Focus on the Eurozone

Euro crisis putting the hurt on ethylene production

Production of ethylene, a material used in a variety of products such as plastics and synthetic fibers, has started to fall at petrochemical complexes.

The Asahi Shumbun,

30 December,2011

This signals that the European sovereign debt crisis is beginning to spread to emerging economies and that it will cause production declines around the world.

"There is global uncertainty about the future. The psychological pressure is strong," said Showa Denko K.K. Chairman Kyohei Takahashi, who also chairs the Japan Petrochemical Industry Association (JPCA), at a news conference in November as he explained why chemical manufacturers across the board have started to slow production.

The biggest reason is that orders from China, which the industry has come to rely on, have started to fall in number, he said. And the cause is the crisis in Europe.

Japan exports to China plastics, fibers and other materials made from ethylene. Chinese firms then use them to make products such as clothing, home appliances and automotive parts that they then export to the West. As consumption "downstream" in Europe falls, the effects are felt "upstream" in Japan.

For article GO HERE

Italy seeks bigger euro fund after tough debt sale

Italian Prime Minister Mario Monti sought reinforcement for the euro zone's bailout fund and pledged new efforts to boost the economy after a disappointing bond auction on Thursday underlined the threat to the country's shaky public finances.

Reuters,

30 December, 2011

Investors demanded a yield of nearly 7 percent on 10-year paper at the auction of medium- and long-term bonds, down from the record highs seen last month but still unsustainable given the 450 billion euros ($580 billion) that Italy needs to raise through debt issuance in 2012.

An unprecedented European Central Bank injection last week of nearly half a trillion euros of cheap funding for banks eased pressure at a short-term Italian debt auction on Wednesday, but longer-dated bonds still pose a challenge.

Monti put a brave face on the auction result, which analysts described as "slightly positive" or "average" at best.

"Auctions held yesterday and today went rather well, this is encouraging but the financial turbulence absolutely isn't over," Monti said during a traditional end-year press conference.

For article GO HERE

Jim Rogers: Little Reason for Optimism in Anything but Agriculture

World markets may be riddled with uncertainty, but billionaire investor Jim Rogers anticipates gains in one sector for years to come.

CNBC,

28 December, 2011

“If I were buying anything I’d be buying agricultural commodities,” he says. “Going forward we’re going to have huge shortages of everything – including farmers – I think ag will be a great place for the next 10-20 years,” he says.

But don’t take that to mean that ag stocks are a buy – that’s not what he means. 

“Yale did a study recently showing that investors made 300% more by putting money in commodities themselves rather than commodity stocks – that is unless you’re a great stock picker.”

In other words, he’d play his thesis with commodities futures   or ETFs that track them. 

And his thesis is based on massive research, part of which involves the performance of commodities in the 1970’s. “At the time economies did nothing and yet commodities went through the roof,” he explains.

Jim Rogers co-founded the Quantum Fund with George Soros in 1973. Although a native of Alabama, Rogers famously moved to Singapore due to his on-going belief that Asia is on the cusp of great prosperity.

“He’s an investor who eats his own cooking,” says Fast Money trader Stephen Weiss. In other words, he doesn’t just talk the talk, Rogers walks the walk.

And largely Rogers is short because he is not optimistic about what’s going to happen in the world over the next two or three years.

“I’m short emerging markets, short American technology, short European stocks – I don’t see much reason to own equities,” he says.

In a nutshell, Rogers expects global economic problems to get much worse. 

But whether that happens or not he still thinks a long position in commodities makes sense.  That’s the one area of the market where he sees potential.

Here's why.

If his thesis doesn’t hold and the economies of the world improve, “I’ll make money in commodities because (increased demand will generate) shortages,” he says. “But if the world doesn’t get better, then governments print money and the way to protect against that is to own real assets.”

In other words, he thinks commodities are a win/win.

And in case you’re wondering about his thoughts on gold [GCCV1  1556.80    15.90  (+1.03%)   ], Rogers says, “it would not surprise me to see gold go to $1200 – but if it goes that low I’d buy a lot more – gold has been up 11 years in a row it deserves a substantial correction.”

All eyes on the Straits of Hormuz

If Iran Moves, the USA Has No Plan for an Oil Interruption

Huffington Post, 

28 December,2011

It will come as a shock to most Americans, but no presidential candidate -- nor any candidate, nor any local, state or federal government -- has developed a contingency plan in the event of a protracted oil cut-off. It is not even being discussed. Government has prepared for hurricanes, anthrax, terrorism, and every other disaster, but not the one threatened daily -- a protracted oil stoppage, whether caused by terrorism or Iranian intervention in the Persian Gulf.

It is like seeing a hurricane developing without a disaster plan or evacuation route. Our allies have oil shortage interruption contingency plans, but America does not.

