The IMF Is Not Done Destroying Greece Yet


Tyler Durden's picture

Authored by Raul Ilargi Meijer via The Automatic Earth blog,

Austerity is over, proclaimed the IMF this week. And no doubt attributed that to the ‘successful’ period of ‘five years of belt tightening’ a.k.a. ‘gradual fiscal consolidation’ it has, along with its econo-religious ilk, imposed on many of the world’s people. Only, it’s not true of course. Austerity is not over. You can ask many of those same people about that. It’s certainly not true in Greece.

IMF Says Austerity Is Over

Austerity is over as governments across the rich world increased spending last year and plan to keep their wallets open for the foreseeable future. After five years of belt tightening, the IMF says the era of spending cuts that followed the financial crisis is now at an end. “Advanced economies eased their fiscal stance by one-fifth of 1pc of GDP in 2016, breaking a five-year trend of gradual fiscal consolidation,” said the IMF in its fiscal monitor.

In Greece, the government did not increase spending in 2016. Nor is the country’s era of spending cuts at an end. So did the IMF ‘forget’ about Greece? Or does it not count it as part of the rich world? Greece is a member of the EU, and the EU is absolutely part of the rich world, so that can’t be it. Something Freudian, wishful thinking perhaps?

However this may be, it’s obvious the IMF are not done with Greece yet. And neither are the rest of the Troika. They are still demanding measures that are dead certain to plunge the Greeks much further into their abyss in the future. As my friend Steve Keen put it to me recently: “Dreadful. It will become Europe’s Somalia.”

An excellent example of this is the Greek primary budget surplus. The Troika has been demanding that it reach 3.5% of GDP for the next number of years (the number changes all the time, 3, 5, 10?). Which is the worst thing it could do, at least for the Greek people and the Greek economy. Not for those who seek to buy Greek assets on the cheap.

But sure enough, the Hellenic Statistical Authority (ELSTAT) jubilantly announced on Friday that the 2016 primary surplus was 4.19% (8 times more than the 0.5% expected). This is bad news for Greeks, though they don’t know it. It is also a condition for receiving the next phase of the current bailout. Here’s what that comes down to: in order to save itself from default/bankruptcy, the country is required to destroy its economy.

And that’s not all: the surplus is a requirement to get a next bailout tranche, and debt relief, but as a reward for achieving that surplus, Greece can now expect to get less … debt relief. Because obviously they’re doing great, right?! They managed to squeeze another €7.3 billion out of their poor. So they should always be able to do that in every subsequent year.

The government in Athens sees the surplus as a ‘weapon’ that can be used in the never-ending bailout negotiations, but the Troika will simply move the goalposts again; that’s its MO.

A country in a shape as bad as Greece’s needs stimulus, not a budget surplus; a deficit would be much more helpful. You could perhaps demand that the country goes for a 0% deficit, though even that is far from ideal. But never a surplus. Every penny of the surplus should have been spent to make sure the economy doesn’t get even worse.

Greek news outlet Kathimerini gets it sort of right, though its headline should have read “Greek Primary Surplus Chokes Economy“.

Greek Primary Surplus Chokes Market

The state’s fiscal performance last year has exceeded even the most ambitious targets, as the primary budget surplus as defined by the Greek bailout program, came to 4.19% of GDP, government spokesman Dimitris Tzanakopoulos announced on Friday. It came to €7.369 billion against a target for €879 million, or just 0.5% of GDP. A little earlier, the president of the Hellenic Statistical Authority (ELSTAT), Thanos Thanopoulos, announced the primary surplus according to Eurostat rules, saying that it came to 3.9% of GDP or €6.937 billion.

The two calculations differ in methodology, but it is the surplus attained according to the bailout rules that matters for assessing the course of the program. This was also the first time since 1995 that Greece achieved a general government surplus – equal to 0.7% of GDP – which includes the cost of paying interest to the country’s creditors. There is a downside to the news, however, as the figures point to overtaxation imposed last year combined with excessive containment of expenditure.

The amount of €6-6.5 billion collected in excess of the budgeted surplus has put a chokehold on the economy, contributing to a great extent to the stagnation recorded on the GDP level in 2016. On the one hand, the impressive result could be a valuable weapon for the government in its negotiations with creditors to argue that it is on the right track to fiscal streamlining and can achieve or even exceed the agreed targets. On the other hand, however, the overperformance of the budget may weaken the argument in favor of lightening the country’s debt load.

Eurogroup head Dijsselbloem sees no shame in admitting this last point :

Dijsselbloem Sees ‘Tough’ Greek Debt Relief Talks With IMF

“That will be a tough discussion with the IMF,” said Dijsselbloem, who is also the Dutch Finance Minister in a caretaker cabinet, “There are some political constraints where we can go and where we can’t go.” The level of Greece’s primary budget surplus is key in determining the kind of debt relief it will need. The more such surplus it has, the less debt relief will be needed.

That’s just plain insane, malicious even. Greek PM Tsipras should never have accepted any such thing, neither the surplus demands nor the fact that they affect debt relief, since both assure a further demise of the economy.

Because: where does the surplus come from? Easy: from Troika-mandated pension cuts and rising tax levels. That means the Greek government is taking money OUT of the economy. And not a little bit, but a full 4% of GDP, over €7 billion. An economy from which so much has already vanished.

The €7.369 billion primary surplus, in a country of somewhere between 10 and 11 million people, means some €700 per capita has been taken out of the economy in 2016. Money that could have been used to spend inside that economy, saving jobs, and keeping people fed and sheltered. For a family of 3.5 people that means €200 per month less to spend on necessities (the only thing most Greeks can spend any money on).

