Cryptocurrencies have had a good run in recent weeks, as a sudden renewed demand has lifted all boats and taken Bitcoin back near $6000 this morning…
The catalyst has remained unclear – anticipation of an ETF? Growing institutional interest? Short-squeeze? Manipulation? Or, just plain old safe-haven flows as various nations around the world collapse into totalitarianism?
We may have found one, rather large, answer – from China, where, as SCMP reports, authorities have quietly begun ‘soft’ capital controls on foreign currency withdrawals
Chinese banks have increased their scrutiny of foreign-currency withdrawals and quietly reduced the amount of US dollars people are allowed to withdraw, tightening the country’s capital controls as the nearly year-long US-China trade war bites.
The issue was thrust into the spotlight on Friday when a viral video clip showed a bank cashier unable to answer a furious customer demanding to know why she was not allowed to withdraw US$200 from her dollar-denominated account, even though she was within her quota.
The client was so incensed by the refusal that she filmed the incident on her phone at the unidentified branch of China Merchants Bank (CMB).
She also asked why the bank insisted she could only withdraw her US dollar savings by converting into yuan, the Chinese currency. The cashier seemed caught off guard, unable to address the woman’s questions.
It later emerged the woman had been placed on a “watch list” of customers making frequent withdrawals.
So, either Chinese banks are running out of dollars – scaring account holders into attempting to exit the country’s financial system before a liquidity crisis; or Chinese officials are actively tightening capital controls – scaring the wealthy into various capital flight techniques; as the trade war tensions escalate.
As we noted two weeks ago, following the biggest quarterly credit injection in Chinese history, it is safe to say that China’s banks are flush with yuan loans. However, when it comes to dollar-denominated assets, it’s a different story entirely. As the WSJ points out, in the past few years, a funding problem has emerged for China’s biggest commercial banks, one which is largely outside of Beijing’s control: they’re running low on US dollars so critical to fund operations both domestically and abroad.
As shown in the chart below, the combined dollar liabilities at China’s four biggest commercial banks exceeded their dollar assets at the end of 2018, a sharp reversal from just a few years ago. Back in 2013, the four together had around $125 billion more dollar assets than liabilities, but now they owe more dollars to creditors and customers than are owed to them.
The reversal is the result of just one bank: Bank of China, which for many years held more net assets in dollars than any other Chinese lender, ended 2018 owing $72 billion more in dollar liabilities than it booked in dollar assets. The other “top 3” lenders finished the year with more dollar assets than liabilities, even though their net dollar surplus has shrunk substantially in the past five years.
And yet, as everything else with China, there is more than meets the eye: as the WSJ reports looking at Bank of China’s annual report, the bank’s asset-liability imbalance is more than addressed by dollar funding that doesn’t sit on its balance sheet. Instruments like currency swaps and forwards are accounted for elsewhere.
This is reminiscent of the shady operations discussed recently involving Turkey’s FX reserves, where the central bank has been borrowing dollar assets from local banks via off balance sheet swaps, which it then used to prop up and boost the lira at a time of aggressive selling of the local currency. It is safe to assume that the PBOC has been engaging in a similar operation.
Additionally, as the WSJ observes, such off-balance-sheet lending “can be flighty”, and citing a recent BIS study, the vast majority of currency derivatives mature in under one year, meaning they are up for constant renewal and could evaporate during times of pressure.
From late last year, the “scrutiny benchmark” for US dollar withdrawals was quietly cut to US$3,000 from US$5,000, according to an official at the Bank of Communications, who requested anonymity.
Meanwhile, banks were required to keep a “watch list” monitoring clients who made frequent foreign exchange withdrawals, said the official.
“The reason banks are so nervous is that China wants to closely monitor capital outflow against the backdrop of a prolonged trade war,” said Iris Pang, ING’s Greater China economist.
Restrictions on the movement of capital in and out of China have scuppered ambitions to become an international money market, with US bankers saying that it is still another five to 10 years from regaining its pre-Communist era status as the financial capital of the East.
China’s strict control of capital flows, heavy government intervention in financial markets, and the limited use of the yuan in international markets have restricted Shanghai’s role as a financial hub.
The presence of foreign money in China’s stock market in Shanghai is also tiny – less than 0.5 per cent of publicly traded stocks in Shanghai were owned by foreign investors as of the end of March, according to data from the Shanghai Stock Exchange.
The government’s intervention in the stock market is seen as a key barrier to reaching the 2020 goal.
As MishTalk’s Mike Shedlock concludes, the idea that the yuan will soon replace the dollar as the world’s reserve currency is absurd for currency reasons, political reasons, and economic reasons.
Anyone who suggests otherwise understands neither currencies nor global trade.
Finally, given the implications of the reserve currency curse, I highly doubt China even seeks what these petro-yuan analysts claim.
What’s Changed?
Everything from “Currency Requirements” through “Case Closed” I wrote in 2017.
I commented on most of those aspects long before that.
The gold and petro-yuan ideas were new, so I immediately debunked them.
Nothing Has Changed
China still does not float the yuan.
China still does not have any global bond market to speak of, let alone the world’s largest.
China still does not respect property rights.
China still has capital controls, an absolute no-no.
China is still not willing to run trade deficits.
Wake me up when those five things are fixed.
Meanwhile, if anyone tells you the yuan is about ready to replace the dollar as the world’s reserve currency, write them off as clueless.
We have been seeing such stories for a decade or longer, but China isn’t remotely close in at least five areas, and perhaps never will be.
via ZeroHedge News http://bit.ly/2vGV8WW Tyler Durden
From Silicon Valley to Switzerland, hundreds of millions of dollars are being pumped into a new technology to produce “real milk” – containing identical casein and whey proteins to the genuine article – but without any humans, cows or other animals involved at all.
There is a lot at stake. The global dairy industry was worth $413bn in 2017 while the market for infant formula is expected to top $70bn this year, according to Save the Children.
From animal cruelty on factory farms to deforestation and a rising portion of the emissions linked to climate change, raising cattle to produce milk is facing a growing reputational challenge.
