Thursday, October 8, 2015

The Real Reason for the Refugee Crisis You Won’t Hear About in the Media

The Real Reason for the Refugee Crisis You Won’t Hear About in the Media

There’s a meme going around that the refugee crisis in Europe (the largest since World War II) is part of a secret plot to subvert the West.
I completely understand why the locals in any country wouldn’t be happy about waves of foreigners pouring in. Especially if they’re poor, unskilled, and not likely to assimilate.
It leads to huge problems. Infrastructure gets strained. More people are sucking at the teat of the welfare system. The unwelcome newcomers compete for bottom-of-the-ladder jobs. Things easily turn nasty and then turn violent.
But the idea that the refugee crisis in Europe is part of a hidden agenda - rather than a predictable outcome - strikes me as strange. And it’s a notion that conveniently deflects blame away from the people and factors that deserve it.

Interventions Destabilize the Middle East

The civil war in Syria has turned the country into a refugee-maker.
Syria’s neighbors have reached their physical limit on their ability to absorb refugees.
That’s one of the reasons so many are heading to the West.
Lebanon has received over 1 million Syrian refugees. That’s an enormous number for a country with a population of only 4 million - a 25% increase. Jordan and Turkey also have millions of Syrian refugees. They’re saturated.
The number of refugees heading to the West, by contrast, is in the hundreds of thousands. So far.
But it’s not just Syria that’s sending refugees. Many more come from Iraq and Afghanistan, two other countries shattered by bungled Western military interventions.
Then there are the refugees from Libya. A country the media and political establishment would rather forget because it represents another disastrous military decision.
Actually, it’s not just Libyan refugees. It’s refugees from all of Africa who are using Libya as a transit point to reach Europe.
Before his overthrow by NATO, Muammar Gaddafi had an agreement with Italy, which is directly to Libya’s north, across the Mediterranean Sea. Gaddafi agreed to prevent refugees heading for Europe from using Libya as a transit point. It was an arrangement that worked. So it’s no shocker that when NATO helped a coalition of ambitious rebels overthrow the Gaddafi government, the refugee floodgates opened.
When there’s war, there are refugees. It’s a predictable outcome.
It’s like kicking a bees’ nest and being surprised that bees fly out. Nobody should be surprised when that happens. And nobody should be surprised that people are fleeing war zones in Libya, Syria, Iraq, and Afghanistan.
If Western governments didn’t want a refugee crisis, they shouldn’t have been so eager to topple those governments and destabilize those countries. The refugees should camp out in the backyards of the individuals who run those governments.
I also have to mention the Saudis. They were very much involved in the Libyan war. They’ve also devoted themselves to ousting the Assad government in Syria, for geopolitical and sectarian reasons.
Then there’s the war in Yemen that the Saudis have sponsored. It’s another mess the media doesn’t discuss often. But it will likely produce even more refugees.
The Saudis make no secret about not welcoming refugees, even though the Kingdom is a primary instigator of the wars that are forcing people to flee their homelands. One reason is the Saudis don’t want more people leeching off their welfare system, especially amid budget crunches from lower oil prices.
This brings up another interesting point. For the first time in decades, observers are calling into question the viability of the Saudi currency peg of 3.75 riyals per US dollar.
The Saudi government spends a ton of money on welfare to keep its citizens sedated. But with lower oil prices cutting deep into government revenue, there’s less money to spend on welfare. Then there’s the cost of the wars in Yemen and Syria.
There’s a serious crunch in the Saudi budget. They’ve only been able to stay afloat by draining their foreign exchange reserves. That threatens their currency peg.
The next clue that there’s trouble is Saudi officials telling the media that the currency peg is fine and there’s nothing to worry about. An official government denial is almost always a sign of the opposite. It’s like the old saying…“believe nothing until it has been officially denied.”
If there were a convenient way to short the Saudi riyal, I would do it in a heartbeat.

