How Big is the U.S. Debt?

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Larry Summers: "It’s time to kill the $100 bill"

Lawrence H. Summers, the Charles W. Eliot university professor at Harvard, formerUSTreasury Secretary and former director of the National Economic Council, in a column at The Washington Post tiled, It’s time to kill the $100 bill, is calling for the banishment from circulation of the US $100 bill.

He writes:

Harvard's Mossavar Rahmani Center for Business and Government, which I am privileged to direct, has just issued an important paper by senior fellow Peter Sands and a group of student collaborators. The paper makes a compelling case for stopping the issuance of high denomination notes like the 500 euro note and $100 bill or even withdrawing them from circulation.

The evil statist paints it as somehow a fight to protect ordinary citizens:

 [A] global agreement to stop issuing high denomination notes would also show that the global financial groupings can stand up against “big money” and for the interests of ordinary citizens.

Make no mistake about it, this is about making it difficult for individuals to conduct large size transactions in cash. It is part of the war on cash by governments so that all transaction can be tracked by governments.

-RW

Saudis and Russia agree oil output freeze, Iran still an obstacle

Saudi Arabian Oil Minister Ali al-Naimi talks to journalists before a meeting of OPEC oil ministers at OPEC's headquarters in Vienna in this file picture taken December 4, 2013. REUTERS/Heinz-Peter Bader/Files

 

By Rania El Gamal and Tom Finn

DOHA (Reuters) - Top oil exporters Russia and Saudi Arabia agreed on Tuesday to freeze output levels but said the deal was contingent on other producers joining in - a major sticking point with Iran absent from the talks and determined to raise production.

The Saudi, Russian, Qatari and Venezuelan oil ministers announced the proposal after a previously undisclosed meeting in Doha. It could become the first joint OPEC and non-OPEC deal in 15 years, aimed at tackling a growing oversupply of crude and helping prices recover from their lowest in over a decade.

Saudi Oil Minister Ali al-Naimi said freezing production at January levels - near record highs - was an adequate measure and he hoped other producers would adopt the plan. Venezuelan Oil Minister Eulogio Del Pino said more talks would take place with Iran and Iraq on Wednesday in Tehran.

"The reason we agreed to a potential freeze of production is simple: it is the beginning of a process which we will assess in the next few months and decide if we need other steps to stabilize and improve the market," Naimi told reporters.

"We don't want significant gyrations in prices, we don't want reduction in supply, we want to meet demand, we want a stable oil price. We have to take a step at a time," he said.

Oil prices jumped to $35.55 per barrel after the news about the secret meeting but later pared gains to trade near $33 on concerns that Iran may reject the deal and that even if Tehran agreed it would not help ease the growing global glut. [O/R]

OPEC member Iran, Saudi Arabia's regional arch rival, has pledged to steeply increase output in the coming months as it looks to regain market share lost after years of international sanctions, which were lifted in January following a deal with world powers over its nuclear program.

"Our situation is totally different to those countries that have been producing at high levels for the past few years," a senior source familiar with Iran's thinking told Reuters.

Iranian Oil Minister Bijan Zanganeh also indicated Tehran would not agree to freezing its output at January levels, saying the country would not give up its appropriate share of the global oil market.

SPECIAL TERMS

The fact that output from OPEC kingpin Saudi Arabia and non-OPEC Russia - the world's two top producers and exporters - is near record highs complicates any agreement since Iran is producing at least 1 million barrels per day below its capacity and pre-sanctions levels.

However, two non-Iranian sources close to OPEC discussions told Reuters that Iran may be offered special terms as part of the output freeze deal. "Iran is returning to the market and needs to be given a special chance but it also needs to make some calculations," said one source.

Russian Deputy Prime Minister Arkady Dvorkovich said freezing output was not a problem for his country as he anyway expected its production to be flat this year versus 2015.

An Iraqi oil ministry source said Baghdad was also happy to freeze production if all parties agreed.

"The agreement (if successful) should support oil prices but there are reasons to be cautious. Not all OPEC members have signed up to the deal - notably Iran and Iraq. History would also suggest that compliance may be an issue," said Capital Economics' analyst Jason Tuvey.

OPEC has been quarrelling for decades over output levels and Russia, which last agreed to cooperate with OPEC back in 2001, never followed through on its pledge and raised exports instead.

