Brexit Countdown Clock.
Brexit Quote of the Day.
You will find as you grow older that
courage is the rarest of all qualities to be found in public life.
Benjamin Disraeli.
This weekend, articles held over, and
under reported during the week. Trouble grows in China, Brazil and Turkey. What happens after the
giant central bankster fuelled, malinvestment bubble meets its pin. What
happens is that real people, little people to be sure, far below the ranks of
ex-Goldmanite central banksters, get crushed into dire poverty and despair. Not
for them the electronic printing press available to bailout banksters. They’re
not banksters after all, and quite disposable.
The Great Nixonian Error of fiat money, communist money, is now going
horribly wrong, though exactly as predicted by earlier economists. This coming
Thursday “Magic Mario” and his team, gets his turn on stage presenting his
European version of voodoo economics.
Stocks anyone?
Experience, however, shows that neither a state nor a bank ever
have [sic] had the unrestricted power of issuing paper money without abusing
that power; in all states, therefore, the issue of paper money ought to be
under some check and control; and none seems so proper for that purpose as that
of subjecting the issuers of paper money to the obligation of paying their
notes either in gold coin or bullion.
David Ricardo.
Death and Despair in China's Rustbelt
March 1, 2016
In a
snow-covered valley in northeast China, an hour from the North Korean border, a
street with brightly-painted apartment blocks hides a story of fear and anger
as dangerous to the country as its rollercoaster stock market or sliding
currency.
The
frozen alluvial river plain that was once at the forefront of the Communist
Party’s first attempt to build a modern economy has now fallen behind, leaving
a valley of brutal murder, protests, anger, suicide and regret.
This is
the city of Tonghua in China’s rustbelt, where a desperate handful of
steelworkers has gathered each week outside the management office of their mill
in freezing temperatures to demand months of wages they say they’re owed. The
answer, according to interviews with workers and residents, is always the same:
there is no money.
This is
the last vestige of protests that once drew thousands, and which, one fateful
day nearly seven years ago, ended with a manager being beaten to death.
Since
then, the city’s once-vaunted state-run steel mills have slipped inexorably
into decline, weighed down by slumping global markets, a changing economy, and
the burden of costs and responsibilities to the people of the town they
fostered.
Tonghua’s
story is repeated across the country, where state-owned enterprises that were
the bedrock of China’s industrial development have become its biggest burdens.
Typically overstaffed, inefficient and heavily indebted, they offer President
Xi Jinping a stark warning of what the country could face if the millions of
workers who depend on these lumbering corporations should get thrown out of
work with nothing to fall back on.
Uprisings
have started from less in China.
The country’s leaders have vowed to reduce excess
industrial capacity and labor in state enterprises even as they battle the
slowest economic growth in a quarter of a century. China will eliminate up to
150 million metric tons of steel-making capacity in the next five years, the
State Council said after a Jan. 22 meeting.
The
council, China’s cabinet, said it will achieve the target through mergers and
acquisitions, relocation or converting some plants to other industries. It
pledged to set up special funds to subsidize companies and laid-off workers
during the change, and to help lenders write down bad debts.
“The
market has forced our hands,” said the official Xinhua News Agency in a Jan. 24
commentary. “Local governments and companies will bear the main responsibility,
while the central government will help.”
Eliminating
that amount of steel capacity could lead to 400,000-500,000 job cuts and may
fuel social instability, Li Xinchuang, head of the China Metallurgical Industry
Planning and Research Institute, said in an Internet message.
---- Such was Tonghua, 500 miles from Beijing, and now the fifth-largest city in Jilin province, with 2 million residents.
After the
reforms of Deng Xiaoping in the 1980s ushered in China’s economic boom,
Tonghua, and other steel cities became pollution-choked crucibles that fed the
expansion, churning out girders and bars to reinforce the concrete towers of
the nation’s building spree.
China’s
steel output in 1953 was less than 160,000 tons — not enough to make one
kitchen knife for each Chinese family. In 2015, it was equivalent to more than
half a ton for every citizen.
“The
steel mill during its heyday was hellish and streets were stifled by thick
fumes,” said Zhang Dongwei, who runs a transport and logistics business in the
city. “There was a flotilla of trains constantly coming in with coal and iron
ore and going out with steel wire and bars.”