The crude realities: America uses approximately 19 to 20 million barrels of oil per day, almost 70 percent of which is imported. If we lose just 1 million barrels per day, or suffer the type of damage sustained from Hurricane Katrina, the government will open the Strategic Petroleum Reserve, which offers a mere 6 to 8 week supply of unrefined crude oil. If we lose 1.5 million barrels per day, or approximately 7.5 percent, we will ask our allies in the 28-member International Energy Agency to open their SPRs and otherwise assist. If we lose 2 million barrels per day, or ten percent for a protracted period of time, government crisis monitors say the chaos will be so catastrophic they cannot even model it. One government oil crisis source told me hours ago, "We cannot put a price tag on it. If it happens, just cash in your 401k."

Exactly how could America be subjected to a protracted oil interruption, that is, a 10 percent shortfall lasting longer than several weeks? It will not come from hurricane action in the Gulf of Mexico, or even major refinery accidents or other oil infrastructure damage. Such damage would be repaired within days and the temporary losses absorbed by the small half million barrel per day global cushion available.

However, if one, two, or all of three of these vital chokepoints are hit by terrorists flying hijacked jumbo jets or shut down by Iranian military action -- the Abqaiq processing plant in eastern Saudi Arabia, the Ras Tanura terminal on Saudi Arabian coast, or the two-mile per sea lane Strait of Hormuz -- as much as 40 percent of all seaborne oil will be stopped, as much as 18 percent of all global supply will be interrupted, and as much as 20 percent of the U.S. supply will be cut off. Estimates on the U.S. shortfall could be even higher. Repeat attacks could prolong the crisis for many months, which is exactly what Al Qaeda and the Iranian regime have promised. Yet there is no government plan.

The best experts predict that if we suffer as much as a ten percent shortfall for any period of time, let alone twenty percent, it will be a neighbor-against-neighbor "Mad Max scenario" as food shortages swell and a storm of economic collapse surges across the country. Indeed, experts have been warning about this looming calamity for years. But the government and presidential candidates refuse to even consider the possibility or develop a contingency plan. Even if a secret plan exists, who would execute such a monumental undertaking?

Yet American allies have developed oil contingency legislation and other administrative plans that will permit their nations to survive a stoppage. These measures include severe vehicle traffic reductions, enabling fast alternative fuel production, mass vehicle fuel retrofitting, as well as rush public transit enhancement and mandated changes in driving habits. Unquestionably, for America to survive such a catastrophe will require a very painful, multi-layered program of immediate-term, short-term, mid-term and long-term fixes that will change our society and transform it off oil. The nation has no real alternative fuel delivery or retrofitting infrastructure. Lawmakers, mayors, governors and candidates have not developed such a plan during the half decade the interruption has been looming.

The notion that Saudi Arabia can make up the shortfall from an Iranian disruption is impossible. Saudi oil disembarks from Ras Tanura and it, too, must pass through the narrow two-mile wide sea lanes of the Strait. For America to have prepared intelligently for a Persian Gulf oil interruption would have required a decade of planning. To absorb the hit from a sudden oil stoppage as is now once again threatened, will be very painful indeed.

Strait of Hormuz standoff continues as Iran films US aircraft carrier

Iran claimed to have successfully taken surveillance footage of a US aircraft carrier near the Strait of Hormuz today as both countries raised the stakes in their standoff over the critical oil route.

the Telegraph,

30 December, 2011

The commander of Iran's navy said the reconnaissance mission was proof that his fleet had "control over the moves by foreign forces" but it was unclear what intelligence could be derived from the grainy video, which was played triumphantly on state television.

Admiral Habibollah Sayyari's statement came as Iranian ships, helicopters and submarines continued a 10-day war game exercise designed to give credibility to the country's threat to close the Strait and choke off the world's oil supplies if the West moves ahead with sanctions.

The drill is underway in international waters near the Strait and only a few hundred miles from America's Bahrain-based Fifth Fleet. The US Navy has vowed to prevent any closure of the channel, through which 15 million barrels of oil pass every day.

A Navy spokeswoman would not comment on the footage but confirmed that the USS John C Stennis, one of the fleet's largest carriers, was on a "routine transit" through the Strait to provide support to Nato forces in Afghanistan.

Despite the Fifth Fleet's advantage in firepower, a senior Revolutionary Guard commander vowed yesterday that "Any threat will be responded [to] by threat."

"We will not relinquish our strategic moves if Iran's vital interests are undermined by any means," General Hossein Salami told Press TV.

This afternoon, the US also announced it was selling more than 80 F-15 strike aircraft to Saudi Arabia, an American ally and Iran's main rival for military dominance in the Middle East. Without specifically naming Iran, the State Department said the sale was intended as "a strong message to countries in the region that the United States is committed to stability in the Gulf and broader Middle East."

Barry Pavel, Director of the Brent Scowcroft Centre on International Security at the Atlantic Council, said that Iran's navy was potentially capable of closing the Strait but would be unlikely to do so because of the country's dependence on revenues from oil exports. "It would have to be a very extreme situation for Iran to basically shut down its own economy," he said.

The Iranian threat to close the narrow shipping lane was made after the EU, backed by the US, announced it was tightening sanctions on Iran for pressing ahead with its nuclear programme. Europe buys around 20 per cent of all Iranian oil exports and a full embargo would cause serious damage to Iran's economy.