Don’t Give the Welfare State a Pass

It’s no coincidence that the refugees are flowing to the countries with the most generous welfare benefits, especially Germany and the Scandinavian nations.
If there weren’t so many freebies in these countries, there wouldn’t be so many refugees showing up to collect them.
The whole refugee crisis was easily predictable. It was the foreseeable consequence of shortsighted interventions in the Middle East and the welfare-state policies of nearby Europe.
Instead of facing facts, blaming it all on a scheme to subvert the West conveniently deflects any responsibility from the authors of the mess.
If the individuals who run Western governments really wanted to solve the refugee problem, they would throttle way back on welfare-state policies and then stay out of the Middle East free-for-all. It’s really as simple as that.
But don’t count on the mainstream media to figure this out. They effectively operate as an organ of the State. I bet they’ll keep prescribing more of the same bad medicine that caused this crisis to begin with.
This will help to cover the tracks of the real perpetrators, and it will obscure other real problems. I expect the media to ramp up the “blame the foreigner” sentiment, as it helps the US and EU governments distract the anger of their citizens from the sputtering economy and the shrinking of their civil liberties. From the politicians’ perspective, it’s a win-win. But it’s a lose-lose for citizens hoping for accountable government.
And this brings up another uncomfortable truth for Americans and Europeans. The way the political and economic winds are blowing, things could get much worse.
Central banks around the globe have created the biggest financial bubble in world history.
The social and political implications of this bubble bursting are even more dangerous than the financial consequences.
An economic depression and currency inflation (perhaps hyperinflation) are very much in the cards. These things rarely lead to anything but bigger government, less freedom, and shrinking prosperity. Sometimes they lead to much worse.
One day the shoe could be on the other foot. We could see American and European refugees fleeing to South America or other havens to escape the problems in their home countries. It would be an ironic twist.
Now, this outcome isn’t inevitable. But the chance it will happen isn’t zero, either, and the risk seems to grow each day.
Because of these enormous risks in the financial system, we’ve published a groundbreaking, step-by-step manual that sets out the three essential measures all Americans should take right now to protect themselves and their families.
These measures are easy and straightforward to implement. You just need to understand what they are and how they keep you safe. New York Times best-selling author Doug Casey and his team describe how you can do it all from home. And there’s still time to get it done without extraordinary cost or effort.
Normally, this get-it-done manual retails for $99. But I believe it’s so important for you to act now to protect yourself and your family that I’ve arranged for anyone who is a resident of the U.S. to get a free copy. Click here to secure your free copy now.

Once the Biggest Buyer, China Starts Dumping U.S. Government Debt

Shift in Treasury holdings is latest symptom of emerging-market slowdown hitting global economy

Central banks around the world are selling U.S. government bonds at the fastest pace on record, the most dramatic shift in the $12.8 trillion Treasury market since the financial crisis.
Sales by China, Russia, Brazil and Taiwan are the latest sign of an emerging-markets slowdown that is threatening to spill over into the U.S. economy. Previously, all four were large purchasers of U.S. debt.
While central banks have been...

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2015 Economic Freedom Report: The freedom of all the world’s countries, ranked! (Hint: America’s not #1)

“Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. An index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions.”
http://www.freetheworld.com/
This is the most extensive study of freedom worldwide, conducted every year. We can all have sentimental beliefs about what country is free, but here’s the numbers.
http://www.freetheworld.com/release.html
Here’s the top-10 most economically free countries on Earth (2013 – most recent year numbers are available for):
1. Hong Kong
2. Singapore
3. New Zealand
4. Switzerland
5. UAE
6. Mauritius
7. Jordan
8. Ireland
9. Canada
10. UK
I’m sure you’re surprised not to see the US there. I’m sure you’re surprised to see Canada and Britain ahead of America! America is at 16. You might resist that, but (a) the numbers speak for themselves – you can all read the data they use – and (b) economists have known America isn’t the most economically free country for years. In fact, America has been slipping in the rankings for years.
Now, attentive readers might wonder “What was the ranking under Bush?” The 2009 report gives the numbers for 2007. America was ranked 6th globally in economic freedom.
http://www.freetheworld.com/2009/reports/world/EFW2009_BOOK.pdf
So, in short, under Obama America has fallen from the 6th most free country on Earth to the 16th as of 2013. Given the trend since 2007, we can expect that the report next year and the year after will show America slipping even farther.

