Tag: finance

Submitted by F.F.Wiley of Cyniconomics blog,

For 50 years or so the federal government has deliberately and to an increasing extent misstated probable future budget deficits. Democrats and Republicans are guilty. The White House is guilty. And so is Congress. Private firms that deliberately misrepresent their financial statements in this fashion would be guilty of a crime… The magnitude of the misrepresentation is breathtaking.

– Former St. Louis Federal Reserve Bank President William Poole, writing in the Wall Street Journal last April

In the op-ed excerpted above, William Poole harshly criticizes government budget projections, including those published by the Congressional Budget Office.

We’re guessing he was especially miffed with the annual budget outlook released by the CBO on February 5^th.

Consider that Poole favored the “alternative scenario” that can sometimes be found deep within CBO reports and spreadsheets. This scenario corrects for at least a few of the absurd assumptions in the primary budget projections (the “baseline scenario”) that receive 99% of the media’s attention. Poole called the alternative scenario “the only truly honest and useful effort in town.”

Alas, the alternative scenario is no more – the CBO removed it from their annual outlook. Taxpayers can no longer find meaningful budget projections anywhere in the CBO’s work.

Let’s see if we can fill in the gap.

We’ll start with the baseline from this month’s report:

The chart shows a shrinking deficit over the next couple of years, but don’t get too excited. Apart from other issues we’ll discuss, this is explained by a long-standing prediction for a robust economic recovery, which hasn’t yet come to pass. It’s not so much a budget outlook as a hopeful forecast.

After the supposed economic boom levels off in 2018/19 (according to the assumptions), the figures no longer hide our deteriorating finances. But the deterioration is likely to be much worse than the chart suggests, as we’ll explain below.  To create a more realistic outlook, we’ll adjust the baseline scenario for four different types of deficiencies in the CBO’s approach:

Step #1: We deal with dishonest lawmakers

One of the challenges in budget forecasting is that tax and spending laws are full of provisions that are all but guaranteed to be reversed before they take effect. These dead-on-arrival provisions only exist to create the appearance of fiscal rectitude. And the deception works because the CBO is required by governing statutes to build the phony provisions into its baseline, which the media then endorses as an authoritative view of public finances.

Fortunately, though, the CBO’s new report provides data we can use to neutralize some of the lawmakers’ tricks, as explained in Table 1 below:

Step #2: We get real with the economy

The good news in the CBO’s latest report is that they made a few needed changes to the underlying economic assumptions. The bad news is that they have much more to do – the economic outlook remains unrealistic.

Once again, though, we can use data in the report (Appendix E, in this case) to improve the projections. We explained our adjustments in detail in “Why Mr. Smith Has More Work To Do,” and they’re summarized in Table 2 below.

Note that we’ve accepted the CBO’s strongly optimistic outlook for the next four years, not because we like it but because it’s easier to show inconsistencies and come up with a more realistic scenario in later years (after the assumed recovery reaches historic extremes).

Step #3: We put on our actuarial hats

It doesn’t take much business experience to know that budget plans are regularly thrown off track by unexpected events, and the federal budget is no different. In fact, the CBO always acknowledges the risks of such setbacks. Yet, its governing statutes don’t permit accounting for most types of unexpected events in the baseline scenario.

In any case, the CBO doesn’t provide sensitivity analysis estimating their possible effects. Here’s what we had to say about this in an earlier post:

[M]any events are deemed too unpredictable to be estimated – an excuse that defies both collective knowledge and common practice. Actuaries, accountants and financial risk managers are all trained to place numeric estimates on unforeseen risks. Insurance premiums, credit loss provisions and investment decisions are all based on these numeric estimates.

The key is that any positive number is better than nothing. We can see the problem with nothing just by noticing that the debt debate almost never gets around to the risks of recessions, financial crises, wars, natural disasters, and so on. Political leaders and pundits habitually ignore the CBO’s warnings that these events will occur from time to time, relying instead on its incomplete projections.

In the same post, we explained our approach to adjusting budget projections for unforeseen events. One of our recommendations, which accounts for the effects of automatic stabilizers and doesn’t violate the CBO’s statutes, was implemented by the CBO for the first time in this month’s report. The other adjustments are summarized in Table 3 below:

Step #4: We recognize that debt owed to trust funds is, indeed, debt

The question of whether to look at gross debt (including obligations to trust funds such as the Social Security and Medicare hospital insurance funds) or net debt (excluding those obligations and other intra-governmental holdings) is a tired subject. It’s probably fair to say that net debt advocates don’t care much about debt to begin with, while those who point to gross debt do care. We offered our two cents here. Among other points, we described the paradox that fiscally profligate governments can lower net debt (but not gross debt) by merely expanding certain types of entitlement programs, even if the expansions are fiscally unsustainable. In fact, America’s current financial position shows that this is exactly what we’ve done. For this reason and others, trust fund debt should be added back to the net figures highlighted by the CBO.

