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Thu, 23rd February 2017

Anirudh Sethi Report

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Archives of “D.C.” Tag

Greek unemployment sticks at 23% amid escalating bailout row

Still no respite for Greece.

Amid a fresh escalation in a row over its bailout conditions, Greece’s stubbornly high unemployment rate is showing no sign of improvement.

The country’s jobless rate – which is the highest in the eurozone and has been above 20 per cent for six years – stuck at 23 per cent in November despite a general uptick in its economic prospects at the end of 2016.

The IMF has been accused by Athens and Brussels of an “overly pessimistic” view on the Syriza government’s ability to hit a 3.5 per cent budget surplus target over the next decade, which has led it to a wrong-headed forecast on Greece’s “explosive” debt dynamics.

The Fund’s latest report on the Greek economy suggest its debt-to-GDP mountain could reach 275 per cent over the next two decades without major debt restructuring. Unemployment meanwhile will only fall to 21.7 per cent this year, while the country’s long-term growth rate was downgraded to 1 per cent, IMF economists predict.

US Government’s 2016 Net Loss “More Than Doubled” To $1 Trillion

Just like Apple or Exxon, the government’s annual report contains several important financial statements and detailed commentary about their finances and operations.

But unlike Apple, Exxon, the government can’t manage to turn a profit. Ever.

According to this year’s report, the government’s net loss “more than doubled, increasing $533.2 billion (103.7%) during [Fiscal Year] 2016 to $1.0 trillion.”

It’s extraordinary that they lost $533 billion in 2015, let alone a full trillion in 2016.

Bear in mind, there was no major wars, recessions, or crises to fight.

What did you really receive in exchange for that trillion-dollar loss?

Brand new highway system? Giant tax rebate?

Nope. None of the above.

The sad reality is that it now costs the government so much to run itself, along with paying massive interest on the debt and supporting all of its entitlement obligations, that they lose $1 trillion even in a “normal” year.

What will happen in a bad year?

Then there’s the issue of the government’s “net worth”.

After adding up all of its assets (like tanks, aircraft carriers, government buildings, etc.) and subtracting liabilities (the national debt), the government’s “net worth” was MINUS $19.3 trillion at the close of the 2016 fiscal year.

That’s worse than 2015’s NEGATIVE $18.2 trillion, which was worse than 2014’s NEGATIVE $17.7 trillion, which was worse than 2013’s NEGATIVE $16.9 trillion.

The US federal government is insolvent, plain and simple.

This isn’t some wild conspiracy theory. It is a statement of fact based on publicly available data published by the US government itself.

It’s concerning that the government of the largest economy in the world is bankrupt.

But it’s even more concerning that more people aren’t concerned.

Naturally most of us have been programmed to believe for decades that the US government is rich and always pays its obligations.

This is a dangerous fantasy.

Yes, the government has been able to continually destroy its finances for years without consequence.

And for that accomplishment they should be awarded some special Nobel Prize in Ponzi Schemes.

But history is packed with examples of once-dominant empires who eventually declined under the weight of their unsustainable finances, from the French monarchy to ancient Rome.

Are we really supposed to believe that this time is any different?

Are we really supposed to believe that the US government can continue to indefinitely lose $1 trillion dollars per year without consequence?

Sure, it’s great to hope for the best. And maybe, just maybe, they manage to fix everything.

But it would be dangerous to bet everything you’ve ever earned or plan to achieve on such an unreasonable expectation.

When nations go broke, there are consequences. Simple.

Overnight US Market :Dow closed -19 points.

Energy companies led U.S. stock indexes lower Monday as the price of crude oil declined. Phone company and materials stocks were also among the big decliners. Investors were weighing the latest batch of company earnings news.

The Dow Jones industrial average fell 19.04 points, or 0.1%, to 20,052. The Standard & Poor’s 500 index fell 4.86 points, or 0.2%, to 2293, as the broad-based index snapped a three-day winning streak. The Nasdaq composite index fell 3.21, or 0.1%, to 5664, as the tech-heavy index pulled back from Friday’s record closing high.

Benchmark U.S. crude fell 82 cents, or 1.5%, to close at $53.01 a barrel in New York. Brent crude, used to price international oils, lost $1.09, or 1.9%, to $55.72 a barrel in London.

Several energy companies were trading lower. Devon Energy slid 3.2%, while Chesapeake Energy dropped 3%. Marathon Oil shed 4.1%.

The 10-year Treasury yield fell to 2.42% from 2.47% late Friday.

Investors are still cautious as Trump’s early acts as president have been shaping markets for the past couple of weeks. On Friday, Trump directed the Treasury Secretary to look for potential changes to the Dodd-Frank law, which reshaped financial regulations after the 2008-09 financial crisis. Investors applauded that move but remain uncertain about the future impact of other policies. Over the weekend, the U.S. immigration ban on refugees and travelers from seven Muslim-majority countries was blocked by a federal judge and an appeals court turned down a Justice Department request to set that judgment aside. The White House said it expects the courts to restore executive order, which was founded on a claim of national security.