Tom

Rough sleeping ban will ‘criminalize most vulnerable’ in Newport

5613f3aac3618864468b45f9.jpg

Human rights group Liberty has called on Newport City Council to scrap its plans to ‘criminalize’ begging and rough sleeping in the city center.
On Sunday, a consultation into the Welsh local authority’s proposed Public Spaces Protection Order (PSPO) closed.
The Order, if implemented, would make free leaflet distribution, rough sleeping and begging illegal in Newport city center.
The proposals were announced soon after the council revealed measures aimed at “improving the area.”
In a consultation paper, the council said it expresses “a view to introducing a new and updated PSPO in time for the opening of the Friars Walk retail development in November 2015.”
However, Liberty has condemned these plans, claiming they would “criminalize the most vulnerable in the city.”
“These proposals make a mockery of Newport’s Chartist legacy. For the sake of a new shopping center, the Council is pouring its energies into criminalizing the most vulnerable in the city, and silencing means of dissent,” Liberty’s legal officer Rosie Brighthouse said in a statement.
“This PSPO won’t house people, move them on, or help resolve their homelessness in any other way – it will simply fine them for their extreme poverty. We urge the council in the strongest terms to reconsider these utterly shameful plans,” she said.
In a letter to Newport City Council’s Labour leader Bob Bright, Liberty said a ban on rough sleeping would “constitute an interference with Articles 8 and 10 of the Human Rights Act.”
“It will do nothing to address the underlying causes of homelessness and extreme poverty, or have any effect other than drawing impoverished people, many suffering mental health conditions into the criminal justice system,” the letter read.
Speaking to the BBC on Tuesday, Labour councilor Bob Poole said Newport Council is trying to make the city center look more appealing.
“It is perhaps timely, against this background of positive change, that this new piece of legislation offers the city and its residents the chance to build on that momentum by ensuring that the experience of people visiting the city center is a positive one,” he said.
Minister and retail development manager Paul Halliday said Newport Council needs to support homeless people.
“What they need is help and support; what we don’t do is demonize them and treat them like criminals,” he told the South Wales Argus.
Commenting on the controversy, Newport City Council said the PSPO would not ban homeless people from the city center or prevent them from accessing night shelters.
“In relation to rough sleeping, the council remains committed to working with other local service board partners in Newport to address the underlying needs of those affected in this way.
“Any prohibition within the PSPO relating to this activity would (if approved) simply make it unlawful to sleep rough in the city center; it would not ban homeless people from the city center or prevent them from gaining access to night shelters within this area.
“The night time safety of both the homeless and local residents is paramount.”
The proposals will be discussed by the council’s scrutiny committee on October 15.
Via RT. This piece was reprinted by RINF Alternative News with permission or license.

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Something’s Up: Panic Buying of Super-Liquid Treasuries Despite The Five-day Rally In Stocks