Putting it all together

Note that the figures in the tables above exclude debt service costs. After breaking the baseline into components and making our adjustments, we then create new projections that include recalculation of debt service.

The Steps 1 and 3 adjustments are combined into a projection that we call “Congress does what it usually does,” while the Step 2 adjustment is blended into our “and the economy does what it usually does” projection. The Step 4 adjustment is shown in the “and trust fund debt counts” projection in the final chart.

Here are our results, for deficits first and then debt:

While the charts speak for themselves, we’ll turn again to Poole’s op-ed to sum up America’s finances:

U.S. fiscal policy is in a chaotic state. Policy decisions are wrapped around the convoluted budget accounting that Congress and the White House use to obfuscate, dissemble and hide what is really being done. That is a tragedy, and our democracy is worse for it.

Indeed.

(Click here for an appendix to this post containing the year-by-year added deficits for each of our adjustments, in dollars.)

via Zero Hedge http://ift.tt/1dkmj7G Tyler Durden

Submitted by F.F.Wiley of Cyniconomics blog,

For 50 years or so the federal government has deliberately and to an increasing extent misstated probable future budget deficits. Democrats and Republicans are guilty. The White House is guilty. And so is Congress. Private firms that deliberately misrepresent their financial statements in this fashion would be guilty of a crime… The magnitude of the misrepresentation is breathtaking.

– Former St. Louis Federal Reserve Bank President William Poole, writing in the Wall Street Journal last April

In the op-ed excerpted above, William Poole harshly criticizes government budget projections, including those published by the Congressional Budget Office.

We’re guessing he was especially miffed with the annual budget outlook released by the CBO on February 5^th.

Consider that Poole favored the “alternative scenario” that can sometimes be found deep within CBO reports and spreadsheets. This scenario corrects for at least a few of the absurd assumptions in the primary budget projections (the “baseline scenario”) that receive 99% of the media’s attention. Poole called the alternative scenario “the only truly honest and useful effort in town.”

Alas, the alternative scenario is no more – the CBO removed it from their annual outlook. Taxpayers can no longer find meaningful budget projections anywhere in the CBO’s work.

Let’s see if we can fill in the gap.

We’ll start with the baseline from this month’s report:

The chart shows a shrinking deficit over the next couple of years, but don’t get too excited. Apart from other issues we’ll discuss, this is explained by a long-standing prediction for a robust economic recovery, which hasn’t yet come to pass. It’s not so much a budget outlook as a hopeful forecast.

After the supposed economic boom levels off in 2018/19 (according to the assumptions), the figures no longer hide our deteriorating finances. But the deterioration is likely to be much worse than the chart suggests, as we’ll explain below.  To create a more realistic outlook, we’ll adjust the baseline scenario for four different types of deficiencies in the CBO’s approach:

Step #1: We deal with dishonest lawmakers

One of the challenges in budget forecasting is that tax and spending laws are full of provisions that are all but guaranteed to be reversed before they take effect. These dead-on-arrival provisions only exist to create the appearance of fiscal rectitude. And the deception works because the CBO is required by governing statutes to build the phony provisions into its baseline, which the media then endorses as an authoritative view of public finances.

Fortunately, though, the CBO’s new report provides data we can use to neutralize some of the lawmakers’ tricks, as explained in Table 1 below:

Step #2: We get real with the economy

The good news in the CBO’s latest report is that they made a few needed changes to the underlying economic assumptions. The bad news is that they have much more to do – the economic outlook remains unrealistic.

Once again, though, we can use data in the report (Appendix E, in this case) to improve the projections. We explained our adjustments in detail in “Why Mr. Smith Has More Work To Do,” and they’re summarized in Table 2 below.

Note that we’ve accepted the CBO’s strongly optimistic outlook for the next four years, not because we like it but because it’s easier to show inconsistencies and come up with a more realistic scenario in later years (after the assumed recovery reaches historic extremes).

Step #3: We put on our actuarial hats

It doesn’t take much business experience to know that budget plans are regularly thrown off track by unexpected events, and the federal budget is no different. In fact, the CBO always acknowledges the risks of such setbacks. Yet, its governing statutes don’t permit accounting for most types of unexpected events in the baseline scenario.

In any case, the CBO doesn’t provide sensitivity analysis estimating their possible effects. Here’s what we had to say about this in an earlier post:

[M]any events are deemed too unpredictable to be estimated – an excuse that defies both collective knowledge and common practice. Actuaries, accountants and financial risk managers are all trained to place numeric estimates on unforeseen risks. Insurance premiums, credit loss provisions and investment decisions are all based on these numeric estimates.

The key is that any positive number is better than nothing. We can see the problem with nothing just by noticing that the debt debate almost never gets around to the risks of recessions, financial crises, wars, natural disasters, and so on. Political leaders and pundits habitually ignore the CBO’s warnings that these events will occur from time to time, relying instead on its incomplete projections.

