21/6/15: ECB ELA for Greece: Welcome to a Daily Drip of 'Solvency'

Two days ago, I speculated on ECB's motives for drip-feeding ELA liquidity provisions to Greek banks (http://trueeconomics.blogspot.ie/2015/06/1962015-greek-ela-and-ecb-whats.html). And I have noted consistently that ELA is now running against available liquidity cushion, meaning Greek banks are now simultaneously, skirting close to ELA limits in terms of

• Eligible collateral, and
• ELA funds available to cover deposits outflows.

So, not surprisingly, two links come up today:

1. Ekathimerini reports that Greek banks have enough ELA-supported liquidity to sustain capital outflows through Monday only: http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_20/06/2015_551285 as on the day of EUR1.8 bn ELA extension approved by the ECB< Greek banks bled EUR1.7 billion in deposits, bringing week's total to EUR4.2 billion in outflows, and
2. Reuters report that the ECB has been all along planning to review/upgrade ELA after Monday emergency summit: http://www.reuters.com/article/2015/06/19/us-eurozone-greece-pm-idUSKBN0OZ0DP20150619

Thing is, Greek banks are now solvent solely down to an almost daily drip-feeding of liquidity by the ECB. Which, sort of, shows up the entire charade of the dysfunctional euro system: the pretence of monetary and financial systems stability is being sustained by not just extraordinary measures, but by an ICU-like mechanics of assuring that a patient is not pronounced dead too soon...

21/6/15: BankCheck Report into Anglo / IBRC Overcharging

So here, as promised, the full BankCheck report on Anglo/IBRC overcharging. I provide no comment. You can click on each individual frame to enlarge.

20/6/15: Irish Employment by Sector: Latest Data

Here are the latest stats for Irish employment across sectors, based on the EHECS Earnings Hours and Employment Costs Survey Quarterly reported by CSO:

Overall, there were 1,574,800 people employed across all sectors of economy in 1Q 2015, which represents an increase of 2.67% y/y. In 4Q 2014 y/y rise was 2.33%. Current level of employment is 9.9% below 1Q 2008, but since 1Q 2011 (during the tenure of current Government) the economy added some 59,700 jobs - a rate of jobs creation of 14,925 per annum. The rate of jobs creation did accelerate in the last twelve months: between 1Q 2013 and Q1 2014, the economy added 26,800 jobs and between 1Q 2014 and 1Q 2015 it added 41,000 jobs. Nonetheless, compared to 1Q 2008 there were 192,400 fewer workers in the economy at the end of 1Q 2015.

Here is the summary of changes (%) between 2008 average (do note this), 1Q 2014 and 1Q 2015 by sector:

Our 'smart' and 'knowledge' economy currently operates at employment levels in Information & Communication sector of some 59,800 (quite low, surprisingly, given the hype about the sector growth). And this represents an increase of only 1,800 (+3.1%) y/y, and a drop on 1Q 2008 levels of 5,000 jobs. Another category of 'smart'/'knowledge' workers is Professional, scientific and technical activities. Here things are even worse. Total level of employment in this category at the end of 1Q 2015 stood at 79,000, which represents a drop of 5,100 y/y (-6.1%) and a decline of 2,600 on 1Q 2008.

This dovetails with the evidence on STEM-related employment presented here: http://trueeconomics.blogspot.ie/2015/06/20615-stem-to-bull-time-to-rethink.html

Overall, only two areas of activity have managed to post higher 1Q 2015 employment levels than 1Q 2015: Education (+3,900) as well as Human Health and Social Work (+19,000).

20/6/15: Danske Outlook & Forecast for Ukraine

Danske Bank outlook and forecast for Ukraine:

20/6/15: Danske: Outlook & Forecast for Russia

Danske Bank latest outlook and forecasts for Russia:

20/6/15: WLASze: Weekend Links of Arts, Sciences & zero economics

Couple of non-economics related, but hugely important links worth looking into... or an infrequent entry into my old series of WLASze: Weekend Links of Arts, Sciences and zero economics...

Firstly, via Stanford, we have a warning about the dire state of nature: http://news.stanford.edu/news/2015/june/mass-extinction-ehrlich-061915.html. A quote: "There is no longer any doubt: We are entering a mass extinction that threatens humanity's existence." if we think we can't even handle a man-made crisis of debt overhang in the likes of Greece, what hope do we have in handling the existential threat?

