Month: March 2019

Authored by Charles Hugh Smith via OfTwoMinds blog,

At that point, the only way to enable debt-serfs to service their debts is to give them free money, i.e. Universal Basic Income (UBI).

Scrape away the churn and distraction and the problem is simple: the pie of prosperity is shrinking, and the “fixes” are failing. The status quo arrangement is based on the endless expansion of “growth” and debt, which is the monetary fuel of more, more, more of everything: money, energy, resources, goods, services, jobs, wealth and income, all of which make up the elixir of prosperity.

Prosperity is shorthand for a positive return on investment (ROI), a.k.a. primary surplus. Prosperity is the result of there being a surplus which can be distributed after capital, resources and labor are put to work.

The higher the return on investment, the more surplus there is to distribute.When the surplus is bountiful, there’s enough to go around for everyone to feel that life is getting better.

But all systems eventually track an S-Curve of rapid growth, maturation and depletion/decline, and surpluses diminish: the pie stops expanding and starts shrinking. There’s less to go around, and suddenly the political squabbling intensifies as every elite and every constituency seeks to preserve their slice of the pie at the expense of others.

This means shifting the losses of purchasing power and prosperity onto others without appearing to do so. Openly ripping a slice from the grasping hands of another elite or constituency will launch a protracted political battle, as every group will fight to the death to keep its share untouched.

By far the best ways to shift the losses to others are 1) inflation (reducing the purchasing power of their income) and 2) creating phantom wealth that can be used to buy up all the income-producing assets. Unsurprisingly, this is precisely what we see happening globally.

Even as inflation eats away at the purchasing power of wages, the governments of the world carefully mask this reality behind bogus statistics of near-zero inflation. While real-world inflation is between 7% and 10% in category after category, official inflation is logged at 2% or less.

Wage earners are getting less for their money, and thus their prosperity is diminishing. This reality is further masked by bogus GDP statistics that are deployed as “proof” the pie is still expanding, when in fact only the slices of the few are still expanding at the expense of the many.

Meanwhile, the elites benefiting from financialization and leverage are reaping the immense rewards of inflating phantom wealth via credit/asset bubbles.Since the return on investment economy-wide is stagnating, the trick here is to create money out of thin air and use that money to buy up income-producing assets. This inflates asset bubbles which further expand the financial elites’ phantom wealth and allows them to keep buying more income streams.

The trickery of creating phantom wealth enables the elites to increase their income and wealth well ahead of what’s lost to inflation.

Creating money out of thin air doesn’t actually increase surplus or prosperity, it just shifts the losses to non-elites. Wealth and unearned income are concentrated in the hands of the financial elites, and the bottom 95% of those with earned income are slowly boiled frogs, only dimly aware that the purchasing power of their wages is declining but at a pace just leisurely enough to avoid triggering a political rebellion.

Depending on expanding debt to fuel expanding prosperity has this funny feature called interest: since earned income is stagnating or declining when adjusted for real-world inflation for the bottom 95%, interest payments reduce disposable income–every dollar devoted to paying interest on rising debt is a dollar that can’t be spent or invested.

You see the irony: depending on expanding debt for “growth” eventually chokes future borrowing, spending and investing, causing “growth” to collapse in a broken heap. Without more debt, “growth” is not possible in a world of stagnant earned income and credit-asset bubbles.

Central banks have played a game of reducing interest as a means of enabling debt to expand even as the purchasing power of earned income declines, but the game ends at zero. At some point borrowers can’t even afford to make payments of principal, and then default becomes inevitable.

At that point, the only way to enable debt-serfs to service their debts is to give them free money, i.e. Universal Basic Income (UBI). Don’t kid yourself that the proponents of UBI are wunnerful folks just trying to be generous; the only purpose of UBI is to enable debt-serfs to keep servicing their debts and stave off the day of reckoning when the debt bubble bursts and everyone wakes up to the reality that prosperity stopped expanding long ago.

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Deutsche Bank shares are down this morning after a critical supervisory-board member has signaled strong internal resistance to the planned rescue (sorry, merger) with Commerzbank.

Bloomberg reports that Jan Duscheck, an official with the Ver.di union and a key labor representative on Deutsche Bank’s supervisory board, opposes the merger, saying it would threaten thousands of jobs and fail to shore up Germany’s finance sector. The stance is hardening as talks behind the scenes gradually advance.

“We reject a merger,” Duscheck — who has served on Deutsche Bank’s supervisory board since 2016 — said in an emailed statement. The deal would make the combined bank even more susceptible to a hostile takeover from abroad and “would not create a national champion,” he said, taking a rare public stand.

Employee representatives are powerful forces in German companies, generally making up half the seats on supervisory boards, which hire and fire senior executives and sign off on major strategy decisions.

“At least 10,000 further jobs would be directly threatened,” Duscheck said.

“That would be in addition to jobs that would probably have to go in the future because the merged bank, seen from today, would not achieve the growth expected of it.”

