13 August 2015

Chinese Currency in Record Fall: Oh Dear!

Yesterday, this was the headline on the BBC News site.

I included other news items below the headline for you to be able to verify the date.

You know what the record fall was?

1.9 percent.

That's right, the record fall was less than 2 percent.

It is not uncommon to see such falls in daily dollar to euro fluctuations but this, for some reason, was different. 

I checked other news outlets. There were incredible claims about the sputtering of the Chinese economy or how this move was going to increase their exports and how they would flood the Western markets with cheaper goods.

Then I looked at a piece posted by BBC's Asia Business Correspondent Karishma Vaswani. This is what it said:
DBS Bank in its daily breakfast note said "A proper devaluation is 10 - 30%, and it has to stay the course for a year before exports start to show any change".
In other words, 2 percent is hardly a devaluation and it most certainly cannot be qualified as a record fall.

And for Chinese exports to be positively affected by a devaluation, the actual currency depreciation should have been exponentially higher and the effects would not be apparent for another 12 months.

Did we get that from the lead news item? No. It repeated the export claims like every other news outlet.

Moreover, if every 1 percent depreciation leads to a $40 billion capital outflow why would China go this route to boost its exports?

Why loose $80 billion in capital exodus for dubious gains in 12 months?

Clearly, there are other considerations than export boosting behind this decision. But almost all news outlets reported it with highly exaggerated statements and they all made the export boost claim.

There is more.

This is how USA Today reported the news.

As you can see, there is now a hint of a causal link between falling oil prices and Chinese devaluation.

The article does not even offer a correlation between these two occurrences let alone a causation but a clear suggestion is made in the headline.

Tell me how ordinary news consumers are supposed to make sense of the world in which we live.

10 August 2015

Greek Bailout Money: Another Case for Oh Dearism

Since very few of my readers checked out the Oh Dear theory you might not be familiar with the notion. 

It refers to the corporate media's concerted effort to make any issue unintelligible and scary so that your reaction as a consumer of news is to whisper "Oh Dear" instead of "OK I see why" like this case.

I am not even the person who coined the phrase. This guy is.

In any event, the Greek economic crisis and the so called Grexit makes another compelling case.

During the tense negotiations, we read about how Greeks were lazy and greedy, how they squandered the bailout money again and again. There are too many links, just check out my previous posts if you are curious.

There were ominous hints about their future outside the Eurozone. BBC reported that if the crisis continued their tourism revenues would collapse even though the obvious attraction of cheaper holidays in an ISIS dominated Mediterranean would be a no-brainer for anyone.

Moreover, news outlet claimed that things looked bleak because of the Syriza government: they singlehandedly crushed Greek recovery and put Greece back into recession, they said.

Curiously, ever since Alexis Tsipiras agreed to a very onerous deal that is guaranteed to destroy the Greek economy, the corporate media changed its tune.

It now looks like that their previous reporting on "them profligate swarthy folks" was not exactly correct.

There was a recent story in the New York Times that acknowledged that Greek bailout funds came in only to leave again instantly. Apparently, none of it remained in the country.

Wow, who knew?

Bloomberg immediately and breathlessly agreed.

It was not the profligacy of them swarthy, greedy and lazy Greek folks, they said, the whole thing was set up to bail out German and French banks.

Really? You don't say.

Yeah, it was never intended to benefit the Greek economy.

Listen to this, Bloomberg sounding like a contrarian progressive.
I always find it amusing whenever someone expresses surprise that the financial bailouts for Greece haven't benefited Greek citizens. "Bailout Money Goes to Greece, Only to Flow Out Again" in the New York Times is just the latest example. "The cash exodus is a small piece of a bigger puzzle over why — despite two major international bailouts — the Greek economy is in worse shape and more deeply in debt." 
Unfortunately, this is a feature of bailout, not a bug.
The author maintains that this has been the case in all recent bailouts, including the 2008 US crisis and of course the Irish and Icelandic bailouts, as some folks noted many years earlier.

As for Greece, well, here is the reality, after the fact.
In the case of Greece, the money flows in large part from European governments and the International Monetary Fund through Greece, and then to various private-sector lenders. We all call it a Greek bailout, because if it were called the "Rescue of German bankers from the results of their Athenian lending folly," who would support it?
No kidding.

Except where were you four months ago?

There is more.

Now the BBC reports that every time Germany pushed Greece towards bankruptcy, every time Schauble feigned disgust with his Greek counterpart and clutched his pearls and went for the smelling salts, Germany made money.
However, the study by Halle Institute for Economic Research said Germany had made interest savings of more than 3% of GDP between 2010 and 2015, and much of that was down to the Greek debt crisis. 
The IWH study says every time this year there was a spike in the Greek debt crisis, which made Greece's exit from the euro appear more likely, German government bond yields fell. Whenever the news looked better, Germany's bond yields increased.
So far Germany made 100 billion euros out of the Greek crisis.

