News That Matters
Why do the Greeks want to stay in the Euro? It doesn’t make sense, but on the other hand, by staying in the Euro, they will receive money, they won’t be able to pay back. By Biderman. I remain long term bearish on European stocks and as well as the big US banks. Why? Greek public opinion is that they want to stay in the Euro but they want easier terms. At first blush it does not make sense to me why they would want to stay in the Euro? The Greek economy is a disaster and getting worse, so why would they not want to go in another direction? The only answer I can come up with is they like being able to borrow money to pay their bills and, even better, never having to pay the loans back. That makes sense. If Germany is willing to keep lending to Greece even if most goes to repay older loans, Greece keeps getting some new cash. If Greece left the Euro, even that modest amount of fresh cash would disappear. How horrible! Greeks would actually have to go out and do stuff. They might have to work for a living and pay some taxes for government services. Video below.
Eurozone members of the Group of 20 leading economies have committed to driving down borrowing costs across the single currency area, according to the communiqué from the summit in Mexico. On the day that Spain was forced to pay more than 5 per cent to borrow money for one year, the need for action to stem the spiral of rising government bond yields was accepted on Tuesday by Germany, France and Italy, the G20’s three eurozone members.

Leading hedge fund managers are betting on a significant sell-off in German government bonds in the coming months after a sharp fall in yields on the debt paper driven by a flight to safety in the eurozone. More than 50 per cent of managers polled at an industry conference in Monaco on Tuesday said they expect Bund yields to double within a year.

Faltering global growth has pushed UK inflation to its lowest since 2009, raising expectations that the Bank of England will restart quantitative easing to stimulate the economy. Falling commodity prices helped to lower the UK’s annual consumer prices index inflation rate from 3 per cent in April to 2.8 per cent in May as food price inflation slowed and fuel prices dropped.

Blink and you’ll miss it. As this month’s brief rallies in the wake of Spain’s bank bailout news and Sunday’s Greek elections show, wait too long to tap public bond markets and you might miss your opportunity altogether. Six months after the European Central Bank first offered hundreds of banks across the eurozone access to cheap loans, and with the Europe’s debt crisis far from resolved, bank funding markets are dysfunctional. According to Dealogic, European banks have issued just $40bn of senior unsecured debt since the start of April, well below the same period in previous years. Covered bond issuance for the quarter so far stands at just $27bn.


The US state department has commended Myanmar’s efforts to curb human trafficking while warning Thailand it could be downgraded in its annual global assessment of human trafficking. Washington’s 2012 Trafficking in Persons report, launched by the US secretary of state Hillary Clinton on Tuesday, grades countries in four categories or “tiers” by standards set out in the US Trafficking Victims Protection Act for the elimination of trade in humans.

Negotiations between Iran and world powers over the future of the Iranian nuclear programme came close to collapse on Tuesday as all sides struggled to keep diplomatic momentum alive after two days of deadlocked talks. In a development that will heighten international anxiety that the impasse over Iran’s programme could end in war, the six world powers made no progress on attempts to get it to freeze production of more highly enriched uranium, which the US believes is aimed at producing a nuclear weapon.
Asian stocks climbed on the news, though analysts expect trading to remain cautious until the Fed announces its decision. Japan’s Nikkei Average gained 0.8%, Australia’s S&P ASX 200 was 0.7% higher, and Korea’s Kospi rose 0.4%. Markets in Asia were trailing strong gains in other regions, as the Dow Jones Industrial Average finished Tuesday 0.8% up and the FTSE gained 1.7%.

Greece appeared on the verge of forming a three-party coalition government that would back the country’s European-led bailout program late Tuesday, with a final deal likely to be clinched following meetings of the three party leaders expected for Wednesday. Senior party representatives from the conservatives, socialists and a small leftist group held high-level talks on a common policy platform for the new government until late Tuesday, and said they would resume their discussions the following day.

The euro zone’s two largest economies experienced drops in confidence in June, with German economic expectations suffering their steepest fall in almost 14 years, while French business confidence declined slightly. The data released Tuesday provide further evidence that Greece’s national election Sunday provided only a brief respite to the currency area’s still-precarious situation. The Centre for European Economic Research, or ZEW, said that German economic expectations were hit by continuing uncertainty over the fate of the euro zone.

