global glass onion

reality is only those delusions that we have in common...

Saturday, February 28, 2015

week ending Feb 28

 Yellen faces interest rates language test - FT.com - The US Federal Reserve is facing a delicate communications challenge as it discusses ways of weaning investors off its low interest rates message while avoiding a knee-jerk response in financial markets. Chairman Janet Yellen will face an early test on Tuesday when she takes questions from the Senate Banking Committee on the Fed’s interest rate stance, amid expectations that policy will be tightened this year. The central bank promised after meetings in December and January to be “patient” before raising interest rates — meaning it will not make a move for at least two subsequent meetings of its monetary policy committee. A growing number of Fed officials have advocated watering down that pledge at the Fed’s next meeting in March in order to open up the option of raising rates at the later meeting in June. At the same time, officials also want the flexibility of keeping rates at near-zero at the June meeting if America’s economic recovery sputters, given remaining concerns among committee members about persistently low inflation readings. The difficulty, expressed most clearly in minutes of the Fed’s January meeting released last week, is that if the Fed jettisons its “patience” language the market may immediately price in a June increase in rates — raising unhappy memories of the violent market reaction to former Fed chairman Ben Bernanke’s announcement in May 2013 of plans to taper back bond purchases, dubbed a “taper tantrum”. “It is easier said than done getting that optionality in there. Do [they] eliminate patience or qualify patience?” said Diane Swonk, chief economist at Mesirow Financial, in Chicago. “They feel trapped by the guidance because the markets don’t take it as guidance — they take it as a pledge.”

Yellen: Semiannual Monetary Policy Report to the Congress - Federal Reserve Chair Janet Yellen testimony "Semiannual Monetary Policy Report to the Congress" Before the Senate Banking, Housing, and Urban Affairs Committee, Washington, D.C. (excerpt): The FOMC's assessment that it can be patient in beginning to normalize policy means that the Committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings. If economic conditions continue to improve, as the Committee anticipates, the Committee will at some point begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis. Before then, the Committee will change its forward guidance. However, it is important to emphasize that a modification of the forward guidance should not be read as indicating that the Committee will necessarily increase the target range in a couple of meetings. Instead the modification should be understood as reflecting the Committee's judgment that conditions have improved to the point where it will soon be the case that a change in the target range could be warranted at any meeting. Provided that labor market conditions continue to improve and further improvement is expected, the Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when, on the basis of incoming data, the Committee is reasonably confident that inflation will move back over the medium term toward our 2 percent objective.

FRB: Testimony--Yellen, Semiannual Monetary Policy Report to the Congress--February 24, 2015: Semiannual Monetary Policy Report to the Congress Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.

How ‘patient’ is Yellen? - The markets probably ignore most of the important stuff. Instead, they focus attention on something which is intrinsically unimportant for the economy as a whole — the likely date of lift-off for short-term interest rates. The Fed’s Open Market Committee is often impatient about the markets’ obsession with this date, arguing that this is irrelevant compared to the Fed’s wider message on the intended path for interest rates over the next couple of years. But investors know that a lot of money can be lost by getting the lift-off date wrong. And, if the FOMC is so unconcerned about this minor detail, why do they focus so much attention on it in their regular meetings? The Fed’s main message is that the lift-off date will be determined by data, with a raft of releases on inflation and the labour market likely to be weighed in the overall balance. But they have muddied this simple message by giving an unnecessary further piece of guidance that depends on the calendar, not on the data. Here it is, as it first appeared in December 2014:As progress in achieving maximum employment and 2 per cent inflation continues, at some point it will become appropriate to begin reducing policy accommodation. But based on its current outlook, the Committee judges that it can be patient in doing so. In particular, the Committee considers it unlikely to begin the normalisation process for at least the next couple of meetings. This assessment, of course, is completely data dependent. That was Ms Yellen’s opening statement in her press conference, fully scripted in advance. The key piece of code is the word “patient”. This gives the firm guidance that there will be at least two clear meetings without a rate rise, unless the data develop in some totally unforeseen manner. Note that this code is different from the 2004 use of the word “patience”, which referred to only one clear meeting, as proven when rates were actually raised in June 2004 (see Tim Duy).

Fed’s Janet Yellen, in Testimony, Counsels Patience on Interest Rate Increase -— Janet L. Yellen, the Federal Reserve chairwoman, told Congress on Tuesday that the central bank is pleased with recent economic growth but convinced there is room for improvement and still pondering when to start raising interest rates.In testimony before the Senate Banking Committee, Ms. Yellen advanced the Fed’s slow-motion retreat from its stimulus campaign. She said the next step would be an announcement, which could come as soon as March, that the Fed would begin to consider raising its benchmark rate at each policy-making meeting.The change would preserve the possibility of a rate increase as soon as June. But Ms. Yellen emphasized that patience remained the Fed’s watchword, and that the persistence of sluggish inflation might still push back the timing of the liftoff.  “There has been important progress,” Ms. Yellen testified. “However, despite this improvement, too many Americans remain unemployed or underemployed, wage growth is still sluggish and inflation remains well below our longer-run objective.”The ambiguity drew gentle prodding from Republicans concerned that the Fed would move too late and from Democrats worried about a premature retreat.Senator Richard C. Shelby, the Alabama Republican who leads the banking committee, questioned whether the Fed, by continuing to suppress borrowing costs, was blowing bubbles into financial markets and risking higher future inflation. “Many question whether the Fed can rein in inflation and avoid destabilizing asset prices when the time comes to unwind its massive $4.5 trillion balance sheet,” he said. Patience, he warned, “could lead to a more painful correction down the road.”

House Republicans Intensify Attacks on Federal Reserve - — The relationship between Congress and the Federal Reserve took a turn for the worse on Wednesday.During a testy three-hour hearing, Republicans on the House Financial Services Committee accused Janet L. Yellen, chairwoman of the Fed, of using her office to advance liberal policy goals and argued that Congress should increase its oversight of the central bank.Republicans, who control Congress but not the agencies that interpret and execute legislation, appear frustrated with the course of economic policy. They want the Fed to move more quickly toward raising interest rates and to ease some of the restrictions that a Congress controlled by Democrats imposed on the financial industry after its 2008 collapse.“Fed reforms are needed, and I, for one, believe Fed reforms are coming,” said Representative Jeb Hensarling, the Texas Republican who is chairman of the committee.  Ms. Yellen pushed back forcefully, sometimes speaking over her questioners to make a point. She defended her actions and the conduct of monetary policy, and she warned against constraining the Fed’s independence.Appearing before Congress for a second consecutive day, Ms. Yellen offered no new insights into the likely course of monetary policy, and the committee members made little effort to elicit any. The hearing instead was devoted to questions about financial regulation and to questions about the proper relationship between the central bank and the rest of the federal government.Republicans expressed particular anger about a speech on rising economic inequality that Ms. Yellen delivered in October, a few weeks before the midterm elections, in which she questioned “whether this trend is compatible with values rooted in our nation’s history.”

Grand Central: That Didn’t Go Well, Madame Chair - Ms. Yellen was skewered by House Republicans — some observers felt rudely – who accused the Fed chief of politicizing the institution by meeting regularly with Obama Administration officials and congressional Democrats and speaking out on the problem of inequality, an issue Democrats hold as their own. Their broader point was that the Fed shouldn’t claim its independence is sacred when it pushes back against legislative proposals from the right that would open it to more scrutiny from the legislative branch of government. Ms. Yellen fought back. There’s nothing unusual about a Fed leader meeting with a Treasury Secretary, as she and her predecessors have long done on a weekly basis. Inequality is a real economic issue and there’s no reason why she shouldn’t address it, she added, her temper and voice at times audibly rising. It was hard to walk out of that hearing without a feeling that the Fed is in for a long, hard battle with lawmakers this year. Proposals are multiple, including investigations into its decision-making by the Government Accountability Office, a requirement that it follow monetary policy rules more closely, subjection of the New York Fed president to Senate confirmation.

Why Congressional challenges to the Yellen Fed matter - Republicans have previewed their criticisms of the Fed.  Some urge new audits, others call for a more formulaic policy rule to reduce the Fed’s discretion over interest rates.  Senators from both political parties have questioned the Fed’s regulatory performance, alleging lax supervision of Wall Street institutions by the New York Fed.  Even the president of the Dallas Federal Reserve Bank has counseled reform, suggesting that the Fed’s monetary policy committee be revamped to decentralize power away from Washington and New York and into the hands of the 11 other regional reserve banks (including the Dallas Fed that he currently leads). Yellen will be in the hot seat to defend the Fed’s performance and to combat proposals that central bankers find ill-advised, such as Sen, Rand Paul’s (R-Ky.) “audit the Fed” bill.  It is tempting to dismiss the audit crowd as truly ill-informed about the Fed and to oppose new audits on the grounds of potentially adverse economic consequences. But by rejecting lawmakers’ proposals, I think the Fed and its defenders risk misjudging the political import of legislators’ demands for greater accountability.

Recap: Fed Chief Janet Yellen’s Report to Congress - Just how “patient” is the Federal Reserve? Fed Chairwoman Janet Yellen delved into that question and much more in the first day of her semiannual report to Congress. The central bank has been signaling it would be patient in raising interest rates, which have been pinned near zero for more than six years. Ms. Yellen updated how the Fed might alter its interest-rate guidance to the public while sharing her views on the global economy, “Audit the Fed” proposals, bank regulation and more. The Journal team live-blogged the action as it happened. Here’s a recap:

Highlights From Janet Yellen’s Report to Congress, Day 2 -- Federal Reserve Chairwoman Janet Yellen headed to Capitol Hill on Wednesday for a second day of testimony, repeating her message that the Fed could start raising interest rates later this year if the economy continues to strengthen. Ms. Yellen appeared before the House Financial Services Committee to discuss the economy and monetary policy and answer lawmakers’ questions. She told the Senate Banking Committee on Tuesday the Fed sees the U.S. employment picture “improving on many dimensions” while spending and production are rising at a solid pace. Some highlights from Wednesday’s Q&A with lawmakers:

Reforming the Fed: Who’s Right; Who’s Wrong? - The Republicans are making good on their campaign pledge to turn up the heat on the Federal Reserve. Sparks flew in the House Financial Services Committee hearing room yesterday as Fed Chair Janet Yellen appeared to present her semi-annual testimony. At times, the exchanges between Yellen and Republican members of the Committee were sharp and tense. In his opening statement to the Committee, Jeb Hensarling (R-Tx), who chairs the Committee, blamed the “anemic” recovery on Obamacare, Dodd-Frank and regulatory costs. He went on to say that “Then there’s the doubt, uncertainty and regulatory burden that grows as more and more unbridled, discretionary authority is given to unaccountable government agencies.  Although monetary policy cannot remedy this, it can help.”  Republicans are locked in some kind of mind warp where the remedy for every problem is to deregulate. Despite six years of books, academic studies, investigative findings, and a 600-page report from the Financial Crisis Inquiry Commission proving that deregulation was responsible for the financial crash of 2008 – the greatest financial implosion since the Great Depression – Republicans refuse to let facts get in the way of pushing for more deregulation. Democrats on the other hand, despite overwhelming proof that the Dodd-Frank Wall Street Reform and Consumer Protection Act has actually allowed Wall Street to grow systemically more dangerous and more corrupt since its passage, is irrationally wedded to this legislation.  No amount of evidence will change the Democrats’ position on Dodd-Frank. JPMorgan gambling with hundreds of billions of bank depositors’ money in the London Whale fiasco where $6.2 billion got flushed down the toilet will not change their mind. Cartel activity among the big banks in the interest rate market, precious metals market, foreign currency market will not change their mind. . Scandal after scandal destroying public trust in Wall Street and its regulators will not change their mind.

Cleveland Fed’s Mester: Fed’s Focus is the Economy, Not Politics - The Federal Reserve and Chairwoman Janet Yellen make policy decisions based on economics and not politics, Federal Reserve Bank of Cleveland President Loretta Mester said Thursday.    “I don’t think the Fed has become political….We’re going to focus on the economic developments,” Ms. Mester said during an interview on CNBC, a day after Ms. Yellen was grilled by House Republicans who accused her of partisan bias. “We’re going to focus on setting the best monetary policy that we can to further our dual mandate that’s given to us by Congress.” Some GOP lawmakers on Wednesday questioned Ms. Yellen’s regular meetings with Treasury Secretary Jack Lew, a top Obama administration official. Ms. Mester said it is appropriate for the Fed chair to meet with the Treasury secretary, and that it doesn’t mean Ms. Yellen’s decisions are influenced by politics. “She’s a very thoughtful monetary policy maker,” Ms. Mester said. Commenting on Wednesday’s sometimes-contentious hearing, she said, “I wish we were all as poised as Janet Yellen yesterday at that hearing.” Ms. Mester also spoke against the legislation known as Audit the Fed,” calling it “misnamed, and it’s also misguided.” The Fed’s financials already are audited, she said, and the proposal would infiltrate political interests into policy making. The Cleveland Fed chief also said she thinks the Fed’s June policy meeting should be a “viable option” for raising rates, echoing comments she made earlier this month in an interview with The Wall Street Journal.

Kick-The-Can Has Morphed Into A Blatant Farce - David Stockman - Kick-the-can has morphed into a blatant farce. Everywhere in the world central banks and financial officialdom are engaging in desperate, juvenile maneuvers to buy time—–amounting to hardly a few weeks at a go. Never before has the debt-saturated, speculation-ridden global casino rested upon such a precarious foundation. This week, for instance, Janet Yellen will again waste two days of Congressional hearings in forked-tongue equivocations about an absolutely stupid issue. Namely, the exact date when money market interest rates will be permitted to blip upward from the zero bound by even 25 basis points. But this “lift-off” drama is flat-out surreal. How could it possibly matter whether ZIRP will have been in place by 80 months or 83 months from its inception point way back in December 2008? There is not a single household or business on main street America which will change its behavior in the slightest during the next year regardless of whether the federal funds rate is 5 bps, 30 bps or 130 bps. The whole Kabuki dance in the Eccles Building is about hand signals to Wall Street carry traders; its a reflection of the desperate fear of our monetary politburo that having inflated for the third time this century the mother of all financial bubbles, they must now keep it going literally one meeting at a time—lest it splatter again and destroy the illusion that an egregious spree of money printing has saved the main street economy. Likewise, it now transpires that the bruising political war of words between the Germans and the “radical” Greek government has been suspended for another few weeks.  And the reason is a pathetic fear that unites the parties despite their irreconcilable substantive policy differences. Namely, that the markets will crater upon even a hint that a real solution is on the table, and that the way to keep the beast at bay is to cover their eyes, kick-the-can and hope something turns up to avert the next crisis a few weeks down the road.

Fed’s Williams Sees Door Open for Interest-Rate Increases Starting in June - Federal Reserve Bank of San Francisco President John Williams said the door is open to central bank interest rate increases any time from mid-June onward. In an interview with The Wall Street Journal, Mr. Williams expressed a good deal of confidence in the U.S. outlook, especially on hiring. He said the jobless rate could fall to 5% by the end of the year, which means the central bank is getting closer to boosting its benchmark short-term interest rate from near zero, where it has been since the end of 2008. “We are coming at this from a position of strength,” Mr. Williams said. “As we collect more data through this spring, as we get to June or later, I think in my own view we’ll be coming closer to saying there are a constellation of factors in place” to make a call on rate increases, he said. “I don’t see any reason at all that we should raise rates before June. That’s out,” he said. “Maybe in June it would be the time to contemplate raising rates. Maybe we’ll want to wait longer, but at least it will be an option to decide on,” he said. The Fed has a scheduled policy meeting June 16-17. Mr. Williams said he would like the Fed to drop its commitment to be “patient” in deciding when to raise rates because it limits the central bank’s options on when to move. “You would want to remove the patient language only to have the ability to make those data-dependent decisions later in the year,” he said. Mr. Williams is a close ally of Ms. Yellen–he was her research director when she led the San Francisco Fed. He is a voting member of the policy-making Federal Open Market Committee this year.

Fed’s Lockhart: FOMC Meetings From June Onward Open to Rate Increases - Federal Reserve Bank of Atlanta President Dennis Lockhart continues to cautiously eye favoring an interest rate increase this summer, although he added he still needs to see more data to support such an action. When it comes to lifting the Fed’s short-term interest rate target off the near-zero levels its occupied since the end of 2008, “I continue to believe that all meetings from June onward should be on the table,” the official said in an interview with The Wall Street Journal. Mr. Lockhart, a veteran central banker who also holds a voting role on the monetary-policy setting Federal Open Market Committee, has long viewed the move toward rate rises with caution. Key officials largely agree the door opens to rate rises starting with the FOMC meeting now scheduled for June 16-17, but uncertainties over the state of the economy and inflation have stopped them from providing firmer guidance. Mr. Lockhart spoke to The Wall Street Journal in the wake of Fed Chairwoman Janet Yellen’s testimony to Congress on the economy and monetary policy. She told legislators economic strength points to a nearing date for rate increases. She also said the Fed’s ongoing commitment to be “patient” on the timing of rate rises needs to be ended, although doing so would not be by itself a signal of imminent action. In a separate interview on Thursday, Mr. Lockhart’s colleague and fellow FOMC voter John Williams of the San Francisco Fed told The Wall Street Journal that when it comes to rate increases, “we are coming at this from a position of strength.” He added, “maybe in June it would be the time to contemplate raising rates. Maybe we’ll want to wait longer, but at least it will be an option to decide on.”

Fed’s Bullard: Delaying Interest-Rate Increase Much Longer Creates Risk - Federal Reserve Bank of St. Louis President James Bullard warned that if the U.S. central bank isn’t raising rates by the end of September, it could be a bad thing for the economy. In an interview with The Wall Street Journal late Thursday, the official said his expected economic outlook suggests that raising the central bank’s short-term interest rate target will likely need to happen by the end of the third quarter given the expected path of hiring, which has been strong. Given that it is quite possible what is now a 5.7% jobless rate will have fallen to less than 5% by that time, “we would be behind the curve” if rate increases haven’t happened by then, Mr. Bullard said. For some time, Mr. Bullard has been a strong advocate of raising rates sooner than many of his colleagues want. Recently, the official had advocated in favor of increasing rates by the end of the first quarter. That won’t happen in the wake of comments by Federal Reserve Chairwoman Janet Yellen that said lifting rates off of their current near-zero level is off the table until central bankers meet in mid-June. In the interview, Mr. Bullard acknowledged that data, most notably on the inflation front,, favored pushing back the starting point of rate increases relative to his earlier prediction. But he nevertheless believes strong growth and ongoing job gains mean the Fed needs to be thinking seriously about moving rates off of their current levels. “The burden is still on the data,” and if oil prices stabilize, tepid inflation data will likely abate and help open the door to central bank action, he said. Oil prices are the main reason for inflation weakness and it is likely the strong declines seen in recent months won’t continue, which means the strong drag they have imposed on headline inflation, which is well below the Fed’s 2% target, will almost certainly abate over time, he said.

Fischer: Fed Closer to Rate Rises, But Exact Timing Remains Unclear - - The Federal Reserve‘s second-in-command said Friday raising rates at some point over the middle of the year isn’t set in stone. Fed Vice Chairman Stanley Fischer acknowledged broad-based expectations that the Fed will raise rates at either its June or September policy meetings, but added they could easily be foiled. “We are getting closer” to rate rises, the official said. But he added “things could happen” that would change the calculus for rate rises. When it comes to acting at the meetings favored by market participants, Mr. Fischer said, “I don’t know whether we will or whether we won’t.” Mr. Fischer also said he doesn’t expect the U.S. central bank to follow any sort of predetermined path when the day arrives to begin raising short-term interest rates. He said there has been “excessive attention” paid to the issue of when rates will be lifted, and not enough to attention to what happens with short-term rates once they’ve been boosted off of their current near-zero levels. Mr. Fischer was speaking at a conference about monetary policy held by the University of Chicago’s Booth School of Business. While he didn’t offer any firm guidance about the timing of rate rises most see happening this year, he argued that central bank watchers and market participants need to start thinking more about rate rises will proceed over time. Other Fed officials have also decried the focus on the timing of the Fed’s first move, saying such an action might matter a lot to market, but not that much to the broader economy. Mr. Fischer said that while many believe the Fed will move rates steadily higher, meeting by meeting, in modest increments, it is unlikely the world will allow that to happen. “I know of no plans to follow one of those deterministic paths,” he said, adding, “I hope that doesn’t happen, I don’t believe that will happen.”

Dudley, top U.S. economists urge later Fed rate hike - (Reuters) - Raising interest rates too late is safer than acting too early, an influential Federal Reserve official said on Friday, endorsing a high-profile research paper that argues the U.S. economy, given time, can rebound to the strong growth rate to which Americans are accustomed. The paper by four top U.S. economists, presented on Friday to a roomful of powerful central bankers in New York, argues the Fed would be wise to keep rates at rock bottom for longer than planned and then tighten monetary policy more aggressively. New York Fed President William Dudley, who offered a critique of the paper, cited currently low inflation and warned against being too anxious to tighten monetary policy. The risks of hiking rates "a bit early are higher than the risks of lifting off a bit late," he told a forum hosted by the University of Chicago's Booth School of Business. "This argues for a more inertial approach to policy." The U.S. central bank is in the global spotlight as it weighs when to lift rates after more than six years near zero, and how quickly to tighten policy thereafter. Some policymakers, like Cleveland Fed President Loretta Mester, caution against waiting too long, given concerns about potential financial stability and an erosion of public confidence in the economy. Fed Vice Chair Stanley Fischer, answering a question at the forum, said without hesitation that the central bank will hike rates this year despite some second-guessing among investors. The first rate hike is "getting closer," he said, adding that the central bank will not follow a pre-determined path of tightening thereafter.

Fed’s Dudley: Markets May Force a More Aggressive Rate Hike Cycle - Federal Reserve Bank of New York President William Dudley said Friday that while he sees no urgency to raise short-term interest rates, if unusually low bond yields don’t rise the central bank could be forced to act more aggressively when it does start the process of boosting borrowing costs. “The fact that market participants have set forward rates so low has presumably led to a more accommodative set of financial market conditions, such as the level of bond yields and the equity market’s valuation, that are more supportive to economic growth,” Mr. Dudley said. If those very low market-based rates were to continue after the Fed began raising rates, “it would be appropriate to choose a more aggressive path of monetary policy normalization as compared to a scenario in which forward short-term rates rose significantly, pushing bond yields significantly higher,” he said. Mr. Dudley’s comments came from the text of a speech prepared for an event held in New York by the University of Chicago Booth School of Business. The central banker was discussing a paper presented at the event that argued uncertainties about monetary policy’s relationship with the economy argue in favor of holding off on interest rate increases for as long as possible. Mr. Dudley serves as vice chairman of the monetary policy-setting Federal Open Market Committee. He has long favored taking a slow approach to boosting rates off their current near zero levels. Most Fed officials believe the door opens to interest rate increases starting with the Fed’s mid-June policy meeting. Mr. Dudley didn’t offer  a preference for the rate outlook in his prepared remarks. But he did say “I believe that the risks of lifting the federal funds rate off of the zero lower bound a bit early are higher than the risks of lifting off a bit late,” offering support for the conclusions of the paper.

Fed's Fischer: "Conducting Monetary Policy with a Large Balance Sheet"  -- A review of policy normalization by Fed Vice Chairman Stanley Fischer: Conducting Monetary Policy with a Large Balance Sheet (excerpt)  Turning to policy normalization, the FOMC and market participants anticipate that the federal funds rate will be raised sometime this year. We have for some years been considering ways to operate monetary policy with an elevated balance sheet.  Prior to the financial crisis, because reserve balances outstanding averaged only around $25 billion, relatively minor variations in the total amount of reserves supplied by the Desk could move the equilibrium federal funds rate up or down. With the nearly $3 trillion in excess reserves today, the traditional mechanism of adjustments in the quantity of reserve balances to achieve the desired level of the effective federal funds rate may well not be feasible or sufficiently predictable.   As discussed in the FOMC's statement on its Policy Normalization Principles and Plans, which was published following the September 2014 FOMC meeting, we will use the rate of interest paid on excess reserves (IOER) as our primary tool to move the federal funds rate into the target range.   This action should encourage banks not to lend to any private counterparty at a rate lower than the rate they can earn on balances maintained at the Fed, which should put upward pressure on a range of short-term interest rates.  Because not all institutions have access to the IOER rate, we will also use an overnight reverse repurchase agreement (ON RRP) facility, as needed. In an ON RRP operation, eligible counterparties may invest funds with the Fed overnight at a given rate. The ON RRP counterparties include 106 money market funds, 22 broker-dealers, 24 depository institutions, and 12 government-sponsored enterprises, including several Federal Home Loan Banks, Fannie Mae, Freddie Mac, and Farmer Mac. This facility should encourage these institutions to be unwilling to lend to private counterparties in money markets at a rate below that offered on overnight reverse repos by the Fed.

The Fed’s Own Stress Tests Aren’t as Stressful as its Tests of Banks - Federal Reserve Chairwoman Janet Yellen was asked Tuesday on Capitol Hill who performs stress tests of the Fed. The question came from Sen. Tim Scott, a Republican from South Carolina, who said during a hearing of the Senate Banking Committee: “On the issue of stress tests, I know that the Fed is, through the supervision of bank holding companies and other non-bank financial companies, the Fed conducts stress tests to determine how well the entity could withstand different levels of financial distress. The Fed currently has on its balance sheet about $4.5 trillion as a result of the QE program. Much larger than any of the financial entities it regulates. But it appears that nobody is stress-testing the Fed. The Proverbial Fox is guarding the hen house from my perspective.” Ms. Yellen responded, “Well, with respect to our balance sheet, let me say that we do stress test it and we have issued some reports and papers where we describe what stress tests would look like when there are interest rate shocks, how that would affect our balance sheet and the path of remittances.” Over the course of three rounds of asset purchases, often called quantitative easing or QE, the Fed has acquired an enormous bond portfolio. The Fed has twice released a paper showing how that balance sheet would evolve under varying scenarios. But the Fed’s scenarios have not, typically, been as stressful as the scenarios that the central bank applies in its annual stress tests of the biggest U.S. banks.

Helicopter money and the government of central bank nightmares: If Quantitative Easing (QE), why not helicopter money? We know helicopter money is much more effective at stimulating demand. Helicopter money is a form of what economists call money financed fiscal stimulus (MFFS). In their current formulation independent central banks (ICB) rule out MFFS, because the institution that can do the stimulus (the government) is not allowed to cooperate on this with the institution that creates money (the ICB). In a world where governments - through ignorance or design - obsess about deficits when they should not, it turns out that MFFS or helicopter money is all we have left to prevent large negative demand shocks leading to deep and prolonged recessions. So why is it taboo?   One reason why it is taboo among central banks is that they want an asset that they can later sell when the economy recovers. QE gives them that asset, but helicopter money does not. The nightmare (as ever with ICBs) is not the current position of deficient demand, but a potential future of excess inflation that they are unable to control. .... Helicopter money ... puts money into the system at the ZLB, in a much more effective way than QE, but it cannot be put into reverse by central banks alone. The central bank cannot demand we pay helicopter money back. [4]   If the government cooperates, this is no problem. The government just ‘recapitalises’ the central bank, by either raising taxes or selling more of its own debt. Economists call this ‘fiscal backing’ for the central bank. In either case, the government is taking money out of the system on the central bank’s behalf. So the nightmare that makes helicopter money taboo is that the government refuses to do this.

Key Measures Show Low Inflation in January -- The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning: According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (1.9% annualized rate) in January. The 16% trimmed-mean Consumer Price Index rose 0.1% (1.3% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report.  Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers fell 0.7% (−7.8% annualized rate) in January. The CPI less food and energy rose 0.2% (2.2% annualized rate) on a seasonally adjusted basis.  Note: The Cleveland Fed has the median CPI details for January here. Motor fuel declined at a 92% annualized rate in January, following a 69% annualized rate decline in December, a 55% annualized rate decline in November, and a 31% annualized rate decline in October.  However motor fuel will add to inflation in February.

What Will Make Fed’s Yellen ‘Reasonably Confident’ in Inflation Rebound? - Federal Reserve Chairwoman Janet Yellen indicated this week the central bank is considering a shift away from its pledge to be “patient” in deciding when to start raising short-term interest rates. Federal Reserve Board Chairwoman Janet Yellen speaks during a hearing of the House Financial Services Committee on Capitol Hill.Agence France-Presse/Getty ImagesShe has said “patient” means the Fed won’t raise its benchmark federal funds rate at its next two meetings. Testifying before congressional committees Tuesday and Wednesday, she said if the economy continues to improve as expected, the central bank’s policy making committee will “at some point begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis.”As the Journal’s Jon Hilsenrath has suggested Ms. Yellen may have already offered a hint of the phrase the Fed will use to replace the patience language when she said in prepared testimony: “Provided that labor-market conditions continue to improve and further improvement is expected, the Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when, on the basis of incoming data, the Committee is reasonably confident that inflation will move back over the medium term toward our 2% objective.”If “reasonably confident” is the new “patient,” what exactly does it mean? Sen. Charles Schumer (D., N.Y.) asked Ms. Yellen.Her response was sufficiently vague to give the Fed wiggle room depending on how the data play out. But she didn’t validate a contention of Mr. Schumer’s that inflation, or at least wages, might have to show signs of picking up before the Fed begins to raise short-term interest rates, which have been near zero since Dec. 2008.

Why Isn’t the Fed More Worried About Inflation Expectations? - Expected inflation, as measured by financial markets, has fallen sharply since last summer in both the eurozone and the U.S. The response of their central banks couldn’t be more different. The European Central Bank reacted with alarm and soon decided to launch quantitative easing. By contrast, the Federal Reserve has shown a puzzling insouciance. Inflation expectations matter because if business, workers, consumers and investors all believe inflation will drop, they will behave in a way that makes it more likely to happen. Stable expectations are thus a bulwark against inflation going too high or too low. There are two ways to measure such expectations. One is surveys of households or forecasters. The other is market-based measures, such as the difference in yields between regular and inflation-indexed bonds, or with derivatives contracts based on the consumer price index. Market-based measures began to fall last summer, in concert with oil prices. More than just cheap oil seems to be at work. The inflation rate expected to prevail between five and 10 years from now, when the effect of oil price swings have long since faded, has also dropped sharply. While the Fed has acknowledged the drop, it has also regularly dismissed its significance, emphasizing instead the stability of survey based measures. But surveys are not a superior guide to where prices are going. In a report, economists at Goldman Sachs found that surveys of forecasters had a terrible track record, failing to anticipate either Japan’s fall into deflation in the late 1990s and early 2000s, or the more recent plunge in Switzerland and the eurozone toward zero. In minutes to their January meeting, some Fed officials also flagged this experience as reasons for caution.

Fed’s Janet Yellen Opposes Currency Sanctions in Trade Deals -- Sanctions for currency manipulation should not be built into trade agreements because that could harm the appropriate conduct of monetary policy, Federal Reserve Chairwoman Janet Yellen said Tuesday.  Ms. Yellen was asked about the idea during testimony before the Senate Banking Committee. She that because monetary policy can affect the value of exchange rates, any legislation that directly affects currencies could restrict the Fed’s ability to conduct appropriate interest rate policy.  “I would really be concerned with a regime that would introduce sanctions for currency manipulation into trade agreements when it could be the case that it would hamper or hobble monetary policy,” she said.

The Fed’s global responsibilities - When the Federal Reserve starts to raise US interest rates later this year, there will be a major shift in the global monetary regime. Although San Francisco Fed President John Williams has tried to deny that this will represent a tightening in monetary conditions in America, his claim strains credulity beyond breaking point. US monetary conditions may remain easy in absolute terms but, after lift off, the direction of change will unequivocally be towards tightening.  Should investors be worried about what is likely to be only a very gradual change in Fed policy? The taper tantrum in 2013, and the flash crash in bond yields last October, were both unwelcome signals that frothy markets can over-react to very modest changes in economic fundamentals. Having said that, markets in the advanced economies are not over-leveraged at present. Furthermore, regulators are on unusually high alert, following their failures during the sub prime boom. The risk of a major market accident stemming from within the US financial system seems rather limited. Risks in the emerging markets (EMs) could, however, be much greater. Financial accidents tend to happen where credit booms have recently become over-extended, and history suggests that severe accidents are more likely when the Fed is tightening, and the dollar is rising. The EM corporate bond markets, which have expanded rapidly since 2010, probably represent the most vulnerable spot in the global financial system as the Fed tightens.

Audit the Fed -- Senator Rand Paul (R-KY) has gathered significant bipartisan support for the Federal Reserve Transparency Act of 2015, his proposal for more audits of the Fed. I’ve been trying to understand why any sensible person would think this is a good idea. Jim Guest says the bill would serve Americans’ “right to know where their tax dollars are going.” Perhaps he meant to say Americans’ right to know where the Treasury’s revenues are coming from rather than where tax dollars are going. The Federal Reserve’s net contributions to the U.S. Treasury have averaged +$83 billion per year since 2009. Last year’s federal deficit would have been almost $100 billion bigger if it had not been for the net positive revenue contributions from the Fed. John Tate thinks the bill would help address “the silent, destructive tax of monetary inflation.” But inflation as measured by the consumer price index has averaged under 1.8% over the last decade. That’s the lowest it’s been since the 1960s. Of course, many of the same people who favor Senator Paul’s bill distrust government-collected inflation data like the CPI. So suppose you look at the private Billion Prices Project, which mechanically collects a huge number of prices each day off the internet. According to BPP, inflation over the last year has been if anything lower than the official numbers.  Others may take the view that more transparency in and of itself is a good thing. But the Fed is already audited; you can read the audit yourself here. You can examine the Fed’s assets directly down to the level of CUSIP, if you like. Here at Econbrowser we’ve been reporting detailed graphs of the Fed’s assets and liabilities for years using publicly available sources like the weekly H41 statistical release. What he’s talking about is politicizing monetary policy.

Monetarism in Winter - Paul Krugman -- Brad DeLong is writing about “cognitive closure” on the right, and focuses on the case of Allan Meltzer, the long-time monetarist standard-bearer and co-founder of the Shadow Open Market Committee. Meltzer has been predicting inflation, just around the corner, for six years; the experience apparently has had no impact on his conviction that he understands the economy better than the Fed. And he considers it rude and unprofessional when some of us point out how wrong he has been for how long. But there’s one thing that struck me in particular about the last entry in Brad’s bill of particulars, where Meltzer says this:The Fed’s third major error is its baffling inattention to the growth of monetary and credit aggregates. Central banks supply the raw material on which financial markets build the credit and money magnitudes. The reason given for neglecting these aggregates is usually a claim they are unstable. That is true only, if at all, of quarterly values. It is not true of medium- and longer-term values, as many researchers have shown. Surely the claim is not so much that the aggregates are unstable as that the relationship between those aggregates and variables of interest — like inflation — is unstable. Now, where might the Fed have gotten that idea? Maybe from this:The velocity of M2 — the ratio of nominal GDP to a broadly defined version of the money supply — has turned out to be hugely variable. But here we have Meltzer insisting that the Fed is making a terrible mistake by not worrying about monetary aggregates, and complaining bitterly about those who question whether, given his track record, he has any authority to lecture the Fed. It’s really very sad.

Chicago Fed: Economic Growth Picked Up Slightly in January - "Index shows economic growth picked up slightly in January": This is the headline for today's release of the Chicago Fed's National Activity Index, and here are the opening paragraphs from the report: Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) edged up to +0.13 in January from –0.07 in December. Three of the four broad categories of indicators that make up the index increased from December, and only one of the four categories made a negative contribution to the index in January.  The index’s three-month moving average, CFNAI-MA3, ticked down to +0.33 in January from +0.34 in December. January’s CFNAI-MA3 suggests that growth in national economic activity was above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests modest inflationary pressure from economic activity over the coming year.  The CFNAI Diffusion Index, which is also a three-month moving average, increased slightly to +0.20 in January from +0.16 in December. Forty-eight of the 85 individual indicators made positive contributions to the CFNAI in January, while 37 made negative contributions. Forty-three indicators improved from December to January, while 42 indicators deteriorated. Of the indicators that improved, 14 made negative contributions. [Download PDF News Release]  The previous month's CFNAI was revised downward from -0.05 to -0.07.

Chicago Fed: "Index shows economic growth picked up slightly in January"  -- The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth picked up slightly in January Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) edged up to +0.13 in January from –0.07 in December. Three of the four broad categories of indicators that make up the index increased from December, and only one of the four categories made a negative contribution to the index in January. The index’s three-month moving average, CFNAI-MA3, ticked down to +0.33 in January from +0.34 in December. January’s CFNAI-MA3 suggests that growth in national economic activity was above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests modest inflationary pressure from economic activity over the coming year. This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Economic Composite Index Suggests Restocking Cycle Is Over -- While economic indicators make "very poor bedfellows" for managing portfolios, they do provide some indication as to the relative risk of owning assets that are ultimately tied to economic cycles. Despite commentary to the contrary as of late, economic cycles have not been repealed, and the current economy is likely running on borrowed time. It is important to notice, that despite the "hype" of the mainstream media about the economic recovery, activity never rose past previous peaks in this cycle.

U.S. Economic Growth at Year’s End Revised Downward - The American economy expanded at a slower pace than initially thought in the fourth quarter of 2014, as less stockpiling by businesses and a slightly weaker trade balance weighed on growth. Over all, economic output rose at an annual rate of 2.2 percent in October, November and December, below the initial estimate of 2.6 percent issued last month, according to government data released on Friday. The downward revision also represented a steep deceleration from the blistering 5 percent annual rate of growth reported in the third quarter of 2014.Before the announcement, economists on Wall Street had expected government statisticians to revise the estimated growth rate to 2 percent. The report released on Friday by the Commerce Department is the second of three estimates that are revised as more data comes in; the final estimate will be released in late March. Much of the downward adjustment stemmed from slower additions to inventories by businesses than first estimated, shaving 0.7 percentage point from the headline number for growth even though other underlying components like demand from consumers remained healthy.The seemingly lackluster growth in the final three months of 2014 came even as hiring gained steam. Employers added an average of 324,000 workers a month in the fourth quarter, the best performance for the labor market in years. Hiring for all of 2014 rose at the fastest rate since 1999.Besides shifting inventories, another factor holding down growth was a weaker trade balance, as rising imports lowered growth by 0.2 percentage point. . With the dollar gaining strength recently, and the euro’s value dropping sharply, imports may continue to rise in the months ahead, one new headwind for the economy in 2015.

Q4 GDP Revised Down to 2.2% Annual Rate - From the BEA: Gross Domestic Product: Fourth Quarter 2014 (Second Estimate) Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 2.2 percent in the fourth quarter of 2014, according to the "second" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 5.0 percent. The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.6 percent. With the second estimate for the fourth quarter, private inventory investment increased less than previously estimated, while nonresidential fixed investment increased more. The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, exports, state and local government spending, private inventory investment, and residential fixed investment that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased. The deceleration in real GDP growth in the fourth quarter primarily reflected an upturn in imports, a downturn in federal government spending, and decelerations in nonresidential fixed investment and in exports that were partly offset by an acceleration in PCE, an upturn in private inventory investment, and an acceleration in state and local government spending. Here is a Comparison of Second and Advance Estimates.  PCE was revised down from 4.3% to 4.2% - still solid.  Overall about as expected.

Q4 GDP Revised Downward to 2.2% -  The Second Estimate for Q4 GDP, to one decimal, came in at 2.2 percent, a decline from 2.6 percent in the Advance Estimate. Today's number was generally in line with most economists' expectations. For example, Investing.com had a forecast of 2.1 percent. Here is an excerpt from the Bureau of Economic Analysis news release: Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 2.2 percent in the fourth quarter of 2014, according to the "second" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 5.0 percent.  The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.6 percent. With the second estimate for the fourth quarter, private inventory investment increased less than previously estimated, while nonresidential fixed investment increased more (see "Revisions" on page 3).  The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, exports, state and local government spending, private inventory investment, and residential fixed investment that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased. [Full Release]  Here is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. The start date is when the BEA began reporting GDP on a quarterly basis. Prior to 1947, GDP was reported annually. To be more precise, what the lower half of the chart shows is the percent change from the preceding period in Real (inflation-adjusted) Gross Domestic Product. I've also included recessions, which are determined by the National Bureau of Economic Research (NBER).

U.S. fourth-quarter GDP chopped to 2.2% from 2.6% - — Consumers spent a bundle in fourth quarter, fresh government statistics confirm, but the U.S. economy as a whole grew slower than initially reported owing to a smaller buildup in business inventories. Gross domestic product expanded by a 2.2% annual clip in the final three months of 2014, down from an initial read of 2.6%, the Commerce Department said Friday. That’s a sharp deceleration from a torrid 5% pace in the third quarter that marked the fastest U.S. growth in 11 years. Yet most economists expect cheaper gasoline and a rapidly improving labor market to boost consumer spending in 2015, with the U.S. potentially topping 3% annual growth for the first time in a decade. Americans have more money to spend because of much lower gasoline prices and the biggest spike in hiring in more than 15 years. “Overall, the fourth quarter GDP report does not change the outlook for the U.S. economy,” said Joseph Lake, an analyst at The Economist Intelligence Unit. “At the moment, everything points towards a healthy U.S. economy over the next six months.” GDP is the value of all the goods and services the U.S. produces and it’s the best reflection of the nation’s economic health. For all of 2014, the U.S. grew at a 2.4% clip. That’s a small improvement from 2.2% in 2013 and 2.3% in 2012, but still well below the nation’s historic growth rate of 3.3%.

Q4 2014 GDP Revised Down to 2.2% - Fourth quarter 2014 real GDP was revised 0.4 percentage points lower to 2.2%.  That's quite disappointing, although still mediocre growth.  The reason for the revision reduction was inventories did not grow nearly as much as originally estimated and imports increased.  Real consumer spending was barely revised.  Overall Q4 GDP cutting isn't that surprising, more Q3 GDP's lack of trade deficit impact was. As a reminder, GDP is made up of: Y=C+I+G+(X-M) where Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports, X=Exports, M=Imports*.  GDP in this overview, unless explicitly stated otherwise, refers to real GDP.  Real GDP is in chained 2009 dollars.This below table breaks down the revisions from the advance report and now in Q4 GDP.  As expected imports were revised dramatically up and the changes to private inventories, part of gross investment, was revised significantly downward. .Q4 is now quite dramatic in change from Q3 and this just goes to show what inventories and imports can do to growth.  This below table shows the percentage point spread breakdown of Q4 from Q3 2014 GDP major components and their spread.  Consumer spending, C is now 68.2% of real GDP and Q4 growth is actually better than Q3.  Durable goods were now a 0.44 percentage point GDP contribution, as Motor vehicles & parts consumer spending only added 0.09 percentage points to GDP.  Consumer spending services added 1.82 percentage points with health care by itself adding 0.53 percentage points to GDP.  That's alot of spending on health care.  Food & accommodation services was 0.30 percentage points while financial & insurance was 0.33 percentage points.  Below is a percentage change graph in real consumer spending going back to 2000.  Graphed below is PCE with the quarterly annualized percentage change breakdown of durable goods (red or bright red), nondurable goods (blue) versus services (maroon). 

Revised Q4 2014 GDP: good news on proprietors' income, mixed on residential investment: The first revision of 4Q 2014 GDP was reported this morning. Generally it was a "meh," not changing much, although the small decline was mainly due to there being less of an increase in inventories, which is a wash. But what about the forward-looking indicators? Gross Domestic Product tends to move in the direction of Gross Domestic Income (the other side of the ledger) over time. But that won't be reported until the second revision next month. Corporate profits deflated by unit labor costs are a long leading indicator, usually turning one year or more before the economy as a whole, but they also won't be reported until next month. Big help! But there are two forward-looking nuggets: proprietors' income deflated by the GDP price index, and a slight revision to real private residential investment. Proprietors' income grew by over 1% q/q. As shown in the two graphs below, this (blue, left scale) is almost as good a long leading indicator as corporate profits (red, right scale). Here is 1959 through in 1984: Here is 1984 to the present: Both deflated proprietors' income, and deflated corporate profits turned negative at least a year before every recession with the exception of 1974. Additionally, proprietors' income did not turn negative before the 2001 recession. That's 6 of 8 recessions. So, while deflated proprietors' income is a little less reliable than deflated corporate profits, this is additional confirmation that the economy will continue to grow through the end of 2015. On one other front, the news was more mixed. Real private residential investment was revised upward, and as a result made a new high (blue in the graph below). But, as a share of GDP (red), it remains below its Q3 2013 peak:

Q4 GDP Revised Down To 2.2% From 5.0%: Full Breakdown - There was much hope that when Q3 GDP soared to 5%, primarily on the back of Obamacare spending recalendarization and a massive consumption/personal saving data revision, that the US economy would finally enter lift-off mode. Those hopes were reduced by about 60% when moments ago the BEA announced that Q4 GDP was revised from the original 2.64% print to only 2.18%, which while better than expected, was the lowest economic growth rate since the "polar vortex." The main reason for the revision: a substantial drop in growth contribution from private inventories, which instead of adding 0.82% to the bottom GDP line, only contributed 0.12% in Q4 following the first revision. To be sure, this was perfectly expected, and is exactly what we said would happen last month after the first inventory number: ... here is what Q4 inventories did: rising by $113.1 billion in Q4, this was the second highest quarterly increase in the 21st century, second only to September 2010. It's all GDP-crushing liquidations from here. Following out post, the BEA revised the entire data series.  Some other changes:

  • Personal Consumption was 2.83% of the final GDP, down from 2.87%
  • Fixed Investment was 0.71%, vs 0.37% before, a number that will plunge in Q1 as a result of the shale capex halt.
  • Net trade subtracted even more from growth, with Net Exports less Imports amounting to -1.16%, down from -1.02%
  • Government offset the decline modestly, subtracting -0.32% from growth, compared to -0.40% in the first revision.

Full breakdown below.

Takeaways From the Revised Fourth-Quarter GDP Report - Growth in the U.S. economy cooled in the final three months of 2014, showing a breakout pace earlier in the year proved unsustainable. Gross domestic product, the broadest measure of goods and services produced across the economy, expanded at a 2.2% annual pace in the fourth quarter, the Commerce Department said Friday. That was weaker than the initial estimate of 2.6% reported last month. Here are some takeaways from the report: The As Commerce revises down its initial read on fourth-quarter growth, the contributors to growth look more positive for 2015′s outlook. Consumers are still spending at a robust pace, businesses increased spending on equipment instead of cutting investment (though growth is still lackluster), exports grew slightly faster and inventories didn’t pile up as fast as first estimated. The mix means demand generated more growth last quarter and companies aren’t dealing with an overhang of inventories. That will allow production to increase this quarter and beyond.  The big consumer-spending gains reported in the first estimate of fourth-quarter growth held up in today’s revision. The reading on consumer-spending growth eased a tenth to 4.2% on cuts to initial views on goods spending that was mostly offset by an upward revision to services spending. The 4.2% matches the biggest increase since early 2006. Americans have been particularly upbeat lately, although the Conference Board’s index of consumer confidence fell more than expected this week after jumping to a multiyear high in January as gasoline prices have been rising. Consumer spending accounts for about 70% of demand in the U.S. economy Rising company stockpiles contributed less to GDP than originally thought in the fourth quarter, a short-term drag that may signal slightly better growth at the start of 2015. Imports also increased, driving down real GDP growth to 2.2% from the first estimate of 2.6%. Those downward revisions were offset partly by boosts to business investment–primarily R&D and equipment–and higher-than-initially-thought state- and local-government spending. For the year, real GDP is now said to have risen 2.4%, versus 2013′s 2.2%. The increase was broad-based, driven by consumer spending and business investment, but government remained a drag. The data suggest the overall economic trajectory is little changed over the past three years

Q4 GDP Per Capita Drops to 1.4% - Earlier today we learned that the Second Estimate for Q4 2014 real GDP came in at 2.2 percent (rounded from 2.19 percent), down from 2.6 percent in the Advance Estimate. Real GDP per capita was lower at 1.4 percent (rounded from 1.43 percent), down from 1.85 percent in the Advance Estimate.  Here is a chart of real GDP per capita growth since 1960. For this analysis I've chained in today's dollar for the inflation adjustment. The per-capita calculation is based on quarterly aggregates of mid-month population estimates by the Bureau of Economic Analysis, which date from 1959 (hence my 1960 starting date for this chart, even though quarterly GDP has is available since 1947). The population data is available in the FRED series POPTHM. The logarithmic vertical axis ensures that the highlighted contractions have the same relative scale. I've drawn an exponential regression through the data using the Excel GROWTH function to give us a sense of the historical trend. The regression illustrates the fact that the trend since the Great Recession has a visibly lower slope than long-term trend. In fact, the current GDP per-capita is 9.1% below the pre-recession trend but fractionally higher than the 9.8% below trend in Q1 of this year. The standard measure of GDP in the US is expressed as the compounded annual rate of change from one quarter to the next. The current real GDP is 2.2 percent. But with a per-capita adjustment, the data series is currently at 1.4 percent. Both a 10-year moving average and the slope of a linear regression through the data show that the US economic growth has been slowing for decades.  How do the two compare, GDP and GDP per capita? Here is an overlay of the two in the 21st century.

After Cutting US Growth Due To Snow, Goldman Now Warns West Coast Port Congestion Will "Drag On GDP" -- Last week, when with much amusement we observed that the first of many Q1 GDP cuts due to snow... in the winter... had taken place, we warned that next up on the GDP-trimming agenda would be "the West Coast port strike to take place in 2-4 weeks." We were wrong: it wasn't 2-4 weeks. It was 4 days, because overnight first Goldman (and soon all the other penguins) released a report titled "The Fallout from West Coast Port Disruptions" and sure enough, Goldman's conclusion is that "On balance, we think the net impact on Q1 GDP is probably a modest drag, although the estimated effect is highly uncertain at this point in the quarter."

America’s Current Accounts Deficits: Not Quite Déjà Vu -The U.S. current account deficit has narrowed since 2006, when it reached $807 billion, which represented 5.8% of U.S. GDP. By 2013 the deficit had fallen to $400 billion, worth 2.4% of GDP. But the IMF last October projected it would reach $484 billion in 2015, 2.6% of GDP, and would continue rising after that. Are we headed for a return to the global imbalances of the last decade? Part of the rationale for the expected rise in the deficit is the strength of the U.S. economy. The U.S. recovery (finally) appears robust, particularly compared with those of Japan and the Eurozone. This relative strength of the U.S. economy has stimulated an appreciation of the trade-weighted exchange rate. The combination of increased expenditures and a currency appreciation will fuel a decline in net exports, although the drop will be cushioned by a decline in oil imports. This development benefits those countries where domestic demand remains weak. In January the IMF lowered its forecasts for global growth in 2015 and 2016 to 3.5% and 3.7% based on reassessments of the prospects for China, Russia, the Eurozone and Japan (although recent reports see some improvements in Europe and Japan). The U.S. was the only major economy with better growth projections. Martin Wolf of the Financial Times points out that current account surpluses would help out these countries. But which countries would absorb their goods and services? The emerging markets and developing economies will not be able to finance current account deficits through capital inflows if a rise in U.S. interest rates brings about capital outflows from these countries.  This leaves the U.S. as the residual deficit country. Wolf concludes “…U.S. spenders will, once again, have to pull not only their own economy but much of the rest of the world.”

Treasury Collateral Shortage Soars: 2 Year Trades -2.8% In Repo -- While stocks continue to surge to recorder higs on ever lower volume, as algos ignite each-other's momentum, interpreting the Yellen speech in whatever way will lead to the S&P hitting Goldman's 2016 year end target of 2200 by the end of the quarter, other asset markets continue to trade in a bizarre and outright deformed manner. Case in point, the Treasury curve, where according to the latest repo data from Stone McCarthy, there is now a historic shortage of collateral in the short end of the curve. To wit: the 5-year note is at -174 basis points this morning, the tightest it has been since September. The 2-year note, at -279 basis points, is the tightest since at least 2009. Both the 2-year and 5-year notes have traded very tightly in the past, though today's values are extremely tight for both. It is worth mentioning that it is rare for both to trade so tight so close together. There is hope that the negative repo rate in the 2 Year will moderate following today's 2 Year auction, however, that does not explain why both the 5 Year and now, the 10 Year are all special as well. And since by now it is mostly central banks intervening in the bond market, it has become meaningless to attempt to infer what is causing this epic shortage of underlying paper (which is the only conclusion one can derive) and instead the only option is to sit back and watch and see how this all plays out.

