Nick Rost van Tonningen ~ Gleanings II ~ 515 Posted by John on June 13, 2013
Quote No. 1 : “The protagonists on both sides (i.e. the Keynesians & the “austerians”) believe in much the same thing, namely that the appropriate macroeconomic policies will ultimately deliver a return to the (GDP) growth rates of old … (but) what if both suffer from an “optimism bias?” – Stephen D. King, Chief Economist, HSBC (this is from his recent book When the Money Runs Out. In it he chronicles the failures of Western economic policy-making over the past decade, and how it has made matters worse & led to a collapse of public trust in bankers & economic policy makers. He warns of “the end of Western affluence” & of the risk in failing to face up to the ugly truth behind the slow growth, namely that it will cause Western societies to be fractured by three “schisms”, rich vs. poor, young vs. elderly and creditors vs. debtors; for “when the money runs out, there is only disappointment. And from disappointment comes hardship, tragedy and anger.”
Quote No. 2 : “Once you become prime minister, you have only yes men surrounding you. You are more able to control power and to remove the checks and balances which exist. As that happens, the probability of mistakes increases”- This was Turkish-born MIT Economics professor Daron Acemoglu’s comment on Turkish Prime Minister Erdogan’s hardline approach having turned what started out as a minor protest against the planned replacement of a park of long standing in Istanbul with another mall into something far larger & more dangerous (and the longer in such a position the more blinkered leaders tend to become, and the more thin-skinned & convinced they’re right, no matter what the evidence or what anyone else may say).
On May 6th Justice K. Sharlow of Canada’s Federal Court of Appeal, in a case involving one of Canada’s Big Five banks, commented in part as follows : “In quantifying a tax payer’s tax liability under the Income Tax Act … is it ever necessary to evaluate the morality of a tax payer’s conduct? As a matter of general principle the answer should be no … nothing in the Income Tax Act expressly permits or requires the Minister of National Revenue, or the Courts, to apply the Income Tax Act differently depending on the morality of the tax payer’s conduct.” While having implications beyond Canada, one practicing Canadian tax lawyer (from the same firm she practiced with before becoming a judge in 1999) took comfort from this while taking issue with the popular press being unable (or more likely unwilling?) to comprehend the interaction of tax planning & morality, & instead promoting the idea everyone should pay his/her “fair” share (the problem with which is that when asked to define “fair”, the answer invariably is along the lines of “I pay too much, and others don’t pay enough” – while in reality, as long as there are deficits, taxpayers in the aggregate pay too little for the services they receive from their governments). Madam Justice Sharlow rightly pointed out that in a modern democratic society citizens accept certain rules for their cohabitation, that it’s their elected representatives who set those rules & that, if the latter include rules that make ‘tax planning’ possible, those who do so shouldn’t be portrayed as immoral – while he is talking his own book, there is much validity in what he says & implies. All over the developed world the politicians right now are on a with hunt to flush out those whom they universally smear as unfairly paying less tax than they “should”, without differentiating between those who “evade” & those who “optimize” their tax obligations (the critical difference between the two being that the former is against-, & the latter within-, the law. And if those who make the rules, i.e. the politicians don’t like the outcome of the latter, they not only have the power, but the fiduciary responsibility, to changer the rules. But this they are loath to do since it may upset some voters, especially those who fund their political campaigns. So the easy way out, with less political downside for politicians personally, to deliberately fuzzy up the critical difference between the two concepts in the minds of, & appeal to greed.
The next two weeks will see a number of meetings with the potential to roil markets. The G-8 meets on June 17th & 18th in Northern Ireland, on the 18th Obama & Chancellor Merkel will have a face-to-face, on the 18th & 19th the FOMC will have its regular, scheduled policy-making meeting, followed by Bernanke’s now routine press conference, and on the 19th & 20th the Eurozone Finance Ministers will meet to make the final preparations for their Heads of State Eurozone Summit on June 27th & 28th – of the lot, Bernanke’s press conference is likely the only one that really matters; the others tend to be photo-ops & talk fests designed to create the appearance of action while little of real short-term substance is being achieved (which only occurs when the leaders’ feet are being held to the fire by events beyond their control).