China urges stability in Strait of Hormuz

China urged peace and stability on Thursday after Tehran threatened to punish proposed Western sanctions by choking off oil flows through the Strait of Hormuz, but declined to make any other comment about the crisis.

Reuters,

30 December, 2011

The foreign ministry's terse, one sentence public response to Tehran's threats over the world's most important oil route reflects China's sensitivities about its close business links with Iran

.

"China hopes that peace and stability can be maintained in the strait," ministry spokesman Hong Lei told a briefing in answer to a question about escalating tensions that have pushed up oil prices.

He did not answer a question about whether China had had any contact with Tehran or other governments about the threat.

China's official Xinhua news agency said in a commentary speculation about war with Iran over the past few years had ended up simply amounting to "crying wolf."

"To avoid the real arrival of the wolf, all sides should show greater sincerity and flexibility," it wrote.

For article GO HERE

Japanese economic decline

Japan Industrial Production Declines 2.6%

Mish’s Global Economic Analysis,

27 December, 2011

A torrent of bad news hit Japan in November. Please consider some details from the Bloomberg article Japan Factory Output Falls on Global Slump

• Factory output fell 2.6 percent from October

• Exports fell for the second straight month

• Capital spending in the third quarter dropped 9.8 percent

• The Bank of Japan Tankan quarterly index of corporate sentiment fell to minus 4 this month. A negative figure indicates that pessimists outnumber optimists

Japan blames this mess on a strong Yen and Thailand’s worst flooding in almost 70 years. The flooding crippled the output in Southeast Asia of Japanese companies such as Sony Corp. and Honda Motor Co. 

Japan created four separate "supplementary budgets" totaling of 20 trillion yen ($257 billion) to deal with the the earthquake and tsunami. In 2012, Japan will create a "separate budget" for reconstruction. 

However, no matter how many piles spending is split into, Japanese deficit spending cannot be hidden. 

Japan's problems don't stop there. Europe is Japan's third largest export market, and Europe is a basket case. Europe will remain a basket case if Eurozone austerity measures are even modestly implemented.

Land of the Rising Debt

Pater Tenebrarum had some excellent charts and commentary in his post Land of the Rising Debt

Government spending does not 'spur growth'. If it did, Japan would have been the world's growth engine for the past two decades. In reality, every cent the government spends must be taken from the private sector and therefore can no longer be spent or invested by it. We can see what the government's spending achieves (not much) – what we cannot see is what would have been achieved had the government left well enough alone and the private sector had saved, spent and invested instead. This is the 'broken window effect' – one must not only consider the obvious economic effects of a policy, but also the 'unseen' ones. Government spending is a burden, not a boon.

Like its counterparts in Europe, Japan's government tries to get its house in order not by reducing spending – apparently a completely taboo subject in Japan – but by raising taxes. This will predictably - just as it does in Europe - double the burden on the economy. Since these tax hikes are immensely unpopular in Japan, it is not necessarily likely that they will happen. Moreover, there may be no more time to take effective countermeasures against the growing debt load: the death spiral may well begin before such measures can be implemented and take effect.

Not only is Japan's debt-to-GDP ratio uncomfortably high, its tax revenues continue to decline precipitously as a percentage of government spending.

In such a situation, the level of interest rates becomes an ever growing concern. Right now, Japan's interest rates remain among the very lowest in the world. And yet, in spite of near record low interest rates, the percentage of tax revenue the government must spend on interest expenses is increasing fast.

Powder Keg Waiting for a Spark

The pertinent point is not the sorry state of affairs including a debt-to-GDP ratio of 220%, but rather when it matters. So far Japan has avoided printing on the scale of the Bernanke Fed, but one has to wonder how long that can continue in spite of Japan's dire worst in the industrialized-world demographics.

Tenebrarum points out "At the moment, JGB's trade like 'risk free' debt, in spite of the fact that Japan has lost its 'AAA' rating long ago and has been downgraded again this year, with further downgrades likely. Should the percentage of foreign ownership of JGB's rise significantly, the probability of a 'non-linear' debt market convulsion will rise commensurately. The Japanese government can 'financially repress' its own institutions, but not foreign investors."

"It seems rather like a powder keg waiting for a spark".

Indeed! Moreover, Japan's efforts to kick the can down the road perpetually issuing short-term debt that will need to be rolled over at some point insures the explosion will be massive once the debt-bomb finally ignites. Please see Japan Seeks to Market Record 145 Trillion Yen Bonds in 2012; Kicking the Can Japanese Style for a brief analysis.

Iran -propaganda and sabre-rattling

For Iran, cost of closing strait may outweigh gain

Google,

30 December, 2011

CAIRO (AP) — With missile batteries, fleets of attack boats and stocks of naval mines, Iran can disrupt traffic through the Strait of Hormuz but probably cannot completely shut down the world's most important oil route, military analysts say. The question for Iran's leadership is whether it is worth the heavy price.

Trying to close the strait would bring down a powerful military response on Iran's head from U.S. forces in the Gulf and turn Tehran's few remaining international allies against it.

