift away from the present profit and competitive-based paradigm to a model that has at its keystone the protection of the earth and environment and respect of the rights and dignity of people. In biodiverse organic farming, in Seed Freedom for farmers and citizens, in circular economies based on meaningful work, we can find solutions to the environmental, climate, social and economic crisis. We will continue to reclaim citizens’ rights, as well as those of small and medium producers, who, despite being crushed by the current market mechanisms, are the only ones providing us with healthy and nutritious food.

Furthermore, we will not stop fighting this attempt of multinationals to takeover of our food, health and democracy which, instead of being regulated by our elected representatives, are increasingly able to take on the role of regulators through heavy lobbying actions, thus posing a serious threat to our own democratic system.

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According to a new analysis of Federal Reserve and FDIC data by Magnify Money, the median American household has around $11,700 in savings between bank accounts and retirement savings – meaning 50% of Americans have less than $11,700 in savings, and 50% have more. The average American household, however, has saved $175,510 – a vastly different figure.  

This data is largely meaningless from 10,000 feet…

The disparity between median and average savings can be explained by math; the ultra-rich, who are essentially outliers, skew the average higher – while the median figure is the midpoint between all savers. 

In other words, while headlines quoting averages suggest that savings rates for all Americans are improving dramatically thanks to recent upward revisions – the reality is that most of the gains have gone to the top. 

Because of this, it’s far more useful to look at savings rates through certain “demographic prisms” such as age and income – at which point the data becomes much more relevant. To that end, Magnify Money‘s Chris Horymski puts things in perspective. From his analysis we learn: 

• The median top 1% of households by income have $1.15 million in savings, while over 50% of low-income households have no savings.

• The median baby boomer household and those born before 1946 has roughly $97,120 saved, while the median GenXer has $43,000. Millennials have a median savings of just $9,230. 

In looking at the charts below, the “median vs. average” skew can even be observed even within “demographic prisms”: 

• The average top 1% of households have roughly $2.5 million saved, while the average savings among the bottom 20% of earners sits at $8,720 – clearly not reflecting the fact that over half of low-income households actually have no savings at all.

• Meanwhile, the average boomer household has saved $380,000, while the average GenXer has $165,000 and millennials have just $34,000. 

Average and Median Savings Levels by Income

[A]lthough the average American household has saved roughly $175,000 in various types of savings accounts, only the top 10%-20% of earners will likely have savings levels approaching or exceeding that amount. Indeed, and as the chart shows, the bottom 40% of American households are more likely than not to have any savings whatsoever. Conversely, the top 10% of the population by income is likely to have many times the national household savings average.

…

Similarly, millennials will have saved less than boomers, as the latter has had a 35-year head start, among other factors. Currently, the average boomer has roughly 11 times the amount saved as the average millennial. –Magnify Money

Average and Median Savings Levels by Age

Indeed, some 50.8 million households – or around 43% of households can’t afford the basics; housing, food, health care, child care, transportation and a monthly phone bill, according to government data analyzed by the United Way Alice Project. 

The United Way Alice Project uses standardized measurements to calculate the “bare bones” household budget in each county in each state. It maintains that the federal poverty level — currently $25,100 for a family of four — doesn’t accurately illustrate the number of people living in poverty because it doesn’t take into account the dramatically different costs of living across the U.S. “It is morally unacceptable and economically unsustainable for our country to have so many hard-working families living paycheck to paycheck,” he said. –Marketwatch

That said, people are saving more, however less money has been going into lower-yielding Certificates of Deposit (CDs), while more has gone into liquid Money Market and Passbook / Savings accounts: 

But that growth isn’t going into CDs. There’s nearly $1 trillion less in CDs in 2018 than 10 years ago, while the amount of savings in both traditional and money market deposit accounts has increased by more than $2 trillion in each category. –Magnify Money

As illustrated in the chart below, the popularity of CDs has waned as banks paid relatively little interest for all CDs, even those with longer maturities. For much of the past decade, the average yield for locking up savings in 1-year CD barely exceeded the average yield on a money market account, which is more liquid than a CD. –Magnify Money

When it comes to duration, long term CDs haven’t yielded much more until recently, lagging the Fed’s rate hikes by about a year. 

And as Marketwatch‘s Quentin Fottrell notes, people have been hoarding money since the Great Recession – going from an average of $1,000 in checking accounts to more than $3,700. 

When times are good, Americans feel confident by keeping little in checking, but when times are difficult they store money in checking accounts, pulling back on spending on retail and restaurants. Michael Moebs, economist and Chief Executive of Moebs Services, said this may be a cause for concern at a time when the Federal Reserve is raising interest rates, making it more difficult to buy a home, but creating more of an incentive to put money into savings accounts. The one obvious upside: Many investors have enjoyed gains in a 113-month bull market, the longest in history. –Marketwatch

In short, don’t let average figures fool you. 

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Authored by Jeffrey Kleintop via Schwab.com,

Key Points

• It’s been 10 years since a U.S. financial shock turned into a crisis in the global financial, market and economic system.

• A shock turns into a crisis when the system is unprepared for it. The system is often at its most vulnerable near the end of the global economic cycle when excesses have built up and managing risks may have been neglected.

• The global economic, financial and market system now seems better prepared to manage the shocks of the past were they to repeat in the future. But there are other increased vulnerabilities including: high debt levels, political fragmentation, dependence on international sales, little fiscal or monetary policy ammunition, and the rise of passive investments.

