Tag: finance

“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.

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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.

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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.

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Everybody knows of the light-heartened Big Mac index that the boys at The Economist thought up in 1986 in an idle moment as a yard stick for comparisons between countries around the world. But now, Burgernomics has just turned into Beeronomics today and Ronald McDonald would probably end up much rather having a cold beer (or warm beer if it’s in the UK, or is that just a myth?). Ronald was getting too much or a porker anyhow. It’s better to drink these days too; there are enough around the world that need to drown their sorrows.

Robert A. Ferdman and Ritchie King of the Quartz have brought us into the age of Beeronomics by inventing the Beer Index. They used the yardstick of a 0.5L of draft beer on sale at a bar or a restaurant around the world. Well, they didn’t actually do anything apart from combine a list of prices of beers around the world that are available from Numbeo (a crowd-source database) and the monthly minimum wage data that is published by the International Labor Organization (ILO). They did a few calculations and came up with the Beer Index. Sobering a story if ever you have heard one.

Divide the price of the beer that any local in any country in the world has to pay by the hourly minimum wage and hey presto as quick as the froth on your beer disappears in the frosted glass, you get the average number of hours you would have to work for you to get to buy a local beer down the boozer. The idea came from The Economist once again that produced the same index in September 2012 in time for the Oktoberfest Beer Festival in Munich. But, The Economist only used a limited number of countries (27) and decided to use the median wage rather than the average monthly wage. Quartz’s study uses 91 countries.

So, the best place to work and where you can drink yourself to the ground quickly and effectively on local beer? Puerto Rico. You can get a beer after just 12 minutes of work, which is frightening since that means that there are some that could get a beer after just a couple of minutes or even seconds of sitting at their desks.

• In the USA you would need to work double that and only end up with one after 24 minutes. 
• In the UK, the land of pubs, you would have to work 30 minutes.
• Georgia would be the worst place to go for a drink with your colleagues after work as you would have to put in more than 15 hours to get 0.5L of the amber nectar. 
• The Chinese have to work 72 minutes.

Whatever next will we have that will be able to be downed by economists around the world? We shall end up with 20 academic papers now on the viability of using such Beeronomis today and it might not become a global standard, but there will be others that start up the Champagne Index or the Whatever-You-Like Index.

Purchasing-Power Parity serves at least to tell us that a currency is undervalued and that can be important, especially when January 2014 saw that a Big Mac in the USA cost $4.62 while in China it was only $2.74, meaning that the Chinese currency was undervalued by 41%. But, there’s nothing new in that. Are these indexes really worth the time they take for bored economists to think up and work them out?

What these indexes prove is that we live in the age of the scientific researcher that needs a number or a statistic to prove his point and to become believable. We have world clocks for everything; we check the rise and fall of this and that day in and day out. Mark Twain once said that “facts are stubborn, but statistics are pliable”. We all know that statistics are as pliable as anyone wishes, especially in today’s digital, fast-paced world.

We can show anything we wish with statistics, but perhaps economists might be looking at other things that are more than in need of attention, rather than playing d(r)aft-beer games.

It doesn’t say a lot for our percepetion of the world if we have reduced oureconomies to burgers and beer, does it?

That’s fast, fattening, addictive, too sugary, too sweet

Originally posted: Beeronomics Ousts Burgernomics

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Apparently all it takes to kick the world out of a secular recession and back into growth mode, is for several dozen finance ministers and central bankers to sit down and sign on the dotted line, agreeing it has to be done. That is the take home message from the just concluded latest G-20 meeting in Syndey, where said leaders agreed that it is time to finally grow the world economy by 2% over the next 5 years.

The final G-20 communiqué announced its member nations would take concrete action to increase investment and employment, among other reforms. “We will develop ambitious but realistic policies with the aim to lift our collective GDP by more than 2 percent above the trajectory implied by current policies over the coming 5 years,” the G20 statement said.

Australian Treasurer Joe Hockey, who hosted the meeting, sold the plan as a new day for cooperation in the G20.

“We are putting a number to it for the first time — putting a real number to what we are trying to achieve,” Hockey told a news conference. “We want to add over $2 trillion more in economic activity and tens of millions of new jobs.“

And to think all it took was several dozen of politicians sitting down for 2 days in balny Syndey and agreeing. So over five years after the start of the second great depression the G-20 has finally agreed and decided it is time to grow the economy: supposedly the reason there was no such growth previously is because the G-20 never willed it… 

There is only one problem: the G-20 has absolutely no idea how to actually achieve its goal of boosting global output by more than the world’s eighth largest economy Russia produces in a year. Nor does it have any measures to prod and punish any laggards from this most grand of central planning schemes. From Reuters:

There was no road map on how nations intend to get there or repercussions if they never arrive. The aim was to come up with the goal now, then have each country develop an action plan and a growth strategy for delivery at a November summit of G20 leaders in Brisbane.

 

“Each country will bring its own plan for economic growth,” said Hockey. “Each country has to do the heavy lifting.”

 

Agreeing on any goal is a step forward for the group that has failed in the past to agree on fiscal and current account targets. And it was a sea change from recent meetings where the debate was still on where their focus should lie: on growth or budget austerity.

So who is the mastermind behind this grand plan? Why the IMF of course: “The growth plan borrows wholesale from an IMF paper prepared for the Sydney meeting, which estimated that structural reforms would raise world economic output by about 0.5 percent per year over the next five years, boosting global output by $2.25 trillion.”

The same IMF whose “forecasts” can best be summarized in the following chart (which will be revised lower shortly to account for all the snow in the Northeast US):

 

Aside from this idiocy, the other topic under boondoggle discussion was the fate of the taper, and specifically how emerging markets will (continue to) suffer should the Fed continue to withdraw liquidity. Here, once again, the developed nations won out, leaving the EMs, and particularly India’s Raghuram Rajan – who has been pleading for far more coordination between central banks in a time of globla tightening – high and dry.

• RBI’S RAJAN: POLICY TIGHTENING MUSTN’T UPSET GLOBAL ECONOMY
• RAJAN SAYS INFLATION IS HURTING GROWTH
• INDIA’S RAJAN SAYS BRINGING DOWN INFLATION BIGGEST CHALLENGE
• RAJAN: DEVELOPED, EM NATIONS AGREE ON NEED TO CALIBRATE POLICY

What inflation? As for coordination, here is what the G-20 did agree on: whatever Yellen says, goes:

Financial markets had been wary of the possibility of friction between advanced and emerging economies, but nothing suggested the meeting would cause ripples on Monday. “The text of the communiqué indicates that the standard U.S. line that what is good for the core of the world economy is good for all seems to have won out,” said Huw McKay, a senior economist at Westpac, noting there was nothing that could be taken as “inflammatory” about recent volatility in markets.

 

There was a nod to concerns by emerging nations that the Federal Reserve consider the impact of its policy tapering, which has led to bouts of capital flight from some of the more vulnerable markets.

 

“All our central banks maintain their commitment that monetary policy settings will continue to be carefully calibrated and clearly communicated, in the context of ongoing exchange of information and being mindful of impacts on the global economy,” the communiqué read. There was never much expectation the Fed would consider actually slowing the pace of tapering, but its emerging peers had at least hoped for more cooperation on policy.

 

Hockey said there had been honest discussions among members on the impact of tapering and that newly installed Fed Chair Janet Yellen was “hugely impressive” when dealing with them.

Indeed, in the three weeks that Yellen has been Chairmanwoman, she has been truly hugely impressive. It’s the next three years that may be more problematic.

via Zero Hedge http://ift.tt/1el9vh3 Tyler Durden