An Economic Agenda for America: A Conversation with Bernie Sanders YouTube

We Keep Flunking Forecasts on Interest Rates, Distorting the Budget Outlook - Jared Bernstein Government economists try to predict the future of lots of indicators, including G.D.P., unemployment and inflation. Their record isn’t great, whether here or overseas. No less a figure than the Queen of England said to scholars at the London School of Economics about the deep recession in 2008: “Why did no one see it coming?”One variable that our government economists keep missing, and it’s an important one, is the interest rate of government bonds. That’s a big deal because the bond rate determines how much it will cost the government to service our public debt. Interest payments on the debt are projected to be the fastest-growing part of government spending over the next decade.Overestimate the cost of the debt, as has been the case in recent decades, and the government’s future fiscal burden looks significantly worse than it is. That, in turn, creates pressure to cut spending on other priorities in order to set aside enough to service the debt.In that regard, the picture of how well the economists in various administrations have predicted the rates on 10-year Treasury bonds is particularly revealing. In the early 1980s, forecasters did a good job of predicting the path of bond rates, though their job was a bit easier than usual because rates were so highly elevated that it was a pretty sure bet they’d be headed back down. But since the mid-1990s, government forecasters have consistently overestimated this critical variable. This “consistently” point is essential. Most economic forecasts are off one way or the other — too high or too low, but they tend to be pretty much balanced in either direction. But on the 10-year bond rate, the errors are systemic. Forecasters are regularly overestimating and thus regularly overstating, all else being equal, future interest payments on the debt.

Why Do Budget Forecasters Keep Getting It So Wrong? - Trying to predict how much money the U.S. government is going to collect and spend over 10 years isn’t easy. To understand how hard it can be, check out the forecasts for the past decade, most of which have missed by a mile. The task of crunching those numbers falls to budget analysts at the nonpartisan Congressional Budget Office and to the White House’s Office of Management and Budget. When the president produces a budget every year, bean counters have to make a number of assumptions in order to model the 10-year outlook. How fast is the economy going to grow? That’s going to drive estimates for tax revenues. What’s happening to health care costs? That’ll shape spending projections for a growing group of aging retirees. Where are interest rates headed? That will tell you how much the country will need to spend to service interest on the national debt. No one has any illusions that this forecasting business is easy. Still, it matters because those forecasts can make the fiscal outlook appear better or worse than reality. Over the last decade and a half, for example, the U.S. has consistently estimated that interest rates would rise; but instead, they have often fallen. This leads forecasts to overestimate the amount of interest that must be paid on the national debt, notes , a senior fellow at the Center on Budget and Policy Priorities, a liberal think-tank.  Writing in The New York Times, he says that this has resulted in budget forecasts that assume the debt will be more expensive to carry than it actually has been. Mr. Bernstein, a former chief economist to Vice President Joseph Biden, says this is a sign the U.S. is demanding more budget restraint than may be called for.

Dynamic Scoring Forum: Three Things You Should Know About Dynamic Scoring - The House recently changed the rules of budget scoring: The Congressional Budget Office and the Joint Committee on Taxation will now account for macroeconomic effects when estimating the budget impacts of major legislation. Here are three things you should know as we await the first official dynamic score.

  • 1.   Spending and regulations matter, not just taxes You might think dynamic scoring is just about taxes. It’s not. Spending and regulatory policies can also move the economy. Take the Affordable Care Act. CBO estimates that the law’s insurance subsidies will reduce labor supply by 1.5 to 2.0 percent from 2017 to 2024, some 2 to 2.5 million full-time equivalent workers. If CBO and JCT do a dynamic score of the House’s latest ACA repeal, this effect will be front and center. The same goes for immigration reform...
  • 2.   Dynamic scoring isn’t new. For more than a decade, CBO and JCT have published dynamic analyses using multiple models and a range of assumptions. For example, JCT projected former House Ways & Means Committee chairman Dave Camp’s tax reform plan would boost the size of the economy (not its growth rate) by 0.1 to 1.6 percent over 2014 to 2023. The big step in dynamic scoring will be winnowing such multiple estimates into the single set of projections required for official scores.
  • 3.   Dynamic scoring won’t live up to the hype, on either side Some advocates hope that dynamic scoring will usher in a new era of tax cuts and entitlement reforms. Some opponents fear that they are right. Reality will be more muted. Dynamic scores of tax cuts, for example, will include the pro-growth incentive effects that advocates emphasize, leading to more work and private investment. But they will also account for offsetting effects, such as higher deficits crowding out investment or people working less because their incomes rise. As previous CBO analyses have shown, the net of those effects often reveals less growth than advocates hope. Indeed, don’t be surprised if dynamic scoring sometimes shows tax cuts are more expensive than conventionally estimated; that can easily happen if pro-growth incentives aren’t large enough to offset anti-growth effects.

What Happens If The Department Of Homeland Security Shuts Down - The reason: as soon as tomorrow, the one part of the US government which to many is a manifestation of all that is broken with the current US "big brother" state of pervasive, ubiquitous surveillance and broken immigration policies, the Department of Homeland Security which was created in response to September 11, and which houses the agencies with jurisdiction over immigration law, the U.S. Immigration and Customs Enforcement (ICE), U.S. Citizenship and Immigration Services (USCIS) and U.S. Customs and Border Protection (CBP) may be shut down. As ABC explains, the reason is that unlike the rest of the government, the DHS is subject to stopgap funding and "since September, Republicans and Democrats haven’t been able to agree on a full year of funding –- instead, twice since then they’ve agreed to fund DHS for a couple of months, each time hoping to reach a deal on a full year of funding. Time runs out again Friday night, but no deal is in sight." Republicans irked by President Obama’s plan to give legal status to 5 million illegal immigrants say this time they’ll let DHS “shut down” unless the Obama administration backs down from its immigration plan. Democrats insist DHS funding shouldn’t be tied to a presidential action taken without Congressional approval. But if DHS does “shut down,” should you be worried? It depends who you are, and how long the shutdown lasts. What happens if we go into the weekend without a DHS deal? In the event of a shutdown, the vast majority of DHS employees would stay on the job. DHS Secretary Johnson said earlier this week that about 30,000 of DHS's approximately 240,000 employees would be furloughed. The rest would be considered exempt and most would have to work without pay.

IRS Commissioner John Koskinen: Budget cuts lead to poor taxpayer service, fewer audits, less tax revenue -Is it time to stop picking on the IRS? The Internal Revenue Service's budget has been cut by $1.2 billion over the past five years even as Congress has given more work to the agency, such as enforcing the Affordable Care Act's individual mandate and tracking how much money Americans stash in foreign bank accounts. President Barack Obama wants to restore this money in next year's budget and provide another $667 million to the IRS so it can beef up enforcement of tax laws. It was IRS Commissioner John Koskinen's job Tuesday to sell this funding increase to the Senate Finance Committee. He faced a tough audience, particularly among Republicans. That's because of a series of missteps by the IRS in recent years: the targeting of conservative groups for extra scrutiny when they applied for tax-exempt status; lavish spending on conferences, including the production of a "Star Wars" themed employee video; making billions of dollars in improper Earned Income Tax Credit payments ever year; and awarding bonuses to IRS employees who had not complied with their own tax obligations. These "scandals have given Americans reason to doubt that the IRS will treat them fairly," said Sen. Orrin Hatch, R-Utah, who chairs the committee.

Why a Flat-Rate Tax is Unfair: A Quick Overview of America's Wealth Inequality and Tax Structure: The ideology of a flat-rate tax may seem perfect on the surface to many people, but when you look at it a little deeper and examine some statistics, you will find that a flat-rate tax is another scam that benefits the rich who will pay less taxes and will only hurts working-class people. If you haven’t noticed already, America has the highest, and I mean highest, wealth inequality in the world. In 2007, the richest 1% of Americans owned about 35% of the nation wealth, and I can guarantee that in 2013, it is much higher. If you were to add the next richest 4% of Americans and take the wealth of the richest 5% of Americans, the amount of the nation’s wealth that they own climbs to about 62%. attribution: None Specified From an ethical viewpoint, one must ask themselves, do the top 5% of Americans work so hard that they deserve 62% of the nation’s wealth? If all of the workers that they hired who created that wealth suddenly left, would those 5% of Americans be just as rich? The reason why I explain this is that a flat-rate tax would work well if everyone made the same-amount or at least close to the same amount of income. However, since America has the highest wealth inequality in the world, our tax structure should reflect that.

Will Congress Pass a War Tax in 2015?  - With all the heated debates about our skyrocketing debt and ballooning deficit — not to mention, all the rampant fraud in our government social programs — how can the U.S. afford another war? Will we use PAYGO — and pay as we go into war? With some people complaining that America is going broke, while at the same time, those very same people are saying large corporations and the very wealthy are being taxed to death — how will another war in the Middle East be paid for if Congress wants to send ground troops to fight ISIS? If not by raising taxes on those who are the most able to pay, will Congress want offsetting cuts elsewhere in the budget? Would they cut funding of federal disaster relief to Red States — or drastically reduce farm and oil subsidies? Or maybe our political leaders will repatriate trillions of untaxed corporate profits overseas to fund a new war. If not, how can America afford another war?

Enough Common Ground for Corporate Tax Reform in 2015 - House Ways and Means Committee Chairman Paul Ryan, Senate Finance Committee Chairman Orrin Hatch, and President Barack Obama all say that corporate tax reform is doable in 2015. But to be realistic, it has to be done in the next five or six months–before the 2016 elections make it too difficult.  There are two challenges: What would corporate tax reform look like in 2015? And how can it be done with so little time to spare? The policy challenge is threefold: At 35%, the U.S. corporate tax is the highest among members of the Organization for Economic Cooperation and Development. The U.S. ranks second, behind France, with the highest tax on capital investments. The United States taxes “worldwide” income, with some adjustments, whereas our competitors tax profits only in their own country. The president wants a competitive but “fair” cut to the corporate tax rate, to 28%. Republicans want it to be 25%. Mr. Obama wants a one-time 14% tax on existing U.S. profits earned and held abroad to finance domestic infrastructure investment. The GOP doesn’t want more spending, but there is some support for attention to domestic infrastructure. Mr. Obama wants a new 19% tax on foreign earnings in the future. That’s troublesome for Republicans, because the president’s proposal “pays for” lower corporate taxes by closing loopholes. There is considerable disagreement between Republicans and the president on what constitutes a “corporate loophole.” The GOP is adamant that “pass-throughs,” or businesses not in corporate form, also get relief.  Both sides agree on the importance of a revenue-neutral package. Even with the short time frame, there is probably enough common ground for compromise.

Janet Yellen Not Seeking to Alter Dodd-Frank - Sen. Elizabeth Warren (D., Mass.) on Tuesday grilled Federal Reserve Chairwoman Janet Yellen about critical comments made by the central bank’s general counsel about provisions of the 2010 Dodd-Frank law. “The Fed’s general counsel or anyone at the Fed’s staff should not be picking and choosing which rules to enforce based on their personal views,” Ms. Warren said during Ms. Yellen’s testimony before the Senate Banking Committee. Speaking at a conference of banking lawyers late last year, Fed general counsel Scott Alvarez suggested that lawmakers should revisit a provision of the financial overhaul law known as “swaps push-out,” which he suggested was drafted “in the middle of the night.” Congress voted to repeal the provision one month later as part of a must-pass spending bill. Ms. Warren asked Ms. Yellen whether she or the Fed board shared Mr. Alvarez’s views. “I am certainly not seeking to alter Dodd-Frank at this time,” Ms. Yellen said. Asked whether she thought it was appropriate for Mr. Alvarez to take public positions that don’t reflect those of the board, Ms. Yellen demurred. “I think the Fed’s position and my position is that we’re able to work very constructively within the framework of Dodd-Frank…and we’re not seeking to change that,” Ms. Yellen said. Ms. Warren also pressed Ms. Yellen on Mr. Alvarez’s involvement in the decision by the Fed and other banking regulators to delay the effective date of the swaps push-out rule. Ms. Warren said the delay gave the banking industry more time to lobby for the rule’s repeal in Congress. Ms. Yellen said she didn’t know whether Mr. Alvarez provided input into the decision.

Yellen Defies Congress, Defends Greenspanian General Counsel Scott Alvarez After Elizabeth Warren GrillingYves Smith - (video)Elizabeth Warren subjected Fed chairman Janet Yellen to one of her fiercest interrogations ever in Congressional hearings yesterday. The Massachusetts senator has taken note of how the Board of Governors’ general counsel and Greenspan-era holdover Scott Alvarez exerts outsized influence at the Fed, to the detriment of regulatory reform. As Matt Stoller wrote in an in-depth post on Alvarez last October: Alvarez is a regulatory specialist who controls the bulk of the legal expertise in the Fed, whereas Yellen is a macroeconomist who doesn’t know regulations that well. Alvarez’s institutional opponent is Fed Governor Dan Tarullo, and Tarullo as a single Governor doesn’t have the resources to fight the entire Fed legal staff. So Alvarez is likely to continue to win. In other words, what Yellen really needs to do to put her stamp on the Fed is to fire Alvarez and replace him with someone who actually sees the legal mandate of the Fed in the context of the institution’s recent failures.  As we noted then:Yellen has said she wants to make financial stability as important a priority of the Fed as monetary policy. That means, among other things, being willing to regulate banks. Scott Alvarez is too deeply invested in an out-of-date world view to carry that vision forward. If Yellen intends to live up to her word, Alvarez has to go.  As you’ll see in the must-watch video below, Warren cuts Yellen absolutely no slack, refusing to allow Yellen to temporize to evade Warren’s questions. She first brings up Alvarez’s failure to brief Warren and Elijah Cummings as requested last year on an apparent Fed failure to investigate a leak of FOMC information that moved markets. She then moves into a no-win incident from the perspective of the Fed, of Alvarez dissing key sections of Dodd Frank at a recent American Bankers Association conference and stating that they needed to be redone.

Translating the Warren-Yellen Exchange --Senator Elizabeth Warren surprised a lot of people by laying into Federal Reserve Board Chair Janet Yellen as hard as she ever laid into Timothy Geithner. I think this was a really important exchange. But it's easy to miss exactly what's being communicated in it. Senator Warren's comments can basically be translated as follows:    "Janet, I like you, but let me level with you. You need to replace your General Counsel, pronto. He's not on the same page about regulatory reform, and it's a problem. There's really no place for obstruction by Fed staffers, even the General Counsel. It's time for him to go."  There was a further subtext, though, that I think should be highlighted, and that's "What you do about your GC is a shibboleth about whether you're serious on regulatory reform."   One of the huge issues left largely untouched by the Dodd-Frank Act was the problem of deregulation by regulators (as opposed to Congress).  This regulatory deregulation took a lot of forms, from failure to enforce existing laws to active campaigns to preempt states from enforcing laws.  Dodd-Frank addressed the most egregious problem by killing off the Office of Thrift Supervision, but it left the OCC untouched (other than pushing back on preemption standards) and the Fed intact.   Critically, Dodd-Frank did nothing to address the root causes of this regulatory deregulation. Fortunately, Senator Warren is all over this issue, namely the various forms of regulatory capture. What Senator Warren has recognized is that it's not enough to have the right people at the very head of key agencies.  And that's why Scott Alavarez, the Fed's GC, is in Warren's crosshairs. Did Yellen get the message?  Yves Smith thinks she didn't. I'm not sure whether we should read so much into Yellen's post-hearing comments.  Removal of top staffers is often done quietly and politely (and Alvarez is civil service, I believe). But we'll see.

What Dodd-Frank Didn’t Fix: The Worst Conflicts on Wall Street -  Two major stories have broken this week showing how little has actually changed under the much heralded financial reform legislation known as Dodd-Frank. That legislation was enacted in 2010 with the promise of ending the unchecked corruption, conflicts of interest and casino capitalism that crashed the U.S. financial system in 2008, leading to the largest taxpayer bailout in the nation’s history. Yesterday, in a front page article, the New York Times used data to back up the withering conflicts of interests of SEC Chair Mary Jo White – the same conflicts that Wall Street On Parade reported two years ago. (See related articles below.) The Times reported that because Mary Jo White had worked for a major Wall Street powerhouse law firm immediately preceding her term at the SEC, representing major Wall Street firms like JPMorgan Chase, she had recused herself at least 48 times on cases involving either her former law firm or clients she directly represented.  Then comes the less than credible part of the Times story. The reporters write: “But in a surprising twist, Ms. White will have to keep sitting out cases that involve her husband’s firm, Cravath, Swaine & Moore. So far, she has had to recuse herself from at least 10 investigations into clients of Cravath, interviews and records show, including some that came before Ms. White joined the agency and at least four that involved Mr. White himself.” “Surprising twist”? This is what Wall Street On Parade reported in 2013: “The conflicts of White, a law partner at one of Wall Street’s favorite go-to firms, Debevoise & Plimpton, and those of her husband, John White, also a partner at a Wall Street law firm, are legion. Between White and her husband, they represent every too-big-to-fail firm on Wall Street.

"Do As I Say, Not As I Do" HSBC's 'Reforming' CEO Sheltered Millions In Swiss Bank Accounts -- Oops! Amid new money-laundering allegations against HSBC's Swiss arm, The Guardian reports that leaked files show that CEO Stuart Gulliver sheltered US$7.6 million in a Swiss account through a Panamanian company. While a spokesperson for the bank said that taxes were paid on these funds in Hong Kong, when asked why he used a Panamanian company to hold the funds, given Swiss accounts already offer secrecy, they declined to comment. With Gulliver stating, "the business has been transformed and standards are now up to scratch," we prsume, of course, that the PR spin will be: who better to refocus the 'new' HSBC on battling tax fraud than someone who has been there and done that...

Bill Black: HSBC CEO – My Pay Was so Outrageous I Had to Use Tax Havens to Hide it from My Peers -- The latest twists on the latest HSBC tax evasion and tax avoidance scandal is that it has come out that Stuart Gulliver, HSBC’s head, put his money where his mouth wasn’t. He personally used double tax havens – Panama plus Switzerland – to hide his income and wealth from view because his pay was so outrageous that even other HSBC executives would have been outraged by it. The New York Times’ account of this tale demonstrates that Gulliver needs to fire Gulliver as his spokesperson.  He said he set up a Swiss account to hide his bonus from his Hong Kong colleagues, and then another one in Panama to hide the amounts from the bank’s employees in Switzerland. “Being in Switzerland protects me from Hong Kong, being in Panama helps protect me from the Swiss bank,” he said. Yes, the HSBC CEO just said openly that he felt a desperate, personal need to be “protect[ed] “from the Swiss bank” – by which he means HSBC. He felt a similar need to be “protect[ed]” “from his Hong Kong colleagues” at HSBC. Any HSBC customer victimized by HSBC’s PPI and “swap” rip offs of customers and any UK taxpayer ripped off by the tax evasion emporium run for the powerful and wealthy out of that same HSBC “Swiss bank” can empathize with Gulliver. HSBC customers and non-elite UK taxpayers all feel a desperate need to be “protect[ed]” from HSBC – and Gulliver. What Gulliver was so desperate to have “protect[ed]” from his “HSBC colleagues” was knowledge of his pay. He knew his pay was so excessive that it would outrage even HSBC’s senior managers. Remember this event when the next bank CEO rails against the “politics of envy.” The insanely jealous people that Gulliver feared were his peers, because even in the corrupt culture of HSBC he stood out for his greed.

Diverging developments in oil markets vs. energy shares - Let's take a look at the recent developments in the US energy markets and the seemingly contradictory reaction by equity investors.  First of all, while we continue to see significant declines in the US rig count (both oil and gas),  ... American crude oil production remains at record levels and still rising. It's going to take time for this momentum to turn. Part of the reason is the increasing productivity of new rigs in the US. Moreover, outside the US some major oil producing nations such as Russia and Iraq - desperate for hard currency - will maximize production in the months to come. Global production will therefore continue to rise. The second key development has been a relatively steep crude oil futures curve (contango). Source: barchart This is encouraging crude investors to store oil. The arb involves buying spot crude, simultaneously selling forward, and storing for delivery at a future date (Profit = Forward Price - Spot Price - Storage Cost - Financing Cost). If the arb persists, the trade can be rolled. That's why this past week we saw the largest spike in volume of crude in storage. Source: Investing.com Moreover, the absolute levels of crude in storage are now at the highest level in some 80 years. As a result, analysts expect Cushing, OK (the WTI crude delivery/storage hub) to run out of storage soon.  Crude in storage is on the rise outside the US as well. As an example, Iran just launched a huge floating oil storage unit in the Persian Gulf (built by Samsung). This facility stores 2.2 million barrels of crude.  The most important development in 2014 of course was the historic shift in the crude oil production cost curve, capping crude prices at $75-$80/bbl for some years to come.   Now, with these production fundamentals in place, rapidly growing amounts of crude in storage, and longer-term prices capped way below milti-year averages, why are energy firms' shares still relatively expensive?

Hedge Funds Underperform The S&P For The 7th Year In A Row: Here Are Their Top Holdings -  Maybe one day investors, or at least the 1%-ers, will finally grasp that in a centrally-planned world in which the central banks themselves assure that there is "no risk", there is also no point in paying billionaire hedge fund managers 2 and 20 to "hedge" away risk, since there simply is none left.  However, since most people are too lazy to do any work (this includes hedge funds themselves), and would rather piggy back on other people's work (such as the rating agencies back in 2005-2007) that day is still far away. So for the time being, to satisfy everyone's natural curiosity why hedge funds continue to suck so bad, here are their biggest long, and far more importantly short, positions.

Obama's newest plan might drive investment advisers out of business. Good. - "While concerns about improper actions by investment advisors should certainly be addressed, an overly broad proposal could price professional financial advice beyond the reach of many modest income families." I don't normally use canned quotes emailed to me in advocacy group press releases, but those remarks attributed to Financial Services Roundtable chief Tim Pawlenty in a blast that went out Monday afternoon are so on point that I couldn't help but use them. He's absolutely got the economics of this correct. If the Obama administration succeeds in forcing investment advisors to give advice that's actually in their clients' best interests, it really will put a lot of investment advisors out of business. But rather than making the case against new regulations, it underscores exactly why they are so necessary.  It's extraordinarily difficult to beat the average returns on the stock market. But if you could do it, the skill would be extraordinarily valuable. There's no way you'd put that skill to use giving occasional portfolio advice to a broad group of every day working people. You'd run a hedge fund. You'd be an asset advisor to a well-endowed university. You'd dispatch advice to people with tens of millions of dollars in a trust fund. You'd put your money skills to work, in other words, in places where there's money to be made.

Yes, the World Is Out to Get Active Managers - The world is out to get active money managers. As Bloomberg’s Charles Stein reports, they’ve been having a tough economic recovery, with only 21 percent of stock-picking mutual funds beating their benchmarks during the past five years. Managers say they haven’t changed, the market has. The easy money climate of near-zero interest rates engineered by the Federal Reserve has artificially inflated prices of lower-quality U.S. stocks, they say, punishing those who focus on businesses with the best fundamentals. This Fed thing is temporary. There will surely be multiyear stretches in the near future when the stock pickers as a group beat the indexes. The issue is that running an actively managed mutual fund invariably costs more than just buying the stocks in an index and holding onto them. Some active managers will outsmart that index and some won’t, but it’s hard to tell ahead of time who’s who. When you factor in the cost difference, then, active funds will reliably generate lower returns for non-clairvoyant investors than index funds do. These are what Vanguard founder Jack Bogle once called “The Relentless Rules of Humble Arithmetic,” and they are increasingly becoming the rules that government regulators and judges apply in determining whether assets are being managed prudently. The model is the government’s Thrift Savings Plan, which offers four index funds and a Treasury bond fund, plus a series of life-cycle funds that move money around among the first five funds.

Big Banks Face Scrutiny Over Pricing of Metals - WSJ: U.S. officials are investigating at least 10 major banks for possible rigging of precious-metals markets, even though European regulators dropped a similar probe after finding no evidence of wrongdoing, according to people close to the inquiries. Prosecutors in the Justice Department’s antitrust division are scrutinizing the price-setting process for gold, silver, platinum and palladium in London, while the Commodity Futures Trading Commission has opened a civil investigation, these people said. The agencies have made initial requests for information, including a subpoena from the CFTC to HSBC Holdings PLC related to precious-metals trading, the bank said in its annual report Monday. HSBC also said the Justice Department sought documents related to the antitrust investigation in November. The two probes “are at an early stage,” the bank added, saying it is cooperating with U.S. regulators. Also under scrutiny are Bank of Nova Scotia , Barclays PLC, Credit Suisse Group AG , Deutsche Bank AG , Goldman Sachs Group Inc., J.P. Morgan Chase & Co., Société Générale SA, Standard Bank Group Ltd. and UBS AG , according to one of the people close to the investigation. Bank representatives declined to comment or couldn’t be immediately reached. A CFTC spokesman declined to comment, as did a spokeswoman for the Justice Department.

Banks face scrutiny over pricing of precious metals: WSJ  (Reuters) - The U.S. Department of Justice (DoJ) and the Commodity Futures Trading Commission are investigating at least 10 major banks for possible rigging of precious-metals markets, the Wall Street Journal reported, citing people close to the inquiries. DoJ prosecutors are scrutinizing the price-setting process for gold, silver, platinum and palladium in London, while the CFTC has opened a civil investigation, the newspaper said. The banks are HSBC Holdings Plc, Bank of Nova Scotia, Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc, JPMorgan Chase & Co, Societe Generale, Standard Bank Group Ltd and UBS Group AG, the Journal said. Standard Bank spokesman Erik Larsen declined to comment on the report. The other banks, the DoJ and CFTC did not immediately respond to requests for comment. The CFTC issued a subpoena to HSBC Bank USA in January seeking documents related to the bank's precious metals trading operations, HSBC said on Monday. The DoJ also issued a request to HSBC Holdings in November seeking documents related to a criminal antitrust investigation it is conducting in relation to precious metals, HSBC said. Precious metal benchmarks have come under increased regulatory scrutiny since a scandal broke in 2012 over manipulation of Libor interest rates.

Conspiracy FACT: Gold Manipulation Goes Front Page  - Kid Dynamite -- First they laugh at you, then they listen to you, then they learn from you. Well today, regular readers of Kid Dynamite’s World are laughing at the hysteria around the Wall Street Journal’s article “Big Banks Face Scrutiny Over Pricing of Metals” because they know that I’ve been chronicling the topic for more than a year on these pages.   I took so many screen-shots of manipulation that I gave up and stopped posting them to the blog, because seeking justice in this lawless, rigged, centrally planned market it was a waste of time.   My laptop’s hard drive is filled with hundreds of snapshots of massive intraday price manipulation in gold.  I could do a post on this every month, but constantly writing about the topic drives my readers away. Anyway, the Wall Street Journal article broke the news that: “U.S. officials are investigating at least 10 major banks for possible rigging of precious-metals markets, even though European regulators dropped a similar probe after finding no evidence of wrongdoing, according to people close to the inquiries.  Prosecutors in the Justice Department’s antitrust division are scrutinizing the price-setting process for gold, silver, platinum and palladium in London, while the Commodity Futures Trading Commission has opened a civil investigation, these people said.” Finally!   What took them so long?  We can only hope that the DOJ will swiftly crack down on those evil banks who have been manipulating gold far above its natural value so that gold can regain true price discovery and march toward its real intrinsic value.

JPMorgan, Still On 2-Year Probation, Under Scrutiny in Gold Fixing Probe -- The financial press is reporting this morning that the U.S. Justice Department is investigating at least 10 of the biggest U.S. and foreign banks for potentially rigging the gold market and other precious metals markets. That investigation comes while ongoing investigations continue into the potential rigging by big banks of the setting of interest-rate benchmarks and foreign currency. Cartel activity in every facet of U.S. and London financial markets now seems to be the norm with regulators typically five to ten years too late in sniffing out the illegal conduct.JPMorgan Chase was named by the Wall Street Journal as one of the banks under scrutiny in the precious metals probe. That could pose a particularly difficult situation for JPMorgan as it is under an effective two-year probation with the U.S. Justice Department for its role in the Bernard Madoff fraud. The probation stems from a deferred prosecution agreement, signed on January 6, 2014, requiring that for the next two years, JPMorgan had to bring to the attention of Federal prosecutors any knowledge of wrongdoing inside the bank, cooperate fully and in good faith, and agree to “commit no crimes under the federal laws of the United States subsequent to the execution of this agreement…” If JPMorgan did not live up to its end of the bargain, it could be prosecuted for new crimes as well as for the two felony counts related to the Madoff matter.JPMorgan has already had to own up to a criminal investigation involving its foreign currency trading business.

‘Occupy made it possible’: JPMorgan Whistleblower Fleischmann to Max Keiser - Alayne Fleischmann, a former lawyer at JPMorgan Chase, whose testimony helped secure a $13 billion fine for the bank, says that most big-time fraudsters have got away scot-free, and claims that only continued public interest can ensure they are punished. In 2006, Fleischmann worked in a team that repackaged individual home loans as securities. She witnessed a host of violations, including never-to-be-repaid subprime loans being mis-sold as reliable investments, helping to heat the market that sparked the worldwide financial crisis in 2008.  For years, she has been communicating her testimony to investigators, only to see the authorities and other companies strike deals with the rule-breaking giants, meaning that the public never got to hear about the specifics of the rampant infringements at JPMorgan Chase. She did, however, help the RMBS Working Group, a mortgage fraud task force set up in 2012, to extract the biggest fine in banking history - $13 billion (it has since been surpassed by Bank of America's $17 billion fine for similar offenses). But JPMorgan’s chief executive since 2004, Jamie Dimon, has not resigned, and the company itself is in rude health, registering profits of nearly $18 billion last year.  Last week, Fleischmann outed herself to Matt Taibbi, a campaigning journalist at Rolling Stone. The currently unemployed lawyer believes that Dimon and others in the industry can still be made to pay for their evident crimes.  “I think the only reason that we got a task force in the first place is because we got things like Occupy, like Matt Taibbi, who just wouldn’t let it go. Now, it’s a question of doing that again – the media covering it, and people writing to their representatives demanding that they act,” she told RT’s Max Keiser.

US Government's "New Rule" Allows Banks To Completely Make Sh#t Up - The Federal Financial Institution Examination Council recently told banks that, “if a particular asset . . . has features that could place it in more than one risk category, it is assigned to the category that has the lowest risk weight.” This gives banks extraordinary latitude to underreport the risk levels of their investments. Bankers can now arbitrarily decide that a risky asset ‘has features’ of a lower risk asset, and thus they can completely misrepresent their investments. Bottom line, it’s becoming extremely difficult to have confidence in western banks’ financial health.

J.P. Morgan to start charging big clients fees on some deposits -J.P. Morgan Chase & Co. is preparing to charge large institutional customers for some deposits, citing new rules that make holding money for the clients too costly, according to a memo reviewed by The Wall Street Journal and people familiar with the plan. The largest U.S. bank by assets is aiming to reduce the affected deposits by billions of dollars, with a focus on bringing the number down this year, these people said. The move is the latest in a series of steps large global banks have been discussing in recent months to discourage certain deposits due to new regulations and low interest rates. J.P. Morgan’s steps are among the most detailed and widespread. Specifics are likely to be unveiled Tuesday by J.P. Morgan executives at the bank’s annual strategy outlook with investors, these people said. Among other points, the bank is expected to stress alternatives customers affected by the deposit moves can use for their excess cash. The plan won’t affect the bank’s retail customers, but some corporate clients and especially an array of financial firms, including hedge funds, private-equity firms and foreign banks, will feel the impact, according to the memo. J.P. Morgan is making the moves because certain deposits are less profitable to handle than they used to be. New federal rules essentially penalize banks for holding deposits viewed as prone to fleeing during a crisis or a stressed environment.

NIRP Officially Arrives In The US As JPM Starts Charging Fees On Deposits -- The nebulous threat of NIRP in the US "some time in the future" became tangible after J.P. Morgan Chase, the largest US bank by assets (and second largest in the US by total derivative notional) is preparing to charge large institutional customers for some deposits. WSJ adds that JPM "is aiming to reduce the affected deposits by billions of dollars, with a focus on bringing the number down this year. "The moves have thrown into question a cornerstone of banking, in which deposits have been seen as one of the industry’s most attractive forms of funding."

Annual Bank Profit Falls for First Time in Five Years - WSJ: The U.S. banking industry in 2014 posted its first yearly profit decline in five years, the Federal Deposit Insurance Corp. said Tuesday, as reduced revenues from mortgage-related activity and higher litigation expenses ate into earnings. The vast majority of the nation’s 6,509 banks reported increased earnings for 2014, the FDIC said in its quarterly report on the health of the banking industry. But seven of the 10 largest banks posted lower earnings than the previous year, driving the industry total below its 2013 level. The decline illustrates the postcrisis shakeout occurring at the biggest banks, which are wrestling with new rules that have slowed—or in some cases stopped—banks from engaging in certain business lines and legal woes from conduct preceding the 2008 meltdown. The FDIC said a main contributor to the decline in yearly earnings was falling revenue from mortgage securitization and servicing, which was down about 35% or $9.1 billion for the year. Increased litigation expenses—up $6.5 billion—also played a role, the FDIC said. The industry saw its strongest loan growth in 2014 since the depths of the financial crisis. For the 12 month period ending Dec. 31, 2014, total loans and leases outstanding rose by 5.3%, the highest growth rate for a 12 month period since mid-2008. Industrywide, banks’ net income fell to $152.7 billion for 2014, about 1% less than the industry earned in 2013.

Unofficial Problem Bank list declines to 378 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. ere is the unofficial problem bank list for Feb 21, 2015.  The OCC released its latest enforcement actions leading to eight removals from the Unofficial Problem Bank List. After the removals, the list stands at 378 institutions with assets of $117.9 billion. We updated asset figures with 2014q4 financials, which accounted for a $812 million of the $3.2 billion decline in assets this week. A year ago, the list held 578 institutions with assets of $193.0 billion.  The OCC terminated actions against Armed Forces Bank, National Association, Fort Leavenworth, KS ($1.7 billion); Academy Bank, National Association, Colorado Springs, CO ($325 million); Mission National Bank, San Francisco, CA ($177 million); Southern Commerce Bank, National Association, Tampa, FL ($70.2 million); The First National Bank of Sullivan, Sullivan, IL ($60 million); Olmsted National Bank, Rochester, MN ($54 million); SunBank, National Association, Phoenix, AZ ($32 million); and Armed Forces Bank of California, National Association, San Diego, CA ($17 million). Next week, we anticipate the FDIC will provide an update on its enforcement action activity, industry results for the third quarter, and updated aggregate figures for their official problem bank list.

FDIC: Fewer Problem banks, Residential REO Declines in Q4 --The FDIC released the Quarterly Banking Profile for Q4 today.  The banking industry continued to improve at the end of the year. Although total industry earnings declined as a result of significant litigation expenses at a few large institutions and a continued decline in mortgage-related income, a majority of banks reported higher operating revenues and improved earnings from the previous year. In addition, banks made loans at a faster pace, asset quality improved, and the number of banks on the problem list declined to the lowest level in six years....[F]ourth quarter net income was 36.9 billion dollars, down 7.3 percent from the prior year. The principal reasons for the decline were a 4.4 billion dollar increase in litigation expenses concentrated at a few large institutions and a 1.6 billion dollar decline in mortgage-related noninterest income. The FDIC reported the number of problem banks declined (Note: graph shows problem banks quarterly for 2014, and year end prior to 2014): The number of banks on the problem list fell to the lowest level since the third quarter of 2008. There were 291 banks on the problem list at the end of 2014, less than one-third of the 888 problem banks at the peak in March 2011. Total assets of banks on the problem list fell to 87 billion dollars. This is the first time problem bank assets have been below 100 billion dollars since March 2008. The dollar value of 1-4 family residential Real Estate Owned (REOs, foreclosure houses) declined from $6.10 billion in Q3 2014 to $5.98 billion in Q4. This is the lowest level of REOs since Q3 2007. This graph shows the dollar value of Residential REO for FDIC insured institutions. Note: The FDIC reports the dollar value and not the total number of REOs.

Housing Tax Policy, A Series: Part 12 - Low income mortgages couldn't have caused the recession. -- I have been outlining data from the Survey of Consumer Finances to double check the story that the bank delinquency data seems to tell, that the widely believed story about the housing boom and the recession is based on evidence that is much more flimsy than we might have thought.  In the previous post, I introduced data from the SCF that showed how the growth in homeownership came from high income households and that households didn't increase their debt payment/income ratios or their relative consumption of housing during the boom.  The evidence against the standard narrative is even more stark when we look at dollar levels, because, despite frequent implications to the contrary, low income households don't tend to take on nearly as much debt as high income households. (In fact, the normal relationship is overwhelming.  Higher debt is associated with higher incomes, whether comparing over time, comparing cross-sections of a population, or comparing across nations.  When we hear a story about desperate American households accumulating debt just to keep their heads above water, our BS sensors should go up.  We should be thinking, "That contradicts practically everything we know."  I think this is from a confusion between thinking of states of disequilibrium and states of equilibrium.  We think of our own lives, and the times that are memorable to us are times where something went wrong, and we took drastic measures that might be unsustainable without some good fortune.  So, we remember that time when we lost our job, and we ended up with $15,000 on our credit card, and wondered how we'd ever get our life back in order.  But, we don't think about the fact that, 10 years later, when we were pulling in $100,000 a year, we took out a $200,000 mortgage.  Even within an individual life with periods of upheaval, the correlation between debt and economic success is massive.  The story that says an entire economy has been in a constant state of disequilibrium for decades is highly suspect.  Especially when it coincides with a massive bidding war on the most fundamental middle class asset.)

Black Knight: Mortgage Delinquencies Declined in January - According to Black Knight's First Look report for January, the percent of loans delinquent decreased 1% in January compared to December, and declined 11% year-over-year. The percent of loans in the foreclosure process declined slightly in January and were down about 31% over the last year. Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 5.56% in January, down from 5.64% in December.  The normal rate for delinquencies is around 4.5% to 5%. The percent of loans in the foreclosure process declined slightly in January and remained at 1.61%. The number of delinquent properties, but not in foreclosure, is down 327,000 properties year-over-year, and the number of properties in the foreclosure process is down 360,000 properties year-over-year. Black Knight will release the complete mortgage monitor for February in March.

MBA: Mortgage Delinquency and Foreclosure Rates Decrease in Q4, Lowest since 2007 - Earlier from the MBA: Mortgage Delinquencies Continue to Decrease in Fourth Quarter The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 5.68 percent of all loans outstanding at the end of the fourth quarter of 2014. This was the lowest level since the third quarter of 2007. The delinquency rate decreased 17 basis points from the previous quarter, and 71 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the fourth quarter was 2.27 percent, down 12 basis points from the third quarter and 59 basis points lower than the same quarter one year ago. This was the lowest foreclosure inventory rate seen since the fourth quarter of 2007.  States that utilize a judicial foreclosure process continue to have a foreclosure inventory rate that is roughly three times that of non-judicial states. For states where the judicial process is more frequently used, 3.79 percent of loans were in the foreclosure process, compared to 1.23 percent in non-judicial states. States that utilize both judicial and non-judicial foreclosure processes had a foreclosure inventory rate closer that of to the non-judicial states at 1.43 percent." This graph shows the percent of loans delinquent by days past due. The percent of loans 30 and 60 days delinquent are back to normal levels. The 90 day bucket peaked in Q1 2010, and is about 70% of the way back to normal. The percent of loans in the foreclosure process also peaked in 2010 and and is about two-thirds of the way back to normal. So it has taken about 4 years to reduce the backlog of seriously delinquent and in-foreclosure loans by two-thirds, so a rough guess is that serious delinquencies and foreclosure inventory will be back to normal in a couple more years.

MBA: Purchase Mortgage Applications Increase, Refinance Applications Decrease in Latest MBA Weekly Survey - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey - Mortgage applications decreased 3.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 20, 2015. This week’s results include an adjustment to account for the Presidents’ Day holiday. ... The Refinance Index decreased 8 percent from the previous week. The seasonally adjusted Purchase Index increased 5 percent from one week earlier. ...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 3.99 percent from 3.93 percent, with points decreasing to 0.33 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.The first graph shows the refinance index. 2014 was the lowest year for refinance activity since year 2000. 2015 will probably see more refinance activity than in 2014, but not a large refinance boom. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is down 2% from a year ago.

Black Knight: House Price Index down slightly in December, Up 4.5% year-over-year -  I follow several house price indexes (Case-Shiller, CoreLogic, Black Knight, Zillow, FHFA, FNC and more). Note: Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted. From Black Knight: U.S. Home Prices Down 0.1 Percent for the Month; Up 4.5 Percent Year-Over-Year Today, the Data and Analytics division of Black Knight Financial Services released its latest Home Price Index (HPI) report, based on December 2014 residential real estate transactions. The Black Knight HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales. The Black Knight HPI decreased 0.1% percent in December, and is off 10.2% from the peak in June 2006 (not adjusted for inflation).The year-over-year increases had been getting steadily smaller since peaking in 2013 - as shown in the table below - but the YoY increase has been about the same for the last four months:

Freddie Mac: Mortgage Serious Delinquency rate declined slightly in January - Freddie Mac reported that the Single-Family serious delinquency rate declined in January to 1.86%, down from 1.88% in December. Freddie's rate is down from 2.34% in January 2014, and the rate in January was the lowest level since December 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%. These are mortgage loans that are "three monthly payments or more past due or in foreclosure".    Although the rate is generally declining, the "normal" serious delinquency rate is under 1%. The serious delinquency rate has fallen 0.48 percentage points over the last year - and the rate of improvement has slowed recently - but at that rate of improvement, the serious delinquency rate will not be below 1% until late 2016. Note: Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. So even though distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed sales for 2+ more years (mostly in judicial foreclosure states).

Case-Shiller: National House Price Index increased 4.6% year-over-year in December --S&P/Case-Shiller released the monthly Home Price Indices for December ("December" is a 3 month average of October, November and December prices). This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index. From S&P: Home Prices Grew at Twice the Rate of Inflation in 2014 According to the S&P/Case-Shiller Home Price Indices Data released today for December 2014 shows a slight uptick in home prices across the country. Nine cities reported monthly increases in prices ... Both the 10-City and 20-City Composites saw year-over-year increases in December compared to November. The 10-City Composite gained 4.3% year-over-year, up from 4.2% in November. The 20-City Composite gained 4.5% year-over-year, compared to a 4.3% increase in November. The S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 4.6% annual gain in December 2014 versus 4.7% in November.The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000). The Composite 10 index is off 16.7% from the peak, and up 0.8% in December (SA). The Composite 20 index is off 15.6% from the peak, and up 0.9% (SA) in December. The National index is off 8.4% from the peak, and up 0.7% (SA) in December. The National index is up 23.7% from the post-bubble low set in Dec 2011 (SA). The second graph shows the Year over year change in all three indices. The Composite 10 SA is up 4.3% compared to December 2013. The Composite 20 SA is up 4.5% year-over-year.. The National index SA is up 4.6% year-over-year. Prices increased (SA) in all 20 of the 20 Case-Shiller cities in December seasonally adjusted. (Prices increased in 9 of the 20 cities NSA) Prices in Las Vegas are off 41.6% from the peak, and prices in Denver and Dallas are at new highs (SA).

Case-Shiller Shows Home Prices Still on the Rise and Not Affordable - The December 2014 S&P Case Shiller home price index shows a seasonally adjusted 4.5% price increase from a year ago for the 20 metropolitan housing markets and a 4.3% yearly price increase in the top 10 housing markets.  There are two ways to look at the never ending increasing home prices.  The first is an overall slowdown in the rate of these increases while the second is how prices are double what the rate of inflation is.  Generally speaking homes are not affordable.  There are no city areas where home prices have declined.  Since March 2012, the 10-City composite index has increased 28.2% and the 20-City composite index has increased 29.1%.  From the housing bubble 2006 peaks, prices are now only down about 16-17%.  Below are all of the composite-20 index cities yearly price percentage change, using the seasonally adjusted data.   San Francisco home prices increased 9.3% from a year ago and Miami also increased by a large amount, 8.4%.  Silicon valley is clearly not affordable even for people making six figures.  The west prices are generally increasing more than other parts of the country.  S&P blames this on decreasing social mobility, yet does not mention the lack of affordability for most workers.  S&P reports the not seasonally adjusted data for their headlines.   Housing is highly cyclical.  Spring and early Summer are when most sales occur.   For the month, the not seasonally adjusted composite-20 percentage change was -0.1% whereas the seasonally adjusted change for the composite-20 was 0.9%.   The not seasonally adjusted composite-10 saw a 0.1% increased from last month, whereas the seasonally adjusted composite-10 showed a 0.8% increase.  December is winter so the not seasonally adjusted increase should be less than the seasonally adjusted composite-20.  The below graph shows the seasonally adjusted monthly percentage change.  Prices are normalized to the year 2000.  The index value of 150 means single family housing prices have appreciated, or increased 50% since 2000 in that particular region.  Case-Shiller indices are not adjusted for inflation.  Below are the seasonally adjusted levels for the month. Bottom line home prices are not affordable in most cities, or at least in California land.  The rate maybe decelerating or increasing but there is no slowdown to the rate of inflation for homes.  There are many other housing indicators showing this is the case.  Notice the conflicting statements from S&P versus NAR on the health of housing.  NAR seems to finally be recognizing the affordability question whereas S&P just seems interested in watching prices increase and increase.

Case-Shiller Says "Housing Recovery Is Faltering" Despite December Home Prices Jumping Most Since March -  Home prices, according to Case-Shiller, rose 0.87% MoM in December (better than the expected 0.6% gain) for the biggest seasonally adjusted monthly gain since March, likely bringing the 'housing recovery is back on track' meme back into play (despite affordablity being a major driver of the slump in home sales). However, non-seasonally-adjusted the rise was a mere 0.1%, which nonetheless managed to snap the 3 consecutive months of sequential price declines.  And yet, despite all this, Case Shiller was anything but optimistic: “The housing recovery is faltering. While prices and sales of existing homes are close to normal, construction and new home sales remain weak. Before the current business cycle, any time housing starts were at their current level of about one million at annual rates, the economy was in a recession”

A Comment on House Prices: Real Prices and Price-to-Rent Ratio in December --First, S&P's David Blitzer said this morning "The housing recovery is faltering." I disagree with that wording. The level of housing starts and new home sales are still historically weak, but are clearly recovering - and I expect the housing recovery to continue (not "falter").    Second, the expected slowdown in year-over-year price increases has occurred. In October 2013, the National index was up 10.9% year-over-year (YoY). In December 2014, the index was up 4.6% YoY. The YoY change has held steady for the last four months.  Looking forward, I expect the YoY increases for the indexes to move more sideways (as opposed to down).   Two points: 1) I don't expect (as some) for the indexes to turn negative YoY (in 2015) , and 2) I think most of the slowdown on a YoY basis is now behind us. This slowdown in price increases was expected by several key analysts, and I think it was good news for housing and the economy. In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $275,000 today adjusted for inflation (38%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).The first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through December) in nominal terms as reported. In nominal terms, the Case-Shiller National index (SA) is back to May 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to December 2004 levels, and the CoreLogic index (NSA) is back to February 2005. The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.In real terms, the National index is back to April 2003 levels, the Composite 20 index is back to November 2002, and the CoreLogic index back to March 2003. In real terms, house prices are back to early '00s levels.

A Look at Case-Shiller by Metro Area -- San Francisco saw housing prices rise 9.3% in 2014, but the nation’s home values grew at the weakest pace in three years, according to a home price report released Tuesday. The home price index covering the entire nation rose 4.6% in the 12 months ended in December, said the S&P/Case-Shiller Home Price Index report. That is down slightly from 4.7% in November and is the weakest full-year gain since home prices were falling in 2011. Weak demand for housing is keeping price growth on low heat. While that could draw more buyers into real estate markets, it means homeowners are not seeing big gains in wealth coming from housing. Regionally, Miami saw the strongest 12-month increase after San Francisco, while Chicago saw an average home price increase of just 1.3%.

Existing Home Sales in January: 4.82 million SAAR, Inventory down slightly Year-over-year -- The NAR reports: Existing-Home Sales Cool in January As Available Inventory Remains Subdued Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 4.9 percent to a seasonally adjusted annual rate of 4.82 million in January (lowest since last April at 4.75 million) from an upwardly-revised 5.07 million in December. Despite January’s decline, sales are higher by 3.2 percent than a year ago. ... Total housing inventory at the end of January increased 0.5 percent to 1.87 million existing homes available for sale, but is 0.5 percent lower than a year ago (1.88 million). Unsold inventory is at a 4.7-month supply at the current sales pace – up from 4.4 months in December.This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in January (4.82 million SAAR) were 4.9% lower than last month, and were 3.2% above the January 2014 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory increased to 1.87 million in January from 1.86 million in December. Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer. The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Existing Home Sales Fell Like Snow For January 2015 -- The bitter cold blew in more than snow for January.  Existing home sales suffered as well with a -4.9% decline in sales for the month.  This is the biggest monthly drop off in nine months with single family homes declining by -5.1% in sales.  Sales by volume are now 4.82 million in January.  April 2014 showed 4.75 million annualized sales.   NAR blames the never ending increasing prices of homes as the culprit for declining sales.  Prices are once again back to unaffordable territory.The national median existing home sales price, all types, is $199,600, a 6.2% increase from a year ago.  This is the 35th month prices have increased and NAR uses the word soar to describe existing home prices.  The average existing sales price for homes in January was $248,100, a 4.9% increase from a year ago.  Below is a graph of the median price.  Distressed home sales have really declined in the last year, -14% and are now only 11% of all sales.   Foreclosures were 8% while short sales were 3% of all sales.  The discount breakdown was 15% for foreclosures and short sales were a 12% price break. So called investors were 17% of all sales and 67% of these investors paid cash.  A year ago investors were 20% of all sales.  All cash buyers were 27% of all sales.  First time home buyers were 28% of the sales, a low not seen since June 2014.The median time for a home to be on the market was 68 days.  Short sales by themselves took 128 days.  Housing inventory from a year ago has decreased -0.5% but unsold inventory is up 0.5% from the previous month.  Current the 1.88 million homes available for sale are a 4.7 months supply.  On a separate note, RealtyTrac reported January foreclosures increased by 5% for the month and are down 4% for the year.  RealtyTrac reports 933,043 properties are in the foreclosure process or already bank owned.  It's fairly obvious the great bargain hunt from the housing bubble collapse is over as cheap properties have simply dried up.  Now the issue is the very tight lending standards so new home buyers cannot get into a home, plus the over inflated prices. 

Existing Home Sales Plunge (and Don't Blame The Weather)  -- With homebuilder sentiment slipping,blamed on the weather (despite improvement in the Northeast), Architecture billings down, and lumber prices down, it should not be totally surprising that existing home sales collapsed in January (-4.9% against expectations of -1.8% to a worse than expected 4.82 million SAAR). This is the lowest existing home sales since April. Oh - and before the talking heads blame the weather - the biggest drop in home sales was in The West (with its warm, dry, sunny home-buying climate). Considering that existing home sales most recent peak in 2014 failed to take out the previous government-sponsored peak in 2013 and remains 30% or more below the 2005 peak, and claims that the housing recovery is in tact are greatly exaggerated.

A Few Comments on January Existing Home Sales --Inventory is still very low (down 0.5% year-over-year in January). This will be important to watch over the next few months at the start of the Spring buying season. Note: As usually happens, housing economist Tom Lawler's estimate was closer than the consensus to the NAR reported sales rate.Also, the NAR reported total sales were up 3.2% from January 2014, however normal equity sales were up even more, and distressed sales down sharply.  From the NAR (from a survey that is far from perfect):  Distressed sales – foreclosures and short sales – were 11 percent of sales in January, unchanged from last month but down from 15 percent a year ago. Eight percent of January sales were foreclosures and 3 percent were short sales.  Last year in December the NAR reported that 15% of sales were distressed sales. A rough estimate: Sales in January 2014 were reported at 4.67 million SAAR with 15% distressed.  That gives 701 thousand distressed (annual rate), and 3.97 million equity / non-distressed.  In January 2015, sales were 4.82 million SAAR, with 11% distressed.  That gives 530 thousand distressed - a decline of about 24% from January 2014 - and 4.29 million equity.  Although this survey isn't perfect, this suggests distressed sales were down sharply - and normal sales up around 8%. : If total existing sales decline a little, or move side-ways - due to fewer distressed sales- that is a positive sign for real estate. The following graph shows existing home sales Not Seasonally Adjusted (NSA).

New-Home Sales Are Surging. Why Aren’t Existing Homes As Hot? -  Home builders are reporting that sales of newly built homes so far this year are going gangbusters. But other gauges of the housing market, such as sales of existing homes, are far more tepid. So, which view is more reliable as the busiest months of the spring home-selling season approach? The answer isn’t entirely clear, but economists and analysts say the builders’ reports provide a reasonably sound sign that this spring season has gotten off to a solid start. Investors are encouraged, having pushed up the Dow Jones U.S. Home Construction Index of six home-builder stocks by 10.8% so far this year, excluding dividends. Builders delivered more encouraging signs Tuesday. Meritage Homes Corp. said it landed contracts in January to sell 606 homes, a 48% increase from a year earlier. Also Tuesday, luxury builder Toll Brothers Inc. reported that its orders so far in February are 13% greater than a year ago, following its 16% gain in orders for its fiscal quarter ended Jan. 31.Investors were pleased with Toll for the order increase and its better-than-expected margins and earnings. Toll’s stock was at $38.61 in mid-afternoon trading, up $1.51, or 4%. Meritage’s stock was at $44.31, up $2.47, or 5.9%. Those reports follow previously heady results posted by other builders for January,  Surveys conducted by housing research firms such as Zelman Associates show similar increases in January. And yet those results seem to contradict other measures. The National Association of Realtors’ gauge of existing-home sales registered its slowest pace in nine months in January. The chairman of the Index Committee at S&P Dow Jones Indices said Tuesday that the “housing recovery is faltering.”