Abe, Trump agree to hold meeting on Feb. 10

Japanese Prime Minister Shinzo Abe and U.S. President Donald Trump agreed on Saturday to hold a summit in Washington on Feb. 10.

It will be their first meeting since Trump assumed the presidency.

 The two spoke on Saturday by phone.

Afterward, Abe told reporters that he and Trump “confirmed the importance of the Japan-U.S. alliance in light of economic and security challenges facing the countries.”

He also said that during the planned February meeting, he “wants to have a candid and productive exchange of opinions on economic and security issues as a whole” with Trump.

When they get together, Abe plans to confirm that Trump will stick to the current policy that the Senkaku Islands in Okinawa Prefecture fall under Article 5 of the Japan-U.S. security treaty, which defines the U.S.’s defense commitment to Japan.

Abe looks to obtain assurance that the U.S. will continue to concern itself with security in the Asia-Pacific region by first discussing the handling of the Senkaku issue.

China also claims the islands.

Priebus: Trump “Accepts” That Russia Played A Role In Election Hacking

In a surprising twist, incoming White House chief of staff Reince Priebus said Sunday on Fox News that President-elect Donald Trump accepts that Russia played a role in hacking the Democratic National Committee and Clinton campaign Chairman John Podesta.

Priebus, the former RNC chairman, said Trump understands that Moscow was behind the intrusions into the Democratic Party organizations. “He accepts the fact that this particular case was entities in Russia so that’s not the issue” and added that Trump “is not denying that entities in Russia were behind this particular hacking campaign.”

“But here’s the thing that I think everyone needs to understand — when this whole thing started, it started from the Russians 50 years ago … This is something that’s been going on in our elections for many, many years.” Priebus said it “happens every election period.”

“In this particular case, it started way back in 2015 before either nominee of either party was chosen,” Priebus said. “And it started … as a spearfishing expedition over many different institutions.”

Additionaly, Priebus blasted the Democratic National Committee (DNC) for its lack of IT defenses. The DNC was warned multiple times by the FBI before being hacked, Priebus added, and officials didn’t respond. “So yes, we have bad actors around the world,” Priebus said.”But we also have a problem when we have a major political institution that allows foreign governments into their system with hardly any defenses or training.”

As Reuters notes, Priebus’ comments marked a major shift in the official Trump narrative: the president elect has repeatedly dismissed claims that the Russians were trying to help him, arguing that those charges are the product of his political opponents trying to undermine his victory. 

So far, Trump has only indirectly acknowledged the intelligence community’s conclusion that Russia interfered in the election and has consistently downplayed its significance — and the president-elect has a history of later contradicting what his surrogates tell the media.

On Friday morning, shortly before being briefed by US intelligence, Trump tweeted that “Gross negligence by the Democratic National Committee allowed hacking to take place.The Republican National Committee had strong defense!” He then tweeted two follow-up comments, first that “Intelligence stated very strongly there was absolutely no evidence that hacking affected the election results. Voting machines not touched!” followed by “Only reason the hacking of the poorly defended DNC is discussed is that the loss by the Dems was so big that they are totally embarrassed!”

After the briefing, Trump stated, “While Russia, China, other countries, outside groups and people are consistently trying to break through the cyber infrastructure of our governmental institutions, businesses and organizations including the Democrat National Committee, there was absolutely no effect on the outcome of the election including the fact that there was no tampering whatsoever with voting machines.”

Donald Trump Seals Electoral College Victory, Officially Becomes 45th US President

It’s finally over: Donald Trump has secured 304 Electoral Votes following the Texas vote (with 2 faithless electors), officially securing the presidency of the United States.  Of course, the now official President-Elect Trump took to twitter to confirm the victory:

Texas’ 36 electoral votes for Trump pushed him over the edge at around 4:30 Central Time, even though two rogue electors’ defections deprived Trump of one of those votes. That gave Trump 304 total electoral votes.

A quick recap of the day’s events from the WSJ:

 Members of the Electoral College meeting in state capitals across the country on Monday confirmed President-elect Donald Trump’s victory in the 2016 election, ending a last-ditch campaign to deny him the presidency. Mr. Trump amassed at least 270 electoral votes on Monday afternoon—enough to officially become the president-elect over his Democratic rival, Hillary Clinton, according to a tally of votes by the Associated Press.

Typically just a formality, this year’s Electoral College vote attracted an outsize amount of attention after a group of mostly Democratic electors made a late push to block Mr. Trump’s path to the White House. They argued the Electoral College had a constitutional duty to act independently of the will of the voters in extraordinary circumstances. Protesters gathered in several state capitols across the country to encourage electors to reject Mr. Trump.