“If you see how cows are treated in the milking process… from a moral standpoint it’s appalling to most people,” says Niccolo Manzoni, founding partner at Five Seasons Ventures, an agricultural technology fund based in Paris.
Corporate giants such as US-based DowDuPont, BASF, Nestle, as well as start-ups such as Sugarlogix, Gnubiotics Sciences and Jennewein Biotechnologie are busy pouring money into lab research. They are developing products that are very similar to human milk, a complex hybrid of over 1000 proteins and a unique ingredient called human milk oligosaccharide (HMO).
Udderless Future?
An udderless future is eventually in the cards. But even if scientists perfect the technology, how far off is public acceptance?
Farmers will push to ban it. That’s for sure.
What about labeling? Using the term “milk” for such products will likely be restricted.
San Francisco has become the latest city set to ban cashless stores, following the leads of New Jersey and Philadelphia.
Advocates for the ban claim that it’s prejudicial toward lower income people who may not have access to debit cards or credit cards according to the AP. The concept has also been introduced in New York City. The city’s Board of Supervisors will take up the issue Tuesday, which is likely to pass, as all 11 members of the Board are listed as sponsors or co-sponsors. Officials have been working in vain to make San Francisco more equitable in the face of an unprecedented wealth gap (and despite record amounts of human feces on the streets).
Supervisor Vallie Brown said: “I just felt it wasn’t fair that if someone wanted to buy a sandwich in a store, and they had cash, that they would be turned away. We also have our homeless population. They’re not banked.”
The 4,000 homeless people who sleep on San Francisco’s streets every night were cited as a key reason for enacting the legislation, despite high paid tech workers for firms like Facebook, Google, Uber and Airbnb that may find it making life easier for them.
The new legislation would require brick-and-mortar businesses to accept cash, while temporary pop-up stores and internet-only businesses would be exempt. 17% of African American households and 15% of Latino households don’t have bank accounts, according to the FDIC.
The efforts were catalyzed by the roll out of cashless AmazonGo stores last year. The stores require customers to scan an app for entry, and items that are taken are automatically tallied and charged to a credit card. Amazon lost the war against cash and agreed to accept it at more than 30 cashless stores last month. Some retailers argue that not taking cash is safer and more efficient, even though there are still many businesses in San Francisco that only take cash.
Cashless restaurants are “lustered in San Francisco’s Financial District and South of Market neighborhoods, where white-collar employees devour upscale salads and protein bowls”. While some businesses, like Bluestone Lane, a New York-based coffee chain, are waiting to get on board until the legislation passes, others, like salad chain Sweetgreen, announced last month that it will finally accept cash.
And then, of course, you have those who simply like to use cash in order to minimize the trail of their whereabouts. Recall, yesterday, we wrote about San Francisco also banning facial recognition. An ordinance was introduced this week making it illegal for any city department to “obtain, retain, access or use” any facial-recognition technology or data from said technology, according to the East Bay Times.
The proposal, introduced by San Francisco Supervisor Aaron Peskin in January, would also require public input and the supervisors’ approval before agencies buy surveillance technology with public funds. That includes the purchase of license plate readers, toll readers, closed-circuit cameras, body cams, and biometrics technology and software for forecasting criminal activity.
“The propensity for facial recognition technology to endanger civil rights and civil liberties substantially outweighs its purported benefits, and the technology will exacerbate racial injustice and threaten our ability to live free of continuous government monitoring,” reads the ordinance.
It’s almost as if San Francisco has momentarily remembered that being a liberal used to mean standing for liberty. But, we digress…
via ZeroHedge News http://bit.ly/2WphlEB Tyler Durden
I know some of you think me quite the bull. At times, it might appear I don’t worry about debt buildup and that I spend more time debunking popular end-of-the-world hedge fund narratives than agreeing with them. Yeah, I get it.
Sometimes I wish I could join the hedgies with their cataclysmic predictions. The dark side definitely sells better. And I certainly would appear much smarter if I would simply embrace the negative view.
Although I have long poked fun (good naturedly of course!) at the forecasts for another 2008 Great Financial Crisis, I wanted to highlight an interesting development that has me scratching my head wondering if I am being too cavalier. After all, it’s no longer just the Greenwich/Mayfair crowd sounding the alarm bell about debt. Yesterday, in their latest financial stability report, the Federal Reserve highlighted the alarming growth of private sector borrowing.
From Bloomberg:
The Federal Reserve escalated its warnings about the perils of risky borrowing by businesses Monday, saying firms with the worst credit profiles are the ones taking on more and more debt. The Fed also left a question unanswered: Is it going to do anything about it?
The U.S. central bank’s latest financial stability report said leveraged-lending issuance grew 20 percent last year, and that protections included in loan documents to shield lenders from defaults are eroding. While the Fed board voted unanimously to approve the report, it didn’t indicate any course of action the governors might take to rein in the red-hot market.
This Federal Reserve report is a big deal. The language makes it clear they are worried about the rising amount of private sector debt.
And for good reason. Take a gander at this terrific chart from Bloomberg (G #BTV 6468 for BB users):
This chart doesn’t resort to the usual trickery of measuring debt in absolute dollars (it’s like man-scaping – it makes it look bigger than it actually is), but uses the much more appropriate debt as a percent of GDP figure.
Yet even with the proper measurement, the growth in corporate debt since the Great Financial Crisis is nothing sort of stunning. We have tacked on 900 basis points of GDP in debt!
The three R-stars
The other day I was chatting with my pal Aidan Garrib, macro strategist at Pavilion Global Marketsand he articulated the dilemma facing the Federal Reserve so eloquently, I decided to steal his line.Aidan said there wasn’t really one R-star value, but three. The moment he uttered those words I instantly understood he had summed up the Fed’s problem perfectly.
Before we go further, let’s review – what is R-star? It’s the neutral rate of interest that balances the economy in the long-run. It’s a completely made-up number. An estimate for the interest rate that is neither stimulative or restrictive for a particular economy. But let’s face it, it’s something only economic PhDs get excited about.