U.S. New-Home Sizes Set Record Last Year - The median size of completed homes last year hit a new record of 2,415 square feet, according to the Commerce Department. Home sizes grew in every year between 1995 and 2007, but they fell during the recession as builders went small to compete with cheap foreclosures. When the recession hit, “all the pundits [said], ‘The McMansion is dead,’”  . “But the American dream is still to chase the big beautiful home with the lavish master suite and the spectacular gourmet kitchen and the finished basement that has the wine room and the media room.” Home sizes are rising even as sales have slowed because builders have competed for affluent buyers who aren’t likely to run into trouble qualifying for a mortgage and saving for a down payment. In January, builders sold 481,000 homes at a seasonally adjusted annual rate, down 0.2% from December, the Commerce Department said Wednesday. Sales in 2014 were up just 1.9% from the year before. At the same time, builders sold slightly more homes priced above $400,000 than those priced below $200,000 for the first time ever last year. Around 4.8% of homes sold for at least $750,000, a new record.

New Home Sales at 481,000 Annual Rate in January, Highest January since 2008 - The Census Bureau reports New Home Sales in January were at a seasonally adjusted annual rate (SAAR) of 481 thousand. November sales were revised up from 431 thousand to 446 thousand, and December sales were revised up from 481 thousand to 482 thousand. "Sales of new single-family houses in January 2015 were at a seasonally adjusted annual rate of 481,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.2 percent below the revised December rate of 482,000, but is 5.3 percent above the January 2014 estimate of 457,000." The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Even with the increase in sales over the previous two years, new home sales are barely above the bottom for previous recessions. The second graph shows New Home Months of Supply. The months of supply was unchanged in January at 5.4 months.  The all time record was 12.1 months of supply in January 2009.

New Home Sales Stay At High Levels But Median Price Increases -- The January 2015 New Residential Single Family Home Sales decreased -0.2% to 481,000 in annualized sales.  This change is maintaining six year highs and this month is well within the statistical error margin of ±22.2%. .  For the year, new single family home sales are up 5.3% from the January 2014 457,000 sales levels.  Figures are annualized and represent what the yearly volume would be if just that month's rate were applied to the entire year.   These figures are seasonally adjusted as well.  Beware of taking these monthly percentage changes in new home sales to heart, for most months the change in sales is inside the statistical margin of error and will be revised significantly in the upcoming months.  What continues is the never ending, increasing home average price. For January 2015 the average home sale price was $348,300, a 3.3% increase from a year ago. The median new home price is also very frightening as it is almost $294,300. These prices are still clearly outside the range of what most wages can afford. From January 2014, the median new home sales price has increased 9.1%. Median means half of new homes were sold below this price and both the average and median sales price for single family homes is not seasonally adjusted. Inventories: New homes available for sale is now 218,000 units. This is a 15.3% increase from a year ago. Below is a graph of the months it would take to sell the new homes on the market at each month's sales rate, currently at 5.4 months The median time a house was completed and on the market for sale to the time it sold was 3.3 months. From a year ago that time period was 3.2 months. so the median time to move new residential property appears to be stable.

New Home Sales & Prices Slip But Weather-Impacted Midwest Sales Surge --- When existing home sales missed expectations, the fault was laid squarely at the foot of the meteorological conditions (despite a rise in NorthEast sales). New Home Sales beat expectations in January, printing 481k vs 470k expectations (though very modestly lower than December's revised 482k) and - destroying the meme that weather is to blame - sales soared in The Midwest. Median prices dropped MoM to the lowest since September but remain up an impressive 9% YoY. Lack of inventory continues to be blamed for weak sales - but, we ask rhetorically, doesn't price rise when supply drops?

Comments on New Home Sales - Here is an updated table of new home sales since 2000 and the change from the previous year, including the revisions for the last few months.  Sales in 2014 were only up 1.9% from 2013.  There are two ways to look at 2014: 1) sales were below expectations, or 2) this just means more growth over the next several years! Both are correct, and what matters now is the present (sales are picking up), and the future (still bright). It is important not to be influenced too much by one month of data, but if sales averaged the January rate in 2015 of 481 thousand - just moved sideways - then sales for 2015 would be up 10.1% over 2014. Based on the low level of sales, more lots coming available, changing builder designs and demographics, I expect sales to increase over the next several years. As I noted last month, it is important to remember that demographics is a slow moving - but unstoppable - force! It was over four years ago that we started discussing the turnaround for apartments. Then, in January 2011, I attended the NMHC Apartment Strategies Conference in Palm Springs, and the atmosphere was very positive. One major reason for that optimism was demographics - a large cohort was moving into the renting age group. Now demographics are slowly becoming more favorable for home buying.

Forget First-Time Homebuyers, It's A Million-Dollar Mortgage World - As home sales drop and home prices surge, the shifting sands of the housing market are accelerating in a seemingly inequality-expanding manner. As first-time homebuyers struggle to qualify for mortgages in a market that’s shrinking after the housing collapse, Bloomberg reports that lenders are providing more multi-million dollar loans to Americans who (in their opinion) pose less risk. Home loans from $1-5 million were the fastest growing part of the jumbo market in January with the number of loans surging to the highest since 2007.

NAR: Pending Home Sales Index increased 1.7% in January, up 8.4% year-over-year -- From the NAR: Pending Home Sales Rise in January to Highest Level in 18 Months The Pending Home Sales Index, a forward-looking indicator based on contract signings, climbed 1.7 percent to 104.2 in January from an upwardly revised 102.5 in December and is now 8.4 percent above January 2014 (96.1). This marks the fifth consecutive month of year-over-year gains with each month accelerating the previous month's gain....The PHSI in the Northeast inched 0.1 percent to 84.9 in January, and is now 6.9 percent above a year ago. In the Midwest the index decreased 0.7 percent to 99.3 in January, but is 4.2 percent above January 2014. Pending home sales experienced the largest increase in the South, up 3.2 percent to an index of 121.9 in January (highest since April 2010) and are 9.7 percent above last January. The index in the West rose 2.2 percent in January to 96.4 and is 11.4 percent above a year ago. Total existing-homes sales in 2015 are forecast to be around 5.26 million, an increase of 6.4 percent from 2014.  Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in February and March. I'll take the "under" on the NAR forecast for 2015 sales!

Vehicle Sales Forecasts: Best February since 2002 - The automakers will report February vehicle sales on Tuesday, March 3rd. Sales in January were at 16.6 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales in February will be about the same, and will probably be the best February since 2002.  There were 24 selling days in February, the same as last year.  Here are a couple of forecasts: From J.D. Power: New-Vehicle Retail Sales in February Expected to Cross the Million Mark New-vehicle retail sales in February 2015 are projected to reach 1,033,100 units, which is a 9 percent increase compared with February 2014 and the highest retail sales volume for the month as well as the first time that February retail sales are expected to exceed 1 million units since February 2002, when sales hit 1.1 million. ... Total new light-vehicle sales in February 2015 are expected to reach 1.3 million units, a 9 percent increase, compared with February 2014, and match the recent high for the month set in February 2002. [16.7 million SAAR] Fleet volume in February is projected to hit 264,000 units, accounting for 20 percent of total sales. And from TrueCar: TrueCar forecasts sustained U.S. auto sales expansion in February with 8.5% volume increase TrueCar, Inc. ... projects the pace of February auto sales expanded to a seasonally adjusted annualized rate (SAAR) of 16.7 million new units on continued strong consumer demand.  New light vehicle sales, including fleet, should reach 1,295,600 units for the month, up 8.5 percent over a year ago. This same increase is expected on a daily selling rate (DSR) basis with 24 selling days this February versus a year ago.

Headline Consumer Price Index At Its Lowest Since October 2009 -- The Bureau of Labor Statistics released the January CPI data this morning. Year-over-year unadjusted Headline CPI came in at 0.09% (rounded to 0.1%), down from 0.76% (rounded to 0.8%) the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 1.65% (rounded to 1.6%), up from the previous month's 1.61% (but unchanged to one decimal). The non-seasonally adjusted month-over-month Headline number was down -0.47% (rounded to -0.5%), and the Core number was up 0.20%. The January headline number was the lowest since the eight-month deflationary period that ended in October 2009. Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data: The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.7 percent in January on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index decreased 0.1 percent before seasonal adjustment.  The energy index fell 9.7 percent as the gasoline index fell 18.7 percent in January, the sharpest in a series of seven consecutive declines. The gasoline decrease was overwhelmingly the cause of the decline in the all items index, which would have risen 0.1 percent had the gasoline index been unchanged. The fuel oil index also fell sharply, and the index for natural gas turned down, although the electricity index rose. The food index was unchanged in January, with the food at home index falling for the first time since May 2013.  The index for all items less food and energy rose 0.2 percent in January. The shelter index rose 0.3 percent, and the indexes for personal care, for apparel, and for recreation increased as well. The medical care index was unchanged, while an array of indexes declined in January, including those for household furnishings and operations, alcoholic beverages, new vehicles, used cars and trucks, airline fares, and tobacco.   [More…] The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since the turn of the century. I've highlighted 2 to 2.5 percent range, which the Federal Reserve currently targets for the CPI's cousin index, the BEA's Personal Consumptions Expenditures (PCE) price index.

Gas Price Drop Deflates Consumer Price Index -- The Consumer Price Index dropped -07% for January, the largest monthly drop since December 2008 and the steepest monthly decline in a series of seven.  Gasoline prices plummeted -18.7%, the steepest since December 2008.  The drop in gas overwhelmed the Consumer Price Index and was the cause of the overall drop.  Inflation with setting gasoline prices as unchanged would have shown a 0.1% increase in CPI.   CPI measures inflation, or price increases.  CPI has now decreased -0.1% from a year ago.  Yearly CPI hasn't declined since October 2009.  CPI is in deflation has it's own set of major problems as evidenced by 2009, also caused in a large part by a pop in the oil price balloon.  Core inflation, or CPI with all food and energy items removed from the index, has increased 1.6% for the last year.  Core CPI is one of the Federal Reserve inflation watch numbers and 2.0% per year is their target rate.  Deflation is a grave concern for the Federal Reserve.  Federal Reserve Chair Janet Yellen testified recently that the low inflation numbers would continue to keep interest rates effectively zero.   Graphed below is the core inflation change from a year ago. Energy overall declined -9.7% for the month and energy costs are now down -19.6% from a year ago.  These are just astounding figures in the rapid decline of energy prices.   The BLS separates out all energy costs and puts them together into one index.  The individual energy indexes are even more dramatic.  Gasoline dropped -18.7% for the month and has declined -35.4% for the year.   Fuel oil dropped -9.9% for the month, down -29.7% for the year.  Natural gas is now down -0.4% from a year ago with a monthly decline of -3.4%.  Only electricity increased and this time by 0.9% for the month and is now up 32.5% for the year.  Graphed below is the overall CPI energy index. Graphed below is the CPI gasoline index only, which shows gas prices wild ride and dead weight drop.

Consumer Price Index Down 0.7% in January - WSJ: A measure of U.S. consumer prices fell in January from a year earlier, marking the first annual decline in more than five years and potentially complicating the calculus for when the Federal Reserve will lift short-term interest rates. The consumer-price index, which measures what Americans pay for everything from shirts to haircuts, fell a seasonally adjusted 0.7% in January from December, the Labor Department said Thursday. From a year earlier, prices declined 0.1%. It was the first year-over-year decrease since October 2009. Excluding food and energy, prices were up 0.2% last month and rose 1.6% from a year earlier. Economists surveyed by The Wall Street Journal had expected a 0.6% decline in overall prices in January from December and a 0.1% gain for core prices on the month.“The current bout of deflation/disinflation is nothing to fear,”  “Lower oil prices might weight on headline inflation measures…but lower oil/gasoline prices boost disposable incomes and by extension, spur consumption.” Declining energy prices, especially for gasoline, have caused inflation readings to ease over the past year. Energy prices fell 9.7% in January and declined 19.6% from a year earlier. Gasoline costs were down a seasonally adjusted 18.7% on the month and 35.4% on the year.

Low Inflation Helps Boost Americans’ Spending Power in January - A mix of falling inflation and rising wages last month gave Americans their biggest real raise in more than six years. Inflation-adjusted average hourly earnings jumped a seasonally adjusted 1.2% in January, the largest monthly gain since December 2008. Last month’s bump in spending power reflects a 0.7% monthly decrease in the consumer price index and a 0.5% rise in hourly earnings. From a year earlier, real average hourly earnings were up 3% in January. Cheaper gasoline was the biggest factor holding down inflation and leaving more money in Americans’ pockets last month. An oil glut started pushing crude prices lower in mid-2014; fuel prices quickly followed. Gasoline has gotten a little more expensive in recent weeks but still remains well below early 2014 levels. The national average retail price of regular gasoline rose by 5.8 cents to $2.332 a gallon in the week ended Monday, according to the U.S. Energy Information Administration. The price is $1.11 below the year-earlier level but the highest price since the week ended Dec. 22. “The big decline in gasoline prices in recent months will allow consumers to boost their spending on other items in 2015,”  Wages have been a missing piece of the economic puzzle through most of the recovery, one factor holding back consumer spending and tamping down inflation.

US Posts First Negative Inflation Print Since Lehman On Gas Price Plunge - As previewed earlier today, January CPI data was historic in that, 6 years after Lehman, the US just reported its first negative headline CPI print, with overall inflation, or rather deflation, in January coming at -0.1%, in line with expectations, and down from the 0.8% in December. On a monthly basis, CPI tumbled by 0.7% from December, driven almost entirely by collapsing energy prices. Excluding the Great financial crisis, one has to go back a few years to find the last time the US posted annual headline deflation.... all the way back to August 1955, or just about the time Marty McFly was trying not to dance with his mother.

Welcome to good deflation: real retail sales flat, real average wages highest in 35 years -- What a difference falling gas prices make! By falling as low as $2.02 in January, gas prices helped deliver a -0.7% CPI reading for January.  The big decline since the end of last summer means that YoY consumer prices have declined by -0.2%:  This is the first deflation since collapsing gas prices did the same thing at the end of 2008 during the Great Recession. And this kind of deflation is good. Remember the awful retail sales number we had a couple of weeks ago? (red in the graph below) Only -0.1% in real terms(blue), considerably less of a decline than we saw in either 2013 or early 2014: Even more important, here is what it means to real wage growth. This is the YoY% change in real average wages for the last 2 years: Back above 2%, to +2.2%. And here is the entire 50 year history of real average wages: Real average wages are more than 1% higher than at any time in the last 35 years, including during this recovery.

‘Good Deflation’? It Doesn’t Exist - - Deflation, narrowly defined, returned to the U.S. in January for the first time since 2009 as consumer prices fell 0.1% from a year earlier. Because this was due to cheaper gasoline, economists were quick to dismiss the significance. Excluding food and energy, “core” prices were still up 1.6% from a year earlier. But just because the drop in prices is narrowly based and short-lived, it should not be reflexively dismissed as harmless, much less good. To explain why, we’ll need to get a little bit wonky. Bear with me. Economists will sometimes distinguish between bad deflation and good deflation. Bad deflation is the result of feeble demand, which drags down prices and wages. Good deflation might have two causes. One, like the present, is when the price of something of which Americans are net importers (such as oil) falls, which boosts purchasing power. Another is when a technological innovation enables firms and workers to produce more, or better, goods and services at lower prices. Neither, according to this definition, is cause for alarm. But this is potentially misleading, because it conflates the cause of the deflation with the deflation itself. Deflation caused by weak demand isn’t bad just because weak demand is bad; it’s bad because it neuters monetary policy. The central bank stimulates demand by reducing the real interest rate, that is, the nominal interest rate minus inflation. Really weak demand can only be revived with a negative real rate. Clearly that is not possible if inflation itself is negative. Even with a nominal rate of zero, zero minus a negative will always be a positive. True, lower oil prices and higher productivity are good for growth, and so might require higher interest rates. In that case, deflation does not constrain monetary policy. But there will come a time when the central bank has to ease, and the presence of deflation–even if the cause was originally a good one–will make its job harder. In other words, we worry about deflation because of how it constrains monetary policy in the future, not just today.

Why the Dip Into Deflation Should Be Short-Lived - The U.S. saw its first month of deflation since 2009, but economists say the nation is not headed into the grips of deflation, as has plagued Japan and the eurozone. The Labor Department reported Thursday that its consumer price index for all goods and services plunged 0.7% in January over December. That means the CPI is down 0.1% from its year ago level, the first yearly deflation reading since 2009. The drop, however, is concentrated in energy prices. True deflation would mean prices falling over a broad roster of items. The cost of gasoline alone plunged 18.7% in the month. Labor said if gas prices had been stable, the yearly inflation rate would show a small gain of 0.1%. Gas prices have been edging up recently, so the deflationary impact from energy should erode by midyear, many economists say. A more important argument against a U.S. deflation spiral is that demand is strong enough in the U.S to support price hikes from nonenergy businesses. Excluding food and energy, the core CPI is up 1.6% from a year ago. And while the Federal Reserve would like to see inflation running about 2%, the core rate is nowhere near the deflation zone.

Weekly Gasoline Price Update: Up 29 Cents in Four Weeks - It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular rose six cents and Premium five. Regular is now up 29 cents (14.1 percent) since its interim weekly low set four weeks ago.According to GasBuddy.com, Hawaii has the highest average price at $3.03. The highest continental average price is in California at $2.95. Utah has the cheapest Regular at $1.93.How far are we from the interim high prices of 2011 and the all-time highs of 2008? Here's a visual answer.

Are Oil Prices "Passing Through"? - Atlanta Fed's macroblog - In a July 2013 macroblog post, we discussed a couple of questions we had posed to our panel of Southeast businesses to try and gauge how they respond to changes in commodity prices. At the time, we were struck by how differently firms tend to react to commodity price decreases versus increases. When materials costs jumped, respondents said they were likely to pass them on to their customers in the form of price increases. However, when raw materials prices fell, the modal response was to increase profit margins.   Now, what firms say they would do and what the market will allow aren't necessarily the same thing. But since mid-November, oil prices have plummeted by roughly 30 percent. And, as the charts below reveal, our panelists have reported sharply lower unit cost observations and much more favorable margin positions over the past three months...coincidence?

Consumer Confidence Declined in February - The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through February 12. The headline number of 96.4 was a decline from the revised January final reading of 103.8, an upward revision from 102.9. Today's number was below the Investing.com forecast of 99.6. Here is an excerpt from the Conference Board press release: “After a large gain in January, consumer confidence retreated in February, but still remains at pre-recession levels (September 2007, Index, 99.5). Consumers’ assessment of current conditions remained positive, but short-term expectations declined. While the number of consumers expecting conditions to deteriorate was virtually unchanged, fewer consumers expect conditions to improve, prompting a less upbeat outlook. Despite this month’s decline, consumers remain confident that the economy will continue to expand at the current pace in the months ahead.” Consumers’ appraisal of current conditions was moderately less favorable in February than in January. Those saying business conditions are “good” decreased from 28.2 percent to 26.0 percent, however those claiming business conditions are “bad” decreased from 17.3 percent to 17.0 percent. Consumers were also somewhat less positive in their assessment of the job market, with the proportion stating jobs are “plentiful” decreasing slightly from 20.7 percent to 20.5 percent, and those claiming jobs are “hard to get” increasing from 24.6 percent to 26.2 percent.  Consumers’ optimism about the short-term outlook was considerably less positive in February. Those expecting business conditions to improve over the next six months decreased from 18.9 percent to 16.1 percent, while those expecting business conditions to worsen increased from 8.2 percent to 8.7 percent.  Consumers’ outlook for the labor market was also less optimistic. Those anticipating more jobs in the months ahead decreased from 17.3 percent to 13.4 percent. However, those anticipating fewer jobs declined from 14.8 percent to 14.3 percent. The proportion of consumers expecting growth in their incomes declined from 19.5 percent to 15.1 percent. The proportion expecting a decrease rose from 10.8 percent to 12.0 percent.

US Economic Confidence Tumbles Back Into Negative Territory As "Hope" Fades -- With economic data serially disappointing in 2015, it is probably not entirely surprising that Gallup's U.S. Economic Confidence Index fell to an average of -2 last week (with the biggest drop since July). This is the first time the index has had a negative weekly average since late December. Both the current conditions and outlook sub-indices tumbled but it was the future 'hope' index that fell the most with more people now saying the future will be 'poor' than believe it will be 'good'.

Michigan Consumer Sentiment Remains off Its January Peak - The University of Michigan Consumer Sentiment for February came in at 95.4, up from its 93.6 February preliminary reading but down 2.7 points from the final reading of 98.1 in January, which was an eleven-year high. Investing.com had forecast 94.0 for the Michigan Final. See the chart below for a long-term perspective on this widely watched indicator. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy. To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is now 12 percent above the average reading (arithmetic mean) and 13 percent above the geometric mean. The current index level is at the 80th percentile of the 447 monthly data points in this series. The Michigan average since its inception is 85.2. During non-recessionary years the average is 87.4. The average during the five recessions is 69.3. So the latest sentiment number puts us 26.1 points above the average recession mindset and 8 points above the non-recession average.  Note that this indicator is somewhat volatile with a 3.1 point absolute average monthly change. The latest data point was a 2.7 point change. For a visual sense of the volatility, here is a chart with the monthly data and a three-month moving average.

UMich Consumer Sentiment Tumbles Most In 16 Months - Despite modestly beating the flash print earlier in the month, it appears consumers are less enamored with how awesome everything is in America. Printing 95.4 against January's 98.1 - this is the biggest MoM drop since Oct 2013. Both current conditions and future expectations dropped from January with fewer people expecting higher incomes, and a plunge in favorable business expectations over the last few months.

What the Heck Has Suddenly Hit American Consumers? - Wolf Richter: Without a lot of fanfare, average gasoline prices bottomed at the end of January and have been rising steadily ever since. They’re still a lot lower than they were a year ago, from $0.89 per gallon lower on the West Coast to $1.24 lower in New England, according to the EIA. But the turnaround has been swift.Numbers vary, depending on who is doing the counting. According to the AAA’s Daily Fuel Gauge Report, the average price for regular hit $2.312 today, up 1.1 cents from yesterday, and up 27.5 cents from a month ago. That’s a jump of 13.5%. But it isn’t evenly spread across the nation: the EIA found that gas prices in New York rose only 5% from the bottom; in Ohio, they soared 24%. Gasoline prices tend to rise in late winter. But this time, months of plunging gas prices – a function of the collapsing price of oil – created good vibes that are suddenly being deflated. Gallup developed its Economic Confidence Index in 2008 during the Financial Crisis. Not surprisingly, given what most consumers face, the weekly index has been deeply in the negative throughout its life. Well almost. In 2014, it still ranged from -14 to -21, despite other consumer confidence indices that were soaring. But late in the year, perhaps as the plunge in gasoline prices was doing its magic, it began to rise. And in late December, the index made it all the way into positive territory, for the first time ever – and inched up further in 2015. Until now. For the week ending February 22, it fell 5 points to -2, the largest drop since July, and once again back in the negative. Gallup explains that the index is “usually fairly stable, not changing more than a couple of points unless there is some significant event.”

Subprime Pump-and-Dump Frenzy Heats Up - Wolf Richter: Investors, driven to near insanity by the Fed’s interest rate repression, have developed an insatiable lust for structured securities backed by subprime auto loans. Mind you, these are not high-risk securities, as you might be misled to imagine from the name “subprime”; many of them are triple-A rated by none other than venerable Standard & Poor’s, which agreed in early February to pay $1.375 billion to settle with the Department of Justice and 19 state agencies the allegations that it “had engaged in a scheme to defraud investors in structured financial products,” namely slapping triple-A ratings on toxic Mortgage-Backed Securities and Collateralized Debt Obligations in the run-up to the Financial Crisis.  OK, today’s subprime securitization rage is in the auto-loan sector, not mortgages. About 31% of all outstanding auto loan balances are rated subprime. They’re the foundation of booming auto sales. There is a lot to securitize. It’s so hot that private-equity firms are all over it. And IPOs are flying off the shelf. These auto lenders – from giants such as Ally and GM Financial to smaller ones – are under investigation by the DOJ and a laundry list of other federal and state agencies for the underwriting criteria they used on securitized subprime auto loans as well as the representations and warranties related to these securitizations. But this isn’t curtailing investors’ insatiable lust for these highly-rated, seemingly low-risk products, and subprime lenders keep pushing them out the door.

ATA Truck Tonnage Index Jumped 1.2% in January American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index increased 1.2% in January, following a revised gain of 0.1% during the previous month. In January, the index equaled 135.7 (2000=100), an all-time high.Compared with January 2014, the SA index increased 6.6%, which was the largest year-over-year gain in over a year. ...ATA recently revised the seasonally adjusted index back five years as part of its annual revision. For all of 2014, tonnage was up 3.7%, slightly better than the 3.4% originally reported. In 2013, the index increased 5.5%. “Truck tonnage continued to improve in January, marking the fourth straight gain totaling 3.5%,” said ATA Chief Economist Bob Costello. “Last year was slightly better for truck tonnage than we originally thought and I am expecting that momentum to continue in 2015.”

Long Beach Port Traffic Declined Sharply in January - The Port of Long Beach released container traffic statistics for January (the Port of Los Angeles hasn't released January data yet).The Long Beach data showed a significant decline in port traffic due to the labor issues that were tentatively settled on Friday. Note: There is usually a seasonal slowdown in February or March (depending on the timing of the Chinese New Year).  February traffic will be very slow this year, but March should be strong.

Labor fight at West Coast ports comes to an end — for now -- Last night, the owners of 29 West coast shipping terminals and the union of dockworkers that staff them reached a tentative deal for a new contract, after nine months of negotiations that culminated in four days of meetings with two cabinet secretaries. The ports can now resume normal operations -- or at least start working on the backlog of stalled goods that have been waiting to move in and out. Retailers, manufacturers and agricultural exporters had been infuriated by the delay, as work slowdowns and lockouts created a massive traffic jam on the docks, and greeted the announcement with relief. But their responses also came with heavy sighs and wagging fingers, signifying a lasting exasperation over the disruption to business as usual -- and worry about whether this might mark the end of these confrontations. “As we welcome today’s news, we must dedicate ourselves to finding a new way to ensure that this nightmare scenario is not repeated again," said National Retail Federation president Matthew Shay. "If we are to truly have modern international trade, supply chain and transportation systems, we must develop a better process for contract negotiations moving forward."  Industry frustration had taken a long time to build. The National Association of Manufacturers had released a study before negotiations even started last July, projecting billions of dollars in losses if there were to be a work stoppage at the West Coast ports, which handle goods that account for 12.5 percent of the U.S. economy. They know what kind of havoc a full shutdown can cause, having weathered a similar one back in 2002. Exporters and importers started re-routing their supply chains even before this contract expired, anticipating the worst. Now, everyone involved is asking: Is there some way to change the process so that this kind of thing doesn't happen in the future?

West Coast ports to begin tackling backlog after labor deal (Reuters) - U.S. West Coast ports will resume full operations from Saturday evening after a tentative labor deal was reached between a dockworkers union and a group of shippers, easing months of disruptions to trans-Pacific trade that have hit businesses from automakers to meat exports. The agreement involving 29 ports was announced late on Friday in a joint statement by the two sides. It was reached three days after U.S. Labor Secretary Thomas Perez arrived in San Francisco to broker a deal with the help of a federal mediator who had joined the talks six weeks earlier. The White House called the deal, reached after nine months of negotiations, "a huge relief" for the economy, businesses and workers. President Barack Obama urged the dockworkers and the shipping companies to work together to clear the port backlogs. The 20,000 dockworkers covered by the tentative five-year labor accord have been without a contract since July. Tensions arising from the talks have played out since last fall in chronic cargo backups that increasingly slowed freight traffic at the ports. The dispute had reverberated throughout the U.S. economy, extending to agriculture, manufacturing, retail and transportation, and even hitting consumers of French-fried potatoes at McDonald's restaurants in Japan. Automakers had turned to more expensive air freight to get parts to North American assembly lines. Japan's Honda Motor said its Ohio plant would resume full production on Tuesday but facilities in Canada and Indiana would be at lower production levels through March 2. The backup on the docks will cost Honda about 25,000 vehicles in lost production this month, a company spokesman said.

West Coast Ports Face Several Months’ Backlog - West Coast ports are finally working at full speed again—for the most part— but it will likely take months for the backlog to clear, port officials and logistics experts said. Full operations resumed at West Coast ports Saturday evening, after the International Longshore and Warehouse Union and the Pacific Maritime Association, which represents employers, came to a tentative agreement on a new five-year labor contract late Friday. The contract still must be ratified by members. Not everything went smoothly. Workers at the Port of Oakland on Sunday took their breaks together, and employers dismissed them, according to a PMA spokesman. An arbitrator ruled that the union’s action was an illegal work stoppage, and employers ordered new crews for the night shift. A union spokesman did not immediately respond to a request for comment.  On Sunday morning, the number of ships at anchor waiting to get into the ports of Los Angeles and Long Beach had increased to 31 from 27 Friday. Another couple dozen ships were either nearby or on their way to the ports. “Just based on the mathematics, it will be about three months before we return to a sense of normalcy,” said Gene Seroka, executive director of the Port of Los Angeles. In 2002, a 10-day lockout involving the same groups cost the U.S. economy an estimated $1 billion a day, and it took two to three months to return to normal. This time, while the labor dispute never resulted in total port shutdown like a lockout, the slowdowns were spread out over a longer period. They began roughly in November as the union stopped sending enough workers and increased in January and February as employers cut evening and weekend shifts.

Prolonged US port disruptions loom despite deal - FT - US manufacturers, exporters and retailers face months of continuing supply chain disruption from the after-effects of a simmering labour dispute despite a return to work at West Coast ports that had been in “gridlock”. The world’s biggest container shipping line, port authorities and railroads all warned that conditions would remain difficult for months as workers set about clearing vast backlogs of containers after a tentative agreement over a new five-year contract was reached late last week. The deal between the Pacific Maritime Association, representing employers, and the International Longshore and Warehouse Union followed nine months of talks. The dispute resulted in more than three months of unofficial go-slow operations that produced what employers at ports in California, Oregon and Washington have called a gridlock, and raised concerns about a permanent loss of cargo. Employers ordered normal levels of workers for the night shift on Saturday for the first time in three weeks following the agreement, which was brokered by Tom Perez, the US labour secretary. The employers halted work both the previous weekends to avoid paying a weekend premium to workers whose productivity, the employers said, were at near-strike levels. Maersk Line, the world’s biggest container line and part of Denmark’s AP Møller-Maersk, noted that there were unusually high numbers of loaded export containers waiting at US ports to head towards Asia. There were also scores of ships waiting offshore to unload — including 23 container ships off the twin ports of Los Angeles and Long Beach — and significant pent-up demand to move goods that are likely to produce a hard-to-manage spike in shipments. “We will be making decisions that are in the best interests of shippers and the best interests of the longer-term recovery,” the company said.

United States urges update to fast-track trade authority  (Reuters) - The United States' top trade official urged lawmakers on Monday to update legislation streamlining the passage of trade deals through Congress to reflect the new global economy. Bipartisan negotiations are continuing on the final form of a bill which will restrict Congress to a yes-or-no vote on trade deals in exchange for setting negotiating objectives. The Republican chairman of the Senate Committee on Finance, Orrin Hatch, has said he hopes to present legislation this month. U.S. Trade Representative Michael Froman said the last time Congress passed such legislation, in 2002, only 4 percent of companies on the Fortune Global 500 list were from emerging markets, compared to one in four now. Twelve of the largest 50 companies on the Fortune Global 500 list were now state-owned, compared to just one in 2002, and consumers had downloaded more than 25 billion songs through Apple Inc's iTunes store, which did not exist in 2002, he said. “It’s time to update trade promotion legislation to meet the needs of today’s global economy," Froman said in remarks prepared for delivery to the National Association of Counties. Passing fast-track legislation is seen as key to sealing major trade deals such as the 12-nation Trans-Pacific Partnership, as trading partners can have more confidence deals will not be picked apart in Congress. But it faces opposition from some conservative Republicans and some Democrats worried about the impact of trade deals on jobs.

Globalization That Works for Workers at Home - - President Obama and his chief trade negotiator, Michael B. Froman, are hoping to push through a trade agreement with over a dozen countries around the Pacific Rim, and another with the European Union, they must convince several skeptical domestic constituencies — especially America’s beleaguered labor unions — that the deals are worth having.  The Trans-Pacific Partnership agreement “will constitute the largest expansion of enforceable labor rights in history,” noted the Economic Report of the President, released last week, “more than quadrupling the number of people around the world covered by enforceable labor standards.” The pursuit of trade agreements, the report said, “maximizes globalization’s benefits while minimizing globalization’s unwanted side effects.” They level the playing field, as it were, between American businesses and workers, and those in, say, Peru or Vietnam.  And yet the fact is, it can’t be done. If we have learned anything in the two decades since Nafta, it is that no trade agreement can protect American workers on the losing side of globalization. There is a place for trade agreements: They apply rules to globalization. Without them, globalization would probably work worse, not only for the United States but also for its trading partners.“Globalization would happen with or without trade agreements,” Mr. Froman said in an interview. “Trade agreements are tools to shape globalization. This includes raising labor standards.” The United States is not the only country trying to write rules to govern the process. China, in particular, is negotiating trade agreements with many of its neighbors that contain little in the way of environmental and labor standards or other safeguards.

Throw the Truth Out the Door: President Obama Has to Pass a Trade Deal - Dean Baker - Wow, this stuff just keeps getting worse. Apparently anything goes when the big corporations want a trade deal. Otherwise serious people will just make stuff up, because hey, the big campaign contributors want a trade deal to make themselves richer. The latest effort in creative myth-making comes from Third Way, which tells us that post-NAFTA trade deals aren't job losers like NAFTA. As Jim Tankersley and Lydia DePillis point out, this implicitly tells us that all those pro-NAFTA types weren't right in telling us that NAFTA would create jobs. (Hey, when did these folks stop telling us things about trade that were not true?) But getting to the meat of the matter, the line from Third Way is that our trade negotiators have learned from past mistakes. Now, trade agreements include labor and environmental standards and other provisions that ensure they will be job gainers. They show this by comparing U.S. trade deficits in goods with the countries with whom we have signed trade pacts in this century, in the years since the pact with the decade prior to the pact. In their analysis they find that in 13 of the 17 countries the trade deficit was smaller in the years since the pact than in the decade before the pact.  I don't have time to do a full analysis (no one pays us for correcting this dreck), but a very quick look shows how the deck is stacked in favor of getting the Third Way result. Most of the trade deals were signed right as the United States was reaching its peak deficit (2006) or in the years just after. To see how this stacks the deck, the table below shows average trade deficit (in constant dollars) in the decade prior to the year of the pact and for the years since: [The data is available from Bureau of Economic Analysis, Table 1.1.6; modify the table to to show additional years]

Elizabeth Warren’s next target: Trade deals - Elizabeth Warren is gearing up for another big fight with the Obama administration, this time over trade. The Massachusetts senator is stepping up her criticism of the administration’s proposed Trans-Pacific Partnership, a centerpiece of the president’s second-term agenda, saying it could allow multinational corporations to gut U.S. regulations and win big settlements funded by U.S. taxpayers but decided by an international tribunal. Story Continued Below “This deal would give protections to international corporations that are not available to United States environmental and labor groups,” Warren said in an interview with POLITICO. “Multinational corporations are increasingly realizing this is an opportunity to gut U.S. regulations they don’t like.” Warren’s comments, following an op-ed in The Washington Post, focused on an obscure piece of the TPP agreement, the so-called Investor-State Dispute Settlement process, which allows multinational corporations to sue national governments in international forums and win cash judgments that cannot be appealed. Ordinarily such a wonky provision might fly deeply under Washington’s radar. But Warren has proved highly adept at elevating relatively obscure issues and turning them into major causes with just a few choice words.

U.S. Trade Deficit with Japan Resulted in Net Job Losses in All but Three Congressional Districts -  Currency manipulation by Japan—the second largest currency manipulator in the world—is a major driver of the U.S.-Japan trade deficit, which cost nearly 900,000 U.S. jobs in 2013.  As the map below shows, the U.S. trade deficit with Japan resulted in net job losses in all but three U.S. congressional districts, and has displaced up to 6,000 jobs in a single U.S. congressional district. The 10th Congressional District in Michigan was the hardest hit district in the country, in terms of jobs displaced as a share of total district employment, losing 5,500 jobs (1.78 percent of total employment). In the 20 congressional districts with the largest shares of jobs lost, losses ranged from 3,100 to 6,000 jobs. Among the top 20 U.S. congressional districts, job losses as a share of district employment ranged from 1.17 percent to 1.78 percent. The states hardest hit by job loss were Michigan (with 10 districts in the top 20, followed by Indiana (four districts), Ohio and South Carolina (two districts each), and California and Wisconsin (one each).

Biggest US refinery joins nationwide strike stretching into 4th week (PHOTOS) — Workers at three refineries, one them the largest in the US, have joined a mass nationwide strike affecting some 20 percent of US refining capacity. The USW union strike has hit its fourth week, after failing to reach an agreement with Royal Dutch Shell. The mass walkout of refinery workers – the first since 1980 – which started on February 1, has now expanded to four more plants. The union, which represents more than 30,000 American oil workers at more than 200 refineries, urged workers at the Motive refinery in Port Arthur, Texas to join the nationwide strike. “This refinery, a 50-50 joint venture between Shell Oil Company (American subsidiary of Royal Dutch Shell) and Saudi Refining, Inc. (subsidiary of Saudi Aramco), produces more than 600,000 barrels per day (BPD),” the union said in its call to action. USW also issued notices for three other plants in Louisiana to go on strike. They include two of Motiva’s Louisiana refineries and a Shell chemical plant in Norco. “Capacity at these facilities is 235,000 and 238,000 (BPD). These refineries are also jointly operated by Royal Dutch Shell and Saudi Refining, Inc. of Saudi Arabia,” a press release reads.

Refinery Workers Strike Spreads to Biggest US Location - The first nationwide oil refinery strike in more than 30 years was poised to expand this weekend in a labor dispute that may start having more of an impact on the price consumers pay for gasoline. The United Steelworkers union said Saturday that workers at the largest refinery in the U.S., the Motiva Enterprises refinery in Port Arthur, Texas, started their strike at midnight Friday. Employees at two other refineries and a chemical plant in Louisiana planned to strike at the end of Saturday. The union said in a statement that it expanded a strike that started Feb. 1 at refineries largely in Texas and California because the industry has refused to "meaningfully address" safety issues through good-faith bargaining. The union also wants to discuss staffing levels and seeks limits on the use of contractors to replace union members in doing daily maintenance work. The union started negotiating a new contract Jan. 21 with Shell Oil Co., which is serving as the lead company in national bargaining talks. Shell spokesman Ray Fisher said in an email that the company was "extremely disappointed" with the latest development.United Steelworkers represents about 30,000 workers at refineries, terminals, petrochemical plants and pipelines across the country. The strike started with about 3,800 workers at nine refineries and then grew to include locations in Indiana and Ohio. This latest expansion adds another 1,350 employees to the strike. The workers who were to begin striking Saturday at midnight work at Motiva refineries in Convent and Norco, Louisiana, and a Shell Chemical plant in Norco.

U.S. refinery strike affects one-fifth of national capacity - The largest U.S. refinery strike in 35 years entered its fourth week on Sunday as workers at 12 refineries accounting for one-fifth of national production capacity were walking picket lines. Sources familiar with the negotiations said talks may resume by mid-week to end the walkout by 6,550 members of the United Steelworkers union (USW) at 15 plants, including the 12 refineries. Representatives of both sides said no date has been set to restart negotiations, however. The strike comes as U.S. workers seek more pay in a strengthening economy. Wal-Mart Stores Inc has said its U.S. workers will get a raise to at least $9 an hour, while West Coast port workers have reached a tentative deal for a new contract after a months-long dispute. The refinery work stoppage began on Feb. 1 when talks for a new three-year contract between the USW and lead oil company negotiator Shell Oil Co broke down. Talks were resumed but halted again after nearly reaching an agreement on Friday, said sources familiar with the negotiations. After the latest breakdown between the two sides, Steelworkers leaders targeted Shell, which is the U.S. arm of Royal Dutch Shell Plc, calling workers out at a chemical plant and three refineries in the company’s Motiva Enterprises joint-venture with Saudi Aramco. The work stoppage now includes the nation’s largest refinery, Motiva’s 600,250 barrel per day (bpd) Port Arthur, Texas, refinery.

What Happened to Unions in the Midwest? - Unions are rapidly losing their grip on their onetime stronghold: the industrial Midwest. A ranking of America’s most-unionized states in 2014 didn’t include Midwestern states among the top seven. The last remaining member of that group, Michigan, slid to No. 11 last year from the seventh spot in 2013, according to a ranking compiled using Labor Department data. The slide of this traditionally heavily unionized state at a center of U.S. manufacturing underscores the labor movement’s challenge to maintain political power and rebuild in a changing economy. That’s something labor leaders have been contemplating this week at the AFL-CIO’s executive council meeting in Atlanta, where raising wages, collective bargaining, trade and politics have been on the agenda. America’s union-membership rate fell to 11.1% last year from 11.3% in 2013, continuing a decadeslong slide from about 20% 30 years ago. Last year, 19 states had rates above the nation’s 11.1% average. New York, Alaska, Hawaii and Washington held the top four spots, as they did in 2013. New Jersey rose to fifth from eighth as its membership rate increased slightly and California–which has more union members than any other state–maintained the sixth spot. Oregon rose to seventh from 12th as its rate increased to 15.6% from 13.9%.

Orders for US Durable Goods up 2.8 Percent in January - Orders to U.S. factories for long-lasting manufactured goods rebounded in January, rising by the largest amount in six months, although much of the strength came from a big jump in airplane orders. A key category that signals business investment plans did manage a small gain. Orders for durable goods increased 2.8 percent in January, the biggest increase since July. Orders were down 3.7 percent in December and 2.2 percent in November, the Commerce Department reported Thursday. Demand in a category that serves as a proxy for business investment increased 0.6 percent in January. It was a small gain but it came after four consecutive declines including decreases of 0.7 percent in December and 0.5 percent in November. The 2.8 percent rebound in total orders was larger than had been expected but it was heavily influenced by a surge in demand in the volatile category of commercial aircraft, which soared 128.5 percent in January after having fallen 58.3 percent in December. Excluding transportation, orders showed a more modest gain of 0.3 percent in January after declines in December and November. The stronger U.S. dollar and global weakness have hurt exports but economists are still optimistic that surging domestic demand will result in a sustained rebound in orders this year.

January Durable Goods Came in Better Than Expected - The February Advance Report on January Durable Goods released today by the Census Bureau showed a bit of a bounce from the previous month. Here is the Bureau's summary on new orders:New orders for manufactured durable goods in January increased $6.5 billion or 2.8 percent to $236.1 billion, the U.S. Census Bureau announced today. This increase, up following two consecutive monthly decreases, followed a 3.7 percent December decrease. Excluding transportation, new orders increased 0.3 percent. Excluding defense, new orders increased 3.0 percent. Transportation equipment, also up following two consecutive monthly decreases, led the increase, $6.0 billion or 9.1 percent to $72.1 billion. Download full PDF  The latest new orders headline number at 2.8 percent was above the Investing.com estimate of 1.7 percent. This series is up 5.4 percent year-over-year (YoY). However, if we exclude transportation, "core" durable goods was up only 0.3 percent MoM. Without the volatile transportation series, the YoY core number was up 4.5 percent.If we exclude both transportation and defense for an even more fundamental "core", the latest number was up 0.4 percent MoM and 4.0 percent YoY. The Core Capital Goods New Orders number (nondefense capital goods used in the production of goods or services, excluding aircraft) is another highly volatile series. It was up 0.6 percent MoM, the first rise after four consecutive months of decline, and up 4.2 percent YoY. The first chart is an overlay of durable goods new orders and the S&P 500. We see an obvious correlation between the two, especially over the past decade, with the market, not surprisingly, as the more volatile of the two. Over the past year, the market has certainly pulled away from the durable goods reality, something we also saw in the late 1990s.

The "Real" Goods on the Latest Durable Goods Data - Earlier today I posted an update on the February Advance Report on January Durable Goods New Orders. This Census Bureau series dates from 1992 and is not adjusted for either population growth or inflation.  Let's now review Durable Goods data with two adjustments. In the charts below the red line shows the goods orders divided by the Census Bureau's monthly population data, giving us durable goods orders per capita. The blue line goes a step further and adjusts for inflation based on the Producer Price Index for All Commodities, chained in today's dollar value. This gives us the "real" durable goods orders per capita and thus a more accurate historical context in which to evaluate the conventional reports on the nominal monthly data. Economists frequently study this indicator excluding Transportation or Defense or both. Just how big are these two subcomponents? Here is a stacked area chart to illustrate the relative sizes over time based on the nominal data. Here is the chart that I believe gives the most accurate view of what Consumer Durable Goods Orders is telling us about the long-term economic trend. The three-month moving average of the real (inflation-adjusted) core series (ex transportation and defense) per capita helps us filter out the noise of volatility to see the big picture.

Dallas Fed Manufacturing Outlook Crashes To April 2013 Lows - The Dallas Fed manufacturing outlook plunged in January - despite Richard Fisher's claims that "everything is awesome" and low oil prices are a net positive for Texas - so it is perhaps not surprising that - with a backdrop of rig count collapses and oil price lows - February's data (delivered late) plunged-er to -11.2 (against expectations of -4 - 3rd miss in a row - well below every economist's estimates). This is the lowest since April 2013. This is the fastest 3-month decline since April 2013.

Dallas Fed: Texas factory activity flat in February - Weak oil prices and a strong U.S. dollar combined to squeeze many Texas manufacturers in February, keeping production levels flat for a second consecutive month and knocking new shipments down to levels not seen since 2009, according to a report Monday from the Federal Reserve Bank of Dallas. The state production index, a key measure of factory activity across Texas, held steady at a reading of 0.7 in February, according to the monthly Texas Manufacturing Outlook Survey. The near-zero reading suggests that factory activity did not expand or contract during the month. The production index tracks closely with the broader Texas economy, providing one of the earliest indications of the state’s economic conditions — and, these days, a glimpse at the impact the low price of oil might be having on Texas industry. A measure of new shipments dropped into negative territory for the first time since December 2013, suggesting that Texas factories as a whole shipped fewer goods in February. It was the sharpest contraction since the recession, according to Dallas Fed data. Factory managers took an even more pessimistic view on current business conditions, in some cases reporting the darkest expectations in almost two years. But forecasts for the future took a more optimistic tone, with improved readings for both company-specific and general business outlooks for six months ahead.

Richmond Fed Manufacturing Composite: Activity Slowed in February - The Fifth District includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. The Federal Reserve Bank of Richmond is the region's connection to the nation's Central Bank. The complete data series behind the latest Richmond Fed manufacturing report (available here) dates from November 1993. The chart below illustrates the 21st century behavior of the diffusion index that summarizes the individual components. The February update shows the manufacturing composite at 0, down from 6 last month. Numbers above zero indicate expanding activity. Today's composite number was well below the Investing.com forecast of 7. Because of the highly volatile nature of this index, I like to include a 3-month moving average, now at 4.3, to facilitate the identification of trends. Here is a snapshot of the complete Richmond Fed Manufacturing Composite series.

Kansas City Fed: Regional Manufacturing Activity Expanded "Slightly" in February, Weaker Energy Sector - From the Kansas City Fed: Tenth District Manufacturing Activity Rose Just Slightly The Federal Reserve Bank of Kansas City released the February Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity rose just slightly from the previous month, but producers expected activity to pick up moderately in the months ahead.  “We saw a further slowing in growth this month, driven in part by weaker factory activity in our energy states”, said Wilkerson. “The raw materials prices index also fell for the first time in over five years.”  The month-over-month composite index was 1 in February, down from 3 in January and 8 in December. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The overall slower growth was mostly attributable to large declines in primary metals and computer and electronics production. Looking across District states, the weakest activity was in Colorado, Oklahoma, and New Mexico. In contrast, production activity in the fabricated metals and machinery industries both increased moderately. ... the new orders index inched lower from 5 to 3, and the employment index fell for the second straight month.

Chicago PMI Crashes to 5 1/2 Year Low, Production, New Orders, Backlogs Suffer Double Digit Declines -Forth quarter GDP was revised lower today to 2.2 percent from 2.6 percent previously estimated. That was expected in most quarters. Meanwhile, a shocking PMI report came out today.  Please consider Chicago Business Barometer At 5½-Year Low The Chicago Business Barometer plunged 13.6 points to 45.8 in February, the lowest level since July 2009 and the first time in contraction since April 2013. The sharp fall in business activity in February came as Production, New Orders, Order Backlogs and Employment all suffered double digit losses, leaving them below the 50 level which separates contraction from expansion.  New Orders suffered the largest monthly decline on record, leaving them at the lowest since June 2009. Lower order intake and output levels led to a double digit decline in Employment which last month increased markedly to a 14-month high.  Disinflationary pressures were still in evidence in February, although the slight bounceback in energy costs pushed Prices Paid to the highest since December – although still below the breakeven 50 level. Some purchasers cited weakness in some metals prices including copper and brass, but others said suppliers were slow to pass along lower prices to customers. Commenting on the Chicago Report, Philip Uglow, Chief Economist of MNI Indicators said, “It’s difficult to reconcile the very sharp drop in the Barometer with the recent firm tone of the survey. There’s some evidence to point to special factors such as the port strike and the weather, although we’ll need to see the March data to get a better picture of underlying growth.“

Chicago PMI Crashes Most Since Lehman To Lowest Since July 2009 -- January's brief 'hope' bounce following 3 months of weakness is long forgotten as February's Chinago PMI crashes to 45.9 (missing expectations of 57.5) - its lowest since July 2009. This is the biggest MoM drop since Lehman in Oct 2008. New Orders suffered the largest monthly decline on record, leaving them at the lowest since June 2009. Seems like it is time to blame the weather... PMI says it is "difficult to gauge magnitude of weather and port strike" but blames it nonetheless.

U.S. R&D in (Troubling) Context -Everyone knows that the economic future belongs to those who put technology and innovation to work. One part of the formula for economic success for a high-income economy is active research and development, which then offers spillovers that are typically greater for the national economy than for the world economy as a whole. I've posted here about the arguments for raising R&D spending substantially, and here with a global overview of R&D spending. Dan Steinbock offers some additional perspective in  "American Innovation Under Structural Erosion and Global Pressures," a February 2015 report written for the Information Technology and Innovation Foundation. Here's a picture of the global R&D effort. The horizontal axis shows R&D spending as a share of GDP for various economies. The vertical axis shows scientists and engineers per million people (thus adjusting for population size). The size of the circle for each country is relative to the total number of scientists and engineers: thus, China and India have fewer scientists and engineers per capita, but because of their large populations, the size of their circles is relatively large. The color of the circle shows the region of the world, as given by the key in the upper left of the figure. Clearly, the U.S. position in global R&D remains fairly strong. But the US lags behind Germany and Japan, among others, in the share of its economy going to R&D. The size of the yellow circles--Japan, South Korea, Taiwan, Singapore, China, Australia, and India--shows that the region with the largest absolute number of scientists and engineers is now the Asia-Pacific area. The U.S. has had a tradition of leading or being close to the lead in most areas of technology. As technological capacities expand around the rest of the world, the U.S. needs to strengthen its ties to the work being done elsewhere, increase the U.S. R&D effort, or both.

Services PMI Surge "Puts June Rate Hike Firmly Back On Table" --  Markit US Services (flash) PMI printed an impressive 57.0 (smashing 54.5 expectations), well up from January's 54.2 as combined with the Manufacturing (soft survey data) suggests, according to Markit, that GDP is growing around 3.0% annualized. Of course both these 'surveys' print positive amid one of the biggest declines and series of misses in US macro data of the last few years. As Markit notes, “The Fed will no doubt be encouraged by the resilience of the economy...and increasingly minded to start the process of normalising monetary policy in June."