It’s been 10 years since a U.S. financial shock turned into a crisis in the global financial, market and economic system. On September 15, 2008, Lehman Brothers filed for bankruptcy as the shock waves from subprime mortgages rocked the entire financial system, shattering confidence and leading to an economic downfall.

Regularly paying attention to financial news reveals one thing for certain: shocks to the global system happen all the time. Many of these shocks are absorbed by the system without much disruption. Recent examples of shocks might include last year’s escalating geopolitical tensions between the U.S. and North Korea, the U.S. Fed beginning to reverse QE (quantitative easing), or the rapid unwinding of the short-volatility trade that took place earlier this year. 

A shock turns into a crisis when the system is unprepared for it. The system is often at its most vulnerable near the end of the global economic cycle when excesses have built up and managing risks may have been neglected. Since we have likely reached the later stages of the cycle, it is now a good time to assess how well the system is prepared for the shocks that lie ahead and where the biggest vulnerabilities may lie.

Hundreds of shocks turned into relatively few crises that hit stocks

Source: Charles Schwab, Bloomberg data as of 8/16/2018.

Better prepared for some shocks

The global economic, financial and market system now seems better prepared to manage the shocks of the past were they to repeat in the future thanks to: stable energy supplies, low inflation, “circuit breakers”, few fixed exchange rates, a lack of extreme valuations, lots of corporate cash, and stronger banks.

1.  Stable energy supplies – A frequent source of shocks that the system has been vulnerable to in the past has been abrupt shifts in the supply of oil: the Arab oil embargo in 1973, Iraq’s invasion of Kuwait in 1990 and the U.S. shale oil boom in 2014-15. Each of these lead to very big moves in the price of oil, up or down. Fortunately, today’s increased economic efficiency with regard to oil, as you can see in the chart below, and the growth in non-OPEC supply (notably from the U.S.) would likely have limited the vulnerability of the system to the shocks in 1973 and 1990. 

Oil consumption relative to GDP continues to decline

Source: Charles Schwab, World Bank data as of 8/19/2018.

2.  Low inflation – Inflation remains low and well-contained on a global basis. Markets reflect a high degree of confidence in central banks to stay ahead of the curve on inflation based on inflation forecasts embedded in bond yields and economists’ forecasts. This marks a stark contrast to soaring inflation among many countries in the 1970s as central banks got behind the curve on inflation. This forced an abrupt shock on a vulnerable global system as the Federal Reserve aggressively hiked rates into the double-digits in 1979-80 to end the cycle of spiraling inflation at the cost of a global bear market and recession.

Inflation (CPI year-over-year % change) for selected countries

Source: Charles Schwab, Bloomberg data as of 8/19/2018.

3.  Circuit breakers – The so-called “circuit breakers” would have made the stock market less vulnerable to the selling forces that drove the October 19, 1987 stock market crash where the Dow Jones Industrial Average dropped 508 points, or 22.6%, the biggest one-day decline in the history of the stock market. A similar one-day drop in the Dow today would be almost 6,000 points. 

Then, an options technique referred to as “portfolio insurance,” which hedges a portfolio of stocks by short selling stock index futures, depended on the ability to sell more as the market declined. This allowed the drop to feed on itself and overwhelm the trading systems. To avoid such selling pressure in the future, circuit breakers were implemented in 1989 across all exchanges which halt trading for periods of time when the stock market hits certain percentage declines. The periodic “flash crashes” we have seen since then have been reserved to very short intra-day moves.

4.  Few fixed exchange rates – The fixed exchange rate regimes that fed the 1998 Asian crisis have all but completely vanished. A major difference between the Asian crisis of 1998 and today is that most emerging markets (EMs) have floating rather than fixed exchange rates, limiting a vulnerability to shocks. Floating exchange rates mean that shocks can be absorbed over time instead of hitting suddenly when multiple currencies devalue by a large amount all at once as we saw in Asia during the fall of 1998. Also, EM current accounts are now in balance, on average, rather than in deficit as they were in 1997-98 when they were dependent upon foreign lending to sustain their trade deficits, as you can see in the chart below. Finally, EMs have much greater foreign currency reserves that can be used to defend their currencies than they did 20 years ago. 

Current accounts in balance

Nine crisis-prone countries included in average: Brazil, India, Indonesia, Malaysia, Mexico, Russia, South Africa, Thailand, and Turkey.
Source: Charles Schwab, International Monetary Fund data as of 8/19/2018.

5.  Valuations not at extremes – There are many measures of stock market valuations. On balance, those valuations are above average, as is typical after an extended period of growth, but not at extremes or as broadly above average as they were in 2000. Extreme valuations make the market vulnerable to a shock in the form of missing lofty expectations. Both the higher level of valuations and the number of industries that had extreme valuations in 2000 compared to today can be seen in the chart below. The economic vulnerability to the 2000 shock was increased by how much investment had poured into intangible goodwill as opposed to productive assets as the valuation bubble inflated.

Valuation comparison by industry: March 2000 peak and July 2018

Price-to-earnings ratio on next twelve months earnings estimates for each of the 66 industry groups that make up the MSCI AC World Index for March 2000 and July 2018. The two industry groups with PEs exceeding 100 appear at top of scale.
Source: Charles Schwab, Factset data as of 8/18/2018.

