Thursday, July 31, 2014

Argentina Default: $200 billion in foreign-currency debt and $30 billion in restructured bonds

The nation of Argentina was declared in default on billions of dollars of foreign-currency obligations today, as they were unable to reach deal with American investors on a missed interest payment. This is the second time in 13 years, the country has gone into default.
According to the ratings agency Standard and Poor's Argentina has about about $200 billion in foreign-currency debt, including $30 billion of restructured bonds.


As Quartz explains, Argentina has spent most of the last decade restructuring its debt, following a 2001 default, but a small group of investors, led by New York-based hedge funds are demanding full repayment of that debt. The creditors won a judgement requiring Argentina to pay them $1.5 billion, but the Argentina's Economy Minister, Axel Kicillof, says paying that debt "would trigger bond clauses requiring the country to offer similar terms to other bondholders." However, a U.S. judge ruled that they can't not make a required $539 payment to those other bondholders, unless they also payout the money owed to the hedge funds. So nobody got paid anything, and South America's third-largest economy is now in (probably) in default.
The situation could be temporary, as they could still negotiate a settlement over the $1.5 billion payment. However, Kicillof has been unable to work out a deal through a court appointed mediator. Negotiations will continue over the next several days, though Argentina's president Cristina Kirchner has made it a political point of pride to not pay the "vulture funds" what the courts say they are owed.
 
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I think it is important to note that this could be temporary if they negotiate a settlement.
 
However, it might also be as likely that they don't. It's hard to say.
 
However, if the default stands it makes sense how this situation with $230 billion in default would mess up Stock markets because of the unknown consequences if this isn't resolved somehow.
 
In other words the world doesn't want another Lehman brothers kind of incident that might ripple in waves all around the world triggering many unknown consequences, especially in the times we now live in worldwide.

Beyond oil and reserves, Russia running on empty

Beyond oil and reserves, Russia running on empty

By Lidia Kelly and Katya Golubkova MOSCOW (Reuters) - For all the sanctions Western leaders can throw at Russia, the biggest threat to President Vladimir Putin's ability to back separatists in east Ukraine is something beyond his or their control: the price of oil.     With Russia's $2 trillion…
Reuters