Yet those PhDs set monetary policy based on their estimates for this magical R-star level. If they believe R-star to be higher, policy decisions get tilted on the side of tightening. If they believe R-star to be lower, that influences FOMC board members to keep rates lower. Central Bank decision makers’ estimate on the neutral level of interest rates is an important input in forecasting monetary policy. That’s why the Federal Reserve releases their infamous “Dot plot” that includes a R-star estimate by each FOMC board member.
Back to Aidan’s comment about there being three R-stars. What did he mean by that?
He was observing that there is a neutral level of interest rates for consumers, but that differs from the interest rate that would balance the manufacturing economy. Even more importantly, both of these differ from the level that would facilitate stable financial conditions.
To some extent this is nothing new. Rarely do all elements of an economy require equal level of interest rates. There are always areas of the economy where the rate is too loose while other parts too tight.
But I think it’s safe to say that the difference between these levels has never been higher.
Powell gave up on trying to balance the financial economy
When Powell first grabbed his seat at the head of the table as Fed chair, he was determined to squash what he viewed as a imminent bubble. He cranked rates and did not let up. Every FOMC press conference was met with equity selling as Powell failed to mouth the soothing words Wall Street wanted to hear. Rather, he highlighted the imbalances in the financial economy. Powell had sat through the Great Financial Crisis and was determined to not let another bubble develop under his watch.
Don’t believe me? The chart that best illustrates the dramatic change in Fed policy under Powell’s tenure is the 2-year TIPS yield.
Under Bernanke and Yellen the 2-year TIPS yield (the real yield after inflation) gyrated between 50 bps and minus 225 bps. Most of the time it was negative or close to zero.
Look closely at the red box. That’s the point when Powell got behind the wheel and steered 2-year real rates up to 200 bps.
And want to know the date of the high tick? It’s one day before the infamous Christmas-eve massacre when stocks went no bid.
After that, Powell changed his tune. No longer was he the bold-new-Chairman-willing-to-slow-down-the-financial-economy-to-stop-a-bubble. Suddenly he was the scared-and-trying-stay-out-of-Trump’s-crosshairs-FOMC-leader that was advocating patience with rate hikes.
Now some will claim Powell didn’t kowtow to Trump but rather reacted to a credit market freeze. I get it. Credit seized up. No doubt. But let me ask you something. Do you think if Trump had come out, and instead of lambasting Powell, said something to the effect that the financial economy was dealing with years of distortions and that he had faith his Fed Chairman was on the right path with his attempt to reset rates higher, do you really believe Powell would have backed off? I don’t. Not. For. A. Single. Second.
But Trump didn’t do that, so we will never know.
All that we can be certain of is that Powell is no longer tuning for the third R-star (financial conditions), but instead focused on the first two stars.
Financial economy will be the outlet valve
The interest rate needed to balance the “real economy” is significantly lower than that which balances the “financial economy.” Powell has been forced to choose. Either stop a bubble and crush the economy. Or try to let the economy grow and potentially create another bubble in the process.
At this point we know which way he has chosen.
Which brings me back to the original story about the Federal Reserve warning about the growing amount of corporate debt but offering no answer to the problem. They know the solution, but they are not prepared to do anything about it.
As the Federal Reserve allows interest rates to stay lower than the financial economy equilibrium point, more excesses will develop in the system.
Do I know if the Federal Reserve has already gone past the point of no return when private debt stops growing and starts to get paid back? Nope. Not a chance. And neither does anyone else. It’s still up in the air whether this debt expansion will continue.
But this private debt growth is a problem. A big problem. I am not sure that means you should rush out and short high-yield credit, but I know that private debt growth can’t continue expanding at this rate forever. Eventually it will slow, and god help us, even contract. That will have profound implications on financial markets.
The real question you should ask yourself is whether that day is here. Or whether Jay Powell was correct to worry about the bubble developing in the financial markets.
Was Jay Powell’s novice Chairman mistake raising rates too far too fast? Or was it giving in to Trump/Wall Street too early?
Many market pundits will tell you they know the answer. Good for them. I don’t know have a clue how they are so confident they know the right price for money and all the subtle interactions within the economic system.
But I am sure the rate of corporate debt growth is a worrisome development. Yet merely outlining a potential problem is much different than doing something about it. Be careful about assuming it will end tomorrow. Powell has abandoned the idea of tuning to financial conditions and the rate might still be low enough to encourage this debt to continue to grow.
I don’t know if it’s the cynic in me, but a little part wonders if Powell was a lot smarter before he started listening to everyone…
via ZeroHedge News http://bit.ly/2Yf5Xvk Tyler Durden
Every year from 1985 through 1994,according to leaked tax returns obtained by The New York Times, Donald J. Trump reported a negative adjusted gross income on his tax returns. That number grew as new losses were combined with those from prior years. The New York Times previously found that Mr. Trump declared an adjusted gross income in 1995 of negative $915.7 million.
The figures, according to the Times, show that the losses contradict the image that Trump promoted of himself as an adept and successful New York real estate developer.
Or do they show an adept real estate developer following the tax law’s depreciation guidelines to minimize his tax liabilities like every good shepherd of capital should?
Some fraction of that ocean of red ink represented depreciation on Mr. Trump’s real estate. One of the most valuable special benefits in the tax code, depreciation lets owners of commercial real estate write down the cost of their buildings.
The Times still gloats:
Over all, Mr. Trump lost so much money that he was able to avoid paying income taxes for eight of the 10 years. It is not known whether the I.R.S. later required changes after audits.
The newly-leaked documents, reportedly confirm the details that were leaked in October 2018, where the NYT accused President Trump of participating in “questionable” and “dubious” tax strategies “including instances of outright fraud” that greatly increased the fortune he received from his parents and allowed him to accrue millions of dollars in additional wealth from his father’s real estate empire “much of it through tax dodges in the 1990s.”
As one of the authors, NYT reporter Susanne Craig explained at the time, she and Russ Buettner, David Barstow “got our hands on a massive trove of confidential docs – including 200 tax returns – from Fred Trump’s empire. We found Donald Trump received hundreds of millions from his dad, some of it via fraudulent tax schemes.”