In Service Sector, No Rest for the Working - - Ramsey Montanez struggles to stay alert on the mornings that he returns to his security guard station at 7 a.m., after wrapping up a 16-hour double shift at 11 p.m. the night before. And on many Friday nights, Jeremy Little waits tables at a Perkins Restaurant & Bakery near Minneapolis and doesn’t climb into bed until 3 a.m. He returns by 10 a.m. for the breakfast rush, and sometimes feels so weary that he forgets to take rolls to some tables or to tell the chef whether customers wanted their steak medium rare. Employees are literally losing sleep as restaurants, retailers and many other businesses shrink the intervals between shifts and rely on smaller, leaner staffs to shave costs. These scheduling practices can take a toll on employees who have to squeeze commuting, family duties and sleep into fewer hours between shifts. The growing practice of the same workers closing the doors at night and returning to open them in the morning even has its own name: “clopening.” The United States decades ago moved away from the standard 9-to-5 job as the manufacturing economy gave way to one dominated by the service sector. And as businesses strive to serve consumers better by staying open late or round the clock, they are demanding more flexibility from employees in scheduling their hours, often assigning them to ever-changing shifts.

Weekly Initial Unemployment Claims increased to 313,000 - The DOL reported: In the week ending February 21, the advance figure for seasonally adjusted initial claims was 313,000, an increase of 31,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 283,000 to 282,000. The 4-week moving average was 294,500, an increase of 11,500 from the previous week's revised average. The previous week's average was revised down by 250 from 283,250 to 283,000.  There were no special factors impacting this week's initial claims.  The previous week was revised down to 282,000.  The following graph shows the 4-week moving average of weekly claims since January 2000.

U.S. Productivity Now Grows Faster Than Jobs. What Changed? - Some economists call it the “great decoupling.” For decades, U.S. productivity and total employment rose in lockstep. From 1953 to 1999, average annual growth in productivity was 2.1%, exactly the same as growth in jobs. As the U.S. grew richer and its workers generated more output with the aid of better machines, it created a correspondingly healthy number of new jobs. But at the turn of the century, something changed. Since 1999, productivity growth kept rolling along at 2.1%–but job growth has slumped to an average of 0.5%. Part of the problem can be traced to the last recession, which hit the job market hard and was followed by an extremely slow recovery. Beyond that, economists see two other longer-lasting forces at work: globalization and technological advances. The offshoring of work has helped make U.S. businesses more efficient, while new machines allow the remaining U.S. workers to produce more with less. “Technological progress has been a big cause—and my prediction for the future is that it will be an even bigger force going forward,” says Andrew McAfee, a management professor at the Massachusetts Institute of Technology’s business school who studies the trend. Advanced automation keeps pushing up output, he says, “but there’s less and less demand for good old-fashioned human labor.” Mr. McAfee notes there’s been a similar decoupling in recent years between productivity and wage growth.

Making Do With More - Brad DeLong - In the United States, just three out of ten workers are needed to produce and deliver the goods we consume. Everything we extract, grow, design, build, make, engineer, and transport – down to brewing a cup of coffee in a restaurant kitchen and carrying it to a customer's table – is done by roughly 30% of the country's workforce. The rest of us spend our time planning what to make, deciding where to install the things we have made, performing personal services, talking to each other, and keeping track of what is being done, so that we can figure out what needs to be done next. And yet, despite our obvious ability to produce much more than we need, we do not seem to be blessed with an embarrassment of riches. One of the great paradoxes of our time is that workers and middle-class households continue to struggle in a time of unparalleled plenty. We in the developed countries have more than enough to cover our basic needs. We have enough organic carbon-hydrogen bonds to break to provide us with calories; enough vitamins and other nutrients to keep us healthy; enough shelter to keep us dry; enough clothing to keep us warm; enough capital to keep us, at least potentially, productive; and enough entertainment to keep us from being bored. And we produce all of it for an average of less than two hours a day of work outside the home. And yet there are few signs that working- and middle-class Americans are living any better than they did 35 years ago. Even stranger, productivity growth does not seem to be soaring, as one would expect; in fact, it seems to be decelerating, according to research by John Fernald and Bing Wang, economists in the Economic Research Department of the Federal Reserve Bank of San Francisco. Growth prospects are even worse, as innovation hits gale-force headwinds.

More New Jobs Are in City Centers, While Employment Growth Shrinks in the Suburbs - For decades, most Americans working in metropolitan areas have gone to work outside city centers – in suburban office parks, stores or plants, not downtown skyscrapers. But as people increasingly choose to live in cities instead of outside them, employers are following.In recent years, employment in city centers has grown and employment in the surrounding suburban areas has shrunk, a striking change from the years before, according to a report published Tuesday by City Observatory, a think tank. The changes are seemingly small, but they represent an important shift in the American work force. As recently as 2007, employment outside city centers was climbing much faster than inside.Some cities — especially big ones hemmed in by water, like New York and San Francisco — have held onto a large share of employment near the city center. But now, urban job growth is increasing more quickly in those cities than before. And in other cities — including Chicago, New Orleans, Orlando, Charlotte and Milwaukee — employment is growing in the urban core and declining in the suburbs.We pay close attention to the number of jobs gained or lost. But the location of jobs is just as important — including for making decisions about employment, housing and transportation policies.

Hispanics Could Account for 40% of U.S. Job Growth by 2020 - The U.S. Hispanic population will account for 40% of employment growth over the next five years and more than 75% from 2020 to 2034, according to a new study.. That’s around 11 million jobs out of 14 million new positions across the economy. Job growth among the Hispanic population is particularly notable given that the growth of the non-Hispanic working age population is set to slow to near zero as the number of new non-Hispanic workers will barely match the drop from retiring baby boomers, according to the study from IHS Global Insight, an economic forecasting firm. The forecast sees Hispanic labor-force growth set to accelerate by an average 2.6% over the next 20 years, even as the labor force will grow by 0.6% for the country as a whole from 2020 to 2034. The result is that the Hispanic share of U.S. employment will increase to 23% over the next two decades, from 16% last year, according to the study by James Gillula, managing director at IHS. The forecast assumes that Hispanic population growth will slow from its current pace, given the gridlock over an immigration overhaul in Washington, and uses Census Bureau estimates for Hispanic fertility and mortality rates.

The rise of the non-compete agreement, from tech workers to sandwich makers - A few months ago, the Huffington Post reported on a surprising piece of the standard employment contract at Jimmy John's: A "non-competition" clause, preventing employees from working at any other shop within three miles that sells sandwiches for two years after they leave. It's convenient for the company, if it keeps sandwich-makers from taking their talents -- and inside knowledge -- to a rival. It's not so great for workers, who have much more limited options if they want to quit. But wait: Is that really a danger at a place like Jimmy John's? Non-competes are normally reserved for executives or at tech firms, to keep people from bringing trade secrets to another company. Lately, though, they've been popping up in more and more low-wage sectors too, like maids and nail stylists, prompting a spate of lawsuits. And now, we have actual data on how prevalent non-competes are across the labor force: One in four workers have signed such agreements in their lifetime, according to a new working paper, and 12.3 percent of them are bound by one right now. Here's a breakdown of the data on non-competes by profession:   The research showed that including non-compete clauses in hiring contracts is most widespread in information fields like engineering and architecture, where 30.1 percent of workers had signed one. But non-competes are also not uncommon for comparatively low-skill occupations, like personal care and services, where 11.8 percent of employees have signed one, and installation and repair at 10.5 percent. The prevalence of non-competes is actually lowest among food service workers, at about 3 percent).

A Decline in On-the-Job Training - A certain amount of job training happens through the basic experience of showing up for work everyday. But in some cases, more specific training is called for, which can either be sponsored or provided by an employer, or by the worker. Here's some evidence from the recently released 2015 Economic Report of the President, by the Council of Economic Advisers, showing a decline in employer-provided and on-the-job training in recent decades. This data is collected only irregularly, when the Census Bureau decides to include the "module" that includes this particular set of questions. But with the most recent data in 2008, it seems pretty unlikely that employer-provided and on-the-job training have risen in the aftermath of the Great Recession. The economic theory of job training is built on a distinction between company-specific skills, which are of much greater use to a specific employer, and general-purpose skills, which can be used with a variety of employers. In an economy where people can move fairly easily between jobs, employers will be willing to pay for company-specific training--that is, training that is mainly relevant to learning about what is done at that particular company, and would be of less use at other companies. If employers know that employees are likely to remain with the firm for a substantial time, then employers become more willing to pay for general-purpose training, because it is more likely to pay off for the firm. Otherwise, people will have to pay for general-purpose training, which could be used at other companies. In some cases, workers may "pay" for their general purpose training by taking a job that offers lower wages, but offers a systematic training program.

Putting U.S. Labor Force Participation in Context - It's fairly well-known that US labor force participation--that is, the share of U.S. adults who are classified either employed or unemployed--has been dropping. But it's not always recognized how the U.S differs from other high-income economies in this trend, or how. The 2015 Economic Report of the President, released last week by the White House Council of Economic Advisers, offers some striking evidence on these points. The top figures shows labor force participation rates for "prime-age males," who fall into the 25-54 age category. The nice thing about looking at this group is that countries may differ considerably in their patterns of the extent to which students attend school into their early 20s, or the extent to which people retire in their late 50s and early 60s. Looking at the "prime-age" group leaves these ages out of the picture. For men, the U.S. was middle-of-the-pack in labor force participation rates of prime-age males in 1990, and now vies with Italy for the lowest level. For women, the U.S. was near the top-of-the-pack prime-age labor force participation in 1990, but since then has been surpassed by France, Canada, Germany, and the United Kingdom, and is now about even with Japan--which has not been  historically known as a country with high labor force participation for women

Trend in Temp Workers may not be Temporary --In the month of September 1945, the U.S. had a loss of 1,967,000 jobs, because World War II had ended. In the month of September 1983, the Bureau of Labor Statistics showed a gain of 1,115,000 jobs. But the recovery during Ronald Reagan's presidency did not include any month in which one million jobs were actually created — but it did include one month in which almost 700,000 striking AT&T workers had returned to work. From February 2008 to December 2009 (over a period of 23 continuous months), the Bureau of Labor Statistics shows consecutive monthly job losses totaling over 8 million, as shown in the chart below from the Bureau of Labors Statistics. During this period of time, while still experiencing monthly job losses, the U.S. government reported that June 2009 was the official end of the Great Recession (because job losses and unemployment numbers are supposed to be "lagging indicators" of the economy when compared to GDP statistics (or how the the stock market is doing).  Since this period of heavy job losses, and since the U.S. "economic recovery" began, there have been many reports about the growing number of "independent contractors" (freelancers), temp workers and part-time workers.  Federal Reserve of Atlanta: Are We Becoming a Part Time Economy? "Compared with 2007, the U.S. labor market now has about 2.5 million more people working part-time and about 2.2 million fewer people working full-time. In this sense, U.S. businesses are more reliant on part-time workers now than in the past."

Rip Van Skillsgap - Paul Krugman - There’s been quite a lot of commentary about the Hamilton Project conference on robots and all that. Let me just add my two cents about the “framing paper“.  What strikes me about this paper — and in general what one still hears from many people inside the Beltway — is the continuing urge to make this mainly a story about the skills gap, of not enough workers having higher education or maybe the right kind of education. The paper acknowledges, sort of, that the trends people thought they saw in the 1990s aren’t visible in later data, but then jumps right back into discussing education as the solution as if nothing had happened.But if my math is right, the 90s ended 15 years ago — and since then wages of the highly educated have stagnated. Why on earth are we still hearing the same rhetoric about education as the solution to inequality and unemployment? The answer, I’m sorry to say, is surely that it sounds serious. But, you know, it isn’t.

Why We're All Becoming Independent Contractors - Robert Reich - GM is worth around $60 billion, and has over 200,000 employees. Its front-line workers earn from $19 to $28.50 an hour, with benefits.  Uber is estimated to be worth some $40 billion, and has 850 employees. Uber also has over 163,000 drivers (as of December – the number is expected to double by June), who average $17 an hour in Los Angeles and Washington, D.C., and $23 an hour in San Francisco and New York. But Uber doesn’t count these drivers as employees. Uber says they’re “independent contractors.” What difference does it make? For one thing, GM workers don’t have to pay for the machines they use. But Uber drivers pay for their cars – not just buying them but also their maintenance, insurance, gas, oil changes, tires, and cleaning. Subtract these costs and Uber drivers’ hourly pay drops considerably.For another, GM’s employees get all the nation’s labor protections.These include Social Security, a 40-hour workweek with time-and-a-half for overtime, worker health and safety, worker’s compensation if  injured on the job, family and medical leave, minimum wage, pension protection, unemployment insurance, protection against racial or gender discrimination, and the right to bargain collectively. Not to forget Obamacare’s mandate of employer-provided healthcare. Uber workers don’t get any of these things. They’re outside the labor laws.

A Nation Of Truckers -- Oh how the country has changed in the last 36 years. We were a nation of farmers, secretaries, and machine operators in 1978. The family farmer was still the backbone in the Northern Plains and Midwest. The internet didn’t exist, so letters needed to be typed, copies made, mail distributed, dictation taken, and coffee brewed. So every business was loaded with secretaries. The country still manufactured goods here in 1978. We sold them domestically and internationally. Globalization and NAFTA hadn’t become the buzz words of Ivy League educated MBA’s yet. A look at the most common jobs today reveals how the country has changed. Corporations bought up most of the family farms and older farmers died off. Independent farmers are now a dying breed. The internet all but eliminated the need for secretaries. They became the buggy whip of the 21st Century. There is no need for machine operators when all the machines and manufacturing plants are located in China, Vietnam, and the rest of Southeast Asia. The Ivy League MBAs gutted American manufacturing and sent all the jobs to Asia, where they could produce the same products 80% cheaper and drive their corporate profits sky high, along with their own stock based compensation. So we are left with a nation of truck drivers transporting cheap Chinese produced crap to the millions of retail outlets, where the low wage slaves borrow to buy the crap. The American Dream achieved in 36 short years.

Warren & Cummings: Free the middle class - Elizabeth Warren and Elijah Cummings -- America is recovering from the Great Recession. The stock market and corporate profits are at all-time highs. Worker productivity is skyrocketing. Unemployment is falling. Inflation remains low. The deficit is shrinking and many families have health insurance for the first time. Good news — but not the whole story. Millions of Americans are working harder than ever and still falling behind. Deep structural changes in our economy over the past several decades have undermined the ability of millions of people to build a secure future. For more than 30 years, America's middle class has been hammered. For those not occupying corner offices or able to fall back on investment portfolios, incomes have stagnated while expenses have increased, forcing tens of millions of people into debt just to make ends meet . Things haven't always been this way.  From the end of the Great Depression to about 1980, America built a middle class unlike anything known on earth.  But then things changed. Beginning in the late 1970s, corporate executives and stockholders began taking greater shares of the gains. Productivity kept going up, but workers were left behind as wages stagnated. Families might have survived as their incomes flattened, except for one hard fact: the costs of basic needs like housing, education and child care exploded. Millions took on mountains of debt and young people began struggling to cling to the same economic rung as their parents. After the 2008 economic collapse, massive financial institutions received billions of dollars in bailouts, while families across the country watched helplessly as their home values and savings crashed and millions of jobs disappeared.

Be Calm, Robots Aren’t About to Take Your Job, MIT Economist Says - David Autor knows a lot about robots. He doesn’t think they’re set to devour our jobs. As an economics professor at the Massachusetts Institute of Technology who focuses on the impact of automation on employment, he’s in a good position to know. He’s surrounded by people creating many of the machines behind the latest wave of techno-anxiety. His is “the non-alarmist view,” he says. The 50-year-old believes automation has hurt the job market—but in a more targeted way than most pessimists think. He also doesn’t see the automation wave killing a wider array of jobs as quickly as many predict. Machines are invading the workplace, but in many cases as tools to make humans more productive, not replace them. His research—presented in August to a packed audience of international central bankers in Wyoming—shows middle-skill jobs like bookkeeping, clerical work and repetitive tasks on assembly lines are being rapidly gobbled up by automation. But higher-paying jobs that require creativity and problem-solving—often aided by computers—have grown rapidly, as have lower skilled jobs that are resistant to automation, resulting in a polarized labor market and stagnant wages. But many other economists and tech-watchers are ringing a louder bell. “We’re entering an era where human beings are becoming dispensable in more parts of the economy and at a faster rate than ever before,” said Vivek Wadwa, a futurist at the Rock Center for Corporate Governance at Stanford University. A recent Pew survey found just under half of technology experts said automation would displace “significant numbers of both blue- and white-collar workers” over the next decade. Some said it would leave “masses of people who are effectively unemployable.” But the other half said it will create more jobs than it destroys.

Wage stagnation: primarily a story of manufacturing jobs - This is a continuation of my examination of the impact of wages in goods-producing vs. services jobs.  On Monday I wrote that real GDP growth in the last 30 years correlates well with the amount of growth (or shrinkage) in goods-producing jobs. Before I turn to a longer historical examination, I wanted to point out something even more fundamental: wage stagnation since the turn of the Millennium has been a story of manufacturing jobs.  The service economy has seen considerably more growth in real wages. Let's start with an overview.  Here's a graph of (nominal, not inflation-adjusted) wages in goods-producing (red) vs. services jobs (blue) for the last 50 years: Note that goods-producing jobs have paid slightly more, on average, throughout that period. Further note that goods-producing jobs increased faster than wages in service jobs in the 1970s, but the gap has narrowed since 2000. Now let's take a look at real wages for those same categories. Again, goods-producing jobs are red, services blue. Real wages are normed to 100 as of December 2014: Now we see a HUGE difference, and an important story. In the 1970s, unions were still strong, and were primarily in goods-producing industries. Workers in goods-producing industries were able to maintain their high real wages. Meanwhile, real wages in services jobs declined dramatically, probably also impacted by a disproportionate entry of women into those fields.Manufacturing jobs have taken the brunt of offshoring and automation. While no job category is at all time high real wages, services jobs are getting close.  The story of wage stagnation over the last 15 years has been primarily one of goods-producing jobs.

The One Number The Market Is Focused On: Real Hourly Wages Surge Most Since Lehman Deflationary Shock -- In today's deluge of macro data, one number stood out: the parallel release by the BLS of the real average hourly earnings, which is simply taking the previously reported nominal hourly wage data, and applying whatever deflator gets released in parallel by the BLS. And, not surprisingly, after the nominal jump in January wages, a number which may very well be revised lower as has been the case so often before, courtesy of the headline deflation, the real jump in hourly wages was even higher. In fact, rising to an inflation adjusted $10.55/hour from $10.42 in December, it meant real wages rose by 1.2%, which was the best jump in hourly wages since... the months following the Lehman collapse. Because everyone remembers how the deflationary vortex in the aftermath of the Lehman bankruptcy led to a sense of wealth and eagerness to spend deflation adjusted wages.

Are Shifts in Industry Composition Holding Back Wage Growth? -  Atlanta Fed's macroblog -- The last payroll employment report from the U.S. Bureau of Labor Statistics (BLS) included some relatively good news on wages. Private average hourly earnings rose an estimated 12 cents in January, the largest increase since June 2007. Even so, earnings were up only 2.2 percent over the last year versus average growth of 3.4 percent in 2007.  What accounts for the sluggish growth in average earnings? The average hourly earnings data for all workers is essentially the sum of the average earnings per hour within an industry weighted by that industry's share of employment. In this piece, Ed Lazear argues that a shift of the U.S. economy away from some high-paying industries to lower-paying industries may have contributed to dampened wage growth. Lazear specifically calls out the reduced share of employment in the relatively high-paying finance industry, at hospitals, and in the information sector as potential culprits. A shift in employment away from relatively high-wage jobs will put downward pressure on the growth in average wages.  To get some idea of the effect of industry composition on wages, I took the 2014 calendar year average wage for each industry group at the two-digit NAICS level and multiplied it by the share of employment in that industry in 2014 (admittedly, two-digit NAICS level of disaggregation is very coarse and masks a lot of potential shifts in job-types within industries). Summing across the industries gives an estimate of total average private hourly earnings in 2014. I then repeated the exercise, but using the 2007 industry shares of employment instead (see the chart).Would average wages have been higher if we had the same mix of employment across industries as we had before the recession? The answer seems to be yes, but not much higher. If nothing had changed in the economy's industry employment mix since 2007, then average wages would have been about 12 cents higher.

Don’t Be Fooled by the Rise in Real Wages in January - The Bureau of Labor Statistics released Real Earnings for January 2015 today, which lets us look at trends in real (inflation adjusted) wages over the month and year. We shouldn’t be fooled by month-to-month changes in the real hourly earnings series. According to the report, real hourly wages for private nonfarm employees rose 1.2 percent between December 2014 and January 2015, but the series is volatile so we should not read too much into one month trends. Furthermore, month-to-month inflation fell 0.7 percent, which should put those inflation adjusted earnings series into perspective.  Meanwhile, real wages grew 2.4 percent over the year (between January 2014 and January 2015). While on its surface, this bump up may seem like a positive sign, this higher-than-trend number is largely due to deflation over the year, as the CPI-U, or Consumer Price Index for All Urban Consumers, fell 0.2 percent.Taken another way, wages unadjusted for inflation (i.e., nominal wages) grew 2.2 percent over the year, very much in line with what we’ve seen for the last five years. You can see from the figure below—pulled from EPI’s nominal wage tracker—that nominal wages have been growing around 2.0 percent a year since 2010. January’s rise in nominal wages is not out of line with this trend.To the policymakers at the Federal Reserve, nominal wage growth should be 3.5-4.0 percent—consistent with inflation plus productivity growth. Given this, it is clear that the Federal Reserve should not take action to slow the economy down. In fact, the labor market and the economy could withstand wage growth even higher than 4 percent, because while profits are still at record highs, labor’s share of corporate sector income has yet to rise in this recovery.

Even Better Than a Tax Cut -  With the early stages of the 2016 presidential campaign underway and millions of Americans still hurting financially, both parties are looking for ways to address wage stagnation. That’s the good news. The bad news is that both parties are offering tax cuts as a solution. What has hurt workers’ paychecks is not what the government takes out, but what their employers no longer put in — a dynamic that tax cuts cannot eliminate. ... Yes, a one-time reduction in taxes through, say, expanded child care credits or a secondary earner tax break, as Democrats propose, could help families. But as wages continue to stagnate, it is impossible to continuously cut taxes and still pay for things like education and social programs for the growing population of older Americans. ... Contrary to conventional wisdom, wage stagnation is not a result of forces beyond our control. It is a result of a policy regime that has undercut the individual and collective bargaining power of most workers. Because wage stagnation was caused by policy, it can be reversed by policy, too.

Wage insurance: A potentially bipartisan way to help the middle class | Brookings Institution- The big debate going forward will be over means and not ends. The President would redistribute incomes through changes in the income tax code, while upgrading the skills of both young people and older workers seeking career improvement by making two years of community college free. Republicans have not yet settled on a single counter-approach – how could they be expected to, there are many of them in Congress and they don’t control the Executive branch – but they clearly will oppose redistribution. Instead, Republicans are inclined to favor an “opportunity” agenda that is likely to contain multiple ideas: more school choice, consolidating multiple federal antipoverty programs into single funding streams or block grants to the states, tax reform that lowers individual and corporate tax rates, and possibly some form of wage subsidies.

Walmart sends wage signal to US business - FT.com: “Every time you use a self-checkout lane or a touchscreen ordering system, it’s a task that used be part of someone’s job description.” That was the stark message in a 30-second advertisement that ran on national TV networks in the US last year. The voiceover was accompanied by images of shop assistants and waitresses vanishing into thin air, only to be replaced by machines. The commercial formed part of a campaign funded by the restaurant and retail industries against President Barack Obama’s calls to raise the federal minimum wage to $10.10, compared to the $7.25 level last set more than five years ago. On Thursday, Walmart broke ranks with many other employers of low-paid workers and said it would pay all of its employees a starting rate of $9 an hour, rising to $10 an hour for existing staff by February 2016. Many expect the focus to turn now to whether other low-pay employers, especially in the fast-food sector, will follow suit, either because they are competing for the same entry level workers, or because public pressure and statewide minimum wages make it impossible to hold out. Tara Sinclair, chief economist at jobs website Indeed and a professor at George Washington University, said the move would “reverberate well beyond the retail sector”. Businesses throughout the “low-wage economy” would now feel extra pressure to raise pay, said Damon Silvers, the policy director for the AFL-CIO, America’s union umbrella organisation. “As the largest private sector employer in the country, Walmart has tremendous power to shape economic trends.”

Why rising wages might be bad news -- The participation rate was always going to fall when the Baby Boomers started retiring. The crisis, though, has made it fall even more than that—but just how much is hard to say. The White House, as you can see above, calculates that about half the decline is due to aging, which is in line with other estimates. Another chunk is due to the crisis. And the rest is unexplained. (That's the blue part of the graph). It could be that people went back to school to wait out the recession. Or that people went on disability when it didn't look like any amount of waiting would be enough. Or that the long-term unemployed became unemployable. In any case, the question is how many of these people are coming back—and how we even tell if they do? That's not as obvious as it sounds, well, at least not necessarily so. In a perfect world, all these discouraged workers would return, and the labor force would start expanding. But what about in the real world? That's a little more complicated. Some of them have come back, some of them will, but some of them are gone forever. It's important to remember, though, that this whole time the Boomers have still been retiring, and in greater numbers than before. So if none of the shadow unemployed were coming back, the labor force would be shrinking right now. That's why, as economist Scott Sumner argues, the labor force participation rate really is recovering even though it's not going up: returnees are exactly balancing out retirees. It's not as much of a recovery as we'd like, but a flat participation rate is still one. How long will it last? Well, at least until wages start rising more—which already might be happening. The economy's biggest problem is that workers' wages have fallen, in inflation-adjusted terms, for 15 years now, but we kind of don't want that to change right now. If it did, that would mean the Great Recession had pushed millions of people into early retirement. It'd be better if more of those people came back, and then wages started rising again.

Retail Workers Are Quitting Their Jobs Like It's 2007 - Here’s one reason why big retailers have been making noise about raising their minimum wages: Their workers have been quitting at a rate last seen in the boom times before the financial crisis.  Wal-Mart, America’s biggest private employer, made headlines last week for raising its minimum wage, becoming the latest in a string of companies upping the pay of their lowest-paid workers. The decision, which followed similar announcements out of Gap and Ikea in recent months, underscores the fact that retail workers are getting harder to hold on to these days. The retail industry’s “quits rate” — the number of people quitting from jobs in a month as a percent of total employment — has been climbing to levels last seen before the recession, according to the Bureau of Labor Statistics, which means companies may have to do more to keep employees happy. The quits rate is seen as reflecting workers’ willingness or ability to leave their jobs, which itself can be connected to the broader economic environment and the prospects of finding work elsewhere. After reaching highs during the heady economic times of 2006–07, it fell significantly during the recession and stayed low in the years of uncertainty that followed. It’s now back to levels last seen in January 2008. Wage increases at Wal-Mart and Gap, both to at least $10 an hour next year, are “in part due to escalating quit rates,” Edward Yruma, an analyst at KeyBanc Capital Markets, wrote in a Feb. 22 note. “We believe that other retailers in our coverage could be compelled to raise hourly rates to the $10 an hour level,” he said, pointing to teen retailers in particular.

Racial Wealth Gaps: What a Difference 25 Years Doesn’t Make - Twenty-five years ago there was a glaring wealth gap in the U.S. between blacks and Hispanics on one hand, and whites on the other. Little has changed, a new report shows. White families are still more than twice as likely as Hispanic and black families to have wealth—assets minus liabilities—above the median U.S. level, according to a report by economists at the Federal Reserve Bank of St. Louis. The report analyzes data from 1989 to 2013 taken from the Federal Reserve’s Survey of Consumer Finances. The researchers found that the median wealth levels of Hispanic and black families are about 90% lower than the median wealth levels for whites. Median family-income levels for the two historically disadvantaged groups are 40% lower, the St. Louis Fed said. Back in 1989, the median wealth of a white family was $130,102. In 2013, it was $134,008, after adjusting for inflation. For an Asian family, the two figures were $64,165 and $91,440. For a Hispanic family, they were $9,229 and $13,900. For a black family, they were $7,736 and $11,184. The St. Louis Fed researchers said it’s not differences in age or education levels that explain the racial and ethnic wealth disparities; these persist even if you’re looking at older and better-educated blacks, Hispanics and whites. Put simply, the gaps in median income and wealth between black Americans and Hispanics and white Americans remain large and haven’t changed much in 25 years.

Big tech companies cause income inequality — but not in the ways you think - Big Bay Area tech companies use their unprecedentedly large pools of capital, enormous revenues, and exponentially valued shares to go on hiring sprees, attracting hordes of upper-middle class technology workers to a region. Thanks to commuter buses that ferry urban residents to the suburban enclaves these firms call home, the invasion of workers spreads beyond quiet industrial towns like Mountain View and Menlo Park up to the heart of San Francisco, making housing — which is already limited by outdated zoning and construction regulations — too expensive for workers with more modest wages. That makes San Francisco a city for the affluent or the homeless, with little room in-between. No wonder San Francisco is now on par with Rwanda when it comes to income inequality.  But while there’s evidence that some large tech companies have exacerbated income inequality in both the Bay Area and across America at large, the reasons why may be far more complex than this irresistible narrative suggests.  According to former Harvard economist William Lazonick, the ways in which corporations worsen America’s wealth gap come down to a simple question: When a company posts massive revenues, where does that money go?

The Shockingly Simple, Surprisingly Cost-Effective Way to End Homelessness - Rene Zepeda is driving a Volunteers of America minivan around Salt Lake City, looking for reclusive homeless people, those camping out next to the railroad tracks or down by the river or up in the foothills. The winter has been unseasonably warm so far—it's 60 degrees today—but the cold weather is coming and the van is stacked with sleeping bags, warm coats, thermal underwear, socks, boots, hats, hand warmers, protein bars, nutrition drinks, canned goods. By the end of the day, Rene says, it will all be gone. These supplies make life a little easier for people who live outside, but Rene's main goal is to develop a relationship of trust with them, and act as a bridge to get them off the street. "I want to get them into homes," Rene says. "I tell them, 'I'm working for you. I want to get you out of the homeless situation.'" And he does. He and all the other people who work with the homeless here have perhaps the best track record in the country. In the past nine years, Utah has decreased the number of homeless by 72 percent—largely by finding and building apartments where they can live, permanently, with no strings attached. It's a program, or more accurately a philosophy, called Housing First. One of the root causes of homelessness is that a lot of people can't afford a place to live. They don't have enough money to pay rent, even for the cheapest dives available. Prices are rising, inventory is extremely tight, and the upshot is, as a new report by the Urban Institute finds, that there's only 29 affordable units available for every 100 extremely low-income households. So we could create more jobs, redistribute the wealth, improve education, socialize health carebasically redesign our political and economic systems to make sure everybody can afford a roof over their heads.

Man desperately trying to get out of the cold dies on stairs in front of homeless shelter -- As sub-zero temps swept into much of the country, Kenneth Winfield made his way to a Louisville homeless shelter in November:"He started crying," recalled Maria Price, executive director of the day shelter. "He said, 'Please help me find an apartment. I don't want to die out there.' " He returned again last week, but was apparently too late:Winfield was found on the steps of the St. John Center amid sub-zero temperatures Thursday night and later died, Price said.  An autopsy is being conducted to determine the cause of death. Although Winfield had been living on the streets for years, he'd been trying to find a place to live: Price said Winfield had applied for a federal supportive housing program that provides a rent voucher, counseling and social service support. However, during an assessment as part of the application process Winfield "didn't score high enough to be considered the most vulnerable," Price said, so he was still waiting for an opening. Representatives of St. John's called it a huge loss for their community: Winfield had been a client at St. John's for at least four years, Price said, describing him as congenial and friendly. He wanted to serve as an ambassador for the center. "He'd take a garbage bag around the block and pick up trash. He wanted us to be good neighbors," Price said.  Natalie Harris, the executive director of the Coalition of the Homeless in Louisville said they've seen troubling trends for families and youth:  Harris said there is a waiting list for families and children to get into shelters. She said there is also an increase in young adults, those 18 to 24, which had doubled to about 500 homeless people in recent years before leveling off.

Child poverty at highest level in 50 years - The Annie E. Casey Foundation publishes the annual Kids Count report on child poverty, which was the source of state-by-state reports issued last week. These reports use the new Supplemental Poverty Measure, developed by the Census Bureau, which includes the impact of government benefit programs like food stamps and unemployment compensation, as well as state social programs, and accounts for variations in the cost of living as well. The result is a picture of the United States with a markedly different regional distribution of child poverty than usually presented. The state with the highest child poverty rate is California, the most populous, at a staggering 27 percent, followed by neighboring Arizona and Nevada, each at 22 percent. The child poverty rate of California is much higher than figures previously reported, because the cost of living in the state is higher. Moreover, many of the poorest immigrant families are not enrolled in federal social programs because they are undocumented or face language barriers. The same conditions apply in Arizona and Nevada. The other major centers of child poverty in the United States are the long-impoverished states of the rural Deep South, and the more recently devastated states of the industrial Midwest, where conditions of life for the working class have deteriorated the most rapidly over the past ten years. African-American child poverty rates are actually worse in the Midwest states of Iowa, Ohio, Michigan, Wisconsin and Indiana than in the traditionally poorest parts of the Deep South, including Mississippi, Louisiana and Alabama. Iowa has the worst poverty rate for African-American children. Indiana has the highest rate of teens attempting or seriously considering suicide.

Growing Incarceration Contributed Little to Drop in Crime - CBPP -- Increased incarceration has contributed next to nothing to the sharp drop in crime over the past 25 years, a recent Brennan Center for Justice report finds. This research, along with other recent analysis challenging the belief that incarcerating a bigger share of offenders and for longer periods would significantly reduce crime, suggests that states would be better off spending less on locking people up and more on education, mental health, and substance abuse treatment. As our report on criminal justice reform explains, most states’ prison populations are at historic highs; in 36 states, the prison population has more than tripled as a share of state population since 1978 (see graph).  This growth has been costly.  If states were still spending on corrections what they spent in the mid-1980s, adjusted for inflation, they would have about $28 billion more each year to spend on more productive investments or a mix of investments and tax reductions.The Brennan Center report found that while rising incarceration rates helped reduce property and violent crime rates in the 1990s, the effect was much smaller than some other studies have suggested, accounting for 0-10 percent of the total decline over the decade.  Since 2000, rising incarceration rates account for less than 1 percent of the decline in crime rates.

Yellen’s problem with US felons - FT.com - When we think of crowded US prisons, we do not usually turn to economists — still less central bankers. Yet America’s steep rate of incarceration must be high on the list of what keeps Janet Yellen up at night. Markets will be waiting to pounce on the US Federal Reserve chair’s slightest nuance in her congressional testimony this week. Will the central bank lift rates in June or September? The key to her thinking lies in the US labour force participation rate. If it improves, the Fed can keep rates at zero without fear of wage inflation. If it stays put, Ms Yellen may have to end the party far sooner. Much has been made of the sharp fall in US unemployment in the past few months; it is now at just 5.7 per cent. But if the same number of Americans were active in the labour force today as at the start of the recession in 2007, the jobless rate would be almost 10 per cent. The labour force participation rate — the basis for calculating joblessness — has fallen to 62.8 per cent of adults today from a peak of 67.3 per in 2000. Some of this fall is the result of changing demographics. The baby boomers are starting to retire. Some of it comes from the expansion of the US disability benefit, which pays millions more people to stay out of work than it used to. What is often overlooked, however, is the starring role of the US criminal justice system. Critics of America’s willingness to hand out criminal records think of it as a social blight. It is also a crime against the economy. The numbers are staggering. At 2.3m, the US prison population is the highest in the world — close to the combined numbers of people locked up by China and Russia, and more than 10 times those of France, Germany and the UK combined. Think of it as a democratic gulag. It is almost double where it was in 1991. That means the US has millions more ex-convicts than it used to, the large majority of whom are routinely screened out by employers.

"The Disappeared": Chicago Police Detain Americans at Abuse-Laden 'Black Site' -- The Chicago police department operates an off-the-books interrogation compound, rendering Americans unable to be found by family or attorneys while locked inside what lawyers say is the domestic equivalent of a CIA black site. The facility, a nondescript warehouse on Chicago’s west side known as Homan Square, has long been the scene of secretive work by special police units. Interviews with local attorneys and one protester who spent the better part of a day shackled in Homan Square describe operations that deny access to basic constitutional rights. Alleged police practices at Homan Square, according to those familiar with the facility who spoke out to the Guardian after its investigation into Chicago police abuse, include:
Keeping arrestees out of official booking databases.
Beating by police, resulting in head wounds.
Shackling for prolonged periods.
Denying attorneys access to the “secure” facility.
Holding people without legal counsel for between 12 and 24 hours, including people as young as 15.
At least one man was found unresponsive in a Homan Square “interview room” and later pronounced dead.Unlike a precinct, no one taken to Homan Square is said to be booked. Witnesses, suspects or other Chicagoans who end up inside do not appear to have a public, searchable record entered into a database indicating where they are, as happens when someone is booked at a precinct. Lawyers and relatives insist there is no way of finding their whereabouts. Those lawyers who have attempted to gain access to Homan Square are most often turned away, even as their clients remain in custody inside.

GOP Governors Flirt with Tax Hikes but Still Wedded to Income Tax Cuts --The New York Times recently reported Republican governors across the country were "bucking the party line" on taxes, citing eight GOP executives proposing tax hikes. Bloomberg also noted the trend of Republican governors and "much-regretted" tax increases earlier this week. However, the Wall Street Journal just heralded "The Tax-Cutting Boon Sweeping the States." So is 2015 the year of reluctant GOP tax hikes or triumphant GOP tax cuts? The answer depends on the tax. Given budget demands, Republican governors are open to new tax revenue—as long as it is never, ever from individual income taxes. Let's start with the budget challenges. States are generally expected to balance their books, so revenue-losing tax changes must be paired with spending cuts. That's not an easy trade even in the most politically conservative states. Furthermore, as my colleague Norton Francis reported last week, states are projecting revenue growth significantly below long-term averages, suggesting many governors will struggle simply to meet current needs. No governor wants his or her state to become the next Kansas. So Republican governors in Georgia, South Carolina, and South Dakota proposed—and several others have discussed—some form of gas tax increase this year. Republican Gov. Rick Snyder is pressing Michigan voters to approve a May ballot initiative that (among other changes) increases gas and sales taxes. GOP governors in Kansas, Nevada, and Ohio want cigarette tax increases. Nevada Gov. Brian Sandoval proposed a big business tax hike to pay for his education plan. Alabama Gov. Robert Bentley says his state desperately needs new tax revenue to fill a budget gap—although, he won't say what taxes he would raise.

This Billionaire Governor Taxed the Rich and Increased the Minimum Wage — Now, His State’s Economy Is One of the Best in the Country -- During his first four years in office, Gov. Dayton raised the state income tax from 7.85 to 9.85 percent on individuals earning over $150,000, and on couples earning over $250,000 when filing jointly -- a tax increase of $2.1 billion. He's also agreed to raise Minnesota's minimum wage to $9.50 an hour by 2018, and passed a state law guaranteeing equal pay for women. Republicans like state representative Mark Uglem warned against Gov. Dayton's tax increases, saying, "The job creators, the big corporations, the small corporations, they will leave. It's all dollars and sense to them." The conservative friend or family member you shared this article with would probably say the same if their governor tried something like this. But like Uglem, they would be proven wrong. Between 2011 and 2015, Gov. Dayton added 172,000 new jobs to Minnesota's economy -- that's 165,800 more jobs in Dayton's first term than Pawlenty added in both of his terms combined. Even though Minnesota's top income tax rate is the 4th-highest in the country, it has the 5th-lowest unemployment rate in the country at 3.6 percent. According to 2012-2013 U.S. census figures, Minnesotans had a median income that was $10,000 larger than the U.S. average, and their median income is still $8,000 more than the U.S. average today.

Just Taxing the 1 Percent as Much as We Tax the Poor Would Yield Billions for Cash-Strapped States -  Roads are crumbling, bridges require repairs, schools need upgrades and public pension systems remain underfunded. How can states and cities find the money to address any of these problems? One way could be through their tax codes. According to a new report, if the rich paid the same state and local tax rate as the middle class, states and cities would have hundreds of billions of dollars more a year in public revenue. Last month, the nonpartisan Institute on Taxation and Economic Policy found that the poorest 20 percent of households pay on average more than twice the effective state and local tax rate (10.9 percent) as the richest 1 percent of taxpayers (5.4 percent). That preceded the new report from the left-leaning groups Good Jobs First and the Keystone Research Center which finds that if tax laws were changed to compel the highest income earners to pay the same rate as everyone else, states and localities would rake in up to $128 billion a year in new revenue. If just the top 1 percent of earners were compelled to pay the typical middle-class tax rate, the report says the change would raise more than $68 billion in new annual revenues. To put those numbers in context, consider that the price tag of other public priorities is just a fraction of the money that could be raised by equalizing tax rates. For instance, the report notes that free community college would cost $6 billion a year and universal pre-kindergarten in all states would cost roughly $24 billion. Similarly, the report notes that the total annual price tag of backfilling public pension shortfalls is $30.5 billion. It also finds that five states that would reap the most revenue from equalizing tax rates—Texas, Florida, Pennsylvania, Massachusetts and Ohio—are among those with the largest pension shortfalls.

Competing for Jobs: Local Taxes and Incentives - Federal Reserve Bank San Francisco - State and local governments frequently offer tax incentives to attract businesses to locate in their area. Proponents view these incentives as a valuable tool to encourage economic development. Critics, on the other hand, argue either that incentives have little effect on business location decisions—and hence are wasteful giveaways—or that their benefits come at the expense of reduced economic activity in other areas. A key element in this debate is distinguishing what is best from a local versus a national perspective.

State orders minimum wage increase for tipped workers - The state Labor Department has ordered an increase in the minimum wage for tipped workers across the hospitality sector by the end of the year. In an order released Tuesday, acting labor commissioner Mario Musolino accepted four out of five recommendations of a wage board created last year by Governor Andrew Cuomo. Those include consolidating tipped workers in restaurants and hotels into a single class, and increasing their minimum hourly wage to $7.50. “After receiving testimony divided between those in favor of eliminating the tip credit and those opposed to any change, I believe this recommendation strikes the proper balance,” Musolino wrote. “It increases wages for those who have been without a raise for far too long and completes the goal that was postponed in 2009 of establishing a single rate for all tipped workers.” The state's minimum wage is scheduled to rise to $9 at the end of the year, per a 2013 legislative agreement. Currently, various classes of tipped workers are paid $4.90, $5 and $5.65 per hour.

Thousands of Detroit Families Face Foreclosure As County Demands Inflated Back Taxes - Detroit’s efforts to gain more than token stability from its financial and housing woes took another, devastating blow with the county’s insistence on collecting back taxes, putting tens of thousands of homeowners at risk of foreclosure. This crackdown has been deemed unfair by many because the taxes owed on properties are dramatically inflated, as the county assesses property taxes on the basis of their value before the city fell into a woeful financial quagmire. More than 6,000 people attended a Wayne County event that was designed to help homeowners set up payment arrangements on their back taxes. Most left disheartened. The stories are painful. Krystal Malone is $9,000 behind in taxes on a house worth $10,000, as Al-Jazeera America pointed out. Gabriel McNeil purchased a house for $1,500, not knowing there was 10 times that owed in back taxes on the property. Brenda Johnson inherited a house when a relative died, but several thousand dollars in back taxes are owed on it. As unfortunate as their stories are, they are just a fraction of the number of people who are in similar, untenable binds. Tens of thousands of Detroiters face this dilemma, an indictment on how a city is not looking to take care of its own, a particularly painful pill in the African-American community. It did not look so bleak in when the city emerged from the largest municipal bankruptcy in U.S. history and control was handed back to the city government from state-appointed emergency manager Kevyn Orr. There were hints of an upward swing: people stopped fleeing the city as they had in dropping it from 2 million residents to less than 700,000; debts were under control; some new businesses opened downtown; and a sense that the city was rebounding filled the cold air. That was then. The county’s tax grab impacts about 76,000 properties, and 35,000 or so are occupied, Dave Szymanski, Wayne County deputy treasure said.

How ‘Defensive Architecture’ Is Ruining Our Cities - Cities have always struggled with the tension between the different needs of social classes who share the space. But as The Guardian documents, a new trend of defensive — and some times overtly hostile — architecture is changing the urban landscape, and not in a good way.  Defensive architecture refers to modifications of buildings and public space, often too subtle to be noticed by the general public, designed to discourage certain groups of people from loitering. 'Homeless spikes', studs in the ground that prevent people from sleeping rough, are the most obvious example, but it can include things like slanting windowsills to stop people sitting, benches with armrests that make it impossible to lie down, or sprinklers that intermittently come on but aren't really watering anything.  But as Alex Andreou explains in the feature, defensive architecture hurts more than just the homeless: There is a wider problem, too. These measures do not and cannot distinguish the "vagrant" posterior from others considered more deserving. When we make it impossible for the dispossessed to rest their weary bodies at a bus shelter, we also make it impossible for the elderly, for the infirm, for the pregnant woman who has had a dizzy spell. By making the city less accepting of the human frame, we make it less welcoming to all humans. By making our environment more hostile, we become more hostile within it. Against a backdrop of increasing urbanisation, Andreou raises an important point. As cities grow in size and density, we'll need to be careful to ensure that the space is welcoming to everyone. Sticking spikes in the ground probably isn't a great way to ensure that.

L.A.’s aging water pipes; a $1-billion dilemma - About one-fifth of the city's water pipes were installed before 1931 and nearly all will reach the end of their useful lives in the next 15 years. They are responsible for close to half of all water main leaks, and replacing them is a looming, $1-billion problem for the city."We must do something about our infrastructure and we must make the necessary investment," said H. David Nahai, former head of the Department of Water and Power. "If we don't act now, we'll simply pay more later."The DWP has a $1.3-billion plan to replace 435 miles of deteriorating pipe in the next 10 years, but difficult questions remain about how the agency will find the money, how much it will inconvenience commuters and whether the utility can ever catch up with its aging infrastructure. To reach its goal by 2025, the DWP would need to more than double the number of pipe miles it replaces annually and more than triple the average amount it spends on pipe replacement each year. Water officials said the department has already budgeted $78 million for water main replacement in the current fiscal year, a significant increase from its annual average. Future funding for the plan will depend on a combination of higher water rates, bond sales and other department revenue. Getting city leaders to approve higher water rates that the agency says it needs could require political maneuvering as the DWP deals with a standoff between city leaders and two nonprofit trusts over $40 million the agency gave to the organizations. The department is also rebounding from a billing scandal in late 2013.

The School Closure Playbook – How Billionaires Exploit Poor Children in Chicago -- Yves Smith -- Rebecca Rojer, who directed this film essay about a public school version of the Shock Doctrine playbook called “corporate school reform” asked us to present her video after it first appeared on Jacobin. It is accessible yet presents a hard-hitting overview of who is behind this taxpayer looting program and the mechanics of how it operates. From Rojer’s overview: The piece uses Chicago to explore the broader neoliberal campaign against public schools, focusing on how education “reformers” manufactured a budget crisis through a combination of creative accounting, secretive tax schemes (specifically TIF), and media cooperation. It also looks at some of the organizing that developed to regain local control of schools (and possibly just forced Rahm into a run-off election!).  What is stunning is the degree of out and out grifting that has taken place in Chicago, with millions diverted from public schools to create a false image of a budgetary crisis. And some of the money wound up in dubious-looking pockets, like a Hyatt Hotels franchise. I hope you’ll watch this video. Be sure to circulate it to anyone you know who lives or votes in Chicago.

Dangerous Designs on (AP) American History -- Any city upon a hill invariably rests on a mound of bullshit, and the extent to which one knows it depends largely on one’s willingness to inhale through his or her nose. In this sense, we might simplify the ongoing debate over the College Board’s updated AP U.S. History framework as a debate over whether or not public schools should be cultivating future generations of mouth-breathers.  A wave of recent proposals in state legislatures across the south and southwest seems to advocate for the former. The College Board claims to be emulating “current thinking” in the field of history by encouraging a focus on larger concepts, historical argumentation, and critical thinking skills, rather than the previous, superficial focus on rote people, places and events (PDF). But state legislators in places like Georgia have proffered resolutions charging that the new framework favors a “biased and inaccurate view of many important themes and events in American history,” and that it maligns “American free enterprise” and that system’s role in the country’s development over time (PDF). (And this language apes similar resolutions in other states.)  The opening shot in this latest installment of the textbook wars was fired last year in an op-ed by Jane Robbins, of the American Principles Project, and Larry Krieger, a former AP U.S. History teacher. They complain that, under the new framework, the “units on colonial America stress the development of a ‘rigid racial hierarchy’ and a ‘strong belief in British racial and cultural superiority…’” while ignoring “the United States’ founding principles and their influence in inspiring the spread of democracy and galvanizing the movement to abolish slavery.”

Here’s how different the US education system is vs. other nations -- American education has historically made two sharp distinctions. The first is between local and national control of education: our federalist system puts state and local governments in charge of education, not the federal government. The second is between private and public schools: public schools receive government funding and are subject to rules and regulations to ensure that the funds are used appropriately, whereas private schools do not receive government funding and are given more freedom over what their educational programs look like and how their funds are used. When the first distinction is blurred, the American right tends to take up arms, and when the second is blurred, the American left tends to be incensed.How do other countries manage school choice? Are private and religious schools clearly distinguished from their public counterparts, or are there overlaps in funding and oversight? To answer this question, I researched four specific questions about how autonomous non-public schools are in 50 countries, including the United States:

  • Does this country have private and/or religious schools that can receive public funds?
  • Does this country have nationally-mandated exams?
  • Does this country have a nationally-mandated curriculum?
  • Does this country have a nationally-mandated teacher pay scale?

For all four questions, the modal response was overwhelmingly yes. In fact, all four responses were yes in 25 of the 50 countries, and in two others, three responses were yes and there was no information available about teacher pay. This contrasts markedly with the United States, which was one of only two countries—the other being Brazil—where the answer to all four questions was no.

Attending a little bit of college is worse than not going at all -  The recession took a bite out of earnings for all workers—but people who made an unsuccessful attempt at college were hurt the most. Those who’ve completed some college have seen their paychecks shrink the most compared with all groups of workers since 2007, a new report shows. The report, released on Thursday by the Economic Policy Institute, analyzed data from the U.S. Bureau of Labor Statistics and found that real hourly wages for workers who started, but didn’t finish, college declined 5.9 percent from 2007 to 2014. That’s worse than the dip for workers who didn’t graduate high school (5.2 percent decline), those who graduated high school (3.7 percent), and those who graduated college (2 percent). The only group whose wages have bounced back to 2007 levels are workers holding advanced degrees. Even so, their recovery has been modest at best: The EPI says advanced degree holders’ real hourly wages are now sitting merely at 2007 levels. Lackluster numbers aside, the institute didn’t warn people off of going to college. “The data do show that college graduates have fared slightly better than high school graduates since 2007,” according to the EPI report. That’s consistent with what economists have said time and time again. College graduates—especially those saddled with debt—may be pessimistic about the return on investment from their degrees, but the numbers have shown that completing college pays off. The average college graduate will earn $500,000 more over a lifetime than workers who only finished high school, my colleague Natalie Kitroeff reported last week.

The Best Investment the U.S. Could Make—Affordable Higher Education -  The most frequently cited remedy for rising inequality is more and better education. According to this view, many workers do not have the skills they need to be successful in a globalized economy, and this “skills gap” can only be overcome through improved educational outcomes. But this can’t be the entire story. First, wages have stagnated for both the college educated and those without a college degree. So a college education is no guarantee of immunity from rising inequality.  Second, we have been trying to improve education for as long as I can remember. If not all those decades of effort haven’t paid off in the sense of preventing inequality from increasing, what is different now? Have we suddenly found the answer? Third, the skills gap story ignores the fact that education will never be the answer for everyone. We can offer other types of education, e.g. technical training at community colleges, but we will still miss a substantial fraction of the working population. College won’t work for everyone. Fourth, many of the trends that were present in the 1990s when the push for education as the solution to inequality became mainstream have diminished, and this undercuts the skills gap story. Fifth, the skills gap story ignores other potential explanations for rising inequality such as the decline in worker bargaining power as unions have faded, a minimum wage that has not kept pace with inflation, let alone productivity, and economic power that distorts the distribution of income toward capital rather than labor.