That Iran is making such dire threats at all illustrates its alarm over new sanctions planned by the U.S. that will target oil exports — the most vital source of revenue for its economy. Iran's leaders shrugged off years of past sanctions by the U.S. and United Nations, mocking them as ineffective. But if it cannot sell its oil, its already-suffering economy will be sent into a tailspin.

"It would be very, very difficult for Iran even to impede traffic for a significant period of time," said Jonathan Rue, a senior research analyst at the Washington-based Institute for the Study of War. "They don't have the ability to effectively block the strait."

What the Iranians can do, Rue and other analysts say, is harass traffic through the Gulf — anything from stopping tankers to outright attacks. The goal would be to panic markets, drive up shipping insurance rates and spark a rise in world oil prices enough to pressure the United States to back down on sanctions.

The strait would seem to be an easy target, a bottleneck only about 30 miles (50 kilometers) across at its narrowest point between Iran and Oman.

Tankers carrying one-sixth of the world's oil supply pass through it, from the fields of petrogiants Iran and its Gulf Arab neighbors, exiting the Persian Gulf into the Arabian Sea and on to market. They move through two two-mile-wide shipping lanes, one entering the Gulf, one exiting.

In recent years, Iran has dramatically ramped up its navy, increasing its arsenal of fast-attack ships, anti-ship missiles and mine-laying vessels. Its elite Revolutionary Guards boasts the most powerful naval forces, with approximately 20,000 men, with at least 10 missile patrol boats boasting C-802 missiles with a range of 70 miles (120 kilometers) and a large number of smaller patrol boats with rocket launchers and heavy machine guns, according to a recent report by Anthony Cordesman at the Center for Strategic and International Studies.

The navy has three submarines and an unknown number of midget subs, capable of firing "smart" torpedoes or laying mines. It also has a large scale capability for laying mines using both small craft and commercial boats, according to the report.

The Revolutionary Guard has also deployed a heavy array of anti-ship Seersucker missiles with a range of up to 60 miles (100 kilometers) along its coast overlooking the strait, on mobile platforms that make them harder to hit.

The Guard's naval forces and the regular navy "have been the most favored service. The Iranian air force and ground forces have not seen the same level of attention in domestic procurement and weapons systems," Rue said. "They realize their navies are the best options for inflicting casualties" on the U.S. or Arab Gulf nations.

Still, those forces would not likely be enough to outright seal the strait, given the presence of the U.S. 5th Fleet based in the Gulf nation of Bahrain. On Wednesday, Pentagon spokesman George Little warned that any "Interference with the transit or passage of vessels through the Strait of Hormuz will not be tolerated."

Laying minefields in the Hormuz waters would in theory be the most effective action, forcing time-consuming clearing by U.S. forces and their allies before tankers could move through.

But particularly strong currents in the strait make such mining difficult. Moreover, the U.S. and its Gulf allies have extensive surveillance in the area, meaning the Iranians would have little time to set an effective minefield, Rue said. The United Arab Emirates and Saudi Arabia have both extensively increased their anti-mining capabilities.

Iran's anti-ship missile batteries on the coast are another major threat. But while the missile platforms are mobile, the radar facilities that enable them to target shipping largely are not, making them vulnerable to U.S. strikes.

"It wouldn't be a cakewalk" for U.S. and other forces to push back an Iranian attempt to close the strait, Rue said. But in the end, "their capabilities are not great and ours overwhelmingly outmatch theirs."

The closest parallel may be the 1980-88 Iran-Iraq war, when each side attacked shipping in the Gulf, trying to cut off the other's vital oil revenues. More than 500 ships were damaged in attacks, and Iranian mining and assaults prompted a U.S. operation escorting Kuwaiti tankers. But while oil shipments from the Gulf slowed, they came nowhere close to stopping.

Alireza Nader, an analyst at the RAND Corp., said Iran could start with lower-level moves short of outright attacks.

"It could harass shipping, stopping and searching ships. We could see those kind of provocative steps," he said.

But turning to military moves raises the danger for Iran of retaliation. And trying to close the strait could be disastrous for Tehran.

"If the benefits are higher than the costs, it could take that action, but it's difficult to see how that could be because of how bad the fallout would be," Nader said. "It's economic self-sabotage."

Hormuz is in the territorial waters of Iran and Oman, but it is considered an international strait where free passage is guaranteed, meaning that under international law, closing it by any nation would be considered an act of war. Russia and China, Iran's main allies that have protected it from stronger U.N. sanctions, would have little choice but to respond. Russia, which now has oil production contracts in Iraq, and China, which relies on the region for its supplies, also have no interest in seeing traffic stop, said Olivier Jakob of the Switzerland-based oil monitor Petromatrix.

Hormuz's closure would also be a heavier blow to Iran than any sanctions hitting the approximately 2.5 billion barrels a day of oil it exports, which provide some 80 percent of its revenue. Not only do all of its oil exports go through the strait, but also most of its imports, including vital gasoline supplies.

