| Law of Social Media Posted: 21 Mar 2014 08:27 PM PDT Recent events in Turkey, and prior events in Egypt and Libya got me thinking about the amazing power of social media. On Thursday, Turkey's prime minister Recep Tayyip Erdogan vowed to eradicate twitter, adding " The international community can say this or that – I don't care. They will see the power of the Turkish Republic." The next day a " digital coup" occurred and Twitter Use in Turkey Jumped to New High. With the above in mind, I propose ... The Law of Social Media: Arrogant fools who think they can control social media quickly discover social media controls them.The overthrow of President Hosni Mubarak in 2011, followed by the 2013 Egyptian coup d'état of president Mohamed Morsi, with an in-between ouster of Libyan president Muammar Gaddafi provides the basis for a number of important corollaries. Law of Social Media Corollary One: Once sentiment reaches an extreme enough point, it is too late to be controlled. The social media genie cannot be put back in the bottle. Law of Social Media Corollary Two: Prior to reaching critical mass in sentiment, the best thing for politicians would be to apologize for mistakes, then promise and quickly implement real reforms. Law of Social Media Corollary three: Arrogant fools never perceive of themselves as arrogant fools. They will not apologize for mistakes or make necessary reforms. Instead they will eventually be voted out, forced out in a coup d'état, or overrun by the forces of social media. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Digital Coup: Twitter Use Jumps to New High in Turkey Posted: 21 Mar 2014 04:54 PM PDT I am absolutely laughing my head off at the sheer stupidity of bureaucrats who think they can control social media. Earlier today in response to Turkey Blocks Access to Twitter for National Security Reasons I commented ... " No one will see the "power" of the Turkish Republic in idea suppression announcements. They will see the arrogance, cowardice, and desperation of prime minister Erdogan." Twitter Use Breaks New RecordTonight I am pleased to report Twitter Use Jumps to New High in TurkeyTurkish users of Twitter, including the country's president, have flouted a block on the social media platform by using text messaging services or disguising the location of their computers to continue posting messages on the site.
In what many Twitter users in Turkey called a "digital coup", Telecom regulators enforced four court orders to restrict access to Twitter on Thursday night, just hours after the prime minister, Recep Tayyip Erdogan, vowed to "eradicate" the microblogging platform in an election speech.
The disruption followed previous government threats to clamp down on the social media and caused widespread outrage inside and outside Turkey. In a first reaction to the ban, Neelie Kroes, vice-president of the European commission, tweeted: "The Twitter ban in #Turkey is groundless, pointless, cowardly. Turkish people and intl community will see this as censorship. It is."
Štefan Füle, EU commissioner for Enlargement and European Neighbourhood Policy, said in a statement: "The ban on the social platform Twitter.com in Turkey raises grave concerns and casts doubt on Turkey's stated commitment to European values and standards."
The hashtag #TwitterisblockedinTurkey quickly rose to the top trending term globally. According to social media agency We Are Social the number of tweets sent from Turkey went up 138% following the ban.
On Friday, Turkey woke up to lively birdsong: according to the alternative online news site Zete.com, almost 2.5m tweets – 17,000 tweets a minute – have been posted from Turkey since the Twitter ban went into effect, setting records for Twitter use in the country. "Boss, my bird is still tweeting… @RT_Erdogan," posted @Fakir_Bey. "And yours?"
Meanwhile Twitter is looking into legal action against the ban and has hired a lawyer to discuss the case with the telecommunications authority in Ankara.Industry minister Fikri Işik said that Twitter needed a permanent legal representative in Turkey to facilitate all negotiations with the Turkish authorities.
Turkey's main opposition Republican People's party (CHP) also announced that it would challenge the blocking of Twitter in court, citing a violation of personal freedoms. The local bar association filed a separate criminal complaint against the ban.
Social media played a big role during last summer's anti-government protest, prompting Erdogan to call Twitter "a menace to society".
Several human rights groups strongly condemned Turkey's move, warning that the ban spelled a further worrying move towards increased authoritarianism in the country.