How to Make College Cheaper - THE soaring cost of college — a 1,225 percent increase since 1978, nearly twice the rate of the rise in health care costs — is such a problem for most families that politicians across the ideological spectrum are actually taking notice.President Obama has proposed making two years of community college free. Senator Bernie Sanders of Vermont raised the stakes by arguing that federal and state governments should split the cost of reducing tuition at public universities and colleges by more than 50 percent. And Gov. Scott Walker of Wisconsin just proposed a two-year extension of the tuition freeze currently in place at the University of Wisconsin, which he coupled with a 13 percent cut in state aid and the suggestion that professors teach one more course per semester. The issue transcends traditional political battle lines because it is middle-class families who are most affected by tuition hikes. They are largely ineligible for most government scholarship programs. And except at the most elite universities, colleges’ own grant programs don’t kick in until after the the family has met its unrealistically high “expected family contribution,” which is calculated by the federal government.As a result, families rely on a mix of government and private loans to pay these horrendous costs. On average, students are graduating with $33,000 in loan obligations, and parents often borrow even more. The interest rates these borrowers pay can be as high as four times the rate for an auto loan.  There is a solution that can make college more accessible and affordable for middle- and lower-income students: tuition deferment. Colleges should offer an alternative to traditional loan programs by allowing students to defer up to 75 percent of the cost of attending school — tuition, room, board and fees — and pay it back over 20 years.

Knowledge Isn’t Power, by Paul Krugman -- Just to be clear: I’m in favor of better education. Education is a friend of mine. And it should be available and affordable for all. But ... people insisting that educational failings are at the root of still-weak job creation, stagnating wages and rising inequality. This sounds serious and thoughtful. But it’s actually a view very much at odds with the evidence, not to mention a way to hide from the real, unavoidably partisan debate.The education-centric story of our problems runs like this: We live in a period of unprecedented technological change, and too many American workers lack the skills to cope with that change. This “skills gap” is holding back growth, because businesses can’t find the workers they need. It also feeds inequality, as wages soar for workers with the right skills... So what we need is more and better education. ...It’s repeated so widely that many people probably assume it’s unquestionably true. But it isn’t..., there’s no evidence that a skills gap is holding back employment... Finally, while the education/inequality story may once have seemed plausible, it hasn’t tracked reality for a long time..., the inflation-adjusted earnings of highly educated Americans have gone nowhere since the late 1990s.So what is really going on? Corporate profits have soared as a share of national income, but there is no sign of a rise in the rate of return on investment..., it’s what you would expect if rising profits reflect monopoly power rather than returns to capital... — all the big gains are going to a tiny group of individuals holding strategic positions in corporate suites or astride the crossroads of finance. Rising inequality isn’t about who has the knowledge; it’s about who has the power.

Americans are having more trouble paying off their student debt than their houses - Americans are struggling to make timely payments on student loans, according to new data from researchers at the Federal Reserve Bank of New York — even as we dutifully shrink other types of balances. Student-loan delinquencies increased at the end of 2014: 11.3 percent were at least 90 days overdue in the last three months of 2014, up from 11.1 percent in the previous quarter. Meanwhile, on the bright, if counterintuitive, side: All other forms of debt have been showing lower delinquency rates, including credit card and mortgage loans. The New York Fed did note, however, that auto loan delinquencies have largely been dropping, but rose slightly last quarter.America’s total student loan debt is now nearly $1.2 trillion. One reason the burden is difficult to pay off, Fed researchers wrote: “Student debt is not dischargeable in bankruptcy like other types of debt … Delinquent or defaulted student loans can stagnate on borrowers’ credit reports.” It wasn’t always like this. Student loans were the smallest form of household debt until 2009, the Fed data shows.

Student Debt Strike Targets For-Profit College -- Mallory Heiney, 21, owes $20,000, a debt she took on to attend a for-profit college she says scammed her and thousands of other students. And she isn’t going to pay anymore. Heiney and 14 other students from Everest College, one of the for-profit schools that belong to the Corinthian Colleges Inc. brand, declared a debt strike on Monday. The federal Consumer Financial Protection board alleged in a lawsuit last year that Corinthian lured students with “bogus” job-placement statistics and saddled them with predatory loans, even going so far as to “strong-arm” students into making loan payments while still in school. By declaring a strike, the students effectively formed a new kind of union—a debtors’ union—that they hope can lead to negotiations with a loan system that doesn’t typically negotiate. Most of their loans are owed to U.S. Department of Education—so while one branch of the government has said the loans were predatory, another is still trying to collect the money. Americans are drowning in student loan debt. As of last year, 40 million people in the U.S. owed a combined $1.2 trillion to banks, lenders and the federal government for their educations. For the many who find themselves unemployed or stuck in low-paying jobs after college, there’s often no way out. Student loans aren’t dischargeable, even if you go bankrupt. The 15 Everest students are working with Strike Debt, a group of economic activists that emerged out of Occupy Wall Street. Strike Debt recently launched its latest project, called the Debt Collective, to support the students in their strike and encourage others to do the same. "If you owe the bank thousands of dollars, then the bank owns you. But if you owe the bank millions, then you own the bank,” their website reads. Debt Collective is organizing legal support for the students to fight consequences of refusing to pay their loans, such as having their wages and tax returns garnished, and their credit ratings going down. But the students say they’re willing to take that risk. They want all their student loans—private and federal—forgiven outright.

Education Department Terminates Contracts With Debt Collectors Accused Of Wrongdoing: The U.S. Department of Education, under fire for its lackluster oversight of student loan contractors, said Friday it will terminate its relationship with five debt collectors after accusing them of misleading distressed borrowers at "unacceptably high rates." The surprise announcement follows years of complaints about allegedly illegal debt-collection practices by Education Department contractors, the department's seeming lack of interest in ensuring that borrowers are treated fairly, and the relative opacity of the entire operation. The most prominent of the debt collectors, Pioneer Credit Recovery, is owned by Navient Corp., the student loan giant formerly known as Sallie Mae. Pioneer, under investigation by the Consumer Financial Protection Bureau, generated $127 million from the contract over the past two years, according to  its annual report to investors on Friday. It has worked for the Education Department since 1997.

Kentucky House approves plan to borrow $3.3 billion to shore up teachers' pension system - The Kentucky House approved a plan Monday night for the state to borrow $3.3 billion in bonded debt to prop up the Kentucky Teachers' Retirement System.Although some Republican lawmakers warned against taking on so much debt, House Speaker Greg Stumbo — the plan's sponsor — described the vote as essentially being for or against schoolteachers. After two hours of debate, the House voted 62-31 to approve House Bill 4 and send it to the Senate, where it faces a more conservative audience.Senate President Robert Stivers, R-Manchester, said the bonds could cost the state $260 million a year in debt service. Stivers said he would prefer to make the annual recommended contribution into the teachers' pension fund but not incur more debt."The sky is not falling," he said.The $18 billion retirement system for teachers has only 53 percent of the assets it's expected to need for future pension payments. Officials of the Kentucky Teachers' Retirement System, or KTRS, say the state stopped making its full recommended contributions in 2008, leading to annual shortfalls.

NJ Judge Overturns Christie's Pension Funding Cut -- A New Jersey court struck down Gov. Chris Christie's plan to cut contributions to its public pension system by $1.57 billion on Monday. The ruling by Mercer County Superior Court Judge Mary Jacobson favors teachers, firefighters, state troopers and other New Jersey state employees who had sued the governor and state to make required pension contributions of $2.25 billion. "In short, the court cannot allow the State to `simply walk away from its financial obligations,' especially when those obligations were the State's own creation," wrote Jacobson in the ruling, released a day before Christie is scheduled to make his budget proposal for the fiscal year starting July 1. Christie, who approved the pension cuts in 2014 to offset low tax revenue, must now make up the contributions before the fiscal year ends on June 30, according to the decision, which also said the plaintiffs are entitled to counsel fees. Christie's office said it would appeal the decision.

Even a Small Step for Retirement Fairness will Require a Big Fight - Alexis Goldstein - A retirement advisor should be on your side — making recommendations that secure your financial future, rather than lining their pockets with kickbacks. Unfortunately, that’s not the current reality for all retirement plans in the United States. To address this problem, Obama has backed a plan to reduce the harmful impact of conflicts-of-interest by closing loopholes in the fiduciary standard—in other words, by requiring all retirement advisers to act in their customers’ best interests.James Kwak has pointed out some failings in the President’s approach. He writes that it’s a “a step in the right direction,” but the best solution to help middle-class Americans save for retirement is to expand social security. I agree with Kwak’s policy prescription. But Obama’s advocacy on this issue marks a shift in his Administration’s rhetoric on financial reform. And that’s important, as Republicans in the House are ready to fight against even the modest protections being proposed. In 2013, House Republicans passed a bill aimed at preventing the Department of Labor (DOL) from proposing a fiduciary rule. The bill blocked the DOL by indefinitely delaying its ability to act. Specifically, it prohibited the DOL from issuing a new fiduciary rule until 60 days after the Securities Exchange Commission (SEC) issued a final rule on the topic. But the SEC hasn’t even come up with a proposal, despite having the authority to do so since 2010.On Wednesday, Rep. Ann Wagner (R-MO) re-introduced an amended version of her 2013 bill that’s even more obstructionist than the first. It adds a number of new hurdles the SEC must clear should they ever escape their stagnation, including a cost-benefit analysis, and a report to the House Finanical Services Committee. But one new restriction stands out above the rest: The SEC must report on how much money brokers and dealers would lose in commissions once the practice of kickbacks is ended. The bill makes no mention of the Council of Economic Advisers estimate that the bad advice these kickbacks incentivize cost Americans $17 billion a year

Disability Insurance: An Essential Part of Social Security: With a House subcommittee holding a hearing tomorrow on the future of Disability Insurance (DI), policymakers need to understand that DI is an essential part of Social Security. Social Security is much more than a retirement program.  It pays modest but guaranteed benefits when someone with a steady work history dies, retires, or becomes severely disabled. Although nobody likes to think that serious sickness or injury might knock them out of the workforce, a young person starting a career today has a one-third chance of dying or qualifying for DI before reaching Social Security’s full retirement age. ... DI’s eligibility criteria are strict (...most applications are denied) and its benefits modest..., on average, only about half of their lost earnings... DI beneficiaries are far likelier to be poor or near-poor than other Americans. ...  And at age 66, DI beneficiaries are seamlessly switched to retirement benefits without filing a fresh application. ...Despite ... close links, the disability program’s trust fund is separate from the retirement and survivor program.  There’s no longer any good reason for that — the 1979 Advisory Council recommended a merger of the trust funds — but lawmakers instead have relied on periodic reallocations of tax revenue between the two programs to shore up whichever trust fund needed it.  They need to do so again to prevent a sudden, 20-percent cut in payments to vulnerable DI beneficiaries in 2016.The need to replenish DI isn’t a crisis, nor would reallocating simply “kick the can down the road” as some contend.  Instead it’d allow lawmakers to focus on the real task:  assembling a package of revenue increases and modest benefit reforms to preserve long-term solvency for all of Social Security.  Americans of all ages and incomes support Social Security and are willing to pay for it.

The True Advocates for Social Security -- Last week members of the Alliance for Retired Americans (the Alliance) met with over 120 members of Congress and staffers in their home districts to take a stand on Social Security, Medicare and the Trans-Pacific Partnership. Organizations such as the Alliance and Social Security Works are by far, two of the best advocates for older Americans, those on disability, retirees and seniors (as opposed to those who mostly front for insurance companies). People such as Senators Elizabeth Warren (as evidenced here and here) and Bernie Sanders (as evidenced here and here) are also very strong advocates for Social Security, as well as progressives who caucus with the Democrats. President Dwight D. Eisenhower was the last Republican to advocate for (and expand) Social Security. Currently, no Republican politician supports Social Security or Medicare as a government program (at least, not in its current form.)  As Richard Fiesta (Executive Director of the Alliance for Retired Americans) notes in a recent article at the Huffington Post: "Just one month into the new Congress 20 bills have already been introduced in the House and Senate that would threaten the stability and viability of Social Security and Medicare and reduce retirement security for current and future retirees.Social Security, which is the primary source of retirement income for most seniors is also under attack. It is worth remembering that [according to the SSA] nearly 2 out of 3 seniors depend on Social Security for most of their income, and in fact Social Security provides 90% or more of income for 1 in 3 seniors. While the average benefit amounts are modest — averaging $15,640 a year, it is enough to keep 22.2 million Americans out of poverty. Legislation is expected soon to create a Social Security Commission, which would come up with recommendations to extract cuts to the program. Instead, we should expand benefits.

"Accounting Gimmicks" in Social Security -- The first attack on Social Security this year was with the false accusation that there was rampant fraud in the disability program, when two different reports show only 0.04% fraud in the program — far less than any other government program — and probably far less than employee theft in the private sector — and much less that's found in the defense industry. Now Social Security is just a scam. Below is from a recent blog at the Committee on Ways and Means, where it says: Democrats continue to claim we can fix the looming shortfall in disability insurance by raiding retirees’ Social Security trust fund. But CBO Director Doug Elmendorf poured cold water on those assurances during his testimony before the House Budget Committee yesterday. Rep. Diane Black asked the head of the nonpartisan agency whether the Democrats’ preferred answer would actually work:Rep. Diane Black: "As a matter of fact, I’ve heard some folks just talk about if this trust fund does become defunct, that we would then just transfer money from the Old Age Survivor fund into the Social Security Disability fund. Can you tell me how that would affect both of these funds over long term?" CBO Dir. Elmendorf: "So the approach you describe has been used before, as you know. If money is moved from the Old Age Survivors Insurance trust fund into the Disability Insurance trust fund, that will extend the number of years from which the DI trust fund can pay benefits and reduce the number of years for which the OAS trust fund can pay benefits."

New findings show stark inequalities in aging as government encourages us to work longer -- Changes in pension and employment policies are making it increasingly necessary for older people in the UK to work beyond the age of 65. However, new research from the University of Surrey finds significant differences in the likelihood of employment and income levels of people beyond 65, depending on their gender and health.  Years of healthy life expectancy and the likelihood of disability in older age vary significantly, and as a result particular groups are going to find it hard to keep working beyond 65 and are more likely to be disadvantaged by a rise in the state pension age, than others. Key findings are that:

  • The income gap between men and women in later life is substantial: men's income is 70% higher than women's. For women, caring for children and families throughout their life often leads to lower pensions, high levels of poverty and lack of health resources in later life.
  • Middle-aged women providing care for elderly parents and in-laws are less likely to find suitable employment in later life that can fit around their commitments, which reduces their own future pension income and financial well-being in later life.
  • In the late 60s (age 65-69), 21% of women and 18% of men are working, nearly half of whom are in self-employment, possibly due to the lack of available jobs for the over 65s.
  • Older people employed beyond the age of 65 are often in part-time and precarious jobs. There is employment polarisation, with more part-time work, hourly (versus salaried) work, in sectors such as sales and services.
  • Income inequality from employment in later life is high. The top 10% of employed men in their late 60s earn six times more than the lowest quarter of employed men, and the top 1% earn 15 times more than the lowest quarter.
  • Self-employment is very diverse resulting in huge income inequalities - the top 10% of self-employed men earn 10 times more than the bottom quarter of self-employed men. While the top 1% earn 30 times more than the lowest quarter of self-employed men.

Medicaid Enrollment Surges Across the U.S. - Much of the focus of the health care law in recent months has centered on whether the government could get millions of people to sign up for private health insurance through federal or state exchanges. But the Affordable Care Act also expands health insurance for Americans with the lowest incomes – by giving them greater access to public coverage through Medicaid and the Children’s Health Insurance Program.  The Department of Health and Human Services announced Monday 10.8 million low-income adults and children have enrolled in public health insurance since 2013, when the portion of the law involving the program took effect. The number represents an 18.6 percent increase in enrollment. Now, Medicaid and CHIP cover nearly 70 million people, or 1 in 5 people in the country. Under the health care law more people can qualify for Medicaid based on their income. Newly included is anyone who makes less than 133 percent of the federal poverty line, which is $15,521 for an individual or $31,721 for a family of four. The expansion of Medicaid, which is a state and federal program, was originally intended to reach all states. In June 2012, however, the Supreme Court ruled this portion of the law would be optional for state governments.

Facing layoffs and closures, rural hospitals push for Medicaid expansion - The small, 45-year-old hospital shut down, Smiley explains, because of diminishing payments from Medicare as well as a heavy load of uninsured patients. It’s a scenario more and more hospitals are facing – one that’s been especially hard on rural hospitals in states like Missouri, Kansas and Nebraska that have not expanded Medicaid. Such hospitals are often the biggest employers in rural counties. But unless Medicaid eligibility is expanded to include more low-income people, as the Affordable Care Act envisions, officials at those hospitals say they may be forced to cut jobs – or even, like Sac-Osage, to close down. The payment reductions that hospitals face came about in large part because of an agreement they made when the Affordable Care Act was crafted. “It was a quid-pro-quo deal that the hospitals made,” Hospitals expected to see millions of newly insured customers thanks to federal subsidies enabling people to buy health insurance and the expansion of state Medicaid programs. In exchange, they agreed to accept reduced Medicare payments and a huge cut in Disproportionate Share Hospital, or DSH, funding, which the federal government pays to offset the costs of uncompensated care. Federal law requires hospitals to treat all patients in emergency situations, regardless of ability to pay, and many hospitals provide a full range of services without reimbursement.

Flood of Briefs on the Health Care Law’s Subsidies Hits the Supreme Court - — Liberal groups are emphasizing states’ rights, a theme calculated to appeal to conservative Supreme Court justices. The insurance industry, once a foe, has come to the aid of President Obama.Conservatives are mining legislative history to discern the intent of Democrats who wrote the Affordable Care Act. And those Democrats are firing back, saying they know exactly what their intent was: to provide affordable health insurance to all Americans.Eliminating subsidies in the federal insurance exchange “would be a disaster,” the American Hospital Association argues. The ranks of the uninsured would grow, it says, and “many more people will get sick, go bankrupt or die.”Such arguments are set forth in legal briefs flooding into the nation’s highest court ahead of oral arguments March 4 that will challenge the payment of subsidies for health insurance in more than 30 states and could determine the fate of the health care law. The case, King v. Burwell, was once seen as a long-shot attempt by conservatives to gut the law by picking out one pivotal phrase in its hundreds of pages that they say the Obama administration has flagrantly misinterpreted.The law, signed by President Obama in March 2010, says subsidies are available to people buying insurance on an exchange “established by the state.” The plaintiffs say those words mean that subsidies are not available through the federal HealthCare.gov insurance exchange, which serves about three dozen states with two-thirds of the nation’s population.Since the Supreme Court accepted the case for argument, the plaintiffs are long shots no more, and a major legal battle has erupted among outside forces armed only with amicus curiae, or friend of the court, briefs. Critics of the law coordinated their briefs, as did supporters of the Obama administration, to a lesser degree.

The Obamacare Subsidy Challenge Is Built on Fox News Soundbites -- The discovery that several, and perhaps all, of the plaintiffs asking the Supreme Court to void Affordable Care Act subsidies in 34 states don’t have standing to sue the government may not ultimately suffice to see the case dismissed. But it has served the nearly-as-important purpose of alerting the press to the stakes, brazenness, and ethically dubious nature of the challenge. And, perhaps, to the fact that the case leans for support not on a clear historical record, or broad expert consensus, but on the kinds of cliched signifiers you might expect to hear on a Fox News Obamacare panel. For instance, to combat the impression that the plaintiffs' standing problems stem from a legal argument that only appeals to unreliable kooks and zealots, one of the King architects now lays these difficulties at the feet of the IRS. "They don't want to get audited," Cato Institute’s Michael Cannon told USA Today, "and this administration has a history of using the IRS for ideological purposes." Cannon’s claim, though baseless, is aimed at the right’s collective lizard brain, designed to excuse the case’s public relations problems—which are inherent—as a consequence of the Obama administration’s political thuggery. That Cannon is defending his case by nodding like a Fox News bobblehead to an unrelated pseudo scandal is not anomalous. In both the media and in their briefs to the Supreme Court, the law’s challengers have papered over weaknesses in their historical and legal arguments with conservative bromides familiar to talk radio consumers, Fox News viewers, and recipients of anti-Obamacare talking points. This kind of conservative argumentum ad reptilis, has a successful track record with at least one conservative justice on the Supreme Court. During oral arguments in the constitutional challenge to the Affordable Care Act three years ago, Antonin Scalia made reference sua sponte to the “Cornhusker Kickback”—a short-lived special deal for Nebraska in the Senate health care bill that became a metaphor on Fox News for the ACA’s corrupted legislative process, and was thus made national.

At least 6 Republican states revisit their stance of resisting Obamacare - Officials in several Republican states that balked at participating in President Obama’s ­health-care initiative are now revisiting the issue amid mounting panic over a possible Supreme Court decision that would revoke federal insurance subsidies for millions of Americans. The discussions taking place in state capitals around the country are part of a flurry of planning and lobbying by officials, insurance and hospital executives, and health-care advocates to blunt the possible impact of a court ruling. The justices hear arguments about the matter next week. If the court sides with the plaintiffs, who argue that subsidies are not allowed in the 34 states that opted against setting up their own insurance marketplaces, the ruling could spark an immediate crisis. People could see their insurance bills skyrocket and be forced to abruptly cancel their coverage. At least six states where ­Republican leaders had previously refused to set up state marketplaces under the Affordable Care Act are now considering what steps they might take to preserve the subsidies being paid to their residents.

GOP health plan would leave many low-income families behind -- The Obama administration announced this week that 11.4 million people signed up for health coverage during the most recent enrollment period, making it ever harder for critics who love to hate the Affordable Care Act (ACA) to hate it. Despite its success, the threats against the ACA loom large, both in the form of the upcoming Supreme Court case challenging the subsidies that have made coverage affordable for so many Americans, and also in the recent healthcare proposal released by Senate Republicans. Both would be a significant step back for low-income families.  Last week, Sylvia Burwell, secretary of Health and Human Services, warned that the majority of the 8.6 million individuals who now have coverage through the exchanges would be negatively impacted should the Supreme Court determine that individuals living in states without their own health exchanges cannot receive subsidies. Such a decision would be devastating for millions of newly insured and also for the law more broadly, and it would pave the way for a new, and far less comprehensive, health plan. Republican Sens. Richard Burr (N.C.) and Orrin Hatch (Utah) and Rep. Fred Upton (Mich.) recently released one such plan that they hope to build upon the ashes of ACA, which they and their conservative colleagues have tried mightily to burn to the ground. Their proposal — the Patient Choice, Affordability, Responsibility and Empowerment Act, or the Patient CARE Act (PCA) — raises more questions than it answers, but it is clear that the plan would be a step backwards for many low-income U.S. families that have benefitted from the ACA.

The White House has no back-up plan if SCOTUS rules against Obamacare - "We have no plans to undo the massive damage" Legislators have long pressed Health and Human Service Secretary Sylvia Burwell to explain what, if anything, the White House could do if the Supreme Court finds Healthcare.gov'ssidies to be illegal. On Tuesday, Burwell provided an answer: pretty much nothing. If the Supreme Court rules against Obamacare, Americans who receive tax credits from Healthcare.gov will have their financial support ended.

  1. Millions of Americans will lose health insurance subsidies immediately if the Supreme Court rules against Obamacare this spring, Health and Human Services Secretary Sylvia Burwell wrote in a letter to Congress Tuesday.
  2. Burwell says that the agency has found no administrative fix that could re-instate the financial help
  3. The pending court case, King v. Burwell, argues that the federal government does not have legal authority to provide health insurance subsidies to Healthcare.gov customers

Obamacare’s Vending Machine Power Grab - It’s bad enough that the Affordable Care Act is raising premiums and deductibles—and perhaps lowering your tax refund. In addition, the ACA has given the Food and Drug Administration the power to go after your favorite vending machine.  By the end of next year, according to a new FDA rule, most snack machines must have calorie counts prominently displayed, or risk removal.  Any sort of vending machines, from mixed nut machines to gumball machines, are subject to this new rule, if the operator owns twenty or more machines. The calorie declarations must be clear, conspicuous, and placed prominently on a sign in, on, or adjacent to the vending machine. This rule would not only cost the FDA millions of dollars to implement, money that could be better spent on speeding new drugs to market or returned to the taxpayer, but it could drive many small vending machine companies out of business with little real benefit to consumers.

Most smokers die from smoking, study finds -- Australian researchers recently published a study that found up to two-thirds of all deaths among smokers can be directly linked to the habit. For many people, quitting smoking isn’t just a matter of awareness. Smokers know that cigarettes damage their health and lower their lifespan. The real problem may be the degree to which they know it is dangerous. For years, discussions on smoking-related mortality lacked the specificity that tends to spur meaningful change. Now scientists have the evidence to back it up. Emily Banks, professor at Australian National University and lead author of the new study, says overall smoking rates can’t predict the chance someone will die from the habit. “Even with the very low rates of smoking that we have in Australia we found that smokers have around three-fold the risk of premature death of those who have never smoked.” In the U.S., where smoking is still the leading cause of preventable death, the rate has fallen to 18 percent. The CDC estimates cigarette smoking kills more than 480,000 people per year, 41,000 of which are due to the effects of secondhand smoke. Banks and her colleagues collected data on more than 200,000 people who were enrolled in the Sax Institute's 45 and Up Study. They found a number of disturbing trends, the largest of which being that mortality rates increased faithfully with the number of cigarettes a person smoked each day. People who smoked fewer than 14 cigarettes each day showed a two-fold increase and people who smoked at least 25 cigarettes a day showed a four-fold increase in mortality, compared to people who never smoked. Overall, people who smoked lived an average of 10 years shorter than 75-year-old never smokers.

CDC investigates deadly bacteria's link to doctors' offices - The Centers for Disease Control is raising a red flag that a potentially deadly bacteria may be lurking in your doctor's office. The bacteria, C. difficile, is typically found in hospitals, but a study out Wednesday reports a substantial number of people contracted the bug who hadn't been in a hospital, but had recently visited the doctor or dentist. The bacteria can cause deadly diarrhea, according to the CDC, with infections on the rise. The new report shows nearly half a million Americans infected in various locations in one year, with 15,000 deaths directly attributed to C. diff. In a 2013 study, researchers found C. diff present in six out of seven outpatient clinics tested in Ohio, including on patients' chairs and examining tables. The CDC is so concerned that they're starting a new study to try to assess nationally whether people are getting C. diff in doctors' offices. "This is really an important issue. We need to understand better how people are getting C. diff,"

‘Truly barbaric’: Florida deputy drags mentally ill woman through courthouse by shackled feet:  An investigation into a Florida deputy was launched this week after video surfaced showing him dragging a handcuffed mentally ill woman through the Broward County Courthouse by her shackled feet.  Attorney Bill Gelin was in the courthouse on Monday and used his cellphone to capture the dramatic video of Broward County Deputy Christopher Johnson dragging 28-year-old Dasyl Jeanette Rios down a hallway, the Sun Sentinel reported.  The court had just declared Rios mentally incompetent in a felony trespassing case. According to WSVN, Rios couldn’t say goodbye to her mother after the ruling, and was taken to a hallway. When she refused to sit on a bench, Johnson began dragging her through the courthouse.

By shielding infants from stuff, we may be making allergies worse - In 2000, the AAP published a guideline recommending to decrease the risk of a child developing an allergic disease. They recommended that “mothers should eliminate peanuts and tree nuts (eg, almonds, walnuts, etc) and consider eliminating eggs, cow’s milk, fish, and perhaps other foods from their diets while nursing. Solid foods should not be introduced into the diet of high-risk infants until 6 months of age, with dairy products delayed until 1 year, eggs until 2 years, and peanuts, nuts, and fish until 3 years of age.” In 2006, along with colleagues like Beth Tarini, we published a systematic review of the early introduction of solid foods and the later development of allergic disease. We found, somewhat to many people’s surprise, that while there was some evidence linking early solid feeding to eczema, there was no strong evidence supporting a link between early solid food exposure and the development of asthma, allergic rhinitis, allergies to animals, or persistent food allergies. In other words, there was no good evidence to keep infants away from foods in the belief that we could spare them food allergies later. Other studies showed a similar lack of evidence for the other parts of the recommendation. In 2008, the AAP altered its recommendations to say there wasn’t good evidence to support food avoidance to prevent allergies. A study in the NEJM today goes a step further. It says that keeping peanuts away from infants may be making things worse:

What’s Behind the Government’s Hatred of Raw Milk? - Government bans on the sale and distribution of raw milk and raw milk products are enforced in the name of public safety. But many people enjoy the health benefits of milk that has not been pasteurized, and some farms want sell it. Are the health threats from raw milk significant enough to warrant a ban on its sale? Government data and the lack of regulation of other raw foods suggest that they are not.  The Food and Drug Agency currently prohibits the interstate sale or distribution of raw milk and raw milk products, such as yogurt, ice cream, cheese, and sour cream, and requires anyone selling raw milk to be licensed. The FDA delegates all further regulation to the states by advising them to likewise regulate the sale and distribution of raw milk. Based on this advice, 40 states prohibit the retail sale of raw milk and raw milk products and 13 states make unpasteurized dairy products completely illegal for human consumption. Though they have the potential to make people sick if they are not prepared carefully, unpasteurized dairy products carry health benefits—especially for those people who are sensitive to lactose or have allergies. Kristin Canty, director of the documentary Farmageddon, told us, “We have been drinking it now for 15 years. I find it ridiculous that the government thinks that they have the right to tell us that we can’t consume a substance that has been used for sustenance for thousands of years.” Dan Allgyer, an Amish farmer in Pennsylvania who violated the FDA's ban on interstate raw milk sales, was subjected to an early morning armed raid to his farm which put him out of business. Milk from Allgyer’s now-closed farm was never alleged to have made any of his customers in the Washington, D.C. area sick. Rather, his customers sought out his dairy products, fully aware that they were unpasteurized.

Eat at Your Own Risk: Flawed FDA Risk Assessments Strengthen Arguments for Labeling GMOs -- For the past two decades, developers of genetically engineered (GE) crops and theircorporate allies have maintained that because their products are so obviously safe, there is no need to label them. Thanks to marketing campaigns, squelched state initiatives and a flood of GE products on the market, the public has largely adopted this belief as well. Would it shock the public to know that the Food and Drug Administration (FDA) has never formally approved any GE crop as safe for human consumption? Instead, these companies have been trusted to self-regulate with little scientific oversight and even less transparency in their methods.   This was quietly mentioned in December 2014, during a testimony given by Michael Landa, former director of the Center for Food Safety and Applied Nutrition with the FDA, before the House Subcommittee on Health.  His testimony drew attention to a fact often overlooked in the ongoing debate around GE food safety: The FDA has exempted developers of genetically modified organisms (GMOs) from premarket reviews of their products, which would normally result in a formal assessment and either a rejection or approval of their safety for human consumption. Landa's testimony described the risk assessment process for GE crops, which continues to use a policy crafted in 1992, establishing that the FDA sees no essential difference between GE crops and their conventionally grown counterparts.  As a result, the FDA merely invites GE developers to voluntarily consult with the FDA on their products' safety.

Lies and Fabrications: The Propaganda Campaign in Support of Genetically Modified Crops (GMO)-  According to Mathew Holehouse in the UK’s Telegraph newspaper (here), former UK Environment Minister Owen Paterson will this week accuse the European Union and Greenpeace of condemning people in the developing world to death by refusing to accept genetically modified crops: “These enemies of the Green Revolution call themselves ‘progressive’, but their agenda could hardly be more backward-looking and regressive… their policies would condemn billions to hunger, poverty and underdevelopment. And their insistence on mandating primitive, inefficient farming techniques would decimate the earth’s remaining wild spaces, devastate species and biodiversity, and leave our natural ecology poorer as a result.” Instead of parroting the corporate spin of the pro-GMO lobby, Paterson would do better to consider more viable options that he likes to denigrate as ‘backward-looking and regressive’ by listening to what Russia’s Prime Minister Dmitry Medvedev stated in April of last year: “We don’t have a goal of developing GM products here or to import them.  We can feed ourselves with normal, common, not genetically modified products.  If the Americans like to eat such products, let them eat them.  We don’t need to do that; we have enough space and opportunities to produce organic food.” (see here) Or maybe Paterson would benefit from heeding a Statement signed by 24 delegates from 18 African countries to the United Nations Food and Agricultural Organization in 1998: “We strongly object that the image of the poor and hungry from our countries is being used by giant multinational corporations to push a technology that is neither safe, environmentally friendly nor economically beneficial to us. We do not believe that such companies or gene technologies will help our farmers to produce the food that is needed in the 21st century. On the contrary, we think it will destroy the diversity, the local knowledge and the sustainable agricultural systems that our farmers have developed for millennia, and that it will thus undermine our capacity to feed ourselves.”

The War on Genetically-Modified-Food Critics - naked capitalism - Et Tu, National Geographic? Since when is the safety of genetically modified food considered “settled science” on a par with the reality of evolution? That was the question that jumped to mind when I saw the cover of the March 2015 National Geographic and the lead article, “Why Do Many Reasonable People Doubt Science?” The cover title: “The War on Science.” The image: a movie set of a fake moon landing. Superimposed: a list of irrational battles being waged by “science doubters” against an implied scientific consensus: “Climate change does not exist.” “Evolution never happened.” “The moon landing was faked.” “Vaccinations can lead to autism.” “Genetically modified food is evil.” WHAT? Genetically modified food is evil? First of all, what business does “evil” have in an article about scientific consensus? Sure, some people think GMOs are evil. But isn’t the controversy about whether genetically modified food is safe? More important, what was such an item doing on a list of issues on which the vast majority of scientists would indeed have consensus? How in the world does author Joel Achenbach define “scientific consensus?” How about 95 percent of the peer-reviewed literature, as in the case of climate change? Near 100 percent, as in the case of the lack of any link between autism and vaccines, or on evolution, or the reality of the moon landing? There is no such consensus on the safety of GM food. A peer-reviewed study of the research, from peer-reviewed journals, found that about half of the animal-feeding studies conducted in recent years found cause for concern. The other half didn’t, and as the researchers noted, “most of these studies have been conducted by biotechnology companies responsible of commercializing these GM plants.”

Everything You Wanted to Know About the Bee Die-Off  -- For years, honeybees were dying, and no one knew why.  There have been some glimmers of hope recently. The number of bee deaths wasn't as dramatic last winter. Studies began pointing the finger at pesticides.   But a simple fact remains: Bees still are on the decline, and no one's sure why.   They're dying in large numbers, and scientists are scrambling to identify the cause. Beekeepers used to see about 5 or 10 percent of the bees in their hives die every year, but starting in 2006, losses jumped to 30 percent. About 10 million beehives, worth an estimated $2 billion, have been lost since then. The numbers are down slightly for last winter, when beekeepers lost about 23 percent.   A lot has changed since the issue exploded into public consciousness. Here's what you need to know about what could be causing the bee die-off and what can be done about it.

The Indian Cotton Farmer Suicide Epidemic - As an individual tragedy drinking pesticide is a horrible way to die. Shankara, respected farmer, loving husband and father, had taken his own life. Less than 24 hours earlier, facing the loss of his land due to debt, he drank a cupful of chemical insecticide. Unable to pay back the equivalent of two years’ earnings, he was in despair. He could see no way out. There were still marks in the dust where he had writhed in agony. Other villagers looked on – they knew from experience that any intervention was pointless – as he lay doubled up on the ground, crying out in pain and vomiting. Moaning, he crawled on to a bench outside his simple home 100 miles from Nagpur in central India. An hour later, he stopped making any noise. Then he stopped breathing. At 5pm on Sunday, the life of Shankara Mandaukar came to an end…. “Pesticides act on the nervous system – first they have convulsions, then the chemicals start eroding the stomach, and bleeding in the stomach begins, then there is aspiration pneumonia – they have difficulty in breathing – then they suffer from cardiac arrest.” The tragic story can be heard in village after village like a folk song too harrowing to be sung. When we add the psychological agony which must go before the desperate decision to die this way, and the traditional shame it leaves behind for the victim’s family, we know we’re seeing an individual in absolute despair.

India’s Air Pollution Is Cutting 3 Years Off The Lives Of Its Residents -- India’s extreme air pollution is cutting three years off the lives of some of the country’s residents, according to a new study. Researchers for the study looked at air pollution measurements across India and found that more than half the country’s population — 660 million people in total — live in regions of the country that have air pollution levels higher than India’s national standards. If those high levels of air pollution were brought down, the study states, Indian residents would gain, on average, an additional 3.2 years of life expectancy. In addition, the report found that 99.5 percent of India’s population lives in regions with higher air pollution than the World Health Organization’s air pollution recommendations, which are stricter than India’s national standards.  The study’s authors write that India can address its air pollution and continue to grow its economy — and it should, if it wants its residents to lead longer, more productive lives. “While cleaner air comes with costs, this paper has made plain that there are substantial benefits in terms of longer lives,” the authors write. “The people who live longer would be available to contribute to India’s economy for more years, beyond the meaningfulness to them and their families of a longer life. Further, it hardly seems far-fetched to assume that cleaner air makes all the more productive due to reduced rates of sickness.”

Rent walkouts point to strains in U.S. farm economy (Reuters) - Across the U.S. Midwest, the plunge in grain prices to near four-year lows is pitting landowners determined to sustain rental incomes against farmer tenants worried about making rent payments because their revenues are squeezed. Some grain farmers already see the burden as too big. They are taking an extreme step, one not widely seen since the 1980s: breaching lease contracts, reducing how much land they will sow this spring and risking years-long legal battles with landlords. The tensions add to other signs the agricultural boom that the U.S. grain farming sector has enjoyed for a decade is over. On Friday, tractor maker John Deere cut its profit forecast citing falling sales caused by lower farm income and grain prices. Many rent payments – which vary from a few thousand dollars for a tiny farm to millions for a major operation – are due on March 1, just weeks after the U.S. Department of Agriculture (USDA) estimated net farm income, which peaked at $129 billion in 2013, could slide by almost a third this year to $74 billion. The costs of inputs, such as fertilizer and seeds, are remaining stubbornly high, the strong dollar is souring exports and grain prices are expected to stay low. How many people are walking away from leases they had committed to is not known. In Iowa, the nation's top corn and soybean producer, one real estate expert says that out of the estimated 100,000 farmland leases in the state, 1,000 or more could be breached by this spring.

Price Slump Pushes US Ag Exports Down 7%: Lower commodity prices will pull down U.S. agricultural exports by 7% this year from the record sales value set in fiscal 2014, said the Agriculture Department in a quarterly forecast issued at its Outlook Forumn Thursday. USDA estimated exports at $141.5 billion, down $2 billion from its December forecast and $11 billion less than last year. "Most of the reduction in value is due to lower prices for grain and feed exports, as volumes are up for several sectors, including soybeans and soybean products, cotton and rice," said USDA chief economist Robert Johansson. Soybeans, soymeal and soyoil exports are forecast for record tonnages. USDA raised its forecast for soybean exports by $1.5 billion from its December estimate, to $21.3 billion, "with strong demand from China." Cotton tonnage is up but with lower prices, cotton exports will be worth $3.7 billion this year, a drop of $900 million. Corn exports are pegged at $8.5 billion this year, down 22 percent from 2014, as tonnage drops by 12 percent, to 44.5 million tonnes. Exports usually account for 25 cents of each $1 of receipts for farmers and are the outlet for a large part of U.S. production. More than 40% of the soybean and wheat crops and two-thirds of the cotton harvest are exported, along with 12% of corn, China "is expected to remain the largest destination for U.S. agricultural products for the fifth consecutive year," said USDA although purchases will drop by $2 billion, to $23.6 billion. China buys nearly one-fifth of U.S. farm exports. Canada is the No 2 market at $21.8 billion and Mexico is No 3 at $18.7 billion.

Six Percent of U.S. Ethanol Production was Exported in 2014 | Big Picture Agriculture: In 2014, approximately six percent of U.S. ethanol production was exported, an amount of 836 million gallons. This goes by rail to our borders and then on to 51 different countries. Included in the ethics of exporting this product is the risk of rail accidents, which have been in the news this year as public awareness of this issue is rising. Other issues, of course, are groundwater contamination and overuse, loss of habitat for monarchs and birds, loss of topsoil, and over pumping of the Ogallala aquifer. If the product is promoted on the grounds of homegrown fuel for “homeland security”, then, why export it? In exporting it we are only making our nation less secure because of all of the reasons mentioned above. For more statistics and information about exports of ethanol production from 2014, see: Renewable Fuels Association (pdf)

California Water Becomes Scarce and Energy Hungry --In drought-stricken California, ensuring water flows from faucets is nearly as much about energy as it is about the water’s source.. Water needs more than gravity to flow from its sources, often hundreds of miles away. It is pumped through aqueducts and pipelines from mountains and the Colorado River, often far from Los Angeles, San Diego, the San Francisco Bay Area and the Central Valley, where most of the water is consumed.With California in the throes of one of the worst droughts of the past century, researchers say slashing the energy requirements of supplying water to cities and farmers will become critical as long-term droughts become a greater possibility.  That is severe drought’s dirty secret: As surface water sources dry up, groundwater becomes the resource of choice, requiring more electricity to pump it out of the ground than it takes to transport surface water, possibly threatening the state’s renewable energy goals.  “What we’re seeing is what I’d characterize as an increase in the energy required to develop large-scale water resources,” Kristen Averyt, associate director for science at the Cooperative Institute for Research in Environmental Sciences at the University of Colorado-Boulder, said. Averyt’s research focuses on the “water-energy nexus,” the energy it takes to supply water to people.

California has entered fourth year of drought, water experts say: State water officials are preparing for the fourth straight year of drought and are readying more restrictive water conservation measures under an extension of the governor’s water emergency plan. Rainfall, snowpack and runoff estimates are way below average, indicating the state will continue in drought-emergency mode throughout the year, state and regional water experts told a gathering of 120 water managers Wednesday at a forum sponsored by the Southern California Water Committee and the National Water Research Institute. While water agencies and cities have pushed conservation in 2013 and 2014, including more uses for recycled water for irrigating ball fields and golf courses, the missing ingredient is rain water, said Grace Chen, manager of resource planning and development for Metropolitan Water District of Southern California. As a result, MWD drew down reservoirs from a record high of 2.7 million acre-feet in 2012 to only 1.2 million acre-feet of storage remaining today, Chen said. The agency, which provides water to 19 million Southern Californians, meets an annual demand of 4 million acre feet. (An acre-foot equals 326,000 gallons, enough to supply a family of four for a year). About 1 million acre-feet of ground water — essentially natural reservoirs underground — was pumped last year, Chen said.Depending on rainfall amounts in the next 45 days, the MWD’s board will consider setting a limited allocation for each of its 26 member agencies in April, she said. Likewise, the State Water Resources Control Board will most likely vote to extend the governor’s emergency declaration at its March 17 meeting

Pie Chart of California’s Water Use --- Big Picture Agriculture

Should Californians Resurrect a Plan to Pipe in Water From Alaska? - Hare-brained schemes to bring out-of-state water to California are nothing new, and this idea doesn’t come from nowhere. It was born in the late 1980s by Alaskan governor Wally Hickel, who was always exuberant about selling his state’s resources. The original plan called for four 14-foot diameter pipes running at least 1,400 miles from the mouth of one of southeast Alaska’s monster rivers to one of California’s reservoirs. These would deliver about 1.3 trillion gallons of water a year. (California is currently about 11 trillion gallons of water in deficit.) Either of the Alaskan rivers under consideration—the Copper and the Stikine—have outflows more than double the combined flow of the Sacramento/San Joaquin rivers, California’s largest watershed. So it’s not like Alaska would miss the water. “If you’re going to put this symbolically, this project holds a lot of water,” says Don Kash, an emeritus tech policy researcher at George Mason University and the chair of a two-day meeting in 1991 that discussed the pipeline’s potential. But water never comes for free. Laying pipeline on the continental shelf is tricky business and would require armies of surveyors (and navies of pipe-laying ships). And Alaska is north, but not uphill. The pipeline would need pumping stations every 150 miles to keep the water flowing. In 1991, the now-defunct congressional Office of Technology Assessment calculated that the water pipeline would cost $110 billion dollars and take up to 15 years to complete. In the same paper, they compared the project to the Panama Canal, the Trans-Alaska Pipeline, and the English Channel Tunnel in terms of cost and complexity. All of which, they added, went way over budget.

Top official delivers bleak forecast for Lake Mead - Nevada faces “significant possibilities” of water shortages if drought on the Colorado River persists into the next two years, according to an ominous forecast delivered Wednesday by a top government official. Michael Connor, deputy secretary of the Interior Department, said there is a 20 percent chance of shortages in Nevada and Arizona in 2016 if levels of Lake Mead and Lake Powell continue to drop, “and it goes up to almost 50 percent after that.” Connor briefed members of the House Interior subcommittee who met to review the department’s budget request for the coming year. Connor, the department’s No. 2 leader and its ranking expert on water, appeared alongside Interior Secretary Sally Jewell. The dire assessment comes as little surprise in Nevada, where residents have watched with dismay as a shrinking Lake Mead has left boat ramps high and dry and uncovered the remains of communities that once sat far below the surface. In July, Lake Mead sank to a record low not seen since the reservoir was first being filled in the late 1930s.

Study: Effects of climate change on wheat will be dire - A study of wheat yields by 53 researchers on six continents, including a Kansas State University professor, has found that the effects of climate change on Kansas’ top crop will be far more disastrous, and begin much sooner, than previous thought. Each time the average global temperature increases by one degree Celsius (1.8 degrees Fahrenheit), global wheat grain production is reduced by about 6 percent, according to the study, published in the scientific journal Nature Climate Change. According to the researchers, the 6 percent decline would equate to 42 megatons, or 42 million tons, of wheat each time the global temperature rises by a single degree Celsius. “To put this in perspective, the amount is equal to a quarter of global wheat trade, which reached 147 (megatons) in 2013,” the researchers wrote. The United Nations’ Intergovernmental Panel on Climate Change reported last September that the Earth had warmed 0.85 degrees Celsius between 1880 and 2012. Among the 53 researchers was Dr. Vara Prasad, a professor of crop ecophysiology at Kansas State. “The projected effect of climate change on wheat is more than what has been forecast,” Prasad said. “That’s challenging because the world will have to at least double our food supply in the next 30 years if we’re going to feed 9.6 billion people.”

Where and why food prices lead to social upheaval - Between 2000 and 2011, prices for most globally traded commodities more than doubled. Since cresting in early 2011, however, oil and industrial metals prices have halved. As the saying goes, however: What’s that got to do with the price of eggs? Not much. Unlike other commodities, global food prices have followed a different trajectory. Although down from near-historic highs in 2007-2008 and 2011, they are still higher than at any point in the previous three decades. The economic effects of higher food prices are clear: Since 2007, higher prices have put a brake on two decades of steady process in reducing world hunger. But the spikes in food prices over the past decade have also thrust food issues back onto the security agenda, particularly after the events of the Arab Spring. High food prices were one of the factors pushing people into the streets during the regionwide political turmoil that began in late 2010. Similar dynamics were at play in 2007-2008, when near-record prices led to food-related protests and riots in 48 countries. To what extent might high or rising food prices be a source of political instability? Food prices are the quintessential “kitchen table issue,” important even to those with no interest in politics. They’re especially salient in lower-income countries, where food-related expenditures often surpass 50 percent of household income. Unlike energy and electronics, demand for basic foodstuffs is income-inelastic: Whether I have adequate income has no effect on my need for sustenance. Not surprisingly, 97 percent of the post-2007 ‘food riots’ identified by a team at the New England Complex Systems Institute occurred in Africa and Asia, which are home to more than 92 percent of the world’s poor and chronically food-insecure. Careful empirical work bears out this conventional wisdom: High global food prices are more destabilizing in low-income countries, where per capita incomes are lower.

A thought for Sunday: the October forecast that near-record Siberian snow cover would lead to a brutal eastern US winter has been vindicated -- This past week saw record-shattering cold in much of the eastern half of the US: All-time February record lows are possible from Ohio to Virginia on Friday morning as temperatures plummet to as much as 40 degrees below average for this time of year. The severe arctic outbreak, which has even caused the American half of Niagara Falls to freeze over, may be miserable for millions, but it is good news for Dr. Judah Cohen.  Why?  You may remember a spate of stories that started in October, indicating that Siberian snow cover forecast a brutally cold and snowy winter for the eastern US.  Here's Bloomberg on October 10: There’s a theory that the amount of snow covering Eurasia in October is an indication of how much icy air will sweep down from the Arctic in December and January, pouring over parts of North America, Europe and East Asia. Here's another from October 15: Cohen has found a link between a snowy October in Siberia and a cold and stormy winter in the Eastern United States. And this year, he said the snowpack is expanding in Siberia at breakneck pace.  Here's the basic theory:Cohen’s method proposes that when snow increases rapidly and over a large area over Eurasia during October, it is a strong indication that a weather pattern known as the Arctic Oscillation (AO) will average in its negative phase during winter. When the AO is negative, it favors cold air outbreaks into the eastern U.S. and western Europe, that can also set the stage for snowstorms. In fact, the correlation coefficient between the snow cover south of 60 degrees latitude in Siberia in October, and the subsequent winter's Arctic Oscillation (AO), is .86:

Republicans To Investigate NASA Over Climate Data Tampering -- With record heat (and drought) in the west and record cold (wet and snow) in the east, the global warming game-playing continues every day but the climate-gate rhetoric has increased vociferously since we first noted three weeks ago, the data that has been so relied upon to 'prove' global warming's trend was in fact manipulated. What The Telegraph called "the most extraordinary scandal of our times" - that of the "seasonally-adjusted" seasonal raw global temperature data - is about to be investigated by Congress. As Daily Caller reports, California Republican Rep. Dana Rohrbacher exclaimed "expect there to be congressional hearings into NASA altering weather station data to falsely indicate warming & sea rise."

Bill Combating Toxic Algae Blooms Passes House Of Representatives -- Toxic algae’s newest enemy might soon be the Environmental Protection Agency, if legislation passed by the House of Representatives Tuesday becomes law. The bill, sponsored by Rep. Bob Latta (R-OH), would direct the EPA to assess the risks posed by toxic algal blooms and come up with ways to fight the blooms. The agency would do so under the Safe Water Drinking Act, the federal law aimed at protecting the drinking water of Americans.  The EPA’s plan would include an outline on when and how the agency could create a “comprehensive list of algal toxins” that can poison drinking water, a list that would include how these toxins impact human health. The list would also include information on how and why this algae forms. Once the EPA completed the plan — no later than 90 days after the bill is signed into law — the agency will submit the plan to Congress. “Algal toxins produced by harmful algal blooms are presenting a serious concern to human health and safety,” Latta said on the House floor Tuesday.   As an Ohio representative, Latta would know. Last year, a toxic algal bloom in Lake Erie poisoned the water of about 400,000 people in Toledo, Ohio. Lake Erie has struggled with algal blooms and dead zones — areas of a body of water with such low oxygen levels that aquatic life can’t live there — for decades. Though environmental regulations such as a 1988 ban on phosphorus in detergent have helped the lake’s condition, phosphorus runoff from sources like agriculture continues to contribute to the lake’s algae and dead zones.

Ocean Life Faces Mass Extinction, Broad Study Says - A team of scientists, in a groundbreaking analysis of data from hundreds of sources, has concluded that humans are on the verge of causing unprecedented damage to the oceans and the animals living in them. “We may be sitting on a precipice of a major extinction event,” said Douglas J. McCauley, an ecologist at the University of California, Santa Barbara, and an author of the new research, which was published on Thursday in the journal Science. But there is still time to avert catastrophe, Dr. McCauley and his colleagues also found. Compared with the continents, the oceans are mostly intact, still wild enough to bounce back to ecological health.There are clear signs already that humans are harming the oceans to a remarkable degree, the scientists found. Some ocean species are certainly overharvested, but even greater damage results from large-scale habitat loss, which is likely to accelerate as technology advances the human footprint, the scientists reported. Coral reefs, for example, have declined by 40 percent worldwide, partly as a result of climate-change-driven warming.Some fish are migrating to cooler waters already. Black sea bass, once most common off the coast of Virginia, have moved up to New Jersey. Less fortunate species may not be able to find new ranges. At the same time, carbon emissions are altering the chemistry of seawater, making it more acidic. “If you cranked up the aquarium heater and dumped some acid in the water, your fish would not be very happy,” Dr. Pinsky said. “In effect, that’s what we’re doing to the oceans.”

The big melt: Antarctica's retreating ice may re-shape Earth: — From the ground in this extreme northern part of Antarctica, spectacularly white and blinding ice seems to extend forever. What can't be seen is the battle raging underfoot to re-shape Earth. Water is eating away at the Antarctic ice, melting it where it hits the oceans. As the ice sheets slowly thaw, water pours into the sea — 130 billion tons of ice (118 billion metric tons) per year for the past decade, according to NASA satellite calculations. That's the weight of more than 356,000 Empire State Buildings, enough ice melt to fill more than 1.3 million Olympic swimming pools. And the melting is accelerating. In the worst case scenario, Antarctica's melt could push sea levels up 10 feet (3 meters) worldwide in a century or two, recurving heavily populated coastlines. Parts of Antarctica are melting so rapidly it has become "ground zero of global climate change without a doubt," said Harvard geophysicist Jerry Mitrovica. Here on the Antarctic peninsula, where the continent is warming the fastest because the land sticks out in the warmer ocean, 49 billion tons of ice (nearly 45 billion metric tons) are lost each year, according to NASA. The water warms from below, causing the ice to retreat on to land, and then the warmer air takes over. Temperatures rose 5.4 degrees Fahrenheit (3 degrees Celsius) in the last half century, much faster than Earth's average, said Ricardo Jana, a glaciologist for the Chilean Antarctic Institute.

