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Wednesday 07.13.2016

Italian Depositors Bought $200 Billion of Bonds Subject To New EU ‘Bail-In’ Rules

The world’s oldest bank is a reminder of one of democracy’s oldest lessons: Costing voters money can also risk costing you your job.

Banca Monte dei Paschi di Siena SpA was founded in 1472, but has a very modern Italian problem. The lender has about 10.7 billion euros ($12 billion) of bonds with an initial investment designed to attract ordinary families, data compiled by Bloomberg show. It’s just the tip of the iceberg: Italian banks together have sold more than 180 billion euros of similar securities as depositors looked for better rates of return.

Prime Minister Matteo Renzi is now faced with the prospect of forcing losses on people who bought bonds seemingly safe in the knowledge they were putting their cash into assets as secure as money in the bank. European legislation since the beginning of the year has changed the game. When banks get into trouble, bond investors are among those on the hook rather than taxpayers, a process known as “bail-in.”

“Renzi has taken a very strong position in saying he doesn’t want any bail-in of any creditor of any bank,” said Nicolas Veron, senior fellow at the Peterson Institute for International Economics in Washington and the Brussels-based Bruegel research institute. “I’m not sure what he’s trying to achieve by making this an issue of principle.”

18,000 JPMorgan Chase tellers, branch workers getting raises

The company said its lowest wage in the U.S. will increase to $12 an hour in February -- an 18% increase.

The raises will go primarily to bank tellers and other branch personnel. JPMorgan Chase said employees in 75 cities will get pay bumps. The bank has major presences in such high-cost places as New York, San Francisco, Seattle, Los Angeles, Chicago and Washington, D.C.

Pay will be based on the local cost of living, and the raises will bring 90% of the bank's lowest-paid workers to between $13 to $16.50 an hour.

"A pay increase is the right thing to do. Wages for many Americans have gone nowhere for too long," CEO Jamie Dimon wrote in a column in the New York Times. "Above all, it enables more people to begin to share in the rewards of economic growth." Dimon said the raises will help the bank attract and retain staff in a competitive environment.

Fed’s Bullard Offers No Fresh Insight on Rates

St Louis Fed President James Bullard continued to explore the potential for a new narrative surrounding the economy and likely developments in monetary policy. There was very little in the way of commentary on the short-term economic trends and no direct references to forthcoming Federal Reserve meetings.

He maintained his baseline stance under the new narrative that the Federal Reserve would only need to raise interest rates once in the period until the end of 2018 with an average Fed funds rate of 0.63% as long as the economy remained in the current state.

He also stated that risks associated with this forecast were likely to be on the upside and there was a high degree of uncertainty given that the economy could suddenly switch to a new regime.

He was generally optimistic surrounding the housing sector and did not expect a recession to develop in the economy. Bullard rejected the notion that he had become a dove and he also commented that the Fed would keep its eye on inflation developments and act accordingly.

Overworked Americans Aren't Taking The Vacation They've Earned

A majority of Americans say they're stressed at work. And it's clear the burden of stress has negative effects on health, including an increase in heart disease, liver disease and gastrointestinal problems.

Still, though it's been known for years that periodically disengaging from one's everyday routine can reduce stress, most Americans don't take advantage of their days off. A recent poll conducted by NPR, the Robert Wood Johnson Foundation and the Harvard T.H. Chan School of Public Health finds about half of Americans who work 50-plus hours a week say they don't take all or most of the vacation they've earned.

And among respondents who actually take vacations, "30 percent say they do a significant amount of work while on vacation," says Robert Blendon, a professor and health policy analyst at the Harvard T.H. Chan School of Public Health who directed the survey. "So they're taking their stress along with them wherever they go."

Take 27-year-old Julie Hagopian, for example. She lives in Alexandria, Va., works in digital marketing for a large educational company, and says she adores her job. But it consumes at least 60 hours of her time each week, she says, and includes plenty of stress. The biggest problem, Hagopian says: There's no "off switch." "I'm on call all the time — to moderate, create content, curate everything," she says. "So, generally speaking, even when on vacation, I'm checking email and moderating social feeds." When it comes to taking the classic one to two weeks of vacation — forget it, she says. That would require burdening her colleagues with her workload, and they already have too much to do.