Wolf Richter wolfstreet.com, www.amazon.com/author/wolfrichter
Despite the rally in stocks that left the S&P 500 up for the fifth day in a row, the longest such series since December, there was, at the other end of the spectrum, a whiff of panic.
It wasn’t that visible in ten-year Treasuries, though intense buying drove them higher, with the yield dropping to 1.989% Monday morning, the lowest since April, before ending the day at 2.06%. It was in short maturities, the safest and most liquid financial assets in the world: The US Treasury was able to sell $21 billion of six-month bills at a minuscule yield of 0.065%.
It also auctioned off $21 billion in three-month bills. Each dollar of the bills offered got chased by $4.14 in bids – the highest bid-to-cover ratio since June 22 when China was in full-crash mode. With buyers jostling for position to grab whatever they could, these bills sold at a yield of zero for the first time in history.
Even more liquid one-month bills have sold at zero yield in five of the six most recent auctions. And in the secondary market, some bills have traded at slightly negative yields for a while; investors who hold these bills to maturity end up with a guaranteed loss, the price they’re willing to pay to keep their money save and liquid.
But this was the first time for the Treasury to sell three-month bills at zero yield.
OK, there’s a supply issue. The gross national debt has been bouncing into the debt ceiling for months. So the Treasury can only sell new debt to replace maturing debt. The actual borrowing needs of the government are not met by selling more Treasuries but by temporarily siphoning money from other government accounts – “extraordinary measures,” as it’s called. But there is a limit. Beyond it lies the official out-of-money date, which the Treasury now projects to be November 5.
So tight supply meets desperate demand. Even cash in bank would earn more. But for these large investors, such as money-market funds, their cash in bank would be uninsured and could go up in smoke during a crisis.
Which leaves us with a quandary: The stock market rally says folks believe that the bonanza will continue, that risks have disappeared, that the economy is hot, and that the Fed will never take away the punchbowl.
But the Treasury market shows that others are desperate to put their money into highly liquid and safe places, even if it costs them money – a behavior normally visible ahead of a looming crisis. Even then, the Treasury had never before been able to auction off three-month T-bills at a yield of zero.
Why are these people so spooked? Why don’t they get the drift that momentum is back, that everything is under control, that it’s time to plow back into risk?
Fed flip-flopping has something to do with it. By now, no one believes anything the Fed says, one way or the other. It doesn’t matter how many Fed heads come out and proclaim that a rate increase is still on the table for later this year. It doesn’t matter how often they claim that inflation will once again rise. No one believes them anymore.
On Monday, Fed funds futures – where Wall Street rate-hike beliefs turn into money – put the likelihood of a rate hike during the Fed’s October 27-28 meeting at 6% and at 32% for its December 15-16 meeting.
Traders have been searching for confirmation that the Fed would never raise rates. They’re clamoring for ZIRP infinity. Most of our corporate heroes, after using the ZIRP years to load up on cheap debt, won’t be able to roll over this debt at “normalized” rates without skidding into serious trouble. And today’s highly leveraged investment models don’t work when there is suddenly a real cost of capital.
They found what they were looking for: a crummy but not catastrophic jobs report on Friday, a steepening deterioration in corporate revenues and earnings, and a swooning manufacturing sector. They brush off other data such as booming auto sales, a steamy housing market, or rents that are getting closer to the stratosphere in a world where real wages have been stagnating.
So it doesn’t matter that Fed heads are beating the bushes, trying to get markets to believe that a rate hike is still on the table.
“We’ll have to see whether the employment report was a little anomalous or whether it turns out to be more of a broader pattern,” Boston Fed president Eric Rosengren toldMarketWatch. “If this is an anomalous report then, if the data came in sufficiently, I would be comfortable possibly raising rates by the end of the year.”
On September 24, when the Fed decided to keep its benchmark rates at near zero, it added the huge caveat that 13 out of 17 Fed officials – “including myself,” as Fed Chair Janet Yellen emphasized – expected a rate hike this year.
Rosengren pointed out that the jobs report was just “one report,” and that other data would have to confirm this weakness. He wasn’t convinced it was a broader pattern. Much of the weakness was in manufacturing and mining. That’s not a new development.
“I think the real question is whether the domestic economy offsets some of the headwinds we’re seeing from the international sector,” he said. “I don’t think we have enough data yet to know whether that actually is going to occur.”
So, according to him and numerous other Fed heads, rate hikes are still prominently on the table for this year. But after all the flip-flopping, no one believes the Fed anymore. The Fed’s credibility has gone to heck. The Fed is never going to put its foot down, ever again. That’s what the market is increasingly sure of.
And if it does put its foot down – as it has been indicating for months, only to flip-flop at the last moment – it will be a wild “surprise,” the kind that markets don’t like.
So if the stock market shows that investors once again are getting drunk at the Fed’s punchbowl, why is there another group of investors who are spooked, who want to put their money into the safest and most liquid asset even if it costs them money? Is it because they think that the Fed will raise rates despite market expectations to the contrary, and that the ensuing “surprise” will trigger market gyrations of the kind where safe and liquid assets suddenly become priceless?
These spooked folks might see the stock market rally as yet one more element that would make the Fed feel at ease about raising rates, and thus one more reason to seek safe and liquid assets for that period.

Recently Market Rally Got A Little Help From The Fed, The Real Correction Is Still Coming