But, as NYT reports, several weeks ago, a senior official issued a statement saying:
“The president got massive depreciation and tax shelter because of large-scale construction and subsidized developments. That is why the president has always scoffed at the tax system and said you need to change the tax laws. You can make a large income and not have to pay large amount of taxes.”
On Saturday, after further inquiries from The Times, a lawyer for the president, Charles J. Harder, wrote that the tax information was “demonstrably false,” and that the paper’s statements “about the president’s tax returns and business from 30 years ago are highly inaccurate.”
He cited no specific errors, but on Tuesday added that “I.R.S. transcripts, particularly before the days of electronic filing, are notoriously inaccurate” and “would not be able to provide a reasonable picture of any taxpayer’s return.”
The Times then dangles this open-ended accusatory paragraph:
The new tax information does not answer questions raised by House Democrats in their pursuit of the last six years of Mr. Trump’s tax returns — about his recent business dealings and possible foreign sources of financing and influence. Nor does it offer a fundamentally new narrative of his picaresque career.
And the biggest question, of course is simple – was it illegal?
The world’s rich take advantage of NOL tax planning all the time, and in fact acquiring corporations for their NOL benefit has long been a strategy in corporate America designed to minimize Federal and State tax outflows.
The tax experts consulted by The Times said nothing in the 1995 documents suggested any wrongdoing by Mr. Trump, even if the extraordinary size of the loss he declared would have probably attracted extra scrutiny from I.R.S. examiners.
“The I.R.S., when they see a negative $916 million, that has to pop out,” Mr. Rosenfeld said.
So why is it a big deal? To make him seem like he avoids taxes? Well, if any other American could do so legally, wouldn’t they?
Finally, even the NYTimes admits the ten years of tax returns cover a period of dramatic recession, stock market crash, and real estate collapse, so, as one Twitter wit suggested (@pharaohfire):
“Trump only lost 1 Billion in the worst Real Estate recession in US history outside the Great Depression. To me that’s #winning“
At his nadir, in the post-recession autumn of 1991, Mr. Trump testified before a congressional task force, calling for changes in the tax code to benefit his industry.
“The real estate business — we’re in an absolute depression,” Mr. Trump told the lawmakers, adding:
“I see no sign of any kind of upturn at all. There is no incentive to invest. Everyone is doing badly, everyone.”
“90% of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.” -Andrew Carnegie
And one last point for your consideration:
AMZN market cap: $945BN
Taxes paid in 2018: negative $129MM
While The Times did not obtain the president’s actual tax returns, it received the information contained in the returns from someone who had legal access to it.
via ZeroHedge News http://bit.ly/2Jp1MZU Tyler Durden
There are many historical models in which the spending/investing of wealthy families drives the expansion of local economies.
The increase in farm debt while farm income declines is putting unbearable financial pressure on American farmers, who must be differentiated from giant agri-business corporations.
This is placing immense pressure on farmers, pressure which manifests in rising suicide rates.
If this isn’t the nadir of rural America, it’s certainly close.
This decline of financial viability and sharp rise in stress isn’t limited to rural America. The decline of rural regions and small towns is a global phenomenon, and the causes are many but boil down to two primary dynamics:
1. Cities and megalopolises (aggregations of cities, suburbs and exurbs) attract capital, infrastructure, markets, talent and government spending, and these are the engines of job creation. People move to cities to find jobs and opportunities.
As an example, consider the San Francisco Bay Area megalopolis of roughly 7.6 million people in 9 counties and 101 cities. The region added over 400,000 new jobs since the 2008-09 Global Financial Crisis and over 1 million additional residents since the early 2000s.
In effect, the region absorbed an entire new city with 400,000 jobs and 1 million residents. Roads and public transport did not expand capacity, and housing construction lagged. As a result, traffic is horrific, homelessness endemic and housing costs are unaffordable to all but the favored few.
Rural / small town regions cannot match these employment opportunities and so people move, reluctantly or enthusiastically, to overcrowded, horrendously costly urban zones to find jobs.
2. Globalization has lowered the cost of agricultural commodities by exposing every locality to globally set prices (supply and demand) which are also distorted by currency fluctuations.
The relatively low cost of fuels has enabled produce from thousands of miles away to be shipped to supermarkets virtually everywhere.
These mega-trends have slashed farming incomes while costs have risen across the board. This squeeze as revenues decline and costs increase has driven even the most diligent and devoted farmers out of business or reduced them to hanging on by a thread.
What would it take reverse these trends?
1. The price of agricultural commodities and products would have to triple or quadruple, so that farming would become lucrative and attract capital and talent.
Imagine an economy where ambitious people wanted to get into agriculture rather than investment banking. It’s a stretch to even imagine this, but if energy suddenly became much more expensive and crop failures globally became the norm due to fungi, plant viruses and pests that can no longer be controlled and adverse weather patterns, this could very rapidly change the price of ag products to the benefit of local producers.
Another potential dynamic is the decline of global trade due to geopolitical issues and domestic politics, i.e. the desire to reshore “strategic industries” such as food production regardless of the higher costs such a trend might cause.
The repudiation of finance as the engine of economic “growth” (or pillage, if we remove the gloves) and the prioritization of real-world production are also trends that could arise as the financial bubbles pop and cannot be reinflated with the usual central bank trickery.
2. Wealthy owners of capital tire of unlivable cities and move to small towns, bringing their capital and entrepreneurial drive with them.
There are many historical models in which the spending/investing of wealthy families drives the expansion of local economies. Colonial America and the Roman countryside are two examples of this dynamic.
When capital flows to small towns, jobs are created as the wealthy hire people to serve their needs. These new jobs create new markets for small businesses, and these new opportunities attract new capital.
Some owners of capital are passive owners, collecting rents from afar and spending this income in the local small-town economy. Others are restless entrepreneurial types who will fund new local businesses as a challenge or as an opportunity that’s been ignored in the mad rush to sprawling unaffordable cities.