6.  Lots of corporate cash – Companies have lots of cash relative to history according to data compiled by Bloomberg. This lack of a vulnerability, in our view, that in the past has led to the need for forced sales of assets to support companies’ core businesses may help keep a shock from developing into a crisis. It also suggests the potential for corporate share buybacks that might limit the vulnerability of stock prices to investor selling pressure.

7.  Stronger banks – In our opinion, banks are less vulnerable today than they were ahead of the 2008-09 financial crisis and the 2012 European debt crisis. Most importantly, there has been a reduction in risky activities, including sub-prime mortgage lending. There have also been substantial regulatory and institutional changes which aim to address some of the systemic weaknesses that contributed to the global financial crisis, these include: the establishment of new regulatory institutions, bank stress tests and increased capital requirements, bank taxes and fees, “bail-in” provisions, increased savings protection, and altered incentive structures. There is further progress to be made, especially in Europe where the banking system is still not integrated. But it’s clear that on measurable benchmarks banks are much better prepared. For example, banks are much better capitalized than in 2008-09 and 2011-12 crises with Tier 1 capital ratios considerably higher than they were going into past crises, as you can see in the chart below. 

Domestic banks Tier 1 capital to risk-weighted assets

Source: Charles Schwab, Bloomberg data as of 8/15/2018.

Increased vulnerability to other shocks

The global economic, financial and market system now seems better prepared to manage the shocks of the past were they to repeat in the future. But there are other increased vulnerabilities that may make future shocks turn into a crisis: 

1. High debt levels could magnify a shock from higher interest rates.

2. Political fragmentation may impair an effective response to a shock.

3. Dependence on international sales may mean more vulnerability to a shock from trade conflict.

4. Little ammunition left in the form of monetary and fiscal stimulus may limit the ability of policy to mitigate a shock from an economic slowdown.

5. Rising inflows into passive investments might amplify the market volatility from a shock.

Let’s look at each of these vulnerabilities.

1.  High debt levels – Global debt has swelled to 225% of GDP reaching $164 trillion, nearly $50 trillion above the levels that preceded the financial crisis (data is for 2016—the latest year for which totals from the IMF are available). Debt has grown sharply from $62 trillion in 2001 and $116 trillion in 2007 just ahead of the global financial crisis, as you can see in the chart below. 

Global debt has nearly tripled since 2001

Source: Charles Schwab, International Monetary Fund data as of April 2018.

While the International Monetary Fund (IMF) forecasts the U.S. as the only advanced economy that will see a further increase in debt-to-GDP ratio over the next five years, as you can see in the chart below, more than one-third of developed economies have debt-to-GDP levels above 85%–three times worse than in 2000. 

IMF expects debt-to-GDP to worsen for the U.S.

Source: Charles Schwab, International Monetary Fund projections as of 4/23/2018.

While a high debt burden isn’t necessarily a problem by itself, it increases the vulnerability of the system to a shock—in particular, a shock that would lift interest rates. Central banks’ QE (quantitative easing) programs helped ease the cost of higher debt burdens by keeping interest rates low, but those programs are winding down. 

In theory, all that debt means the potential losses from a rise in interest rates would be more costly than in the past, especially combined with a stronger dollar pushing up the cost of dollar-denominated debt outside the United States. In reality, it is hard to draw hard conclusions as to what impact an interest rate shock would have on the increasingly indebted global economic and financial system due in part to some of that increase in debt being held by central banks that aren’t leveraged or marked to market on their holdings and refund excess interest payments back to the government, unlike traditional financial institutions. For example, U.S. Treasury yields jumped by about one full percentage point and the dollar soared during 2013’s so-called “taper tantrum” without the shock turning into a crisis. Nevertheless, increasingly high debt burdens represent an increased vulnerability to a shock.

2.  Political fragmentation – The political establishment has frayed considerably in almost all major economies since the global financial crisis. Populism of both the far right and far left has been on the rise making decision-making, and even assembling governments, harder to do. The U.S. appears to be stepping back from its post-WWII role as a stabilizing force and organizer of global crisis responses. The result may be that the willingness or ability of governments to mount an effective response to a shock is impaired and could lead to a crisis. 

3.  Dependence on international trade – After a steady rise over many decades, more than half of the sales of the companies that make up the world’s stock market (MSCI World Index) now come from outside their home country, according to Factset data.  Even domestic sales are impacted by increasingly interconnected global supply chains resulting in greater vulnerability to shocks from bottlenecks or border issues than in the past.

Companies in most countries get most of their sales from outside their borders

Based on sales of companies in MSCI China Index, MSCI India Index, MSCI USA Index, MSCI Australia Index, MSCI Japan Index, MSCI Canada Index, MSCI Korea Index, MSCI Hong Kong Index, MSCI Taiwan Index, MSCI Switzerland Index, MSCI United Kingdom Index, MSCI France Index, MSCI Germany Index, MSCI Netherlands Index. 
Source: Charles Schwab, Factset data as of 8/19/2018.

4.  Less ammunition to fight a downturn – There is little room for governments to use increases in public spending or central banks to ease monetary policy in response to a shock in order to fight an economic downturn. The pre-crisis 2007 U.S. budget deficit of $161 billion, or 1.1% of GDP, pales in comparison to this year’s projection of $804 billion, or 4.5% of GDP. In Europe, with the exception of Germany, there is very little room for governments to engage in fiscal stimulus. Quantitative easing has left central bank balance sheets stuffed with nearly $15 trillion in assets (see chart below) and interest rates are still close to record lows—with policy rates still negative in some countries. 