Are Siberia’s mysterious craters caused by climate change? Scientists find four new enormous holes in northern Russia -- Four new mysterious giant craters have appeared in the Siberian permafrost in northern Russia, sparking fears that global warming may be causing gas to erupt from underground.Scientists spotted the new holes, along with dozens of other smaller ones, in the same area as three other enormous craters that were spotted on the Yamal Peninsula last year.The craters are thought to be caused by eruptions of methane gas from the permafrost as rising rising temperatures causes the frozen soil to melt. Scroll down for video  One of new craters, surrounded by at least 20 smaller holes, is just six miles from a major gas production plant.Experts have predicted there could be up to 30 more are waiting to be discovered.Scientsts, however, are still largely baffled by the exact processes causing the craters.Professor Vasily Bogoyavlensky, deputy director of the Moscow-based Oil and Gas Research Institute, part of the Russian Academy of Sciences, has called for 'urgent' investigation of the new phenomenon amid safety fears.Until now, the existence of only three Siberian craters had been established when great caverns in the frozen landscape were spotted by passing helicopter pilots.

Huge New Holes In Siberia Have Scientists Calling For Urgent Investigation Of The Mysterious Craters -- Scientists were baffled last July when they discovered three giant holes in the ground in the Yamal Peninsula in northern Siberia. Now, with the help of satellite imagery, researchers have located four additional craters--and they believe there may be dozens more in the region. That has them calling for an urgent investigation to protect residents living in the area. "I am sure that there are more craters on Yamal, we just need to search for them... I suppose there could be 20 to 30 craters more," Prof. Vasily Bogoyavlensky, a corresponding member of the Russian Academy of Sciences and deputy director of the Moscow-based Oil and Gas Research Institute, told The Siberian Times. "It is important not to scare people, but to understand that it is a very serious problem and we must research this."  Researchers ventured deep inside one of the holes last November, collecting data in an effort to learn why the holes formed. The leading theory is that the holes were created by gas explosions triggered by underground heat or by rising air temperatures associated with climate change, the Siberian Times reported last December. Since scientists can't predict when or where gas explosions will occur, it's dangerous to study them, according to Bogoyavlensky. But he said his team is planning to launch a new expedition, and to put stations in the area to detect earthquakes that might strike when the craters open up. "We need to answer now the basic questions: what areas and under what conditions are the most dangerous?" he told the Siberian Times. "These questions are important for safe operation of the northern cities and infrastructure of oil and gas complexes." Experts in the U.S. echoed that sentiment.

Huge New Methane Blowholes in Siberia Have Scientists Worried Climate Change Is to Blame » The large methane-filled blowholes that were discovered in Siberia last summer seem to be more numerous than originally thought, with four giant new craters, along with clusters of smaller ones, found in the permafrost in northern Russia. The new holes were discovered in the same general vicinity as the original three, on the Yamal Peninsula.“We know now of seven craters in the Arctic area,” professor Vasily Bogoyavlensky of the Moscow-based Oil and Gas Research Institutes and the Russian Academy of Sciences told the Siberian Times. “Five are directly on the Yamal peninsula, one in Yamal Autonomous district, and one is on the north of the Krasnoyarsk region, near the Taimyr peninsula. We have exact locations for only four of them. The other three were spotted by reindeer herders. But I am sure that there are more craters on Yamal, we just need to search for them. I would compare this with mushrooms: when you find one mushroom, be sure there are few more around. I suppose there could be 20 to 30 craters more.”  The cause of the blowholes is not entirely clear, although probable explanations have been coming into focus as Russian scientists have continued to study them. The most prominent theory is that exceptionally warm temperatures caused by climate change have released methane stored in the permafrost, causing a sort of explosion that creates the craters.

The Cost of Delaying Action to Stem Climate Change -- Climate scientists and economists have shown widespread agreement that anthropogenic climate change has the potential to cause substantial economic damage, and that taking action to mitigate carbon emissions is essential for reducing the risk of catastrophic effects. Of course, there is scientific uncertainty about the magnitudes of these effects and an active debate about the most appropriate course of action. Some have argued that the uncertainty in the climate science is an argument to delay any response until we know enough to identify the best course of action. However, a recent meta-analysis by the Council of Economic Advisers shows that reaching a climate target is costlier – or even impossible – if policies designed to reach that target begin at a later date. Because a delay results in additional near-term accumulation of greenhouse gases in the atmosphere, delay means that the policy, when implemented, must be more stringent to achieve the given long-term climate target. This additional stringency increases mitigation costs, relative to those that would be incurred under the least-cost path starting today.

Carbon Sequestration May Not Work Says Study: Carbon sequestration promises to address greenhouse-gas emissions by capturing carbon dioxide from the atmosphere and injecting it deep below the Earth’s surface, where it would permanently solidify into rock. The U.S. Environmental Protection Agency estimates that current carbon-sequestration technologies may eliminate up to 90 percent of carbon dioxide emissions from coal-fired power plants. While such technologies may successfully remove greenhouse gases from the atmosphere, researchers in the Department of Earth, Atmospheric and Planetary Sciences at MIT have found that once injected into the ground, less carbon dioxide is converted to rock than previously imagined. The team studied the chemical reactions between carbon dioxide and its surroundings once the gas is injected into the Earth — finding that as carbon dioxide works its way underground, only a small fraction of the gas turns to rock. The remainder of the gas stays in a more tenuous form. “If it turns into rock, it’s stable and will remain there permanently,” says postdoc Yossi Cohen. “However, if it stays in its gaseous or liquid phase, it remains mobile and it can possibly return back to the atmosphere.”

Fresh leak at Fukushima No. 1 highlights Tepco’s struggle to decommission plant - Sensors at the Fukushima No. 1 nuclear plant have detected a fresh leak of highly radioactive water to the sea, the plant’s operator announced Sunday, highlighting continued difficulties in decommissioning the crippled atomic station. Tokyo Electric Power Co. said the sensors, which were rigged to a gutter that drains rain and groundwater at the plant into a nearby bay, detected contamination levels up to 70 times greater than the already-high radioactive status seen on the plant grounds. Tepco said its emergency inspections of tanks storing nuclear wastewater did not find any additional abnormalities, but the firm said it closed the gutter to prevent radioactive water from flowing into the Pacific Ocean. The higher-than-normal levels of contamination were detected at around 10 a.m., with sensors showing radiation levels 50 to 70 times greater than usual, Tepco said. The levels of beta ray-emitting substances, such as strontium-90, measured 5,050 to 7,230 becquerels per liter of water between 10:20 a.m. and 10:50 a.m. Tepco requires radioactivity levels of groundwater at the plant discharged into the sea to remain below 5 becquerels.

Fukushima: Playing With Nuclear Fire - Three years after the Tohoku earthquake in Japan, citizens and the international community are left wondering if Japan really does have the situation in Fukushima under control... "TEPCO's own engineers are clueless... nobody knows how much [radiation] is washing into the ocean."  "VICE on HBO Season 2 "Playing with Nuclear Fire" (video)

After Spike In Earthquake Activity , New Fukushima Leak Sees 70x Increase In Radiation - While it is unclear if it is directly related to the recent surge in tectonic activity, overnight another radioactive water leak in the sea was detected at the crippled Fukushima nuclear plant, the facility’s operator TEPCO announced. Contamination levels in the gutter reportedly spiked up 70 times over regular readings. The levels of contamination were between 50 and 70 times higher than Fukushima’s already elevated radioactive status, and were detected at about 10 am local time (1.00 am GMT), AFP reported. After the discovery, the gutter was blocked to prevent leaks to the Pacific Ocean.

TEPCO Admits Delaying Report Of Major Radiation Leak Into The Pacific Ocean For 10 Months - While faith in Japanese 'economics' is starting to falter (borne out by the split in the BoJ and endless macro data disappointments), trust in TEPCO and its governmental operators must be about to hit a new record low. Having promised and given up on the ice-wall strategy to stop radioactive water leaking into the ocean, Bloomberg reports TEPCO officials have admitted that it’s investigating the cause of a spike in radiation levels (23,000 becquerels/liter vs the legal limit of 90) in drainage water that it believes subsequently leaked into the Pacific ocean from the wrecked Fukushima nuclear power plant. The bigger problem, as NBC reports, TEPCO failed to report the leak for 10 months!

Last Tango for Nuclear? - There is some promise for nuclear: Projects in Georgia, South Carolina and Tennessee may yield the first new nuclear plants in decades. The industry and its advocates are touting new, safer reactor designs. In addition, thanks to a federal appeals court decision, utilities no longer have to add to the $30 billion burden of paying for the abandoned Yucca Mountain Nuclear Waste Repository. And the U.S. Environmental Protection Agency is pressing hard for its rules to reduce carbon emissions, which would squeeze competing coal-fired plants. But on the flip side, Wisconsin, California, Florida and Vermont are shuttering aging nuclear plants, and some planned new ones have been shelved in Maryland, New York, Texas and Florida. Closing and decommissioning isn’t cheap — usually a billion dollars or more. As many as seven reactors in Illinois, Ohio and New York could close this year if not rescued by ratepayers. Nukes also have been getting their lunch eaten in the deregulated electricity marketplace, mostly by cheaper natural gas.

Coal Giant Dumped Waste Directly Into Rivers, Now Faces Criminal Charges - Duke Energy is facing multiple criminal charges for years of dumping coal waste into North Carolina’s rivers.  Federal prosecutors charged Duke with nine counts of misdemeanors under the Clean Water Act late Friday, saying that the energy company had been dumping coal ash from power plants in five North Carolina locations since at least 2010. Duke isn’t challenging the case — instead, it has already worked out a proposed plea bargain with the federal government. If approved, the bargain would require the company to pay a total of $102.2 million — $68.2 million in fines and restitution and $34 million for community service and projects to help mitigate the effects of the pollution. “We are accountable for what happened at Dan River and have learned from this event,” Lynn Good, Duke’s president and CEO said in a statement. “Our highest priorities are safe operations and the well-being of the people and communities we serve.”Duke’s problem with coal ash pollution made headlines last February, when a storage pond from a closed power plant leaked 39,000 tons of coal ash, a byproduct of coal burning that can contain toxins such as arsenic, mercury, and lead, and 27,000 gallons of contaminated water into North Carolina’s Dan River. That spill sparked increased pressure on Duke to stop polluting the state’s rivers and to clean up the coal ash that had spilled in the Dan River — something the company started doing in May.  The spill also marked the beginning of a string of environmental citations for Duke — later last February, North Carolina’s Department of Environment and Natural Resources (DENR) cited five more Duke power plants for failing to hold storm water permits, and in March, a North Carolina judge ruled that Duke must immediately act to stop the groundwater contamination caused by the company’s 14 coal-fired power plants in the state.

A Look Behind the Headlines on China’s Coal Trends -- Armond Cohen at Clean Air Task Force has provided helpful context in the face of recent headlines and a Greenpeace analysis focused on what appears to be the first drop in Chinese coal use in a century. Here’s the brunt of his post:  China continues to lead the world in annual additions of wind and solar power. While this is to be celebrated, there remains a sobering reality: they still leave a lot of headroom for China to expand its coal power plant capacity between now and 2030, even though its coal fleet is already more than twice the size of the US coal fleet. Indeed, China’s march towards coal continued in 2014 as shown by data from the latest report from China’s National Energy Administration…. [D]espite additions of substantial wind, solar, and nuclear capacity, when properly adjusted for capacity factor (the amount of annual energy produced per unit of capacity) to reflect production capability, the amount of new coal energy added to the China grid last year exceeded new solar energy by 17 times, new wind energy by more than 4 times, and even new hydro by more than 3 times. And, despite having more than 30 new nuclear reactors under construction, China’s new nuclear capability was still a fraction of new coal energy. Unfortunately for climate, these China 2014 coal additions – which in one year alone were double the size of the United Kingdom’s entire legacy coal fleet – will be around and cranking away for many decades, along with the rest of China’s coal fleet, most of which is less than 15 years old. Indeed, these plants can continue to pump CO2 out well into the second half of this century even with China’s pledged 2030 CO2 peak. And once in the atmosphere, those CO2 emissions will be warming the planet for many centuries to come. To Cohen, the persistent China coal push points to the importance of intensifying work on cutting the costs of systems for capturing smokestack carbon dioxide and sequestering it underground. His headline says as much: “No China coal peak in sight; carbon capture will be necessary to tame emissions in this century”:

PUCO moves AEP agreement to the top of its to-do list -- After putting it on the back burner for a year, the Public Utilities Commission of Ohio is finally making its decision regarding American Electric Power Company Inc.’s proposed power purchase agreement.The Columbus-based utility submitted a power purchase agreement proposal to state regulators as part of its rate case during 2013. Although controversy is not unfamiliar to the PUCO, AEP’s contentious case would allow guaranteed income for its share of a coal-fired power plant located in Ohio until 2040. If the PUCO approves the agreement this afternoon, AEP Ohio would be ensured a profit from the power sold from the plant and the chances for another equal or greater proposal to be approved are greater.  Seems pretty clean-cut, right?  Well, if the power sold from the plant is less than what the AEP Ohio spends, every single customer within the company’s service area is responsible for making up the difference through an extra charge on their bill.  However, if the AEP does sell enough power from the plant, customers would receive credit on their bills instead of a lovely extra charge.  According to AEP Ohio, the deal would give the company and its ratepayers stability from shifting energy prices and would also keep the company from selling off its plants.

Gov. Kasich defends tax increase on oil and gas drillers — Ohio’s governor is making his case for a proposed tax increase on the oil and gas industry, saying it won’t deter production in the state. Gov. John Kasich (KAY’-sik) has called for a fixed rate on crude oil and natural gas of 6.5 percent at the wellhead, and a lower rate of 4.5 percent for natural gas and natural gas liquids sold downstream. He discussed the proposal Tuesday during his State of the State speech. Proceeds from the increase would help reduce the state income tax. The governor’s fellow Republicans who control the Legislature have repeatedly scrapped Kasich’s past attempts to raise the tax, amid pushback from anti-tax groups and the industry. Kasich said he was disappointed in detractors who say the tax increase would kill the industry, calling such talk “a big fat joke.”

Ohio Supreme Court decision makes future of local fracking regulations unclear - Lexology: On February 17, 2015, the Ohio Supreme Court issued a 4-3 decision inState ex rel. Morrison v. Beck Energy Corp., holding that the Home Rule Amendment to the Ohio Constitution does not grant local governments the power to regulate oil and gas activities and operations within their limits. Specifically, the Court held that Ohio Revised Code Chapter 1509 gives state government “sole and exclusive authority” to regulate the permitting, location, and spacing of oil and gas wells and production operations within the state. The Ohio Supreme Court instructed that a municipal ordinance must yield to a state statute if: (1) the ordinance is an exercise of police power, rather than local self-government; (2) the statute is a general law; and (3) the ordinance is in conflict with the statute. First, the Court found that the ordinances, which prohibited the act of drilling for oil and gas without a permit, did not regulate the form and structure of local government. Thus, the Court held, and the City conceded, that the ordinances represented an exercise of police power rather than local self-government. Second, the Court found that R.C. 1509.02 is a general law because it satisfies the four definitive conditions of a general law: (1) it is part of a statewide and comprehensive legislative enactment; (2) it applies to all parts of the state alike and operates uniformly; (3) it sets forth police, sanitary, or similar regulations; and (4) it prescribes a rule of conduct upon citizens. The City attempted to argue that R.C. 1509.02 failed the uniformity requirement because only the eastern Ohio region contains economically viable quantities of gas and oil. The Court rejected this argument, stating that a general law can operate uniformly even if there is a disparate geographic effect within the state. Finally, the Court held that the City’s ordinances were in conflict with R.C. 1509.05 because they operated to prohibit what the state statute permitted – oil and gas drilling. Additionally, the Court held that the state statute provided the Ohio Department of Natural Resources the sole and exclusive authority to regulate oil and gas wells and production operations.

Officials and activists react to state high court ruling against local fracking laws: The Ohio Supreme Court ruled Tuesday 4-3 against a local oil-and-gas drilling and zoning ordinance in Munroe Falls, saying the local drilling regulations and resrictions cannot be enforced because they conflict with state law. Munroe Falls, located between Akron and Kent in Northeast Ohio, attempted to use its long-standing local zoning code to tell companies where they could and couldn't drill for oil or gas in the village. On Nov. 4, voters in the city of Athens passed its own ordinance that attempts to regulate oil-and-gas drilling activities with a "community bill of rights" intended to protect local water supplies and public health with a ban on fracking and related practices within city limits.The so-called fracking ban passed with an overwhelming majority of 79 percent for the initiative and 21 percent against. Voters in other Ohio cities including Gates Mills, Kent and Youngstown each rejected similar proposals. The Munroe Falls v. Beck Energy decision sets a precedent that does not bode well for the Athens law, or any similar local laws in Ohio communities that could be challenged in court, though at this time it doesn't seem likely that oil and gas companies will seek to conduct drilling activities within the city of Athens. Interim Athens Law Director Lisa Eliason said Wednesday that the state high court ruled that the Home Rule Amendment to the Ohio Constitution does not give Munroe Falls the power to enforce its own permit program, on top of the state regulatory system."It remains to be decided whether the General Assembly intended to wholly supplant all local zoning ordinances limiting land uses to certain zoning districts without regulating the details of oil and gas drilling expressly addressed by R.C. Chapter 1509."

Ohio's oil-and-gas industry donations, ruling tied? - Columbus Dispatch - An Ohio Supreme Court justice lamented last week that “the oil and gas industry has gotten its way” in a decision that says local governments can’t regulate drilling. “What the drilling industry has bought and paid for in campaign contributions they shall receive.” The dissenting opinion of Justice William M. O’Neill in a fracking case was not without factual basis: Ohio’s oil-and-gas industry poured about $1.4 million into the campaign coffers of legislators and other state officials in 2013-14 — including about $8,000 for the justice who wrote the pro-industry ruling and $7,200 for another who concurred — a Dispatch computer analysis shows. “What I liked about Justice O’Neill’s opinion was his willingness to point out the elephant in the room,” Catherine Turcer, policy analyst for Common Cause-Ohio said. “In this case, the elephant got almost $1.5 million.” O’Neill is one of the only public figures on Capitol Square who can criticize the influence of campaign contributions and not come off sounding like a hypocrite. He raised only about $5,000 in his 2012 campaign, all from his own pocket. He did not take a single outside campaign contribution. Justice Judith L. French authored the majority opinion in Tuesday’s 4-3 ruling that said state law trumped local ordinances designed to keep fracking out. The decision was based on a 2004 law whose prime sponsor was a legislator named Tom Niehaus, a New Richmond Republican who went on to serve as Senate president. The year after leaving office, he became a registered lobbyist for the Ohio Oil and Gas Association and BP America, concentrating on “legislation relating to the operation of oil and gas interests and operations,” according to his registration. He also signed up to lobby the governor, attorney general and 17 executive-branch agencies on oil-and-gas interests.

'Drill Wherever!' Ruling Raises Doubts Over Ohio Supreme Court's Neutrality -- If a town in Ohio doesn’t want to allow fracking within its limits, that’s too damn bad, the Ohio Supreme Court has declared. As the Columbus Dispatch writes, a new ruling from the state’s highest court says that the state has the sole authority to decide where drilling can occur and therefore local municipalities cannot pass ordinances to try to prevent fracking.  The issue wound up in court after Ohio approved fracking permits in areas that municipalities had declared off limits. The fight is a common one – last year, Texas said it would ignore the ban that voters in Denton passed and continue issuing drilling permits in the town.  With a slight majority, four out of seven Supreme Court justices declared that conflicting local ordinances make it too difficult for the state to offer licenses so the state of Ohio should have the deciding say on drilling. The decision is certainly peculiar considering that this sudden “conflict” seems to only apply to fracking. Towns have always been able to enact their own zoning laws to determine how land can be used, and that doesn’t lead to many problems, let alone cause the whole system to fall apart. The majority ruling was careful to specify that its decision applied specifically to “oil and gas activities” so as not to disrupt all local ordinances. Why would the Ohio Supreme Court carve out such a firm exception for the gas and oil industries? Dissenting Justice Bill O’Neill believes that it boils down to his peers receiving campaign donations from executives in this sector. “What the drilling industry has bought and paid for in campaign contributions, they shall receive,” he said. “The oil and gas industry has gotten its way, and unceremoniously taken away from the citizens of Ohio.”

Ohio Supreme Court gives oil and gas primacy over community rights in 4-3 ruling - Columbus Community Issues - "The Ohio Supreme Court has just added to the already mounting evidence that the people of Ohio do not live in a democracy and are not free to determine what corporate projects can come into their communities," said Tish O'Dell, Ohio organizer for the Community Environmental Legal Defense Fund. "The Supreme Court has just laid the last brick in the money-paved road to turn our communities into resource colonies for the oil/gas industry's profits."O'Dell was responding to the Ohio Supreme Court's ruling on Tuesday that the Ohio Department of Natural Resources' power to issue drilling permits overrides a city ordinance in Monroe Falls that bans fracking.  "The Ohio General Assembly has created a zookeeper to feed the elephant in the living room," wrote Justice William O'Neill in a dissenting opinion on the 4-3 ruling. "What the drilling industry has bought and paid for in campaign contributions they shall receive.  "The oil and gas industry has gotten its way, and local control of drilling-location decisions has been unceremoniously taken away from the citizens of Ohio," Justice O'Neill wrote. "Under this ruling, a drilling permit could be granted in the exquisite residential neighborhoods of Upper Arlington, Shaker Heights, or the Village of Indian Hill — local zoning dating back to 1920 be damned." “Consent of the governed no longer matters in the three branches of state government," Tish O'Dell said. "All three have been captured by corporate cash, corporate corruption, corporate law-making and corporate privileges held supreme over the general rights of the people. "Inalienable rights to local community self government, the right to clean air and water, and the right to protect our health, safety and welfare are higher law than state preemptions, higher law than ODNR administrative dictates," O'Dell said. "The court, the legislature, and this governor have presumed to surrender the rights of the people of Ohio to the corporations. They have, therefore, forfeited their legitimacy."

GOP legislators, justices sleeping with oily interests - The citizens of the great state of Ohio are drowning in oil, and not in a good way. If anyone had any doubt that the oil and gas industry is the tail wagging the Ohio government dog, it should be put to rest by the state Supreme Court's outrageous decision in the Morrison (Munroe Falls) vs Beck Energy Corp. case on Feb. l7. A split Supreme Court ruled 4-3 in favor of a drilling company that objected to being restricted by local regulations. Those restrictions were designed to protect the small Northeast Ohio community of Munroe Falls from disruptive or unsafe oil and gas activities. The majority in the decision cited Substitute House Bill 278, a 2004 law that granted authority over oil and gas regulation to the Ohio Department of Natural Resources. The bitterly divided court's long-awaited ruling probably invalidates the fracking ban that Athens city voters overwhelmingly approved last November, as well as similar bans and restrictions passed locally elsewhere in Ohio. In a minority opinion, Supreme Court Justice William O'Neill called out his colleagues on the high court, as well as Ohio lawmakers past and present, for feeding at the trough of corporate influence-peddling: "What the drilling industry has bought and paid for in campaign contributions they shall receive." The sell-out began with the passage of H.B. 278 some 11 years ago. It's not at all far-fetched to believe that the man who sponsored 278, then state Rep. Thomas Niehaus, R-New Richmond, was doing the bidding of the oil and gas industry rather than his constituents. He later became Senate president, and then a year after leaving office, a registered lobbyist for the Ohio Oil and Gas Assocation and BP America. The Columbus Dispatch, in an article on Sunday, reported that Niehaus's lobbyist registration states that he specializes in "legislation relating to the operation of oil and gas interests."

Ohio high court's Munroe Falls oil ruling wrongly quashes home rule rights, again: editorial | cleveland.com -- The state Supreme Court, siding with the Statehouse oil and gas lobby, has yet again pruned the home rule power of Ohio cities and villages, a decision, be it noted, enabled by an Ohio General Assembly in thrall to special interests.  At issue: A bid by Summit County's Munroe Falls to use zoning to keep Ravenna-based Beck Energy Corp. from drilling an oil and gas well inside Munroe Falls' city limits.  In Tuesday's 4-3 ruling, the Supreme Court ruled that a 2004 state law, signed by then-Gov. Bob Taft, gives the state "sole and exclusive" power to regulate oil and gas production in Ohio.  Lead sponsor of the 2004 law, Substitute House Bill 278, was then-Rep. Thomas Niehaus, a suburban Cincinnati Republican who later became the Ohio Senate's president. Niehaus is now a Statehouse lobbyist, and among his 20-plus lobbying clients, representing a range of interests including the Northeast Ohio Regional Sewer District, is the Ohio Oil and Gas Association. Among legislators voting "yes" on the Niehaus bill were then-Reps. Keith Faber, a Celina Republican who's now Senate president, and Jon Husted, Ohio's secretary of state.  Republican Justice Judith French, writing for the Supreme Court's majority, said the pivot of the Munroe Falls case is whether the 2004 law and the Ohio Constitution's home rule amendment "allow the kind of double licensing at issue here" -- by Munroe Falls and state government. O'Neill, in his dissent, wrote that hair-splitting over what the 2004 bill did or didn't allow, or on the possibility the General Assembly might rethink it, dodged a key factor."Let's be clear here," O'Neill wrote. "The General Assembly has created a zookeeper to feed the elephant in the living room. What the drilling industry has bought and paid for in campaign contributions they shall receive. The oil and gas industry has gotten its way, and local control of drilling-location decisions has been unceremoniously taken away. ... Under this ruling, a drilling permit could be granted in the exquisite residential neighborhoods of Upper Arlington, Shaker Heights, or the Village of Indian Hill -- local zoning dating back to 1920 be damned."

Enter Utica: The Fracking Industry Really Loves Ohio; Here's What's on Tap for All of Us -- The dissent in last week's Ohio Supreme Court decision was as telling as the majority opinion. In a 4-3 vote, justices ruled in favor of state legitimacy, granting Ohio regulatory powers over the oil and gas industry and stripping municipalities of long-held "home rule" governance. Thing is, Ohio now resides along the central nerve of the wealthiest industry in the world, and there is money to be made. With judicial approval, rampant state-sanctioned drilling will continue apace, and even with science and sob stories on their side, noisy grassroots activists aren't likely to nudge or sway their elected officials. The foolhardy Davids are beginning to comprehend the shape and monolithic size of this Goliath. "We've been trying to say that all along," Tish O'Dell says from Broadview Heights, applauding O'Neill's dissenting opinion. She's the president of the Ohio Community Rights Network, which assisted in authoring a Community Bill of Rights for her city's residents and their opposition to the health hazards posed by fracking. Other communities have taken similar steps to have their voices heard. And others still, like Munroe Falls, the complainant in the recent Ohio Supreme Court case, have passed zoning resolutions to prohibit fracking within city limits. Those zoning resolutions mean bupkis now. "This isn't about fracking though," Munroe Falls Mayor Frank Larson says two days after the decision. "This is about home rule. And I think people are beginning to realize that this is a lot farther reaching than oil and gas well issues. But I'll tell you, residents are concerned about the safety of their drinking water, and obviously the ODNR [Ohio Department of Natural Resources] and the EPA [Environmental Protection Agency] aren't."

How To Prohibit Fracking in Ohio - The old fashioned way. The legal way. By a comprehensive land use plan done by a real live land use planner and written into a zoning code by an honest-to-god zoning attorney. Evidently somebody in Ohio evidently knows the difference between an enforceable municipal land use law and a thick slice of sky pie. Ohio Supreme Court’s Decision on Fracking Won’t Deter the City of Mansfield.  City law director says Mansfield’s measures take a different form than the ones the court dealt with.  A closely-watched state Supreme Court decision last week limits what communities can do to regulate oil and gas development within their borders. But it did not address zoning ordinances, which are used in other states, such as Texas, California, New Mexico and New York to prohibit fracking and related heavy industrial land uses, such as disposal wells.  While the court ruling directly addressed only one city’s rules, it’s expected to have a ripple effect across the state. In Mansfield, a company proposed putting a wastewater disposal well in an industrial park. The move spurred the city to adopt strict rules governing that kind of activity.  Mansfield’s law director, John Spon, says the court decision won’t deter Mansfield from trying to protect its interests via a zoning ordinance.

Oil and gas production growing in Ohio - Oil and gas production is soaring in Ohio, according to new production figures that the Ohio Department of Natural Resources released Wednesday. The ODNR said that horizontal shale wells associated with the "fracking" boom produced about 3.5 million barrels of oil and about 164 billion cubic feet of gas in the last quarter of 2014. That's compared to about 1.4 million barrels of oil and about 43 billion cubic feet of gas in the fourth quarter of 2013. Meanwhile, Gov. John Kasich, in his annual "State of the State" speech Tuesday night in Wilmington, pressed his case for raising oil and gas production taxes in Ohio. Here's what the governor had to say, according to the official transcript:

Ohio oil production up by 18.1 percent, natural gas up 25.6 percent - Drilling - Ohio: During the fourth quarter 2014, Ohio’s horizontal shale wells produced more than 3,558,836 barrels of oil and nearly 165 billion cubic feet of natural gas, according to figures released on Wednesday by the Ohio Department of Natural Resources. Oil production from 779 horizontal Utica wells increased by more than 545,000 barrels, a 18.1 percent increase, and natural gas jumped by more than 33 billion cubic feet or a 25.6 percent increase compared to the third quarter 2014. Comparing the last two years in Ohio, there has been a 200 percent increase in oil production and a 350 percent increase in gas production, the state said. By comparison, 352 horizontal shale wells in the fourth quarter 2013 produced 1,439,209 barrels of oil and 43 billion cubic feet of natural gas. The new report lists 828 wells, 779 of which reported production. Forty-seven wells reported no production as they are waiting on pipeline infrastructure. Of the 779 wells reporting production results, the average amount of oil produced was 4,568 barrels. The average amount of gas produced was 211 million cubic feet. The average number of days in production was 80. The top 10 natural gas wells in Ohio were five in Monroe County and five in Belmont County. The No. 1 natural gas well in the quarter is the Schroyer Unit by Pennsylvania-based driller Eclipse Resources in Monroe County with nearly 1.9 billion cubic feet. The top counties for oil production in the quarter were Guernsey, Harrison, Noble and Carroll. The top oil well in the quarter was the Shugert well by American Energy Utica LLC in Guernsey County with 56,494 barrels.

Ohio oil well output doubles in a year; natural gas triples - (AP) - Oil production has more than doubled and production of natural gas has tripled in Ohio in one year, bolstering arguments by the administration of Gov. John Kasich that the industry is thriving enough to sustain a tax increase. Kasich wants to use the proceeds to reduce the state’s income tax. Statistics released Wednesday by the Ohio Department of Natural Resources showed more than 3.5 million barrels of oil and 164 billion cubic feet of natural gas were produced during the last three months of 2014. During the same quarter in 2013, Ohio wells produced 1.4 million barrels of oil and 43 billion cubic feet of natural gas. The increase was fueled by a building boom of wells. During this week’s State of the State address, the Republican governor dismissed claims by the oil-and-gas industry that they’d be devastated by his proposed tax increase. “The prosperity created by our oil and gas deposits can be great not just for shale country. This is not just for part of Ohio but for all of Ohio because it makes possible the income tax cuts that provide an economic boost statewide,” he told the crowd Tuesday.

Lower oil prices haven't hurt Ohio shale investment - yet - -- A drop in oil prices has led to growing concerns that investment is fleeing Ohio shale country, but there is no clear sign of this in the state’s oil and gas production figures. The fourth-quarter numbers, issued this week, show that production continued to rise at the same time that prices continued to fall. But don’t read too much into that, say energy experts and industry leaders. They expect low prices to discourage some production and say this will become evident over the next few quarters. “The rate of growth will slow, but we will see that effect a little bit later than might be apparent because of the time required to drill up a pad and get wells into production,” said Ben Ebenhack, a petroleum engineering faculty member at Marietta College. The Ohio Department of Natural Resources issued the figures on Wednesday, showing that operators of shale wells produced 3.6 million barrels of oil for the quarter, up 545,000 barrels from the prior quarter. Gas production was 164.8 billion cubic feet of natural gas, up 33 billion from the previous quarter. There were 779 wells reporting production, up 15 percent from the prior quarter. “Those numbers don’t tell the full story about the effect of the drop in commodity prices,” “I’ve seen rig count dropping. I’ve seen some companies exiting Ohio for a little while and focusing elsewhere.” Gulfport Energy is one of the companies that has pulled back, with four drilling rigs operating in Ohio’s Utica shale, down from eight a few months ago.

Shale gas and oil production in Ohio: The numbers tell the story  -- Gas and oil production from wells drilled horizontally in Ohio's Utica shale industry increased in the last three months of 2014. Here are the average production numbers for the last quarter of of the year, as compiled by the Ohio Department of Natural Resources:

  • 4,568 barrels: average amount of oil produced per well
  • 211.6 million cubic feet: average amount of gas produced per well
  • 80 days: average number of production days

Overall, 779 of 828 drilled shale wells produced 3,558,836 barrels of oil and 164,815,008 Mcf (164 billion cubic feet) of natural gas during the final quarter of 2014, the agency said in a report released Wednesday. The other 49 wells were idle waiting for pipelines to be built.  In the same quarter of 2013, there were 352 horizontal wells drilled into Ohio's shale. Overall, they produced 1,439,209 barrels of oil and 43,124,516 Mcf (43 billion cubic feet) of natural gas. The department also compared the last quarter of 2014 with the third quarter of the year in an effort to show the acceleration of production. Oil production over the two quarters increased by more than 545,000 barrels and gas by more than 33 billion cubic feet, the department said. In a year-over-year comparison, the state analysis found that oil production increased by 200 percent and gas by 350 percent from 2013 to 2014. Production numbers are public record and can be accessed here.

Utica well activity --  Operations in the Utica are still going strong as oil and gas production for the state of Ohio has blown last year’s numbers out of the water, all thanks to the boom in well development. According to the Ohio Department of Natural Resources, in the span of a single year oil production has more than doubled and natural gas production has triple. Data released by the state show that more than 3.5 million barrels of oil and 164 billion cubic feet of natural gas was produced during the last three months of 2014. In 2013, during the same quarter, Ohio produced 1.4 million barrels of oil and 43 billion cubic feet of natural gas. Information from the report shows that out of 828 wells drilled in Ohio, 779 of them produced some amount of oil or gas at the end of 2014. In 2013, during the same quarter, only 352 wells were producing oil and natural gas. The remaining 47 wells that did not produce oil and natural gas during the last few months of 2014 couldn’t due to a lack of pipeline infrastructure. The following information is provided by the Ohio Department of Natural Resources and provides data through the week ending on February 21st. DRILLED: 298 - DRILLING: 256 - PERMITTED: 454 - PRODUCING: 816 -- TOTAL: 1,824

Chesapeake to reduce drilling in Utica Shale - The Canton Repository - Chesapeake Energy will curtail drilling in the Utica Shale as it cuts back in response to low natural gas and oil prices. The company plans to spend up to $4.5 billion on drilling around the country, officials said in a conference call Wednesday. That’s 37 percent less than last year, and will fund approximately 40 rigs, the company’s lowest number since 2004. Last year, the Oklahoma City-based driller used 64 rigs. CEO Doug Lawler said Chesapeake is managing its activity based on oil at $55 a barrel and natural gas at $3 per thousand cubic feet.  Ten percent of the drilling budget will be spent on Utica wells, where Chesapeake plans to use three to five rigs, down from eight last year, and four fracking crews. Utica well costs averaged $6.6 million last year, and company officials said there is a chance they could drop below $6 million this year. The region had the lowest well costs outside Oklahoma. Utica wells also increased in lateral length and number of frack stages, averaging 6,000 feet and 27 stages. Chesapeake has 435 producing wells in the Utica, the most of any driller in Ohio. This year it plans to complete three to five wells in the oil window, which has proved difficult to produce.

Chesapeake, Gulfport and Antero scaling back - Natural gas production continues to rise in eastern Ohio. The industry is in a major funk because of falling prices, but still continued to drill for more natural gas in the final three months of 2014. Companies drilled 164.8 billion cubic feet of natural gas in the fourth quarter, up from 132 billion in the third quarter, according to new figures from the Ohio Department of Natural Resources. Gas production has risen 350 percent. Oil production, which is far outpaced by gas, increased 200 percent. You can see the full report here. Two Oklahoma City drillers that are the biggest players in eastern Ohio fracking released their latest earnings reports. Chesapeake Energy Corp, the biggest in Ohio, set its 2015 capital expense budget at a range between $4 billion to $4.5 billion, down 37 percent from $6.7 billion in 2014. Chesapeake has leased about 1 million acres of land in eastern Ohio, and expects to spend a quarter of its budget in 2015 in the Utica shale play, up from 10 percent last year. Gulfport Energy Corp,  which operates mostly in the Utica, set its 2015 capital guidance in the range of $545 million to $595 million, almost all dedicated to the Utica. That's down about 18 percent from $675 million to $725 million the company set aside for 2014. Even with the reduced spending, Gulfport expects to increase production by up to 100 percent.  Denver-based Antero Resources Corp., another active Ohio fracking company, projects spending $1.6 billion for drilling and completion services, down 36 percent from $2.5 billion a year ago.

Oil prices force Vallourec to reduce workforce, hours in 2015 - France-based company Vallourec announced plans to reduce its workforce due to low oil prices. The parent company of Vallourec Star made the announcement in its financial earnings for 2014 report that was released Tuesday. Vallourec is an international company that sells tubular products for the oil and gas industry, power generation and other industrial sectors. The company employs 23,000 worldwide, and operates in more than 20 countries. “The current environment is marked by a severe oil-price drop,” the company said in a news release. “In 2015, immediate and structural measures in the mills will result in a reduction of approximately 15 percent of working hours, including a reduction of approximately 7 percent of the workforce.” Neither Vallourec Star locally nor its parent company would comment further. The Youngstown facility started its production of small-diameter pipes for sale in the U.S. and Canadian markets in October 2012. It employs about 700.

Ohio Gov. Kasich’s Proposal to Raise Oil & Gas Taxes Criticized - As Ohio's oil and natural gas drillers slam Gov. John Kasich's plan to raise severance taxes on their activities, at least one legislator believes the governor wants to redistribute the wealth generated in the shale fields of Belmont, Jefferson, Harrison and Monroe counties throughout the state. "He wants to use the eastern Ohio shale industry as an ATM to fund tax breaks for those living in wealthy suburbs outside the major cities," Sen. Lou Gentile, D-Steubenville, said. "His whole idea is for our part of Ohio to assume all the risks that go along with this industry, but not gain the benefits." During his Tuesday State of the State address, Kasich said Ohio's current tax of 20 cents on a barrel of oil was "unconscionable." Along with raising the oil tax, Kasich wants to increase the natural gas severance rate from 3 cents for every 1,000 cubic feet."Ohio's severance tax was created decades ago, long before Ohio's shale boom was ever envisioned," Kasich said Tuesday. "I don't know anybody who lives in Ohio who would not like to sign up for this, 20 cents on a barrel of oil." The new severance rates - if adopted by both the House and Senate and signed into law by Kasich - would be 6.5 percent of the selling price if the product is sold before going to a processing plant, or 4.5 percent if is sold after going to a processing plant. "The prosperity created by our oil and gas deposits can be great not just for shale country. This is not just for part of Ohio, but for all of Ohio because it makes possible the income tax cuts that provide an economic boost statewide," Kasich said of his proposed 23 percent income tax reduction.

As fracking increases, lawmakers look to update the rules — As Kentucky mines less coal and produces more natural gas, state lawmakers want to update the environmental protection rules that drilling companies are required to follow.But some landowners worry the state's rush to welcome the practice of hydraulic fracturing, also called fracking, puts their land and their health at risk. In fracking, drillers inject water and chemicals into the ground to break up rocks and extract oil and gas.Tuesday, the House Natural Resources and Environment Committee approved a bill to update the state's oil and gas regulations for the first time in two decades."It's already legal to do fracking in Kentucky. What this is attempting to do is to get out in front of that issue and provide some additional protections so we can avoid some problems," said Tom FitzGerald, executive director of the environmental advocacy group Kentucky Resources Council, who supports the bill.The legislation would require companies to disclose what chemicals they use. However, they would not have to say how much of the chemical they use if they can prove that information is a trade secret. The bill would make an exception if a doctor needs to know how much of a certain chemical was used in order to diagnose or treat a patient. In such cases, the bill would allow regulators to tell doctors how much was used, but only if the doctor signs a confidentially agreement to use the information only for health purposes.

Kentucky "fracking" bill clears House committee on unanimous vote - A Kentucky House panel on Tuesday easily passed a bill supporters say will modernize Kentucky's oil and gas laws and protect the environment from hydraulic fracturing. House Bill 386, which sets standards for water testing and chemical disclosures and requires cleanup plans for drilled wells, unanimously cleared the House Natural Resources and Environment Committee and now heads to the full House. The measure, whose chief sponsor is House Majority Floor Leader Rep. Rocky Adkins, is the result of a 17-member work group that began meeting last summer. Environmental groups, energy industry representatives and state regulators are among those that crafted the bill. “While there is work that … remains to be done, this is a significant first step and one that's a consensus product,” Tom FitzGerald, director of the Kentucky Resources Council, said in remarks to the committee. FitzGerald, one of the state's leading environmental watchdogs, said he “heartily” endorses the bill, which he claimed marks the first substantive changes to Kentucky oil and gas rules in more than two decades. The measure also has the backing of the Kentucky Oil and Gas Association, whose board supports all the provisions in the bill, KOGA's Bill Barr told lawmakers. The only opposition came from Vicki Spurlock of Madison County, where residents have begun signing leases with energy companies that aim to extract oil and gas through hydraulic fracturing, or “fracking.”

An energy pipeline that would help NC -- President Barack Obama vetoed the Keystone XL Pipeline bill Tuesday, but an energy project that promises more benefits to North Carolina is quietly advancing.It’s the Atlantic Coast Pipeline, which will carry natural gas 550 miles from West Virginia across Virginia and through North Carolina on a north-south line roughly tracking Interstate 95.Surveying is underway. Public meetings in affected communities have been held. A permit must be granted by the Federal Energy Regulatory Commission, and that will require studies of the potential impact on the environment, cultural and historic resources, public safety and other concerns. If all goes according to plan, the pipeline could be operational by late-2018 at a cost of $4.5 billion to $5 billion.The pipeline will be built and operated by Dominion, a Richmond, Va.-based energy company, and jointly owned by Dominion, Duke Energy, Piedmont Natural Gas and AGL Resources.While the construction will create some jobs and boost spending in communities along the route, and the new infrastructure will add to local property tax bases, the greatest benefit will come from easier access to the abundant quantities of natural gas found in the Utica and Marcellus shale basins of West Virginia, Ohio and Pennsylvania.

Natural gas liquids not as shiny as they once were - Wet gas is a uniquely southwestern Marcellus Shale problem. Until recently, it was a uniquely southwestern Marcellus advantage, but then natural gas liquids began losing value and the cost to separate them from dry gas, or methane, began to obscure their promise. At least that’s how EQT Corp.’s CEO David Porges explained it during a company earnings call last month. “What’s usually called the liquids uplift,” he said, “now we call it the liquids impact.” Downtown-based EQT doesn’t have a lot of wet gas, a term that refers to natural gas that also contains liquids, in its production mix — less than 10 percent, according to Bloomberg Industries. But its experience is just a scaled down version of what’s happening across the shale play, said Steve Schlotterbeck, the company’s president of exploration and production. Natural gas liquids include ethane, propane and butane. “Ethane prices are very weak, especially netted back to the wellhead,” he said. “And propane, because of the storage situation, is also quite weak.” The latest production data submitted by operators to the Pennsylvania Department of Environmental Protection, showed that overall liquids production continued to increase in 2014, albeit at a much slower rate than during the two prior years. Producers in Pennsylvania reported pulling 4.3 million barrels of condensate and oil out of the ground last year, a 38 percent increase over 2013. From 2012 to 2013, the growth was 73 percent.

More sand goes into shale wells, and more comes out - As shale gas operators in the Marcellus have been saying for the past year, more sand is going into the ground in Pennsylvania to keep fractures open while gas flows out. And, consequently, more sand is coming out of the ground, along with the gush of flowback water that streams out of wells just after they’re fracked. That’s evident from the latest waste production data released by the Pennsylvania Department of Environmental Protection. In 2011, companies reported disposing of about 14,500 tons of flowback sand, DEP records show. Last year, that number exceeded 43,000 tons. That’s despite the fact that 1,957 shale wells were started in 2011, while only 1,373 began development in 2014. “Our people are using more sand, everybody is using more sand,”   Rex Energy has more than doubled the amount of sand it uses for each foot of its horizontal wells, while at the same time increasing how long those horizontal sections stretch out by 30 percent in the last five years. The operator also reported a significant improvement in how wells produced during their first month on the job and a decrease in how quickly their production tapered off during the first year. While an average, conventional frack job cost the company about $4.7 million in 2010, its “Super-Frac” strategy is running closer to $6 million a pop this year.

Frackers War On Fractavists - A Susquehanna County judge has found anti-fracking activist Vera Scroggins in contempt of court for getting too close to a Cabot Oil & Gas site last month. She now faces a fine and possible jail time. This latest ruling was a win for Cabot in its protracted legal battle against the self-described “gas tour guide.” She frequently brings visitors to Cabot sites and points out its environmental violations. The company says she has repeatedly trespassed on its property and poses a safety risk.  Cabot spokesman George Stark says the company is pleased with the contempt ruling. “She has been getting too close to us. That makes us nervous.”  The case drew international attention after Cabot got a sweeping court injunction against her in 2013– which effectively barred her from half the county. Last March, the injunction was modified to be much less restrictive. But she still has to stay 100 feet from Cabot wellpads and access roads.  At an October 2014 hearing, Scroggins was found to have come too close to an access road, but she was not punished, since there was some debate about whether the road was a family’s driveway. This time, she will likely face a fine of $300 to $1,000. She says she’s innocent and won’t pay– which could mean jail time.

Here's the sensible way for Pa. to enact a severance tax --  The scariest argument made by opponents of an extraction tax on natural gas produced from the Marcellus Shale formation in Pennsylvania is the notion that, if you set the tax too high, the drillers are going to pull up their rigs and go off somewhere else. That concept is, in intellectual terminology, mostly nonsense. The drilling companies have invested billions in purchasing drilling rights to hundreds of thousands of acres in Pennsylvania and they must drill within a certain number of years to continue to hold the land. Once a well is drilled - and thousands have been drilled in the Keystone State -- they need to deliver gas to the market to recoup their investments. To large degree, the drillers are stranded here - although, if gas prices were higher, it would be a pretty sumptuous stranding. The drillers' situation is similar to the answer Willie "the Actor" Sutton gave when asked why he robbed banks for a living. "That's where the money is," Sutton said. The Marcellus Shale Play - and the Utica Shale below that - is where the money is. Already, drilling in the Marcellus is delivering more than 4 trillion cubic feet of natural gas per year in Pennsylvania alone. Ohio is getting even more impressive numbers, on a per well basis, in the Utica Shale because the strata there contains lots of crude oil and other petroleum byproducts. West Virginia, which has an extraction tax on all sort of minerals including natural gas, oil and coal, generated $636 million in 2012 from its 5 percent tax (and it's a much smaller state than Pennsylvania). The Marcellus and the Utica plays combined make the Ohio/West Virginia/Pennsylvania gas fields the richest in the nation, surpassing even Texas in potential yield. Nobody is going to walk away. What does make sense is to create a uniform tax structure voluntarily across the Marcellus play. That way, the temptation is reduced for drillers to shift rigs between Pennsylvania, West Virginia and Ohio.

Marcellus Shale fracking foe: Drillers are 'vampires' who 'suck blood and leave' - – To hear fracking opponents tell it, the New York ban on deep, high volume, water-driven drilling on the rich Marcellus Shale is the best thing to ever happen to the Southern Tier. This is a 180-degree view from the depressing, put-upon sentiment among residents most directly affected by the ban — those with properties and livelihoods tied to the struggling towns that stand to be economically transformed by fracking. Isaac Silberman-Gorn, community organizer with Citizen Action and a spokesman for Save the Southern Tier, an anti-fracking coalition, smiles widely as he talks glowingly about New York Gov. Andrew Cuomo’s ban, issued in December. Not only was this the right thing to do according to a gathering storm of science that Silberman-Gorn says reveals the environmental and human health harms of fracking. It is the correct call when it comes to what is best for the economy of the Southern Tier, too.   “The gas industry worked really hard to create the narrative that the Southern Tier wanted fracking,” Silberman-Gorn said from his community organizer office on the outskirts of struggling Binghamton, NY. “That’s ridiculous,” he scoffed. “This is about international corporate profits and companies looking to export this gas abroad as quickly as possible. These are vampire industries. They suck the blood and leave.”

How Frackers Lose Their Leases -  By failing to frack them.  In order to keep an oil and gas lease in place (unless you are Cabot or Chesapeake and scam the landowners), you have to drill. And you have to keep drilling to maintain production; which is why such clauses are known as Held By Production, or HBP requirements.  Catch is, the fracker find another fool to finance the wells. And after they have maxed on on junk bonds and “story stocks” on Wall Street, that can be tough. Another fool may be born each minute, but it takes millions of fools to frack a shale well. The frackers are obligated to drill uneconomic wells in order to keep the lease. But the appetite for drilling uneconomic wells is not what it used to be. When the frackers hit that wall, the shale play collapses.  Meanwhile, much of the on-going fracking activity in Fracksylvania is HBP – the frackers continue to frack not to make money but to avoid losing the leases, as this article explains:  The Impact Of HBP Leases On Marcellus Production - Will hold-by-production (HBP) drilling by producers acting to preserve their leases for the longer term end up sending U.S. oil and gas production volumes higher when energy fundamentals and prices suggest production should slow down? This has happened before, with one of the highest profile instances in the Haynesville Shale between 2009-13, leading to even lower natural gas prices. Could it happen again in the Marcellus this year?  Today we continue our look at HBP lease provisions with a focus on the Marcellus. In Part 1 we looked at the HBP provision that is a standard component of oil and gas land lease agreements between producers and mineral rights owners in the U.S. Producers can pay bonuses of thousands of dollars per acre for rights to conduct exploration and production activities on parcels of private land. However lease agreements typically dictate that drilling rights expire after an initial term, (that varies by negotiation but is typically 3-5 years) unless the lease operator produces minimum commercial quantities of oil or gas from the acreage to hold the lease by production. Once HBP’d the lease begins a second term that lasts as long as minimum production continues. We discussed how HBP clauses sometimes lead to “forced drilling” by producers to preserve drilling rights beyond the primary term.

New York’s Lack of Fracking Regulations Leave it Fracking Vulnerable - These local “please frack us” publicity stunts by New York towns on the Pennsylvania border, as preposterous as they are, underscore three underlying truths:

Jeb Bush's private investments in fracking dovetail with public advocacy - Bush left unmentioned that fracking in the Marcellus Shale beneath the New York-Pennsylvania border also presented a big opportunity for himself.  One of his private equity enterprises at that time was raising $40 million to back a Denver-based company acquiring fracking wells in hopes New York would lift its ban. The company, Inflection Energy, has active leases in Pennsylvania, and one of Bush's equity partners sits on the board. He also has fracking ties through a separate business with both of his sons.  The intersection between Bush's private and public life — calls for fracking have been a part of his speeches and came as recently as last month in San Francisco — triggers questions of disclosure.

Proposed additions would increase LNG facility's production - — As site work continues on Cameron LNG’s plant expansion in Hackberry, company executives are looking to expand the facility a little more. Cameron LNG executives announced Tuesday they have initiated the pre-filing review with the Federal Energy Regulatory Commission to add two more trains and a fifth full containment storage tank to the expanding facility. The American Press reports the proposed additions would increase the facility’s LNG production by 9.97 million metric tons per year. If approved by FERC officials, Cameron LNG’s latest expansion would boost the plant’s total LNG export capacity to nearly 25 million metric tons per year.

Eagle Ford continues to see rigs drop - Rigs are continuing to drop like flies. Low oil prices are a major cause, but companies also cite the increases in efficiencies that have prompted them to lay some rigs idle. While oil prices have been up and down, and all around $50 per barrel, the latest data released from Baker Hughes shows a decline in active rigs all over the nation. According to Friday’s figures, the Eagle Ford Shale’s rig count has dropped from 164 to 160 over just the last week.  With this last week’s decrease, the Eagle Ford Shale has seen drops in rigs over the last nine consecutive weeks.  Counts in shale formation that covers most of South Texas have tumbled below May 2011 levels.Drilling operations across the U.S. have been on a downhill slide, according to Baker Hughes data.  The nation’s active rigs fell from 1,358 to 1,310 and Texas as a whole lost 22 rigs over the past week, falling from 598 to 576. The following information is provided by Baker Hughes  and looks at the major basins in the U.S. It compares rig counts from this week, last week and a year ago.