Lines of
those trains sat rusting in the sun under a glittering white coat of the
winter’s first snowfall in November, idled by the shift in China’s economy.
More
Exclusive: China to lay off five to six million workers, earmarks at least $23 billion
Tue Mar 1, 2016 | 6:14 AM EST
BEIJING (Reuters) - China aims to lay off 5-6 million state workers over
the next two to three years as part of efforts to curb industrial overcapacity
and pollution, two reliable sources said, Beijing's boldest retrenchment program
in almost two decades.
China's leadership, obsessed with maintaining stability and making sure
redundancies do not lead to unrest, will spend nearly 150 billion yuan ($23
billion) to cover layoffs in just the coal and steel sectors in the next 2-3 years.
The overall figure is likely to rise as closures spread to other
industries and even more funding will be required to handle the debt left
behind by "zombie" state firms.
The term refers to companies that have shut down some of their
operations but keep staff on their rolls since local governments are worried
about the social and economic impact of bankruptcies and unemployment.
Shutting down "zombie firms" has been identified as one of the
government's priorities this year, with China's Premier Li Keqiang promising in
December that they would soon "go under the knife"..
The government plans to lay off five million workers in industries
suffering from a supply glut, one source with ties to the leadership said.
A second source with leadership ties put the number of layoffs at six
million. Both sources requested anonymity because they were not authorized to
speak to media about the politically sensitive subject for fear of sparking
social unrest.
The ministry of industry did not immediately respond when asked for
comment on the reports.
The hugely inefficient state sector employed around 37 million people in
2013 and accounts for about 40 percent of the country's industrial output and
nearly half of its bank lending.
More
AEP: Brazil's ruling party aims to tap foreign reserves as policy fight escalates
Ambrose
Evans-Pritchard3
March 2016 • 7:20pm
The ruling party in Brazil has drawn up crisis plans to tap the country’s
foreign exchange reserves to fight recession and prevent a surge in
unemployment, heightening fears of a populist lurch as the economic crisis
deepens.Any such move by Brazil would mark an escalation in the emerging market crisis, leading to intense scrutiny of other countries across the world facing similar difficulties following the collapse of the commodity boom and the end of cheap dollar liquidity from the US Federal Reserve.
The plan is in direct conflict with the policies of president Dilma Rousseff and implies a head-on clash between the government and its own political base in the Workers Party (PT), with serious implications for the stability of the currency and Brazil’s debt markets.
It came as official data showed Brazil’s economy contracted sharply in 2015 as businesses slashed investment plans and laid off more than 1.5 million workers, setting the stage for what could be the country’s deepest recession on record.
Brazil’s gross domestic product shrank 3.8pc in 2015, capped by another steep contraction in the fourth quarter. It was the steepest annual drop for the country’s GDP since 1990, when hyperinflation and debt default blighted the country’s recent return to democracy.
Rui Falcão, the PT’s president, personally drafted the crisis document known as the National Emergency Plan. He reportedly has the backing of former president Lula, Luiz Inacio da Silva. It calls for a draw-down on the country’s $371bn foreign reserves to finance a development and jobs fund, as well as demanding a sharp cut in interest rates, a move that would effectively strip the central bank of its independence.
The 16 proposals together mark a dramatic shift back to the party’s Marxist roots and a rejection of its free-market concordat over recent years. While investors might be willing to accept use of the reserves to back up a stabilisation policy and radical reform, they would be horrified if it was used to finance a last-ditch populist agenda.
“If the PT taps the reserves, they risk setting off
a run on the currency. This is very dangerous,” said one economist, dismissing
the scheme as complete madness.
---- Mr Falcão’s radical programme says the government is facing an “intense political-ideological battle”. The progressive wing of the party must regain control over events, and double down on the sort of stimulus policies that lifted Brazil out of the crisis in 2008-2009.
This
means a state-financed industrial policy, a blitz of investment on
infrastructure, health and housing, as well as job programmes and a rise in
salaries. The thrust of the policy implies a partial retreat into autarky,
compounding the isolation of an economy that already has an extremely low trade
gearing of 10pc of GDP.