Your Car Has Been Studying You, and Everyone Wants the Data

As you might have suspected, your car is spying on you. Fire up a new model and it updates more than 100,000 data points, including rather personal details like the front-seat passenger’s weight. The navigation system tracks every mile and remembers your route to work. The vehicular brain is smart enough to help avoid traffic jams or score parking spaces, and soon will be able to log not only your itineraries but your internet shopping patterns.

The connected car will be a wonderful convenience or an intrusive nightmare, depending on your tolerance. For automakers, it could be a gold mine, which is why the industry is building firewalls to keep the likes of Google Inc. and Apple Inc. at bay — and hoping to pry you away from their phones and apps when you’re motoring.

“Everyone is trying to control the screens in the car,” says Tony Posawatz, CEO of the consulting firm Invictus iCar and one of the developers of the Chevrolet Volt. “There is tremendous value in the data, and they are trying to figure out how to get it.”

The dashboard battle is gearing up as cockpit technology rapidly advances. Once self-driving cars are the norm, people will have the downtime to become truly mobile consumers. (Granted, that may seem further away after the recent death of a Tesla Model S owner who was using its Autopilot system.) Ford Motor Co. and others are already angling to give the Googles of the world limited to no access to the juiciest data that will be amassed once millions of people are shopping in seat belts.

Did Citi Just Confiscate $1 Billion In Venezuela Gold

Just over a year ago, cash-strapped Venezuela quietly conducted a little-noticed gold-for-cash swap with Citigroup as part of which Maduro converted part of his nation's gold reserves into at least $1 billion in cash through a swap with Citibank.

As Reuters reported then, the deal would make more foreign currency available to President Nicolas Maduro's socialist government as the OPEC nation struggles with soaring consumer prices, chronic shortages and a shrinking economy worsened by low oil prices. Needless to say, the socialist country's economic situation is orders of magnitude worse now.

According to El Nacional, "the deal was for $1 billion and was struck with Citibank, which is owned by Citigroup." As Reuters further added:

"Former central bank director Jose Guerra and economist Asdrubal Oliveros of Caracas-based consultancy Ecoanalitica said in separate interviews that the operation had been carried out. A source at the central bank told Reuters last month it would provide 1.4 million troy ounces of gold in exchange for cash. Venezuela would have to pay interest on the funds, but the bank would most likely be able to maintain the gold as part of its foreign currency reserves."

Consumer Inflation Expectations Hit 10-Month High in Fed Survey

U.S. consumers’ expectations for longer-term inflation rebounded last month to the highest level since August, according to results of a Federal Reserve Bank of New York survey released Monday.

Expected inflation three years ahead was 2.9 percent, according to the median respondent of the New York Fed’s monthly consumer survey. The measure, one of a few that Fed policy makers watch closely as an indicator of where actual inflation may be headed, fell in January to the lowest on record in data going back to June 2013.

The data present more good news for Fed officials following Friday’s Labor Department release in Washington, which showed U.S. employers added 287,000 workers to payrolls in June, alleviating concerns that a sharp deceleration in hiring the month before was the start of a new trend.

Fed policy makers see stable inflation expectations and continued job gains as key to raising inflation, which has been below the central bank’s 2 percent target for more than four years.

Dead Wrong™ with Johan Norberg - Easy Money

The student loan problem no one is talking about

More than one-quarter of student loan borrowers have debt, but nothing to show for it.

About 28% of Americans with student debt didn’t complete the educational program for which they took on the loans, according to the 2016 National Financial Capability Study published Tuesday by the Financial Industry Regulatory Authority.

The study adds to the growing body of evidence that the borrowers who struggle the most with student loan debt aren’t necessarily those with the largest balances. Instead, borrowers who don’t complete their degrees often find it challenging to repay their loans — even if they’re relatively small — likely because they didn’t earn the credential that would give them an earnings boost in the labor market (not everyone can be a college dropout superstar like Facebook CEO Mark Zuckerberg or Microsoft co-founder Bill Gates).