I’ve listed some of the things a number of times before that have happened to Greece since the EU and IMF declared de facto financial war on the country. Here are a few (there are many more where these came from):

25-30% of working age Greeks are unemployed (and that’s just official numbers), well over 1 million people; over 50% of young people are unemployed. Only one in ten unemployed Greeks receive an unemployment benefit (€360 per month), and only for one year. 9 out of 10 get nothing.

Which means 52% of Greek households are forced to live off the pension of an elderly family member. 60% of Greek pensioners receive pensions below €700. 45% of pensioners live below the poverty line with pensions below €665. Pensions have been cut some 12 times already. More cuts are in the pipeline.

40% of -small- businesses have said they expect to close in 2017. Even if it’s just half that, imagine the number of additional jobs that will disappear.

But the Troika demands don’t stop there; they are manifold. On top of the pension cuts and the primary surplus requirement, there are the tax hikes. So the vast majority of Greeks have ever less money to spend, the government takes money out of the economy to achieve a surplus, and on top of that everything gets more expensive because of rising taxes. Did I ever mention businesses must pay their taxes up front for a full year?

The Troika is not “rebalancing Greece’s public finances in a growth-friendly manner”, as Dijsselbloem put it, it is strangling the economy. And then strangling it some more.

There may have been all sorts of things wrong in Greece, including financially. But that is true to some degree for every country. And there’s no doubt there was, and still is, a lot of corruption. But that would seem to mean the EU must help fight that corruption, not suffocate the poor.


Yes, that’s about a 30% decline in GDP since 2007

 

The ECB effectively closed down the Greek banking system in 2015, in a move that’s likely illegal. It asked for a legal opinion on the move but refuses to publish that opinion. As if Europeans have no right to know what the legal status is of what their central bank does.

The ECB also keeps on refusing to include Greece in its QE program. It buys bonds and securities from Germany, which doesn’t need the stimulus, and not those of Greece, which does have that need. Maybe someone should ask for a legal opinion on that too.

The surplus requirements will be the nail in the coffin that do Greece in. Our economies depend for their GDP numbers on consumer spending, to the tune of 60-70%. Since Greek ‘consumers’ can only spend on basic necessities, that number may be even higher there. And that is the number the country is required to cut even more. Where do you think GDP is headed in that scenario? And unemployment, and the economy at large?

The question must be: don’t the Troika people understand what they’re doing? It’s real basic economics. Or do they have an alternative agenda, one that is diametrically opposed to the “rebalancing Greece’s public finances in a growth-friendly manner” line? It has to be one of the two; those are all the flavors we have.

You can perhaps have an idea that a country can spend money on wrong, wasteful things. But that risk is close to zilch in Greece, where many if not most people already can’t afford the necessities. Necessities and waste are mutually exclusive. A lot more money is wasted in Dijsselbloem’s Holland than in Greece.

In a situation like the one Greece is in, deflation is a certainty, and it’s a deadly kind of deflation. What makes it worse is that this remains hidden because barely a soul knows what deflation is.

Greece’s deflation hides behind rising taxes. Which is why taxes should never be counted towards inflation; it would mean all a government has to do to raise inflation is to raise taxes; a truly dumb idea. Which is nevertheless used everywhere on a daily basis.

In reality, inflation/deflation is money/credit supply multiplied by the velocity of money. And in Greece both are falling rapidly. The primary surplus requirements make it that much worse. It really is the worst thing one could invent for the country.

For the Greek economy, for its businesses, for its people, to survive and at some point perhaps even claw back some of the 30% of GDP it lost since 2007, what is needed is a way to make sure money can flow. Not in wasteful ways, but in ways that allow for people to buy food and clothing and pay for rent and power.

If you want to do that, taking 4% of GDP out of an economy, and 3.5% annually for years to come, is the very worst thing. That can only make things worse. And if the Greek economy deteriorates further, how can the country ever repay the debts it supposedly has? Isn’t that a lesson learned from the 1919 Versailles treaty?

The economists at the IMF and the EU/ECB, and the politicians they serve, either don’t understand basic economics, or they have their eyes on some other prize.

A $20 Gold Coin that Saved a Life


confederate submaribe George Dixon gold coin

A story that a sweetheart gave a Confederate soldier George Dixon a $20 gold coin dated 1860 as a good luck charm has been validated. The story was that George kept the coin with him always, in his pocket, as good luck. During the Battle of Shiloh, George was shot point blank. The bullet struck in his pocket hitting the center of the gold coin. The impact was said to have left the gold piece bent, with the bullet embedded in it which saved his life.

Confederate submarine H.L. Hunley

George’s luck, however, did not last forever. Nearly 150 years ago, the Confederate submarine H.L. Hunley, the first ever in history, failed to return to port after its successful maiden mission. The sunken submarine was discovered in 2015 off the waters of South Carolina where it sunk in 1864.

Confederate submarine

The propulsion was simply men turning a crank. A pole on the front was designed to ram explosives into enemy ships. Therefore, the sub had to actually make contact. The poll placed a powder charge into the Union warship Housatonic and sunk her, but the Hunley went down with its eight man crew and never returned on February 17th 1864.

The archaeologists also found inside the submarine one bent gold coin that was carried by the sub’s captain, Lieutenant George Dixon, for good luck. The legend was proven true. The $20 gold coin saved his life one time.

