Greece: galloping now to the edge.

As indicated in a previous post, the failure to elect a Greek President has forced the calling of a new election on Jan 25. The expectation is that it will be won by Syriza, a neo-Marxist Party, much like the 'Occupy Wall Street' crowd. Greece is in an untenable position. Social Democracy (Capitalism for the few and Socialism for the many) had produced six years of recession, 1.5M unemployed, 3M heading into abject poverty and a majority who can not pay their bills. The Country has been kept afloat by the loans of the troika (the  IMF, the ECB and the EU). A debt payment of 20B Euros is due at the end of February. Greek banks have enough funds to make it through February, but after that they must be bailed out again.


Into this mess marches Syriza. It promises an end to the policy of austerity, renegotiating the terms of the bailouts and staying within the EU.


Will these changes solve the problems of Greece? NO! First, the mechanics of the change are not doable. Even if Syriza wins, it will have to form a coalition government and renegotiate the terms of its indebtedness - all in a month. What if the Troika bulks, which is likely?


What is the Greek problem and the possible solution? Simply put: Greek products are not competitive. Greek products are too expensive due to Socialist practices. In addition, Greece is tied to a strong currency, the Euro, so it can not devalue its currency in order to sell its products at more competitive prices. The obvious solution then is for Greece to leave the EU and the Euro and slowly privatize its industries and reduce the size of its government.


Will this happen? NO! Syriza being a Marxist Party will try to seize the wealth of top earners and remain in the EU. That will still leave Greek products uncompetitive, spending will increase and stagnation will continue. That is the optimistic scenario. The pessimistic scenario is chaos and civil war.

Russians Rage Against America

Enduring Sanctions, Anger Turns to Hate: Racist Names for Obama and Putin Disses Coca-Cola

By Mikhail Klikushin | 12/29/14 1:17pm

ST. PETERSBURG—Relations between Russia and the US have sunk to new lows. President Putin, shown here hosting President Obama last September, has even expressed his disdain for Coca-Cola. (Photo by Ramil Sitdikov/Host Photo Agency via Getty Images)

If you talk to a Russian about the international political situation, sooner or later you will be informed that there is a country in North America that you’ve never heard of. Its name is ‘Pindosia,’ ‘Pindostan’ or, more officially, ‘United States of Pindostan,’ and you will be told that one part of it, called Alaska, used to belong to Russia. Part of the word—‘stan’—stands for underdeveloped state, as in ‘ Pakistan ’, ‘ Kazakhstan ’ or ‘ Uzbekistan.’ The citizens of this country in plural form are called ‘pindoses’, in singular—‘pindos’.
There are more than 316 million ‘pindoses’ in ‘Pindostan’.
Today, this country has a black President, and the Russians have a nickname for him too. He is called Maximka—after a character from a popular Soviet movie, made in 1952, which told the story of a black boy saved by the Russian sailors from the cruelty of the vicious American slave-traders who were terribly abusing him and calling him just that—“Boy.” In the film, the saved boy was fed well by the Russian crew, given the name Maximka, and became one of their own in the end.
But by the modern-day Russian legend, Maximka, unfortunately, has grown up into an ungrateful Russophobe.
One can assume that the reader by now has a clue what this country is.
The word ‘pindos’ in Russian is highly offensive, and defines a helpless creature that is a product of a very bad educational system, one who can survive in this world only with the help of various gadgets. The origin of the word is unknown, and the philologists are fighting to establish it. The most popular explanation states that this word was invented by Russian peacekeepers in Serbia with the purpose of describing a NATO soldier, who was seen by them as a strange, clumsy figure with his 90 lbs. of bulletproof vest, weapons, radios, flashlights and so on.

Russians have taken to calling President Obama “Maximka” after a character from a popular 1952 Soviet movie, which depicted a black boy saved by Russian sailors.