"A full shutdown would really be the worse case for Iran. That's their last bullet," Jakob said.

Given that, U.S. officials have expressed doubts Iran would carry out the threat. State Department spokesman Mark Toner called Iran's warnings merely "more rhetoric."

Iran has threatened to close the strait in the past, but in response to a U.S. or Israeli attack on its nuclear facilities. Now it has stepped it up a notch as a possible retaliation to sanctions, reflecting the degree of worry over the planned U.S. sanctions aimed at stopping its nuclear program,

The sanctions would ban transactions with the Iranian Central Bank. Countries and companies around the world use the bank to finance purchases of Iranian oil, meaning they would either have to stop buying it or face action from Washington.

Halting — or even denting — oil income would be devastating to an economy that is already struggling amid its international isolation. The value of Iran's riyal is now 15,200 to the dollar, from 10,500 a year ago. Cash withdrawals from banks have been restricted.

Prices of food and grocery items like milk have increased up to 20 percent in recent months. In an attempt to cut its budget, the government recently ended subsidies on fuel and some foods, sending gas prices up sevenfold and quadrupling bread prices. In place of subsidies, the government gives direct payments of $40 a month to poor families to pay for necessities.

The threats also reflect a worry among Iran's leaders that its oil can be replaced on the market by Arab producers, particularly Saudi Arabia, without too great an increase in world prices, said Mustafa Alani, a Geneva-based analyst with the Gulf Research Center. That makes a cutoff a viable option for the U.S., and if that happens "the economy will collapse."

"All the noise about Hormuz is linked to the feeling that it is possible, and they say, 'if we go down, we will take everyone with us.' If Iranian oil stops, then all the oil stops," he said.

But in the end, "I don't think they are willing to do it because the consequences would cost them too much," Alani said. "I don't think they are so stupid."

US navy crosses Strait of Hormuz after Iranian oil threats

RT,

29 September,2011

An Iranian warplane has spotted a US aircraft carrier during Tehran’s ongoing navy drill in the Persian Gulf, reports IRNA news agency. The US fleet’s maneuvers come after Iran threatened to block the oil flow through the Strait of Hormuz.

?Tehran’s surveillance jet has shot a video and pictures of the American carrier, which was later identified as John C. Stennis. The US Fifth Fleet keeps a military base in Bahrain, while the ship was spotted in the Gulf of Oman after crossing the Strait of Hormuz.

“An Iranian vessel and surveillance plane have tracked, filmed and photographed a US aircraft carrier as it was entering the Gulf of Oman from the Persian Gulf,” said Adm. Habibollah Sayyari, Iran's navy chief, as cited by the official IRNA.

“The foreign fleet will be warned by Iranian forces if it enters the area of the drill," added Sayyari.

Watch more on Iran's navy drill

The US navy confirmed on Thursday the aircraft carrier John C. Stennis had indeed headed for the Gulf of Oman, accompanied by guided-missile cruiser Mobile Bay and several other vessels. But that was “a pre-planned, routine transit” as the group was to provide air support to allied troops in Afghanistan, said Lt. Rebecca Rebarich, the spokesperson for the US Fifth Fleet.

Since Saturday, Iran has been conducting a 10-day navy drill in international waters near the Strait of Hormuz, the gateway for up to 40 per cent of world’s oil supply with the US and EU among major customers. Tehran promised to block the strait if Washington sanctions Iran’s oil exports out of suspicions that Iran is developing nuclear weapons. The US vowed not to allow Tehran to choke off the vital oil route.

While Tehran seems to be reaffirming its naval might in the region, Reuters reports all of its marine capabilities cannot be compared with the US Fifth Fleet located in the Persian Gulf, which lists over 20 ocean-range warships and 15,000 personnel.

Tensions between Iran and the West freshened in November, when the International Atomic Energy Agency released its report on Iran’s nuclear activities raising concerns the Persian country is developing weapons. Since then, the US has repeatedly said they do not exclude a military strike on Iran if they obtain firm intelligence of Iran’s nuclear program going military.

Robert Naiman, the policy director at the Just Foreign Policy think-tank, says Tehran had to call navy maneuvers at this time as otherwise it would have been perceived as a country unable to defend itself. The embargo on Iran’s oil exports proposed by the US necessitates an active response.

“It is understood in the international political discourse that an embargo is an act of war. If it really is the policy pursued by the US and Western Europe to try to cut off Iran’s oil exports, then that is an act of war. It would not make sense for Iran to roll over,” Naiman told RT.

Watch RT's full interview with Robert Naiman

The Greek tragedy

Greek economic crisis turns tragic for children abandoned by their families

Nation shocked by stories of parents forced to give up children because of poverty – but charities warn of more cases to come

Dimitris Gasparinatos

the Guardian, 

28 December, 2011

Even before Greece's economic crisis engulfed his own home, Dimitris Gasparinatos found it hard to provide for his six sons and four daughters. His wife, Christina, who was struggling to make ends meet with his salary of €960 (£800) a month and welfare aid of about €460 every two months, was unhappy and desperate.