Raising Highway Speeding Tickets to 175% of Your Weekly Income


British Speed Trap

A word to the wise. Any American traveling to Europe, you are better off hiring a limo driver or call Uber than drive yourself. In Europe, they have speed cameras everywhere. If you are 1 KM over the speed limit in Switzerland, the camera goes off and you have a fine. It’s not like America where even on an interstate highway with a 65 mph limit, traffic typically moves at 80 mph and police will start to look at you over 80. Local municipalities are different. Some of them are so broke they make up stuff.

In Europe, they fine you using cameras, which are also illegal in the USA. You have a right to confrontation and a camera cannot testify against you in court. Those state who adopted the red light cameras used them for revenue, but you would not get any points on your license because they too were unconstitutional.

The Europeans are simply totally insane. They fine you in proportion to what you can pay. In Britain, they are setting this at 175% of the weekly wage. So if you were a CEO earning $25 million a year, your fine will be $841,346.

In 2010, motorcycle was clocked at 164 mph. They let him keep his license if he paid $12k to Canadian authorities for speeding ticket. Then there is Finland which also adjusts speeding ticket fees based on the driver’s annual income. One driver caught doing a measly 15 over in a 50 mph zone and since he made about $7mil a year, his speeding ticket was almost $60K.

There was the Nokia phone director Anssi Vanjoki who was rising his Harley-Davidson in Helsinki, Finland and got tagged going 47 mph in a 31 mph zone. They fined him €116k. Straight out of the Communist Manifesto, in 2004, a 27-year-old heir to his family’s sausage business was hit with a with a $217k ticket for going 50 mph in a 25 mph.

Then there was the Swiss millionaire speeding at 85 mph in a 50 mph zone. The court said his net worth was $22.7m and since he had a previous speeding ticket, the court fined him $290,000. Yet even this is not the record for speeding tickets. The Swiss are simply really out worshiping Marx. A Swedish driver in a Mercedes-Benz SLR in Switzerland got caught going 186 mph. He was fined €650,000, which back in 2010, was $1 million.

Making fined based upon income is definitely the ultimate Marxist agenda. Worse yet, you are being caught by a camera and need not even be chased like in some Hollywood Movie like the Fast And Furious.

If You Can’t Reform – Just Blow The Budget Completely Apart


Students-1

You really have to wonder how politicians ever come to these ideas that they have a right to discriminate and suppress anyone based solely upon what material things they possess. In France, the left is running to take 90% from the rich and hand it to everyone else. Why should they continue to invest, take risks, or even work for that matter. I would close up shop and just leave.

In February, the city of San Francisco came up with a new “free college” plan for city residents that included an added stipend for books and travel expenses. Of course, it was by no means “free” because they were raising taxes in the city to pay for it.

In Europe where education is free, kids keep going to school collecting degrees because (1) its free, (2) they cannot find a job, and (3) who wants to work and pay taxes? The education is really indoctrination and nobody ever learned how to actually do something from a school. Even doctors have to do an internship actually doing the job to get into the door.

Well now the state of New York has joined the socialist agenda of Marx and on April 9th, the N.Y. legislature passed “The Excelsior Scholarship” bill to grant free public college to state residents. On April 13th, N.Y. Governor Andrew Cuomo signed it into law.

The N.Y. college tuition of any state resident whose family earns up to $100,000 a year prior to the fall semester this year, $110,000 in the fall of 2018, and $125,000 in 2019 will be eligible. They have adopted the communist system where once you earned your free degree, you had to work for the state. Here, New York required that the student must stay in New York for four years after they graduate. If you cannot find a job in New York and there is one in California, sorry – you can’t take it.

Interesting regulations.

Latest Interview with Martin Armstrong


Analysis of Global Temperature Trends, March, 2017, what’s really going on with the Climate?


The analysis and plots shown here are based on the following two data series. First NASA-GISS estimates of a global temperature shown as an anomaly (converted to degrees Celsius) as shown in their table Land Ocean Temperature Index (LOTI) and shown in the following Chart as the red plot labeled NASA. This plot is shown as a twelve month moving average to minimize the large monthly swings and better show trends; the scale for the temperatures is on the left. Second NOAA-ESRL Carbon Dioxide (CO2) values in Parts Per Million (PPM) which are shown in the following Chart as a black plot labeled NOAA. This plot is shown exactly as the data from NOAA is presented and there is no need for a moving average the scale for CO2 is shown on the right.

NASA published data as stated in the first paragraph is shown as an anomaly, but what is a temperature anomaly?  An anomaly is a deviation from some base value normally an average that is fixed. There were two problems with the system that NASA picked which were number one there is no “actual” global temperature and two since climate is a variable there cannot be a real base to measure from. NASA known for its science and engineering expertise back in the day thought it could get around these issues and created a system to do so. First they developed a computer model which took readings from all over the planet and made significant adjustments to them called homogenization and came up with the estimated global temperature. Second they picked the period 1950 to 1980 (30 years) and averaged the values and came up with 14.00 degrees Celsius and make that their base.  Then they took the calculated temperature and subtracted the base from it which gave them the anomaly. The problem is that both the base and the anomaly are arbitrary.