From afar, he looked very strange to the Russian eye—like a penguin.
The Russians have had their favorite, most-hated pindoses. One of them, the constant laughingstock in the media, used to be the US Ambassador to Moscow, Michael McFaul. He was a huge fan of Twitter and if judged by the number of his tweets, spent more time on his gadget than actually doing his job. After more than two years of service there, upon his departure, he received only two words in Russian—via Twitter—from the Russian Ministry for Foreign Affairs: “Goodbye Mikhail.”
Today his place has been taken by the spokesperson for the US Department of State, Jen Psaki. She has an anti-fan club of haters who consider her not to be very bright—they even invented their own anti-IQ unit called 1 Psaki. One who has 3 Psakis has a brain of a clam. The term ‘psaking’ in Russian political newspeak means to know nothing about the subject while saying something banal and politically correct. She is so popular that when she injured her foot and came in front of the cameras with the cast on, all major Russian TV channels and newspapers reported the event.
Another hated ‘pindos’ is Senator John McCain (R-Ariz.), famous in Russia for his periodic tweets to ‘Dear Vlad.’ In 2011, for example, Mr. McCain tweeted Putin, “Dear Vlad, The #ArabSpring is coming to a neighborhood near you.” Usually reserved and purposefully polite while talking about his ‘partners from over the Big Pool’ (Big Pool being the Atlantic Ocean ), this time Mr. Putin shot back, saying that Mr. McCain “has a lot of blood of peaceful civilians on his hands. He must relish and can’t live without the disgusting, repulsive scenes of the killing of Gadhafi.” “Mr. McCain was captured in Vietnam and they kept him not just in prison, but in a pit for several years,” Mr. Putin added. “Anyone [in his place] would have had his roof moved over.” The last three words in Russian slang mean “suddenly to become insane.”
Today, according to the respected Moscow ‘Levada Center,’ which measures political sentiment in Russian society, 74% of Russians have negative feelings towards the USA. It hasn’t always been like this; in the 1990s, 80% had positive attitude toward America.
Currently, 76% of Russians hate Obama personally and only meager 2% like him. In 2009 only 12 % of Russians had extremely negative feelings towards Obama.
These are the maximum peaks of anti-American feelings in Russia in years but the sociologists believe they could go even higher in the near future.

State Department Spokesperson Jen Psaki, pictured here on May 6, 2014 in Washington, DC., has seen her surname turned into a synonym for idiocy. (Photo by Chip Somodevilla/Getty Images)

Anti-American sentiment has been growing slowly in Russia since the war in former Yugoslavia. But the sharp recent increase happened as a result of the US-led sanctions that were imposed on Russia after the ‘Russian annexation of Crimea.’ For example, just last week Visa and MasterCard completely stopped their operations in Crimea, leaving more than 2 million people there without access to their money. 75% of Russians do not believe that their country is responsible for the events in Ukraine. On the contrary, they blame the US.
When the sanctions began, many Russian businesses responded by putting up ‘Obama Is Sanctioned Here’ signs on their doors and windows.
However today they went much farther.
The owners of the Moscow supermarket “Electronics on Presnya” are using American flag doormats so the customers could wipe their dirty feet off, according to the British tabloid Daily Mail. “Customers have been filmed wiping their feet on the fabled stars and stripes as they enter and exit stores across Moscow, as struggling retailers take a hopeless swipe at their Cold War adversaries,” reports the newspaper. According to the Moskovky Komsomolets Moscow newspaper, the nation’s business owners decided to put the US flag under the Russians’ feet because of the strained relations between the two countries. “New doormats with the American flag were put at every exit so that America would not think that she is allowed to everything,”, they say.  “From one perspective, of course it is a flag, but from the other, because of this entire situation in the world, regular folks are suffering. All the electronics we import, mostly from China and buy for dollars. We have to work directly so the US would have no chance to manipulate the prices.” (The Russian ruble lost about 50% of its value because of the economic sanctions by the western countries and a fall in the oil price.)
By the words of the shopping center’s attorney Konstantin Trapaidze, the doormats with the American flag do not break any Russian law. “It is very probable that the doormats have a decorative character. Yes, people are walking on them but nobody prohibited this. They produce not only doormats with the flag on them but also furniture upholstery. The breaking of the law would be when someone would start burning such a doormat or real flag demonstratively, or tear it up.”
Major Russian TV channel Vesti eagerly reported that fact. They also added that some Moscow stores were selling the toilet paper with American flag imprinted on it. The price-tag was $1 per roll.

Former US ambassador to Russia Michael McFaul was considered a lightweight who spent more time on Twitter than on actual diplomacy. (YURI KADOBNOV/AFP/Getty Images)

A number of Russian politicians have been working very hard to keep the flames of rage burning. Last week, the Speaker of the Russian Parliament, Sergei Naryshkin, raised the issue of starting an international investigation of Hiroshima and Nagasaki bombing by the US in 1945, as a ‘crime against humanity’ has no time limit. He wanted nothing less than a new Nuremberg trial with the US at the criminal’s bench.
Vladimir Putin, from his side, during his most recent press-conference, used the occasion to show his negative attitude toward one of America ’s most popular products. Answering a question about Russian drink Kvass, he said, “I don’t know how harmful Coca-Cola is, but a lot of specialists say that it is, especially for children. I don’t want to offend Coca-Cola, but we have our own national non-alcoholic beverages, and we shall help them to win our stores’ shelves.”
He could have chosen another brand as an example of an unhealthy soda, since there is no shortage of different drinks in Russia ’s stores. But to no one’s surprise, the Russian President chose for his attack the very symbol of Pindostan.