Central bank balance sheets have bloated since 2008-09 global financial crisis

Source: Charles Schwab, Bloomberg data as of 8/19/2018.

While a downturn that could require as much stimulus as the financial crisis is unlikely, the vulnerability posed by limited ammunition to fight a downturn could lengthen and deepen the effects of the shock.

5.  Rise of passive investing – It is unknown if the rise of passive investing presents a vulnerability to the system, but there is no doubt it represents a change. By extrapolating the trend in passive investing, Moody’s Investor Service forecasts passively invested assets to exceed those actively invested by the end of 2021. 

Passive may exceed 50% market share by 2021

Source: Moody’s Investors Service Calculations for base case forecast dated 2/2/2017 available here: http://www.n3d.eu/_medias/n3d/files/PBC_1057026.pdf

Passive investing is a strategy typically implemented by holding securities in line with their representation in an index, offering a diversified and low-fee portfolio. However, some fear that the mechanical investment rules of passive investing may give rise to distortions in the pricing of individual securities and might reduce diversification while amplifying investors’ trading patterns on the overall market.

Different vulnerabilities may mean different risks

Market watchers tend to look for the signs that in the past signaled a shock was developing into a crisis. Yet, there are some reasons to think that the probability of a repeat of a past crisis or something similar has eased. The changes we have seen should help reduce the vulnerability of the global system to shocks like those of the past. 

Of course, risk has not been entirely eliminated from the system. Vulnerabilities have shifted which may make the shocks that pose the greatest risk of a crisis somewhat different than those of the past. Of these, the potential risk posed by a shock from higher interest rates coupled with a stronger U.S. dollar may pose the greatest threat to a vulnerable financial and economic system.

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In a Friday night court filing trying to spare their client from a lengthy prison sentence, attorneys for George Papadopoulos claim that he never told the Trump campaign about claims of Kremlin “dirt” on Hillary Clinton, and that a month before he knew about said dirt, Donald Trump and Jeff Sessions positively responded to a March, 2016 proposal that the young energy consultant facilitate a meeting between Trump and Russian President Vladimir Putin. 

Eager to show his value to the campaign, George announced at the meeting that he had connections that could facilitate a foreign policy meeting between Mr. Trump and Russian President Vladimir Putin. While some in the room rebuffed George’s offer, Mr. Trump nodded with approval and deferred to Mr. Sessions who appeared to like the idea and stated that the campaign should look into it.

Other attendees at that meeting, “including former Pentagon spokesman J.D. Gordon, say that Sessions shut down Papadopoulos’ suggestion,” according to the Daily Caller‘s Chuck Ross. Sessions himself testified in November 2017 that he “pushed back” against the proposal. 

A month later at an April 26, 2016 breakfast in London, Papadopoulos learned from Maltese professor Joseph Mifsud (who bragged last year that he was on the Clinton Foundation – and has been missing since October 2017), that Moscow possessed “dirt” on Hillary Clinton. 

According to Papadopoulos’s Friday night court filing – he never told this to the Trump campaign, while continuing to push for a Trump-Putin meeting. 

Papadopoulos lied to FBI agents in a January 27, 2017 interview – claiming that Mifsud told him about the “dirt” on the Clinton campaign before he joined the Trump campaign. He also told federal investigators that he never revealed this to anyone within Trump’s orbit: 

“He told the agents he was unaware of anyone in the campaign knowing of the stolen Hillary Clinton emails prior to the emails being publicly released,” reads the Friday night court filing.

Papadopoulos would later tell the Greek Foreign Minister about the Kremlin “dirt” on Clinton, as well as Australian diplomat Alexander Downer at a May 10, 2016 London dinner in which he “drunkenly” admitted that Russia had information that could hurt Trump’s opponent. The FBI claims it was the meeting with Downer which resulted in the agency opening a counterintelligence investigation into the Trump campaign on July 31, 2016. 

Lawyers for Papadopoulos also argue that he didn’t hamper the FBI’s investigation into Russian meddling – and only “misled investigators to save his professional aspirations and preserve a perhaps misguided loyalty to his master.” 

“In his hesitation, George lied, minimized, and omitted material facts. Out of loyalty to the new president and his desire to be part of the administration, he hoisted himself upon his own petard.”

Friday’s filing also reveals new details about the FBI’s initial interview with Papadopoulos. According to Papadopoulos’s lawyers, FBI agents showed up to interview Papadopoulos at his mother’s house in Chicago.

The agents asked Papadopoulos to accompany them to their office to answer “a couple questions” about “a guy in New York that you might know[,] [t]hat has recently been in the news.”

Papadopoulos believed that the agents wanted to ask him about Sergei Millian, a Belarus American businessman who is alleged to be a major source in the Steele dossier. Millian approached Papadopoulos in July 2016 and the pair met several times during the presidential campaign. –Daily Caller

FBI agents reportedly assured George that the focus of the discussion would be on Sergei Millian – however the conversation quickly turned to the Russian “dirt.” 

“Less than twenty minutes into the interview, the agents dropped the Millian inquiry and turned to recent news about Russian influence in the presidential election. George told the agents he had no knowledge of anyone on the campaign colluding with the Russians and it would not have been in anyone’s interest to undermine the democratic process. George was surprised to be answering questions about Russian interference in the election and told the agents the topic caught him off guard. The FBI agent confirmed that the Sergei Millian inquiry was just a ruse to get him in a room when he told George that:”

… the reason we wanted to pull you in today and have that conversation because we wanted to know to the extent of your knowledge being an insider inside that small group of people that were policy advisors who, if anybody, has that connection with Russia and what, what sort of connections there were.