Now that we have a base to work with we are going to add to the previous Chart three things. The first is a trend line of the growth in CO2 since that is the entire basis for climate change according to the government through NASA and NOAA. That plot is superimposed over the black plot of the actual NOAA CO2 values as the cyan line labeled as the CO2 Model and one can see there is a very good fit to the actual NOAA values so there should be no dispute about its validity.  This plot allows us to make projections as to future global temperatures according to the level of CO2. The second added item is James E. Hansen’s Scenario B data, which is the very core of the IPCC Global Climate models (GCM’s) and which was based on a CO2 sensitivity value of 3.0O Celsius per doubling of CO2. This plot is shown here in lavender and is part of a presentation that Hansen showed to congress in 1988 when the UN was about to set up the International Panel on Climate Change (IPCC) and this plot is labeled as Hansen Scenario B which Hansen stated was the most likely to happen based on his theories’.  The third item is the current plot of the most likely temperature of the planet based on the growth of CO2 published by the IPCC. This plot is shown in Red and is labeled as IPCC AR5 A2 as that is the table where the data was found. This plot is a GCM computer projection of the planets temperature based to the complex relationships developed on the levels of CO2 by the IPCC through NASS and NOAA.

It can be seen in this Chart that the lavender plot and the Hansen plot are very close from 1965 to around 2000 after that, from 2000 to 2014, there is a very large and growing deviation reaching close to .5 degrees Celsius in 2014, which is not an insubstantial number.  Also of note is that there doesn’t seem to be a good correlation between the growth in CO2 and the increase in the planets temperature. The CO2 is going up in a log function and the Temperature was going down in a log function until recently where it reversed and is now going up in a log function. That major change in direction that occurred between 2013 and 2014 is the subject of this paper.

The next Chart is developed from the raw data from NASS and NOAA as shown in the first Chart.  This plot was made first by adding ten years blocks of temperature and CO2 as indicated in the Chart and diving by 120 to give an average for each.  Then the average Temperature was divided by the average CO2 to give degrees of temperature increase per PPM of CO2. After that was plotted it appeared that there were two different curves the first was from block 1965-1974 through block 2004-2014 shown as Black Dots and the second was from block 1995-2004 through block 2005-2016 shown as Black Dashes. When trend lines were added they were both almost perfect fits to the raw data and so you cannot see the data points very well on the Chart.  These blocks were picked to represent the entire period of time where we had both NASA temperature data and NOAA Co2 levels.

On the following Chart are two sets of color coded information. The first is Cyan plot and the Cyan box with the equation in it along with the R2 value 0f 1.0 are for the first series from block 1965-1974 through block 2004-2014. The other is the Red plot and the Red box with the equation in it along with the R2 value of 1.0 which are for the first series from block 1965-1974 through block 2004-2016. We can speculate on how this change has happened but it cannot be said that the plot change is not real; however additions data over the next few years will be required to actually prove that something has changed.

In summary the Cyan data set indicates a diminishing effect of CO2 on global temperature for about 54 years and the Red data set represents an increasing effect of CO2 on global temperature for the past 2 years. Since both data sets have an R2 value of 1.00 the trend lines cannot be in question.

Before we get into a possible explanation to the drastic change from the Cyan data to the Red data that occurred in 20014 we need to consider other factors than CO2 on Climate change.  The fault that occurred in the work that was done in the 1980’s was in assuming that there was an optimum or constant global temperature and therefore any change that was being observed was from the increasing amount of CO2 in the atmosphere.  There may have been correlation but it was never proved that there was causation (high R2 value) between CO2 and global temperatures. With that assumption, which limited options, we moved from true science into the realm of political science.  True science has an open mind and finds relationships that work in matching observations with predictions.  Political science changes history and/or facts to match the desires of the politicians. Since the politicians control the money political science is what we get; which means that what we get may not be technically correct.

A decade ago when I started looking at “climate” change the first thing I did was look at geological temperature changes since it is well known that the climate is not a constant; I learned that 52 years ago in my undergrad geology and climatology courses in 1964. The next paragraph explains currently observed patterns in climate related to this subject.

Ignoring the last Ice Age which ended some 11,000 years ago when a good portion of the Northern hemisphere was under miles of ice the following observations give a starting point to any serious study on the subject. First, there is a clear up and down movement in global temperatures with a 1,000 some year cycle going back at least 3,000 to 4,000 years; probably because of the apsidal precession of the earth’s orbit of about 20,000 years for a complete cycle. However about every 10,000 years the seasons are reversed making the winter colder and the summer warmer in the northern hemisphere. 10,000 years from now the seasons will be reversed. Secondly, there are also 60 to 70 year cycles in the Pacific and the Atlantic oceans that are well documented. These are known as the Atlantic MultiDecadal Oscillations (AMO) in the Atlantic and as La Nina and El Nino in the Pacific. Thirdly, we also know that there are greenhouse gases such as carbon dioxide that can affect global temperatures. Lastly the National Academy of Sciences (NAS) estimated that carbon dioxide had a doubling rate of 3.0O Celsius plus or minus 1.5O Celsius in 1979 when there were only two studies available and one for sure and maybe both were not per reviewed.

The result of looking objectively at the three possible sources of global temperature changes was a series of equations based on these observations that when added together produced a sinusoidal curve that seemed to follow NASA published temperatures very closely.  Since this curve was based on observed temperature patterns it was called a Pattern Climate Model (PCM) which has been described in previous papers and posts on my blog and since it is generated by “equations” many assume it is some form of least squares curve fitting, which it is not. It does seem to be related to ocean currents.

As can be seen in the following Chart the PCM there is a 69.1 year cycle that moves the trend line up and then down a total of 0.29O Celsius and we are now in the downward portion of that trend (-.01491O C per year) which will continue until around ~2035.  This short cycle is clearly observed in the raw NASA data in the LOTI table going back to 1880. Then there is a long trend, 1036.7 years with an up and down of 1.65O Celsius (.00396O C per year) also observed in the NASA data. Lastly, there is CO2 adding about .0079O Celsius per year so currently they all basically wash out at -.0039O C per year, which matches the current holding pattern we are experiencing. After about 2035 the short cycle will have bottomed and turn up and all three will be on the upswing again.  Note: the values shown here are only representative as the actual model uses many more places than what are shown here.