Russian newspapers are giddily depicting the new trend of “American flag floormats” seen at Russian businesses. (screencap: politobzor.net/)

AJ adds: Yeah, I agree that Psaki and McCain are figures of idiocy and Obama is odious, but please respect the American flag. It predates our useless idiots.

A most dangerous economic recovery.

The US has finally entered the fast economic recovery phase a lot of people (myself included) have been hoping. The last GDP figure was a 5.1% growth.


1. The first question is then WHY? And the answer is that the fast growth is due to the drop in fuel costs which is acting as a stimulus.


2. The second question is WHY is this dangerous? The answer to that one is the circumstances that accompany the drop in the price of oil.


First, the world regards this as collusion between Saudi Arabia and the United States.


3. Why would the Saudis implement the wishes of the Obungle Admin? The Saudies count the number of players low oil prices will hurt. The first group is American oil producers that depend on oil prices of $80/bbl to make money on frakking. These people will go bankrupt if low prices continue. In a way the Saudis are engaged in classical monopoly price-fixing. Once they put their competitors out of usiness, the Saudis can once again dictate prices. The Russians and Iranians are also hurt by the low prices. Russia is allied with Syria ( a Shiite enemy of the Saudis) and Iran, of course, is the arch competitor in religious Islam.


Why would the Obama regime favor low priced oil when it forbids drilling on federal lands? The Obama regime favors high oil prices because they figure it will push high-priced cars that are more efficient. The Obama regime also wants the American oil companies to go bankrupt.


4. Why is this dangerous? The losers of this trade (Russia and Iran) will not take kindly to losing revenue. The Iranians can do things directly, such as blocking the Strait of Hormuz. The Russians are already mad at us and are plotting to make life difficult. Russia and China can initiate economic and financial  measures, while Russia can initiate military measures.


Brezhnev was promised that if the Soviet Union voluntarily withdrew from the Warsaw pact  countries, NATO would respect their neutrality. Instead, NATO has expanded all the way to the Russian border. This opens the way for all sorts of Russian retaliation.

SF Furryniner QB Colin Kaepernick yells "Obama" in his pre-snap count.

Colin Kaepernick probably thought it was cute and trendy to shout the name of 'the one we waited for' in a pre snap count. It was 5:01 in the Third Period with the Furryniners leading 28 to 14. So, how did it work out? When the game  was over, San Diego walked off as the Winner 38 to 35. The Obama name brings defeat more often than not.

What can Russia do?

Some Pundits believe that it is only a matter of time until Western Europe will  extend its influence from the Straights of Gibraltar to the peninsula of Kamchatka. In other words, the Pundits believe that Russia will implode and Putin will be overthrown by a desperate populace whose economy is in ruins.  Such Pundits seem to ignore Russian resiliency. They also ignore stern warnings from Putin.

Given that price of oil has fallen some 30%+ and that the Ruble has lost over 40% of its value, what can Russia do? Well, for one thing, Russia can overrun the Ukraine, if provoked enough. But, that is not the most potent retaliation the Russians can do. Their most potent weapons are to stop deliveries of natural gas to the West and suspend payments to Western banks. The first will cripple Europe's economy, the second will cripple European banks which are close to insolvent.

Unfortunately, Europe is run by idiots. The Russians are NOT giving up the Crimea (their only warm water port), but they are willing to respect Ukraine's integrity if a federated system can be achieved in Ukraine that respects the Russians' language and cultural rights in Donetsk and Luhansk. The Ukrainian govt has in fact agreed to such a solution. It will not work if Ukrainian troops continue to attack their two provinces, or if they try to get heavy weaponry from the West.

The US Budget: A Pyrrhic victory for Democrats.

The caving of Boehner and the victory of Obama in the 2014 budget battle will turn out to be a Pyrrhic victory for the Democrats. Just to refresh your mind, King Pyrrhus of Epirus decided to rescue his fellow Greeks and took on Rome. He won the first two battles but the second battle cost his army so much that he lost the war.

Consider what is at stake. If my favorite Senator (Senator Cruz) prevailed, Obama would have vetoed the budget and shut down the government. The Media then would have run wall-to-wall stories of starving kids not getting school lunches, people dying for lacking welfare - the usual tripe the Media runs at such times.