As more U.S. housing markets improve, an adage about what matters in real estate is proving true: location, location, location. While property markets across the country rose together during the housing boom and fell together during the crash, new data analyzed by real-estate firm Zillow Inc. for The Wall Street Journal show that markets are exiting the downturn at different speeds. The findings come amid fresh evidence Tuesday of the housing recovery’s tentative progress. May single-family housing starts rose by 3.2% from April on a seasonally adjusted annual basis, while building permits increased 7.9%, according to the Commerce Department. Sales

Markets wanted it. Economists expected it. Consumers, too, would have liked it. Still, the Reserve Bank of India stumped all by keeping interest rates unchanged at its mid-quarter review of monetary policy Monday. With the economy slowing down, the pressure was on. Besides, with global crude oil prices declining thus easing inflationary pressures you had a compelling case for the RBI to cut interest rates. So why did the RBI stand put on rates? It’s partly because, this time around, RBI Governor Duvvuri Subbarao chose to focus on an uptrend in “retail inflation,” a new addition to the monetary policy lexicon which, in simple terms, means that goods in shops are getting more expensive.

India and China’s largest oil companies have agreed to jointly explore for oil and natural gas world-wide, in an attempt to put aside a long-standing rivalry and better use their combined financial resources and expertise to secure energy supplies for their fast-growing economies. While the two energy-deficient countries already work together on several international oil projects, they also have a history of bad relations, and of proposing cost-reducing alliances to jointly buy foreign energy assets and crude oil that mostly have come to nothing.
Germany is going to allow the euro zone’s bailout funds to buy the sovereign debt of troubled European nations, according to reports in British news outlets including the Guardian and Sky News, without attribution. The money would come from the 500 billion euro European Stability Mechanism and the 250 billion euro European Financial Stability Facility, the reports say. The move would be a reversal from the stance previously held by Germany’s Angela Merkel.

Japan’s trade deficit widened sharply in May to ¥907.3 billion ($11.47 billion), despite a strong rise in exports to the U.S., according to Financial Ministry data released early Wednesday. The median estimate from a Dow Jones Newswires survey had projected the trade deficit to total ¥520 billion, little changed from April’s ¥520.3 billion trade gap. Exports for the month rose 10% from a year earlier, while imports grew by 9.3%. Japan’s trade deficit with top trading partner China grew, with China-bound shipments up 3% but umports rising 10%. Exports to the U.S. jumped more than 38%, but those to Western Europe slipped almost 5%. The Japanese yen briefly fell against the dollar, which rose from 79.03 before the data to 79.10 afterward

Japan’s investments and acquisitions in foreign countries hit an all-time record during the March 2011-March 2012 fiscal year, the Nikkei business daily reported Wednesday, citing Bank of Japan data. The Japanese yen’s historically strong levels, while hurting exporters, has also led to an 18% jump in the last fiscal year’s direct overseas investment by private-sector firms, hitting ¥46 trillion ($580 billion), the report said. The year also marked a rise in the private sector’s bank borrowing, the first such gain in three years.
With economic storm clouds gathering abroad and signs the U.S. recovery is flagging, the Federal Reserve may feel compelled on Wednesday to launch a new round of monetary stimulus. Confronted with rising financial strains in Europe, a year-end fiscal showdown in Washington and a sharp slowdown in hiring by U.S. employers, many economists expect the Fed to extend a program aimed at pushing down longer-term interest rates to shield the still-fragile economy.

Gold rose on Wednesday, driven by hopes the U.S. Federal Reserve may do more to stimulate the world’s top economy, a move which would boost bullion’s appeal as a hedge against inflation. Spot gold rose $3.96 to $1,620.56 an ounce by 0242 GMT. Gold jumped to its highest level in 2012 of around $1,790 in February after the Fed at the time said it would keep interest rates near zero until the end of 2014 at the earliest.U.S. gold futures for August delivery fell $1.80 an ounce to $1,621.40 an ounce. Volumes were at around 5,000 lots, compared with more than 120,000 lots at the close on Tuesday.