In the same post, we explained our approach to adjusting budget projections for unforeseen events. One of our recommendations, which accounts for the effects of automatic stabilizers and doesn’t violate the CBO’s statutes, was implemented by the CBO for the first time in this month’s report. The other adjustments are summarized in Table 3 below:

Step #4: We recognize that debt owed to trust funds is, indeed, debt

The question of whether to look at gross debt (including obligations to trust funds such as the Social Security and Medicare hospital insurance funds) or net debt (excluding those obligations and other intra-governmental holdings) is a tired subject. It’s probably fair to say that net debt advocates don’t care much about debt to begin with, while those who point to gross debt do care. We offered our two cents here. Among other points, we described the paradox that fiscally profligate governments can lower net debt (but not gross debt) by merely expanding certain types of entitlement programs, even if the expansions are fiscally unsustainable. In fact, America’s current financial position shows that this is exactly what we’ve done. For this reason and others, trust fund debt should be added back to the net figures highlighted by the CBO.

Putting it all together

Note tha
t the figures in the tables above exclude debt service costs. After breaking the baseline into components and making our adjustments, we then create new projections that include recalculation of debt service.

The Steps 1 and 3 adjustments are combined into a projection that we call “Congress does what it usually does,” while the Step 2 adjustment is blended into our “and the economy does what it usually does” projection. The Step 4 adjustment is shown in the “and trust fund debt counts” projection in the final chart.

Here are our results, for deficits first and then debt:

While the charts speak for themselves, we’ll turn again to Poole’s op-ed to sum up America’s finances:

U.S. fiscal policy is in a chaotic state. Policy decisions are wrapped around the convoluted budget accounting that Congress and the White House use to obfuscate, dissemble and hide what is really being done. That is a tragedy, and our democracy is worse for it.

Indeed.

(Click here for an appendix to this post containing the year-by-year added deficits for each of our adjustments, in dollars.)

via Zero Hedge http://ift.tt/1dkmj7G Tyler Durden

“There is no money in Ukraine’s Treasury account,” exclaimed ‘Interim President’ Oleksandr Turchynov to the Ukrainian parliament; adding that the Ukraine economy is in a “catastrophic state.”

• *THERE ARE PROBLEMS WITH BANKING SYSTEM AND HRYVNIA: TURCHYNOV
• *PROBLEMS WITH PENSION FUND ARE “COLOSSAL”: TURCHYNOV
• *UKRAINE’S ECONOMY IS IN A `PRE-DEFAULT’ SITUATION: TURCHYNOV

Hardly surprising given the months of protest; but with Russia ‘conditionally’ postponing its EUR2bn ‘loan’, the Europeans are riding to the nation’s aid with promises of EUR20bn (if Ukrainian authorities meet certain conditions). But, as the map below shows, a great deal of the nation’s wealth lies in the eastern (pro-Russia) region.

 

• *NEW UKRAINE GOVT’S PRIORITY IS TO RETURN TO EU PATH: TURCHYNOV
• *RUSSIA SHOULD RECOGNIZE UKRAINE’S EUROPEAN CHOICE: TURCHYNOV

 

Russia is on hold but the Europeans are willing… conditionally…

The European Commission has said it is ready to conclude a trade deal with and offer aid to Ukraine once a new government is in place in Kiev, Reuters reported Feb. 23. An EU official added that the European bloc could give the country more than 20 billion euros (some $27 billion) if Ukrainian authorities meet certain conditions, The Wall Street Journal reported. According to the official, this figure is a conservative estimate of the potential assistance Ukraine could receive from EU members. Russia is currently holding out on economic aid to Ukraine as it waits to see how the country’s political crisis plays out.

But as a reminder, a great deal of the nation’s wealth resides in non-pro-Europe eastern Ukraine…

The Economic Consequences of Ukrainian Federalism (via Stratfor)

For a country like Ukraine, the appeal of federalism, which divides authority between the central government and its constituent regions, is undeniable. Located in Europe’s borderlands, Ukraine has been contested by its neighbors for centuries, a competition that has left it internally divided along linguistic, cultural and religious lines. Broadly speaking, Ukraine is divided between the east and the west, with eastern Ukraine favoring Russia and western Ukraine favoring Europe. Ukraine’s regions are also distinct economically. The country’s industrial base is located in the east. The east’s close proximity to Russia creates strong cross-border trade that enriches regional economies. According to Ukraine’s government statistics service, manufacturing contributes at least three times more than agriculture to the country’s gross domestic product. Thus, eastern regions generally have higher per capita GDP rates. In 2011, the per capita GDP in the eastern region of Dnipropetrovsk, the country’s most important industrial center, was 42,068 Ukrainian hryvnia ($4,748), while it was only 20,490 hryvnia ($2,312) in Lviv region, which is one of western Ukraine’s industrial centers.