When using the 12 month running average for global temperatures up until 2014 the PCM model was within +/- .01 degrees of what NASA was publishing in their LOTI table since the early 1960’s as shown in the next Chart. Further the back projection of the PCM plot matched historical records and global temperatures going back past the time of Christ. It should also be consider that geologically CO2 levels have reached levels many times that of the current 400 ppm without destroying the planet so the current hysteria over the current small numbers can only be explained by political science not real science.

The nest step in this analysis is to put all of the known data and projections into one Chart which will contain: NASA’s table LOTI global temperature estimates, NOAA’s actual CO2 values, the CO2 model projections, the PCM model global temperature plot, Hansen’s Scenario B 1988 global temperature plot, and lastly the IPCC AR5 A2 global temperature plot. With that done we can look at the results and try to make some sense of what is going on with the various arms of the federal government that are promoting that carbon based fuels be eliminated since they are responsible for the global temperature level  going up.  As previously started when the government pours money into the sciences the sciences respond with technical papers the support the governments views, this is what I call political science verses real science as was done prior to the 1980’s; money talks and BS walks as everyone on the street knows.  This Chart views a good overview of the current situation showing all the facts and all the projections.

This Chart contains no manipulation of the data and the only change that was made was to convert the NASA anomalies back to degrees Celsius to make it more readable to lay people.  This is only a change in units and has no bearing on the look.  A subject not broached here is that of the NASA homogenization process itself and the base period from 1950 to 1980. The portion in the black circle contains the NASA base period of 14.00 degrees Celsius and the reason it’s brought up here is that the Homogenization process causes the global temperatures to move around since the entire data base all the way back to 1880 is recalculated each month.  But since the base has to stay at 14.00 degrees Celsius the program must be set to not allow changes in that period of time. I’m sure the programmers have fun with that. Prior work here has shown how this creates a teeter totter effect with the data plots, some of which have recently been significant.

The next Chart will be a look at the period from 2010 to 2020 so we can see the detail of the past few years where a change in CO2 of only a few ppm has caused a major change in the global temperature way beyond anything previously shown in any published NASA data. There are two black ovals on the Chart one at the top of the Chart which is a black oval around the CO2 levels for 2012, 2013, 2014, 2015 and part of 2016 and it’s very obvious that there has been very little change, maybe 7 ppm or about 1.9%. Then at the bottom of the Chart is another black oval around the NASA global temperature levels for 2012, 2013, 2014, 2015 and part of 2016 and its very obvious that there has been a very large change, almost .45 degrees Celsius or about 3.1%. There has never been such a large increase in temperature from such a small increase in CO2.

By contrast the previous comparable period of the last part of 2010 through 2013 shows about the same increase for CO2 at 1.1% but no increase for global temperature but actually small decrease. Worse it appears that this current strange upward trend will continue as the values shown here are based on a 12 month moving average and the current values being published by NASA have been very high for the past 7 months and therefore I would expect the NASA plot to be well over 15.00 Celsius within a few months and certainly before the end of 2016. After COP21 the need for Fake Warming was no longer needed and so we are seeing a downward trend developing. With the new administration we may see the end of data manipulation from NOAA and NASA and a return to real science political science.

In summary, the IPCC models were designed before a true picture of the world’s climate was understood. During the 1980’s and 1990’s CO2 levels were going up and the world temperature was also going up so there appeared to be correlation and causation. The mistake that was made was looking at only a ~20 year period when the real variations in climate all move in much longer cycles of decades and centuries.  Those other cycles can be observed in the NASA data but they were ignored for some reason.  By ignoring those trends and focusing only on CO2 the models will be unable to correctly plot global temperatures until they are fixed.

Lastly, the next chart shows what a plot of the PCM model, in yellow, would look like from the year 1400 to the year 2900. This plot matches reasonably well with recorded history and fits the current NASA-GISS table LOTI data, in red, very closely, despite homogenization.  I understand that this model is not based on physics but it is also not true curve fitting. It’s based on observed reoccurring patterns in the climate. These patterns can be modeled and when they are, you get a plot that works better than any of the IPCC’s GCM’s. If the conditions that create these patterns do not change and CO2 continues to increase to 800 ppm or even 1000 ppm than this model will work well into the foreseeable future.  150 years from now global temperatures will peak at around 15.750 to 16.000 C and then will be on the downside of the long cycle for the next ~500 years.

The overall effect of CO2 reaching levels of 1000 ppm or even higher will be about 1.50 C which is about the same as that of the long cycle.  The Green plot on the Chart shows the observed pattern with no change in CO2 from the pre-industrial era of ~280 ppm. CO2 cannot affect global temperatures more than 1.500 C +/- no matter what the ppm level of CO2is. The reason being that the CO2 sensitivity value is not 3.00 per doubling of CO2 but under 1.00 C per doubling of CO2 as shown in more current scientific work.

The purpose of this post is to make people aware of the errors inherent in the IPCC models so that they can be corrected. 

The Obama administration’s “need” for a binding UN climate treaty with mandated CO2 reductions in Europe and America was achieved as predicted at the COP12 conference in Paris in December 2015. To support this endeavor NASA was forced to show ever increasing global temperatures that will make less and less sense based on observations and satellite data which will all be dismissed or ignored.  Within a few years the manipulation will be obvious even to those without knowledge in the subject, but by then it will be to late the damage to the reputation of science will have been done.