It is clear that the hurdles for completion of this deal are high and getting higher. So what happens next? Lehman here we come?

via ZeroHedge News https://ift.tt/2F6Q2sx Tyler Durden

Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

The House of Representatives recently passed legislation that would expand the national background check system to require almost everyone selling firearms, including private collectors who supplement their incomes by selling firearms at gun shows, to perform background checks on the potential buyers. The bill has a section purporting to bar creation of a national firearms registry. However, the expanded background check system will require the government to compile lists of those buying and selling guns. In other words, it creates a de facto national gun registry.

Similar to the experience with other types of prohibition, making it more difficult to legally buy a gun will enhance the firearms black market. Criminals, terrorist, and even deranged mass shooters will thus have no problem obtaining firearms.

It is no coincidence that the majority of mass shootings take place in “gun-free zones,” where shooters know their targets will be unarmed. This shows that any law making it more difficult for Americans to own and carry firearms makes us less safe. If Congress really wanted to reduce the incidence of gun violence, it would repeal the Gun-Free School Zones Act. This law leaves children easy prey for mass shooters by mandating that public schools be “gun-free zones.”

A nationwide system of gun registration could be a step toward national gun confiscation. However, antigun bureaucrats need not go that far to use the expanded background check system to abuse the rights of gun owners. Gun owners could find themselves subject to surveillance and even harassment, such as more intensive screening by the Transportation Security Administration, because they own “too many” firearms.

Republican control of the White House and the Senate does not mean our gun rights are safe. Republicans have a long history of supporting gun control. After the 1999 Columbine shooting, many Republicans, including many who campaigned as being pro-Second Amendment, eagerly cooperated with then-President Bill Clinton on gun control. Some supposedly pro-gun Republicans also tried to pass “compromise” gun control legislation after the Sandy Hook shooting.

Neoconservative Senator Marco Rubio has introduced legislation that uses tax dollars to bribe states to adopt red flag laws. Red flag laws allow government to violate an individual’s Second Amendment rights based on nothing more than a report that the individual could become violent. Red flag laws can allow an individual’s guns to be taken away without due process simply because an estranged spouse, angry neighbor, or disgruntled coworker tells police the individual threatened him or otherwise made him feel unsafe.

President Trump has joined Rubio in wanting the government to, in Trump’s words, “take the guns first, go through due process second.” During his confirmation hearing, President Trump’s new Attorney General William Barr expressed support for red flag laws. California Senator and leading gun control advocate Dianne Feinstein has expressed interest in working with Barr to deprive gun owners of due process. It would not be surprising to see left-wing authoritarians like Feinstein work with right-wing authoritarians like Barr and Rubio on “compromise” legislation containing both a national red flag law and expanded background checks.

My years in Congress taught me that few politicians can be counted on to protect our liberties. Most politicians must be pressured to stand up for freedom by informed and involved pro-liberty citizens That is why those of us who understand the benefits of liberty must remain vigilant against any attempt to erode respect for our rights, especially the right to defend ourselves against private crime and public tyranny.

via ZeroHedge News https://ift.tt/2NYzTrJ Tyler Durden

When it comes to estimating China’s total outstanding debt, there has long been confusion about the real number with most putting the debt/GDP at around 250%, while the IIF in 2017 calculated China’s debt load as high as 300% of GDP (which means that by now it is substantially higher).

Then, last year, China watchers added another 40% of debt/GDP to the total when, as S&P calculated, China’s local governments had accumulated 40 trillion yuan ($6 trillion) – or even more – in off-balance sheet, or Local government financing vehicles (LGFV) debt, an amount Bloomberg has dubbed China’s “hidden debt bomb“, suggesting the already record surge in defaults in 2018 is set to accelerate further.

“The potential amount of debt is an iceberg with titanic credit risks,” S&P credit analysts wrote in October 2018, with much of the build-up related to local government financing vehicles, which don’t necessarily have the full financial backing of local governments themselves.

Local government debt has quickly emerged, together with “shadow banking” debt, as one of the main risks for China’s economy, because with the national economy slowing, and as a result of a crackdown on shadow lending and a Beijing quota for issuance of local-government bonds not enough to fund infrastructure projects to support regional growth, authorities across the country have resorted to LGFVs to raise financing, according to S&P. That’s left LGFVs “walking a tightrope” between deleveraging and transforming their businesses into more typical state-owned enterprises, S&P warned.

So fast forward 6 months, when in China’s ongoing attempt to contain the soaring financial risks from its debt bubble, Beijing – seemingly content with the progress it has made on containing shadow debt – is re-focusing on the “hidden debt” owed by local governments, as officials seek to reduce repayment pressures amid falling tax revenues.

And with Beijing adding pressure on local authorities to become more transparent with their liabilities, Bloomberg reports that provinces and cities from Jiangsu in the east to Qinghai in the west are looking for means to pay-off or restructure their implicit borrowings, which include trillions in “off the books” funding via financing vehicles. Some authorities are seeking cheap refinancing from the nation’s largest policy lender, the China Development Bank, and others are selling off state-owned assets such as office buildings and housing.

