China’s Flexible Gets Creepy

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

It doesn’t work as the math is surprisingly simple. That is why “sweeping” changes and reform have to be considered at each point of escalation. Taking account of what has occurred only damages further the credibility and faith that is supposed to be the keystone for everything that happens. Instead, the only way to solve the historical deficit is to appeal to acceleration and intensification so as to make everyone forget that it didn’t work – a reluctant ratchet effect.

It’s unfortunate that I could use that paragraph as an opening for any number of economic systems spread throughout the world – an alarm in and of itself. In the latest version, the Chinese are back again threatening more “stimulus”, only this time they mean it. From the Wall Street Journal:

China’s central bank succumbed to political and market pressure and cut interest rates for the first time in more than two years, in a sign that the country’s leadership is leaning toward more sweeping measures to bolster flagging economic growth…
The bank’s move contributed to a surge in global stock markets as well as a strengthening of the currencies against the U.S. dollar in countries anticipating higher demand from China.

From Bloomberg:

China cut benchmark interest rates for the first time since July 2012 as leaders step up support for the world’s second-largest economy, sending global shares, oil and metals prices higher…
“Targeted relaxation wasn’t strong enough to boost the real economy so now they realized they have to relax policy overall,” said Xu Gao, chief economist with Everbright Securities Co. in Beijing, who formerly worked for the World Bank. “The economic reason for the rate cut is very strong.”

Continue reading

On Spain, Greece, Italy and our plans for a European movement to democratise the EU – Interview: L’Espresso

Submitted by Yanis Varoufakis  –  The Yanis Varoufakis Blog

Screen Shot 2015-12-23 at 20.14.18.png

The English text of the answers I sent to L’Espresso follows. The interview covers the Spanish elections, the latest from Greece’s never ending depression and, more importantly, a foreshadowing of the pan-European movement (not party!) that will be launched in February – with a simple, but radical, agenda of democratising the EU.

 -First, let I ask you to comment on the outcome of the Spanish election.

Our Syriza government’s opposition to a failed Troika program was crushed last summer, and Prime Minister Tsipras forced to accept a new loan that everyone knows is catastrophic, for one reason: To teach the Spanish people a lesson and thus deter them from voting for Podemos. In this context, Podemos did very, very well in the election. As I commented immediately after hearing the results, it was a small but important step in the right direction. A small step that may turn into the large faultline necessary to shatter the Eurozone’s crisis-denial and the Troika’s contempt for democracy.

– Is the success of Podemos due to mistrust of the people towards the party system? Or are we facing the success of populism?

Podemos is not a populist party. Populism manifests itself in promising all things to all people. No, Podemos began as a protest party and is developing into a party that has a go at a New Politics, where spin and power-grabbing give their place to a discourse of openness.

-Will Podemos turn into Syriza? Will it betray the promises made to the voters?

I hope not but we must see if Podemos gets such a chance. I say this because to get to that moment of truth, Podemos must form government first – something that it cannot do given the electoral result. The great question now is: Would Podemos go into a coalition by making fundamental concessions to Eurogroup loyalists, like PSOE? Continue reading

Six Signs That 2016 Will Be Much Worse Than 2015

Submitted by Pater Tenebrarum  –  The Acting Man Blog

A Turbulent Year

In the course of 2015 we have witnessed several events that had, and will have, negative repercussions on individual freedom. Orwellian totalitarianism is increasingly creeping into our everyday lives. How much more intrusive will the violations of our liberties become and for how long will the establishment get away with this? These are questions that remain unanswered.

 

YesWeScanUnited we move toward a perfectly monitored society – the US Congress has just passed the controversial CISA spying law – the worst possible version of it – by sneaking it into a budget bill. This utterly corrupt method of enacting laws that would not get passed on their own because they are such a huge affront to decency and civilization has become the norm in the “land of the free” – which ironically is “exporting democracy” by force of arms all over the world!

