Sunday, July 19, 2015

Today's links

1---Europe at a crossroads, yanis varoufakis

The Eurozone’s faulty foundations revealed themselves first in Greece, before the crisis spread elsewhere. Five years later, Greece is again in the limelight as Germany’s sole surviving statesman from the era that forged the euro, Dr Wolfgang Schäuble, has a plan to refurbish Europe’s monetary union that involves jettisoning Greece on the excuse that the Greek government has no ‘credible’ reforms on offer.

The reality is that a Eurogroup sold to Dr Schäuble’s Plan, and strategy, never had any serious intention to strike a New Deal with Greece reflecting the common interests of creditors and of a nation whose income had been crushed, and whose society was fragmented, as a result of a terribly designed ‘Program’. Official Europe’s insistence that this failed ‘Program’ be adopted by our new government ‘or else’ was nothing but the trigger for the implementation of Dr Schäuble’s Plan.

It is quite telling that, the moment negotiations collapsed, our government’s argument that Greece’s debt had to be restructured as part of any viable agreement was, belatedly, acknowledged. The International Monetary Fund was the first institution to do so. Remarkably Dr Schäuble himself also acknowledged that debt relief was needed but hastened to add that it was politically “impossible”. What I am sure he really meant was that it was undesirable, to him, because his aim is to justify a Grexit that triggers the implementation of his Plan for Europe.

2--China: Up the creek

China's banks made 1.28 trillion yuan ($206 billion) in new loans in June, well up on May's 900.8 billion yuan.

The effect of policy easing has been to reduce short-term interest costs, so lending for stock speculation has boomed, but there is little evidence loans are being used for profitable investment in the real economy, where long-term borrowing costs remain high, and banks are reluctant to take risks.

Manufacturers' debts are increasingly dwarfing their profits. The Thomson Reuters study found that in 2010, materials companies' debts were 2.8 times their core profit. At end-2014 they were 5.3 times. For energy companies, indebtedness has risen from 1.1 to 4.4 times core profit. For industrials, from 2.5 to 4.2. ...

"Managing the debt market is probably more dangerous than the stock market because the scale of the debt market is bigger, and without any high-profile default, the moral hazard is a significant issue," said David Cui, BofA Merrill Lynch analyst.

3--Interpreting information in China’s stock markets, Pettis

4---Galbraith on Greece

Greece tried to get its “partners” to recognize that economic policies that had failed to produce predicted recovery for five years should be reconsidered and changed. For this heresy, Greece was crucified, to set an example. And an example it will become.

Value-added tax rates — your basic regressive sales tax — will jump by ten percentage points or more, to 23 percent, including for hotels and restaurants and including on the Greek islands. This will divert tourists to Turkey and elsewhere, damping Greece’s largest industry. Also, it will drive small businesses even further to cash and tax evasion. This means other tax revenues will also fall.

Tax revenues will rise at first, but then they will fall short of targets, both because economic activity falls and evasion rises. As this happens, the new program requires that public spending be cut automatically. Since most public spending goes for pensions and wages, this means that pensions and wages will be cut. Since pensioners and civil servants live on these payments, they will cut their spending — and tax revenues will fall further.

In the labor market, extreme deregulation will proceed. Collective bargaining will be suppressed; wages will therefore fall. As a result, wage labor will go off-the-books, into cash, even more than it already has, and pension contributions will decline again. The resulting tax losses will feed back into pension cuts.

Privatization will work through a required new fund that will, supposedly, hold €50 billion in Greek assets to be sold off (notwithstanding the difficulty that, according to the economy minister, public assets on that scale do not exist). Anyhow the state electricity company will be sold, and electric rates will rise. 

As all this happens, even more people will default on their mortgages. The judicial code will be rewritten to facilitate mass foreclosures, so far held in abeyance.  The non-performing-loans of the banking system will then go from disastrous to catastrophic.

5--Merck Pays a Pittance for Mass Deaths
6--No Growth, No profit, No problem
7--Tsipras expels critics of EU austerity deal from Greek cabinet
8--The crucifixion of Greece

9--Greece, Europe, and the United States, Galbraith
10--We Need to Get Serious About Russia, Now

A grand solution should also be proposed to Moscow. As a complement to the Minsk concept and the continuation of economic sanctions, the West should offer a proposal for a new Central European security architecture for non-NATO states that Russia would be asked and expected to co-guarantee, if it wishes that countries like Ukraine permanently forgo pursuit of NATO membership. This should not weaken Ukraine’s formal sovereignty; no long-term “Hong Kong handover” solution is needed. But all would understand that Ukraine would not formally join the West in geostrategic terms, though it certainly could accept western help out of its current economic malaise once the right policy foundation was established.
(Plan breakdown: Get Russia to provide support for broken, failed state now that the US destroyed Ukraine)

11---59 percent support iran nukes deal

By a nearly 2 to 1 margin, Americans support the notion of striking a deal with Iran that restricts the nation’s nuclear program in exchange for loosening sanctions, a new Washington Post-ABC News poll finds.
But the survey — released hours before Tuesday’s negotiating deadline — also finds few Americans are hopeful that such an agreement will be effective. Nearly six in 10 say they are not confident that a deal will prevent Iran from developing nuclear weapons, unchanged from 15 months ago, when the United States, France, Britain, Germany, China and Russia reached an interim agreement with Iran aimed at sealing a long-term deal.
Overall, the poll finds 59 percent support an agreement in which the United States and its negotiating partners lift major economic sanctions in exchange for restrictions on Iran’s nuclear program. Thirty-one percent oppose a deal

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