Both kinds of owners bring new spending and investment.
Wealth enables this class to bring its luxuries and desires with it, and so cultural activities favored by the wealthy get funding they never had before.
Wealthy types follow leaders just like everyone else, and once they hear of wealthy people extolling “the good life” in a small town, they investigate this option in a way they would never have done before.
Thus capital attracts capital, opens market opportunities, increases employment and starts attracting talent which is frustrated by the high costs and competition of the megalopolises.
Why would wealthy owners of capital move from places like Los Angeles, San Francisco, Seattle and New York City to small towns?
Any urban dweller in an overcrowded megalopolis can give you the answer: the traffic is unbearable, homeless is expanding, taxes and costs are skyrocketing and so on. The cultural benefits the city offers are increasingly outweighed by the friction, even for the wealthy.
What would cause the trickle of wealthy people leaving cities to swell into a mini-flood? A recession that guts tax revenues would cause cities and counties to raise taxes and fees, many aimed specifically at the rich, while reducing spending on the intractable problems of traffic, homelessness, public education, etc.
Most city dwellers cannot leave for lower cost climes because they need the higher income of city employment and they have a stake in the real estate market via a home they own and a mortgage to pay.
The wealthy, whose income is derived from capital rather than solely labor, have the financial freedom to leave the city but retain much of their income.
If both of these trends manifest, we might see those who can abandoning increasingly unlivable cities for lower cost, safer and more livable small towns.
The only other development that would restore urban-rural balance is the collapse of the entire neo-feudal (neoliberal) regime, including fiat currencies, central banking, financialization and financialized globalization.
In the near term, scarcities that drive agricultural prices higher and people fleeing unlivable, unaffordable cities are likelier possibilities.
* * *
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via ZeroHedge News http://bit.ly/302XLA5 Tyler Durden
“The overwhelming evidence of the IPBES Global Assessment, from a wide range of different fields of knowledge, presents an ominous picture,” said IPBES Chair, Sir Robert Watson. “The health of ecosystems on which we and all other species depend is deteriorating more rapidly than ever. We are eroding the very foundations of our economies, livelihoods, food security, health and quality of life worldwide.”
“The report also tells us that it is not too late to make a difference, but only if we start now at every level from local to global,” he said. “Through ‘transformative change,’ nature can still be conserved, restored and used sustainably – this is also key to meeting most other global goals. By transformative change, we mean a fundamental, system-wide reorganization across technological, economic and social factors, including paradigms, goals and values.”
“The member States of IPBES Plenary have now acknowledged that, by its very nature, transformative change can expect opposition from those with interests vested in the status quo, but also that such opposition can be overcome for the broader public good,” Watson said.
Almost 150 researchers from 50 countries with inputs from another 310 contributing authors, worked for three years to assess climate change over the last five decades, constructed a comprehensive understanding of the relationship between industrialization and their impacts on nature.
IPBES found that 1 million animal and plant species across the planet are now threatened with extinction due to the direct result of industrialization.
“Ecosystems, species, wild populations, local varieties and breeds of domesticated plants and animals are shrinking, deteriorating or vanishing. The essential, interconnected web of life on Earth is getting smaller and increasingly frayed,” said Prof. Settele. “This loss is a direct result of human activity and constitutes a direct threat to human well-being in all regions of the world.”
Almost half of the amphibians and a third of all marine mammals are endangered, the reported warned. Since 1970, the global habitat has collapsed by 30%, with an astonishing 85% of the wetlands from the 1700s were wiped out by 2000.
“We’re not just losing bee species. We’re losing insects,” said Joseph Walston, senior vice president for the global conservation of the Wildlife Conservation Society, who spoke with The Wall Street Journal. “We’re not just losing the tiger. We’re losing many or most vertebrates.”
For the last half-decade, we have routinely covered studies that link glyphosate, the world’s most common weed killer, to the global decline in honey bees. Our latest report shows bees exposed to glyphosate, the active ingredient in Roundup, lose critical bacterial in their guts and are more susceptible to infection and death from harmful bacteria.
Researchers believe the IPBES study could better inform humans across the planet about the devastating trends – so they can make better decision to save the world. Some actions people could do to change these extinction trends are decreasing food waste, developing sustainable fishing practices, improving land and water management, develop cleaner technologies for industries, and prevent further deforestation.
via ZeroHedge News http://bit.ly/2VWP5wg Tyler Durden
Each year, Congress approves hundreds of billions of dollars for the US defense budget… but the real number exceeds $1 trillion.
In its latest budget request, the Trump administration is asking for a near-record $750 billion for the Pentagon and related defense activities—an astonishing figure by any measure. If passed by Congress, it will be one of the largest military budgets in American history, topping peak levels reached during the Korean and Vietnam wars. And keep one thing in mind: That $750 billion represents only part of the actual annual cost of our national security state.
There are at least 10 separate pots of money dedicated to fighting wars, preparing for yet more wars, and dealing with the consequences of wars already fought. So the next time a president, a general, a secretary of defense, or a hawkish member of Congress insists that the US military is woefully underfunded, think twice. A careful look at US defense expenditures offers a healthy corrective to such wildly inaccurate claims.
Now, let’s take a brief dollar-by-dollar tour of the US national security state of 2019, tallying the sums as we go, and see just where we finally land (or perhaps the word should be “soar”), financially speaking.
The Pentagon’s base budget: The Pentagon’s regular, or base, budget is slated to be $544.5 billion in fiscal year 2020—a healthy sum but only a modest down payment on total military spending.
As you might imagine, that base budget provides basic operating funds for the Department of Defense, much of which will be squandered on preparations for ongoing wars never authorized by Congress, overpriced weapons systems that aren’t actually needed, or outright waste, an expansive category that includes everything from cost overruns to unnecessary bureaucracy. That $544.5 billion is the amount publicly reported by the Pentagon for its essential expenses and includes $9.6 billion in mandatory spending that goes toward items like military retirement.