More than half of the borrowers who didn’t finish their schooling said they were late at least once on a student loan payment, compared with 38% of borrowers who did finish their education, Finra found. Roughly two-thirds of borrowers who had that experience said they would change the way they approached borrowing if given the chance to do it again, compared with 54% of borrowers who finished school. Americans earning $25,000 or less were also more likely to report borrowing without completing than their wealthier counterparts.

Cash-Strapped Towns Are Un-Paving Roads They Can't Afford to Fix

When Montpelier decided to rip up a pothole-riddled asphalt road and replace it with gravel in 2009, it didn’t see itself at the forefront of a growing trend in public works. It was simply responding to a citizen complaint.

City Hall received a hollering from a couple living on Bliss Road in the Vermont capital who wanted to sell their home, but feared the horrifying pavement in front of the house would scare away buyers. They had reason to be pissed off: The city of 8,000 people ranks pavement on an index of one to 100. Bliss Road scored a one.

Repaving roads is expensive, so Montpelier instead used its diminishing public works budget to take a step back in time and un-pave the road. Workers hauled out a machine called a “reclaimer” and pulverized the damaged asphalt and smoothed out the road’s exterior. They filled the space between Vermont’s cruddy soil and hardier dirt and gravel up top with a “geotextile”, a hardy fabric that helps with erosion, stability and drainage.

In an era of dismal infrastructure spending, where the American Society of Civil Engineers gives the country’s roads a D grade, rural areas all over the country are embracing this kind of strategic retreat. Transportation agencies in at least 27 states have unpaved roads, according to a new report from the National Highway Cooperative Highway Research program. They’ve done the bulk of that work in the past five years.

Why the New Debt Relief Bill Won’t Fix Puerto Rico’s Financial Woes

In Puerto Rico’s hyper-partisan milieu, official holidays are saturated with deeply conflicting interpretations. Typically, Fourth of July commemorations follow a predictable pattern: pro-Commonwealth supporters celebrate it modestly, statehood advocates proclaim it the holiest day on their political calendar and revere it in grand fashion, and those favoring the island’s independence from the United States utilize the day to protest U.S. colonial rule. This year, though, things were different.

Thanks to the bill President Obama signed on June 30, the newly created oversight board, a federally appointed body, will dictate the economic fate of the island’s 3 million residents. The board is authorized to overrule the fiscal decisions of Puerto Rico’s elected government, and will do so in the name of that government. An entity Congress ostensibly created to rectify the island’s financial crisis, it will ultimately fall short of Washington’s goal of adequately addressing Puerto Rico’s financial woes while inflicting damage on federal-territorial relations.

Politically, the oversight board represents the re-imposition of direct colonial rule and shatters the myth of the Commonwealth’s autonomy. If the mere existence of this board is bad, its impending membership makes it worse. Congress designed it to eschew all but token Puerto Rican membership—the very people whose fate it will control. It’s an echo of the first half of the 20th century when U.S. presidents appointed the island’s governors—mostly monolingual English speakers with little, if any, understanding of the people they were about to rule—without input from the local populace.

A majority of the board members, four out of seven, will be appointed from lists provided by House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell. Given their strong ties to corporate interests, these two Republic leaders are highly likely to make appointments to satisfy Wall Street’s interests over those of Puerto Ricans. Thus, islanders are likely to see increases in already high local taxes, continued cuts in government services—moves that will add to the island’s already appalling unemployment rate—and are unlikely to see adequate debt forgiveness.

Stockman Rages: Ben Bernanke Is “The Most Dangerous Man Walking This Planet”

Ben Bernanke is one of the most dangerous men walking the planet. In this age of central bank domination of economic life he is surely the pied piper of monetary ruin. At least since 2002 he has been talking about “helicopter money” as if a notion which is pure economic quackery actually had some legitimate basis. But strip away the pseudo scientific jargon, and it amounts to monetization of the public debt—–the very oldest form of something for nothing economics.