Beyond oil and reserves, Russia running on empty

Reuters


By Lidia Kelly and Katya Golubkova
MOSCOW (Reuters) - For all the sanctions Western leaders can throw at Russia, the biggest threat to President Vladimir Putin's ability to back separatists in east Ukraine is something beyond his or their control: the price of oil.
    With Russia's $2 trillion economy heavily dependent on crude exports, oil prices are always closely monitored by the Kremlin, but the government is particularly wary now as tensions with the West mount and sanctions ratchet up.
    Such conflicts often push up crude prices, but as long as oil, which accounts for 40 percent of state revenues, remains above the average $104 per barrel written into the 2014 budget, Moscow has little immediate need to worry.
    The alarm bells will start ringing if it falls significantly below $100, forcing the government to pay more attention to propping up an economy already close to recession.
    The International Monetary Fund warned in May that Moscow had no contingency plan for such a scenario, so a sustained tumble in the price of crude could even undermine Putin’s grip on power.
     "If the oil price goes down to $75 and stays there for a few years, Russia will have regime change," said a prominent Russian economist who asked not to be named.
"Two years ago I would have said $60, but now, given the lack of growth, the increase in corruption and sanctions, $75 would be enough."
PRICE UNDER PRESSURE
Such a scenario is not merely idle speculation; most analysts expect oil prices to fall in the coming years as new production, including from unconventional sources in North America, applies downward pressure to markets, with some forecasts going as low as $70 per barrel for Brent crude oil in 2020, down from over $105 currently.
A long-term decline in prices may be unlikely given the unrest in Iraq and the limited scope for Iran to increase output due to sanctions, but any substantial fall could derail the Russian economy.
Sergei Aleksashenko, a former deputy central bank governor and now a scholar at the Higher School of Economics in Moscow, said a $10 drop in oil prices would strip 700 billion rubles ($20 billion), or 5 percent, from Russian budget revenues a year.
That translates to about 1 percent of GDP. Local economists estimate that a $10 price drop could rob Russia of 3 to 4 percent in GDP growth.
"The most evident outcomes of any decline in oil price are destabilizing of the balance of payments, devaluation of the rouble, rise in inflation and decline in budget revenues, decelerating of the growth," Aleksashenko said.
"It is evident that the longer the period of reduced oil prices, the more significant the impact on the Russian economy."
A drop to $38 per barrel in the aftermath of the 2008 financial crisis sent Russian GDP falling 7.8 percent, and it shed $200 billion of reserves within a few short months trying to defend the rouble, which still lost a third of its value.
Its reserves, though still the world's fifth largest at nearly half a trillion dollars, are more than $130 billion below their level at the beginning of the 2008 crisis.
The crisis passed when prices promptly climbed, but if Moscow learned any lessons, it is not clear in its economic pronouncements.
"The government only publishes a basic level of macroeconomic risk analysis to support fiscal policymaking," the IMF said in its May report. "There is no analysis of the implications of (changes, such as in oil) for the government finances."
The Finance Ministry manages two oil windfall revenue funds. One, the $87 billion Reserve Fund, has a clear goal to patch budget holes if the need arises.
Former finance minister Alexei Kudrin said in a recent interview with ITAR-TASS news agency that if oil were to fall to $80 per barrel, the fund could last for two years.
"That (reserve) is rather small," said Anders Aslund, a senior fellow at the Peterson Institute for International Economics in Washington.
If oil hits $75-80, Aslund said "Russia would have to cut its imports, which would hit the standard of living, investment and economic growth. A decline in GDP and standard of living would be inevitable."
Besides oil and the oil wealth stash, Russia has precious little.
"The policy of recent years has led us to a point when in the current stagnation all (other) reserves have been exhausted," said Kudrin, who helped to amass the sovereign funds during a decade of economic boom.
"Structural reforms or a (policy) maneuver in favor of growth are not being considered."
OUTPUT UNDER THREAT
Keeping oil output at the current 10.5 million barrels a day is also essential for the budget. But the vast West Siberian deposits, which amount to about 80 percent of the country's total oil output, are in decline.
Some firms have already cut investment and others may follow suit as a result of the stand-off between Moscow and the West over Ukraine. Many cut investment after the 2008 crisis.
"The situation is difficult and most likely will lead to the need to revise the investment program," a source close to one of Russia's largest oil producers said. "Everyone is pretending that nothing horrible is happening. It is very difficult to predict how the situation will develop."
The annexation of Crimea from Ukraine in March boosted Putin's popularity at home to all-time highs, but the Kremlin's ongoing involvement in Ukraine and the economic price the country is paying is making business owners uneasy.
Yet, in a country where criticism is rare and can result in exile or prison, most remain silent.
"Business always adapts to the situation in which it finds itself," Trade Minister Denis Manturov said last week, adding that the punishment on Moscow by the West is "peanuts" compared with the isolation Russia suffered in Soviet times.
Four of Russia's leading oil producers - Rosneft, Lukoil, Surgutneftegaz and Gazprom Neft - plan to invest a total of about $50 billion this year.
Russia plans to spend around $150 billion a year over the next 10 years to bring onstream new fields in east Siberia, the Far East and the Arctic, as well as improve oil output at mature fields, according to Energy Minister Alexander Novak.
But that requires financing, which may be tricky, given the recent sanctions, which closed U.S. financing of longer than 90 days for Russia's top oil producer Rosneft and leading non-state gas company Novatek.
Rosneft, which paid 2.7 trillion rubles in taxes to state coffers last year, used North American banks to arrange most of its over $38 billion in loans raised since the end of 2011.
Asian banks are unlikely to be able to fill the gap. Domestic funding capacity is limited as the central bank keeps a cap on liquidity, to avert inflation, and Western sanctions aim to restrict capital markets for Russia's state-owned banks.
Rosneft, which is preparing to start drilling in Arctic Kara Sea with ExxonMobil, declined to comment. Its capital expenditure was around 700 billion rubles for this year under an oil price of below $100 per barrel.
"The sanctions will significantly limit (Rosneft and Novatek's) financing options and could put pressure on development projects," Moody's ratings agency said in a recent report.
Gazprom Neft, Russia's No.4 oil producer, which is exploring for shale oil with Royal Dutch Shell, declined to comment, as did Lukoil.
But based on their documents and earlier comments, they all envisage oil prices at between $90 and $100 in the medium term.
Kudrin has for years warned that oil prices will fall. Some analysts say it was falling oil prices and the passing of peak production that led to the rapid meltdown of the Soviet Union a quarter century ago.
Aslund, of the Petersen Institute, said a long-term oil price drop was unlikely, but not impossible, given the geopolitical volatility, and that scenario could be catastrophic for Putin, who is facing re-election in 2018.
"Putin would look weak and incompetent," Aslund said. ($1 = 35.0290 Russian Roubles)
(Writing by Lidia Kelly and Katya Golubkova; Editing by Will Waterman)
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Beyond oil and reserves, Russia running on empty