China will give back seized drone, criticises U.S. “hyping up” the issue

China’s Defence Ministry said on Saturday it had been in talks with the United States about returning an underwater drone taken by a Chinese naval vessel in the South China Sea, but the U.S. was not helping by “hyping up” the issue.

The drone was taken on Thursday, the first seizure of its kind in recent memory, about 50 nautical miles northwest of Subic Bay off the Philippines, just as the USNS Bowditch was about to retrieve the unmanned underwater vehicle (UUV), U.S. officials said.

The Defence Ministry said a Chinese naval vessel discovered a piece of “unidentified equipment” and checked it to prevent any navigational safety issues, before discovering it was a U.S. drone.

“China decided to return it to the U.S. side in an appropriate manner, and China and the U.S. have all along been in communication about it,” the ministry said on its website.

“During this process, the U.S. side’s unilateral and open hyping up is inappropriate, and is not beneficial to the smooth resolution of this issue. We express regret at this,” it added.

U.S. President-elect Donald Trump weighed in to the row on Saturday, tweeting: “China steals United States Navy research drone in international waters – rips it out of water and takes it to China in unprecedented act.”

Without directly saying whether the drone was operating in waters China considers its own, the ministry said U.S. ships and aircraft have for a long period been carrying out surveillance and surveys in “the presence” of Chinese waters.

“China is resolutely opposed to this, and demands the U.S. stops this kind of activity,” it said.

China will remain on alert for these sorts of activities and take necessary steps to deal with them, the ministry said without elaborating.

Earlier, the Global Times, published by the ruling Communist Party’s official People’s Daily, cited an unidentified Chinese source as saying they believed the issue would be resolved smoothly.

The United States says the drone was operating lawfully.

Bitcoin trade volume hits record in November

A record 174.7 million bitcoins changed hands, so to speak, in November, a 50% or so increase from the previous month’s trade volume, according to Bitcoinity.org.

The spike came as Chinese jumped into the digital currency as a way to shift their assets into dollars.

 The previous monthly record, which came in March, was 148.6 million bitcoins.

The November trading volume was worth $137 billion.

The yuan has been weakening against the U.S. currency since Donald Trump’s victory in the presidential election on Nov. 8.

Many Chinese evade restrictions on directly buying dollars by taking a detour into bitcoins. This is what they were doing last month.

Short-term debt relief approved by Eurogroup but tough measures loom

Eurozone finance ministers struck a deal in Brussels on Monday on short-term measures to lighten Greece’s debt burden, but the conclusion of the country’s second review of its third bailout and the participation of the International Monetary Fund have been deferred to January.

“The Eurogroup endorsed today the full set of short-term measures, including extending the repayment period and an adjustment to interest rates,” the Eurogroup said a statement.

The decision was seen to reward Greece for implementing the latest batch of reforms demanded as part of its bailout program.

The head of the European Stability Mechanism, Klaus Regling, said after the meeting that the short-term measures will start being implemented “in the next weeks.”

The measures, however, did not meet the demands of the IMF, which has demanded substantial debt relief and harsher austerity procedures in order to join the Greek program.

Shifting Paradigms and the Market Adjustment

Around the middle of the year, St. Louis Federal Reserve President James Bullard revealed his new economic approach.  He argued that during economic phases, or paradigms, economic relationships wee fairly stable, such as unemployment and inflation.  
We cannot predict when a new paradigm emerges.  Economic forecasts must assume the continuation of whatever is the current paradigm.  Bullard accepts the need for one more interest rate, perhaps next month to bring the Fed funds to a neutral target within the existing set of economic relationships.  
Investors see two trends which could very well portend a changing paradigm.  First is reflation.  It was clear that whichever candidate won the US presidential election, fiscal policy was set to turn more accommodative.  Trump promised a large stimulus package, which included tax cuts as well as spending increases.  The size of the package he talked about during the campaign, and his economic advisers are maintaining after the election, is on par with the February 2009 measures when the economy was in the throes of the credit-crisis-induced recession.   
The limits of monetary policy were gradually becoming recognized and emphasized by economists and policymakers.  A few countries, such as Canada, led by a new Liberal government, provided modest fiscal support.  The UK is also widely expected to increase government spending.  Investors anticipate that Hammond, the UK Chancellor the Exchequer, will outline an increase in infrastructure investment (rail and roads) in the Autumn Statement on November 23.  Trump’s campaign rhetoric stands out for its size and the fact that it is for a US economy that is already growing near trend, which the Federal Reserve estimates near 1.8%.  The inflationary implications of provided significant stimulus under such pre-existing conditions are not lost on investors.