Seven of Ukraine’s 10 largest private companies by revenue are either headquartered or maintain the majority of their operations in eastern Ukraine. These firms are owned by some of Ukraine’s wealthiest and most influential individuals. Three of these 10 corporations — mining and steel company Metinvest, energy firm DTEK and its subsidiary Donetskstal — are based in the eastern industrial city of Donetsk and are owned by Ukraine’s wealthiest man, Rinat Akhmetov. Interpipe, the company that controls 10 percent of the world market share of railway wheels and more than 11 percent of the world market share of manganese ferroalloys, is based in Dnipropetrovsk and belongs to businessman and politician Victor Pinchuk.

The country’s most important businessmen are embedded in the east, where their businesses make disproportionately high contributions to the Ukrainian economy and national budget. Westerners staunchly oppose federalism because they believe it would threaten their economic and security interests. Others believe it could dissolve Ukraine as a country, leaving the west weak and defenseless against the Russia-backed east. Whether or not these concerns are misplaced, federalism would in fact benefit eastern regions disproportionately by giving them more control over state revenue, aggravating the socioeconomic tensions between the regions.

 

However, the Ukrainians are keeping their options open…

• *`WE ARE READY TO HAVE A DIALOG WITH RUSSIA:’ TURCHYNOV
• *UKRAINE TIES WITH RUSSIA SHOULD BE ON EQUAL FOOTING: TURCHYNOV

via Zero Hedge http://ift.tt/1lckr93 Tyler Durden

“There is no money in Ukraine’s Treasury account,” exclaimed ‘Interim President’ Oleksandr Turchynov to the Ukrainian parliament; adding that the Ukraine economy is in a “catastrophic state.”

• *THERE ARE PROBLEMS WITH BANKING SYSTEM AND HRYVNIA: TURCHYNOV
• *PROBLEMS WITH PENSION FUND ARE “COLOSSAL”: TURCHYNOV
• *UKRAINE’S ECONOMY IS IN A `PRE-DEFAULT’ SITUATION: TURCHYNOV

Hardly surprising given the months of protest; but with Russia ‘conditionally’ postponing its EUR2bn ‘loan’, the Europeans are riding to the nation’s aid with promises of EUR20bn (if Ukrainian authorities meet certain conditions). But, as the map below shows, a great deal of the nation’s wealth lies in the eastern (pro-Russia) region.

 

• *NEW UKRAINE GOVT’S PRIORITY IS TO RETURN TO EU PATH: TURCHYNOV
• *RUSSIA SHOULD RECOGNIZE UKRAINE’S EUROPEAN CHOICE: TURCHYNOV

 

Russia is on hold but the Europeans are willing… conditionally…

The European Commission has said it is ready to conclude a trade deal with and offer aid to Ukraine once a new government is in place in Kiev, Reuters reported Feb. 23. An EU official added that the European bloc could give the country more than 20 billion euros (some $27 billion) if Ukrainian authorities meet certain conditions, The Wall Street Journal reported. According to the official, this figure is a conservative estimate of the potential assistance Ukraine could receive from EU members. Russia is currently holding out on economic aid to Ukraine as it waits to see how the country’s political crisis plays out.

But as a reminder, a great deal of the nation’s wealth resides in non-pro-Europe eastern Ukraine…

The Economic Consequences of Ukrainian Federalism (via Stratfor)

For a country like Ukraine, the appeal of federalism, which divides authority between the central government and its constituent regions, is undeniable. Located in Europe’s borderlands, Ukraine has been contested by its neighbors for centuries, a competition that has left it internally divided along linguistic, cultural and religious lines. Broadly speaking, Ukraine is divided between the east and the west, with eastern Ukraine favoring Russia and western Ukraine favoring Europe. Ukraine’s regions are also distinct economically. The country’s industrial base is located in the east. The east’s close proximity to Russia creates strong cross-border trade that enriches regional economies. According to Ukraine’s government statistics service, manufacturing contributes at least three times more than agriculture to the country’s gross domestic product. Thus, eastern regions generally have higher per capita GDP rates. In 2011, the per capita GDP in the eastern region of Dnipropetrovsk, the country’s most important industrial center, was 42,068 Ukrainian hryvnia ($4,748), while it was only 20,490 hryvnia ($2,312) in Lviv region, which is one of western Ukraine’s industrial centers.

Seven of Ukraine’s 10 largest private companies by revenue are either headquartered or maintain the majority of their operations in eastern Ukraine. These firms are owned by some of Ukraine’s wealthiest and most influential individuals. Three of these 10 corporations — mining and steel company Metinvest, energy firm DTEK and its subsidiary Donetskstal — are based in the eastern industrial city of Donetsk and are owned by Ukraine’s wealthiest man, Rinat Akhmetov. Interpipe, the company that controls 10 percent of the world market share of railway wheels and more than 11 percent of the world market share of manganese ferroalloys, is based in Dnipropetrovsk and belongs to businessman and politician Victor Pinchuk.