"The decision to block Twitter is an unprecedented attack on internet freedom and freedom of expression in Turkey. The draconian measure, brought under Turkey's restrictive internet law, shows the lengths the government is prepared to go to prevent anti-government criticism," said Andrew Gardner, Amnesty International's Turkey researcher, in a public statement. Arrogance, Cowardice, DesperationSo much for the extreme arrogance of Prime minister Erdogan who banned Twitter for "national security" reasons. Erdogan told an election rally in the western city of Bursa " The international community can say this or that – I don't care. They will see the power of the Turkish Republic." Erdogan is a complete fool who is now officially "burnt toast". He is gone except by military force, and even that won't last. Please tweet this post in the appropriate places, especially my comment (slightly modified) to fit tweet length ... No one will see the "Power of the Republic" in Erdogan's announcement. They will see arrogance, cowardice, and desperation.By the way, if you get the idea things are blowing up all over Europe, it's because they are. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| "Cowardice of the Turkish Republic"; Turkey Blocks Access to Twitter for National Security Reasons Posted: 21 Mar 2014 11:17 AM PDT Turkey Blocks Access to TwitterElected politicians, like dictators, will do anything they can to stay in power. In second- and third-tier countries, their first order of business is to control the press, typically by taking state ownership of all television and newspaper interests. Thanks to blogs and online news reporting, suppression of ideas is more difficult now than in pre-internet days. Countries responded by banning websites and blogs. Enter social media. If politicians want to suppress thoughts now, they have to forbid "tweets". And that is precisely what Turkey did yesterday. The Financial Times reports Turkey Blocks Access to Twitter. Turkey blocked access to Twitter late on Thursday, after Recep Tayyip Erdogan, prime minister, vowed to eradicate the social media site, which has been extensively used to spread corruption allegations against his government.
"Twitter and so on, we will root them out," Mr Erdogan told an election rally in the western city of Bursa, adding that he would take such a step "immediately" for national security reasons. "The international community can say this or that – I don't care. They will see the power of the Turkish Republic."
The moves came as the government endures a continuing series of leaked voice recordings, distributed via Twitter, that critics say highlight corruption in the highest circles of government.
During mass demonstrations against his rule last year, Mr Erdogan described Twitter as a "menace" – 29 people in the city of Izmir are already facing prosecution over using the microblogging site to co-ordinate what the government says were illegal protests.
The prime minister has also indicated he could block access to YouTube and Facebook after the local elections on March 30, although Abdullah Gul, Turkey's president, has said such a move is out of the question.
As the ban on Twitter was announced, Twitter's policy team tweeted to tell Turkish users how they could send tweets via SMS with local mobile carriers. The tweet, in both Turkish and English, encouraged Turkish users to access the platform through its SMS service as Twitter's site was blocked. "Cowardice of the Turkish Republic"No one will see the "power" of the Turkish Republic in idea suppression announcements. They will see the arrogance, cowardice, and desperation of prime minister Erdogan. It's easy to spot politicians in serious trouble by the actions they take. In terms of desperation, banning Twitter, Facebook, and YouTube is about 9 on a scale of 10. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Gold Reserves Top 20 Countries Posted: 21 Mar 2014 09:12 AM PDT My friend Nick at Sharelynx Gold has an interesting chart on world gold reserves that I would like to share. World Gold Reserves  click on chart for sharper imageFor those who think the US is going to enter hyperinflation with the US dollar becoming completely worthless, I reply that it will not and cannot happen because the US has the world's largest gold reserves. I am strongly in favor of an audit, but spare me the hype about US gold being titanium-filled bars or the gold has all been removed, etc. Strong price inflation is possible, albeit highly unlikely at present. Given the possibility of a gold-backed dollar, hyperinflation, with the US dollar becoming worthless as happened in Weimar or Zimbabwe, isn't remotely possible. Of course there are numerous other reasons to discount hyperinflation hype. For further hyperinflation discussion, please see Hyperinflation Nonsense in Multiple Places. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| China Faces "Minsky Moment" on Ponzi Financing Posted: 21 Mar 2014 02:05 AM PDT Inquiring minds are tuning into a report on the Ponzi finance setup in China. Most assume China can grow at 7% a year, a notion that I have challenged on many occasions. Morgan Stanley agrees. Please consider Morgan Stanley: China's Minsky Moment is Here. [Mish Note:] The prelude to the report on MacroBusiness Australia is interesting in and of itself: " From Morgan Stanley comes the latest must read bearish China report. The outlines here are right but MS underestimates the impact of a Chinese hard landing upon the world. I'm currently working on a members' special report about how and when this business cycle ends but MS nicely describes how that ending begins." What follows is from Morgan Stanley. We have described in detail over the past two years how we believe China's twin excesses (excessive investment funded by excessive debt) will inevitably unwind, causing a substantial slowdown in China's economy, significantly below market expectations. In recent weeks, a trip to the region and further research into China's shadow banking system have convinced us that China is approaching its "Minsky Moment," which increases the chances of a disorderly unwind of China's excesses.
Based on our analysis, our baseline case is that China may slow from the current level of 7.7% Gross Domestic Product (GDP) growth to 5.0% over the next two years. A disorderly unwind could take Chinese growth down to 4% in a shorter time frame with potentially disastrous consequences for levered Chinese assets (banks, property) and the entire commodity supply chain (commodity stocks, equipment stocks, commodity-sensitive countries and their currencies).