Am I overhyping things? May be. Or may be not. As population ages, our ability to sustain ourselves is increasingly dependent on better food, nutrition, quality of environment etc. Not solely because we want to eat/breath/live better, but also because of brutal arithmetic: economic activity that sustains our lives depends on productivity. And productivity declines precipitously with ageing population.

So even if you think the extinction event is a rhetorical exaggeration by a bunch of scientists, brutal (and even linear - forget complex) systems of our socio-economic models imply serious and growing inter-connection between our man-made shocks and natural systems capacity to withstand them.


Secondly, via the Slate, we have a nagging suspicion that not everything technologically smart is... err... smart: "Meet the Bots: Artificial stupidity can be just as dangerous as artificial intelligence
http://www.slate.com/articles/technology/future_tense/2015/04/artificial_stupidity_can_be_just_as_dangerous_as_artificial_intelligence.html.

"Bots, like rats, have colonized an astounding range of environments. …perhaps the most fascinating element here is that [AI sceptics] warnings focus on hypothetical malicious automatons while ignoring real ones."

The article goes on to list examples of harmful bots currently populating the web. But it evades the key question asked in the heading: what if AI is not intelligent at all, but is superficially capable of faking intelligence to a degree? Imagine the world where we co-share space with bots that can replicate emotional, social, behavioural and mental intelligence up to a high degree, but fail beyond certain bound. What then? Will the average / median denominator of human interactions converge to that bound as well? Will we gradually witness disappearance of human capacity of by-pass complex, but measurable or mappable systems of logic, thus reducing the richness and complexity of our own world? If so, how soon will humanity become a slightly improved model of today's Twitter?

Thirdly, "What happens when we can’t test scientific theories?" via the Prospect Mag: http://www.prospectmagazine.co.uk/features/what-happens-when-we-cant-test-scientific-theories
"Scientific knowledge is supposed to be empirical: to be accepted as scientific, a theory must be falsifiable… This argument …is generally accepted by most scientists today as determining what is and is not a scientific theory. In recent years, however, many physicists have developed theories of great mathematical elegance, but which are beyond the reach of empirical falsification, even in principle. The uncomfortable question that arises is whether they can still be regarded as science."

The reason why this is important to us is that the question of falsifiability of modern theories is non-trivial to the way we structure our inquiry into the reality: the distinction between art, science and philosophy becomes blurred when one set of knowledge relies exclusively on the tools used in the other. So much so, that even the notion of knowledge, popularly associated with inquiry delivered via science, is usually not extendable to art and philosophy. Example in a quote: “Mathematical tools enable us to
investigate reality, but the mathematical concepts themselves do not necessarily imply physical reality”.

Now, personally, I don't give a damn if something implies physical reality or not, as long as that something is not designed to support such an implication. Mathematics, therefore, is a form of knowledge and we don't care if there are physical reality implications of it or not. But physical sciences purport to hold a specific, more qualitatively important corner of knowledge: that of being physically grounded in 'reality'. In other words, the very alleged supremacy of physical sciences arises not from their superiority as fields of inquiry (quality of insight is much higher in art, mathematics and philosophy than in, say, biosciences and experimental physics), but in their superiority in application (gravity has more tangible applications to our physical world than, say, topology).

So we have a crisis of sorts for physical sciences: their superiority is now run out of the road and has to yield to the superiority of abstract fields of knowledge. Bad news for humanity: deterministic nature of experimental knowledge is getting exhausted. With it, determinism surrounding our concept of knowledge diminishes too. Good news for humanity: this does not change much. Whether or not the string theory is provable is irrelevant to us. As soon as it becomes relevant, it will be, by Popperian definition, falsifiable. Until then, marvel of the infinite world of abstract.

20/6/15: STEM to Bull: Time to Rethink Irish Tech Propaganda?

So we are being told there are brilliant opportunities available in employment in Sciences, Technology, Engineering, & Mathematics (STEM) fields in Ireland and that the demand for workers in these sectors is outstripping anything anything else.

As always, reality is a bit more complex than the wholesale sloganeering suggests.

Here is the latest data for annual average earnings by activity:

As you can see from the above, STEM-related occupations are not exactly homogeneous... Take Human Health, where there is very severe rationing of medical degrees and education opportunities coinciding with falling earnings. And look at non-STEM sectors, like Finance, where there are growing earnings.

Next, take pharma sector - a core STEM sector where, allegedly, there are plentiful employment opportunities in Ireland. Per Enterprise Ireland: "Employment in the sector has grown from 5,200 in 1988 to 25,300 in 2010" (http://www.een-ireland.ie/eei/assets/documents/uploaded/general/Pharmaceuticals%20Fact%20sheet.pdf). Which sounds impressive.