 

Sir Karl Raimund Popper (28 July 1902 – 17 September 1994) was an Austrian and British philosopher and a professor at the London School of Economics. He is considered one of the most influential philosophers for science of the 20th century, and he also wrote extensively on social and political philosophy. The following quotes of his apply to this subject.

If we are uncritical we shall always find what we want: we shall look for, and find, confirmations, and we shall look away from, and not see, whatever might be dangerous to our pet theories.

Whenever a theory appears to you as the only possible one, take this as a sign that you have neither understood the theory nor the problem which it was intended to solve.

… (S)cience is one of the very few human activities — perhaps the only one — in which errors are systematically criticized and fairly often, in time, corrected.

 

 

 

Gore’s An Inconvenient Sequel: Truth to Power (More Fake News)


 

Critics gave former Vice President Al Gore grief for predicting in An Inconvenient Truth that major cities, including lower Manhattan, would be underwater if severe ice melt occurred. Now Gore is rewriting history to claim his prediction came true in promotion footage of his upcoming film, An Inconvenient Sequel: Truth to Power, which debuted at Sundance on January 19th, 2017. Gore is still trying to push his agenda and refuses to engage in any review of his ideas. In this case, his new film calls into question his honesty and self-interested is revising his previous forecasts.

In his 2006 film, Gore warned, “If Greenland broke up and melted or if half of Greenland and half of West Antarctica broke up and melted this is what would happen to the sea level in Florida [animation shown with much of the state underwater].” Immediately following that statement, Gore showed animations of drowning cities and countries: San Francisco, The Netherlands, Beijing, Shanghai, Calcutta and then Manhattan with much of Florida under water.

1938 Huricane

1938 Hiricane New EnglandGore took footage of hurricane Sandy which caused flooding in Manhattan to pretend he was correct. However,  hurricane Sandy was a minimal hurricane by all standards coming in at a category 3. It was in no way indicative of a rising trend in hurricanes that might be attributed to global warming. Indeed, Sandy in no way matched the famous 1938 New England Hurricane known as the Great New England Hurricane and Long Island Express. That was one of the deadliest and most destructive hurricanes on record and was the ONLY category 5 to hit the New York Area. So much for Gore’s claim that the storms are getting bigger.

 

1926-Hurricane

1926-Hurricane(2)Then there was the devastating 1926 hurricane that hit Miami. They called that the Great Hurricane. It tossed ships onto land. My uncle had a house on the beach in New Jersey; he lost it to a hurricane in the 1950s. He rebuilt and then it was washed out to sea in Hurricane Esther which was the first large tropical cyclone to be discovered by satellite imagery. The fifth tropical cyclone, named storm, and hurricane of the 1961 which was classified as a category 4. My uncle never built another house after that one.

Gore’s latest film will be widely released by Paramount in July 2017. It was well-received by Sundance 2017 attendees and the fawning media who will boost this as absolute fact.

The End of Quantitative Easing – Perhaps Now It Will Be Inflationary?


yellen-draghi

One of the greatest monetary experiment in financial history has been the global central bank buying of government debt. This has been touted as a form of “money printing” that was supposed to produce hyperinflation. That never materialized as predicted by the perpetual pessimists. Nevertheless, the total amount of Quantitative Easing (QE) adding up the balance sheets of the Fed, the ECB and BOJ is now around $13.5 trillion dollars, which by itself is a sum greater than that of China’s economy or the entire Eurozone.

Fed Excess Reserves

QE-rIf QE failed to produce inflation, then ending QE may actually produce the inflation people previously expected. Where’s the strange logic in that one? Well you see, it really does not matter how much money you print, if it never makes it into the economy, it will not be inflationary.

The craziest think the Fed did was create excess reserves. The bankers complained that the Fed was buying the government debt so they would have no place to park their money. The Fed then accommodated them creating the excess reserves and paid them interest for absolutely no reason whatsoever.  Almost $3 trill was parked at the Fed collecting interest so that $4.5 trillion of “printing” money never made it out the door. Hence, there was no inflation to speak of (outside of healthcare which always rises no matter what).

So how does stopping QE actually create inflation? The withdrawal of the Federal Reserve (Fed), the European Central Bank (ECB) and the Japanese central bank from the QE programs will lead to an increase in yields on the bond markets sending the financing costs for the states higher. This is predicated upon the notion that people will continue to buy government debt. Governments have increased their spending sharply because interest rates were effectively zero and the central banks were buyers. Now comes the moment of truth. Has QE undermined the bond market to such an extent that only a blind fool will buy government debt in an atmosphere of rising rates?

Moreover, other sectors of the global financial system have been seriously disrupted. For one, European banks were shipping cash to their US branches and also parking it at the Fed whereas the ECB was charging negative rates. Furthermore, of the $13.5 trillion on the balance sheets in central banks, they are now trapped and cannot sell that debt. This means they are themselves screwed and they have to wait for that debt to mature in order to reduce their balance sheets. They have no way out.

The Fed had a balance sheet of about $900 billion in 2008, whereas it currently stands at about $ 4.5 trillion. The Bank of Japan recorded an increase of 107 trillion yen in the same period of time to about 490 trillion yen or also about $4.5 trillion. Then we have the ECB which has more than doubled its balance sheet from EUR 2 trillion to EUR 4.1 trillion or also about $4.5 trillion.