What will happen now? Obamacare is fully funded for a year and premiums are about to hit unsuspecting low information people full force. Some of us know that the big bite of Obamacare was deferred until after the 2014 election. It will now be noticed though the Media is not likely to give it much airtime. There is another factor: Investor's Business Daily rhapsodizes that part time jobs have surged during the last year and predicts that this will be a plus for the Obama regime. Really? Part time jobs pay less and provide no health insurance paid for by the employer.

Meantime, court challenges against Obamacare will continue.

One more thing. The phony challenge of Sen Fauxcahontas against the loosening of the financial aspects of the Budget Bill has elevated her to be a credible challenger to Hillary. That does not bode well for the Democrat Party. Ironically, she is right. Having the govt not only allow the banks to have 300Trillion in risky derivatives but federally guarantee them ensures the demise of the Dollar.

Debt can't be paid off - Zerohedge.

There is this article on Zerohedge about the possibility of paying off the National Debt:


http://www.zerohedge.com/news/2014-12-12/paying-down-debt-now-almost-mathematically-impossible


The conclusion is not encouraging. We have already passed the point where it was possible to pay off the debt. As the debt continues to grow, the next milestone is when we can no longer pay the interest due on the debt. When will that occur?


There are several factors. 1. the rate of economic growth. This is not going to rescue us, because America's leadership is bent on a reduced growth policy. 2. reducing govt spending and balancing the budget. Not going to happen, because any attempt is greeted by hysterics from the Liberal Media. 3. Finally, we can print more money and increase inflation. This will bring on other problems. The US Dollar is used as a reserve currency. This is increasingly challenged by China. If the Dollar loses its status, then it will be dumped and its value will be reduced. It might even disappear.


There seems to be no way out. 

Gold and Plan "B" for Europe.

How We'll Profit from Europe's Secret "Plan B"

By Peter Krauth, Resource Specialist, Money Morning • December 9, 2014

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As the European Union debates yet a third bailout for Greece, revelations about secret plans by some Eurozone members tell an even more intriguing story.

During the depths of the European sovereign crisis, when Greece was inches from exiting the zone, others chose to not sit idly by.

Instead, two member nations were surreptitiously preparing for a possible Eurozone breakup.

Even more fascinating is what came next, as it appears preparations are still in active mode.

Connecting just some of these dots will not only tell a fascinating tale of fiscal intrigue, it will also give you a leg up on most other investors who'll wish they knew as much as you…

The Dutch "Plan B" a Surprise Player

While the world watched Europe at the peak of its crisis, the Dutch and German governments began preparing emergency plans; measures that would allow for a transition back to their pre-euro national currencies, the guilder and Deutsche mark, should it become necessary.

Under the guise of the aptly named "Plan Florijn"(another name for the old Dutch guilder), the Netherlands' finance ministry and government organized for a worst-case scenario.

According to online European news site EUobserver.com, current Dutch Finance Minister Jeroen Dijsselbloem confirmed the existence of the plan in a weekly interview with news outlet RTL Z saying, "Government leaders, including the Dutch government, have always said: we want to keep that Eurozone together. But [the Dutch government] also looked at: what if that fails? And it prepared for that."

Dijsselbloem also confirmed that discussions at the time were secretive to avoid causing panic in financial markets.

In the Dutch television documentary "Argos Medialogica," former Dutch Finance Minister Jan Kees de Jager said, "The fact that in Europe multiple scenarios were discussed was something some countries found rather scary. They did not do that at all, strikingly enough."

And as it turns out, the Netherlands wasn't alone.

De Jager told "Argos Medialogica," "We were one of the few countries, together with Germany. We even had a team together that discussed scenarios, Germany-Netherlands."

When EUobserver asked the German finance ministry about the matter, they didn't refute that such plans had been "in the works."

Although this is intriguing enough, the real story is in what happened next…

Where's the Gold?

With the Eurozone barely clawing its way back from its sovereign debt crisis, Germany shocked the gold market in January 2013, saying that it would repatriate gold held at the New York Fed and the Banque de France.

Deutsche Bundesbank officials said the action was "preemptive" in case a "currency crisis" was to strike the monetary union.

These days, despite headlines suggesting Germany's gold repatriation is behind schedule and may not even happen entirely, the Bundesbank confirms that it is moving forward on its repatriation plans as announced.

With a total of 3,384 tonnes, the second-largest gold stash in the world, Germany will be bringing home some 600 tonnes from the United States and France by 2020, with plans to eventually hold 50% of its gold at home.

For its part, De Nederlandsche Bank (DNB) recently had 122 tonnes of its gold shipped to Amsterdam from New York.

According to DNB, 31% of its gold reserves are now held in Amsterdam, and some are held outside of the country with about 31% with the Federal Reserve, 20% with the Bank of Canada and 18% with the Bank of England.