Also complicating any potential agreement is the geo-political rivalry in the Middle East between Sunni Muslim power Saudi Arabia and Shi'ite Iran. Saudi Arabia and its Gulf allies are fighting proxy conflicts with Russia and Iran in the region, including in Syria and Yemen.

In Syria's five-year-old civil war, Riyadh politically and financially backs some rebel groups battling President Bashar al-Assad's government, which has gained the upper hand with the help of Russian warplanes and Iranian-backed Shi'ite militias.

RUSSIAN BUDGET

The Doha meeting came after more than 18 months of declining oil prices, knocking crude below $30 a barrel for the first time in over a decade from as high as $115 a barrel in mid-2014.

Carrier Received $5.1 Million in Obama-Stimulus Cash Before Move To Mexico

Heating and air-conditioning company Carrier, which has announced it will move 1,400 Americans’ jobs to Mexico, received $5.1 million from the Obama administration.

Local media reported the “Department of Energy awarded Carrier $5.1 million in clean energy tax credits in December 2013” for its Indianapolis facility. They planned to use the money to “expand production at its Indianapolis facility to meet increasing demand for its eco-friendly condensing gas furnace product line.”
From WIBC:

“Energy Efficient Buildings: With the support of $5.1 million in 48C Program tax credits, Carrier Corporation will expand production at its Indianapolis facility to meet increasing demand for its eco-friendly condensing gas furnace product line. The new line includes the most energy efficient gas furnaces on the market – all with at least 95 percent annual fuel utilization efficiency”

At the time, John Gibbons, director of Carrier’s residential product and platform strategy, said the cash “has been instrumental in helping Carrier’s Indianapolis manufacturing facility accelerate production of our high-efficiency gas furnace line.”
Despite the money, the company announced last week they decided to move 1,400 jobs to Mexico. Local union representatives will discuss the move with Carrier. Fox 59 reported that some “employees will be entitled to severance benefits, including access to the company’s Employee Scholar Program, which pays for tuition, books and fees at accredited higher education institutions.”
An employee documented her co-worker’s outrage at the announcement.
 “Today’s surprise announcement was without warning and incredibly disappointing,” said Mayor Joe Hogsett. “While I am obviously concerned about the economic impact, my top priority is the well-being of the hardworking families affected by this decision. A job lost in any part of our community affects us all, and I believe these are the times we must come together as one city to lift up our neighbors.”

Why this is still the Winter of Disconnect, and the latest rally isn’t Spring as we know it, Jim

The oil price is where Texas needs it to be, not where it should be

While the stock and commodity markets were busy correcting five years of ludicrous over-valuation for most of the last six weeks, the 3% were busy telling us that the markets are insane and “none of this is supported by the data”. After another rally got under way for both stocks and oil yesterday – based on flimsy and forlorn hopes respectively – the data clearly didn’t support it….but by Monday evening Goldman Sachs was saying the worst is over, banks are just fine, and things ‘are returning to nomal’. Which probably explains why Miner Anglo-American lost $5.6bn last year, has stock rated as Division IV junk, and is in my estimation no more than four months away from needing a rights issue. And that’s OK too says Goldin Sacks, because ‘the risk for junk has returned now that investors see the fabulous value they represent’.
The futures say the markets will power ahead again today. But apart from one tentative oil-supply ‘deal’ between the Saudis and Russia this morning – and empty bromides from Mario Draghi yesterday – nothing has changed from last week, when the markets were melting down.
‘Qatar oil cuts disappoint’ says Bloomberg as I write. WhatTF else were they going to do? Did the markets expect Putin to fall on his market share for the good of Texas?
It all depends on whether you think yesterday was about ‘the markets’ alone.
The bank valuations have rebounded – why? Oil is back at $35 – why? The banking sector issues are unsolved, and if oil supply is cut, how will that make demand for it go up? While I said last week that there will be rallies long the way, I freely admit to having been surprised by both the size and suddenness of this one yesterday and overnight. On Sunday, I headlined ‘It’s hard to see anything more than more of the same’. Yesterday I wrote, about the latest rally:

‘On this sort of thinking sits the fate of the world economy. And that economy faces a dire future because of the glaring disconnect that continues between the financialised capitalism of monetarist drivel, and the real global slump out there which, without QE being counted as ‘gdp’, would be even more bleedin’ obvious.’