Deep in debt, the couple owed money to the butcher, baker and grocer – the very people who had kept them going in the port of Patras, west of Athens. In their tiny flat, the family slipped increasingly into a life of squalor.

"Psychologically we were all in a bit of a mess," said Gasparinatos. "We were sleeping on mattresses on the floor, the rent hadn't been paid for months, something had to be done."

And so, with Christmas approaching, the 42-year-old took the decision to put in an official request for three of his boys and one daughter to be taken into care.

"The crisis had killed us. I am ashamed to say but it had got to the point where I couldn't even afford the €2 needed to buy bread," he told the Guardian. "We didn't want to break up the family but we did think it would be easier for them if four of my children were sent to an institution for maybe two or three years."

The next day, his 37-year-old wife visited the local town hall and asked that her children be "saved".

"She was visibly distraught," said Theoharis Massaras, the local deputy mayor and director of social works. "Requests for support have shot up. Last year we sent food to 400 families in Patras at Christmas. This year, 1,200 asked for help and they weren't what I'd call traditionally low-income people. Many had good jobs until this year when their shops and businesses closed.

"But to be asked to take children away was something new. When we visited their home and saw the situation for ourselves, the third world conditions, the poverty and filth, we couldn't believe our eyes."

In a nation as proud as Greece, where family always comes first, the plight of the Gasparinatoses quickly hit a nerve. Soon shocked reporters were knocking at their door. But testimony from charities, doctors and unions would attest that they are not alone.

As Greece prepares to endure a fifth consecutive year of recession, as the crisis extends its reach, as cuts take their toll, as poverty deepens and unemployment climbs, evidence is mounting that society is tearing at the seams.

Like the middle class, society's great connector, families are beginning to unravel under the weight of a crisis that, with no end in sight, is as much human as it is financial.

Tell-tale signs abound that in its quest to beat off bankruptcy, Greece is being hollowed out, a little more, with each passing day.

"People are going hungry, families are breaking up, instances are mounting of mothers and fathers no longer being able to bring up their own kids," said Ilias Ilioupolis, general secretary of the civil servants' union ADEDY. "Until now there has been a conspiracy of silence around the tragic effects of the austerity measures the IMF and EU are asking us to take."

From cases of newborn babies wrapped in swaddling and dumped on the doorsteps of clinics, to children being offloaded on charities and put in foster care, the nation's struggle to pay off its debts is assuming dramatic proportions, even if officials insist that the belt-tightening and structural reforms will eventually change the EU's most uncompetitive economy for the better.

Propelled by poverty, 500 families had recently asked to place children in homes run by the charity SOS Children's Villages, according to the Greek daily Kathimerini. One toddler was left at the nursery she attended with a note that read: "I will not return to get Anna. I don't have any money, I can't bring her up. Sorry. Her mother."

"Unfortunately, there's been a huge increase in demand from families in need," said Dimitris Tzouras, a social worker employed with the organisation for 19 years. "In the greater Attica region [of Athens], we're talking about a 100% increase partly because public welfare is in such disarray people have no one else to turn to."

Whereas in the past, pleas for help had come mostly from families where abuse was a problem, they are now from victims of the economic crisis.

"Parents who feel they can no longer look after children are calling in, but our policy is to do whatever we can to keep families united," added Tzouras. "The crisis has exacerbated underlying problems that in the past may just have threatened to tear families apart. It's not only the vulnerable. It's now affecting the middle class."

Few know more about the plight of children abandoned, abused and neglected in Greece than Costas Yannopoulos, who chairs the local charity the Smile of the Child. The Athens headquarters of his 16-year-old organisation is home to children who have endured life's worst excesses.

Inside the tidy, two-storey building are cots for babies who were abandoned in hospitals, found in windowless homes or taken from unfit parents.

Yannopoulos recalls the baby he discovered in a rubbish dump and the eight-month-old boy whose body had "turned to jelly" lying unloved in an overworked maternity ward.

"The crisis has made a bad situation worse," he sighed. 

"Alcoholism, drug abuse and psychiatric problems are on the rise and more and more children are being abandoned on the streets."

With the country's health system severely hit by cuts and the spectre of its economy becoming worse before it gets better, Yannopoulos has a plan to host children affected by "this war" in specially established "farms".

There is, he says, another Greece "of kindness and hospitality and caring about others" that all too often is overlooked.

Last week Dimitris Gasparinatos got good news. After learning of his family's circumstances, the wife of a wealthy Athenian businessman donated money for him to move to a new home with his wife and 10 children.

"This good woman has changed our lives. She has allowed us to hope again," he said. "The crisis has taken us places we never wanted to go. By the New Year, thanks to her, we will be in a new house, all together."

Governor demands Fukushima closure

Fukushima governor demands TEPCO decommission all its 10 nuke reactors

Mainichi Daily,

29 December, 2011

FUKUSHIMA -- Gov. Yuhei Sato has demanded that Tokyo Electric Power Co. (TEPCO), the operator of the crippled nuclear plant, decommission all its 10 nuclear reactors in the prefecture.