More interesting however, is that this repatriation was done secretly, only being made public after the fact.

According to the websites of the Dutch and German central banks, both their official gold reserves are held fully allocated, meaning none of their gold is leased out or swapped.

As for the Eurozone as a whole, unallocated gold is at very low levels and it's declining, indicating a clear preference for allocated gold.

Could this be another sign that Europe is preparing for an even worse crisis ahead?  Might Europe split up or reconfigure? And are they expecting a fiat currency crisis?

With Germany being the industrial and financial backbone of Europe, it's difficult to imagine the union holding up in any substantive way without it.

It would seem that essentially any other member nation could leave the union, and it could still cling together.

If Germany leaves, Europe's likely to break apart.

It's only a matter of whether that happens slowly or quickly.

That's why Germany's push to repatriate its gold is so fascinating.

If the European Union was to disintegrate, and the Netherlands joined Germany, the Netherlands would of course be the clear winner, given the relative sizes of their economies.  But at this point, that's just conjecture.

More salient is how these and other Eurozone nations are preparing their own Plan B's ahead of any potential currency crises.

Here's What Our "Plan B" Looks Like

The Greek crisis in a nutshell.

Greek Political Risks And The Future Of The Euro

Marc Chandler - Seeking Alpha - 26 mins ago

Related Stocks

 FXE - Euro Trust

Sym	Last	Chg	Pct	Volume
FXE	122.44	+1.19	+0.98%	276,927

Many global investors limited to investment grade markets or developed markets, as defined by MSCI have no direct exposure to Greece. Nevertheless, recent developments in Greece are worrisome to investors. Many fear that the political challenges in Greece could lead to its ultimate exit from the monetary union and default.

This concern has led dramatic loss in Greek bonds and stocks. Today's decline in Greek stocks (10.2%) is the largest since 1987. The 70 bp rise in the benchmark 10-year yield is among the largest of the year.

There have been a sequence of three issues that have forced the issue to the fore. First, over the weekend, the Greek Parliament approved the 2015 budget by 155-134 votes. The budget was opposed by the official creditors, the Troika (the IMF, EU, ECB), which had been seeking another 1.7 bln euro in budget savings. The government's budget went the opposite direction. It included relief from the tax on heating oil and the income tax surcharge. It assumed growth would be just shy of 3.0% next year.

Second, the eurozone finance ministers blocked efforts by Greek Prime Minister Samaras to exit the assistance program. Samaras was eager to exit and restore some of its sovereignty ahead of what will likely be elections in the early part of next year. Instead, a two month extension of the existing program was granted, pending final approval. This would be followed by a precautionary line of credit from the ESM. This may force the Greek government to amend its budget before the EU grants its necessary approval.

These two developments set the backdrop for the third. Samaras has brought forward the selection of next Greek President. This was expected next February. The issue is that to select the President, a super-majority in parliament is needed. The government commands 155 votes of the 300-seat chamber.

The first round will be held December 17. The presidential candidate needs to secure 200 votes. If that fails, which is most certainly will, a second round will be held five days later on December 22. If the candidate fails to secure 200 votes then, a third round will be held a week later. On the third try, the candidate needs to secure 180 votes. If this fails, general elections will be held. The anti-austerity, and at times, anti-EMU Syriza Party is ahead in the national polls. Hence the existential concerns.

Samaras has very little room to maneuver. The core opposition is divided into three parties. Syriza itself has 71 seats. The neo-fascist Golden Dawn has 16 seats. The Communist Party has 12 seats. These combined 99 seats will likely oppose the government every step of the way. That leaves 46 seats in theory from which government needs 25 to secure the 180 votes needed for the third round.

It is possible but the task is daunting. Moreover, it means investors should be prepared for brinkmanship tactics. The value of the 25 needed votes is the greatest in the third and final round of the parliamentary selection process. Samaras has nominated former EU Commissioner and Greek foreign minister Stavros Dimas as the next president. The merits or de-merits of the candidate are not really being discussed. It is not a question of principles but of politics.

The fact that Greece is running a primary budget surplus (which excluded debt servicing costs), it is a better negotiating position with its creditors. In past, when some debtors began running a primary budget surplus they were more likely to seek debt restructuring. Greece's situation is a bit different because debt held by private investors was already restructured. The lion's share of Greece debt is now in official hands.