Archer to cut nearly 1,000 jobs - Oilfield service company Archer Ltd. announced in its fourth-quarter and year-end earnings report that it will be cutting nearly 1,000 employees despite reporting a fourth-quarter revenue increase of 15 percent year over year. Archer, a Bermuda-based company, conducts its U.S. operations in Houston. The 1,000 employees being cut account for 11 percent of Archer’s workforce. Archer employed about 8,800 people as of December 31, 2014. A reduction in activity and demand for its services were the main contributors to Archer’s decision to cut jobs. The company also saw the biggest reduction in the U.S. land market, as well as the North Sea, according to the Houston Business Journal.. “The company continues to review its compensation, bonus and benefits plans in order to bring them in line with the current economic climate,” Archer said in its report. “We are also working with our suppliers and subcontractors to reduce our cost base to maintain a base level of profitability and generate positive cash flow.” The 15 percent increase in fourth-quarter revenue for Archer gave them a year over year revenue of $603.7 million. However, the company recorded a net loss of $90.2 million, or 16 cents per share, which is down from a net loss of $431.7 million, or 75 cents per share in the fourth quarter of 2013. Archer Ltd. has been in business for more than 40 years and has more than 100 locations around the globe.

Officials: Rules changes have upped fracking water recycling - — Oil and gas drilling companies using hydraulic fracturing in Texas say they are recycling more water than ever before thanks to a change in state rules, Texas’ three railroad commissioners told two House committees Monday. But exactly how much water is being conserved or reused during production is unknown, according to the regulators who oversee the oil and gas industry, because the companies aren’t required to report those figures. During the commonly used process of hydraulic fracturing, or fracking, water and other substances are injected at high pressures into rock in order to extract oil and gas. The rule change removed restrictions for companies in the permitting process for recycling water on their own leases. Railroad Commission Chairwoman Christi Craddick told members of the House Energy and Natural Resources committees it was adopted in 2013 to encourage more water conservation. She said companies report recycling more, but told lawmakers there was no set target of how much recycling should occur. There are “no reporting requirements in place,” she said, adding that the commission relies on companies to self-report recycling efforts on a voluntary basis.

Politicians for local control, except when it comes to fracking, wages -- The people of Denton, Texas, recently voted to ban fracking within the city limits. They were tired of the noise, lights and fumes caused by the 277 gas wells, some placed right next to housing developments. A blowout in 2013 covered homes in clouds of benzene. Some had to be evacuated.One can hardly blame the citizens for trying to regulate industrial activity in a populated area unless one is the governor of Texas. Greg Abbott has denounced the vote and decisions by other local governments to regulate junkyards and ban litter-prone plastic bags as an affront to the “Texan model,” often defined as letting businesses do pretty much as they please.The party in power at one level of government is understandably tempted to push around a lower level. Liberals do it. Conservatives do it. The difference is that conservatives profess to deplore such interference. Sadly, support for local control often evaporates when such principles run up against the interests of moneyed backers.Similar battles are playing out in other places. Athens, Ohio, voted to ban fracking, but the Ohio Supreme Court just ruled that local governments can’t do that. They are clashing with the state’s “executive authority” on oil and gas drilling.Conservatives running the Florida and Louisiana state governments are fighting local plans to raise minimum wages. The restaurants don’t want to.“The state legislature is the best place to determine wage and hour law,” “This is not the kind of policy that should be determined jurisdiction by jurisdiction.”Actually, the local jurisdiction is one of the better places to set a minimum wage. The cost of living in New York City is much higher than it is across the state in Buffalo, and so might the minimum wage be.

How ‘Orphan’ Wells Leave States Holding the Cleanup Bag - WSJ: After a natural-gas boom in the Powder River Basin here petered out several years ago, few energy companies were interested in the leftover wells pockmarking the prairie. On one ranch near Gillette last month, several of Mr. Presley’s former wells peeked from the snow. Inside the flimsy sheds covering them, jumbles of rusting pipes protruded from the ground, worn company signs dangling nearby. Wyoming is now stuck cleaning up these deserted wells from a bygone boom, and thousands more owned by Mr. Presley and others, at a cost state regulators estimate will be tens of millions of dollars. State officials say the responsible parties never paid enough in regulatory fees to reclaim the wells. Drilling booms historically leave legions of idle wells that become state or federal wards. Yet agencies in some states, and federal regulators, aren’t adequately equipped to clean up so-called orphaned sites at a time when shale drilling is raising the prospects of still more.

Oil-gas panel suggests consulting role for local government - A Colorado task force is recommending that local governments be given a consulting role on some decisions about the location of large oil and gas facilities, but the panel decided against suggesting that cities and counties be allowed to enforce their own rules. In a series of votes Tuesday, the task force also rejected proposals to require disclosure of all the chemicals used in hydraulic fracturing and to give surface property owners more leverage if someone else owns the minerals under their land and wants to drill. The 21-member panel will submit its final list of recommendations to Gov. John Hickenlooper on Friday. The recommendations include expanding the staffs of two state agencies that regulate oil and gas and monitor public health: the Colorado Oil and Gas Conservation Commission, and the state Department of Public Health and Environment.

Group backs off plan to put fracking ban on Colorado ballot - An activist group is backing off its earlier announcement that it would to try to get a statewide fracking ban on the Colorado ballot. Karen Dike of Coloradans Against Fracking said Thursday the group will try to persuade Gov. John Hickenlooper to impose a ban on the practice, but it isn’t actively working on a ballot issue. Dike had said Tuesday the group planned to start a ballot campaign. She now says Coloradans Against Fracking isn’t ruling out a ballot issue if Hickenlooper fails to act. In an interview broadcast Thursday, Hickenlooper told Colorado Public Radio the state couldn’t justify a ban because there was insufficient evidence that fracking is harmful.

Kansas earthquakes worsen damage to century-old courthouse -- Harper County officials are grappling with how to fix a century-old courthouse that already was deteriorating before a sharp increase in earthquakes began rattling south-central Kansas. The bill just to repair the 107-year-old stairways has increased from $400,000 to $1.1 million and an insurance adjuster also has found cracks in the interior of the courthouse in Anthony. County officials attribute some of the damage to age but say the problems have worsened since the increased earthquakes began in 2013, The Hutchinson News reported ( http://bit.ly/1BM6vLT  ). “We think possibly some of it could be from the earthquakes,” County Clerk Cheryl Adelhardt said. “We have seen the splits and cracks get larger.” Still, Ruth Elliott, the county’s deputy county clerk, said Tuesday the courthouse remains safe and open for business. The Kansas Geological Survey had recorded more than 200 earthquakes in Kansas since Jan. 1, 2013. More than 100 were recorded in Harper County, most with a 3.0 magnitude.While some environmental groups have blamed the outbreak of earthquakes on hydraulic fracturing, or fracking, used to extract oil and gas in the region, state officials still are studying the question.

U.S. Geological Survey: Fracking waste is the primary cause of the dramatic rise in earthquakes -- The U.S. Geological Survey has backed-up what scientists have been suggesting for years–that deep injection of wastewater is the primary cause of the dramatic rise in detected earthquakes: Large areas of the United States that used to experience few or no earthquakes have, in recent years, experienced a remarkable increase in earthquake activity that has caused considerable public concern as well as damage to structures. This rise in seismic activity, especially in the central United States, is not the result of natural processes.  Instead, the increased seismicity is due to fluid injection associated with new technologies that enable the extraction of oil and gas from previously unproductive reservoirs. These modern extraction techniques result in large quantities of wastewater produced along with the oil and gas. The disposal of this wastewater by deep injection occasionally results in earthquakes that are large enough to be felt, and sometimes damaging. Deep injection of wastewater is the primary cause of the dramatic rise in detected earthquakes and the corresponding increase in seismic hazard in the central U.S.   “The science of induced earthquakes is ready for application, and a main goal of our study was to motivate more cooperation among the stakeholders — including the energy resources industry, government agencies, the earth science community, and the public at large — for the common purpose of reducing the consequences of earthquakes induced by fluid injection,” said coauthor Dr. William Ellsworth, a USGS geophysicist.Emphasis added. In the last five years alone, Oklahoma has detected a staggering 2500 earthquakes. Scientists involved in the study are calling for a dramatic increase in transparency and cooperation:

USGS Confirms Oklahoma Quakes Are Due To Fracking -- The debate about the cause of the exponential rise in the frequency of earthquakes in Oklahoma has really heated up in the last year, but as KFOR4 reports, The United States Geological Survey (USGS) appears to have put any doubt firmly to rest. In a strongly-worded press release, the USGS states, "...Large areas of the United States that used to experience few or no earthquakes have, in recent years, experienced a remarkable increase in earthquake activity.. This rise in seismic activity, especially in the central United States, is not the result of natural processes... Instead, the increased seismicity is due to fluid injection associated with new technologies that enable the extraction of oil and gas from previously unproductive reservoirs." For some, that could end the debate; but Kim Hatfield, with the Oklahoma Independent Petroleum Association, is not so sure, "I don’t think it’s particularly helpful because basically, it says we’ve come to a conclusion, but we don’t have the science to back it up."

Full USGS Statement: Coping with Earthquakes Induced by Fluid Injection --A paper published today in Science provides a case for increasing transparency and data collection to enable strategies for mitigating the effects of human-induced earthquakes caused by wastewater injection associated with oil and gas production in the United States.  The paper is the result of a series of workshops led by scientists at the U.S. Geological Survey in collaboration with the University of Colorado, Oklahoma Geological Survey and Lawrence Berkeley National Laboratory, suggests that it is possible to reduce the hazard of induced seismicity through management of injection activities. Large areas of the United States that used to experience few or no earthquakes have, in recent years, experienced a remarkable increase in earthquake activity that has caused considerable public concern as well as damage to structures. This rise in seismic activity, especially in the central United States, is not the result of natural processes. Instead, the increased seismicity is due to fluid injection associated with new technologies that enable the extraction of oil and gas from previously unproductive reservoirs. These modern extraction techniques result in large quantities of wastewater produced along with the oil and gas. The disposal of this wastewater by deep injection occasionally results in earthquakes that are large enough to be felt, and sometimes damaging. Deep injection of wastewater is the primary cause of the dramatic rise in detected earthquakes and the corresponding increase in seismic hazard in the central U.S.

Why fracking worsens earthquakes in the heartland -  Not so many years ago, earthquake science was no more relevant to Oklahoma than marine biology. But these days the state is shaking way more often than California, and giving many people there an unwanted crash course in seismology. Last year, Oklahoma had 585 earthquakes with a magnitude 3.0 or greater (big enough for people to easily feel) — almost three times as many as California had and up from an average of just two a year before 2009. Not coincidentally, that's when oil and gas drillers began injecting wastewater from fracking operations into thousands of underground wells. In the past week alone, Oklahomans have felt the earth move eight times — which is probably eight times more than nature intended them to. It's enough to get officials, even in a drilling-friendly state, to take action to manage wastewater wells.   The phenomenon isn't mysterious. Geologists have known for many decades that when pressure underground is changed — when people inject water, for example, or extract geothermal energy — latent earthquakes can be triggered. While the great majority of fracking-wastewater wells have no such effect, some — especially those in which great volumes of water reach crystalline basement rock that lies close to a fault — induce earthquakes that otherwise might not have happened for hundreds of years. There's also a whole lot more shaking going on in Arkansas, Colorado, New Mexico, Ohio, Texas and Virginia, too. But the most tremors have been reported in Oklahoma. So far, the injuries to humans and damage to chimneys and foundations from the uptick in seismic activity have been mostly minor. But scientists aren't able to predict this seismicity, or whether it is likely to continue to grow in frequency and strength.

Sued by Chesapeake Energy for Stealing Trade Secrets, Aubrey McClendon Hires PR Giant Edelman -- Chesapeake Energy has sued its former CEO, Aubrey McClendon, for allegedly stealing its trade secrets in the months between his resignation and the formation of his new company, American Energy Partners. To defend itself outside of the courtroom, American Energy Partners has hired Edelman, the 'world's largest' and often controversial public relations firm.  Filed on February 17 at the District Court of Oklahoma County, Chesapeake's legal complaint alleges McClendon covertly took map-based data owned by the company in the time between resigning from the company and then officially leaving the company in early 2013. Chesapeake also alleges that he then utilized that same confidential data for business and investment decisions at his new startup in deciding which land to purchase for hydraulic fracturing (“fracking”) for oil and gas. “AEP used confidential information and trade secrets stolen by McClendon from Chesapeake as a basis for their decision to acquire certain acreage in the Utica Shale Play,” alleges the lawsuit. “Further, in acquiring this acreage…AEP interfered with Chesapeake's business plans and its negotiations for its own acquisition of acreage in the Utica Shale play.” Chesapeake Energy alleges that, before taking the data with him, McClendon asked a former company vice president of land, whose name is redacted in the complaint, to optimize and update the data.

As Oil Prices Tank, Firms Large And Small Feel The Pain -- It's a painful time to be in the oil business. With the price of crude oil about half what it was six months ago, companies large and small are being pressured to cut costs.On the front lines are oil services companies that do everything from drilling to providing electrical power at well sites. Hundreds of thousands of jobs are threatened as companies try to adjust.Gary Evans, CEO of the oil and gas company Magnum Hunter Resources, has a tough message for the people who provide critical services to companies like his: "We've got to lower our cost," he said to a packed auditorium in Houston last week. He says that means the services his company provides — everything from fracking to trucking — are going on sale, big time.When there's a big sale coming at Neiman Marcus, Evans says, you don't spend your money until the sale prices appear. And right now, he's waiting for the deep discounts in oil services before he spends any more money."No drilling, no completion, no fracking, no nothing. Cut it completely off. ... We tell our vendors, 'When you're ready to do it at 40 percent below what you were charging me in December, we'll go back to work.' "

How secure are ND’s pipelines and drilling sites? - A number of spills in North Dakota’s oil patch have got headlines recently, but at least one company is a little suspicious as to how they came to happen.“Hess spokesman John Roper said employees found wide-open valves on saltwater storage tanks on two well locations 3 miles apart,” the Bismarck Tribune reported.“We call that suspicious,” Roper told the newspaper. The implications of that statement are sobering given how endlessly controversial oil development is, and how invested politically some groups seem to be in using every oil spill and train derailment as a weapon against development.  How secure are the state’s oil wells and pipelines? And who would be motivated to cause spills, if that is what’s happening? On the latter question, it could be a disgruntled employee or group of employees. Dropping oil prices have resulted in layoffs in some parts of the country, but that really hasn’t hit North Dakota yet.Could it be random vandals? Always possible. Could it be environmental activists who are heavily invested in any and every opportunity to embarrass the industry they hate? That’s also a possibility. The environmental movement, like any political movement, has its fringe elements. Acts of vandalism by these activists isn’t common, but it’s not unusual either. The oil industry is very controversial in some circles, and there are even foreign nations with an interest in doing whatever they can to wound America’s domestic oil production. Case in point, the Dakota Resource Council. This organization is not in any way connected to the alleged “suspicious activity” around the recent spate of spills in the oil patch, but they do exemplify the cynical opportunism at play among environmental activists generally.

Stats show oil patch highway is most dangerous in state - The main north-south artery in North Dakota’s oil patch is the most dangerous stretch of road in the state, newly released statistics show. U.S. Highway 85 had the most fatal accidents, injury accidents and property damage accidents, according to a preliminary 2014 report from the state Department of Transportation. The highway had 11 fatal accidents, 188 injury accidents and 526 property damage accidents. By comparison, Interstate 94 in southern North Dakota saw 4 fatal crashes, 141 injury crashes and 444 property damage crashes, according to the report. Portions of U.S. 85 also have some of the highest traffic volumes in the state. “That speaks to the amount of equipment for oil and gas and construction that’s moving up and down that corridor. This isn’t grain trucks,” said Cal Klewin, director of an organization pushing for the highway to be made into a four-lane expressway.

Williston man camp closing because of city code violations — Officials in Williston are standing by their previous decision and forcing a 400-bed man camp to close because of city code violations. The Williston Herald reports that Black Gold Lodge petitioned the city to reverse a Jan. 13 decision to shut down the facility Tuesday evening. City commissioners moved to take no action, allowing their previous vote to stand. Black Gold came under city limits in 2013 through a land annexation. The city requires sprinkler systems and commissioners had given Black Gold until Dec. 31, 2014, to install one, but the company says contractor issues stalled the installation. Black Gold says it’s now in compliance with city code and has spent nearly $700,000 installing the system. Commissioner Chris Brostuen argued the situation is “pure negligence,” which the commission should not reward.

Bakken oil drillers retreat to the core – North Dakota’s oil producers have pulled back to the core areas of the Bakken formation to cut costs and maximize output amid the slump in prices. The number of active rigs in the state has fallen to just 121, from 190 a year ago, according to an active rig list published by the state’s Department of Mineral Resources (DMR) on Wednesday. The rig count is now below the threshold of “at least 130″ DMR Director Lynn Helms identified last month as needed to sustain output at the current level of just over 1.2 million barrels per day. But more important than the raw number is their distribution across the state, with drilling now increasingly concentrated in only the most promising areas. Of the 121 rigs active on Wednesday, 115 are drilling in just four counties at the heart of the Bakken – Dunn, McKenzie, Mountrail and Williams. The number of rigs operating in the core has fallen by 30 percent from 165 on Dec. 12, according to DMR records. The four core counties accounted for 89 percent of the state’s oil production in December, a little over 1 million barrels per day. Only six rigs are operating outside the core counties, down from 17 in mid-December, a decline of 65 percent. Non-core counties produced just 128,000 barrels per day in December, so they account for a trivial amount of output on a national scale.

Senate rejects Bakken flaring bill -- Last Thursday North Dakota senators shot down a measure that aimed to further restrict and reduce flaring activity, according to a report by the Forum News Service. Senate Bill 2287 failed with 35 votes against and 11 in favor. The bill would have cut the amount of time a well is allowed to flare from one year to 90 days. It also would have placed restrictions on the volume of natural gas flared each day and nullify some exemptions from the current policy.The bill, sponsored by Sen. Jim Dotzenrod (D-Wyndmere), stated that the natural gas currently being flared, or burned off, into the atmosphere is an unreasonable amount. He said as much as 24 percent of the produced natural gas is being flared, an unacceptable figure in other oil and gas producing states, especially when there is gas capture technology available. As reported by the Forum News Service, Dotzenrod said, “I think we as a legislature have made it easy to flare.” According to Sen. Donald Schailble (R-Mott), because the North Dakota Industrial Commission has addressed the issues with recent gas capture goals, the Senate Energy and Natural Resources committee gave the bill a do-not-pass recommendation.

Energy companies slash $50 billion from their 2015 budgets - The collapsing oil price has pushed North American energy companies to slash their budgets for 2015—to the tune of $50 billion. That is the difference between the 2014 capital budgets of 66 mostly U.S.-based energy companies and what the same companies have set aside for 2015, according to a report by Citi. On average, the companies slashed their financial plans by 30%, Citi said. Some of the smaller companies went much further: midcap Denbury Resources for example, cut its capex budget by 50% this year; and small-cap Goodrich Petroleum cut its budget by more than 70%. Larger companies, with their more diversified portfolios both in terms of geography and business lines, have cut by a smaller amount. Chevron reduced its budget by 13% to $35 billion, for instance (rival Exxon Mobil will announce its 2015 capital budget next week.) Budgets are being slashed as the energy companies struggle to contain costs amid a slide in oil prices of more than 50% in a little over six months. Companies are also sidelining drilling rigs at a fast clip, and several have announced layoffs as the world continues to be awash in oil. Concerns about demand have also kept crude prices low. See also: these places have lost the most rigs since oil’s collapse. The glut is expected to persist through the first half of the year, at least, since the U.S. is still pumping a lot of oil through more efficient drilling techniques, and it is sitting on the largest inventories since the 1920s

Oil rigs fall idle after global crude prices drop: With the halving of world oil prices since June last year, the oil industry as a whole has been hit - but those involved in the manufacturing and servicing of offshore oil rigs have been especially affected. Some industry analysts have said it is the worst market they've seen since 1985, as drilling programmes are postponed or cancelled, and oil rigs - together with their staff - are put out of commission. The number of oil rigs actively drilling at any point in time, is considered a good gauge of the health of the industry. Currently there are more than 180 oil rigs in South Asia alone, but with the downturn in oil prices more than half of those are now effectively without a role. Worst still, there is an oil rig oversupply, with hundreds of old oil rigs still in the market, and newly-built ones waiting for work. Too many rigs Jack-up oil rigs, many of which are manufactured in Singapore, are used to drill for oil in relatively shallow waters. There are more jack-up rigs in the worldwide offshore rig fleet than any other type.Long-time oil industry specialist Ian Craven, with Icarus Consultants, says 91 new jack-up rigs were delivered to market between 2011 and 2014. And he says while those rigs may have been absorbed into the market, up to now few old rigs have been scrapped to make room for them. This, he explains, has led to a dog-eat-dog market place, with more rigs chasing fewer jobs and consequently losing work. Many surplus jack-up and floater rigs end up in Singapore, Malaysia or Indonesia where they are put into idle mode - or what the industry refers to as 'stacked'. Staff on board are replaced with skeleton teams, and the rigs are either kept ready for a new commission - or switched off before they are parked somewhere affordable, often off the shores of Malaysia or Indonesia.

US shale oil's crash diet likely to bring forward output dip – Shale oil producers are throttling back so quickly on drilling that U.S. crude output could fall sooner than expected, within months, executives say as they slash costs to cope with tumbling crude prices and compete with Persian Gulf rivals. About a dozen chief executives who talked to Reuters or who spoke publicly, acknowledged they were taken aback by the scale and speed of the cutbacks, noting how this oil price downturn was different from several previous episodes in their careers. For one, companies are cutting costs deeper and faster than before as Wall Street investors increasingly place a premium on capital discipline rather than just production growth. Some also say the nature of shale makes it easier for companies to defer work and wait for prices to recover. The wells that drove the U.S. energy boom of the last decade rapidly deplete, so overall output will fall unless new holes are constantly bored and oil extracted via hydraulic fracturing, or fracking. “The thing that has surprised me … is that companies large and small, financially strong, financially weak have really cut capital spending much quicker than I have seen before,” . Just few weeks ago, the prevailing view among industry insiders and analysts was that U.S. oil production would keep rising for several months despite falling rig numbers because of rising productivity of active wells and drilling inertia. In the past, if a producer had a rig contract, they would continue drilling. Now, producers are paying fees to break those contracts, a fact that has hastened the steep drop in the rig count, said Vincent.

US Rig Count Decreases 43 to 1,267 - Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. fell by 43 this week to 1,267 amid depressed oil prices. The Houston-based company said Friday in its weekly report that 86 rigs were exploring for oil and 280 for gas. One was listed as miscellaneous. A year ago 1,769 rigs were active. Of the major oil- and gas-producing states, North Dakota's count fell by 11, Oklahoma lost nine, Louisiana seven, Texas six, New Mexico four, Colorado three and Wyoming two. West Virginia, Ohio and Kansas dropped one each. Alaska increased by five. Arkansas, California, Pennsylvania and Utah were all unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.

US oil rig count plunges to lowest since June 2011 - The number of US oil rigs in use fell by 33 this week to 986. This is the lowest total for US oil rigs since the week ending June 17, 2011. The number of oil and gas rigs in use fell by 43 to 1,267, the lowest since the week ending January 15, 2010. The decline in oil rigs has been closely watched as the price of oil has tumbled, and at current levels, the decline in US oil rig count is about 39%; in January, Baker Hughes said the number of rigs in use has declined by 40%-60% during past oil downturns. On Friday afternoon following this report, West Texas Intermediate crude oil was up about 2.2% to $49.20, little changed from where it was ahead of the numbers. This week, the biggest number of rigs shutting down came from the Williston basin, where 12 rigs went out of use, while 7 rigs in the Permian basin were shut down. By state, 11 rigs in North Dakota were shuttered, 9 in Oklahoma shut down, and 7 in Louisiana. Compared to last year, the number of oil rigs in use is down by 444 in the US, while combined oil and gas rigs are down by 502. Last week the number of US oil rigs in use fell by 37 to 1,019.  The number of combined oil and gas rigs declined by 48 last week to 1,250.  Here's the latest chart of US oil rig count, per Baker Hughes.

Oil Prices Tumble As Pace Of Rig Count Decline Slows - With production and inventories at record levels despite the total collapse in rig counts, all eyes remain on Bake rHughes data for any signal the algos can use to mount a run. The total rig count fell for the 12th week, down 43 to 1267. This 3.3% decline is the slowest drop in 6 weeks and oil prices are sliding on this news. The key level to watch for WTI is $48.24 which moves it into the red for the 8th month in a row. The pace of decline (and this future possible production) is dropping... In theory, Oil prices should surge on this news... They are not... The excess supply, continued record production, and record inventory in the US (compared to refinery demand in Europe) has smashed the Brent-WTI spread to over $12.50 - the highest since Jan 2014... As Brean Capital's Peter Tchir recent noted, despite the plunge in rig counts, so far there is no sign of contraction in output. The problem is that not all rigs are created equal, and what we see is still a “net” number. We see the net number of rigs that are working. The reality is that some new projects continue to come on line and are very high producing wells, and some of what is being taken away, was either old, or projects that hadn’t yet been contributing production. I for one, cannot claim to know what each and every rig in America can produce, let alone the world, but I am willing to bet there is at least one person out there with a spreadsheet that does. They can estimate production very well. These are the people who have been pounding on the table that this rig count is NOT helping production much, at least for the next 3 to 6 months. They are quickly learning the lesson of trying to get a few facts to stand in the way of a good meme, but I think they are about to get listened to.

The oil patch rig count is down, but only technically speaking - Oil prices surged today as traders learned that the work of yet more rigs has been halted on the US shale oil patch. Baker Hughes, which keeps track of rigs operating in the field, reported that the count dropped below 1,000 for the first time since June 2011. At 986, the number of rigs is now down almost 39% since October.The oil optimists not only sense that supply is contracting—in the US, as well as in Iraq and Libya—but see glimmers of rising oil demand, possibly justifying a bottom to a months-long price plunge.Yet supply disruptions, especially in war zones, can be ephemeral and snap back. And, as we’ve written, rig-counting is tricky business, because drillers can withdraw any amount of equipment from the margins of a field while keeping other rigs working in the most productive areas.On the latter point, Citi has surfaced with some surprising data regarding the rig count within the shale oil patch, which almost totally accounts for the 4-million-barrel-a-day increase in US production since 2011. According to Citi, if you take into account the 20% rise in drilling productivity across the main shale oil fields, the number of rigs has actually increased since last year—substantially so.Citi’s report was written prior to today’s release of rig data, but the numbers don’t change the conclusions. The bank calculated that, yes, the absolute number of horizontal oil rigs was down year on year as of last week, to 377 from 386 last year. But adjusting for productivity, it was as though 452 rigs were drilling at 2014 rates, equal to a 17% increase. Likewise, when Citi broadened out its survey and looked at horizontal oil and gas rigs, it found an absolute drop to 641 rigs compared with 711 at this time last year. But taking into account the productivity gain, it was as though there were 770 horizontals, which would represent a 20% increase.

Amid controversy, oil trains quietly rerouted through Virginia towns (Reuters) - Hundreds of communities across the United States have become accustomed to the sight of mile-long oil trains rumbling by in recent years. Pembroke, Virginia, was not one of them, until now. CSX Corp is temporarily rerouting up to five oil trains through this small riverside town to bypass the site of an explosive oil train derailment that occurred 90 miles north in Mount Carbon, West Virginia, on Monday. The trains will likely travel instead on a track that hugs the New River and at one point sweeps into the Pembroke town limits. In line with a federal protocol established last year following a string of fiery derailments across North America, the Virginia Department of Emergency Management on Tuesday informed 16 counties and cities that oil trains could be coming through their towns, local officials and fire departments said, one day after the Mount Carbon derailment. Those counties passed the information on to local emergency responders. "They sent us information and gave us an emergency response guide sheet," said Chris Neice, Pembroke's fire chief. CSX has notified the state that as many as five trains, each carrying between about 24,000 and 70,000 barrels of oil, will be rerouted, according to Jeff Stern, state coordinator at the Virginia Department of Emergency Management. The trains will run along a Norfolk Southern line that normally transports coal and freight, not oil, until the main route is restored. That this is happening with little fanfare in Pembroke and potentially hundreds of other cities and towns along this track stretching as far as Ohio, highlights how ubiquitous oil trains have become in the United States, where crude-by-rail is an essential, yet sometimes explosive, fix for an overwhelmed pipeline network.

Crews begin removal of contaminated soil at derailment site - Workers on Tuesday started removing contaminated soil containing oil that spilled after a CSX train derailed in Fayette County, according to a CSX spokesman. Nearly 30 tank cars of the 109-car train, carrying oil from the Bakken Shale in North Dakota, derailed in Fayette County on Feb. 16. The derailment sparked explosions and fires, destroying one house and causing evacuations of other residents. Officials with the joint information center, comprising the company, state and federal officials, have said environmental tests show no further impact so far on public safety, and that water supply was not affected. Rob Doolittle, spokesman for CSX, said workers started excavating the soil on Tuesday morning. “We will collect all that soil and dispose of it in an environmentally responsible way,” he said. Doolittle wasn’t sure in what “environmentally responsible” way the soil would be disposed of but said the company would follow environmental standards. “The disposal plan is still under development and will be approved by the [Department of Environmental Protection] and the other elements of the unified command before we begin to execute it,” he said. “That process is not complete yet.” He said he didn’t know how contaminated soil had been disposed of other times CSX trains have derailed.

Recent “Bomb Trains” Expose Regulatory Failures: The latest oil train derailments could force the federal government to tighten the regulatory screws further than they had planned. The train disasters in Ontario and West Virginia were the latest in a long line of explosions from oil trains, or “bomb trains” as they have been called derisively by their critics. The problem, regulators thought, were the thin-walled flimsy DOT-111 railcars, which had not originally been designed to safely carry volatile crude oil. U.S. federal transportation regulators began writing new rules that would require the phase-out of these older cars, in favor of newer reinforced designs. The tricky problem facing regulators is one inconvenient detail – the newer railcars that have been trumpeted as much safer were the ones that that derailed and exploded on February 16 in West Virginia. The so-called CPC-1232 cars are an upgrade over the DOT-111, with thicker hulls to prevent puncturing and pressure valves to vent gas in the event of the railcars overheating. Nevertheless, even though the CPC-1232 cars have demonstrated that they are inadequately safe, much of the crude hitting the nation’s railways are not even traveling to that standard. Railcar manufacturers do not have the capability to ramp up production of the CPC-1232s fast enough, with a backlog of at least 50,000 cars. Meanwhile, there are still around 171,000 DOT-111s still in operation. And in another loophole exposed by E&E News, railroad companies can even continue to use damaged railcars which leak oil, with the approval from the federal government. Another problem is the extra volatility that Bakken crude has demonstrated. Due to the associated volatile gas that comes with oil drilled in the Bakken, the oil carried by train coming from North Dakota is more dangerous than conventional crude. The state of North Dakota has required that producers process the oil to remove the gases, and that rule takes effect on April 1. While it is so far unclear if the crude that exploded in the West Virginia incident had undergone this type of processing, it would not have been required.

AP Exclusive: Fuel-hauling trains could derail at 10 a year (AP) — The federal government predicts that trains hauling crude oil or ethanol will derail an average of 10 times a year over the next two decades, causing more than $4 billion in damage and possibly killing hundreds of people if an accident happens in a densely populated part of the U.S. The projection comes from a previously unreported analysis by the Department of Transportation that reviewed the risks of moving vast quantities of both fuels across the nation and through major cities. The study completed last July took on new relevance this week after a train loaded with crude derailed in West Virginia, sparked a spectacular fire and forced the evacuation of hundreds of families. Monday’s accident was the latest in a spate of fiery derailments, and senior federal officials said it drives home the need for stronger tank cars, more effective braking systems and other safety improvements. “This underscores why we need to move as quickly as possible getting these regulations in place,” said Tim Butters, acting administrator for the Transportation Department’s Pipeline and Hazardous Materials Safety Administration. The volume of flammable liquids transported by rail has risen dramatically over the last decade, driven mostly by the oil shale boom in North Dakota and Montana. This year, rails are expected to move nearly 900,000 car loads of oil and ethanol in tankers. Each can hold 30,000 gallons of fuel. Based on past accident trends, anticipated shipping volumes and known ethanol and crude rail routes, the analysis predicted about 15 derailments in 2015, declining to about five a year by 2034.

Get used to it. Dept. of Transportation predicts 10 oil-train derailments a year -- A week ago, a 109-railcar train carrying 3.1 million gallons of volatile crude oil from the Bakken Shale of North Dakota derailed in Powellton Hollow, West Virginia. Twenty-seven of the cars went off the rails near the Kanawha River and 19 caught fire, burning for days and forcing an evacuation of more than 100 people there and in nearby towns.  Just a few days before there was an oil-train derailment in Ontario.   In these two cases nobody died, but as we saw in the case of the Lac-Mégantic oil-train derailment in 2013, when 47 people were killed and more than 30 buildings destroyed by the explosion and fire that ensued, these wrecks can be lethal, and the damage expensive to clean up and repair.  According to an exclusive Associated Press article published this weekend, a U.S. Department of Transportation report last July predicts that over the next decade there will be an average of 10 derailments a year of trains hauling crude oil or ethanol. Damage from these over the next two decades could be as high as $4.5 billion. But if a derailment occurs in one of the densely populated cities through which these trains routinely travel, it could kill as many as 200 people and cause $6 billion in damages: The volume of flammable liquids transported by rail has risen dramatically over the last decade, driven mostly by the oil shale boom in North Dakota and Montana. This year, rails are expected to move nearly 900,000 car loads of oil and ethanol in tankers. Each can hold 30,000 gallons of fuel.  Based on past accident trends, anticipated shipping volumes and known ethanol and crude rail routes, the analysis predicted about 15 derailments in 2015, declining to about five a year by 2034.

Canada: Oil train accident shows new safety rules inadequate -  A fiery oil train derailment in Ontario this month suggests new safety requirements for tank cars carrying flammable liquids are inadequate, Canada’s transport safety board announced Monday. The accident was the latest in a spate of fiery derailments in Canada and the U.S., a trend which American safety officials say drives home the need for stronger tank cars, more effective braking systems and other safety improvements. The Canadian Transportation Safety Board said the tank cars involved in the Feb. 14 train derailment met upgraded standards that started to be instituted in Canada last year for new tank cars carrying crude and other flammable liquids. But it said the Class 111, 1232 standard cars still “performed similarly” to those involved in the derailment in Lac-Megantic, Quebec that killed 47 people two years ago. That accident predated the changes. “This was supposed to be a better quality car. So far we haven’t seen that better performance,” Rob Johnston, a senior Transportation Safety Board official, said in an interview with The Associated Press. The U.S. and Canada are trying to coordinate on even newer tank car standards. U.S. Transportation Secretary Anthony Foxx met with safety officials in Canada in December to discuss the issue but neither country has yet settled on a new tank car design, though the U.S. is getting closer. Transportation officials recently sent a proposal for new tank car standards to the White House budget office for review.

Canadian crude proves perfect partner to U.S. shale - U.S. refineries are processing record quantities of heavy crude from Canada as the perfect complement to light oils from North Dakota and Texas as they struggle to keep their average blend steady. Crudes vary enormously – from low-density oils with few impurities to much denser oils containing a relatively high percentage of sulfur and heavy metals such as nickel and vanadium. Bakken and Eagle Ford are light, sweet oils, while Saudi Arabia’s Arab Heavy and Alberta’s Western Canadian Select are much heavier and sourer. The density of crudes is normally expressed in terms of degrees API, which compares oil to the density of water at a standard temperature of 60 degrees Fahrenheit. Crude density ranges from 42 degrees API for Bakken (which makes it about 80 percent as dense as water at standard temperature) to 27 degrees for Arab Heavy (89 percent as dense as water) and 22 degrees for Western Canadian Select (93 percent as dense as water). But the big differences are easier to understand by switching to more familiar units. A cubic meter of Bakken crude weighs around 815 kg, compared with 885 kg for Arab Heavy and 925 kg for Western Canadian Select. While the qualities of crudes vary widely, U.S. refiners have discerning requirements. The average density of crude processed in U.S. refineries has been steady, varying by only 3 degrees over the last three decades, or about 17 kg per cubic meter, according to the U.S. Energy Information Administration (EIA). U.S. refiners like to process crudes averaging around 30-32 degrees API, or between 865 and 875 kg per cubic meter.  Refineries achieve this remarkably steady performance by blending crudes to achieve a combined feed as close as possible to the ideal.

Pipeline expansion to connect Bakken ethane with Alberta market -- Pembina Pipeline Corp. has announced plans to expand the Vantage pipeline system which would link Bakken’s growing supply of ethane with the petrochemical market in Alberta, reports The Bakken Magazine. The recently constructed high-vapor-pressure Vantage pipeline runs from a gas processing plant in Tioga, North Dakota, and extends 430 miles to Empress, Alberta. From there it connects to the Alberta Ethane Gathering System pipeline. The $85 million expansion will increase the mainline capacity from 40,000 barrels per day (bpd) to roughly 68,000 bpd. The additions will include new pump stations and a new 50-mile 8-inch gathering line. As reported by The Bakken Magazine, Pembina President and Chief Executive Officer Mick Dilger said, “This expansion has been a priority for us since acquiring Vantage in September 2014, and we are very pleased to see it come to fruition. It supports our strategy to grow our fee-for-service-based cash flow stream, improves the accretion of the Vantage acquisition and will provide long-term shareholder value.” The pipeline expansion is supported by long term fee-for-service agreements with a significant take-or-pay component. The addition of the gathering line is supported by capital investment agreements with fixed returns. The expansion is expected to be operational by early 2016 pending regulatory and environmental approval. The company expects that once completed, the overall system will result in earnings up to $110 million per year before interest, taxes, depreciation and amortization are accounted for.

Obama vetoes Keystone XL pipeline bill  – President Barack Obama on Tuesday swiftly delivered on his vow to veto a Republican bill approving the Keystone XL oil pipeline from Canada, leaving the long-debated project in limbo for another indefinite period. The Senate received Obama’s veto message and Senate Majority Leader Mitch McConnell immediately countered by announcing the Republican-led chamber would attempt to overturn the veto by March 3. Obama rejected the bill hours after it was sent to the White House. Republicans passed the bill to increase pressure on Obama to approve the pipeline, a move the president said would bypass a State Department process that will determine whether the project is in the U.S. national interest. “Through this bill, the United States Congress attempts to circumvent longstanding and proven processes for determining whether or not building and operating a cross-border pipeline serves the national interest,” Obama wrote in his veto message.   Republicans, who support the project because of its job-creation potential, made passing a bill a top priority after gaining control of the U.S. Senate and strengthening their majority in the House of Representatives in November elections. The bill passed by 270-152 in the House earlier this month and cleared the Senate in January. Despite their majority in the Senate, Republicans are four votes short of being able to override Obama’s veto.

President Obama Vetoes Keystone XL Pipeline Bill -- As expected,  President Obama has vetoed the bill that would have fast-tracked the Keystone XL pipeline: President Obama on Tuesday vetoed a bill to approve construction of the Keystone XL oil pipeline, rejecting an effort by Republicans and some Democrats to force his administration to let the highly contested energy project move forward. By saying no to the legislation, Mr. Obama retains the authority to make a final judgment on the pipeline on his own timeline. The White House has said the president would decide whether to allow the pipeline when all of the environmental and regulatory reviews are complete. But the veto — his first rejection of major legislation as president — is also a demonstration of political strength directed at Republicans who now control both chambers of Congress. Mr. Obama is signaling that he will fight back against their agenda. The Obama administration must decide whether to approve infrastructure projects like the Keystone pipeline, which cross a border with another country. In his veto message to Congress, delivered with no fanfare on Tuesday afternoon, Mr. Obama wrote that the legislation “attempts to circumvent longstanding and proven processes for determining whether or not building and operating a cross-border pipeline serves the national interest.”

Obama Just Vetoed The Keystone XL Pipeline. Now What? -- A two-month legislative battle over the Keystone XL pipeline has come to its tentative end.  President Obama on Tuesday vetoed a bill to approve construction of the controversial pipeline, which would bring tar sands oil from Canada down to refineries on the Gulf coast. The decision comes — as White House spokesman Josh Earnest said it would — with little fanfare. Obama had been widely expected to reject the bill, and there’s been no indication that the Republican-led Congress has enough votes to override him.  So now what? For starters, pretty much everyone has noted that Keystone is not dead. All the veto means is that Congress isn’t able to force the pipeline’s construction through legislation — the process is just going back to being centered on the State Department’s administrative review procedure, as it largely has been for the last six years.  After it’s finished reviewing the pros and cons of Keystone XL, the State Department will ultimately make a recommendation to Secretary of State John Kerry on whether Keystone XL is in the national interest. Kerry will then make the official determination, which will likely sway the President’s final decision. For now, there’s no telling when that will happen. As Neela Banerjee reported for InsideClimate News, Kerry has no deadline to make his decision on whether Keystone XL is in the national interest. But while everyone waits for that to happen, there are at least three things in the works that could heavily influence the future of the pipeline.

On Keystone and Climate, Bloomberg Presses Obama to Negotiate with Canada Instead of Congress -- Former New York City Mayor Michael R. Bloomberg, now a United Nations climate envoy, has laid out a wise path for President Obama that could sidestep the political morass surrounding Canada’s oil-rich Alberta tar (sands) pits and the proposed Keystone XL pipeline. As he did with China, Obama can negotiate with Canada to gain commitments on the prime goal of those fighting the pipeline, cutting carbon dioxide emissions, Bloomberg says. Cleaning up the pollution on the ground and in the waters of Alberta is Canada’s domestic responsibility. Making sure all pipelines carrying oil across the United States are safe (not to mention trains!) is this country’s existing responsibility, with or without the Keystone pipeline additions. Bloomberg’s approach, like most moves in this fraught arena, will never appease Obama’s critics on the left and right. But it could demonstrate leadership, both to the American middle class and the international community preparing for talks aimed at forging a global climate agreement at the end of the year in Paris. And, of course, its success depends on Canadian Prime Minister Stephen Harper getting serious about addressing climate change.

Shell Withdraws From Largest Tar Sands Project Yet - On Monday Royal Dutch Shell announced it was shelving plans to build a new tar sands mine in northern Alberta — the largest such project to be deferred.  Shell withdrew its applications for the Pierre River project, which would have produced 200,000 barrels-per-day (bpd), to focus on maintaining profitability for its existing 255,000-bpd tar sands operations, according to the company.  “The Pierre River Mine (PRM) remains a very long term opportunity for us but it’s not currently a priority,” said Lorraine Mitchelmore, Shell Canada President and Executive Vice President of Heavy Oil. “Our current focus is on making our heavy oil business as economically and environmentally competitive as possible. Shell was one of the earliest tar sands producers to cut staff due to low oil prices, laying off around 300 workers at its Albian tar sands project in Alberta starting last month.  Instability makes it hard for most companies to do business, and unreliable oil prices are no different. Crude oil prices have fallen more than 50 percent over the last six months, hovering between $50 and $60 per barrel of late. Last August, Mitchelmore said Shell Canada’s tar sands business met profitability markers when crude traded above $70 per barrel.  Shell originally halted work on the Pierre River project a year ago, stating the need to re-evaluate the timing as a heated environmental review process was taking longer than anticipated. The project was first proposed in 2007.

Canada's oil sands cash flows to fall by $21 billion in 2 years - – Oil sands cash flows will fall by $21 billion in the next two years, energy consultancy Wood Mackenzie said in a report on Tuesday, as low global petroleum prices make it less economical to extract bitumen from northern Alberta. Canada’s oil sands hold the world’s third-largest proven crude reserves after Saudi Arabia and Venezuela, but operating costs are among the highest globally, according to Wood Mackenzie principal analyst Callan McMahon. Current operating costs reach $37 per barrel for thermal projects, in which steam is pumped underground to liquefy tarry bitumen so it can flow, and $40 per barrel for mining projects. With benchmark U.S. crude trading around $50 a barrel, down from more than $100 in June, McMahon said the oil sands region’s cash flows would drop by $21 billion in 2015 and 2016 combined. Producers including Suncor Energy Inc, Cenovus Energy Inc and MEG Energy have slashed 2015 capital expenditures in response to the oil price slump. Wood Mackenzie estimates industry spending will drop by $1.5 billion over the next two years, down 4 percent from its fourth-quarter 2014 assumptions. McMahon said production was unlikely to be shut in even if projects temporarily operate at a loss, while new ones scheduled to start up this year will go ahead because the investment has already been made.

New hopes that tar sands could be banned from Europe --A landmark directive with the potential to ban tar sands oil from Europe has been reprieved, the Guardian has learned. The EU’s most senior energy official confirmed that the fuel quality directive (FQD) to encourage greener road fuels will not be scrapped at the end of the decade, as had been thought. Around 15% of Europe’s carbon emissions come from road transport and ambitious plans for cutting emissions from vehicles are expected to form a significant chunk of the bloc’s ‘Energy Union’ proposals next week. Asked by the Guardian whether that meant the FQD would continue after 2020, the EU’s vice president for energy union, Maroš Šefčovič, said: “My first reaction is yes. We just have to adjust it to all the lessons learned from biofuels, and all the [other] lessons learned from the previous time.” The FQD has been a platform for measures intended to price tar sands out of the European market – and for targets to provide 10% of Europe’s transport fuel from low carbon sources, mostly biofuels, by 2020. Transport fuels are the only European sector in which emissions are still rising and the directive mandates a 6% reduction in their greenhouse gas intensity by 2020.

Crude oil flowing into Cushing, Oklahoma, worth billions - — An Oklahoma town known as the “Pipeline Crossroads of the World” is again the focus of the global energy industry. The Oklahoman (http://bit.ly/1w5EWf5 ) reports that Cushing is home to the nation’s largest oil storage facility, a complex capable of holding more than 80 million barrels of crude oil. As oil prices have plummeted over the last several months, the U.S. Energy Information Administration said companies have stockpiled about 2.2 million barrels a week at Cushing. Companies hope to sell the oil at higher prices when prices rise again because the oil market is currently in contango, which means that oil delivered in the future will be worth more than oil delivered now. As of Feb. 13, the facility is holding almost 46.3 million barrels, valued at about $2.4 billion. Brian Busch, director of oil markets and business development at energy data and analysis firm Genscape, says that the facility could reach operational capacity by April if this rate continues. The operational capacity is about 80 percent of its total capacity. If the total capacity is reached and oil production continues to outpace demand, then prices will fall.

OilPrice Intelligence Report: Pain Continues For Oil And Gas Exporters -- The Obama administration proposed new regulations for oil companies seeking to drill in the Arctic. The new rules largely codify the voluntary standards that Royal Dutch Shell (RDS.A) had agreed to during its multiyear Arctic campaign, including putting in place a series of stand-by equipment and backup strategies to deal with a safety incident. For example, oil companies looking to drill in the Arctic need to have a spill response plan, along with an oil spill containment dome at the ready, and have access to an additional drilling rig to use to drill a relief well in the event of a well blowout. One interesting detail in the proposed rules includes using sea ice to determine the extent of the drilling season, rather than a fixed starting and ending date on the calendar.  The rules will not have a major effect in the near-term, as they will only apply to new drilling operations – and they won’t take effect soon enough to influence Shell’s drilling operations this year. Moreover, Shell has more or less already complied with the regulations, so they will only really determine how other companies are allowed to approach drilling in the Arctic, and for now, there are no other companies will plans to do so. U.S. rig counts continued to drop last week, falling by another 48 rigs. That brings the total number of rigs in operation in the U.S. down to 1,310. While the drop was sizable, it is actually the smallest decline in seven weeks. Part of that may have to do with the uptick in oil prices, but some market analysts think that the most drastic cuts in rigs may be in the rear view mirror, raising hopes that a bottom could be reached within the next few months. In fact, Reuters reports that the decline in capital expenditures has been so swift – quicker than in previous busts – that actual oil production could start to dip in the coming weeks.

Oil's "Surprise" Collapse: It's The Demand, Stupid -- Crude oil futures have been quite volatile of late, particularly in the front months where even the slightest changes in expectations of whatever factor (rig counts, CEO comments, etc.) send WTI surging or tumbling by turn. Despite that, however, the outer years on the curve have seen not just more stability but a steady downward pressure of late. I think a lot of that has to do with futures investors reconciling actual contango options with the idea that demand is far more of not just a problem, but a longer-term problem. At the front end, rig counts have gained most attention but only as they relate to the surge in inventory. The US is overflowing with oil and production remains at a record high, but the two of those factors together don’t actually count as much in terms of price as is made out by most commentary. It is far too difficult for many to discount the entire economics professions’ complete dedication to the US “booming” economy in order to see a huge demand problem in oil prices; far easier to simply repeat the words “record supply” and leave it at that.  If you actually view the futures curve of late, the curves of recent days has crossed in the outer years. In other words, where prices have moved around at the shorter end, out at the long end the curve has shifted significantly downward regardless of short term pricing. That relates to both contango, as noted above, but also I believe growing recognition that supply is overwrought and demand is what may be impaired – perhaps more permanently than anyone thought possible only a few months ago.

Commodities Crushed: WTI Plunges To $48 Handle, Copper Breaks Key Support -- Perhaps the world is beginning to realize that "it's the demand, stupid" as crude oil prices are collapsing this morning (not helped by "all out production" news from Oman). While 'markets' rallied peculiarly after last week's epic surge in inventories and production data, that has all been given back as one trader noted "the market got ahead of itself, even though the rig count has been falling it is not until mid-yr that we are going to see some impact on supply." WTI is back under $49.  To complete the gloom, Copper is probing lower, breaking key support with projections to 222.50 if this move takes shape.

The Rig Count "Meme" (And Why The Bounce In WTI Is Likely Over) -- Recently, the Baker Hughes Rig Count has become all the rage. The problem is that not all rigs are created equal, and what we see is still a “net” number. We see the net number of rigs that are working. The reality is that some new projects continue to come on line and are very high producing wells, and some of what is being taken away, was either old, or projects that hadn’t yet been contributing production. While many have pointed out that the drop in rig count is not changing production, they are quickly learning the lesson of trying to get a few facts to stand in the way of a good meme, but we think they are about to get listened to... while oil has stabilized, the next leg is likely lower.

Is Oil Returning To $100 Or Dropping To $10? - If you have been following the price of oil over the last few months, the chances are you’re a little confused. On the one hand you have the likes of A. Gary Shilling who, in this Bloomberg article, loudly trumpets the prospect of oil at $10/Barrel, and on the other there is T. Boone Pickens, who, at the end of last year was predicting a return to $100 within 12-18 months. Pickens prediction has moderated somewhat as WTI and Brent crude have continued to fall, but in January he was still saying that oil would return to $70 or $80/barrel in the near future. So, who is correct?

Oil falls 2 percent on glut worries; heating oil up on tight supply (Reuters) - Crude oil futures fell more than 2 percent on Monday as investors worried about oversupply and a strong dollar, but heating oil futures jumped 5 percent due to operational problems at major U.S. refineries. Crude was down for almost the whole trading session, rising briefly after the Financial Times quoted Nigerian Oil Minister Diezani Alison-Madueke as saying the country might call for an OPEC extraordinary meeting in the next six weeks or so if prices fell further. The market has slid since Friday's data showing a slowdown in the weekly decline in the number of rigs drilling for oil in the United States. The data raised worries that U.S. crude inventories, already at record highs, could swell further. true The largest U.S. refinery strike in 35 years has also been a negative for crude prices. Heating oil futures rallied for a second straight day, reaching above $2.24 a gallon, the highest in nearly three months, as some of the biggest U.S. East Coast refineries struggled to restore operations after severe cold weather triggered outages. Sub-zero temperatures were expected to sweep through the region late on Monday, raising concerns about adequate heating supplies.Benchmark Brent crude settled down $1.32 at $58.90 a barrel Brent briefly rose, hitting a session high of $60.67, after the comments by the Nigerian minister, Alison-Madueke, who is also OPEC's president. Analysts said the gambit will likely fail without Saudi Arabia's support. U.S. crude futures, also known as West Texas Intermediate, or WTI, settled down $1.36, or 2.7 percent, at $49.81.