Back then, of course, Ben’s jabbering about helicopter money was taken to be some sort of theoretical metaphor about the ultimate powers of central bankers, and especially their ability to forestall the boogey-man of “deflation”.

Indeed, Bernanke was held to be a leading economic scholar of the Great Depression and a disciple of Milton Friedman’s claim that Fed stringency during 1930-1932 had caused it. This is complete poppycock, as I demonstrated in The Great Deformation, but it did give an air of plausibility and even conservative pedigree to a truly stupid and dangerous idea.

Right about then, in fact, Bernanke grandly promised during a speech at Friedman’s 90th birthday party that today’s enlightened central bankers—led by himself—-would never let it happen again. Presumably Bernanke was speaking of the 25% deflation of the general price level after 1929. The latter is always good for a big scare among modern audiences because no one seems to remember that the deflation of the 1930’s was nothing more than the partial liquidation of the 100%-300% inflation of the general price level during the Great War.

Quicken Loans: Homeowners too optimistic about home values

Homeowners feel better about their homes than they should, as appraisers are placing home values below what homeowners think they should be, according to a report by Quicken Loans, a retail mortgage lender.

Home values assigned by appraisers were 1.93% lower than what homeowners estimated in June, according to the report. This shows a widening gap from May, where home values were 1.89% higher than homeowners thought.

“Perception is everything. It can make or break a home sale or mortgage refinance,” Quicken Loans Chief Economist Bob Walters said. “That’s why it’s so important for homeowners to realize how they perceive their home’s value could vary widely from how an appraiser views it.”

“If the estimate is lower by just a few percentage points, the buyer could need to bring as much as another several thousand dollars to the table to avoid having to restructure the loan,” Walters said. The company’s report combines the Home Price Perception Index with the Home Value Index. This gap between homeowner perception and appraised values exists despite the increase in the average home appraisals by 0.84% since May, and an increase of 4.47% since June last year.

National Debt On Track To Hit 141% Of GDP As Outlook Worsens

The nation's long-term fiscal picture has grown considerably more dire over the past year, according to the latest forecast from the nonpartisan Congressional Budget Office, driven mainly by out-of-control spending.

The CBO now expects federal debt held by the public to reach 141% of the nation's GDP by 2046, assuming that current policies remain in place. That's up sharply from last year's forecast of 111%, and would be the highest level of debt in the nation's history.

The new forecast shows that annual deficits will top 8% of GDP by 2046, up from 2.9% this year. The growing deficit is entirely the result of increased spending. While revenues are expected to hit 19.4% of GDP that year -- up from this year and far higher than the post-World War II average -- federal spending will consume a record 28.2% of the economy by 2046.

And despite President Obama's promise that health care reform would help solve the nation's deficit problems, health care will continue to be a major driver of federal spending, the CBO says, climbing "much faster than the economy." As a result, federal spending on health care -- Medicare, Medicaid, ObamaCare, etc. -- will rise from 5.5% of GDP this year to 8.8% by 2046. In fact, by 2034, the federal government will spend more on health care than it does on defense, domestic discretionary programs and welfare programs combined. By 2046, nearly half of all federal revenues will go to pay health care bills.

How Venezuela Fell Apart

In 1950, when the global economy was struggling to recover from World War II, oil-rich Venezuela was the world’s fourth-wealthiest country, boasting a per capita GDP of $7,424 exceeded only by the United States, Switzerland and New Zealand. Indeed, Venezuela’s per capita income was nearly four times higher than that of Japan (at $1,873), nearly twice that of Germany ($4,281) and more than 12 times that of China ($614), according to NationMaster.com, an economics statistics site. By 2012, Venezuela’s per capita GDP ranked 68th in the world, according to the World Economic Forum. But it has continued to shrink since then, dropping 5.7% in 2015 and by a projected 7.1% rate in 2016, according to the country’s central bank. Inflation in Venezuela, the highest in the world, reached 159% in 2015 and is expected to grow to 204% this year, according to the International Monetary Fund.