We are still in the Winter of Disconnect, and this is a false Spring. It is a Spring more false than the Arab Spring. So false, in fact, that I’ve been wondering since Monday mid-morning whether person or persons unknown may have been tampering with the weather. But lest this sound like sour grapes, allow me to restore reality with a few thoughts.

1. Just one week ago, the International Energy Agency (IEA) had this to say: ‘Having peaked, at a five-year high of 1.6 mb/d in 2015, global oil demand growth is forecast to ease back considerably in 2016, to 1.2 mb/d, pulled down by notable slowdowns in Europe, China and the US. Early elements of the projected slowdown surfaced in Q415.’ Blaming price on supply alone is a con-trick, nothing more: Between Q315 and the current moving daily averages, global demand has fallen from 95.4 to 94.8 to 94.5 million barrels per day.
2. At first, the claim used was that ‘refined product inventories are not growing’. But it simply is not true. On December 9th, Washington’s Energy Information Administration (EIA) released data showing that ‘distillate inventories’ jumped by five million barrels – double the expected forecast, and the sharpest rise since 1998. That’s diesel road and factory fuels to you and me: a core measure of how business delivery and output are faring. In a word, badly.  Other parts of the EIA report show demand ‘falling an average of 80,000 barrels a day throughout 2015‘.
3. The stocks/oil rebound narrative today makes frequent use of ‘stimulation bets’ as a key driver. QE has failed everywhere, Nirp is proving a disaster thus far in Japan, and Draghi’s speech yesterday promised that he “would act”…but not what that action might be. (See last night’s satirical post about that one). Well, eurozone economic growth slowed to a four-month low in January, and the French economy remained close to static. But Mario is not as yet starring in the role of Yul Brynner from The Magnificent Seven. The earliest action we can expect is over three weeks away…and his “promise” to act was heavily qualified:

“First, we will examine the strength of the pass-through of low imported inflation to domestic wage and price formation and to inflation expectations. This will depend on the size and the persistence of the fall in oil and commodity prices and the incidence of second-round effects on domestic wages and prices.

“Second, in the light of the recent financial turmoil, we will analyze the state of transmission of our monetary impulses by the financial system and in particular by banks.

“If either of these two factors entail downward risks to price stability, we will not hesitate to act.”

In short, more tricks. All mouth, absent trousers. The faux-bull cow-milkers (if you follow) are directionalising for short-term profit. And the oil business needs the price where it is, because an oil business with oil at $25 a barrel can’t survive. Maybe they’re being given an unseen hand from the Fed on that one…it wouldn’t surprise me. Or anyone else for that matter.

But even Texas with a Ten Yellen hat on can’t outgun the world, and the stocks turnaround cannot last. Already this morning, European indexes suggest it’s running out of steam. Sooner rather than later, the ‘deal’ done by Russia and the Saudis in Qatar earlier today will only amplify the growing problem of waning demand.

This is Crash2, Correction3, rally6 signing off. Time to move on to the next stage.

More liars under The Sloglight: the fiery pants of Jeremy Punt

Chinese Exports Plunge 11.2 Percent As Economic Activity Continues To Collapse All Over The Planet

If the global economy is in fine shape, then why does all of the hard data tell us that global trade is absolutely collapsing?  The Baltic Dry Index has fallen below 300 for the first time ever, and export numbers are way down for almost every major exporting nation on the entire planet.  As you will see below, this includes China.  The Chinese account for more global trade than anyone else, and so the fact that their imports and their exports are both collapsing precipitously is a huge red flag.  When less stuff is being bought and sold and shipped around the world, that tells us that the “real economy” is contracting.  Tremendous efforts are being made to try to prop up financial markets all over the globe right now, but in the end those efforts are going to prove to be rather futile.  The global economy is clearly plunging into recession, and at this point it is becoming exceedingly difficult for even the most optimistic economic analysts to deny this reality.
When the trade numbers for China for the month of January were released, they were an extreme disappointment.  The following comes from CNBC…

China‘s exports fell 11.2 percent on-year in January, while imports declined 18.8 percent, clocking far bigger slides than expected by analysts.
Analysts polled by Reuters had expected a 1.9 percent drop in January exports, and a 0.8 percent drop in imports, after China’s exports fell 1.4 percent in December from a year earlier and imports slid 7.6 percent .