Tspiras, the head of Syriza has indicated he seeks a restructuring of the debt held by the ECB, EU and IMF. There are more than one way this can be delivered in a negotiated settlement. The least likely way is debt forgiveness. However, there is plenty of precedent for the official sector to lengthen maturities and reduce debt servicing costs. This seems to be a more promising path and one that the EU and ECB seemed open too, provided Greece adheres to its other commitment and delivers a sustained primary budget surplus. A unilateral default, which some observers suggest is possible or even likely, does not appear to be the most probable scenario.

We maintain, as we did consistently during the initial Greek crisis, that as difficult as it is for Greece inside EMU, it would be worse to drop out. Dropping out of EMU appears to be a pre-condition for, and necessitate, default. The new and weaker currency would make repaying euros, which the external debt would be denominated in, unbearable. Private sector (businesses) euro obligations would also likely face default. It would trigger an new and more severe banking crisis, as there would not be a backstop for it. This developments would fuel high inflation and a deep economic downturn.

While peripheral bonds yields are higher today and core bonds lower, the moves are orderly and rather modest, if one were to place much credence on the more pessimistic view of Syriza leading Greece into out of EMU and into default. The euro itself has moved higher today, which is also not what one would expect if Greece's departure was so likely.

 

The EU: Here we go again.

The Last Days of the Euro Zone?

by Jon Markman

Do you want to worry about something real, now that everyone is in such a good mood? I suggest worrying about the breakup of the euro zone again. Yeah, yeah, I know — that was the big fear two years ago during the first round of the sovereign debt crisis. Then European Central Bank President Mario Draghi gave his famous "bumblebee" speech, and said he would "do whatever it takes" to save the euro, and flash forward, here we are, knocking on 2015, and Europe is still standing. But here's the thing: Draghi is having a really hard time persuading his colleagues to launch full-blown quantitative easing, and the longer it takes, the more his authority erodes. He talked about a 1 trillion euro attack on deflation about six months ago, and nothing has happened; actually conditions are worse. Does the euro zone have a future? Ambrose Evans-Pritchard, the London Telegraph economics columnist, observed late last week that the ECB is thus facing a "full-blown leadership crisis," which has the potential to rock financial markets if not halted or contained. Media reports say that half the ECB's six-person executive board — representatives of Germany, France and Luxembourg — refused to sign off on Draghi's post-meeting statement last week, a rare mutiny. The problem is that the dissenters refuse to allow full-blown QE until they are ready, and they never plan to be ready. This is because they consider sovereign bond buying to be essentially a "fiscal transfer" that would amount to the ECB stepping into a governmental, rather than a monetary, role. The Germans are afraid that Draghi is setting the ECB up to be the buyer of last resort of a slew of sovereign debt floated by Italy, Spain and Portugal. They believe the German people did not sign up for that when creating the euro, and that it violates their sovereign rights.   Draghi on the other hand is basically saying that the only way to save the euro, and the euro zone, is to acknowledge that a successful monetary union depends on a fiscal union — so yes, a European super-state is necessary going forward. Goodbye individual countries, hello Super-Europe. The euro zone has muddled through so far without really confronting the hard issues. If and when they are forced to do so, either by persistent deflation or recession or both, the global financial system will gasp — at least for a while. Euro-zone divisiveness over a monetary and fiscal union could well turn out to be the financial story of 2015. We care about it because we are depending on the Japanese, Chinese and the euro zone to pick up the QE baton from the U.S. next year now that the Federal Reserve has completed its part of the global reflation relay race. If the euro zone never does launch QE because the Germans and French continue to object, there will need to be a downward adjustment, or dislocation, of market expectations. That adaption process would not be pretty for risky assets, and it could come in the form of a sharp break rather than a slow bend and twist. * ** While Draghi noted downside risks to inflation expectations in his statement, some observers said that he did not signal the same sense of urgency to address inflation as he did last month. Investors are trying to read something into everything that ECB officials say because the region is in such terrible shape that there is a gnawing fear that officials are not aware enough of the gravity of the situation. There is a desire to make sure that the homeowner knows his house is burning, and plans to call the fire department, rather than just pose for cameras amid the glow of the flames. Granted, Draghi is in a tough position, having to mesh so many countries' interests, and getting so little cooperation from fiscal authorities. But at some point, investors are saying, it is time to stop talking and actually do something to help boost economic activity in the euro zone.     BNP Paribas has said that euro-zone inflation is likely to average zero percent in 2015, after turning negative this month. Ashoka Mody, a former European Union and International Monetary Fund exec, told reporters that the ECB's measures are "woefully behind the curve." According to the London Telegraph, he added: "For anyone who wants to see it, a debt-deflation cycle is ongoing in the distressed economies. The authorities have very nearly lost control of a process that will become ever harder to manage as it becomes more entrenched."  Mody noted that the ECB repeatedly asserts that it will act "if needed" but declines to spell out what that means and why it continues to delay when the inflation level, now 0.3 percent, is already well below target. "Cheap talk is a legitimate policy tool. But talk can also create a cognitive bubble," he said, according to the Telegraph. No one is arguing that quantitative easing in the form of sovereign debt buying will be a panacea, but it can at least help to keep down the cost of capital while governments, businesses and individuals stabilize their finances and start to invest and take risks again. Best wishes, Jon Markman From Weiss Research AJ adds: To make matters worse, Greece is again flirting with political chaos.