The country’s most important businessmen are embedded in the east, where their businesses make disproportionately high contributions to the Ukrainian economy and national budget. Westerners staunchly oppose federalism because they believe it would threaten their economic and security interests. Others believe it could dissolve Ukraine as a country, leaving the west weak and defenseless against the Russia-backed east. Whether or not these concerns are misplaced, federalism would in fact benefit eastern regions disproportionately by giving them more control over state revenue, aggravating the socioeconomic tensions between the regions.

 

However, the Ukrainians are keeping their options open…

• *`WE ARE READY TO HAVE A DIALOG WITH RUSSIA:’ TURCHYNOV
• *UKRAINE TIES WITH RUSSIA SHOULD BE ON EQUAL FOOTING: TURCHYNOV

via Zero Hedge http://ift.tt/1lckr93 Tyler Durden

The week ahead is a transitional week.  It is important in terms of price action, as the euro and sterling are threatening to break out to the upside, while the Canadian dollar is threatening a downside break.  We caution that ahead of the key events in early March, which includes the ECB meeting and US employment data, breakouts, if they do materialize, are unlikely to be sustained.

 

The macro economic picture in the US is unlikely to be clarified.  Durable goods orders the main release, and with Boeing orders off, a second contracting month is likely, while the end of the week is likely to see Q4 GDP revised lower from the initial 3.2% annualized pace.  Weaker retail sales and net exports and less inventory accumulation could see growth marked down to something closer to 2.5%.

 

The FOMC minutes were clear that the growth in H2 13 was due in part to transitory factors and that growth would be slower in H1 14.  The minutes also revealed that there was talk about the possibility that the first interest rate hike might be needed sooner rather than later.  Some in the media played this up.  We regarded it as noise, not the signal, and indeed, at the end of last week, one Fed official, St. Louis Fed President Bullard the weakness of recent data has pushed him away from expecting a hike this year.

 

Fed Chair Yellen delivers her weather-postponed semi-annual testimony to the Senate. Her prepared remarks are unlikely to change.  The key message is that barring a significant economic deviation from Fed expectations, the measured tapering of long-term asset purchases will continue.  Yellen may be asked about the weather’s impact on the economy.  Reasonable people may differ on trying to assess the impact of the unusually cold and snowy winter.  

 

We suspect the a reasonable working hypothesis is that it is roughly evenly divided between weather and other economic factors, (e.g. inventory cycle, expiration of emergency jobless benefits and expiration of tax credit on capex).   The new home sales report will likely illustrate both:  They are likely to have fallen for the third consecutive month and are back to levels seen last summer.   Cleaner data, and less adverse weather impact is likely in the coming weeks.  Those who do not sufficiently appreciate the impact of the adverse weather, and perhaps play up the impact of the tapering, may be surprised how perky the economy appears in the early spring.

 

The European Central Bank identifies two pillars of its monetary policy:  money supply and inflation.  Both are reported in the week ahead and the outcome is expected to be instrumental in the central bank’s decision on March 6.  The final January CPI and the preliminary February estimate will be reported, Monday and Friday respectively.  There is a risk that the 0.7% of the preliminary January estimate gets rounds up to 0.8% in the final estimate, while the preliminary February estimate is likely to move back to 0.7%.

 

The January money supply figures may show some recovery from the extra weakness that the last minute adjustments ahead of year-end, which is the period that will be assessment in the Asset Quality Review and Stress Tests.  However, lending to the private sector has been contracting for more than a 1 1/2 years.  It has not been arrested by Draghi’s rate cuts.  Some soft of funding-for-lending scheme is still be advocated by many and Draghi shows interest in asset-backed securities, but neither seems imminent.

 

Since the German Constitutional Court cast aspirations on the ECB’s OMT program, Moody’s upgraded its outlook for Italy’s rating to stable from negative, and before the weekend, it unexpectedly upgraded Spain to Baa2 from Baa3 and maintained a positive outlook.  For the record, this is equivalent with Fitch’s BBB rating and puts S&P as the odd-man out with its BBB- rating.

 

Separately, we note that Fitch maintained its AAA rating for Austria, with a stable rating.  We had thought there was a reasonable chance the outlook could have been cut due to the banking sector challenges.  Moody’s is set to deliver its opinion on Austria at the end of this week.  It currently has a negative outlook for its AAA rating.  S&P cut Austria to AA+ early last year.

 

The third largest economy in the euro zone will have a new prime minister this week.  Florence Mayor Renzi will lead Italy.  On one hand, he has suggested he wants to serve through the current parliamentary session that ends in 2018,  which would be unusually long by Italian standards.  On the other hand, he has taken on an agenda that could help raise the PD’s chances in an election next, perhaps next Spring, under new electoral rules.

 

Italy becomes the rotating EU President in H2 and by then Renzi has promised nothing short of a revolution.  Electoral reform, largely already agreed upon with Berlusconi, is he first priority.  By then end of next month, Renzi has promised labor reforms.  By the end of April, public administration reforms and, by the end of May, tax reform.