Yes 100 billion.

They contributed 90 billion euros to save the Deutsche Bank and have already recovered more than that while squeezing Greece for another 90 billions.

And the beauty of it is that it is a gift that keeps on giving.
 Even if the situation were to calm down suddenly, Germany would still be expected to profit from the situation, the IWH argues, because medium- and long-term bonds issued in recent years are still far away from maturing.
Once again my question is, where were you when the narrative about the lazy Greek people living off the savings of honest Aryan people was solidifying?

When the whole Europe was whispering "Oh Dear!"

In case you read this as a vain stupid "I told you so" on my part, this is not the case.

The reason I refer to my previous posts is to highlight the fact that, if I, the lowliest and the most marginal commentators of the Intertubes could suggest where this was going, months or even years earlier, surely Bloomberg, BBC and New York Times could have done a little more than repeating the mainstream "profligate Greeks" narrative.

They didn't. Which clearly indicates that they didn't want to. And not they didn't know.

That is why we live in a world where your co-workers and neighbors tell you the most inane things with conviction followed by an Oh Dear expression.

Oh Dear, indeed.

06 August 2015

Can Somebody Explain to Me "Erdogan's Gamble"?

After losing the June 7 elections, Turkey's bombastic President Tayyip Erdogan has first declared the Kurdish peace initiative DOA and then began shelling PKK positions in Northern Iraq, killing scores of militants.

He has also been relentlessly attacking Selahattin Demirtas, the co-leader of the pro-Kurdish party HDP. His latest move was to try to get HDP outlawed and Demirtas indicted.

And PKK, relishing the limelight, have responded in kind and have first shot dead a couple of cops to retaliate for Suruc, then a number of troops in separate attacks.

For once, all the pundits are unanimous. They maintain that "Erdogan's gamble" is to push up political violence in a prelude to early elections as a snap poll would certainly increase his vote. People, they say, would rush to him seeking stability.

They also point to the assistance he gets from the ultra-nationalistic MHP and its wily leader Devlet Bahceli. After the June elections, he maneuvered to have the AKP candidate elected Speaker of the House even though the other three parties outnumbered Erdogan's party.

Since then Bahceli has been attacking HDP and Demirtas on a daily basis (an odd approach for a party in opposition). He recently called HDP voters "dishonorable' creating a national outcry.

All of this, say the pundits, indicate that Erdogan's got MHP's backing to avoid any coalition government. He will call early elections and thanks to the current tense political climate, AKP and MHP will increase their electoral support enabling the former to form a government by itself.

I don't get it.

This is not because I am stubbornly contrarian, I just don't understand the logic.

Let's first take a look at the argument that political tension and renewed violence would decrease HDP's support.

HDP in Early Elections

HDP's supporters are primarily Kurds who previously voted for AKP, Erdogan's party. After Erdogan refused to help Kobani, they turned against him and pulled HDP from a lowly 5-6 percent to a lofty 13 percent.

Sure, some liberal and social democratic Turks voted for HDP, but the best estimates for their contribution are around 2 percent.

And crucially, these votes came from big cities in Western Turkey like Istanbul. The rest of the votes, meaning 11 percent, came from ethnic Kurds in Southeast Turkey.

In fact, this regional concentration is the reason why AKP lost big and HDP got 80 MPs with just 13 percent of the vote.

To give you an idea, MHP received 16.3 percent of the vote from the rest of the country and got the same number of seats in Parliament as HDP.

Given this background, if we know that Erdogan primarily lost the elections because he antagonized Kurdish voters and they switched sides and voted for HDP, how would vilifying the same party and its leader every day help Erdogan now?

Can anyone explain that to me?

MHP in Early Elections

There is more.

If you were a nationalistic Turkish person and you were afraid that Kurds were gaining too much power and might try to establish their own country in the near future by claiming a big chunk of what is currently Turkey, who would you vote for?

Would you vote for a party like MHP which has no chance of being a coalition partner and affect any policy change or for a slightly religious version of the same party which is very likely to form the next government and decide the issue?

Early opinion polls suggested that the voters were happy with their initial choices:
[A]ccording to a recent survey conducted after the election, the Justice and Development Party (AKP) would receive 41.6 percent, the Republican People’s Party (CHP) 25.1 percent, the Nationalist Movement Party (MHP) 16.2 percent and the Peoples’ Democratic Party (HDP) 12.9 percent if snap polls were to be held.
However, things changed after Bahceli began to carry Erdogan's water.

A survey taken in late July showed that in early elections AKP and CHP would get slightly higher results (41.9 and 26.3 percent respectively, but AKP would still be unable to form a government by itself) and MHP would score 15.3 percent, a full point below its June results.