Neil Barovsky was born in 1970, graduated in Economics from Wharton & in law from the New York University School of Law (where he now is Adjunct Professor of Law & a Senior Research Fellow) and, despite being a life-long Democrat, is sharply critical of the Obama Administration’s economic & financial policies. After three years in private practice & eight as Assistant US District Attorney for the Southern District of New York, he joined the US Treasury in 2008 to head its Mortgage Fraud Group at the Deputy Assistant-Secretary level. In the dying days of the Bush Administration he was named Inspector-General for the TARP Program (that was to have rescued the US economy from perdition but became perverted into a massive income-generating scheme for the big banks), a job he held until he resigned in March 2011. He has a book at the printer’s entitled Bailout : An Insider Account of how Washington Abandoned Main Street while Rescuing Wall Street.
He recently told a questioner “We gave it (i.e. the TARP money) to the banks. But no one knows what they did with it. I proposed to Tim Geithner, then Secretary of the Treasury, but prior to that New York Fed President (where his salary was being paid for by Wall Street), that we find out (what they did with the money – close to US$800BN). He was outraged … cursed me using the F-word … (and) said it would bring the whole banking system down if I asked … I went ahead and sent out a letter (anyway) … all of the big banks wrote back. And most … gave me dodgy responses or gave me the brush-off … They were supposed to have used the money to increase lending to help bring about a recovery. None of them did that. Instead they used it to repay each other’s loans… bought agency bonds … (and) paid out the bonuses … In other words, they looked after themselves ( … and each other) … The whole thing was so perverse I can hardly believe it. In a normal financial system, if a bank makes a bad bet, it would pay a penalty, counterparties might still lend more money to it, but they’d want higher rates of interest to protect themselves … here … all the big banks made some of the worst bets in history … and what happened? The government … lent them money … at lower rates of interest. They were rewarded for their mistakes … (and) the good banks … that didn’t have the backing of the government actually paid higher rates of interest to borrow money than the bad banks … The more questions I asked, the more I found myself isolated … and at odds with the Treasury Department, as well as the banks. I was having shouting matches at the Treasury … (and was told that) if eased up on the banks. I could have a very nice career after TARP … (but) if I didn’t play ball with them, I would find it hard to get a job. That’s how it works. You go along and you get along. If you don’t go along with the scams and the technical mumbo jumbo … you’re out!”
On June 11th S&P cut the outlook for JPMorgan’s single-A rating from stable to negative on the grounds that the likelihood of “extraordinary” government support for the largest US banks (if they were to get in trouble again) is waning. In so doing JPM joined the seven other “systemically important” banks to whom S&P treated so earlier. This comes amidst talk that the US & UK regulators have been working on contingency plans to let large international banks go TU without damage to the rest of the financial system – they have begun to wake up to the fact that, given the existence of deposit insurance, there is no need to bail out big banks to protect small depositors; so their plans are believed to provide for ‘bail-ins’ by everyone else involved.
US private pension funds’ & insurance companies’ equity weighting jumped to 45% in the First Quarter, its highest level since 2007 – their equity market timing obviously left something to be desired in 2007, which makes one wonder why this time it would be any different. What many investors (chose to) overlook is that while the share of GDP accounted for by wages & salaries is at a post WW II low, that of corporate earnings is 20% above the upper end of its post WW II range. And with the S&P 500 P/E ratio, at 23.4, at a level it has only been at, or exceeded, 5x in the past 130 years, sometimes only for only one or two years (the longest of those being that between 1999 & 2007), the odds favour a ‘double whammy’ destruction of the underpinnings of US share prices from slower, or even negative, earnings growth & a downward P/E adjustment.
The value of a college education : between 2008 & 2011 the unemployment rate among those 25 years & over without at least a Bachelor’s degree rose from roughly 4% to 11% & that for those in the same age cohort but with a degree, from 2% to 5% (although since than, the former has declined by one-third to 7½ % & the latter by only one-quarter to 4%). And Adam Looney, Policy Director at the Hamilton Prject, a Washington-based think tank, recently authored a report claiming US$100,000 higher lifetime earnings for someone with even only a partial college education over high school grads [although that result may well be distorted by the fact that, in the current low interest rate environment, the PV (Present Value) of a dollar earned twenty years from now is not all that much less than that of one spent today]).