Among those basic expenses, let’s start with waste, a category even the biggest boosters of Pentagon spending can’t defend. The Pentagon’s own Defense Business Board found that cutting unnecessary overhead, including a bloated bureaucracy and a startlingly large shadow workforce of private contractors, would save $125 billion over five years. Perhaps you won’t be surprised to learn that the board’s proposal has done little to quiet calls for more money. Instead, from the highest reaches of the Pentagon (and the president himself) came a proposal to create a Space Force, a sixth military service that’s all but guaranteed to further bloat its bureaucracy and duplicate work being done by the other services. Even Pentagon planners estimate that the future Space Force will cost $13 billion over the next five years (and that’s undoubtedly a low-ball figure).
In addition, the Defense Department employs an army of private contractors—more than 600,000 of them—many doing jobs that could be done far more cheaply by civilian government employees. Cutting the private contractor work force by 15 percent to a mere half-million people would promptly save more than $20 billion per year. And don’t forget the cost overruns on major weapons programs like the Ground-Based Strategic Deterrent—the Pentagon’s unwieldy name for the Air Force’s new intercontinental ballistic missile—and routine overpayments for even minor spare parts (like $8,000 for a helicopter gear worth less than $500—a markup of 1,500 percent).
Then there are the overpriced weapons systems the military can’t even afford to operate, like a $13 billionaircraft carrier, 200 nuclear bombers at $564 million a pop, and the F-35 combat aircraft, the most expensive weapons system in history, at a price tag of at least $1.4 trillion over the lifetime of the program. The Project on Government Oversight has found—and the Government Accountability Office recently substantiated—that, despite years of work and staggering costs, the F-35 may never perform as advertised.
And don’t forget the Pentagon’s recent push for long-range strike weapons and new reconnaissance systems designed for future wars with a nuclear-armed Russia or China, the kind of conflicts that could easily escalate into World War III, in which such weaponry would be beside the point. Imagine if any of that money were devoted to figuring out how to prevent such conflicts rather than hatching yet more schemes for how to fight them.
BASE BUDGET TOTAL: $554.1 BILLION
The war budget: As if its regular budget weren’t enough, the Pentagon also maintains its very own slush fund, formally known as the Overseas Contingency Operations account, or OCO. In theory, the fund is meant to pay for the War on Terrorism—that is, the US wars in Afghanistan, Iraq, Somalia, Syria, and elsewhere across the Middle East and Africa. In practice, it does that and so much more.
After a fight over shutting down the government led to the formation of a bipartisan commission on deficit reduction—known as Simpson-Bowles after its co-chairs, former Clinton chief of staff Erskine Bowles and former Republican senator Alan Simpson—Congress passed the Budget Control Actof 2011. It put caps on both military and domestic spending that were supposed to save a total of$2 trillion over 10 years. Half that figure was to come from the Pentagon, as well as from nuclear-weapons spending at the Department of Energy. As it happened, though, there was a huge loophole: The war budget was exempt from the caps. The Pentagon promptly began to put tens of billions of dollars into it for pet projects that had nothing whatsoever to do with current wars (and the process has not stopped). The level of abuse of this fund remained largely secret for years, with the Pentagon admitting only in 2016 that just half the money in the OCO went to actual wars, prompting critics and numerous members of Congress—including then-Representative Mick Mulvaney, now President Donald Trump’s latest chief of staff—to dub it a “slush fund.”
This year’s budget proposal supersizes the slush in that fund to a figure that would likely be considered absurd if it weren’t part of the Pentagon budget. Of the nearly $174 billion proposed for the war budget and “emergency” funding, only a little more than $25 billion is meant to directly pay for the wars in Iraq, Afghanistan, and elsewhere. The rest will be set aside for what’s termed enduring activities that would continue even if those wars ended or for routine Pentagon activities that couldn’t be funded within the constraints of the budget caps. The Democratic-controlled House of Representatives is expected to work to alter this arrangement. Even if the House leadership has its way, however, most of its reductions in the war budget would be offset by lifting caps on the regular Pentagon budget by corresponding amounts. (It’s worth noting that Trump’s budget calls for someday eliminating the slush fund.)
The 2020 OCO also includes $9.2 billion in “emergency” spending for building Trump’s beloved wall on the US-Mexico border, among other things. Talk about a slush fund! There is no emergency, of course. The executive branch is just seizing taxpayer dollars that Congress refused to provide. Even supporters of the president’s wall should be troubled by this money grab. As 36 former Republican members of Congress recently argued, “What powers are ceded to a president whose policies you support may also be used by presidents whose policies you abhor.” Of all of Trump’s “security”-related proposals, this is undoubtedly the most likely to be eliminated or at least scaled back, given the congressional Democrats against it.
WAR BUDGET TOTAL: $173.8 BILLION
Running tally: $727.9 billion
The Department of Energy/nuclear budget: It may surprise you to know that work on the deadliest weapons in the US arsenal, nuclear warheads, is housed in the Department of Energy, not the Pentagon. The DOE’s National Nuclear Security Administration runs a nationwide research, development, and production network for nuclear warheads and naval nuclear reactors that stretches from Livermore, California, to Albuquerque and Los Alamos, New Mexico, to Kansas City, Missouri, to Oak Ridge, Tennessee, to Savannah River, South Carolina. Its laboratories also have a long history of program mismanagement, with some projects coming in at nearly eight times their initial estimates.
NUCLEAR BUDGET TOTAL: $24.8 BILLION
Running tally: $752.7 billion
Defense-related activities: This category covers the $9 billion that annually goes to agencies other than the Pentagon—the bulk of it to the FBI for homeland-security-related activities.
DEFENSE-RELATED ACTIVITIES TOTAL: $9 BILLION
Running tally: $761.7 billion
The five categories above make up the budget of what’s officially known as national defense. Under the Budget Control Act, this spending should have been capped at $630 billion. The $761.7 billion proposed for the 2020 budget is, however, only the beginning of the story.