One of the more controversial conclusions of our analysis is that global economic growth could be impacted severely enough to cause a global earnings recession.
In his 1993 paper entitled "The Financial Instability Hypothesis," Minsky identified three financing regimes that economies can operate under: the first, which he called hedge finance, is a regime in which borrowers have sufficient cash flows to meet "their contractual obligations," i.e. interest payments and principal repayment, usually by having a large equity component in their capital structure; the second, speculative finance, is a regime under which borrowers have cash flows that are sufficient to pay interest but not to repay principal, i.e. they must roll over their debts; the third, Ponzi finance, is a regime in which borrowers have insufficient cash flows to pay either principal or interest and therefore must either borrow or sell assets to make interest payments.
Our analysis indicates that China's economy has arrived at that unstable state where speculative and Ponzi finance appear to dominate. From a macroeconomic perspective, very few economies have ever created as much debt as China has in the past five years. China's private sector debt has increased from 115% of GDP in 2007 to 193% at the end of 2013. That 80% increase over five years compares to the U.S.'s 26% in 2000-2005. In recent years, only Spain and Ireland have achieved debt growth greater than China's.Every year, China is now adding $2.5 trillion of private sector debt to a $9.7 trillion GDP.
There is evidence that this debt growth has become excessive and non-productive. It now takes 4 renminbi (RMB) of debt to create 1 renminbi of GDP growth from a nearly 1:1 ratio in the early and mid-2000s. After the massive stimulus and more than doubling of new bank loans in 2009, the government attempted to stabilize credit growth, but the growth of the shadow banking system exploded instead. Shadow banking now accounts for more than a fifth of total credit in China—or about 40% of GDP from a base of 12% just five years ago. The shadow banking system funnels credit to borrowers who can no longer get loans from the formal banking sector, such as Local Government Funding Vehicles, the property sector, and companies in sectors with massive overcapacity and low or negative profitability such as coal mining, steel, cement, shipbuilding, and solar.
Work by Nomura's Chief China Economist indicates that more than half of Local Government Funding Vehicles, which borrow money on behalf of local governments to invest in infrastructure, have insufficient cash flows to pay interest or principal; the exact manifestation of Minsky's Ponzi finance regime. Total local government debt adds up to RMB17.9 trillion (nearly $3 trillion) according to the latest, likely understated, national audit. In addition, estimates show that up to one third of all new borrowings are currently being used to roll over existing debt, and that interest payments on debt represent nearly 17% of Chinese GDP—a staggeringly large number (which excludes principal repayments) and which is nearly double the level that the U.S. reached in 2007.
The unwind of this credit boom is likely in progress, and we expect it to pick up speed over the coming months and quarters. It will likely involve a steady drip of defaults and near-defaults as insolvent borrowers finally become illiquid. Market rates for all assets except central government bonds and central bank bills will likely continue to rise, reflecting increasing market fears of default by shaky borrowers. Asset values will likely begin to deteriorate as stressed borrowers attempt to sell assets to stay afloat.
We recognize that it is extremely likely that the Chinese government will attempt to stave off the unwind or at least keep it orderly in an effort to achieve the ever-elusive soft landing. One way that the government could attempt this would be by stepping in to bail out borrowers on the verge of default. A version of this occurred in January, when the well-publicized default of a RMB3 billion China Credit Trust product was averted when an unknown entity stepped in to pay the principal due to investors, though not the remaining interest due (worth approximately 7% of principal). The unknown entity is likely to have been either the local government of Shanxi, home of the coal mining company that defaulted on the underlying trust loan, or the Ping An insurance company, parent of China Credit Trust.
The benefit of the government or other entities stepping in to bail out borrowers is that it helps prevent investors from losing money, maintaining their faith in the financial system and ensuring they continue to buy trust products offering rates five times above deposit rates. The drawback is that credit continues to be extended to weak or insolvent borrowers, potentially leading to an even higher level of bad debts in the future. The problem is not eliminated, it is simply postponed.
Interestingly, growth is likely to be negatively impacted whether or not the government steps in frequently to prevent borrowers from defaulting. First, scarce capital is being provided to prevent default by insolvent borrowers ("zombies") rather than being channeled toward productive investments. Second, in order to limit the cumulative size of the bailouts, the government is likely to continue to restrict the growth of shadow banking and lending to these uncreditworthy borrowers. Lastly, market rates are likely to continue to rise, reflecting increasing market unease with the growing number of near-defaults. There is more text and charts in the report. It's worth a closer look. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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