With no fewer than 95,000 new jobs created in May (i.e. over half that in a US economy 10x its size) the Canada’ economy seemed to have turned out a stellar performance. But only for those who didn’t look beyond the end of their noses; for this came after two months in which 105,000 jobs went up up in smoke. It was also worthy on note that over half the jobs created went to workers in the 16-25 year age bracket (because they are cheap?) & most of the rest to those age 55 & over (because they are reliable/desperate, and cheap?).
Weather permitting three Chinese astronauts will take flight this week aboard a Shenzou spacecraft, from the Jiuquan satellite launch centre in Gansu Province, destined for China’s Tiangong 1 space lab. And to take a leaf out of the book of Canada’s Chris Hatfield (who recently announced his plans to retire from the space business & return to Canada after decades in the US), when he was semi-permanently domiciled in the International Space Station, they are planning a series of talks from space to students on the ground in China.
In 2011, & again in 2012, the China Everbright Bank shelved plans for an IPO on the Hongkong Stock Exchange. Then on May 29th it announced it had revived its plans for an IPO (of as much as US$2BN equivalent) using a Western bank-dominated syndicate that included JPM, HSBC & UBS. A few days later, on June 6th, there were reports it had failed to repay on time an 8BN yuan (US$640MM) loan from the Industrial Bank Co. In its aftermath the Interbank Repo rate (i.e. what Chinese banks charge each other for overnight money), that had ranged between 2% & 5% in the past year, spiked in a single session from 6% to 12%, until a cash infusion form the PBOC brought it back down to earth (to about 6½%). All this is suggestive of tighter monetary conditions that could spell danger for financial intermediaries dependent on ‘wholesale’ funding sources (i.e. with limited depositor bases).
In a generally laudatory piece on Japan, that is also very bullish on the outlook for Abenomics, Nobel laureate Joseph Stiglitz (often an outlier in his views) made an interesting observation. For he notes that in the first decade of this century the US economy grew at an average annual rate of 1.8% (much slower than commonly perceived, and a rate that makes the First Quarter’s 2.4% look nowhere near as bad as it is generally portrayed), while Japan’s had been just 0.78%. But then he pointed out that during those ten years Japan’s working age population (aged 15-64) shrank by 5½%, while that of the US grew by 9.2%; so that, as a result, Japan’s real output growth per member of its labour force actually exceeded that of the US (and, for that matter, of Germany, Britain & Australia).
According to Carl Weinberg of Valhalla, NY-based High Frequency Economics Japan’s working age population will decline by 17% to 67.7MM between 2010 & 2030 while the size of its 64+ year age cohort will grow by 25% to 36.9M, and that, with the overall labour force participation rate already at 81%, there seems to be limited scope for help from that score unless the women’s 61% participation rate, one of the lowest in the OECD, were to increase substantially (the nice thing about demographic ‘forecasts’ such as these is that they have a very high degree of reliability since, unlike most forecasts, they are based on a simple counting of noses). And in what seems to suggest that Prime Minister Abe may be ‘fighting the tape’ with his economic strategy, the Singapore-based UBS economist Andrew Cates has produced a report that, generally speaking, countries with older populations tend to have lower inflation than those with younger ones, a finding that is observation-, rather than economic theory-, based.
Japan’s Government Pension Fund, with assets equivalent of US$1.16TR the largest in the world, has announced it will reduce its holdings of JGBs from 67% to 60% to buy more stocks (what about foreign currency bonds?). Meanwhile, in April Japan’s current account surplus surged to Y853BN (2.2% of GDP), up from 342BN in March & an average 202BN for the three months ended February 28th (but given a trade deficit of 880BN yen, up from 362BN & 778BN in March & February, albeit down from 1.63TR Yen in January, this current account surplus was a function of massive short-term “hot money” inflows, not of the improvement in the trade account that one would have expected the much lower yen to give rise to, & that Prime Minister Abe needs to make Abenomics work – but then, in all fairness, it’s still ‘early innings’.