But, here is the definitive CSO data (latest we have is 2013):

Between 2006 and 2013, employment in the sector (primarily containing pharma sub-sector) has dropped, not risen, going from 29,010 in 2006 to 23,948 in 2013. And do note: Enterprise Ireland document linked above attributes all jobs in the Checmical & Pharmaceutical sector in 2010 to Pharma sub-sector. Which, of course, is clearly not the case.

Do we really want to treat STEM as a 'panacea' for incoming new students and for the economy? Or should we stop propagandising individual sets of skills and support students best matching their ability and interest to educational offers? After all, call me old-fashioned, but a good writer is infinitely more productive (and socially valuable) than a bad engineer or a discouraged coder.

20/6/15: Keep Faith in Ireland's Energy Regulator

So remember the promise of CER-driven regulatory pricing of energy in Ireland? It went something like: we set high tariffs to encourage competition which will lower prices in the long run.

The problem is: the long run never arrives, while prices remain set sky high, effectively extracting cash out households to sustain huge pay perks in the energy sector and massive white elephant investment schemes by dominant players in the markets.

Want evidence - take Eurostat data (http://ec.europa.eu/eurostat/documents/2995521/6849826/8-27052015-AP-EN.pdf/):

Our 'independent' regulation model means that state-owned quasi-monopolies are fleecing consumers at the rate of pricing that is the highest in the EU. Lower incidence of energy-linked taxes and levies results in total end price to consumer being the third highest in the EU. But in terms of what producers collect - it is the highest. Say 'cheers' next time you pass by the surreal 'charging' stations that ESB erected around Dublin for imaginary electric cars. They are paid for by you and me. Say 'thanks' next time you hear that ESB average salaries are in excess of EUR80K/pa - they too are paid by you and me.

That is some achievement of our 'independent' regulator. The same one who is now regulating Irish Water that promises, again in the proverbial long run, to deliver better services at better cost.

Have faith and keep paying!

19/6/2015: Two charts plotting long term GDP crises and cumulative growth

One hell of a neat chart plotting cases of largest GDP drops in history (since 1950) by country and period:

via @FT, h/t @ReutersJamie 

Note Russia, Ukraine, Georgia and rest of the former USSR.

Now, using IMF database, and referencing the first year when there is sufficient consistent level of data covered in the database (1993), here is a chart plotting 50 lowest growth states in the global economy in terms of cumulative real GDP increases between 1993 and 2014:

Have fun with this.

19/6/2015: Greek ELA and ECB... What's the Rationale?

The price of getting Greece ejected or pushed out of the euro has now risen once again as ECB added to the ELA provided to Greek banks amidst a bank run that is sapping as much as EUR800mln per day.

In basic terms, ECB is allowing lending via Eurosystem to Greek banks to fund withdrawals of deposits. Once deposits are monetised and shifted out of Greek banks, Eurosystem holds a liability, Greek depositors hold an asset and the latter cannot be seized to cover the former. ECB was very unhappy with doing the same for Ireland at the height of the crisis, resulting in a huge shift of ELA debt onto taxpayers' shoulders via Anglo ELA conversion into Government bonds.

But ECB continues to increase Greek ELA. Why? We do not know, but we can speculate. Specifically there can be only three reasons the ECB is doing this:

Reason 1: increase the cost of letting Greece go. If Greece crashes out of the euro zone, the ELA liabilities will have to be covered out of Eurosystem funds, implying - in theory - a hit on member-states central banks. In theory, I stress this bit, this means higher ELA, greater incentives to keep member states negotiating with intransigent Greece. Why am I stressing the 'in theory' bet? Because in the end, even if Greece does crash out of the euro area, ELA liabilities can be easily written off by the ECB or monetized (electronically) without any cost to the member states.

Reason 2: keep Greece within the euro area as long as possible, thus allowing the member states to hammer out some sort of an agreement. In theory, this implies that the ECB is buying time by giving cash to Greek depositors so they can run, in hope that they continue to run at a 'reasonable' rate (at, say, less than EUR2 billion per day or so). In practice, however, this is a very short-term position.

Reason 3: ECB is monetizing Greek run on the banks in hope that Greece does crash out of the euro. Here's how the scheme might work: increasing ELA for Greece weakens Greek banks and, simultaneously, strengthens the incentives for Greece to exit the euro once deposits left in the system become negligible and the economy is fully cashed-in. On such an exit, Greek residents will be holding physical euros that cannot be expropriated by the Eurosystem, and thus Greece can launch drachma at highly devalued exchange rate, while relying on a buffer of cash in euros held within the economy.