Brent oil for August delivery was down 23 cents at $95.53 per barrel by 0152 GMT. It fell as low as $95.40 earlier, near Tuesday’s trough of $94.44, its cheapest level since January 10, 2011. U.S. July crude, which expires on Wednesday, slipped 19 cents to $83.84 per barrel.
The U.S. Navy is betting $42 billion on a new class of aircraft carriers, the world’s biggest and costliest warships ever, even as the Pentagon budget shrinks and China and Iran arm themselves with weapons to disable or destroy the behemoths.  “A carrier is 4 1/2 acres of sovereign U.S. territory,” Captain Bruce Hay, a Navy pilot who helps set requirements for the new carrier, said in an interview. “An aircraft carrier is a piece of America, and we’re going to do what it takes to keep them relevant because a carrier is presence and American resolve all at one time.”

Former Treasury Secretary Henry Paulson said the U.S. will emerge relatively unharmed from the debt crisis in Europe as efforts by Greece, Spain and other nations to stabilize their economies persist for the long-term. “Although Europe is a drag, the U.S. will continue to muddle along with growth that really isn’t enough to make a dent in employment,” Paulson, who was Treasury secretary from July 2006 through January 2009, said at a biotechnology industry conference in Boston today. Europe will eventually stabilize and avoid a “catastrophic outcome,” he said.

China is allowing more companies to trade bonds and increasing scrutiny over issuers as the government seeks to ensure that the expansion of its nascent debt market isn’t derailed by defaults. The top economic planning agency ordered local governments to examine the ability of companies to repay bonds maturing in 2012 and 2013, two people with direct knowledge of the matter said yesterday, asking not to be identified as they weren’t authorized to speak to media. China Securities Regulatory Commission began allowing mutual funds to invest in private placements by smaller companies, according to an agency document obtained by Bloomberg News.
The Federal Reserve’s monetary easing has reached its limit and it is now time for the government to put fiscal policy to work, according to Robert Heller, former governor of the U.S. central bank.  “Monetary policy, the foot is on the gas pedal, has been there for a long time, three years now,” Heller, who served on the Fed’s board from 1986 to 1989, told CNBC Asia’s “Squawk Box” on Wednesday. “And I think the Fed has done what it can do. It’s now the time for fiscal policy to do its part.”

Job openings fell to a five-month low in April and showed their sharpest percentage decline in about seven and a half years, according to a government report Tuesday that helped confirm a slowdown in the labor market. The Job Openings and Labor Turnover Survey, or JOLTS, indicated 3.4 million job openings at the end of April, an 8 percent decline from the previous month. The pace of total hiring also slowed, with 160,000 fewer jobs filled during the month. Moreover, the drop showed weakness across the employment spectrum, with manufacturing seeing 62,000 fewer job openings and construction dropping by 2,000.

Dennis Gartman is widely followed for his keen understanding of commodities, especially gold. And he tells us the way he’s trading the precious metal has just changed. “For the first time in a long time, I’d rather own the miners than bullion, or gold contracts or the GLD,” he says. And that’s because Gartman, author of The Gartman Letter, has spotted a major shift in the gold trade. “Over the past few weeks as the gold market advanced, the gold equities that is, large cap gold miners performed better than bullion,” he explains. “I watch that sort of thing to see how efficient and how well entrenched the gold rally is.”