 

It is a full week for Japanese data, which includes industrial output, CPI, employment and real spending data.   The data is largely irrelevant for three reasons.  First, last week’s news poor Q4 GDP, with the deflator remaining in negative territory, and a record large January trade deficit provides the more comprehensive sense of the state of the economy.  Second, the BOJ extended its low interest rate loan programs last week, seemingly taking it out of the picture.  Third, the pending retail sales tax increase on April 1, if anything, would be expected to boost economic activity ahead of it and a decline afterward.

 

Turning to emerging markets, outflows, according to EPFR continued for the seventeenth consecutive week.  Equities continue to bear the burden of the adjustment.  However, the weekend news; both, developments in the Ukraine and news that Mexico captured an important drug cartel leader may help improve sentiment.  At the same time, the MSCI Emerging Markets equity index consolidated recent gains most of last week, but appears poised to move higher in the week ahead.  After finishing last week just above 959, there is potential toward 980, with only 966 standing in the way.  Recall the low was recorded near 913.5 on February 4.  

 

Three central banks from the emerging markets meet in the week ahead:  Brazil, Israel and Colombia. Only Brazil is expected to move and a 25 bp hike (to bring the Selic rate to 10.75%) looks most likely. Over the course of the week, India reports Q4 GDP and industrial production figures will be reported by Taiwan, SKorea, Singapore and Thailand.   

 

China reports its official manufacturing PMI figures on Saturday March 1.  It is expected to confirm the economic slowing, but may remain above the 50 boom/bust level.  The yuan was particularly soft last week, falling about 0.4% against the dollar.  The offshore yuan (CNH) was off more than twice as much, prompting some concern that that is where the pressure started.  The only thing that seems clear, though, is that the weakening of the currency was officially sanctioned.  

 

The central bank, which tends to be among the strongest advocates of reform, has indicated it will increase the 1% band that the yuan-dollar is allowed to trade within (in “an orderly manner” this year). Some suspect that may do so shortly, and more likely in a softer yuan environment, or at least during a consolidative phase.   Investors will continue to be closely scrutinize the yuan’s performance in the days ahead.  

via Zero Hedge http://ift.tt/1pemxpl Marc To Market

With iron-ore stockpiles at record highs in China amid the escalating cash-for-steel financing debacles, one can only imagine the squeeze that is about to occur on the banks of a nation that is almost entirely economically dependent on said iron-ore mining production… which made us think when we saw this sign “justifying” holding low cash amounts in an Aussie bank ATM…

 

 

So no need for a withdrawal halt per se when you simply make it impossible for customers to get their money out…

 

h/t AS

via Zero Hedge http://ift.tt/1pemx8X Tyler Durden

There go the margins… For months, Netflix and Comcast have been ‘negotiating’ over whether the video streaming service should pay for the apparently excessive load it places on Comcast’s network, but now, as the WSJ reports, Netflix has agreed to pay to stop the network provider slowing its stream and impacting customers. According to Netflix data published in January, the average speeds of Netflix’s prime-time streams to Comcast subscribers had dropped 27% since October.

Percentage share of traffic on the web…

 

With Netflix accounting for almost 30% of web traffic at peak times, it is no surprise that Comcast’s squeeze finally paid off. There are no details yet on the multi-year “mutually beneficial” deal but it is clear that broadband providers are gaining leverage over content providers.

Via WSJ,

Netflix Inc. has agreed to pay Comcast Corp. to ensure Netflix movies and TV shows stream smoothly to Comcast customers, a landmark agreement that could set a precedent for Netflix’s dealings with other broadband providers, people familiar with the situation said.

 

In exchange for payment, Netflix will get direct access to Comcast’s broadband network, the people said.

 

…

 

For months Netflix and Comcast have been in a standoff over Netflix’s request that Comcast connect to Netflix’s video distribution network free of charge. But Comcast wanted to be paid for connecting to Netflix’s specialized servers due to the heavy load of traffic Netflix would send into the cable operator’s network.

 

…

 

Netflix Chief Executive Reed Hastings decided to strike the deal after Netflix saw a deterioration in streaming speeds for Comcast subscribers. According to Netflix data published in January, the average speeds of Netflix’s prime-time streams to Comcast subscribers had dropped 27% since October. Mr. Hastings didn’t want streaming speeds to deteriorate further and become a bigger issue for customers, the people said.

 

…

 

The deal could force Netflix’s hand in its standoff with other major U.S. broadband providers, including AT&T Inc., Verizon Communications Inc. and Time Warner Cable Inc.? all of whom have also refused to connect with Netflix’s servers without compensation. Netflix’s streams with Verizon in particular have gotten worse in recent months.

 

Netflix has little room to pay more to transmit its TV shows and movies. In a February regulatory filing, Netflix said that if providers don’t interconnect with its servers, its ability to deliver streaming video, its business and operating results could be “adversely affected” due to increased costs.