 

With regards to the financial system, no real solution was found to issues such as those in the euro zone. Furthermore, the financial system as a whole once again got deeper into debt. For how much longer can central banks and governments continue kicking the can down the road without any real reform? I will try to answer these questions and identify trends for 2016 by looking at six key issues that have had an impact this year.

 

  1. Geopolitical Developments

We have witnessed a number of troubling geopolitical developments during this past year. From the continuing conflict between Russia and Ukraine, territorial disputes between Japan and China, the escalating proxy war in Syria, the refugee crisis in Europe, the rise of religious tensions all over world to the rise of the Islamic State, the world has become increasingly unstable. Continue reading

Why the Fed will never succeed

Submitted by Alasdair Macleod – FinanceAndEconomics.org

The Fed will never succeed in its attempt to manage inflation and unemployment by varying interest rates, because it and its economists do not accept the relationship between, on one side, the money it creates and the bank credit its commercial banks issue out of thin air, and on the other the disruption unsound money causes in the economy. This has been going on since the Fed was created, which makes the question as to whether the Fed was right to raise interest rates recently irrelevant.

Furthermore, it’s not just the American people who are affected the Fed’s monetary management, because the Fed’s actions affect nearly everyone on the planet. The Fed does not even admit to having this wider responsibility, except to the extent that it might have an impact on the US economy.

That the Fed thinks it is only responsible to the American people for its actions when they affect all nations is an abrogation of its duty as issuer of the reserve currency to the rest of the world, and it is therefore not surprising that the new kids on the block, such as China, Russia and their Asian friends, are laying plans to gain independence from the dollar-dominated system. The absence of comment from other central banks in the advanced nations on this important subject should also worry us, because they appear to be acting as mute supporters for the Fed’s group-think.

This is the context in which we need to clarify the effects of the Fed’s monetary policy. The fundamental question is actually far broader than whether or not the Fed should be raising rates: rather, should the Fed be managing interest rates at all? Before we can answer this question, we have to understand the relationship between credit and the business cycle.

There are two types of economic activity, one that correctly anticipates consumer demand and is successful, and one that fails to do so. In free markets the failures are closed down quickly, and the scarce economic resources tied up in them are redeployed towards more successful activities. A sound-money economy quickly eliminates business errors, so this self-cleansing action ensures there is no build-up of malinvestments and the associated debt that goes with it. Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• Half The Country Is Either Living In Poverty Or Damn Near Close To It (AN)
• Most Americans Have Less Than $1,000 In Savings (MarketWatch)
• The Keynesian Recovery Meme Is About To Get Mugged, Part 2 (Stockman)
• Extreme Oil Bears Bet on $25, $20 and Even $15 a Barrel in 2016 (BBG)
• US Banks Hit By Cheap Oil As OPEC Warns Of Long-Term Low (FT)
• Oil Crash Is a Party Pooper as Holiday Affairs Lose Their Luster (BBG)
• New Saudi Budget Expected to Be Squeezed by Low Oil Prices (WSJ)
• OPEC Faces A Mortal Threat From Electric Cars (AEP)
• The Trouble With Sovereign-Wealth Funds (WSJ)
• China Tackles Housing Glut To Arrest Growth Slowdown (Xinhua)
• German Emissions Scandal Threatens To Engulf Mercedes, BMW (DW)
• Australia Approves Expansion of Barrier Reef Coal Terminal (WSJ)
• Japanese Court Clears Way For Restart Of Nuclear Reactors (BBG)
• On the 19th day of Christmas… [Am 19. Tag der Weihnachtszeit…] (Orlov)
• Greek Banking Sector Cut In Half Since 2008 (Kath.)
• No Further Cuts To Greek Pensions, Tsipras Tells Cabinet (Kath.)
• Donald Trump: An Evaluation (Paul Craig Roberts)
• 20 Refugees Drown; 2015 Death Rate Over 10 Human Beings Each Day (CNN)