In a National Geographic documentary Ruud Lubbers, Dutch Prime Minister from 1982-1994, said that there are 22 nuclear bombs on Dutch soil, in strong rooms at the Volkel airbase in North Brabant (in the Southern part of the country), which he called “an absolute pointless part of a tradition in military thinking.” The Telegraaf newspaper said they are B61-type bombs of 1960’s vintage while the NOS broadcaster quoted a Royal Dutch Air Force spokesman as saying “these things are never spoken of … he, as a former Prime Minister, knows that well.”
Since the demise of the Soviet Empire nearly 25 years ago, Russia has become addicted to oil revenues plentiful enough to allow of sub-optimal policy-making, the buying of mass support by Putin, and the vast enrichment of insiders . But its supplies of cheap oil are starting to run out. This will cause its political system to become more unsettled, and Putin to perhaps end up wishing he’d never run for a third term as President.
GLEANINGS II – 515
Thursday June 13th, 2013
AGRICULTURE PRICES FORECAST TO RISE (EJ, Briefs)
$ A joint report by the OECD & FAO on the outlook for agriculture through 2022 says higher energy costs, falling productivity growth & rising demand will drive farm product prices higher in the next decade & that the era of low prices for farm goods due to ever-increasing yields & cheap oil now appear “a feature of a bygone era.”
Worldwide up to 40% of all food produced is never eaten. In the developed world this is because it’s quality is affected in the food chain by frequent handling & long travel, and at the consumer level by going bad before it’s eaten, & in the developing world because of a lack of roads to get it in a timely fashion from the farm gate to the consumer & of storage facilities to store it until needed by consumers. Higher prices may encourage developed country consumers to become less wasteful & supply lines to shorten, and in the developing world to make farming more profitable & slow the rate of urbanization, and encourage the building of new infrastructure
THE END OF CHEAP MONEY : CAN THE WORLD HANDLE HIGHER INTEREST RATES? (Der Spiegel, Martin Hesse)
$ Investors are worrying about Helicopter Ben’s plans to start weaning the US economy off the cheap money he has been shelling out for the past five years. According to Jochen Felsenheimer, Managing Director of Xaia, a German fund manager whose hedge fund aspirations are limited by Germany’s regulatory environment, “The central banks have driven into a dead-end street at full speed. They can’t turn around. All they can do is apply the brakes (gently?).” He also says they can’t continue on their present course since it has inflated asset prices, & hat the longer they delay ‘normalization’, the more painful it will be. Finally, that the US is in a better position to start the process than Europe because the US private sector has been paying down debt (while government debt has grown – which will make them most vulnerable to higher interest rates) while in Europe, although the banking system as a whole has been paying down its ECB debt, retrenchment at this time would put many banks in the ‘Euro periphery’ at risk.
The end of cheap money, like Y2K & sequestration before it, may be worse in anticipation than in it bite; despite all the gloomy talk in the media, the US private sector has been doing OK without much encouragement from the country’s political leaders.
EVERYTHING IS EXPENSIVE AND WE’RE PROBABLY HEADING FOR ANOTHER RECESSION (Forbes)
$ Newport Beach, Cal.-based PIMCO, best known for managing the world’s largest bond fund, this week came out with a report saying valuations for almost all asset classes are expensive & that, in part because so much private debt has been shifted onto government balance sheets, there is a 60% chance of a global recession in 3-5 years. It envisions “sustained deceleration in emerging market growth, continued stagnation in Europe and steady but slow growth in the US … (and) increasing competition for growth among the US, Europe, Japan and the newly developed Asian countries, introducing trade and currency frictions into the secular economic fundamentals mix.”
In short, a high risk of the return of “beggar-thy-neighbour” policies. Its recession call would be disingenious (for they are a cyclical event) but for the reasons given. In a video presentation earlier this week, PIMCO CEO Mohamed El-Erian, who earlier coined the phrase “Investing for the New Normal”, postulated that this has now morphed into a “stable disequilibrium” in which on the surface everything is stable while below the surface everything is in flux.