Last year, for the first time ever, Asia had more millionaires than North America, according to a new study. According to the World Wealth Report from Capgemini and RBC Wealth Management, North America’s millionaire population declined slightly to 3.4 million in 2011 while Asia’s grew by 1.6 percent, giving them slightly more than 3.4 million.  Globally, there are now about 11 million individuals with investible assets of $1 million or more (not including their primary residence). Granted, on a country-by-country basis, the United States still rules the world when it comes to wealthy individuals. Last year the country was home to 3.067 million millionaires. And North America as a whole still had more total wealth held by millionaires: $11.4 trillion compared to Asia’s $10.7 trillion. RBC defines Asia as China, Japan, India and more than a dozen other countries.
The world could stand to shed a few pounds. Fifteen million metric tons, in fact, according to a new study. In the study, published in the open-access journal BMC Public Health, researchers used country-specific data on body mass index and heights to estimate the biomass of the world’s entire adult population. They concluded that in 2005, the global adult human biomass was about 287 million metric tons. (A metric ton is 1,000 kilograms, or about 2,200 pounds.) About 15 million metric tons of that biomass were the extra pounds of people who were overweight (here defined as having a body mass index value above 25). About 3.5 million metric tons of that total biomass were because of obesity (having a B.M.I. above 30).
There have been no talks at the Group of 20 summit in Mexico about using European bailout fund vehicles to buy distressed euro-zone debt, a German official told Reuters. But the official did note that those vehicles could buy bonds on the secondary market. Several British news outlets reported earlier Tuesday that Germany was getting ready to approve such purchases.
Uttam Galva Steels Ltd., the Indian unit of ArcelorMittal, is targeting a 20 percent increase in profit over the next two years as demand at home bucks a global slump sparked by Europe’s debt crisis. The need for vehicles, refrigerators and washing machines in the world’s second-most populous nation will help the Mumbai- based steelmaker cut its dependence on Europe, Deputy Managing Director Ankit Miglani said in an interview. Earnings before interest, tax, depreciation and amortization may climb to 6.2 billion rupees ($111 million) in the year ending March 2014 from 5.2 billion rupees in the  last fiscal year, he said. “The focus is on India as this will be a high-demand zone,” he said. “Europe has affected not only us but the entire world and mills are operating at lower capacities.”
Signs of a two-speed UK property market emerged again on Tuesday after London house prices outpaced the rest of the country, according to official figures. Prices in the capital were up 4.9pc in the year to April, compared to just 1.4pc across the UK over the same period, the statistics showed. The average house price in London was £388,000, trumping the UK average of £229,000, the Office for National Statistics (ONS) said. London’s property prices – the highest in the UK – are £100,000 higher than the second most costly region, the South East, where the average house price is £288,000, the figures showed.  In contrast, the North East has England’s lowest average house price, at £145,000, the ONS revealed in its monthly index.

European leaders are poised to announce a 750 billion euro deal to bailout beleaguered Spain and Italy by buying the countries’ debts. Pan-European Government funds are set to be used to buy Spanish and Italian bonds, which have recently hit record highs in a move which will send a strong signal to financial markets that the German administration is prepared to back its weaker economic neighbours. Angela Merkel and other European leaders have come under intense pressure at this week’s G20 summit to take radical action to stem the growing euro crisis which has pushed up the cost of Spanish bonds to unsustainable levels. Francois Hollande, the French President, said: “It will be more on mechanisms that allow us to fight speculation”.

Bankers’ pay expectations remain “wildly out of line” with other sectors, shareholder groups told the Treasury Select Committee.  But a “Shareholder Spring” every year as investors revolt over pay would “not be healthy” and companies are likely to change their ways to avoid a repeat of this year’s protest votes. Richard Saunders, chief executive of the Investment Management Association on Tuesday told MPs sitting on the committee that there was a “fundamental problem” with the pay culture in banks. “People’s expectations about earnings within the financial sector are often wildly out of line with most other sectors of the economy,” he said.
London’s auction houses are scooping the lion’s share of new money from billionaires in eastern Europe and the Middle East keen to boost their art credentials. Sotheby’s has calculated that the number of art lots sold to buyers from “new” markets has leaped 33 per cent in London in the past year, against 6 per cent in New York. While New York has set most of the biggest recent records such as the $120m (£77m) fetched by Edvard Munch’s The Scream at Sotheby’s in May the trend of new money could be vital in London’s effort to topple the Big Apple as the traditional centre of the art auction world.
Australia’s economic growth is expected to come to a virtual halt in the second half of 2012, a private sector survey shows. The Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was at 0.2 per cent in April, well below its long-term average of 2.6 per cent. ‘‘The Leading Index is pointing to a sharp slowdown over the second half of this year,’’ Westpac senior economist Matthew Hassan said in a statement today. Australia recorded gross domestic product (GDP) growth of 4.3 per cent in the 12 months to March 2012, according to Australian Bureau of Statistics data.