Read the filing below: 

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Authored by Pater Tenebrarum via Acting-Man.com,

The Final Stage of a Crack-Up Boom

For economists the dire downward spiral of Venezuela’s economy holds the same fascination black holes hold for physicists. Both illustrate what happens amid the most extreme conditions imaginable. It is thought that this may potentially provide clues of a more general nature. The remnants of massive imploded stars are inanimate and many light years distant; regardless of how violent conditions in their vicinity are, they cannot touch us. Unfortunately, extreme economic conditions definitely involve a great deal of human suffering.

“We are the humanist socialism that will save the world”, from Venezuelan cartoonist Weil (he always draws the dear leaders with big wads of dollars sticking out of their pockets, making them look like otherworldly birds – look for his work on the intertubes).

From the perspective of Austrian economic theory, a hyperinflation event essentially represents a highly compressed, extreme version of the boom-bust cycle referred to as a “crack-up boom” (note: the original German term coined by Ludwig von Mises was “Katastrophenhausse” – the literal translation would be “catastrophic boom”).

In a past article on forced saving we inter alia discussed the post WW I crack-up boom in the Weimar Republic, one of the most infamous hyperinflation events in history. The data available on this disaster are remarkably comprehensive and detailed and demonstrate that Austrian capital and business cycle theory indeed offers the by far most accurate explanation of the boom-bust cycle.

Recent developments in Venezuela are very similar. There is definitely a crack-up boom underway, but it differs of course in a number of details from the Weimar experience. Every slice of economic history is unique in some way after all, but the underlying economic laws driving economic history nevertheless remain universally and time-invariantly applicable.

Not too long ago our good friend Keith Weiner also mentioned Venezuela, mainly in the context of criticizing too simplistic views of the factors driving price inflation such as the quantity theory of money). Obviously the supply of money is just one of these drivers – the demand for money and the supply of and demand for goods and services are the others.

This is also why the purchasing power of money is not truly measurable, as no fixed yardstick to measure it with exists. There is no such thing as a “general level of prices” anyway – this is a logical fallacy. Keith correctly points out that in Venezuela – and this is something one can observe in almost all hyperinflation cases – it is not only money printing that has triggered the slump in purchasing power, but also a collapse in production, which has happened for more than one reason.

As assorted socialists continually assure us, what they have in Venezuela is luckily not ‘real socialism’. They were definitely full of praise for “Chavismo” though when high oil prices still helped mask the crumbling of the country’s economy. Some people such as Jeremy Corbyn no longer even mention Venezuela nowadays, after frequently informing us in the past how wonderful Chavez-style socialism was.

In Venezuela production collapsed very quickly after the socialist dictatorship of Chavez (and later Maduro) weakened property rights to such an extent that no sane person was prepared to take entrepreneurial risks with their capital any longer.

The entire gamut of interventions from the imposition of price controls to outright confiscation of businesses was implemented with the aim of transforming Venezuela into a full-scale command economy. Amid heavy money printing and a concomitant slump in production and imports, the demand for money eventually collapsed as well – triggering the hyperinflation phase.

It should be pointed out that capital consumption was already quite advanced before the advent of Venezuela’s socialist rulers, as their predecessors had gradually undermined the market economy for decades. Naturally, these previous interventions were also accompanied by a lot of money printing.

All interventionist governments consider the suppression of interest rates to be a cure-all – and it can of course mask structural economic problems for quite some time, as a rule up to the point when the bulk of previously accumulated capital has been consumed.

Empty shelves in supermarkets in Caracas have been the “new normal” for more than four years now. Not only has domestic production collapsed, but imports have declined precipitously as well. Holding on to cash balances denominated in the domestic currency makes no sense and a major “flight into real values” has been underway for quite some time.

Pictures of an Economic State of Emergency

We have quite a comprehensive collection of charts pertinent to the hyper-inflationary crack-up boom in Venezuela and decided to put the most interesting ones into a post (most of the charts are fairly up-to-date, but keep in mind that things are moving very fast in late stage hyperinflation).

Recently the government decided to shave off five zeros from its currency (on  August 18 to be precise), which is reminiscent of the 1000 for one reverse split applied to the IBC stock market index in Caracas a few years ago (i.e., they took off just three zeros in this case).

One similarity is already ominously obvious: the collapse of the value of the Venezuelan bolivar (VEF) has immediately accelerated in the wake of the “currency reverse split”. The stock market rally also accelerated shortly after the index was robbed of three zeros.

Presumably this is mainly a psychological effect. Anyway, we have made charts of the exchange rate in which we simply ignored the removal of the five zeros. Eventually we will adjust all past numbers, but it won’t really make a difference – the charts will look exactly the same. For starters, here is a log chart of the black market rate of the VEF vs. the USD (“black market rate” in this case simply means “market price”).

A log chart of the VEF-USD exchange rate. In 2010 VEF-USD traded just above 8 bolivares per dollar in the black market. As of today it stands at more than 8.7 million bolivares per dollar (or 87.22 using the post-split value, which compares to a VEF-USD rate of 0.0008 in 2010) – note the acceleration after the “reverse split” – on August 18, one day before the five zeros were shaved off, VEF-USD stood at around 5.9 million.