Putin cornered over Ukraine

AP Analysis: Putin cornered over Ukraine

MOSCOW (AP) — For Russian President Vladimir Putin, there are few options left in the Ukraine crisis and they all look bad.
Associated Press

AP Analysis: Putin cornered over Ukraine

Associated Press


MOSCOW (AP) — For Russian President Vladimir Putin, there are few options left in the Ukraine crisis and they all look bad.
He is caught between a determined West demanding that he disavow the pro-Russian insurgents in Ukraine and increasingly assertive nationalists at home urging him to champion the mutiny and send in the Russian army.
The Malaysian plane disaster this week triggered another round of U.S. and EU sanctions, which for the first time targeted entire sectors of the Russian economy, severely limiting Putin's room for maneuver. He may be eager to sever ties with the rebels, but he would need to find a way to do so that would allow him to save face — an exceedingly hard task amid growing Western pressure.
Bowing to Western demands would potentially spell political suicide for the Russian leader, who has built his popularity on standing up to the West. Under pressure, he may choose instead to escalate the crisis and risk an all-out confrontation.
Putin didn't plan for it to happen this way.
Last fall, he used a combination of pressure and subsidies to prevent Ukraine from signing an association agreement with the EU and lure it into a Moscow-led alliance. When mass protests chased the Russian-leaning Ukrainian president from power in February, Putin saw it as a Western plot against Russia and quickly moved to annex Ukraine's Black Sea peninsula of Crimea to head off what he said was the imminent threat of Ukraine joining NATO.
Putin then sought to maintain pressure on the West by fomenting a pro-Russian insurgency that flared up in Ukraine's mostly Russian-speaking industrial east in April, apparently hoping that a slow-burning conflict would help persuade the West to strike a compromise that would allow Russia to keep Ukraine in its orbit.
That strategy has failed. The West, especially Europe, long showed unwillingness to take a strong punitive stand against Putin. But the downing of the Malaysian passenger plane was the unforeseen event that overturned the dynamic, and compelled the West to act.
It appears that the Russian leader now is desperately looking for a way out from the crisis in hopes of containing the gravest threat to his rule to date. Here are some possible scenarios that may play out:
RUSSIA STRIKES COMPROMISE
From the start, Putin wanted to a deal with a West that would allow Russia to maintain its leverage over Ukraine, and he has steadily tempered his ambitions.
At the onset of the turmoil, Putin hoped that Ukraine would join a Russia-dominated economic alliance. When such hopes evaporated with the ouster of President Viktor Yanukovych, Moscow began pushing for a "federalization" of Ukraine that would give broad powers to its provinces and allow them to deal directly with Moscow. Rebels later backed those demands by conducting independence referendums that both Ukraine and the West declared a sham.
The Kremlin then softened its rhetoric and started calling vaguely for a "dialogue" between the central government and the regions that would give the provinces a bigger say over local issues.
Now with his hand weakened by the plane disaster, Putin may be eager to accept any vague deal that would allow Moscow to maintain just a symbolic degree of influence. Such a deal, however, would have to involve concessions by both parties, something that is hard to achieve amid continuing fighting and growing distrust.
The West has demanded that the Kremlin disown the rebellion in eastern Ukraine. While Putin may despise the ragtag band of retired Russian officers and Moscow political consultants that have helped foment the mutiny, it would be hard for him to distance himself from them without denting his support base.
The Malaysian plane disaster, however, could offer a face-saving way of publicly condemning the rebel leadership. If an international investigation confirms that the missile that downed the plane on July 17 was launched by the rebels, Putin may say that Russia can't support those who were responsible for the tragic death of nearly 300 innocent people. Such a statement could pave the way for talks.
MORE SANCTIONS PROVOKE TOUGH RESPONSE
Putin possibly fears that any concessions would only lead to more Western pressure and may choose to remain defiant. If he keeps refusing to distance himself from the rebels, the West will remain reluctant to engage in any talks. Fighting in the east, which already involves heavy artillery and rockets pummeling residential areas, will raise the pressure on Putin to intervene militarily.
Putin is already facing scathing criticism in Russian nationalist publications and online forums for betraying Russian speakers in Ukraine by failing to send in the army.
At some point, fearing that the damage to his popularity could become irreparable, Putin may send more weapons to the rebels. More Western sanctions will not stop his hand, but rather may push him into a situation where any compromise would look like kowtowing to the West.
Pressed against the wall, Putin may even decide to send troops into Ukraine. They would likely crush the weak and disorganized Ukrainian military within days. The West would be unlikely to intervene militarily, but it would freeze virtually all ties with Moscow, sending the Russian economy into a tailspin. Living standards will plummet quickly, possibly spawning social unrest.
GROWING TURMOIL, UNPREDICTABLE CONSEQUENCES
Some in the West may hope that the sanctions will encourage members of the Russian elites as well as the broad public to demand a change of course.
However, the tightly controlled Russian political system leaves little room for dissent. Billionaire tycoons, some of whom have close personal links to Putin, stand to lose a lot from Western sanctions and would like Putin to soften his policy. But hopes that they may somehow persuade the president to pull out of confrontation seem futile, as the oligarchs are too scared to form any kind of united group, and official loyalties are closely controlled by Putin's fellow KGB veterans who dominate the officialdom.
Many in Washington expected Putin's businessmen friends who were hit by U.S. sanctions in March to push him toward de-escalation. The opposite has happened. Instead of encouraging a pro-Western opposition, more sanctions will likely further strengthen the Kremlin hawks, who may push Putin toward an even more confrontational and isolationist course.
In a sense, the Russian leader has become hostage to his own propaganda that has cast the West as an enemy of Russia.
Putin's approval ratings so far have remained high, but if the economy starts collapsing under the brunt of Western sanctions his popularity would dwindle quickly. It doesn't mean, though, that pro-Western democratic forces would have any chance to expand their presence on Russia's political scene.
Amid the war in Ukraine and Western sanctions, the weak and disorganized Russian liberals have become increasingly marginalized, while extreme nationalist forces have strengthened considerably.
Economic meltdown would further allow nationalist groups to expand their sway, and Russian volunteers now fighting in eastern Ukraine may become an explosive element in a changing political equation.
The prospect of potential unrest could re-ignite fears that accompanied the 1991 Soviet collapse. Thousands of nuclear warheads, smoldering conflicts between a myriad of ethnic groups, separatist movements and crumbling industrial infrastructure that could lead to technological disasters make any instability in Russia deadly dangerous for the rest of the world.
___
Isachenkov has covered Russia and other ex-Soviet nations for the AP since 1992.
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Putin cornered over Ukraine