The central banks bought the government bonds from the commercial banks and paid them money created out of nothing which is how the pessimist put it. In theory, that is elastic and if the government debt matures, it then evaporates from the balance sheet. Here comes the problem. The governments continue to borrow. With the central banks no longer buyers, then interest rates can rise faster than anyone expects because they will have to entice fresh buyers. If that fails to materialize, then we come to the Sovereign Debt Default crisis.

The Federal Reserve had recently announced that it would no longer reinvest its gains on government bonds that had matured into new US securities, resulting in a shortening of the balance sheet. Bills of $426 billion will be due at the Fed in 2018, and again about $357 billion a year later. So if the Fed will not repurchase that debt, then the amount of new debt coming to the market will DOUBLE.

The Treasury will be forced to find ways to absorb the additional supply if the Fed wants it’s cash back so the Treasury must find a lot more private buyers. The shrinking of the balance sheets represents the continued deflationary trend from a real economic expansion trend. The government will be competing for cash in an ever growing tighter economy.

The balance sheet of the Japanese central bank is likely to be expanded for a while as long as the targeted inflation target of 2 percent is not reached. The ECB’s balance sheet will continue to grow at least until the end of the year, as the borrowing program has been running until then. However, the negative effects of the balance sheet shortening of several central banks will mutually reinforce each other in 2018 and help to bring the financial crisis to a head for 2018-2020.

The withdrawal of the ECB’s purchases of securities that also included European corporate paper will lead to secondary effects even outside Europe and help to further maintain the deflationary aspects with respect to economic growth. This will serve to demonstrate the unintentional impact of this entire unorthodox monetary policy experiment.

Therefore, at this year’s WEC, we will be looking at this complex crisis. The inflation will be asset inflation – not demand inflation. So hold on – this is going to be the craziest ride in monetary history of human kind.

British PM Calls for Early Election


Theresa May

Prime Minister Theresa May on Tuesday called for an early general election to be held June 8, 2017. She is seeking a strong mandate as she negotiates Britain’s exit from the European Union. She said that while the people voted to leave the EU, the politicians had not and they think because she has a thin majority, they can prevent BREXIT.

May’s governing Conservatives have a very small majority, with 330 seats in the 650-seat House of Commons. This has given a lift the the British pound as brain-dead and blind people still think being in the EU is somehow better. May actually triggered a two-year countdown to Britain’s exit from the EU in March. She said that if there is no election soon, then “the negotiations with the European Union will reach their most difficult stage in the run-up to the next scheduled election.”

Britain has a Fixed-Term Parliaments Act, whereby elections are held every five years. However, but the prime minister can call for a snap election if two-thirds of lawmakers vote for it.

Naturally, the primary opposition Labour Party, Jeremy Corbyn, who wants to turn Britain into total socialist state, said he welcomed May’s decision “to give the British people the chance to vote for a government that will put the interests of the majority first.”

May said she was looking forward to showing how Labour will stand up for the people of Britain against the bureaucrats in Brussels.

IBBPUS-M 4-18-2017

While the pound has rallied into the April target, it has reach into only the 12700 zone. We can see that technical support lies at the 12131 level with technical resistance at about 13400. We still need a weekly closing ABOVE 13000 just to imply the pound will hold for a while. We need a monthly closing above the 13500 area to raise hopes of extending the consolidation into the end of the year. A closing for April below 12865 will warn that the pound is losing support.

IBBPUS-M FOR 4-18-2017

Real Estate Speculation – Boom – Bust – Just Insanity


Barlow Mansion Maple Shade

QUESTION: Hi Marty, Thank you for this blog post. I understand your position but what if you find yourself as I do with real estate being the MAJORITY of your portfolio? What then? I follow your blog and I learned that mortgages in Canada are only 10 year mortgages and the exchange rate is favorable right now, so am considering 1031X purchasing investment property there, however – then I read your blog post also that their government system is not the same model as ours and defaults are not localized to municipalities but provinces must address them. So that seems a bit risky. Then I was thinking Tahoe/Donner which has a lot of cash buyers doing 1031X …however – then I read your blog post on vacation property being the worst investment in a downturn as people do not spend discretionary income… I’d guess discretionary income disappears with job loss etc. So now that is out. Then I’m thinking go small, student housing, or starter houses in the Midwest where I grew up… – however – I read your blog post that this type of housing is dependent on mortgages which could go away and so the price could crash whereas higher end properties are cash purchases… so my guess is their price might hold up better? (but the blog post does not state that I’m only guessing) At the end of the day I see risk EVERYWHERE … maybe I should just go live in a tent with my gold coins?

Question: Should we just cash out and not own investment real estate? Should we just own our home and no other investment property (e.g. that must generate rents)? It seems like that is what you have been saying by eliminating most of the options … and mentioning that people “park” money in properties they intentionally do not rent out. It will be interesting to see what happens.. because into the market I go very soon to sell here in San Francisco. Prices are going up monthly here… you can see it happening now… like some sort of quickening… most don’t notice the difference yet, but I do as I am active about to transact in this market… here it comes. Time to decide. Its a nail biter.

A

ANSWER: Real estate depends on how far down the rabbit hole we go. If government does not blink and it just keeps raising taxes trying to support a system that is unsustainable, then we end up in the full crash and burn and you are compelled to walk away from real estate. Hopefully, with education understanding the past, we can for once avoid the same outcome and advance in this learning curve of civilization.