The deal is the latest sign that broadband providers are gaining leverage in their dealings with content companies.

via Zero Hedge http://ift.tt/OquvOA Tyler Durden

via Zero Hedge http://ift.tt/1pdWNJS williambanzai7

Submitted by Ryan McMaken via Mises Economic blog,

If you’re still wondering if the US Constitution of 1787 failed to protect liberty, then just look around you. That scrap of parchment is an obvious failure. The US government is the hugest government in the world and meddles in the lives of its citizens (and people worldwide) in every way imaginable. The government accepts no limits on its power whatsoever. The president rules by decree.

This isn’t done under some new constitution. This is all done under the 1787 one. Lots of liberty activists argue that the Supreme Court is just reading the document incorrectly, but one simply cannot deny that virtually everyone in government, as well as most of the general population, is perfectly fine with most of what government does today, and thinks it’s constitutional. If one can plausibly claim that the constitution authorizes most of what the US government does today, then the document’s language is obviously feeble, ineffective, and useless for the purposes of preserving liberty.

Even among those “constitutionalist” types, many of whom are militarists, you’ll find plenty of support for unconstitutional measures such as a standing army, drug prohibition, and other government programs beloved by conservatives, but which are obviously not authorized by the enumerated powers of the constitution.

Rothbard had this figured out a long time ago:

From any libertarian, or even conservative, point of view, it has failed and failed abysmally; for let us never forget that every one of the despotic incursions on man’s rights in this century, before, during and after the New Deal, have received the official stamp of Constitutional blessing.

At a recent meeting of Students for Liberty, John Stossel spoke to some students of Rothbard:

Kelly Kidwell, a sophomore from Tulane University, said, “Regardless of what its intent was, we still have the (big) government that we have now — so the Constitution has either provided for that government, or failed to prevent it.”

Stossel went on:

That’s an argument that libertarian economist Murray Rothbard used to make. He took the pessimistic view that the Constitution’s “limited government” was an experiment that had already failed, since 200 years later, government was barely limited at all. He concluded that libertarians should be not just constitutionalists, but anarchists — get rid of government completely.

 

That idea sounds extreme to me, and to some libertarians at the conference — not to mention the few pro-big-government speakers, like movie director Oliver Stone. But I’m happy that students ask those sorts of questions rather than wondering which regulations to pass, what to tax and whom to censor for “insensitive” speech.

 UPDATE: A reader points out this statement from Lysander Spooner: 

But whether the Constitution really be one thing, or another, this much is certain — that it has either authorized such a government as we have had, or has been powerless to prevent it. In either case, it is unfit to exist.

via Zero Hedge http://ift.tt/1pdWKxF Tyler Durden

The bad feelings concerning Russia run deep in the Western parts of Ukraine (as they topple statues of Lenin in growing numbers) while in the East they see themselves much more as Russians. These feelings run very deep in the region and memories do not fade so easily as the mayor and police chief of Kerch vigorously defend the Ukrainian flag in the clip below – deep in the eastern Crimea region (that Russia has already suggested it is willing to go to war over). Russian President Vladimir Putin has now been placed in a very difficult position, as Martin Armstrong notes, the entire set of circumstances creates the image of events in Ukraine that have diminished the power of Russia, which is a matter of pride and the only stable resolution remains a split along the language faultline. The critical question then is – will Putin let it go?

 

In the west they are toppling Lenin statues en masse

 

 

But in the East, the mayor and city officials in Kerch, Crimea defend the Ukrainian flag…

 

The big question- of course – will Putin let it go? (via Martin Armstrong),

Russian President Vladimir Putin has now been placed in a very difficult position. As the protesters in Ukraine gathered the support of the police against the mercenaries, they turned the tide of politics for the moment. Putin’s Sochi Olympic moment has been overshadowed by the bloody mess in neighboring Ukraine thanks to the insanity of Yanukovich trying to oppress the people as in the old days. Yanukovich has demonstrated that ultimate power always corrupts ultimately. There must be checks and balances.

The entire set of circumstances creates the image of events in Ukraine that have diminished the power of Russia, which is a matter of pride. The situation may appear that it is slipping out of control and Russia will just walk away. Indeed, it’s hard to imagine that Putin will just walk away and leave Ukraine to its own devices. There is political pride that is at stake here and Putin said in 2005 that the fall of the Soviet Union was “the greatest geopolitical catastrophe” of the 20th century. Putin’s view of this is not economic, but only political. From that perspective, we must understand that if the USA split apart as was the case with the Civil War, there is a sense that a loss of prestige and power will engulf the nation unless the lost portion is regained.