Those statistics only hint at the depth of the country’s humanitarian crisis, marked by dramatic shortages of essential foods and consumer products. Today’s Venezuela is not an attractive locale for investment, but a landscape where armed guards fend off consumers desperate to purchase essential foodstuffs and household goods in short supply. According to the Pan Am Post, an online regional publication, the Venezuelan government recently identified at least 15 food items and 26 personal care items in short supply or unavailable in Venezuelan grocery stores.

“In Venezuela we have the kinds of scenes that you don’t expect to see in a relatively developed, modern economy and one of the largest oil producers in the world,” Penn Law professor William Burke-White says in an interview on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111.“The experience of the everyday citizen in Venezuela on the ground today is one of hunger and starvation.”

Burke-White adds that former Venezuelan President Hugo Chavez, who was in office from 1999 until his death in 2013, and his successor, current President Nicolas Maduro, built an economy based on the assumption that they would be able to generate enough revenues from oil to finance a comprehensive system of social welfare benefits. But once that income dried up as oil prices collapsed, the model fell apart, Burke-White explains. After oil prices fell, and the country was hit by a serious drought, “there wasn’t just economic hardship, but mass starvation on the streets.”

France, US hold talks over Brexit

Recession fears swirl despite strong jobs report

Not to spoil the afterglow from last week’s blockbuster report on job growth in June, but some economists are still fretting about the rising risk of recession.

The employment report appeared to alleviate worries of a downturn that had built after two straight months of feeble payroll gains and market fallout from the United Kingdom’s vote to leave the European Union. It showed that employers added a booming 287,000 jobs last month. Meanwhile, stocks have more than recovered their Brexit-related losses and are at record highs. And most analysts estimate the economy grew a solid 2.5% to 3% in the third quarter.

But economists are a wonky lot and they’re focused on an armada of more subtle indicators that are flashing yellow. UBS puts the risk of recession at 34% within the next 12 months, up from 23% a year ago, and JPMorgan Chase gives it 37% odds, both high marks for the firms in the recovery

That doesn’t mean a recession is in the cards, but it does suggest that the U.S. economy could be more vulnerable to a negative shock, such as an escalation of economic troubles in China, says UBS credit strategist Stephen Caprio,

ObamaCare Is Destroying The Co-Ops It Spent Billions Creating

After providing $2.4 billion in loans to get them started, ObamaCare is now driving several nonprofit insurance co-ops out of business. That, in turn, will leave tens of thousands of people scrambling to find other insurance, while making it unlikely that those taxpayer-subsidized loans will ever be repaid.

Of the 23 co-ops that started operations in 2014, only 10 remain, after Oregon's second co-op announced on Friday that it was going out of business at the end of the month. By year's end, Connecticut's will be out of business as well.

Most of these co-ops that failed last year simply weren't financially stable. But the recent spate of co-op failures is being driven by ObamaCare itself.

Because insurers operating in Obamacare exchanges are banned from pricing policies based on a person's health status, the government had to create an elaborate "risk adjustment" program to protect insurers who get stuck with too many sick people, by taking money from insurers that signed up mostly healthy ones. The problem is that many of the remaining — and already financially vulnerable — co-ops just found out that they owe millions to this program.

Why Working Multiple Jobs Will Be the New Normal

It’s tempting to think of the rise of the “gig economy” as a nice little bonus for people willing to put in the extra hours to get ahead. But, make no mistake -- the side-gig movement isn’t just an optional opportunity for those who want it. It’s actually a glimpse of the overall future of work.

That future is one in which people won’t just have one full-time job with a couple of side hustles. Instead, we’re going to see the rise of people working multiple jobs at the same time, up to the equivalent of full-time hours.

I know: That sounds outrageous. And, perhaps it is, right now. But we've been preparing for this inevitability for some time. Consider how high school students have been told for decades that they can’t expect simply one lifetime career. Even the advice that we should expect to have multiple careers in our lifetimes seems antiquated.

Why? Start with the fact that the working world is becoming overwhelmingly more entrepreneurial. The tools required to make a business are available to everyone for relatively little or no cost: website creation, advertising and marketing education, online programs that teach you how to code within a relatively short amount of time and platforms that help you run your business more smoothly.

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