The Veterans Affairs budget: The wars of this century have resulted in a new generation of veterans. In all, over 2.7 million US military personnel have cycled through the conflicts in Iraq and Afghanistan since 2001. Many of them remain in need of substantial support to deal with the physical and mental wounds of war. As a result, the budget for the Department of Veterans Affairs has gone through the roof, more than tripling in this century to a proposed $216 billion. And this massive figure may not even be enough to provide the necessary services.
\More than 6,900 US military personnel have died in Washington’s post-9/11 wars, with more than 30,000 wounded in Iraq and Afghanistan alone. These casualties are, however, just the tip of the iceberg. Hundreds of thousandsof returning troops suffer from post-traumatic stress disorder, illnesses created by exposure to toxic burn pits, or traumatic brain injuries. The US government is committed to providing care for these veterans for the rest of their lives. An analysis by the Costs of War Project at Brown University determined that obligations to veterans of the Iraq and Afghanistan wars will total more than $1 trillion in the years to come. This cost of war is rarely considered when leaders in Washington decide to send US troops into combat.
VETERANS AFFAIRS TOTAL: $216 BILLION
Running tally: $977.7 billion
The Homeland Security budget: The Department of Homeland Security is a mega-agency created after the 9/11 attacks. At the time, it swallowed 22 existing government organizations, creating a massive department that currently has nearly a quarter of a million employees. Agencies that are now part of the DHS include the Coast Guard, the Federal Emergency Management Agency, Customs and Border Protection, Immigration and Customs Enforcement, Citizenship and Immigration Services, the Secret Service, the Federal Law Enforcement Training Center, the Domestic Nuclear Detection Office, and the Office of Intelligence and Analysis.
While some of the DHS’s activities—such as airport security and defenseagainst the smuggling of a nuclear weapon or dirty bomb into our midst—have a clear security rationale, many others do not. ICE—America’s deportation force—has done far more to cause suffering among innocent people than to thwart criminals or terrorists. Other questionable DHS activities include grants to local law enforcement agencies to help them buy military-grade equipment.
HOMELAND SECURITY TOTAL: $69.2 BILLION
Running tally: $1.0469 trillion
The international-affairs budget: This includes the budgets of the State Department and the US Agency for International Development. Diplomacy is one of the most effective ways to make the United States and the world more secure, but it has been under assault in the Trump years. The Fiscal Year 2020 budget calls for a one-third cut in international affairs spending, leaving it at about one-fifteenth of the amount allocated for the Pentagon and related agencies grouped under the category of national defense. And that doesn’t even account for the fact that more than 10 percent of the international affairs budget supports military aid efforts, most notably the $5.4 billion Foreign Military Financing program. The bulk of FMF goes to Israel and Egypt, but in all over a dozen countries receive funding under it, including Jordan, Lebanon, Djibouti, Tunisia, Estonia, Latvia, Lithuania, Ukraine, Georgia, the Philippines, and Vietnam.
INTERNATIONAL AFFAIRS TOTAL: $51 BILLION
Running tally: $1.0979 trillion
The intelligence budget: The United States has 17 intelligence agencies. In addition to the DHS Office of Intelligence and Analysis and the FBI, mentioned above, they are the CIA, the National Security Agency, the Defense Intelligence Agency, the State Department’s Bureau of Intelligence and Research, the Drug Enforcement Agency’s Office of National Security Intelligence, the Treasury Department’s Office of Intelligence and Analysis, the Department of Energy’s Office of Intelligence and Counterintelligence, the National Reconnaissance Office, the National Geospatial-Intelligence Agency, the Army’s Intelligence and Security Command, the Office of Naval Intelligence, Marine Corps Intelligence, Coast Guard Intelligence, and Air Force Intelligence, Surveillance and Reconnaissance. And then there’s that 17th one, the Office of the Director of National Intelligence, set up to coordinate the activities of the other 16.
We know remarkably little about the nature of the nation’s intelligence spending, other than its supposed total, released in a report every year. By now, it’s more than $80 billion. The bulk of this funding, including for the CIA and NSA, is believed to be hidden under obscure line items in the Pentagon budget. Since intelligence spending is not a separate funding stream, it’s not counted in our tally below (though, for all we know, some of it should be).
INTELLIGENCE BUDGET TOTAL: $80 BILLION
Running tally: $1.0979 trillion
Defense share of interest on the national debt: The interest on the national debt is well on its way to becoming one of the most expensive items in the federal budget. Within a decade, it is projected to exceed the Pentagon’s regular budget in size. For now, of the more than $500 billion in interest taxpayers fork over to service the government’s debt each year, about $156 billion can be attributed to Pentagon spending.
DEFENSE SHARE OF NATIONAL DEBT TOTAL: $156.3 BILLION
Final tally: $1.2542 trillion
So our final annual tally for war, preparations for war, and the impact of war comes to more than $1.25 trillion, more than double the Pentagon’s base budget. If the average taxpayer were aware that this amount was being spent in the name of national defense—with much of it wasted, misguided, or simply counterproductive—it might be far harder for the national security state to consume ever-growing sums with minimal public pushback. For now, however, the gravy train is running full speed ahead, and its main beneficiaries—Lockheed Martin, Boeing, Northrop Grumman, and their cohort—are laughing all the way to the bank.
via ZeroHedge News http://bit.ly/2J7zqnv Tyler Durden
Voters are starting to wonder why massive corporations like Amazon pay zero in corporate taxes, in what is likely going to be one of the major hot-button issues of the upcoming election, according to the New York Times.
A recent piece by the paper highlighted a growing group of people like Colin Robertson, who wonders why he pays taxes on the $18,000 a year he makes cleaning carpets, while companies like Amazon got a tax rebate. The confusion led him to join the Akron chapter of the Democratic Socialists of America, where at a gathering this month, members discussed Karl Marx and corporate greed over chocolate chip cookies.
Robertson said of Amazon CEO Jeff Bezos: “One of the benefits of taxation is taking it and using it for the collective good. He could be taxed at 99.9 percent and still have millions left over, and I’d be homeless.”
It’s an issue that Democrats like Joe Biden, Bernie Sanders and Elizabeth Warren have made, or likely will make, cornerstones to their campaigns, especially after a recent report showed 60 Fortune 500 companies paid no federal taxes on $79 billion in corporate income last year. Last year, Amazon got a rebate on income of $10.8 billion.