We never see numbers like this outside of a recession.
Never.
Chinese imports have now fallen for 15 months in a row, and the second largest economy on the entire planet appears to be in the process of imploding.  As I mentioned above, China has become the most important hub for global trade.  Nobody accounts for more total trade than they do, and so these new numbers can only be described as catastrophic.
Other numbers are telling the same story.  Global trade has fallen so dramatically that it is now cheaper to rent a 1,100 foot merchant vessel that than it is to rent a Ferrari…

Rates for Capesize-class ships plummeted 92 percent since August to $1,563 a day amid slowing growth in China. That’s less than a third of the daily rate of 3,950 pounds ($5,597) to rent a Ferrari F40, the price of which has also fallen slightly in the past few years, according to Nick Hardwick, founder of supercarexperiences.com. The Baltic Exchange’s rates reflect the cost of hiring the vessel but not fuel costs. Ships burn about 35 metric tons a day, implying a cost of about $4,000 at present prices, data compiled by Bloomberg show.

Can you believe that?
This is just another sign of how crazy things have become.
Another indication of the slowdown in China is what is happening to the Hong Kong housing market.  Just check out these numbers…

Two weeks ago, in our latest report on the Hong Kong housing market, we observed that according to the local Centaline Property Agency total Hong Kong property transactions in January were on track to register the worst month since 1991, when it started compiling monthly figures. In other words, the biggest drop in recorded history.
Centaline estimated that only 3,000 transactions will have registered with developers slowing down new launches, while only 394 units were sold in the first 27 days of January, 80.3 per cent lower than the 2,127 deals lodged in December. Meanwhile, sales of used homes fell by a fifth to 1,276 deals in January.

We could talk about many more examples like this all over the world.
Most people like to watch the ups and downs of the financial markets, but it is the hard economic numbers that tell us the real story.
We are in the midst of a stunning global economic downturn, and the global financial system is starting to take notice.  Global stocks have fallen into bear market territory, the price of oil has fallen by three-fourths over the past 18 months, junk bonds have been crashing hard just like they did in 2008, and at one point last week close to 17 trillion dollars of global stock market wealth had been wiped out since mid-2015.
In a desperate attempt to revive economic activity, many global central banks have started to implement negative interest rates.  Unfortunately, these negative interest rates are having some very nasty unintended consequences…

One of the unintended consequences of global central banks’ race to the bottom (which seemingly has no bottom) is that negative interest rates act as a tax on the banking system.
By penalising commercial lenders for parking their reserves at the central bank, it erodes the profit margin they make on charging already low interest rates while raising the cost of capital.
So far, “banks seem unable or unwilling to pass negative deposit rates to their retail customers, leaving them with few options to offset costs”, note analysts at JP Morgan.

The truth is that we have really reached the limit of what monetary policy can do.
Since March 2008, interest rates have been cut 637 times around the world and central banks have purchased 12.3 trillion dollars worth of assets.
Despite all of that unprecedented intervention, we are now plunging into a brand new global crisis.
The central bankers are just making things up as they go along, and they are flailing all over the place as they desperately try to find a way to fix things.  I like how Jim Rogers put it during a recent interview with CNN…

Famed investor Jim Rogers is warning that financial Armageddon is just around the corner, and it’s being fueled by moronic central bankers.
“We’re all going to pay a horrible price for the incompetence of these central bankers,” he said Monday in a TV interview with CNNMoney’s Nina dos Santos. “We got a bunch of academics and bureaucrats who don’t have a clue what they’re doing.”

We have reached the terminal phase of the greatest financial bubble in history, and now the endgame is upon us.
Yes, governments and central banks will keep trying to “fix things”, but it is becoming exceedingly clear that they are rapidly losing control.
And there are other factors, such as the potential start of World War 3 in the Middle East, that could turn this new crisis into a complete and utter nightmare in no time at all.
So let us pray for the best, but let us also get prepared for the worst…

Economists warn about Brexit

An overwhelming majority of economists warn that Britain’s economy would be worse off if voters decide the country should leave the European Union.

According to the economists polled by Reuters all but one of 28 economists in the poll taken this week said the Britain would take a hit if the vote – which could take place by June – meant exiting the EU.
Supporters of Britain leaving the EU say companies would be less bound by red tape, the country would be able to strike its own free trade deals and its existing EU partners would not want to hurt bilateral trade.
Analysts at some of the world’s biggest banks said an exit could shrink Britain’s economy by as much as 2 percent over the next couple of years and could take as much as 10 percentage points off GDP over the next decade.

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