Why oil prices fell?

Simply put: two reasons:

1. There is now paper oil. Oil options orchestrated by the big banks. This is how Russia is being attacked.

2. The Saudis want to put frakkers out of business. This is how much it costs to get oil out:


-Saudi Arabia: Less than $10 a barrel.

-Russia: (onshore) $40-$60.

-Venezuela: Less than $30.

-Nigeria: $20-$40.

-North Dakota: (Bakken Shale) $40-$70.

-Texas (Permian): $40-$80.

-Texas (Eagle Ford) $40-$70.

-Alaska: Less than $40.
-Canada (Oil Sands): $50-$100.

Some folks forecast oil to be driven to $40/bbl.

Japan: the failure of Keynesian economics.

                                                                                          

The Bear's Lair: The Bearish Global Leading Indicator

Martin Hutchinson - Seeking Alpha - 38 mins ago

  

Originally published on November 24, 2014

After an unexpected decline in the country's third-quarter Gross Domestic Product (GDP), Japan's Prime Minister Shinzo Abe called an early election last week, while postponing implementation of a sales tax rise into 2017. The global media were generally laudatory, explaining how he could extend his program of indeterminate "reform" while stimulating the economy further by means of a public spending boost. The praise of the media was not unexpected; Abe's policies are simply an extended, bolder form of those practiced almost everywhere else. However, since those policies are mistaken, the result will be highly unpleasant. Japan, for so long the glorious engine of the world economy, now looks likely to be first into disaster.

 

Even within the halls of Japanese policy, there are signs of dissent. Bank of Japan governor Haruhiko Kuroda expanded the central bank "stimulus" bond purchases to 80 trillion yen ($700 billion) annually on the clear understanding that the second stage of sales tax increases would go through. (By a bill passed by the previous government in 2012 sales tax increased from 5% to 8% in April and was due to increase to 10% in October 2015.) Abe may well get the majority he desires at the election he has called, but to what end? His main post-election idea appears to be to zap the economy with another 5 trillion yen ($43 billion) of spending "stimulus" in the hope that it will do what the first 17 trillion ($150 billion) have failed to do.

 

This is not so much doubling down on a failed strategy as playing red for the twentieth time when black has come up nineteen times. The fanatic Keynesians in Japanese policy circles have failed to examine critically their actions over the past two decades, or to correct their mistakes. Japan's quarter-century malaise (as of Dec. 31, the 25th anniversary of the 1989 peak of the Tokyo Stock Exchange's Nikkei index) has not been due to any great failing in the Japanese economy, nor to any supposed demographic disaster from Japan's aging. It simply has been due to from the complete failure of Keynesian spending stimulus combined with Bernankean monetary stimulus, repeated ad infinitum.

 

As of 1990, Japan was macro-economically a well-run country. Government spending was only 30% of GDP, while the Bank of Japan's discount rate at the start of 1990 was 4.25% against a 1990 inflation rate of 3% (in retrospect, it should have been higher, and indeed the Bank of Japan realized this, raising the discount rate to 6% by August 1990).

A massive backlash from the 1980s stock market bubble was inevitable, and real estate prices needed to drop 50% or more in urban areas, having been driven up much too far in the late 1980s. On Austrian economic principles, the malinvestment needed to be driven out. There was no question, therefore, that a substantial recession was inevitable. However there was no reason to expect that recession to last more than a few years, after which the resilience and dynamism of the Japanese economy would take it back to new heights.

 

As we know, history didn't turn out like that. In 1990-91, the Japanese authorities pursued orthodox economic policies to stem the bubble, with considerable success. The stock market index was down to half its peak level by late 1990. Then from 1992 the Keynesians took over and what had been a conventional if sharp economic downturn prolonged itself ad infinitum, with stagnation about to enter its 26th year. Public spending, which had been held below 30% of GDP until 1991, increased to 35% in 1996 and 38% in 2000. With only a sales tax increase from 3% to 5% by the Hashimoto government in 1997 doing anything to balance the budget, deficits soared. So did Japan's public debt, which had been at 60% of GDP in 1990 but quickly soared higher than 100% and kept climbing.