So clearly MHP is hemorrhaging support with its pro-AKP policy.

And this is only early August. I don't see how MHP electorate would vote for their party in a few months' time when Erdogan has been and will continue to be matching their political platform and ideological rhetoric.

Given this situation can anyone explain the political calculus that convinced the MHP leadership to back Erdogan's early elections?

CHP in Early Elections

CHP is an interesting beast.

The majority of its electoral support is drawn from aging folks who adhere to the old Kemalist precepts. They call themselves secularist but that stance hides a vague disdain for believers, a sense of superiority and a healthy dose of elitism in the form of "this is my Republic and not yours."

AKP essentially rose to prominence by denouncing these unsavory propositions.

The rest of CHP -a minority- is composed of liberal and social democratic idealists who are there because the party used to be a social democratic entity and also because these people are concerned about the growing Islamisation of Turkey.

In a way, they support CHP not for what it stands but for it might do to stop the creeping shift towards a Wahhabi-lite system.

The Kemalist crowd in CHP identify more with the secular nationalists of MHP than with these wild-eyed liberals. They hate the AKP Islamists but they are equally leery of HDP Kurds.

Early elections would be a test for these people. If Kurdish insurgency became a daily reality would the Kemalists hold their nose and vote for Erdogan?

No one knows for sure.

It is also possible that they might hate Erdogan so much that they might agree to a Kurdish homeland just to get rid of him, especially if the face of that Kurdish homeland is Demirtas and what he asks for is less than outright separation.

It is a true gamble as no one can predict which way they would go, including themselves.

Given this calculus, if you were Erdogan would you roll the dice?

I wouldn't.

There is one more thing.


By attacking ISIS and PKK at the same time, Erdogan is challenging two formidable enemies for what I consider very dubious political gains.

I think it is a safe bet that, if the insurgency returns, PKK would no longer fight traditional guerrilla warfare. Why stick to the mountains to be hunted 24/7 by drones when you can bring the war to them?

A few well placed IED or a couple of suicide bombers in a crowded area or a shopping center and you will get everyone's attention. And my guess is that this is what the PKK's leadership is itching to do.

Then there is ISIS.

Erdogan has just committed Turkey to a full fledged attack on ISIS, in order to get the US approval for his PKK adventure.

Now if you think PKK folks are itching, ISIS militants have a gigantic eczema waiting to be scratched.

An ISIS spokesperson suggested that there might be over two thousands militants who now live in Turkey but it is estimated that there are substantially more ISIS idiots in the country. Some were returning idiots, others were hardened ISIS fighters who moved to Turkey when their border towns were taken over by the Syrian Kurds.

To say that these guys are looking forward to blowing themselves up is a huge understatement.

And once you pulled those genies out of the bottle there is no easy way to put them back in.

How To Close the Circle?

The only way "Erdogan's gamble" would work is if he could find a way to get rid of Demirtas himself.

Either legally, by charging him with some bogus crimes or extra-legally, by terminating him with extreme prejudice.

The legal one is tricky especially since Demirtas dared him by asking for his parliamentary immunity to be removed. Clearly, he thinks he has no skeletons in the closet. At least none that can be found.

Which leaves the termination with extreme prejudice option. Sadly, it is also the most effective of the two options.

It is idle speculation on my part but think about it for a minute.

Such an event would instantly ignite Kurdish masses in Turkey and lead to huge and violent protests. Turkey being a nation state, these would be suppressed harshly and even more violently.

Under this scenario, the bulk of the Kemalists in CHP and a large portion of the MHP voters would vote for AKP as this is the only party that could form a stable government and Erdogan is the only leader who could find a way out of this catastrophe.

And most importantly, within a few weeks, the Kurdish political movement would be in disarray as they would be unable to replace Demirtas and PKK, once again, would be their only representative. The liberal Turks would have no party to support.

Erdogan would make conciliatory noises about a renewed peace process and national unity and after a somber electoral campaign he would emerge victorious.

All I can say is that I hope Demirtas is well protected.

And that Davutogu and Kilicdaroglu are as ambitious as they appear.

Because if they could form a lasting coalition government, Erdogan's gamble would become a moot point.

Bekir Agirdir, the CEO of, Konda, one of the leading polling companies told Al Jazeera Turkish (link in Turkish) that there is no way AKP could get back Kurdish support. He said that previously out of 10 Kurdish votes 5 went to AKP and 4 to HDP. In the June elections this ratio was 7 to 3 in HDP's favor.

Agirdir believes that those 7 out of 10 Kurds are not going anywhere and they are certainly not going back to AKP. He is convinced that early elections would not change the current distribution significantly.

If this is correct, a dramatic change would indeed be needed to make Erdogan's gamble work.