France’s President Francois Hollande suffered a sense of humor failure at the G20 summit in Mexico on Tuesday after a cheeky British attack on his tax policies turned into a political row back home. Prime Minister David Cameron triggered the spat on Monday, when he boasted that Britain was preparing to welcome an exodus of French high-earners fleeing Hollande’s plan to impose a 75 per cent tax rate on top salaries. Downing Street said that the offhand comment, delivered to business leaders at an address before the start of the G20 talks in the Mexican resort of Los Cabos was meant “partly in jest,” but the remarks caused a storm in France.
If there is a slowdown in China’s economy, someone forgot to tell the folks at German watch-and-pen maker Montblanc. The luxury retailer launched its biggest store in the world in Beijing this month a four-storey monolith with a champagne-and-celebrity studded party for 1,000. Inside the store, customers can perch on a replica palace throne or browse a multimedia installation featuring the namesake of the company’s new Princess Grace of Monaco-themed jewellery collection. “You have to distinguish between the long term and the short term. I believe in the long term, this market will continue to strive forward,” Montblanc chief executive Lutz Bethge told reporters in Beijing. “Even if at some point in time there will be a dip in the China market … in the long term, I see China as a continuing, huge opportunity for us.”
Toyota Motor will cut its production capacity in Japan by more than 10 per cent from current levels to about 3.1 million units by 2014, continuing to reduce its domestic output, the Nikkei said on Wednesday. The automaker will not lay off workers as part of the cuts and is keen to ensure that its domestic suppliers and partners remain profitable, the newspaper said. The company wants to maintain domestic production at about 3 million vehicles per year, down by about 500,000 units from current levels, even if a strong yen hurts export profitability, the business daily said.
China’s top statistician Ma Jiantang said Tuesday that the National Statistics Bureau (NBS) will be able to ensure the “authenticity, accuracy, integrity and timeliness” of important data through tightened auditing at various government levels. The NBS has sent inspection teams to 32 provincial-level governments, 348 city-level governments and 857 county-level governments since 2005, said Ma, director of the NBS, at a national conference on statistical management. He said the country’s statistical management is standing at a new historical starting point and authorities must work to strengthen their statistical capacity, as well as improve the quality of statistics and government data credibility both now and in the future.

More than a fifth of Chinese residents surveyed by the central bank expect home prices to rise in the third quarter of the year, the People’s Bank of China said Tuesday. The bank’s survey indicated that 20.4 percent of 20,000 households in 50 cities expect the country’s home prices to rise in the coming quarter, higher than the first quarter’s 17.6 percent but lower than the 36.2 percent registered in the second quarter of 2011. Some 15.7 percent of respondents said they have made home-purchasing plans for the next three months, 1.6 percentage points higher than in the first quarter.

Nearly a third of Chinese bankers surveyed by the central bank believe the country will adopt a looser monetary policy in the third quarter as the economy loses steam, the People’s Bank of China (PBOC) said Tuesday. In the second quarter, 32.4 percent of bankers expected a looser monetary policy for the next quarter, 25.7 percentage points higher than three months earlier, the PBOC said, citing results of a survey conducted among about 3,000 bankers. Meanwhile, 38.9 percent of bankers considered the national economy “relatively cool” in the second quarter, up 9.4 percentage points from the first quarter, according to the PBOC survey.

U.S. economy will remain weak in the near-term and inadequate workforce development is the “real Main Street problem,” according to a forecast report released here Wednesday. In its second quarterly report of 2012, the University of California, Los Angeles (UCLA) Anderson Forecast’s outlook for the U.S. says that Gross Domestic Product (GDP) and job formation in the U.S. will remain weak in the near-term, mirroring conditions that have prevailed for the last two years. GDP growth is forecasted to be 2.4 percent by the end of 2013, increasing to 3.4 percent in 2014. The unemployment rate by the end of 2013 should be 7.7 percent. The forecast assumes that the Federal Reserve cannot risk a rate increase, particularly if the nation experiences the forecasted inflation rate of 1.6 percent.
Prime Minister Manmohan Singh, on Tuesday, said his government was determined to take ‘tough’ decisions, including on controlling subsidies, to reverse the expansion of the fiscal deficit, even as he expressed confidence in bringing back the rhythm of high growth of 8-9 per cent annually.  Concerned over the dip in India’s economic growth, Dr. Singh said the public in the country was ‘impatient’ for a return to high growth and faster jobs creation.  He also said that steps were being taken to revive investor sentiment in the country. The Prime Minister addressed some critical issues relating to the slowdown in India’s economy in his address during the Plenary Session of the seventh summit of the Group of 20 developed and developing countries.