THE AMERICAN DREAM NOW (CNBC, John Melloy)
$ While once the American dream was a house of your own paid for from a steady paycheck for an honest day’s work, today it is more like having a part-time job & (to share?) an apartment. And according to one Wall Street economist “The quality of the jobs being added are (sic) quite low, especially relative to the jobs that were lost.”
Although I was unable to verify his numbers, John Hussman, who once taught economics & international finance at the University of Michigan but now manages mutual funds, claims that the growth in employee numbers is being more than offset by the fewer hours each works as employers seek to minimize their non-wage social benefit costs, so that in the final analysis there is a reduction in total hours worked.
U.S., U.K. PLAN CHARGES IN LIBOR CASE (DJ, David Enrich & Jean Eaglesham)
$ Finally, after six years, authorities in both countries are preparing to bring criminal charges, albeit not until later this summer, against former employees of Barclays plc for their alleged roles in trying to manipulate benchmark interest rates. This comes one year after the bank became the first to settle allegations it had sought to rig the LIBOR rate (as subsequently UBS & RBS have done). By targeting individuals rather than institutions this affair will enter a new phase, driven by mounting pressure on prosecutors from both politicians & the general public to hold individuals, & not just institutions, accountable. But people familiar with the situation say this will target mid-level traders, not top-level executives.
Planning to throw minions under the bus is a useless, fundamentally flawed-, photo op-type attempt to silence the public baying for heads to roll. Having the likes of JPM’s Jamie Dimon or Goldman’s Lloyd Blankfein spend even one week in the slammer would do far more to restore the integrity of the system than fining the institutions (at the shareholders’ expense) or sacrificing a few peons. Unfortunately the Gladstonian concept of ministerial responsibility & Truman’s famous sign on his desk that “The Bucks Stops Here” have been relegated to the dustbin of history; and, until they are brought back, scandals & abusive business-, & political-, behaviour will continue to be the order of the day (justifying traders’ exorbitant remuneration scales as being mostly “danger pay:”.
INSURERS INFLATING BOOKS (NYT, Mary Williams Walsh)
$ A June 11th report by New York State’s Superintendent of Financial Services says the publicly-listed part of the life insurance industry (but not the mutuals – they don’t need to) is cooking its books to make themselves look better financially for investors, regulators & rating agencies, & to have more scope for paying dividends & higher executive salaries, by secretive transactions, whose size almost doubled between 2007 & 2012 to US$5.4TR. Furthermore, that he was struck by the similarity between their activities & the issuance of structured mortgage securities prior to the 2008 financial crisis.
It’s done by a combination of ‘jurisdictional shopping’ & perverting the reinsurance concept. The quality & intensity of life insurance company supervision varies greatly from state to state. And the concept of reinsurance, whereby one insurance company “lays off” some of its risk onto another (often specialized re-)insurance company at arm’s length is as old as the hills. What he says they have been doing is to establish “captive” (i.e. non arm’s-length) reinsurance companies in ‘soft’ supervisory jurisdictions, & then ‘offloading’ risk onto these ‘off balance sheet’ entities; so that for reporting purposes it disappears into thin air while in reality the company remains ‘on the hook’ for it.
THE SLACKER WHO CAME IN FROM THE COLD (Politico, Roger Simon)
$ Edward Snowdon, the 29 year-old who leaked the details of the Obama Administration’s massive snooping on Americans dropped out of high school, & out the army before finishing his training. He then became a security guard at the NSA (National Security Administration) whence he was hired by the CIA, given a high security clearance & diplomatic status, and sent to Geneva. From there he was recruited by Booz Allen Hamilton (which in 2012 was paid US$1.3BN to help safeguard the nation’s intelligence secrets) to work at an NSA facility in Hawaii with an annual salary of US$200,000. Booz Allen now says that, yes, he was an employee, but only for three months (& at an annual salary of US$122,000), and that the reports he leaked classified information are “shocking”. And the Obama Admnistration is talking out of both sides of its mouth simultaneously, with the official line being the stuff he leaked was ‘no big deal’, while the Director of National Intelligence says Snowden’s actions did “ huge, grave damage … to our intelligence capabilities” (the difference being that the Admnistration wants it to go away, while the latter is seeking to protect his “rice bowl” Meanwhile Snowden is holed up in a luxury hotel … in China (actually Hongkong, which has an extradition treaty with the US that is, however, subject to approval by Beijing, but is talking about relocating to Iceland – where his chances of not being extradited would be much better).