A linear chart from August 2014 to today shows how the move in the exchange rate accelerated as hyperinflation really took off and the bolivar essentially ceased to be a viable medium of exchange. Moves prior to 2017 are not really visible on this chart, but it is inter alia easier to show clearly at which point the “reverse split” was implemented. As noted above, the decline in the exchange rate accelerated even further in the wake of the decision.

A linear chart of VEF-USD from 01 August 2014 to 31 August 2018. Within just 12 days after the introduction of the “new” bolivar, it moved from 59 to 87 (or from 5.9 million to 8.7 million in “old” bolivar terms).

Professor Steven Hanke of John Hopkins University runs the “Troubled Currencies Project” for the Cato Institute – he uses exchange rates to derive an implied inflation rate for the countries concerned. Although price inflation is not really measurable, this does provide us with a rough idea of how quickly the purchasing power of these currencies is vanishing.

The most recent chart of Venezuela’s implied inflation rate we have found is as of August 19, shortly after the government introduced the “new” bolivar. Since implied inflation stands at 61,670% as of August 30, it seems actually likely to us that a typo was made in the annotation and the chart refers to the situation as of August 29 rather than August 19. In any case, it is fairly current.

Venezuela’s implied annual inflation rate via Professor Hanke – on August 30 it reached 61,760%.

The next chart shows Venezuela’s narrow money supply M1 since 2008 – unfortunately we could not find a log chart going back that far, so one can only discern the “parabolic printing phase” that began in 2016 – 2017.

We calculated that Venezuela’s money supply growth amounts to 46.68 billion percent since the early 1960s. On a log chart one would no doubt see that extremely generous money printing has been practiced for a very long time (it would probably look very similar to the log chart of the exchange rate above).

Venezuela’s narrow money supply M1 – up 46.68 billion percent since the early 1960s. Its growth rate has accelerated markedly in the past several years.

This brings us to the miraculous Caracas stock market, which has soared amid a collapse in economic output – a symptom of the “flight into real values”, as stocks represent claims on real assets.

Despite the little joke we have pinched from Kyle Bass and added to the annotation, the stock market has actually preserved purchasing power quite well in recent years. There is only one problem: once the inflation phase ends, which it must one day, the subsequent “stabilization crisis” will result in a sharp fall in the prices of the stocks that have rallied the most, as the economy’s structure of production will have to be completely rearranged.

Many investors will find it very difficult to decide when to get out and move into different sectors or different types of investments – and the class of investors as a whole won’t be able to escape the coming losses anyway. In Weimar Germany several of the biggest and most prominent winners of the crack-up boom lost their entire fortunes after hyperinflation came to a sudden halt in late 1923.

IBC Index, monthly – a gain of 4.11 billion percent since the low of 2002.

With respect to declining production, we have two more charts – one shows the slump in Venezuelan oil production compared to the surge in US oil production (note that Venezuela has the largest oil reserves in the world) and the other shows official GDP growth numbers  – which are only released intermittently these days.

US vs. Venezuela crude oil production from early 2005 to April 2018

Annualized GDP growth according to official statistics – since 2016 these data are only released sporadically, and we are not sure how accurate they are.

So there you have it – the symptoms of a crack-up boom.

Nicolas Maduro, the remarkably well-fed current Dear Leader of Venezuela.

An all too familiar sight in Caracas these days: somewhat less well-fed Venezuelan citizens are  hunting for food in the garbage. We are sure they will be happy to learn that it isn’t the fault of  “real” socialism.

The situation is apparently not much better in rural areas – here a hungry mob is seen stoning a milk cow.

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Meghan McCain kicked President Trump in the bone-spurs while delivering a eulogy for her father on Saturday, stating that John McCain was “The real thing, not cheap rhetoric from men who will never come near the sacrifice he gave so willingly, nor the opportunistic appropriate of those who lived lives of comfort and privilege,” reports The Hill. 

In her eulogy honoring Sen. John McCain (R-Ariz.), the first remarks from a scheduled speaker at the service, McCain, 33, battled tears as she recounted her father’s wartime sacrifice in Vietnam.

“He was a great man,” McCain told the audience. “We gather here to mourn the passing of American greatness.” –The Hill

Meghan McCain: “We gather here to mourn the passing of American greatness. The real thing, not cheap rhetoric from men who will never come near the sacrifice he gave so willingly, nor the opportunistic appropriation of those who lived lives of comfort and privilege.” pic.twitter.com/KMI9v6LiUA

— ABC News (@ABC) September 1, 2018

McCain circled back to dive-bomb Trump’s 2016 slogan as well; 

“The America of John McCain has no need to be made great again because America was always great,” she said to applause.

Meghan McCain’s comments were addressed to a packed audience at the Washington National Cathedral on Saturday, as various dignitaries and lawmakers attended to honor the late Senator. While Trump was not in attendance – per John McCain’s wishes, his daughter Ivanka and husband Jared Kushner were present. 

Also present were McCain’s 106-year-old mother, Vice President Mike Pence, former Vice President Al Gore, former Secretary of State John Kerry, Elizabeth Warren, George W. Bush and Barack Obama. 

McCain told the audience that her father was not “defined” by his membership in the Republican party any more than his Naval service or by his torture at the hands of North Vietnamese forces. 