 

Putin might be economically cornered over Ukraine but he is not militarily cornered.

And because of this he might be more dangerous than at any other time so far.

 

Argentina Goes Into Default

  Argentina Goes Into Default
/ Business

Argentina Goes Into Default

  2,165 views
Image AP Photo/Craig Ruttle
Axel Kicillof, Argentina's economy minister. (AP PHOTO/CRAIG RUTTLE)
The nation of Argentina was declared in default on billions of dollars of foreign-currency obligations today, as they were unable to reach deal with American investors on a missed interest payment. This is the second time in 13 years, the country has gone into default.
According to the ratings agency Standard and Poor's Argentina has about about $200 billion in foreign-currency debt, including $30 billion of restructured bonds.
As Quartz explains, Argentina has spent most of the last decade restructuring its debt, following a 2001 default, but a small group of investors, led by New York-based hedge funds are demanding full repayment of that debt. The creditors won a judgement requiring Argentina to pay them $1.5 billion, but the Argentina's Economy Minister, Axel Kicillof, says paying that debt "would trigger bond clauses requiring the country to offer similar terms to other bondholders." However, a U.S. judge ruled that they can't not make a required $539 payment to those other bondholders, unless they also payout the money owed to the hedge funds. So nobody got paid anything, and South America's third-largest economy is now in (probably) in default.
The situation could be temporary, as they could still negotiate a settlement over the $1.5 billion payment. However, Kicillof has been unable to work out a deal through a court appointed mediator. Negotiations will continue over the next several days, though Argentina's president Cristina Kirchner has made it a political point of pride to not pay the "vulture funds" what the courts say they are owed.
Argentina also maintains that they are not in default, because the $539 million interest payment was delivered to an escrow account. However, that money has not been distributed to creditors.
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Argentina Goes Into Default

My question might be: "What Countries, companies, hedge funds and individuals are they going to take down with them?"