Sato made the demand in a meeting with TEPCO President Toshio Nishizawa at prefectural government headquarters in the city of Fukushima on Dec. 27. Nishizawa stopped short of mentioning the possibility of decommissioning the reactors, and left the prefectural government without answering questions from reporters.

Nishizawa visited the Fukushima Prefectural Government's headquarters to report to the governor that the power supplier has completed Step 2 of the road map to bring the tsunami-hit Fukushima No. 1 Nuclear Power Plant under control.

In the meeting, Sato strongly demanded that TEPCO decommission and dismantle all 10 reactors at the utility's Fukushima No. 1 and 2 nuclear plants.

"Fukushima Prefecture will build a society that won't rely on nuclear energy, and demands that all the reactors in the prefecture be decommissioned and dismantled," Sato told Nishizawa.

In response, the TEPCO head only said, "We'll sincerely take measures to ensure safety, pay compensation to those affected by the disaster and decontaminate tainted areas."

A web of debt

Europe's Besieged Banks Have Trillions In Claims Against US Banks

By Robert Lenzner

Forbes, 

29 December, 2011

A chance meeting with famed  economist Kenneth Rogoff at the Harvard Club today wised me up about  potential damage to the American banking system from the $10 trillion in potential claims by European banks against their American counterparties.

Rogoff  suggested I  read Princeton economist Hyun Song Shin’s lecture on the Global Banking Glut that was given in early November. Shin’s conclusion  shook me up a bit; “cross-border banking and fluctuating leverage of the global banks are the channels through which permissive financial conditions are transmitted globally,” Shin wrote. And shocked me by claiming that “US dollar denominated accounts of banks outside the US are comparable to assets” held by banks in the US.

This is all to say that “permissive financial conditions” are easily transported from continent to continent when trouble arises as they do today, with vastly under-capitalized European banks owing American banks trillions– at the very moment they need an injection of trillions in Europe so as not to cause a run to default by sovereign nations or the giant banks themselves.

In other words, we are bloody well in this together; our crummy banks holding tons of lousy mortgage loans– and Europe’s banks holding tons of lousy  loans to Italy, Greece, Portugal, France and Ireland. Hands across the sea! Trillions of dollars across the sea!. Massive obstacles to the smooth running of global financial markets across the sea.

Princeton’s Shin concludes that  “the European crisis of 2011 and the associated deleveraging of the European global banks will have far reaching implications not only for the eurozone, but also for credit supply conditions in the United States an d capital flows to the emerging economies.”

Quantifying this overhang is hard to do– but it turns out that Rogoff told the Washington Post a few days ago that Shin’s paper “has orders of  magnitude that I didn’t know… If we saw a meltdown, it’s hard to be too hyperbolic about how grave the effects would be,” Rogoff told the Post.

Rogoff”s best guess; The European Central Bank would keep lending more cheap short-term money to Europe’s banks to keep them operating.

My best guess; We have vastly reduced our vulnerability to the European banks by liquidating those banks borrowings from us.  Just in time  reduction in these risky liabilities.

We know that the major liability of the US financial system to Europe’s banks was from short term loans from  the huge money market mutual funds like Fidelity, Putnam and T. Rowe Price.  It’s very beneficial for US financial markets that  this trillion dollars or so has been recovered by the money market funds ensuring that this strategic part of the US shadow banking system would avoid crisis from Europe. Conversely, the withdrawal of that funding source in US dollars is a negative for the Euro accounts of the European banks.

Effect of oil prices on US economy

Oil Prices Predicted to Stay Above $100 a Barrel Through Next Year

The United States economy managed to cope this year despite triple-digit prices for barrels of oil. The lessons may come in handy, economists say, because those prices will probably be sticking around.

NY Times,

28 December, 2011

With Iran threatening to cut off about a fifth of the world’s oil supply by closing the Strait of Hormuz and unrest in Iraq endangering the ability to increase production there, financial analysts say prices for two important oil benchmarks will average from $100 a barrel to $120 a barrel in 2012.

For consumers, who have been driving less and buying more fuel-efficient cars, weakened demand has helped lower gasoline prices 70 cents since May, to a national average of $3.24 for a gallon of regular unleaded, according to the AAA Fuel Gauge Report.

Now, though, the focus has turned to Iran. On Wednesday, Iran and the United States sharpened their tone over Iran’s vow to close the Strait of Hormuz if Western powers tried to stifle Iran’s petroleum exports.

The catalyst for the Iranian threats are new efforts by the United States and the European Union to pressure Iran into ending its nuclear program, which Iran has refused to do despite four rounds of sanctions imposed by the United Nations Security Council.

Those sanctions have not focused on Iran’s oil exports. But in recent weeks, the European Union has talked openly of imposing a boycott on Iranian oil, and President Obama is preparing to sign legislation that, if fully enforced, could impose harsh penalties on all buyers of Iran’s oil, with the aim of severely impeding Iran’s ability to sell it.