Bernie Sanders said this month: “Amazon, Netflix and dozens of major corporations, as a result of Trump’s tax bill, pay nothing in federal taxes. I think that’s a disgrace.”
Warren has proposed that corporations pay a 7% tax on every dollar over $100 million in profits they earn anywhere in the world. She estimated this would apply to 1,200 companies and net about $1 trillion over a decade. Amazon would have paid $698 million, instead of $0, in taxes for 2018 under her plan. Joe Biden has yet to issue a formal corporate tax reform proposal. Last May, he stated: “We have to deal with this tax code. It’s wildly skewed toward taking care of those at the very top.”
Corporate taxes have been – and will continue to be – a target of criticism by Democrats. In 2020, Democrats will argue that corporations should be accountable for wage inequality, despite the fact that both parties have tried to lower the top corporate tax rate over the last 10 years. Obama proposed lowering it from 35% to 28% before Republicans in 2017 lowered it to 21%. The new law also allows immediate expensing of capital expenditures, which is a key factor in many corporations not paying federal taxes.
The GOP has argued that the tax changes would stimulate investment and economic growth, which has happened mostly in the form of additional stock buybacks in an already inflated stock market. In Ohio, where Colin Robertson is from, the story is slightly different. The state has seen some counties with unemployment at 4.4%, a 600bps spread to the national rate of 3.8%, as a result of factory closures that have taken place over the past few years. Dems will seek to use this to their advantage in a state that Trump won by 8% in 2016.
David Betras, the Democratic chairman in Mahoning County said: “Democrats [have] not yet figured out how to use the economic angst of laid-off employees and minimum-wage workers to defeat Mr. Trump in Ohio in 2020.”
He continued, conceding that Trump has done a good job addressing the issue: “Believe it or not, if you listen to the president, he addresses that issue. He does it with a lot of smoke and very many mirrors, but he’s at least talking about how good the economy is and what I’ve done for you. ‘I’m with you. I have your back.’”
Ultimately, Betras said the issue didn’t resonate as much with voters as health care or immigration, especially because taxes are much more of a resonant issue for Republicans than for Democrats, traditionally. Tyler Savin, a real estate agent in the area who has seen home prices fall as a result of the closure of some plants, said: “I think corporations should pay their taxes, like Amazon, but health care and support for abortion rights [are] more important.”
Thomas Chhay, a Republican student at the University of Akron said: “I lean Republican. I agree with corporate tax cuts unless the companies ship the jobs overseas.”
In addition to Amazon, Goodyear and FirstEnergy, two other Ohio companies, also paid no taxes. FirstEnergy paid no taxes last year on $1.5 billion in income and instead received tax credits that can be used in the future. General Motors recently idled a large plant near Youngstown and, in 2018, paid no federal taxes on $4.32 billion in income. Lordstown, where one GM plant is located, is buried in a county with an unemployment rate stuck at 6.6%.
David Green, president of United Auto Workers Local 1112 said: “What was promised to these people was more jobs. When you give them the tax break and they take the jobs away, that’s like a double whammy. That’s a lose-lose.”
And the truly worrisome thing is the “solutions” that these policies are driving Democrats to. For instance, Robertson told the NYT that he believes “nationalizing the companies” would be an answer. “I think forcing them to pay higher alone is inefficient, and taxation alone is inefficient,” he said.
via ZeroHedge News http://bit.ly/2VQ43DY Tyler Durden
The 2019 market uptrend is officially shattered. Yes China trade concerns are the trigger, but as I always say: Technicals paint a picture of things to come and when things line up markets will find a trigger to confirm the technical picture.
The break of these trends may have significant consequences yet to be realized and I’m stating this with eyes wide open to the binary situation markets are confronted with later this week in regards to Chinese tariffs on Friday: Will China blink, will Trump blink or will everybody dig in their heels? The outcome to these questions can result in either a massive relief rally or significant more downside.
Let’s evaluate the charts and understand the context.
I’ve been publicly warning about rising wedge patterns stating that they don’t matter until they do but when they break they can result in the release of a lot of energy.
Take these 2 prominent examples:
The $NDX rising wedge, most recently I outlined it in Danger Charts:
The point was the pattern was narrowing, unsustainable and was practically begging for a break and if it does watch out. We go the break last week and confirmation today:
In the same article I pointed to the $VIX wedge compression, oh so similar to the previous compression phases we’ve seen in recent years:
And boy, did the $VIX release a lot of energy coming out of the pattern:
And of course there were warning signs that something was about to happen.
Take the trend line in the $DJIA, it broke on April 25:
A chart that was again highlighted in Trend Breaks:
That sent a signal that something was technically amiss, a leading indicator if you will. Of course we saw further bounce action in it, but the signal produced sizable results by filling 2 of the lower gaps:
The $DJIA specifically here is at an interesting spot everyone should be aware of. Unlike $SPX and $NDX it never made a new high and all of a sudden the rejection here raises larger concerns:
A potential major topping pattern.
And now that $SPX has rejected its marginal new highs the onus is on bulls to prove their case.
As I mentioned at the outset a turnaround on the China trade deal can produce a major relief rally at any moment. But clearly markets are rattled and success is not guaranteed either.
Hence further downside risk must be considered as well, especially since these patterns above have a lot of room to go lower should markets turn in earnest. While the $VIX is getting short term overbought $ES suggests risk of a repeat of February 2018 and October 2018:
Given the massive run markets have experienced in 2019 such a corrective move, should it unfold, should not surprise. Markets are now short term oversold and bounces and rallies are to be expected, but this week’s binary market event will likely decide the next big move into next week.
Be aware though, however these trade talks turns out market participants are on notice: The 2019 trend is officially shattered and the charts told you ahead of time that it was coming. Bulls have a lot of technical damage to repair and require new highs or are at risk of being confronted with major potential topping patterns.
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via ZeroHedge News http://bit.ly/2V9isqy Tyler Durden