And also if hedge funds invested in Argentina bonds were insured by credit default swaps what is that going to do to worldwide banking?

Merkel Is Giving Putin the Silent Treatment

Merkel Is Giving Putin the Silent Treatment

German Chancellor Angela Merkel has not spoken to Russian President Vladimir Putin since July 20, three days after the Malaysia Airlines Flight 17 crash. In their last conversation, the Wall Street Journal describes her sentiments to Putin as "Call me if you have progress to report in defusing the…
The Atlantic Wire

Merkel Is Giving Putin the Silent Treatment

The Atlantic Wire


German Chancellor Angela Merkel has not spoken to Russian President Vladimir Putin since July 20, three days after the Malaysia Airlines Flight 17 crash. In their last conversation, the Wall Street Journal describes her sentiments to Putin as "Call me if you have progress to report in defusing the conflict." Putin has not called. 
View photo
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Putin, FIFA President Sepp Blatter, and Merkel watch the opening ceremony of the World Cup final. (AP Photo/Martin Meissner) For a long time, it was considered that Angela Merkel could get through to Putin in a way that other leaders could not. Merkel pledged that Germany and Russia would have a "partnership for modernization." At the World Cup in Brazil, the two leaders even sat together. Between the time when the Ukraine/Russia conflict began this winter and July 20, Putin and Merkel had at least thirty known phone calls. 
Some have speculated that Germany and Russia had been negotiating a secret "land for gas" deal that fell apart after the MH17 crash, which could have led to this silent treatment. The deal would have Germany recognize Russia's annexation of Crimea, and in exchange, Russia would create stable, cheaper gas supplies to Ukraine. The alleged deal was being brokered by Merkel between Putin and Ukrainian President Petro Poroshenko. A German government spokesperson has shot down reports of this deal, saying "The report has no basis," and it remains unconfirmed. 
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Merkel has moved even further away from Putin this week, as she joined the European Union's plan to issue further sanctions against Russia. These sanctions will strike Russia's banking, exporting and energy sectors, though not natural gas, as Europe heavily relies on Russia for this resource
This article was originally published at http://www.thewire.com/business/2014/07/merkel-is-giving-putin-the-silent-treatment/375414/

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1968

I just watched the CNN Special presentation on 1968 on the "Sixties" series and it took me back to how I felt then. In 1968  I turned 20. Though I had been to college I really didn't know many people yet like demonstrated at the Democratic National convention and were beat up by the police there yet. That would come later in the 1970s for me. I mostly had been exposed to more conservative types of people so far even in college.




You had to be a student at UC Berkeley or Columbia University or UCLA or someplace like that where the most elitist student went who were class presidents and valedictorians of this Senior Classes across the U.S. to meet kids like that.

Most of the people I knew were not that thoughtful or privileged or insightful (at least yet). Even I was trying to figure everything out and it wasn't until I was 21 when I really saw how bad things really were for both me and for the world and was very upset about the whole thing then. At 20 I was still in the (the universe revolves around me) kind of bubble a teenager still sort of lives in. The more thoughtful and insightful Straight A students from richer families that got involved in leadership roles in the 1968 convention were mostly all Straight A students and Seniors in college or graduate students working on their master's degrees  or something like that at a prestigious university. So, when bunches of High School class presidents and Valedictorians from their high schools got together all sorts of interesting things could happen back then.

However, most people under 21 even in college then were sort of like "What? Why are my friends who didn't go to college all dying in Viet Nam and coming home in a box?"

Since more people my age (born in 1948) died in Viet Nam than any other age I sort of still take all that very personally.

However, the world was still insane then (not that it isn't now too) but then it was insane in a different way that was sort of a carry over from World War II and the Korean War. But that kind of thinking no longer was working because it was disassociated from reality then in 1968 and the young all sensed the disconnection and dislocation but the older generation was exhausted still from World War II and didn't want to listen. They still were getting over PTSD from world War II and the Korean war and "By the way just shut up about the Viet nam War because we died now it's your turn to die too!"

However, my generation(at least the smartest ones) were not going to give up even if a lot of us died. Because our generation's lives were all at stake not just in Viet Nam but the whole planet looked like it was going to be nuked out of existence as well.

Not if we had anything to say about it!

That was what was really going on back then in a nutshell.