“John McCain was not defined by prison, by the Navy, by the Senate, by the Republican Party, or by any single one of the deeds in his absolutely extraordinary life,” she told the audience.

“John McCain was defined by love,” McCain added.

(Love of bombing Iran, in particular – but now apparently isn’t the time to criticize the man who never met an oil-rich nation he didn’t want to attack)

McCain – who served in the legislative body for over 30 years, died last week at the age of 81 of brain cancer.

At most funerals I’ve attended, it’s God’s love that fills the room, not hate and animus for a person who is not even in attendance.

Disappointed. #McCainMemorial

— CJ Pearson (@thecjpearson) September 1, 2018

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President Trump said on Saturday there was no need to keep Canada in NAFTA, slammed the US neighbor’s “decades of abuse” while warning Congress not to meddle with the trade negotiations or he would terminate the trilateral trade pact altogether one day after trade talks with Canada collapsed hours before a deadline.

“There is no political necessity to keep Canada in the new NAFTA deal. If we don’t make a fair deal for the U.S. after decades of abuse, Canada will be out,” Trump tweeted on Saturday. “Congress should not interfere w/these negotiations or I will simply terminate NAFTA entirely & we will be far better off.”

There is no political necessity to keep Canada in the new NAFTA deal. If we don’t make a fair deal for the U.S. after decades of abuse, Canada will be out. Congress should not interfere w/ these negotiations or I will simply terminate NAFTA entirely & we will be far better off…

— Donald J. Trump (@realDonaldTrump) September 1, 2018

Late on Friday, Trump notified Congress of his intent to sign a bilateral deal with Mexico and would include Canada “if it is willing.” On Monday, Trump unveiled a surprise bilateral deal with Mexico.

As discussed earlier, Trump’s notification of Congress that he planned to sign a deal with Mexico in 90 days appeared to avoid what many in the U.S. business community and Congress had seen as a worst-case scenario. But according to Bloomberg, Saturday’s tweets opened the door again to that outcome.

“We were far better off before NAFTA — should never have been signed. Even the Vat Tax was not accounted for. We make new deal or go back to pre-NAFTA!” Trump said.

….Remember, NAFTA was one of the WORST Trade Deals ever made. The U.S. lost thousands of businesses and millions of jobs. We were far better off before NAFTA – should never have been signed. Even the Vat Tax was not accounted for. We make new deal or go back to pre-NAFTA!

— Donald J. Trump (@realDonaldTrump) September 1, 2018

The threat echoed what the president said earlier in the week when he warned he would forge ahead with a bilateral trade agreement with Mexico that would leave out Canada, which he on Friday again accused of “ripping us off.”

“We can’t have these countries taking advantage of the United States,” Trump told a rally in North Carolina.

While the two sides failed to meet a deadline set by the White House, both U.S. and Canadian negotiators insisted that they were making progress. They also announced that they would resume talks on Wednesday after four days of intense negotiations in Washington ended without a final agreement.

Meanwhile, by sending the notification to Congress, Trump effectively “reset the clock” for the Nafta negotiations. Under rules set by Congress, the administration is now facing a 30-day deadline to provide a full text of the agreement. Because of that, negotiations could still drag on for not just days but weeks even as both U.S. and Canada are facing their own pressures.

U.S. business groups welcomed the signs of progress but made clear that they would oppose any deal that did not include Canada.

“Anything other than a trilateral agreement won’t win Congressional approval and would lose business support,” the U.S. Chamber of Commerce said in a statement.

Speaking to Bloomberg, Carleton University political scientist Laura Macdonald said despite the rhetorical pressure from Trump, the negotiations still appeared to be proceeding remarkably normally. But the limits of Trump’s leverage were also becoming clear with the president still needing to get any agreement through a Congress that has concerns about any pact that does not include Canada.

“Trump is making it blatantly obvious who has the most power in this situation, but he doesn’t have complete power: Congress has a role to play,”

Congressional support could be further impaired since any vote in U.S. Congress is unlikely to take place before 2019. By then, the Democrats will likely regain control of the House, and Nancy Pelosi, the minority leader in the House of Representatives, made clear on Friday that any deal must include Canada. “Actually fixing Nafta requires reaching a trade agreement with both Mexico and Canada,” she said. “Without a final agreement with Canada, the administration’s work is woefully incomplete.”

Separately, Trump’s leaked “off the record” comments to Bloomberg and continuing vitriol toward Canada has complicated the politics for Canadian Prime Minister Justin Trudeau, who on Friday said he’ll only sign an agreement that’s right for his country.

Trudeau reiterated his government wouldn’t concede to U.S. demands to dismantle its dairy system, known as supply management. Talks were also hung up on U.S. insistence to eliminate dispute-resolution panels that Ottawa considers essential, Canadian officials said on Friday.

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Authored by Adam Schuster via IllinoisPolicy.org,

According to a new report by Moody’s Investors Service, Illinois’ unfunded pension liabilities equaled 601 percent of state revenues in 2017, a U.S. record.

Illinois’ pension debt has set a new record to which no state should aspire.

Credit ratings agency Moody’s Investors Service released a report Aug. 27 comparing unfunded pension liabilities across all U.S. states. According to the report, Illinois’ unfunded pension liabilities grew 25 percent in fiscal year 2017 to $250 billion. That equates to 601 percent of “own source” revenue, meaning money brought in by the state excluding federal funds. That ratio of pension debt to revenue is the highest on record for any U.S. state, according to Moody’s. The national median is 107 percent.