How can any organization, never mind one in the security business, allow an employee with less than three months’ service, & likely still within his probationary period, access to seriously sensitive material? (the writer is Politico’s chief political analyst & no flake : he was a White House correspondent during the Monica Lewinski era, is a member of the Chicago Journalism Hall of Fame, and at various times has been a Poynter Media Fellow at Yale, a Howe Media Fellow at Stanford & a Fellow at Harvard’s Kennedy School of Government.
MILITARY TAKING ON FOREIGN AFFAIRS ROLE (Postmedia News, Lee Berthiaume)
$ Canada’s foreign service is struggling. Hundreds of its professional staff are engaging in ‘work actions’, its budget has been cut, as have the number of its foreign missions & their staffs, and its relevance questioned as the Harper government ignores its professional advice to focus on trade promotion & on proselytizing its philosophical beliefs. Meanwhile Canada’s military, with its warfaring mandate of the past decade a thing of the past, has been looking for a new raison d’etre. And it has found it in the resultant void in foreign affairs void with a little-known “Global Engagement Strategy” for the post-Afghanistan era launched two years ago that promotes the idea that the road to greater global peace & stability lies in closer military cooperation between countries. So senior defense officials have started making more official visits abroad to, among others, the BRIC countries, agreements & treaties have been signed to strengthen military ties with, among others, Mongolia, Peru and, of course, Israel, and Canada is seeking to join newly emerging multinational defence alliances in Southeast Asia & Latin America.
The old saying “The proof of the pudding is in the eating” has morphed into today’s “Follow the money”. Either way it is relevant that, while Foreign Affairs’travel & hospitality spending was cut by $18MM between 2011 & 2012, during the same period defence attachés at Canadian embassies abroad ramped up their travel & hospitality spending by $20MM.
CHINA IS NOT THE WORLD’S OTHER SUPERPOWER (WP, Fareed Zakaria)
$ Since the days of Kissinger & Nixon China has always played a weak hand brilliantly. And while US foreign policy has often been portrayed as ‘confused’, changing as it does with each President, its China policy has remained remarkably consistent : Washington has throughout sought to integrate China into the world community (which has been good for the US & for the world as a whole, and extremely so for China).
$ But with the Soviet Union no more & China not needing US capital, technology & political assistance as much as it once did, it is now doing its own thing in foreign policy in ways that often run counter to US interests & values while Washington is faced with its traditional allies’ nervousness about China’s rise (and its territorial ambitions & plans to divert water from the headwaters of rivers that are the lifeblood of South Asia?). Today it is the world’s second largest economy & some day will become its largest [it is already so on a PPP (Purchasing Power Parity) basis], although not for a long time, if ever, on a per capita basis. But as David Shambaugh (of George Washington University) says in a recent book, “China is, in essence, a very narrow-minded, self-interested, realist state, seeking only to maximize its own national interest and power. It cares little for global governance and enforcing global standards of behaviour … Its economic policies are mercantilist and its diplomacy … passive. China is also a lonely strategic power, with no allies and experiencing distrust and strained relationships with much of the world.”
$ Beijing wants good relations with the US since it faces huge internal challenges. Its leaders want to embark (or ‘have been forced to embark’?) on serious reforms at home (without endangering the Communist Party’s hold on power). But it can only become a superpower like the US if it recognizes & respects an open global system, rather than being a “narrow-minded” state singularly focused on promoting its own interests.
Zakaria, much as I like him, is talking the Americans’ “book”. But as the spiritual inheritors of the “Middle Kingdom” idea, China’s leaders may be overplaying their hand. For its demographics (i.e. a population that, largely due to its one-child policy, has flatlined & is going to age rapidly from here on in) are out of step with their dreams, its environmental problems are massive, its people’s expectations will prove difficult, if not impossible, to meet, its growing lack of females of marriageable age will further affect future population growth & create a potential for social unrest from young males unable to find mates, and its current policies are creating well springs of antipathy in many parts of the world. In any case, all talk of superpowers may be backward-looking; for as the 21st century progresses the global system is likely to see an erosion of the US’ superpower status & the emergence of a system hallmarked by a number of large powers, with the US reduced, at best, to the the role of ‘primus inter pares’.