Vacation properties are the worst to survive. I bought such a place to live in at about 50% of its 2007 high. So while high-end properties in cities were rising, vacation spots on the beach declined. I wanted beach front. So understanding the cycle helps tremendously for entry and exit points.

The risk of mortgages declining is real. As governments get in trouble, long-term confidence starts to decline. Banks will not longer be able to package mortgages. As that unfolds, the lack of the availability of mortgages means the only cash rules.

Barlow AdThe town I grew up in, Maple Shade, New Jersey, was once the sprawling real estate speculator’s paradise. Thomas Barlow, Sr. and his son, Thomas, Jr. formed the Maple Heights Land Co. together with several other businessmen in 1908. The company purchased from John R. and Margaret W. Mason their farm which was part of the original Roberts plantation surveyed in 1682. In 1910, they formed Barlow Company and began selling 1 acre lots. The buyers were the city folks in Philadelphia for the train came right into Maple Shade and that made the area worth speculating in.

Barlow Thomas

The Barlows then developed small bungalows meant to be vacation homes for people in the big city, which were called Barlow Built Bungalows (BBB). Thomas J.S. Barlow Jr., made a lot of money during the land boom into 1927. He made a lot of money also in the stock market. He built the Barlow Mansion in Maple Shade in 1916 as a wedding present to his wife. The property was then expanded containing the second 3 porch archs which were added in 1926 just before the 1927 real estate bubble burst in Florida and became a contagion in real estate around the country.

Thomas Barlow lost the house in the early 1930s after the Stock Market Crash of 1929. In March 1933, Chester Township (Maple Shade) was declared bankrupt. The Maple Shade National Bank closed was one of the banks that never opened after FDR’s bank holiday. In 1936, Maple Shade had the Highest tax rate in Burlington County because it had gone bankrupt and could not pay its bills lacking any credit facilities. It was during the 1930s that the Barlows opened up their basement for the children in town. It was one of those gatherings that my parents met.

Maple-Shade

Maple Shade OLPH ShrineAfter the bank went bust and the Barlow Mansion was lost, one of my father’s friends family had bought up most of main street for cash at 10 cents on the dollar. As state revenues declined during the Great Depression, New Jersey introduced its State Sales Tax fixed at 2% in 1935, except milk and purchases under 13 cents. The Catholic Church in Maple Shade built a shrine in 1937 to thank for a recovery. OLPH Shrine details was the showplace of the locality and stood some 40 feet in width, 36 feet high and 18 feet in depth. It was formally dedicated on Sunday August 15th, 1937.

This story can be repeated countless times for small towns that were being developed during the 1920s land boom how vacation speculation bankrupted many. Even Sarasota, Florida was developed by John Ringling in the mid-1920s. John was once one of the world’s wealthiest men in the United States, yet he died with only $311 in the bank.

Housing-MarketI warned that the Consumer Financial Protection Bureau puts regulations on people buying real estate with a mortgage that has been highly burdensome to normal people. When friend bought a house with his girlfriend, they had to explain absolutely every check where she had written to him each month paying her half of the rent. They made them account not just once, but for every check going back 5 years.

As late as the 1920’s, someone taking out a mortgage to buy a house in the U.S. would most likely get a short-term balloon mortgage with terms of 50%, and five years to pay off the other 50%. At the end of the five years, it was common to re-finance into another five-year loan. However, when the Great Depression, the value of cash rose and banks didn’t want to refinance these balloon mortgages. Banks began to foreclose. Between 1931 and 1935, a quarter million people lost their homes each year.

1933_Virginia-land-auctionBankruptcy auctions were common and prices fell to 10% for only people with cash could buy. Farm land fell to below what it sold for in the 1850s. Here is a photo of a 1933 Virginia Land Foreclosure Auction.

The whole reason Franklin D. Roosevelt created the 30 year mortgage was to try to get people to buy on credit. Property was being auctioned off in the 1930s and it was for cash only. Prices for farmland fell to pennies on the dollar for only cash buyers could bid. Roosevelt stepped in, explaining why the government shouldn’t just sit by: “Even before I was inaugurated, I came to the conclusion that such a policy was too much to ask the American people to bear. It involved not only a further loss of homes, farms, savings and wages, but also a loss of spiritual values — the loss of that sense of security for the present and the future so necessary to the peace and contentment of the individual and of his family.”

Roosevelt created federal agencies that form the basis of the housing market the United States to this day. They provided mortgage insurance, established a secondary market for mortgage loans, and converted 1 million loans into long-term mortgages. There were truly transformational in nature. It did make housing affordable and it made housing, homeownership, sustainable. However, it effectively leveraged the entire real estate market. It was truly that then more people could afford to buy, but as demand rose, so did property values.

The crisis we face is what happens this time when the banks cannot lend money, interest rates rise, and mortgages for 30 year periods vanish? Like any market, prices will crash. The maximum length of a mortgage was extended to 30 years in the 1940’s, making home ownership even more affordable and leveraged the entire housing market. Today, Roosevelt’s economic fix became the norm. The 30-year fixed-rate mortgage accounted for nearly 90% of all new mortgages.

If the government can no longer subsidize the real estate market, the 30-year fixed-rate mortgage will become too expensive, become far too risky for a lender even if the person does not default by the rise in the cost of money, and it will simply disappear. The long-term mortgage is a bet a lot of lenders don’t want to take on their own.

This is the risk to the housing market. If you have the bulk of your assets in real estate, then one way to keep them is to run out and get a 30-year FIXED mortgage now while you can. You have sold the risk to a third party and it is now their problem. You the cash wisely for investment into other movable areas.