This matters much for the same reason banks look at an individual’s debt-to-income ratio when considering applications for a personal loan. Banks typically won’t issue a qualified mortgage to anyone with a debt-to-income ratio of more than 43 percent.

When a state’s pension debts far exceed its revenue, that means those debts are less likely to be repaid. Illinois’ inability to manage its pension system in a sustainable and affordable way is one of the main reasons both Moody’s and S&P Global Ratings put the Prairie State’s bond rating just one notch above “junk” status. The state’s credit rating has been downgraded 21 times since 2009, primarily due to runaway pension debt.

A low bond rating increases the cost of borrowing money for taxpayers and makes it difficult for state government to invest in core services residents want, such as needed infrastructure improvements.

Other measures of the state’s ability to repay pension debt tell a similarly bad story for Illinois. The state has the worst pension debt in the nation as a percentage of both GDP and personal income, which are broad economic measures that indicate how much money is being brought in by the funding sources for government expenditures: individual and corporate taxpayers.

A recent report from the Illinois Policy Institute, “Tax hikes vs. reform: Why Illinois must amend its constitution to fix the pension crisis,” details the threat of pensions crowding out core government services, which has led to calls for economically damaging tax hikes that can erode Illinois’ financial health. Annual state pension costs already exceed 25 percent of general revenue expenditures.

If tax hikes are off the table as a solution to this problem – as they should be given Illinois’ weak economy and already-painful total tax burden – lawmakers’ only remaining options are to structurally reform pensions so that they are in line with what taxpayers can afford going forward, or to allow pension spending to crowd out government services.

Crowding out effects can already be seen at the local level in Illinois. In Harvey, Illinois, pension obligations caused mass layoffs in the city’s police and fire departments. Because of a statutory provision that allows the state comptroller to intercept state money due to local governments that underfund their pensions, many other municipalities could soon find themselves in a similar situation. Over 50 percent of Illinois’ police and fire pension funds did not receive full payment in 2016, putting their municipalities at risk of facing the same choices as Harvey.

The city of Peoria on Aug. 15 and 16 sent layoff notices to 27 municipal employees, according to the Journal Star, after unions rejected a cost-saving plan requesting four furlough days. According to Peoria City Manager Patrick Urich, 85 percent of the city’s property tax revenue currently goes to pensions, rather than services. Urich told the Journal Star that the round of layoffs was necessary to close a $1.5 million deficit in the city’s budget.

Peoria’s 2018 budget warns, “[T]he growth in pension obligations is crowding out the use of property taxes for operations.” According to projections included in the document, the city will no longer be able to use any property tax dollars for operations starting in 2019.

Public employment data from the U.S. Bureau of Labor Statistics suggest this may be a statewide problem. Since the dramatic increases in pension expenditures began in 2008 – resulting from the Edgar ramp – Illinois state and local government employment has been decreasing.

The only way out, as Peoria’s city budget documents note, is a “comprehensive solution” from the Illinois General Assembly.

To achieve balanced budgets and a strong credit rating – without gutting core services or crushing the state’s economy with more tax hikes – Illinois must amend its pension clause to make clear that while already-earned benefits are protected, future increases in those benefits are subject to change to bring them in line with what taxpayers can afford.

To eliminate the pension liability, lawmakers should focus on the following reforms:

• Increasing the retirement age for younger workers

• Capping maximum pensionable salaries

• Replacing permanent compounding benefit increases with true cost-of-living adjustments, or COLAs

• Implementing COLA holidays to allow inflation to catch up to past benefit increases

• Enrolling all newly hired employees in 401(k)-style retirement plans, similar to what’s available to State Universities Retirement System employees, which will ensure government worker retirements are predictable and sustainable going forward.

Reforming future pension benefits growth through a constitutional amendment is the only way to ensure the retirement security of government workers, protect taxpayer budgets and provide core services to Illinoisans.

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Authored by Tsvetana Paraskova via Oilprice.com,

For the first time since 1993, Denmark is on track to become a net oil importer this year, as oil production in the Danish part of the North Sea will be lower than the country’s consumption, the Danish Energy Agency said on Thursday, revising down its oil production forecasts.

The new forecast by the agency is a change from last year’s assessment and forecasts, which had expected that Denmark would continue to be a net oil exporter for a number of years, the agency said.

Now, the country is expected to be a net oil exporter for every year until 2024, when oil production is forecast to exceed consumption due to expected start-up of new developments.

The Danish Energy Agency revised down its oil production forecast by 8 percent compared to last year’s forecast, mostly due to a downward revision of the resources, delays, and a “greater uncertainty regarding the development of several fields and discoveries.”

For this year, the agency expects Denmark’s oil production to average just 128,000 bpd, a figure 10 percent lower than last year’s 2018, mainly due to what is expected to be lower production from some of the larger oil fields.

Between 2018 and 2022, the oil production estimate was revised down by an average 14 percent, attributable again to lower production expected at some larger oil fields.

The outlook for Denmark’s natural gas exporter status is rosier. Denmark is expected to remain a net natural gas exporter until 2035, except for the years 2020 and 2021 when the Tyra field redevelopment—approved last year—will be underway, the Danish agency noted.

“The approval of the rebuilding of the facilities on the Tyra field implies that the uncertainty in this regard is less than before. However, great uncertainty remains with regard to the development of a number of projects hence contributing to the forecast being somewhat uncertain,” the agency said.

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