Following the advent of Prime Minister Junichiro Koizumi in 2001, it appeared that Japanese policymakers had come to their senses. Japanese public spending was dragged down from 37% of GDP in 2000 to a low of 33.5% in 2007, while deficits began ever-so-slowly to decline. If Koizumi had been granted the 11 years in power of Margaret Thatcher, let alone the 16 years in power of Helmut Kohl, Japan's problems would have been solved-although the global financial crisis of 2008-09 would doubtless have caused a hiccup. Maybe even with the eight years of Ronald Reagan, Koizumi could have done it, although that would have ejected him from office in mid-2009, a dangerous recessionary time to let the Keynesian wolves back in.

 

But Koizumi lasted only five years, barely long enough to visit Elvis' home with President George W. Bush, and his successor Abe was ejected from office in only a year. By 2007 the big-spending Keynesians were back in control and the result was a further inexorable rise in Japanese government spending to a peak of over 40% in 2011, at which level it has remained. Truly, Japan's habit of rapidly rotating its politicians has a lot to answer for. Koizumi had the solution to Japan's decades-long problem and wasn't allowed enough time to implement it properly.

 

Meanwhile Japanese government debt has climbed to 240% of GDP. (The largest debt that has ever been successfully paid down was about 250% of GDP, achieved by Britain twice. The first followed 1815 without inflation, and the other happened after 1945, with continual, very damaging inflation and destruction of private savings.) Japan's budget deficit in the year to March 2015 will be about 8% of GDP, the highest in the world outside countries like Egypt and Venezuela. That's a figure from a full five years after the last real Japanese recession, as distinct from the ongoing 25-year recession that blights the Japanese economy.

 

The solution to Japan's problems is not to double down on them. The reality is that the inexorable expansion of the state sector and the continual drain on Japan's investment funds to fund the budget deficits have weakened Japan's economy-possibly terminally-giving it the profile of a bloated Brazil rather than the technological powerhouse of growth which it was. Printing money like madmen makes the problem worse because it allocates resources from the central bank using non-market criteria. Raising the sales tax at least lessens the deficit's drain on the economy (probably without lessening the eventual probability of debt default, which that seems almost inevitable.) However, by draining yet more purchasing power from the private sector, it has caused another short-term recession that has sent Japan's policymakers into full panic mode.

 

The solution is simple: the opposite of what Japan has done for the last quarter-century except for an all-too-brief period under Koizumi. The government must be cut back, ideally to 30% of GDP, in order for the budget to be balanced at the earliest possible date. Abe has promised to balance the budget "before debt service" by 2020. But that is taking the spendthrift Brazilian approach to public accounting, looking only at the "primary surplus" while running large deficits after interest has been paid. Japan's debt must either be serviced or defaulted on, and a proper accounting includes debt interest among the government's costs.

 

It is probably necessary to implement the second sales tax increase, from 8% to 10%, in order to balance Japan's budget. Japanese sales taxes are lower than in most of the West, and a tax bearing on consumption is less damaging than one bearing on income. Like the last sales tax increase, the new one will produce a dip in GDP, but only a temporary one, which must be borne as the price of excessive wasteful government profligacy over so long a period. Government spending reductions are preferable to tax increases, because they reduce the percentage of resources allocated by the corrupt public sector. But in Japan's case, with such a large deficit, sustained over such a lengthy period, both are probably necessary.

 

So when you hear a re-elected Abe announce that his new "stimulus" spending program will revive the Japanese economy, don't believe a word of it. It will be the reverse of what's needed and will bring Japan's economic catastrophe closer.

For the rest of us, Japan's example is important not simply for those of us who admire the Japanese, believing that in certain policy respects-immigration and elder care among them-their society is an example to the world. It also shows the likely trajectory of the world's major economies, if they continue on their present path of excessive public sector deficits financed by printing money. Japan's public debt catastrophe in 2016 or 2017, which will cause a major economic downturn worldwide by itself, will be replicated in a global public debt catastrophe around 2028 or 2030 on the present trajectory.

 

The one hope, and it doesn't do much for Japan, is that Japan's fate will cause a massive rejection of Keynesian "stimulus" economics in the West, which will lead to an era of tight money, balanced budgets and high consumer savings, which will repair the world's balance sheets. Such a rejection is urgently needed. The continuation of misguided Keynesian policies without short-term catastrophe occurring is giving those policies a spurious intellectual respectability. It is also piling up public and private sector malinvestment, the destruction of which will cause a massively painful recession.

This article originally appeared on The Prudent Bear.