I am not going to speculate which reason holds, but I will note that all three are pretty dire.

Take your bets, ladies and gentlemen.

17/6/2015: Mr. John Flynn’s Letter to the Banking Inquiry

Here is a letter by Mr. John Flynn informing the Banking Inquiry Chairman, Ciaran Lynch, T.D. about the issue of overcharging at the Anglo Irish Bank, subsequent extent of the problem in legacy-resolution institutions and detailing the substance of the developments in the U.S. court case relating to Anglo overcharging:

Note: I was informed by Mr. Flynn that he received no substantive reply to his communications to the Banking Inquiry.

Note: You can follow the topic of overcharging and other sharp practices and questionable strategies deployed in the post-banking crisis resolution process in Ireland here:

1. Deputy Peter Mathews June 2015 speech on the issue of overcharging by Anglo, its legacy and issues relating to Nama was covered here: http://trueeconomics.blogspot.ie/2015/06/1062015-bombshell-goes-off-on-anglo.html
2. My summary view of the Anglo’s sharp practices toxic legacy: http://trueeconomics.blogspot.ie/2015/06/11615-anglos-toxic-legacy-it-is-still.html
3. Mr. Declan Ganley’s Affidavit from 2013 concerning overcharging: http://trueeconomics.blogspot.ie/2015/06/12615-anglo-overcharging-saga-ganley.html
4. Deputy Mick Wallace’s speech in June 2015 delivered in the Dail on the subject of Nama and Anglo legacy with my introduction of the concept of value destruction: http://trueeconomics.blogspot.ie/2015/06/14615-why-read-wallaces-speech-on-nama.html 
5. Mr. John Morrissey’s legal letter on overcharging: http://trueeconomics.blogspot.ie/2015/06/11615-full-letter-concerning-ibrc.html 
6. Nama value destruction contextualised in a sample of 10 deals concluded by the agency: http://trueeconomics.blogspot.ie/2015/06/17615-10-cases-worth-asking-nama-about.html
7. Mr. John Flynn’s letter to the members of the Dail covering Irish and U.S. evidence on overcharging: http://trueeconomics.blogspot.ie/2015/06/17615-mr-john-flynn-letter-to-tds-on.html 

18/6/15: Russian Central Bank Targets Rebuilding of Foreign Reserves

Recently, speaking at a banking conference in St Petersburg, Elvira Nabiullina, head of the Central Bank of Russia outlined the CBR position on foreign exchange reserves. Nabiullina note that Russian reserves are large - sufficient to cover almost 11 months of imports. However, Nabiullina's 'comfort zone' target for the reserves to cover 2-3 years of "substantial capital outflows", implying she would like to see Russian reserves rising back to USD500 billion mark. Nabiullina is now targeting purchases of forex over the next few years to drive up reserves and to that objective she has been buying on average USD200mln worth of forex per day since mid-May.

In line with forex reserves rebuilding objective, Nabiullina cautioned about markets expectations of further large scale cuts to interest rates as the CBR is trying to balance out inflation targeting (requiring tighter monetary policy), investment supports (requiring looser policy) and accumulation of reserves (implying looser policy).

Per Nabiullina: "Attempts to reduce the interest rates too fast or even acquire certain assets may simply lead to stronger inflation, to an outflow of capital or to dollarisation of the economy, and that would slow down the economic growth, other than promote it."

In its latest outlook, CBR forecast unemployment reaching 6.5% this year from the current rate of 5.6%, before falling to 5.6-5.8% by 2018. GDP is expected to shrink 3.2% in 2015, returning to trend growth of 1.7-2.4% around 2017-2018. Inflation is expected to hit 11% at the end of 2015 with rather optimistic outlook for a decline to "less than 7%" by June 2016, and "close to the target level" of 4% in 2017.

Net capital outflows are expected to decline from USD90 billion in 2015 to USD55-65 billion in 2018. "We are expecting the financial sanctions against Russia to remain in place. Payments on foreign debts during this period will constitute the bulk of the capital outflow. It will gradually reduce from $90 billion to about $55-65 billion during 2015-2018, depending on the scenario," according to Nabiullina.

Russian International Reserves reached USD360.6 billion at the end of last week, up on USD356 billion low registered in April 2015. Still, the reserves are down USD117.7 billion y/y (-24.6%) and down USD132.73 billion (-26.9%) on pre-sanctions period.