GOLD PROMOTION DRAWS 10,000 BUYERS (China Daily)
$ On June 11th a gold shop in Jinan City, Shandong Province, put on a one-day sales promotion offering gold at 299 yuan per gram, i.e. a 14-19% discount. This drew 10,000 buyers, each of whom was, very cleverly, given just 15 minutes in the store.
With the yuan at US$0.16, this “bargain” price was the equivalent of US1,488 per troy ounce on a day that the official spot price in Hongkong fluctuated in the US$1,370-1,390 range.
EURO CRISIS IS OVER, SAYS FRANCE’S FRANÇOIS HOLLANDE (BBCNews)
$ At the end of a trip to the Far East he told a group of Japanese business leaders that “What you need to understand here in Japan is that the crisis in Europe is over.” He also told them that the crisis had bolstered, rather than weakened, the Eurozone.
Spain’s Economy Minister predicts that the Second Quarter results will be “considerably better” than forecast & Greece’s Finance Ministry that the January-May budget shortfall will be over 50% less than in the year-earlier period & only a fraction of its targeted amount. Be that as it may, historically vehement denials at the most senior levels of rumours have, more often than not, been harbingers of their being the real thing. So it may be with this optimistic assessment. For Eurozone unemployment in many countries remains at extreme levels conducive to social unrest in the short term &, longer term, to sub-optimal growth (in France itself it is at a 15-year high), political nihilism is on the rise, GDP growth is anemic, the banking system is undercapitalized & overburdened with questionable loans (which will be a serious problem if the growing pressures for more haircuts on peripheral country government bonds were to prove successful), policymakers are no more disposed than ever to think long-term, and everyone blames Germany but looks to it to solve their problems. Meanwhile the next Eurozone crisis may well be M. Hollande’s to deal with; for France looks set for another downgrade.
SAVING WOLVES AN ETHICAL ENIGMA (Postmedia News, Tom Spears)
$ Isle Royale, an island 74 km-long with 50 lakes on it close to Thunder Bay, Ont., is a US national park & designated wilderness area. A century ago some moose swam to it from the mainland &, in the absence of natural predators, propagated so well that they ate themselves out of house & home with disastrous effects on the forest, causing their numbers to crash on two separate occasions. Then, after the second one, one winter in the late 40’s a group of wolves came over the ice from the mainland to the island & restored nature’s balance by keeping the moose population down to sustainable levels. Now the wolves themselves are in trouble to the point where in 2012 they did not produce a single pup. Their numbers are down to eight, from a high of forty, all of them seriously inbred, with spinal problems, despite the arrival in 1997 of a single new male from the mainland (in part due to the gene pool having narrowed in previous decades from two population crashes of their own caused by humans bringing dogs to the island that carried the parvovirus that is harmless for dogs but fatal for wolf pups).
$ The question now is what to do. There are three options. One is to just let the wolves die off (& in due course presumably the moose as well). Another to let them die off & then restock with wolves brought in from elsewhere. And the third is to launch a “genetic rescue” by bringing in fresh breeding stock before the present lot of wolves dies off (the advantage of which presumably is that it will help preserve the genes of the existing lot, flawed as they may, or may not, be). The advantage of the latter is also that it would continue scientists’ access to a unique 55 year-old real life ecology laboratory of the interaction between specific bloodlines of predators & prey. The problem, however, is this may/does contravene US federal law; for the Wilderness Act of 1964 stipulates “minimal intervention”, & more specifically states that in designated wilderness areas “the earth and its community of life are untrammelled by man, (and) man himself is a visitor who does not remain.” But the counter argument is that the wolves’ current predicament is Man’s doing by bringing in parvovirus, itself in a breach of the law, and more recently, & more controversially, by climate change having led to milder winters that have reduced the possibility of new gene infusions from the mainland.
The Law of Unintended Consequences strikes again!
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