Under attack for not reducing interest rates, Reserve Bank of India Governor D. Subbarao, on Tuesday, said inflation at current levels was unacceptable and monetary tightening was required to ensure sustainable growth. “We want to support growth in the medium-term with low and stable inflation, which is possible only with tightening, but inflation at the current level is not acceptable,” he said at a function organised by the Indian Merchants’ Chamber here. He went on to say that “we would like to believe that the policy rate hikes have helped in moderating inflation…we look at all indices, be it WPI or CPI, in policy-making. Those wanting to gauge our responses should look at them; don’t criticise us for confusing…”

Foreign direct investment (FDI) has slumped by 41 per cent to $1.85 billion in April this year as compared to $3.12 billion in April, 2011. Officials in the Commerce and Industry Ministry attributed the decline in FDI inflows to the overall poor global economic scenario but said there was a crying need to initiate big-ticket reforms in various sectors to send across a positive signal to investors that Indian economy was a safe and attractive destination for investments. Reforms such as allowing 51 per cent FDI in multi-brand retail and 49 per cent in domestic air carriers; and opening up pension and insurance sectors have been hanging fire for long. India’s growth has already slipped to a nine-year low of 6.5 per cent, and is likely to go down further in the absence of any substantial reforms. The growth in the January-March quarter was merely 5.3 per cent.
Advance tax payments by India Inc grew by a meagre 4.9% in the three months to June, reflecting crimping growth and suggesting muted corporate profits in the days ahead. Preliminary data released by the finance ministry on Tuesday showed that companies paid Rs 33,089 crore as advance tax in the first quarter of the fiscal, compared with Rs 31,631.3 crore in the year-ago period.
South Korea’s international air passenger traffic jumped 14.9 percent in May from a year earlier due to a sharp rise in visitors from Japan and China, and more Koreans going abroad, the government said Wednesday. The number of international air passengers came to some 3.82 million, the highest number for the month of May, according to the Ministry of Land, Transport and Maritime Affairs. The previous record was reached in May 2011, when numbers hit 3.32 million. The ministry said compared to a year earlier, passenger traffic on Japanese routes soared 35.3 percent. The number of passengers on flights to China also rose 11.5 percent on-year, with an increase to Southeast Asian countries of 10.3 percent.
United Company RusAl and the Export-Import Bank of China have signed a cooperation agreement on a RusAl greenfield project in Eastern Siberia worth up to $850 million, the aluminum producer said Tuesday. The agreement foresees joint cooperation on financing for the construction of a new anode factory in the Irkutsk region. Anodes are used in electrolysis process to produce aluminum. The main consumers will be RusAl’s aluminum smelters in Eastern Siberia, which are able to meet China’s growing demand in aluminum. The geographic proximity of the factory to its key consumers will shorten the supply chain and strengthen the company’s vertical integration. “The construction of the anode factory in direct proximity with the company’s most green and technologically advanced units will further strengthen RusAl’s position in the current competitive environment,” first deputy CEO Vladislav Solovyov said.
Cosatu condemned the news on Tuesday that Treasury has donated $2bn (about R16.58bn) to an International Monetary Fund (IMF) firewall meant to prevent future financial crises. “South Africa is one of the most distressed economies in the world, with massive levels of unemployment, poverty and inequality… and should therefore be a beneficiary rather than a contributor to such a fund,” Congress of SA Trade Unions spokesperson Patrick Craven said in a statement. “It seems to be an attempt to show international institutions and big powers that South Africa is one of the ‘good boys’.”
Oil Minister Rostam Qasemi has officially ordered an investment of more than $26 billion in development projects in the South Pars gas field for the current Iranian calendar year which started on March 20, 2012.  Pars Oil and Gas Company financial director Touraj Jahanara made the announcement in an interview with the Shana news agency. Last year, around $20 billion was allocated for the purpose, Jahanara added.  He said the highest investments last year were made in the phases 12, 22-24, and 13 of the South Pars. Deputy Oil Minister Mohsen Khojasteh-Mehr said in October 2011 that development of the South Pars is a priority, and funds will be channeled there for as long as necessary.

The global oil producers can not meet demands without taking Iranian oil into account, said the deputy Iranian oil minister. Mohsen Khojasteh-Mehr told the ISNA News agency that Iran is second holder of natural gas reserves, without around 34 trillion cubic meters of deposit. The country plays an important role in securing energy supply to international markets. “Sanctions are issues of short-term,” he said, “The world has come to the conclusion that if it removes Iran from the global gas market, it will create critical conditions.”