Efforts to deleverage the “hidden time bomb” of 40 trillion in local government debt have gained urgency after the government recently pledged to cut taxes by two trillion yuan ($300 billion), further draining local coffers and adding to the possibility of missed repayments. Meanwhile, the lack of official estimates of the total local government debt load – S&P’s CNY40 trillion estimate is just that – which usually carries higher rates than on-book ones, makes the issue even trickier.

There is a more pressing reason behind the rush to deleverage: as Nomura’s China economist Lu Ting said, the motive is “just that the problem can’t be delayed anymore,” as in many places fiscal revenues and gross domestic product aren’t enough to cover the interest and principals.

In other words, China may be just months ahead of its own Minsky Moment.

With official probes now taking place to quantify the local debt, so far they’ve shown that hidden debt in some places exceeds the on-book borrowing, a lawmaker of the National People’s Congress Zhu Mingchun said over the weekend, according to Bloomberg.

Meanwhile, payments due for local-government financing vehicle debt are soaring and could reach 2.3 trillion yuan this year, according to estimates by Industrial Securities Co, which notes that local authorities will have to carry that burden at a time of slowing revenue growth due to tax cuts and shrinking receipts from land sales.

One possible solution is massive restructuring of the debt: in one case in December, the CDB led a group of commercial lenders in a swap of 260.7 billion yuan of implicit debt borrowed by Shanxi province to build highways. The debt was restructured with a tenor of up to 25 years, allowing the local authorities to save 3 billion yuan in interest payments every year, according to Shanxi Transportation Holdings Group. As Bloomberg notes, asset sales are also being used. For example, a district in the northeastern city of Shenyang is planning to sell more than 38,000 square meters of offices and government-built housing to repay maturing debt.

Of course, since in China everything is in some state of being a bubble, officials are simply using “the healthier part of the balance sheet of the public sector to address some of the hidden issues,” but they have to make sure the risky loans won’t get out of control again in the future, because by that time the balance sheet would be less capable of absorbing them, according to Grace Ng, a China JPMorgan economist.

China is also taking advantage of the current euphoria involving local capital markets: a financing platform in the eastern province of Jiangsu, where the CDB is involved in some cases of debt restructuring, sold a 270-day bond last week with a coupon of 4.8 percent, 150 basis points lower than a similar note the company issued in January. On Monday, a financing and investment company owned by a city in Shanxi province was upgraded to AA+ from AA by China Chengxin International Credit Rating Co., which cited the better outlook for capital quality.

“The bigger worry is the moral hazard issue,” said Zhu Ning, a professor of finance at Tsinghua University and the author of “China’s Guaranteed Bubble.” “Implicit government guarantees still lie at the core of so many problems.”

And nowhere is the problem of moral hazard greater than in China, whose financial sector is approaching double the size of its US peer even as China’s GDP is years behind catching up with America’s. Which makes Beijing’s choice relatively easy: keep kicking the can, or watch as the long-overdue Minsky Moment finally arrives and topples the biggest house of financial cards ever constructed.

via ZeroHedge News https://ift.tt/2CfRHKz Tyler Durden

At this point in his tenure as National Security Advisor, are there any geopolitical adversaries of the US whom John Bolton hasn’t offended with his aggressive rhetoric?

On Sunday, Bolton said during an interview with Fox’s Maria Bartiromo that China’s efforts to influence public opinion in the US and Australia went far beyond anything Russia had managed to accomplish (just the latest installment in the Trump administration’s push to tie China to Russia as a major geopolitical adversary of the US).

Bolton said China’s influence campaign “is far greater in magnitude than any other foreign effort” and includes long-term efforts to influence public opinion in the US via think tanks and nonprofits like the Confucius Center.

“It really is far greater in magnitude than any other foreign effort we have seen in history to influence American opinion and it’s not just confined to the United States,” Mr Bolton told Fox News’ Maria Bartiromo.

“They are doing it in Australia and other countries – close friends of ours.

“So this really goes to the core of how you maintain a free and open society in this country when other countries are trying to influence it the way that China has.

“It goes well beyond just election hacking although we certainly have been concerned about China doing that as well.”

He also warned about China’s military buildup in the South China Sea, a particularly sensitive bilateral issue, and the US’s national security concerns about Huawei.

Though a longtime China hawk, it was still surprising to hear Bolton spouting such controversial accusations at a time when the US and China are struggling to hammer out a trade agreement. And in a sign that his words did not go unnoticed in Beijing, Chinese Foreign Ministry Spokesman Lu Kang accused Bolton during a Tuesday press conference of trying to “smear” China.

“When Mr. Bolton took the interview he talked about a lot of issues, made wrong remarks about the South China Sea, the Confucius Institute and other topics related to China, smearing China’s image and serving U.S. political gains and calculations,” Lu said. “We urge the U.S. to drop the arrest warrant and extradition request and we urge Canada to release immediately Ms. Meng and ensure her safe return to China.”

After Turkish President Recep Tayyi Erdogan snubbed Bolton following similarly controversial comments about Turkey last year, we imagine Bolton’s next trip to Beijing – indeed, if there is one – will be similarly awkward. Maybe even enough to impact currency markets, as Erdogan’s snub did.

via ZeroHedge News https://ift.tt/2u4cWdR Tyler Durden