by streettalklive
In last week’s update, I discussed the short-term oversold condition that existed at that time. To wit:
“As you will notice, the reflexive rally, and subsequent failure, have tracked the original predictions very closely up to the point. With the market once again very oversold on a short-term basis, it is likely that the markets could manage a weak rally attempt over the next few days.“
SP500-MarketUpdate-092915
The chart below is updated through yesterday’s close.
SP500-MarketUpdate-100615-2
As you can see, the markets did retest the late August lows, and when combined with the very oversold conditions, led to a frantic “short covering” rally back to previous resistance. It is worth noting that the recent market action is very similar to that of the August decline and initial rebound as well.
Of course, the question that must be answered is whether we have seen the end of the current correction or is this just another “reflexive rally” that will fail?
The 2016 Recession And Market Reversion
To answer that question it is important to examine some statistical tendencies as well as potential artificial influences.
In January of 2014, I penned an article entitle “The Coming Market Meltup and 2016 Recession.” That article discussed several historical statistical precedents for such, at that time, an outrageous piece of analysis. To wit:
“However, looking ahead to 2015 is where things get interesting. The decennial pattern is certainly suggesting that we take advantage of any major correction in 2014 to do some buying ahead of 2015. As shown in the chart above, there is a very high probability (83%) that the 5th year of the decade will be positive with an average historical return of 21.47%.
The return of the positive years is also quite amazing with 10 out of the 15 positive 5th years (66%) rising 20% or more. However, 2015 will also likely mark the peak of the cyclical bull market as economic tailwinds fade and the reality of an excessively stretched valuation and price metrics become a major issue.
As you will notice, returns in the 6th and 7th years (2016-17) become substantially worse with a potential of negative return years rising. The chart below shows the win/loss ratio of each year of the decennial cycle.”
Decennial-cycle-011414-2
“The statistical data suggests that the next economic recession will likely begin in 2016 with the negative market shock occurring late that year, or in 2017.”
It is important to remember one simple phrase that is too often forgotten by the “bullish crowd:”
“Past Performance Is No Guarantee Of Future Results.”
There are plenty of reasons that that the market could lapse into a far bigger correction sooner than the historical evidence would otherwise suggest. Such an event would not be the first time that an “anomaly” in the data has occurred.
However, with a Presidential election forthcoming there is sufficient reason to believe that “all guns will be brought to bear” to forestall the onset of an economic recession and major market correction. This reason I say this is because since individuals “vote their pocketbook.”
A recession/market correction would ensure a Republican victory. With Democrats currently in charge, it would not be surprising to see the Federal Reserve pushed into action with some form of monetary interventions, or negative interest rates, if the current market correction worsens. 
It is worth noting that contractions/expansions in the Fed’s balance sheet has had a very high correlation with subsequent market action as liquidity is pushed into the financial system. As shown in the chart below, the Federal Reserve has already once again began to quietly expand their balance sheet following the recent downturn. Not surprisingly, the market has responded in kind with the recent push higher. My suspicion is that if such minor interventions fail to stabilize the market, a more aggressive posture could be taken.
Fed-balance-Sheet-SP500
As I stated back in 2014:
“The inherent problem with the analysis is that it assumes everything remains status quo. The reality is that some unexpected exogenous shock is likely to come along that causes a more severe reversion as current extensions become more extreme.”
Of course, since then, China has become a severe drag on the global economy which is now filtering rapidly into the domestic economy. Given the weakness in the recent economic data from manufacturing to employment and production, Q3 GDP will very likely be well below 1% growth.
This means two things.
1) The Federal Reserve WILL NOT raise interest rates this year. 
2) If the data continues to worsen, expect the Federal Reserve to become more “accommodative” for a period of time.
Such actions will likely, as stated, continue to “float” the markets for a while which will provide the time necessary to pass the election in 2016. This will also align with historical full market cycle as shown in the chart below.
SP500-Cycles-100215