Rear Adm. Habibollah Sayyari, Iran’s naval commander, said in remarks carried by an official Iranian new site that “closing the Strait of Hormuz is very easy for Iranian naval forces.” Admiral Sayyari, whose forces were in the midst of ambitious war game exercises in waters near the Strait of Hormuz, was the second top Iranian official to make such a threat in 24 hours.

A spokeswoman for the United States Navy’s Fifth Fleet, which is based in Bahrain and patrols the strait, responded: “Anyone who threatens to disrupt freedom of navigation in an international strait is clearly outside the community of nations; any disruption will not be tolerated.”

The Strait of Hormuz, with two mile-wide channels for commercial shipping, connects the Gulf of Oman to the Persian Gulf, the principal loading point for oil shipped from Saudi Arabia, the world’s largest oil exporter.

A Saudi official told The Associated Press that the other oil-producing gulf nations are prepared to fill any shortfall in Iranian oil supply. But just as unrest in Libya shook the oil market in 2011, concern over Iran could influence prices in 2012.

Markets seemed to shrug off Iran’s threats. The price of the benchmark crude oil contract on the New York Mercantile Exchange fell for the first time in more than week, settling at $99.36 on Wednesday, down $1.98.

But several investment banks predict that the price of the benchmark crude on the New York exchange will average about $110 next year while Brent crude oil, which analysts say affects what most of the world pays for oil, will average about $115 a barrel.

“The possibility that there might be a disruption in oil supply at some time in 2012 as Iran retaliates has, I think, permanently embedded a $10 to $20 premium in the price of oil,” said Bernard Baumohl, chief global economist at the Economic Outlook Group. “The danger is if oil starts to move toward $130 a barrel, or even higher, depending on whether that confrontation will escalate. Then you’re really talking about the prospect of the U.S. tipping over into recession in addition to Europe, and that the whole global economy will be facing an economic downturn.”

Analysts say that members of the Organization of the Petroleum Exporting Countries, including Iran and Saudi Arabia, have an incentive to keep prices near $100 a barrel. Many governments in the Middle East and North Africa spent heavily on social assistance programs in response to the unrest of the Arab Spring and are depending on higher prices to help meet their budgets.

“It would be nice if prices did come down quite substantially,” said Francisco Blanch, head of commodity strategy at Bank of America Merrill Lynch, who added that the chances were slim. “The idea that oil is going to stay high for a while is pretty well entrenched because this is a premium fuel in the world economy, there isn’t a lot of oil out there and whatever oil is available is pretty much off bounds.”

Economists say they expect prices to remain high despite the relative weaknesses of the American and European economies because global demand for oil — especially diesel — is escalating and outstripping supply.

“There’s a consensus view that high prices will persist through 2012 because of the premise that the rest of the world, the emerging economies, are using a lot more fuel,” said Tom Kloza, chief oil analyst at the Oil Price Information Service.

At the same time, there is uncertainty in the forecasts, with some analysts predicting that prices could end up much lower as production increases in Libya and North America and could even drop sharply if the European economy falls apart. The United States Energy Information Administration, for instance, estimated this month that the price of the benchmark West Texas 

Intermediate, often called W.T.I., could fall as low as $49 a barrel or rise as high as $192 by the end of next year.

Sustained triple-digit oil prices could threaten the United States recovery, costing jobs, raising the prices of food and other consumer goods and pushing a gallon of gasoline to $5 or more.

By one estimate, a $10 increase in the price of a barrel of oil shaves 0.2 to 0.3 percentage points off the economy’s annual growth rate.

Early this year, when W.T.I. crude oil finally reached $100 a barrel — the highest it had been in more than two years — the economy proved more resilient than in 2008, when crude crossed $100 a barrel and the country was mired in recession.

This spring, oil prices peaked at about $114 a barrel and then fell, stabilizing well below many predictions — in part because the Arab Spring did not stop oil from flowing out of the Middle East to the extent that had been anticipated. Gas prices have been declining since May and gross domestic product, while still sluggish, grew throughout the year, according to the most recent Commerce Department estimates.

Before 2008, gas prices had mainly stayed below $3 a gallon, and Americans were less focused on fuel economy, buying larger cars including S.U.V.’s. But after the price shock, when oil soared to $145 a barrel and average gas prices topped $4, many of those habits changed. Since then, gas prices have remained volatile, rising sharply toward the end of 2010 and the early part of this year before beginning to decline.

New figures from the Federal Highway Administration show that Americans cut back on their driving again in October. They logged 2.3 percent less, or 254 billion miles, compared with October a year ago, the eighth consecutive month there has been a decline. A broader measure — the 12-month total of miles driven — shows that motorists fell back to the low of 2.963 trillion miles driven reached at the end of the recession in 2009.

“It’s not just, I don’t have enough money, I don’t want to go out and buy gas,” said John Gamel, a macroeconomic analyst at MasterCard Advisors SpendingPulse. “It’s, I have found ways not to have to buy gas and so I’m going to keep doing that.”

He added that Americans had been doing less discretionary driving because they still perceived gas prices as being high. 

“Consumers have this belief that prices will either go up or they will remain at elevated levels.”