The
Workers Party is alarmed by the sudden surge in unemployment over the last
three months as the recession deepens. The economy contracted by 3.8pc in 2015,
and is expected to shrink by a further 4pc this year.
Natixis
said it could be as bad as minus 4.7pc with further recession in 2017. “We
don’t see any positive signals in the coutntry,” it said.
Companies
are starting to lay off workers in droves as confidence collapses, shedding
over 150,000 jobs a month so far this year, devastating the party’s political
base on the factory floor. The steel group Usiminas is shuttering operations in
Cubatao outside Sao Paolo, part of an industrial depression that threatens up
to 30,000 jobs in the Cubatao zone alone.
More
Lula Detention Rattles Brazil as Heat on Rousseff Increases
March 4,
2016 — 5:00 PM GMT Updated on March 4, 2016 — 7:32 PM GMT
As soon as police raided the home of former Brazil President Luiz Inacio
Lula da Silva and questioned him early Friday, red-shirted activists of his
Workers’ Party took to the streets. Fist fights broke out with police as well
as with those applauding the detention -- a preview of the unrest that likely
awaits Brazil and its embattled president.The second term of President Dilma Rousseff has been overwhelmed by twin crises -- an economy crippled by recession and a political establishment under siege by a massive corruption investigation. The probe of Lula, an iconic figure who chose Rousseff as his successor, escalates almost two years of mounting tension.
Rousseff isn’t directly implicated in the latest investigation, which focuses on favors Lula and his family allegedly received from companies involved with Petrobras, the state oil company at the heart of the corruption probe. But she is under intense attack for a range of reasons and Lula remains the soul of her Workers’ Party, known as the PT. His questioning raises the temperature a week before pro-impeachment protests scheduled for March 13.
“We’re going to have an escalation of tension once again, and no one is really in control,” said Riordan Roett, director of Latin American Studies at Johns Hopkins University’s School of Advanced International Studies. “Everyone is worrying what shoe is going to drop next, and in Brasilia, there are lots of shoes in the air.”
More
http://www.bloomberg.com/news/articles/2016-03-04/lula-s-detention-rattles-brazil-as-heat-on-rousseff-increases
Ballooning Bad Loans in Turkey Seen Worsening as Tourists Flee
March 3,
2016 — 10:00 PM GMT Updated on March 4, 2016 — 10:18 AM GMT
The
ailments afflicting Turkey’s economy that have triggered a surge in bad loans
look poised to get worse before they get better.
Non-performing
loans at the nation’s lenders climbed to 3.18 percent of total credit in
January, the sixth straight monthly increase and the highest proportion in
almost five years, according to data this week from the Ankara-based Banking
Regulation and Supervision Agency. Bank of America Merrill Lynch and Commerzbank
AG said in Februrary corporate distress is deepening in Turkey, making it
harder for companies to pay down debts.
The rise
in bad loans is compounding the challenges for Turkey’s $814 billion banking
industry as a combination of currency depreciation, Russian sanctions and
waning tourist visits amid a spate of terrorist attacks weigh on the economy.
As the central bank limits funding to tame inflation, the highest borrowing
costs in four years and a slow down in loan growth are piling pressure on
indebted businesses.
“The
trend is likely to increase and intensify,” said Apostolos Bantis, a
Commerzbank credit analyst in Dubai, who said loans and lira-denominated bonds
would be exposed. “While I don’t see the situation running out of control, the
impact of Russian sanctions, the blow to the tourism industry, higher funding
costs and the weaker currency will all take a toll on the corporate sector,” he
said before the data.
Concerns
over credit quality have exerted pressure on Turkish bank shares in the past 12
months, with a gauge of 11 lenders dropping 15 percent versus a decline of 6.3
percent for the benchmark Borsa Istanbul 100 Index. Turkiye Halk Bankasi AS and
Turkiye IS Bankasi, known as Isbank, slid at least 24 percent.
More
Gold, on the contrary, though of little use compared with air or
water, will exchange for a great quantity of other goods.
David Ricardo.
Brexit Thought of the
Week.
Cameron: One could drive a schooner through any part of his EU argument
and never scrape against a fact.
With apologies to David Houston on William Jennings Bryan.
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