Current Rally Will Likely Fail

While the “seasonally strong” period of the year could foster a further rally in the market, it is highly likely that it will ultimately fail. As shown, since the turn of the century there have only been two previous times when the market traded in oversold territory combined with all three major “sell” signals triggered. Both of these periods marked a much more severe bear market cycle.
SP500-MarketUpdate-100615
Given the late stage of the current market cycle, the issue of rising global economic weakness and deflationary pressures and deteriorating earnings, many of the “bullish”arguments have been broken.
You Can Trade It, Just Don’t Buy It
However, there is still enough bullish sentiment, and “hope” of a continued “bull market” to keep investors chasing returns until they finally become exhausted. Therefore, for individuals with a very disciplined “buy/sell” approach, the “seasonally strong period” will likely provide a tradeable opportunity through the end of this year.
However, this is not a “buy for the long-term” opportunity. The markets remain grossly overvalued, overbought and extremely deviated from its long-term mean. As John Hussman wrote last week:
“If there is a single pertinent lesson from history at present, it is that once obscenely overvalued, overvalued, overbullish market conditions are followed by deterioration in market internals (what we used to call “trend uniformity”), the equity market becomes vulnerable to vertical air-pockets, panics and crashes that don’t limit themselves simply because short-term conditions appear ‘oversold.’
While the concept of mean-inversion seems strange – almost preposterous – it actually aligns very well with what we know about so-called “secular” market phases.“
Full-Market-Cycles
What most investors do not realize currently is they could go to “cash” today and in five years will likely be better off. However, since making such a suggestion is strictly “taboo” because one might “miss some upside,” it becomes extremely important for measures to be put into place to protect investment capital from the coming downturn.
(In other words, if you didn’t like the recent 10% correction, you are not going to like what comes next.)
However, the importance of cash should not be dismissed. As I wrote in April of this year:
“The chart below shows the inflation adjusted return of $100 invested in the S&P 500 (using data provided by Dr. Robert Shiller). The chart also shows Dr. Shiller’s CAPE ratio. However, I have capped the CAPE ratio at 23x earnings which has historically been the peak of secular bull markets in the past. Lastly, I calculated a simple cash/stock switching model which buys stocks at a CAPE ratio of 6x or less and moves to cash at a ratio of 23x.
I have adjusted the value of holding cash for the annual inflation rate which is why during the sharp rise in inflation in the 1970’s there is a downward slope in the value of cash. However, while the value of cash is adjusted for purchasing power in terms of acquiring goods or services in the future, the impact of inflation on cash as an asset with respect to reinvestment may be different since asset prices are negatively impacted by spiking inflation. In such an event, cash gains purchasing power parity in the future if assets prices fall more than inflation rises.
Stocks-Bonds-Cash-ValueOfCash-040915-2
While no individual could effectively manage money this way, the importance of ‘cash’ as an asset class is revealed. While the cash did lose relative purchasing power, due to inflation, the benefits of having capital to invest at low valuations produced substantial outperformance over waiting for previously destroyed investment capital to recover.
While we can debate over methodologies, allocations, etc., the point here is that ‘time frames’ are crucial in the discussion of cash as an asset class. If an individual is ‘literally’ burying cash in their backyard, then the discussion of loss of purchasing power is appropriate. However, if the holding of cash is a ‘tactical’ holding to avoid short-term destruction of capital, then the protection afforded outweighs the loss of purchasing power in the distant future.
Of course, since Wall Street does not make fees on investors holding cash, maybe there is another reason they are so adamant that you remain invested all the time.

Bye bye Bugatti? VW emissions scandal forces cash away from non-core projects

Bugatti Vision Gran Turismo
The Bugatti Vision Gran Turismo arrived just days before the VW emissions crisis struck
As the Volkswagen emissions scandal continues to rumble on, it could be set to claim another scalp: Bugatti. Braced to pay almost £5bn towards recalling and fixing millions of cars − and much more in fines and compensation − VW is planning to halt investment in non-core projects, including the iconic supercar brand.
These include a next-generation VW Phaeton, the brand's luxury saloon car, and a replacement for the Bugatti Veyron, which was expected to draw inspiration from the Vision Gran Turismo, shown off just days before the emissions crisis broke. New VW boss Matthias Muller told German media on 6 October that any projects that aren't "absolutely vital" will be cancelled.
Addressing workers at VW's headquarters in Wolfsburg, Muller said: "We will review all planned investments, and what isn't absolutely vital will be cancelled or delayed. I will be completely clear − this won't be painless."

A crisis about a loss of confidence in VW

The former head of Porsche went on: "In addition to the huge financial loss, this crisis is primarily a crisis about a loss of confidence. It affects the core of our company and our identity, our cars, and the essence of the brand: solidity, reliability and credibility."
It is understood that investment in mainstream VW models, like the Golf and Polo, will continue, but Autocar believes development of non-core vehicles, like the Phaeton and new Veyron replacement could be halted. Given Bugatti is a single-car company and the fact that the Veyron is no longer in production and the four-seater Galibier never made it to production there are doubts as to whether the brand will survive at all.
VW could put Bugatti up for sale, but any potential buyer − or VW, if it keeps it for when the scandal headache subsides − would be urged to proceed with caution. Bugatti was reported by The Economist to have lost an average of £3m on every one of the 450 Veyrons it sold. Clearly, no such project would get the green light in VW's current position of financial turmoil.
Muller said VW engineers are close to working out a solution to the defeat device installed in cars fitted with the EA189 diesel engine. The device could tell when the car's emissions were being tested and altered how the engine worked to produce lower emissions. On the open road some VWs were found to produce up to 40 times more nitrogen oxide (NOx) than is legal in the US.
VW says some cars will only require a software update, whereas others will need hardware modifications. The first recalls will take place in January and are due to be completed by the end of 2016. VW has set up a website to help owners find out if their car is affected and how to get it fixed.
Muller continued: "The technical solutions to the problems are in sight. By contrast, the business and financial consequences are not yet foreseeable."