There are lessons from history on this point to demonstrate this is not my personal opinion. Take the Roman Emperor Aurelian (270–275 AD) who fought to regain the European portion that separated from Rome known as the Gallic Empire and in the East defeated Zenobia who established the Empire of Palmyra. Putin’s desire to retake the former nations that were part of the Soviet Union is in accordance with history and would be an exception if it were not true.  Therefore, to allow Ukraine to slip out of Russia’s orbit would make Putin no better than Mikhail Gorbachev, who presided over the Soviet empire’s dissolution in 1991 and allowed the very thing he sees as a great geopolitical catastrophe.

There can be no question that Putin wants Ukraine to join Russia’s economic attempt to create the offset to the EU with his Customs Union that includes Belarus, Kazakhstan, and soon, Armenia. The Customs Union is his counter economic response to the European Union’s much larger trading bloc. On this score, economics is the battleground.

It is true that only after Yanukovych broke off with the EU moving away from a European Union integration accord last November and chose Russia instead that the protests began in Ukraine. Putin applied pressure and Yanukovych responded taking the nation toward the Customs Union rather than the EU that would have no doubt curtailed trade to a large extent and reduced the prospect for greater entrepreneurship in Ukraine. The emergence of small business in Ukraine does not match the oligarchy monopolies inside the Russian economic model. However, this was more the straw that broke the camel’s back than the spark that ignited the revolution.

I have explained in the Cycles of War that Russia and Ukraine have deep historical links dating back to the Kievan Rus, from whom the very word “Russia” emerges. They were the days of the 11th and 12th centuries and they are traditionally seen as the beginning of Russia and the ancestor of Belarus and Ukraine. Kiev was the first real capital of Russia before Moscow. Therefore, we have a mother-country complex involved as well.

According to the Russian business daily Kommersant, they cited a source in a NATO country’s delegation back in 2008 that reported Putin had told President George W. Bush: “You understand, George, that Ukraine isn’t even a state.” Indeed, Ukraine has been the real mother-country to Russia for most of the last 900 years prior to the collapse of the Soviet Union in 1991. Certainly, parts of what is now called Ukraine have been controlled by many various countries as the borders have constantly change including Poland, Lithuania, the Khanate of Crimea, Austria-Hungary, Germany, in addition to Russia. Putin has often referred to Ukraine as “little Russia.” So clearly, there are serious issues here that warn that the immediate result in Ukraine may not yet be permanent independence. I have suggested that Ukraine split along the language faultline BECAUSE history warns that Russia is not likely to simply fade into the night. This is the ONLY solution that may allow Ukrainian independence and Russia to maintain its pride.

Strategically, Crimea, the southern part of Ukraine on the Black Sea, was part of Russia until 1954. At that time, Crimea was given to the Ukrainian Soviet Socialist Republic by the Presidium of the Supreme Soviet, supposedly to strengthen brotherly ties. However, the majority of the population were Russian – not Ukrainian! Therein lies part of the problem. This “gift” of Crimea to Ukraine would be like the USA giving Texas to Mexico and Texans would suddenly all be Mexican. Would they “feel” Mexican or American?

There is also Russia’s Black Sea Fleet that is headquartered in the Crimean city of Sevastopol, which is less than 200 miles northwest of Sochi where the Olympic Games are being held. It is hard to imagine that the Ukrainian government could even end that lease without major consequences. Russia would no doubt be forced to move its headquarters east to Novorossiysk, yet this will have a serious geopolitical loss of face. Just last December, Russia proposed a deal of providing cheaper natural gas to Ukraine in exchange for better terms on its lease in Sevastopol. This is another reason there should be serious consideration of a split handing back the Crimea to Russia.

With the crisis over Syria that is the Saudi attempt to get a pipeline through Syria to compete with Russia on natural gas sales to Europe, Ukraine also presents a very serious problem for Russia. Natural gas sales to Europe are a key source of foreign exchange for Russia, yet a large portion of that gas actually passes through Ukraine. An independent Ukraine may present an economic threat to Russia if those pipelines were to be shut off. Nevertheless, Gazprom is also hedging its bets by building a new South Stream pipeline that crosses the Black Sea on the seabed from Russia to Bulgaria, bypassing Ukraine. This could relieve that geopolitical-economic threat, but it is not immediate. Clearly, this comes at a time that is serious in light of what the USA and Saudi’s are trying to pull off with the overthrow of Syria pretending they care about human rights when in fact it is all about that pipeline.

The Ukrainians really do not “feel“ that they are Russian and they have toppled statues of Lenin everywhere.  Why? Historically, Josef Stalin brutally subjugated Ukraine back in the 1930s. He confiscated all the wealth liquidating the farmers that were known as kulaks. The bad feelings concerning Russia run deep in the Western parts while in the East they see themselves as Russians. These feelings run very deep in the region and memories do not fade so easily. We still have the word “vandalize” that comes from the North African Vandals sacking Rome back in 455AD. China still hates Japan for their brutal invasion. These feelings and memories do not really exist in the USA most likely because of the very diverse ethnic backgrounds creating a melting pot rather than one group that remembers another.

via Zero Hedge http://ift.tt/1e6Yu7F Tyler Durden