North American oil production continues to increase - The world’s largest oil exporters were not pleased with latest news coming from U.S. oil and gas producers: oil production keeps on rising. According to a report by The National, the recent decline in U.S. rig counts is leveling off and domestic production continues to increase. Imports from Canada are on the rise as well. This has resulted in a decreased demand for OPEC produced crude oil in the United States, further perpetuating the struggle for the global market share. Last week the U.S. rig count fell to the lowest levels since 2011. Despite the decrease in rig count, though, production in North America’s largest shale oilfields has actually been increasing. Recently the U.S. Energy Information Agency gave a projected outlook for domestic production. In a statement the agency reported, “Projected 2015 oil prices remain high enough to support some development drilling activity in the Bakken, Eagle Ford, Niobrara, and Permian basin, albeit at lower levels than previously forecast.” The EIA also said it expects production to decrease during this year’s third quarter, but not by much before increasing again if oil prices have recovered. Canada, home to some of the highest production costs in the world, has also seen an increase in output. While most of Canadian-produced crude is exported to the U.S., the Canadian National Energy Board reports that exports to other countries are on the rise.

Crude Oil Inventories Surge For 7th Week In A Row To Record Highs Amid Record Production -- Oil prices dumped (last night's major 8.9 million barrel inventory build from API), pumped (the Saudi minister claiming "demand is growing" - which just seems like total fiction given economic backdrops and China's VLCC count plunge), and then this morning, dumped setting the scene for this morning's EIA inventory data. Against expectations of an 8 million barrel build, crude inventories saw a 8.43 million barrel build (5 times higher than the 5 year average). Record levels of production and record total inventory sent WTI plunging out of the gate but it is stabilizing for now...

Brent crude up 5 percent as Saudi sees improved demand for oil (Reuters) - Brent crude oil futures surged 5 percent on Wednesday, after Saudi Arabia's oil minister said oil demand was growing and data showed Chinese factories were producing more than expected. Falling refined products inventories reported by the government helped lift U.S. crude and countered data showing a larger-than-expected U.S. crude inventory build. Brent April crude LCOc1 rose $2.97 to settle at $61.63 a barrel. U.S. April crude CLc1 rose $1.71 to settle at $50.99. true "The report is relatively bullish, despite the large crude oil inventory build," "The draw downs in the refined product categories represent an offset and are supportive," Kilduff added. U.S. crude stocks rose 8.4 million barrels last week to a record 434.07 million, the Energy Information Administration (EIA) said on Wednesday, adding 2.4 million barrels at Cushing, Oklahoma, delivery point for the U.S. crude contract. [EIA/S] The relatively small gain at Cushing may have helped widen the spread between Brent and U.S. crude to its widest since January 2014, with Brent's premium nearing $11 a barrel.

Chevron pulls out of shale gas exploration in Romania - — U.S. oil company Chevron says it has pulled out of shale gas drilling in Romania, weeks after ending business in Poland. The company began drilling for shale gas at its exploration well in northeastern Romania in 2014, a project that drew protests. It is also ending its three other concessions in Romania. In a statement Monday, Chevron said it was pulling out due to “a business decision …. this project in Romania does not currently compete favorably with other investment opportunities in our global portfolio.” Earlier this year, Chevron said it would no longer explore for shale gas in Poland, another blow to Poland’s plans to diversify its energy sources. Last year Chevron abandoned drilling for conventional gas in eastern Ukraine.

Chevron to divest Romania shale licenses, quit Europe exploration: Chevron intends to pursue the divestment of its shale gas exploration concessions in Romania this year after finding them to be financially unattractive, the US-based oil and gas giant said on Tuesday. Following similar moves out of Poland, Lithuania and Ukraine in recent years, the decision represents Chevron’s disengagement from shale gas exploration prospects in Europe. “We are not pursuing shale gas exploration licences in Europe,” said a company spokesman. After completing the drilling of one exploration well in the Barshad play in northeast Romania and carrying out a two-dimensional seismic survey across two of its three concessions in the southeast of the country, Chevron has decided not to pursue further exploration in the country and to divest the licenses. “This is a business decision which is a result of Chevron's overall assessment that this project in Romania does not currently compete favourably with other investment opportunities in our global portfolio,” the spokesman added. The move leaves Chevron as the latest firm to abandon once-promising assets in eastern Europe, following Eni, Talisman Energy, ExxonMobil and Marathon Oil’s decisions to quit exploration in Poland.

Shale Gas Project Encounters Determined Foes Deep in Algerian Sahara -  Deep in the Algerian Sahara, daily protests against a pilot hydraulic fracturing, or fracking, project are now well into their second month. The demonstrations have spread to several towns and have provided opposition parties with a new platform at an especially precarious moment for the government, as oil prices have slumped and the declining health of President Abdelaziz Bouteflika has removed him almost completely from public view.Hundreds of police officers sealed off streets to block an antifracking march in the capital, Algiers, on Tuesday as opposition groups held rallies around the country in solidarity with the southern protesters in the distant oasis town of Ain Salah.At first glance, Algeria might seem an unlikely place for the sort of popular movement against fracking, a method of tapping into deep deposits of shale gas, that has unfolded in many Western countries. Money from oil and gas accounts for 97 percent of exports and keeps afloat a socialist system of generous public subsidies for everything from food to housing. In the past, the government has proved skillful at handling such popular unrest with a mixture of police repression and political and financial inducements made possible by its oil reserves. But the sharp fall in oil prices threatens to usher in a severe budget crisis and to undercut that long-tested strategy for preserving the peace and holding off demands for change. In part because of its oil wealth, Algeria avoided the upheavals of the Arab Spring uprisings of 2011. The government broke up early protests, then spent generously on social programs for youth and backdated pay raises for government employees and the police.

Oil Pumps-And-Dumps On Nigeria Comments On Emergency OPEC Meeting; OPEC Denies - Crude oil oprices have spiked higher after The FT reports members of OPEC have discussed holding an emergency meeting if crude continues to slide. This would entirely contradict Saudi Arabia's previous statements and, we suspect, means this was more a hope than a statement as the Nigerian Naira collapses... Almost all OPEC countries, except perhaps the Arab bloc, are very uncomfortable," said Ms Alison-Madueke, adding if the price "slips any further it is highly likely that I will have to call an extraordinary meeting of Opec in the next six weeks or so."

Oil boom's end threatens pain for much of Latin America - Soaring oil prices the past decade transformed this rural backwater into Colombia’s richest city as nearby fields pumped black gold, drawing new businesses, international pop stars and vanity art projects such as the biblical-themed arch that towers over these sweltering grasslands. Now, crashing crude prices have the 45,000 residents of Puerto Gaitan bracing for a big fall, or already packing their bags. Many are questioning how the windfall was spent. “Things are going badly but we haven’t touched bottom yet,” said Edgar Candelo, who lost his job driving a tanker at the Rubiales oil field, which pumps out a quarter of Colombia’s crude. With no prospects in sight, the 46-year-old says he is leaving Puerto Gaitan for a job at half the pay hundreds of miles away. Similar upheaval is taking place across much of Latin America, where oil prices have fallen by nearly half since September, threatening to pull the rug out from under a decade-long economic boom. And the region’s leftist governments, which used the bonanza to lavish spending on social programs that entrenched them in power, now find themselves in the position of having to slash budgets amid rising social tensions. Across the region, from the shale deposits of Patagonia to Mexico, where the government is rolling out a historic oil reform, nervousness is widespread. Drilling projects that proliferated over the past decade are being shelved and the Bank of America last month cut to 1.3 percent from 1.8 percent its forecast for the region’s economic growth this year.

Senators rally behind oil trade with Mexico - Last week, 21 senators sent a letter to the U.S. Department of Commerce urging officials to promptly sign off on an oil trade of heavy Mexican crude oil in exchange for Light U.S. crude. The letter, which includes endorsements from energy-state representatives such as Lisa Murkowski, R-Alaska, John Cornyn, R-Texas, Ted Cruz, R-Texas and Heidi Heitkamp, D-N.D. calls for an expansion the energy products already being exchanged between the two nations. Additionally, the letter makes note of the energy resources that overlie national boundaries which tie our countries together such as the Gulf of Mexico and the Eagle Ford Shale play in southern Texas. “Natural gas is being traded our two nations through more than twenty existing pipelines, and many others are under consideration,” the senators wrote. “Increasing commercial activity in petroleum products, natural gas liquids, and other types of energy is further expanding the U.S.-Mexico energy relationship.” According to a report from the Midland Reporter-Telegram, Pemex affiliate’s request to export 100,000 barrels per day of light U.S. oil and condensates in exchange for heavy Mexican crude is a transaction that can be approved in a case-by-case basis under existing laws. However, the senators that addressed the Commerce Department are calling for more than such speedy authorization of singular deals.

Oil price plunge could hit UK jobs after 'bleak' 2014 --The UK oil and gas industry has reported its worst annual performance in 40 years, after the oil price plunged in the second half of 2014. Oil & Gas UK, which represents energy companies, said the sector invested £5.3bn more than it earned from sales last year. Rising costs also contributed to the shortfall. It said that the results posed a serious challenge to the future viability of the industry,  The Guardian reports. The cost of producing a barrel of oil has risen to a record high of £18.50, on top of investment, tax and decommissioning costs, the group said. Simultaneously, the falling oil price – which dipped below $50 a barrel earlier this year – cut revenues to just over £24bn for the year. That was the lowest since 1970. Malcolm Webb, chief executive of Oil & Gas UK, said thousands of jobs were in danger unless taxes were cut and new incentives offered."Without sustained investment in new and existing fields, critical infrastructure will disappear, taking with it important North Sea hubs, effectively sterilising areas of the basin and leaving oil and gas in the ground," Webb said.

U.K. North Sea Spending Cut in Half, Deterred by Oil Price, Tax -- U.K. North Sea investment will drop by more than half as tumbling oil prices and high taxation force energy producers to cut costs, according to an industry report. Planned spending on new projects is seen shrinking to 3.5 billion pounds ($5.4 billion) this year from 8.5 billion pounds in 2014, according to the report by Oil & Gas UK. Investments may sink further to 2.5 billion pounds by 2018, the lobby said. “There is very little fresh investment,” Malcolm Webb, chief executive officer of the group that represents about 500 companies, said in a statement. It “paints a bleak picture.” Operations in the region, from companies including BP Plc and Total SA, are caught between the rising cost of exploiting maturing resources and oil prices that fell by half since June. Britain was already suffering one of the steepest declines in output of any major producer since supply peaked 15 years ago, with the nation’s production collapsing by about two-thirds. The basin saw a negative cash flow of 5.3 billion pounds in 2014, the worst since the 1970s, as operating costs climbed to 9.6 billion pounds and revenues fell to 24 billion pounds, the lowest since 1998, according to the industry report. Only 14 wells were drilled, compared with an expected 25, Oil & Gas UK said. This year, eight to 13 wells may be sunk as explorers struggle to raise funds amid low prices, it said.

North Sea oil: That sinking feeling - FT.com - From his vantage point on Royal Dutch Shell's Brent Delta, one of several platforms to be scrapped, the man dismantling one of Britain’s biggest oilfields is looking past the collapse in oil prices to a multibillion pound decommissioning boom. Hundreds of miles away in London, in a Mayfair café, the chief executive of one small UK explorer, a veteran of past oil market highs and lows, is less bullish. “The industry is in a state of crisis,” says Tony Craven Walker, chief executive of Serica Energy. “Smaller companies like ours are losing their ability to raise finance and reward shareholders. It is a slow death by attrition.” He fears the end of the North Sea basin could come much earlier than previously expected. The plunge in prices, a tax system that he says deters investment and a failure by producers to co-operate could lead to a wave of early field closures and accelerated moves to decommissioning. Chris Wheaton, analyst and fund manager at Allianz Global Investors, says the region — between the UK and Norway — “is balanced on a knife edge”. The repercussions of oil’s slide from more than $115 a barrel last summer to around $60 now are rippling across the globe. For consumers, especially motorists, cheaper crude is a boon. Lower inflation could stave off interest rate rises in developed economies. But countries dependent on oil revenues to finance spending are hurting. So, too, are America’s shale producers, who pumped the new supply that contributed to the market’s collapse.Ageing North Sea fields, already seen as a marginal bet from which the biggest oil companies have been retreating, look very vulnerable. Oil & Gas UK, which represents offshore operators, says a fifth of production, or a third of fields, is now unprofitable. Cash losses, or the deficit after subtracting costs from revenues, topped £5bn last year, the biggest shortfall since the 1970s. This loss follows a long-term decline in production. Output on the UK continental shelf, despite record investment in recent years, has been sliding since 2000.

OPEC’s Strategy Is Working Claims Saudi Oil Minister - Saudi Oil Minister Ali al-Naimi, the architect of OPEC’s strategy to regain market share by causing the price of crude oil to plunge, says his plan is working, and data from petroleum research firms seem to back him up.Making his first public comments in two months, al-Naimi told reporters in the southwestern Saudi city of Jazan that the markets have cooled off, and cited Brent crude, the global benchmark, as an example, noting that its price has stabilized at about $60 per barrel.He also pointed to data that inexpensive oil is driving up demand, notably in China and the United States, which eventually could lead to price stability or to a price rebound. But Al-Naimi warned naysayers not to upset this new balance. “Why do you want to rock the markets?” he asked. “The markets are calm. … Demand is growing.” If al-Naimi is right, then his strategy was correct, and it acted quickly. It was only three months ago at OPEC’s headquarters in Vienna that the Saudi minister pushed through a plan to maintain oil production at 30 million barrels a day, declaring a price war with US shale oil producers who rely on costly hydraulic fracturing, or fracking, to extract oil embedded tightly in underground rock. The US shale producers had not only created a global oil glut, which was depressing the price of oil, but they also had turned their country from OPEC’s biggest customer to a nation headed towards energy independence.

What is Saudi Arabia not telling us about its oil future? -- It is popular these days to speculate about why Saudi Arabia cajoled its OPEC allies into maintaining oil production in the face of flagging world demand. As the price the world pays for oil and oil products has plummeted, the price OPEC members are paying in terms of lower revenues is high, even unbearable for those who didn't save up for just such a rainy day. Was the real reason for the decision to maintain production the desire to undermine rising U.S. tight oil production--which has now proven embarrassingly vulnerable to low prices after years of triumphalist talk from the industry about America's "energy renaissance"? Were the Saudis also thinking of crippling Canada's high-cost tar sands production? Was it Sunni Saudi Arabia's wish to undermine its chief adversary in the region, Shiite Iran? Was the Saudi kingdom doing Washington's bidding by weakening Russia, a country that relies so heavily on its oil export revenue? What if the Saudis are acting now to undermine U.S. and Canadian oil production because they realize that Saudi production will soon reach a peak, level out for several years and then start to decline in no more than, say, a decade? What if the Saudis fear that energy efficiency, fuel substitution (say, toward natural gas), and mandated greenhouse gas emission reductions will inevitably diminish their oil revenues beyond the next decade? What if this coming decade will therefore be the best time to maximize Saudi revenues per barrel? It would then make sense for the Saudis to cripple North American production now with, say, a year of low prices which should be enough to make investors skittish for many years thereafter. Then, the Saudis can capitalize on higher prices during the next nine years as the kingdom experiences its peak flows and before energy use reduction strategies threaten oil revenues.

Thank Daesh For Lower Oil Prices - ISIS, ISIL, Daesh is helping to put the price of oil into free fall – by selling captured Iraqi, Syrian and Libyan oil at cut rate prices. Those supplies that they do not control in Libya, Syria and Iraq are being dumped on the market – to pay for the fight against Daesh.  So this is Road Warrior for real.   ISIS is an oil company masquerading as a apocalyptic death cult. Exporting most of its oil through Kurdistan to Turkey and Iran. Go figure: Islamic State has consolidated its grip on oil supplies in Iraq and now presides over a sophisticated smuggling empire with illegal exports going to Turkey, Jordan and Iran, according to smugglers and Iraqi officials.Six months after it grabbed vast swaths of territory, the radical militant group is earning millions of dollars a week from its Iraqi oil operations, the US says. Coalition air strikes against tankers and refineries controlled by Isis have merely dented – rather than halted – these exports, it adds.The militants control around half a dozen oil-producing oilfields. They were quickly able to make them operational and then tapped into established trading networks across northern Iraq, where smuggling has been a fact of life for years. From early July until late October, most of this oil went to Iraqi Kurdistan. The self-proclaimed Islamic caliphate sold oil to Kurdish traders at a major discount. From Kurdistan, the oil was resold to Turkish and Iranian traders. These profits helped Isis pay its burgeoning wages bill: $500 (£320) a month for a fighter, and about $1,200 for a military commander.

War And Petroleum Reserves - In the interest of analytical balance, we would do well to consider the possibility of war strategies when it comes to the global stockpiling of petroleum reserves. In the years leading up to the German invasion of Poland, the world witnessed dramatic decreases in the price of oil as well as massive increases in petroleum inventories, especially as the Texas fields began to produce. These shifts in the global oil markets ran parallel to the deflation which had begun in October, 1929, and as such, we can see the same pattern repeating today as oil prices collapse, inventories are growing, and world wide deflation is deepening. The United States and China are both increasing their Global Strategic Petroleum Reserves, with stockpiling taking place in Cushing, Oklahoma, and in provinces throughout China. The promoted script is that America is seeking energy independence and China is taking advantage of low oil prices to increase stockpiles, as they are an energy importer. But other countries around the world are stockpiling oil and petroleum products as well, from the construction of massive storage tanks in Nigeria, to hundreds of oil tanker ships full of crude floating of coastlines. Crude and petroleum product stockpiles are increasing to record levels. Here are just a few links to increasing stockpile articles:

http://www.rfa.org/english/commentaries/energy_watch/oil-01262015105428....
http://blogs.wsj.com/moneybeat/2015/01/07/heres-another-reason-for-falli...
http://www.cbsnews.com/news/where-to-store-excess-oil-at-sea/

    Michael Schwartz, Israel, Gaza, and Energy Wars in the Middle East - Talk of an oil glut and a potential further price drop seems to be growing. The cost of a barrel of crude now sits at just under $60, only a little more than half what it was at its most recent peak in June 2014. Meanwhile, under a barrel of woes, economies like China's have slowed and in the process demand for oil has sagged globally. And yet, despite the cancellation of some future plans for exploration and drilling for extreme (and so extremely expensive) forms of fossil fuels, startling numbers of barrels of crude are still pouring onto troubled waters.  For this, a thanks should go to the prodigious efforts of "Saudi America" (all that energetic hydraulic fracking, among other things), while the actual Saudis, the original ones, are still pumping away.  We could, in other words, have arrived not at "peak oil" but at "peak oil demand" for at least a significant period of time to come.  At Bloomberg View, columnist A. Gary Shilling has even suggested that the price of crude could ultimately simply collapse under the weight of all that production and a global economic slowdown, settling in at $10-$20 a barrel (a level last seen in the 1990s).And here's the saddest part of this story: no matter what happens, the great game over energy and the resource conflicts and wars that go with it show little sign of slowing down.  One thing is guaranteed: no matter how low the price falls, the scramble for sources of oil and the demand for yet more of them won't stop.  Even in this country, as the price of oil has dropped, the push for the construction of the Keystone XL pipeline to bring expensive-to-extract and especially carbon-dirty Canadian "tar sands" to market on the U.S. Gulf Coast has only grown more fervent, while the Obama administration has just opened the country's southern Atlantic coastal waters to future exploration and drilling.  In the oil heartlands of the planet, Iraq and Kurdistan typically continue to fight over who will get the (reduced) revenues from the oil fields around the city of Kirkuk to stanch various financial crises.  In the meantime, other oil disputes only heat up.

    How Gaza’s Natural Gas Became the Epicenter of an International Power Struggle - Guess what? Almost all the current wars, uprisings, and other conflicts in the Middle East are connected by a single thread, which is also a threat: these conflicts are part of an increasingly frenzied competition to find, extract, and market fossil fuels whose future consumption is guaranteed to lead to a set of cataclysmic environmental crises. Amid the many fossil-fueled conflicts in the region, one of them, packed with threats, large and small, has been largely overlooked, and Israel is at its epicenter. Its origins can be traced back to the early 1990s when Israeli and Palestinian leaders began sparring over rumored natural gas deposits in the Mediterranean Sea off the coast of Gaza. In the ensuing decades, it has grown into a many-fronted conflict involving several armies and three navies. In the process, it has already inflicted mindboggling misery on tens of thousands of Palestinians, and it threatens to add future layers of misery to the lives of people in Syria, Lebanon, and Cyprus. Eventually, it might even immiserate Israelis. Resource wars are, of course, nothing new. Virtually the entire history of Western colonialism and post-World War II globalization has been animated by the effort to find and market the raw materials needed to build or maintain industrial capitalism. This includes Israel’s expansion into, and appropriation of, Palestinian lands. But fossil fuels only moved to center stage in the Israeli-Palestinian relationship in the 1990s, and that initially circumscribed conflict only spread to include Syria, Lebanon, Cyprus, Turkey, and Russia after 2010.

    Kurdistan’s right to secede: Set the Kurds free - Economist - THE Kurds, at least 25m-strong, are one of the world’s most numerous peoples without a state. Other small nations in their region have a home alongside the Arabs, the Persians and the Turks: the Jews created (or, in their book, recreated) Israel after the second world war; Armenia and Georgia re-emerged as independent as the Soviet Union fell apart.  Today the Kurdish Region of Iraq, home to at least 6m people, is independent in all but name (see article). It is that benighted country’s only fully functioning part. Since 1991, when the West began to protect it from Saddam Hussein, it has thrived. In due course, it deserves its place in the community of independent nations.  A country should be able to gain independence if it can stand on its own feet, has democratic credentials and respects its own minorities. To qualify, Iraq’s Kurds should confirm (again) in a vote that they want their own homeland. As well as being economically and democratically viable, the new state must be militarily defensible and disavow any intention to create a Greater Kurdistan by biting chunks off Turkey, Iran and Syria. It needs its neighbours’ endorsement. And it must settle terms with Iraq’s government, including where to draw its boundary.

    The Gap Before China's Soft Landing -- Favorable terms of trade and eager investment in manufacturing and real estate has propelled Chinese growth in recent years. Now, a high debt burden from overinvestment, rising manufacturing costs, and an appreciating currency are signs of stress on this successful growth model. This stress appeared in troublingly low GDP last month due to weakness in both real estate and manufacturing markets.Aside from a 30% YoY jump in FDI last month, we have seen large capital outflows from China and slowing foreign direct investment over a longer period. Reuters highlights two important considerations for why there be more to January's numbers than meets the eye: But analysts cautioned about reading too much into economic indicators for January alone, given the strong seasonal distortions caused by the timing of the Lunar New Year holidays, which began on Jan. 31 last year but start on Feb. 19 this year...Earlier data showed FDI in China rose just 1.7 percent in 2014, the slackest pace since 2012. The weak performance underscored a cooling economy which is spurring more Chinese firms to plow money into assets overseas in a trend that is soon set to overtake inbound investment.  In reaction to poor economic news and large capital outflows, the PBoC lowered banks’ reserve requirement ratios (RRR) by 50 basis points on February 4th and has framed recent poor numbers in the context of development growing pains. The government assures that China will experience a soft landing during the economy's transition from export and investment-driven growth to internal consumer-driven growth. Now the question remains as to whether China will effectively encourage private consumption and service sector expansion before their old growth model runs out of steam. Though the World Bank has only posted GDP data through 2013, we don’t quite see this transition of household consumption replacing investment and exports quite yet:

    Tomgram: Pepe Escobar, Inside China's "New Normal" - Seen from the Chinese capital as the Year of the Sheep starts, the malaise affecting the West seems like a mirage in a galaxy far, far away. On the other hand, the China that surrounds you looks all too solid and nothing like the embattled nation you hear about in the Western media, with its falling industrial figures, its real estate bubble, and its looming environmental disasters. Prophecies of doom notwithstanding, as the dogs of austerity and war bark madly in the distance, the Chinese caravan passes by in what President Xi Jinping calls “new normal” mode. “Slower” economic activity still means a staggeringly impressive annual growth rate of 7% in what is now the globe’s leading economy. Internally, an immensely complex economic restructuring is underway as consumption overtakes investment as the main driver of economic development. At 46.7% of the gross domestic product (GDP), the service economy has pulled ahead of manufacturing, which stands at 44%. Geopolitically, Russia, India, and China have just sent a powerful message westward: they are busy fine-tuning a complex trilateral strategy for setting up a network of economic corridors the Chinese call “new silk roads” across Eurasia. Beijing is also organizing a maritime version of the same, modeled on the feats of Admiral Zheng He who, in the Ming dynasty, sailed the “western seas” seven times, commanding fleets of more than 200 vessels.

    Pepe Escobar: New Silk Roads and the Chinese Vision of a Brave New (Trade) World - Yves here. As much as sightings from on the ground are critical to countering perceptions of China from afar, my experience with Japan leads me to take them with a grain of salt. Japan was seen as similarly insurmountable in the 1980s and it looked as impressive close up as it did from a distance. Yet its standing fell due to the collapse of a massive speculative bubble in commercial real estate. Michael Pettis stresses the problems with what he calls the Chinese inverted balance sheet in a January 2015 post and sees parallels to the latter portion of Japan’s boom period: because we are in the late stages of China’s growth miracle, we should recognise that historical precedents suggest that balance sheet inversion will have increased in the past few years, and may continue to do so for the next few years, which implies that a greater share of growth than ever is explained not by fundamental improvements in the underlying economy but rather by what are effectively speculative bets embedded into the national balance sheet.  No large country in modern times has made a smooth transition from being investment driven to being consumption driven. China’s investments as a percent of GDP are at an unheard of level and are increasingly going to unproductive commercial real estate investments. It would be better if I were proven wrong, but the Japanese case says there are rough times ahead for China. However, when that occurs is very much open to question.  In this post, Escobar also depicts China as making a smooth transition to being consumption driven. However, he includes services data, which is not the definition most analysts and observers focus on. Note that that would almost certainly include financial services industry and real estate services, both of which would benefit from property, commodities, and stock market speculation. Escobar stresses China’s focus on working with other developing countries. This too was a Japanese strategy, to act as a convoy leader for Southeast Asia. While the other countries were willing to take Japanese investment (for instance, setting up plants to allow for lower-cost manufacturing), they were not as subservient in other respects as Japanese leadership had assumed. So while there are valid reasons to see China as the logical successor to the US as economic superpower, I’m skeptical of the near-term bullishness, indeed, the breathlessness, of Escobar’s reading.

    China's Economy in Two Pictures - Comparing the size of economies that have different currencies and very different standards of living is an inexact business, but the overall size of China's economy is at least second in the world now, and heading for largest. The 2015 Economic Report of the President, just released by the White House Council of Economic Advisers, offers a bit of discussion about how China's economic growth is proceeding.  First of all, China's rate of economic growth has slowed a bit, down to a "mere" 7.5% per year. This s down from the boom years of the mid-2000s, but it's similar to China's rate of growth in the 1990s. A quick reminder: at a 7.5% rate of growth, the size of China's economy doubles in a decade.  Along with the slower rate of growth, the other big concern about China's economy is whether it is experiencing its own version of a credit bubble. Here's a figure showing the credit flowing to nonfinancial corporations and households (that is, government debt is not included, and borrowing by the financial sector isn't included). Notice that the vertical axis here is the size of GDP--and the size of China's GDP is roughly similar to that of the United States or that of the euro area. China's economy has seen a remarkable burst of credit in the last six or seven years. Indeed, China stands out from all other emerging economies for its combination of high debt/GDP ratios and a very rapid rise in debt in recent years.

    China Manufacturing PMI Suggests "Sluggish Domestic Activity & Uncertain Export Demand" - Modestly higher than the 'contractionary' 49.7 print in Janauary, February's Markit (flash) China Manufacturing PMI printed at 50.1 (beating expectations of a drop to 49.5). However, before global investors pop the proverbial champagne corks of global recovery, we note that employment's drop accelerated, New Export Orders contracted the most since June 2013, and prices continued to fall. Of course, HSBC is careful to note that "more policy easing is still warranted" because they believe, "domestic economic activity is likely to remain sluggish and external demand looks uncertain." For now Chinese stocks are holding losses after the lunar new year and the Yuan has weakened further near 30 month lows - once again testing the upper 2% fix band.

    If China Stops Manipulation, Its Currency Will Depreciate: A rare issue on which the two parties in the US Congress agree is the problem of “currency manipulation,” especially on the part of China. Perhaps spurred by the 2014 appreciation of the dollar and the first signs of a resulting loss of American net exports, Congress is once again considering legislation to attack currencies that are seen as unfairly undervalued. The proposed measures include the threat of countervailing duties against imports from offending countries, although that would be inconsistent with international trading rules. Even if one accepts the possibility of identifying a currency that is manipulated, however, China no longer qualifies. Under recent conditions, if China allowed its currency to float freely, without intervention, the renminbi would more likely depreciate against the dollar than appreciate. US producers would then find it harder to compete on international markets, not easier.

    Is China really the world’s largest exporter? - Is China the world’s largest exporter? The answer to this question should be a simple and resounding ‘yes’. The country has been the world’s largest exporter since 2009. China is not only the world’s largest exporter, it is the world’s largest trading nation as measured by the sum of exports and imports, having replaced the United States for the first time in 2014. You may even wonder why I would bother to ask such a basic question. China is without dispute the world’s largest export juggernaut, 40 per cent larger than the United States. But, is China still the world’s champion if we look at these export figures from a trade in value added perspective?Let me illustrate this question with an example. China makes a lot of iPhones for Apple. Lets say the country exports $5 billion worth of iPhones to the US. Trade statistics will simply record it as $5 billion worth of exports to America. But iPhones are made up of components from all over the world, including Japanese and South Korean supplied parts, not to mention American design and branding. So it is more accurate to say Chinese workers assemble iPhones rather than make them. Consequently, Chinese factories that make iPhones (Which are in fact, owned by the Taiwanese) are really at the lower end of food chain. Researchers from the Chinese Academy of Social Sciences, a government-owned think tank, estimate China only makes about $57 out of every $100 worth of iPhones exported. So if China exports $10 billion worth of iPhones a year to the US, the Chinese component is only $5.7 billion. What this example illustrates is the Achilles Heel of the Chinese manufacturing industry. The sector has grown exponentially over the last three decades on the back of foreign demand, investment and technology transfers.

    Big Casket & US Protectionism vs. PRC-Made Coffins  -- Make what you will of this rather morbid feature, but among the few things that are still Made in America purchased with regularity Stateside are caskets. Unfortunately, this phenomenon is not really down to the inferiority of China-made caskets or to the superiority of US-made ones but to the frustration of commerce by entrenched US firms. Apparently, the funeral industry is one of the few where pseudo-nationalistic arguments still hold water somehowBy importing from China, [Las Vegas-based entrepreneur Jim] Malamas has followed a well-worn outsourcing playbook that’s upended markets for American-made goods from electronics to bedroom furniture. Working with four factories outside Shanghai, he imports 40-foot containers holding 64 caskets apiece and sells them to funeral homes and regional distributors for a fraction of the price. There is plenty of potential: In the U.S., caskets are a $1.6 billion business.  [But] Chinese casket imports haven’t gone as planned—for Malamas or anyone else. His revenue has stumbled. Where almost every other American manufacturer has failed to keep Chinese exports at bay, the casket industry has succeeded. Through aggressive litigation against importers, xenophobic admonitions to consumers, and good old-fashioned palm-greasing of funeral directors, Big Casket has made sure that 9 out of 10 Americans go into the ground in boxes made in the USA.

    Japan′s war on deflation cast in fresh doubt - Consumer prices in Japan rose at an annual rate of 2.2 percent in January, down from 2.5 percent in December, the Ministry of Internal Affairs and Communications said Friday. Excluding the effect of a sales tax hike in April, the inflation rate had been 0.2 percent in January, the ministry said - much lower than the inflation target of 2 percent set by the Bank of Japan (BoJ) in April 2013. The ministry also reported that household spending dropped 5.1 percent from a year earlier to 289,847 yen ($2,436 or 2,166 euros) - the 10th straight month of decline. Japan's Prime Minister Shinzo Abe took office in December 2012 vowing to overcome deflation that had plagued the world's third largest economy for nearly two decades. He was joined by the BoJ, which has since pumped trillions of yen into the economy to kickstart spending and growth. January's disappointing figures challenge Bank of Japan Governor Haruhiko Kuroda's persistent claim that inflation is on the up. Just on Friday, Kuroda insisted that an expected recovery in oil prices - which have dropped by about half since mid-2013 - would help the BoJ get its inflation target back on track. "As the effects of declining crude prices dissipate, the two-percent inflation target is likely to be achieved," the BoJ chief said.

    Central Bank in Japan Has No Ceiling for Asset Purchases, Chief Says - The governor of the Bank of Japan, Haruhiko Kuroda, said Thursday there was no limit to how much the central bank would expand its balance sheet relative to the size of the country’s gross domestic product.“We don’t have any particular ceiling,” Mr. Kuroda said.Mr. Kuroda said a median forecast of the bank’s nine board members produced in January, which is for core consumer inflation to hit 2.2 percent in fiscal 2016, showed that members of the board also expected inflation to hit the central bank’s 2 percent target by the end of that year in March 2017.When the central bank adopted its stimulus program in April 2013, it pledged to hit 2 percent inflation in about two years through aggressive asset purchases.“There isn’t a time frame set in stone when we say roughly two years,” Mr. Kuroda told Parliament, when asked by a lawmaker which specific years the Bank of Japan had in mind in setting the two-year time frame.Core consumer inflation has slowed, largely because of weak domestic demand and slumping oil prices. It stood at 0.5 percent in the year ending in December, well below the central bank’s target nearly two years ago in adopting the asset purchase program.But Mr. Kuroda countered criticism made by some analysts and opposition lawmakers that his stimulus had proved ineffective.“There has been no discussions in the board that our stimulus was ineffective, could be ineffective or that the program should be altered,” he said.He also said it was too early to debate an exit strategy for the stimulus program, as Japan was still halfway to meeting its price target.

    Medicines forecast to cost taxpayers millions more in secret TPP trade deal -- Medicines will cost Australian taxpayers hundreds of millions of dollars more each year if measures in a leaked draft of the secretive Trans-Pacific Partnership Agreement are implemented, a new report says. The most recently leaked draft of the international trade deal includes provisions proposed by the US that would further protect the monopoly pharmaceutical companies hold over drugs, and delay cheaper versions from entering the market, the Medical Journal of Australia report says. The draft agreement sets in stone low patenting standards which allow drug companies to practice “evergreening” – when a pharmaceutical company tries to maintain its market monopoly on a drug for longer by applying for extra patents. This prevents other companies entering the market with cheaper versions of the same medicine and imposes large and unnecessary costs on the health system and consumers, the report, published on Monday, said. “The three greatest concerns for Australia in the recent draft include provisions that would further entrench secondary patenting and evergreening, lock in extensions to patent terms, and extend monopoly rights over clinical trial data for certain medicines.”

    India Spending $956 Million on Waste Plants Along Ganges - -- India is spending 59 billion rupees ($956 million) on sewage and waste treatment to begin cleaning its biggest and holiest waterway, the Ganges River. Of the 80 effluent treatment and water-monitoring projects planned by the National Ganga River Basin Authority in five states, 25 have been completed, Sanwar Lal Jat, India’s junior water minister, said Thursday. The authority, formed in 2009, plans to build 702 million liters (185 million gallons) a day of sewage-treatment capacity across the five states to help improve the health of India’s most threatened river, Jat said in reply to a question from parliament members. Of this, 123 million liters a day has been built so far. The minister said 501 million liters of industrial waste and 3.54 billion liters of wastewater from households in 56 cities along the Ganges pollute its waters every day, citing the Central Pollution Control Board. The 2,525-kilometer (1,570-mile) Ganges that originates from a Himalayan glacier is worshiped by Hindu pilgrims and is reverently called mother. The board has identified 150 polluted stretches along 121 Indian rivers where the government needs to spend funds cleaning waters. Of the 60 billion rupees approved by India’s federal government for cleaning rivers in 21 states over the last three years and current financial year, only 13.7 billion rupees have been made available to create 409 million liters a day of sewage-treatment capacity, the minister also said.

    India Rising, Pakistan Rapidly Collapsing?  - Is it true that "India is rising and Pakistan rapidly collapsing", the currently accepted western narrative recently re-iterated by Roger Cohen in his New York Times Op Ed from Lahore, Pakistan? Let's examine it by reviewing reports filed by several Indian journalists after their recent visits to Pakistan: "India is a democracy and a great power rising. Pakistan is a Muslim homeland that lost half its territory in 1971, bounced back and forth between military and nominally democratic rule, never quite clear of annihilation angst despite its nuclear weapons". Roger Cohen's  New York Times Op Ed "Pakistan in Its Labyrinth" "I.. saw much in this recent visit (to Pakistan) that did not conform to the main Western narrative for South Asia -- one in which India is steadily rising and Pakistan rapidly collapsing. Born of certain geopolitical needs and exigencies, this vision was always most useful to those who have built up India as an investment destination and a strategic counterweight to China....Seen through the narrow lens of the West’s security and economic interests, the great internal contradictions and tumult within these two large nation-states disappear. In the Western view, the credit-fueled consumerism among the Indian middle class appears a much bigger phenomenon than the extraordinary Maoist uprising in Central India".  Several prominent Indian journalists and writers have visited Pakistan in recent years for the first time in their lives.  I am sharing with my readers selected excerpts of the reports from Mahanth Joishy (USIndiaMonitor.com), Panakaj Mishra (Bloomberg), Hindol Sengupta (The Hindu), Madhulika Sikka (NPR) and Yoginder Sikand (Countercurrents) of what they saw and how they felt in the neighbor's home. My hope is that their stories will help foster close ties between the two estranged South Asian nations.

    Pakistan Launches World's Largest and Fastest Biometric Data Collection Effort -- Pakistan has started verifying identities of over 135 million cell phone users through fingerprints. The massive exercise is being described by Washington Post as the "world’s largest — and fastest — efforts to collect biometric information". The deadline for completion in March 14, 2015. Several countries, including South Africa and India, have recently implemented broad systems for collecting and storing their citizens biometric information. But analysts and communications experts say they can’t recall a country trying to gather biometrics as rapidly as Pakistan is doing, according to the Washington-based American newspaper.  In addition to setting up biometric verification systems at tens of thousands of retail points run by carriers, the cellphone companies have launched massive advertising campaigns and sent mobile vans around the country to accelerate the process. About half of all SIMs have so far been verified.  The companies are warning subscribers that their SIM (subscriber identity module) cards will not work unless the owners' fingerprints are  entered and verified against the database maintained by the National Database Registration Authority (NADRA). They have to show their computerized national identity cards (CNICs) and fingerprints. If the scanner matches their print with the one in a government database, they can keep their SIM card. If not, or if they don't show up, their cellphone service is cut off.

    Asia’s FX vulnerabilities, charted -- The bigger the bubble the bigger the debt, but more on that near the bottom. First, you might look at this alongside the dark debt/ stronger USD issue we’ve been going on about for a while. Gavyn Davies weighed in on the wider problem on Monday and we’ll use his summary here: Risks in the emerging markets (EMs) could, however, be much greater. Financial accidents tend to happen where credit booms have recently become over-extended, and history suggests that severe accidents are more likely when the Fed is tightening, and the dollar is rising. The EM corporate bond markets, which have expanded rapidly since 2010, probably represent the most vulnerable spot in the global financial system as the Fed tightens… The dollar has become the unit of account in a foreign credit market that is half as large as US GDP. All of the major emerging markets are deeply embroiled, including China, Brazil and India… If the dollar continues to rise, the burden of this corporate debt, measured in domestic EM currencies, will rise in tandem. It is true that dollar debt has been increasingly long term in nature (around 10 years duration recently), so roll-over risk does not appear to be a major problem. It is also true that some of the dollar debt has been used to hedge future dollar export earnings by the corporates concerned, notably in the energy sector. But the BIS warns that the extent and distribution of unhedged currency risk is unknown. Portfolio managers in the global bond market may dump EM debt very quickly as interest rates begin to rise, forcing some EM corporates to buy dollars to redeem maturing debt. This could push the dollar higher, tightening monetary conditions even more. And this would reduce capital investment in the EMs, raising the risk of recession and inducing bond managers to dump more EM credit into the market. The BIS is worried that the results could resemble the collapse of a traditional leverage bubble in the banking sector, even though the institutional components would be very different…

    Record Low Baltic Dry Casualties Emerge: Third Dry-Bulk Shipper Files For Bankruptcy In Past 3 Weeks -- The unintended consequences of a money-printed, credit-fueled, mal-investment-boom in commodities (prices - as opposed to physical demand per se) and the downstream signals that sent to any and all industries are starting to bite. The Baltic Dry Index has plunged once again to new record lows and the collapse of the non-financialized 'clean' indicator of the imbalances between global trade demand and freight transport supply has the real-world effects are starting to be felt, as Reuters reports the third dry-bulk shipper this month has filed for bankruptcy... in what shippers call "the worst market conditions since the '80s."

    Israel becomes 20th central bank to cut rates this year: The Bank of Israel's decision to cut its benchmark interest rate on Monday has meant it has joined a wave of central banks in easing monetary policy in a global fight against deflation. The Bank of Israel's move comes amid a so-called global currency war, where central banks are rapidly lowering their key rates to weaken their currencies and thereby ensure the country's products remain competitive. JP Morgan chief economist Stephen Walters said most of the cuts came as a surprise because falling oil prices, supposedly freeing up disposable income, usually acted as an equivalent to a rate cut. He said he expected more central banks to cut rates, tipping Malaysia next, but more cuts would occur within those which have already moved. Two of the world's most important central banks, the US Federal Reserve and the Bank of Japan, haven't moved in 2015. US rates remain at record lows of close to zero since the global financial crisis hit in 2008, but many are expecting a hike as employment and inflation figures improve.

    20 Central Banks Have Cut Rates In 2015 After "Surprise" Rate Cut By Israel To Record Low 0.1% - Last week it was 19 central banks (including the ECB which accounts for 19 nations) which had cut rates in 2015, mostly in "surprise", unexpected easing decisions. Moments ago the number became 20 when the Israel central bank just cut its interest rate by 0.15% to 0.1%, the lowest on record, a move which once again caught the market by surprise as only 3 of 23 analysts had predicted it.

    This Is The Biggest Problem Facing The World Today: 9 Countries Have Debt-To-GDP Over 300% -- If anyone has stopped to ask just why global central banks are in such a rush to create inflation (but only controlled inflation, not runaway hyperinflation... of course when they fail with the "controlled" part the money paradrop is only a matter of time) over the past 5 years, and have printed over $12 trillion in credit-money since Lehman, the bulk of which has ended up in the stock market, and which for the first time ever are about to monetize all global sovereign debt issuance in 2015, the answer is simple, and can be seen on the chart below.  It also shows the biggest problem facing the world today, namely that at least 9 countries have debt/GDP above 300%, and that a whopping 39% countries have debt-to-GDP of over 100%! We have written on this topic on countless occasions in the past, so we will be brief: either the Fed inflates this debt away, or one can kiss any hope of economic growth goodbye, even if that means even more central bank rate cuts, more QEs everywhere, and stock markets trading at +? while the middle class around the globe disappears and only the 0.001% is left standing. Finally, those curious just how the world got to this unprecedented and sorry state, this full breakdown courtesy of McKinsey should answer all questions.

    Nigeria’s Future Depends On Electricity - Africa’s most populous country will head to the polls on March 28th in the closest elections in Nigeria’s short democratic history. While security has dominated the electoral debate, Nigeria’s next president is set to face other pressing challenges. Nigeria surpassed South Africa and became the continent’s largest economy in 2014. But despite the economic growth achieved in the past decade, most of the country lacks the infrastructure to ensure development in the current environment of low commodity prices. Nigeria has one of the worst electricity supplies in the world second only to India. No access to power hinders the country’s development in all sectors from education up to industrial production. Nigeria’s Achilles heel is therefore not Boko Haram but electricity, and if the next president won’t prioritize power generation the country risks stagnating economically in the coming years. Nigeria produces around 4,000 megawatts for a population of over 170 million; with a similar population, Brazil generates 24 times as much. South Africa consumes 55% more energy per capita than Nigeria, where half of the population does not have access to power. Those who do have some access to electricity often experience long blackouts that can amount up to seven hours a day. Unreliable power supply leaves Nigerians with no other option than oil-based expensive generators- 60 million Nigerians rely on generators on which they spend an average of 3.5 trillion Nairas a year ($17.5 billion US dollars).  The power shortages constrain the daily livelihoods of Nigerians, from limiting children’s reading hours to creating food waste due to the lack of refrigeration. While Nigeria is one of the biggest telecommunications markets in Africa, many users have multiple mobile phones on different providers to make up for the constant disconnection of cell towers. Nigerians who can afford generators spend an estimate of $.40/kWh, one of the main expenses of the average household.

    Amid a Slump, a Crackdown for Venezuela - Faced with tumbling approval ratings as Venezuelans reel from the economic shock, President Nicolás Maduro is intensifying a crackdown on his opponents, reflected in last week’s arrest of Antonio Ledezma, the mayor of Caracas, and his indictment on charges of conspiracy and plotting an American-backed coup.Mr. Maduro, a protégé of President Hugo Chávez, who died in 2013, has adopted an increasingly shrill tone against critics of Venezuela’s so-called Bolivarian Revolution. As evidence against Mr. Ledezma, Mr. Maduro pointed to an open letter this month calling for “a national agreement for a transition” that was signed by Mr. Ledezma; Leopoldo López, another opposition figure who has been imprisoned for the past year; and María Corina Machado, an opposition politician charged in December with plotting to assassinate Mr. Maduro.“In Venezuela we are thwarting a coup supported and promoted from the north,” Mr. Maduro said over the weekend on Twitter. “The aggression of power from the United States is total and on a daily basis.” Mr. Maduro is taking a page from Mr. Chávez, who was briefly ousted in a 2002 coup with the Bush administration’s tacit approval, then made attacking Washington and locking up people suspected of being putschists a fixture of his government. But the State Department has disputed Mr. Maduro’s claims, saying the United States is not promoting unrest in Venezuela.At the same time, the move by Mr. Maduro points to a hardening in how opposition figures here are treated. Thirty-three of the 50 opposition mayors in the country are now facing legal action in connection with antigovernment protests last year that left 43 people dead, according to Gerardo Blyde, the mayor of Baruta, a Caracas municipality.

    De-Dollarization: Russia Ratifies $100 Billion BRICS Bank - A BRICS Bank - as an IMF alternative and to enable nations to become less dependent on the global reserve currency - was originally discussed at The BRICS Summit in 2012. Then at the 2014 BRICS Summit, the framework for The BRICS Bank was approved as "a system of measures that would help prevent the harassment of countries that do not agree with some foreign policy decisions made by the United States and their allies." Headquartered in Shanghai and chaired by Russia, this week saw what appears to be the final step in the creation of BRICS New Deverlopment Bank as RT reports, The Russian State Duma has ratified the $100 billion BRICS bank that’ll serve as a pool of money for infrastructure projects in Russia, Brazil, India, China and South Africa. It is expected to start fully functioning by the end of 2015. Isolated? As RT reports,The Russian State Duma has ratified the $100 billion BRICS bank that’ll serve as a pool of money for infrastructure projects in Russia, Brazil, India, China and South Africa, and challenge the dominance of the Western-led World Bank and the IMF.  The New Development Bank is expected to start fully functioning by the end of 2015, according to the Russian Finance Ministry. Russia has agreed to provide $2 billion dollars from the federal budget for the bank over the next seven years.  It will have three-tiers of corporate governance, with a Board of Governors, Board of Directors and a President. The bank’s board of directors will hold its first meeting in Ufa in Russia in April. Russian Finance Minister Anton Siluanov is likely to become the bank’s first Chairman of the Board of Governors, according to Deputy Finance Minister Sergei Storchak talking on the Russia 24 TV channel.

    Cash for Gas: Russia Threatens to Shut Off Gas in Two Days for Lack of Payment --Last year, Russia shut off gas deliveries to Ukraine for lack of payment. Most of the flow through Ukraine goes to Europe, but Russia accused Ukraine of siphoning off gas without paying for it. In December, Ukraine agreed to prepay for gas. The flows resumed, but a major dispute has recently arisen.Yesterday, Ukraine complained it has not received gas it paid for.  Today, Russia complains it has not been paid for gas delivered. . RT reports Kiev Cash-for-Gas Failure Could Cost EU its Supply. Russia will completely cut Ukraine off gas supplies in two days if Kiev fails to pay for deliveries, which will create transit risks for Europe, Gazprom has said.  Ukraine has not paid for March deliveries and is extracting all it can from the current paid supply, seriously risking an early termination of the advance settlement and a supply cutoff, Gazprom's CEO Alexey Miller told journalists. The prepaid gas volumes now stand at 219 million cubic meters."It takes about two days to get payment from Naftogaz deposited to a Gazprom account. That's why a delivery to Ukraine of 114 million cubic meters will lead to a complete termination of Russian gas supplies as early as in two days, which creates serious risks for the transit to Europe,” Miller said.

    Putin Slams Ukraine Decision To Cut-Off Gas To East As "Genocidal" -- Ukrainian authorities decision to halt gas supplies to Donetsk amid the ongoing humanitarian catastrophe occurring there "bear the hallmarks of genocide," blasted Russia's Vladimir Putin during an awkward press conference with Cyprus' President Nicos Anastasiades (who he had just agreed bilateral military and trade deals with). "Apparently, some responsible leaders of the modern-day Ukraine are unable to understand the importance of humanitarian issues," Sputnik News reports Putin concluded. In an attempt to gain leverage and force Ukraine's hand however, Russia's Gazprom has indicated it intends to suspend gas deliveries to Ukraine (and thus Europe via pipelines) unless Kiev makes a further prepayment.

    Putin: Gas supplies to Europe could suffer in 3-4 days if Kiev doesn't pay — RT News: Russia will cut off gas supplies to Ukraine if Kiev fails to pay in “three or four days,” President Vladimir Putin said, adding that this "will create a problem" for gas transit to Europe. “Gazprom has been fully complying with its obligations under the Ukraine gas supply contract and will continue doing that,” Putin told reporters after talks with the president of Cyprus on Wednesday. “The advance payment for gas supply made by the Ukrainian side will be in place for another three to four days. If there is no further prepayment, Gazprom will suspend supplies under the contract and its supplement. Of course, this could create a certain problem for [gas] transit to Europe to our European partners.” However, Putin expressed the hope that it would not come to that, stressing that “it depends on the financial discipline of our Ukrainian partners.”   He noted that Russia’s ministers and the CEO of Gazprom have “actively” reminded Ukraine of the looming deadline. On Tuesday, Gazprom's CEO Aleksey Miller reminded Ukraine’s state-owned Naftogaz of the gas prepayment. Miller said that Ukraine had not paid for March deliveries and warned that Kiev was risking an early termination of the advance settlement and a supply cutoff.

    Ukraine Hyperinflation; Currency Plunges 44% in One Week! Actual Black Market Rates; Poroshenko Gives "Ultimatum" to Central Bank to Fix Exchange Rate -  I hear various reports of what the hryvnia actually trades for on the black market in Ukraine. I believe the reports, but they come in piece-mail.Today, I have an actual black market link to share thanks to reader Oleg from Crimea. In response to Ukrainian Currency Comparison: Budget Rate vs. Official Rate vs. Interbank Rate vs. Street Rate reader Oleg Writes ... There's more to the black exchange rate than meets the eye in Ukraine. First of all if you use the "legal" currency exchange places you can only exchange up to 3000 hryvnias per day. Then there is an extra tax on the exchange.None of that applies at the black market of course. Often black market outfits operate from the same official currency exchange kiosks, you just need how an what to ask for. A number of "online exchanges for people" sprang up where people say how much of what they have and what they ask for it. Of course, such sites are subject to manipulation.The official foreign exchange limit is 3000 hrivnas per day, down from 15,000 a year ago. That's less than $100 a day. That limit is posted in Changes in Currency Control Rules (in English).  The Exchange Tax, not in English, is up from 0.5% to 2.0%.  In a second email Oleg comments "It's a pretty widespread practice to ask around when you need to sell dollars/euros because there are tons of willing buyers at a very competitive price compared to official exchange places. Of course, going straight to the black market is risky in many respects. However, importers frequently turn to such exchanges because they need currency and cannot obtain it by official means."

    Panic in Ukraine Over Food, Empty Stores and Protests; Strategic Food Reserve Empty - Here's a brief update from "Ellen" who lives in Lviv, a city in Western Ukraine. We have quite a panic over the collapse of currency. People buy any food product that can be stored. Everyone wants to rid of Hryvnia. We haven't seen anything like this since 1991 when the Soviet Union collapsed. Stores are empty. There were riots in downtown today. A group of protesters was beaten up by police. They marched through downtown and gave a last warning to government officials. Next time they said they will shoot some officials. Ukraine is on a brink, but the West is not in a hurry to give us money. Perhaps they want something.  Maybe they know the money will end up with corrupt officials who will steal it.Either way, the few billion dollars they promised in March won't save our economy, not after this panic started.  A curious thing happened today. To quiet protests over food, president Petro Poroshenko ordered the minister of the food reserve to fill the shelves of stores with flour, sugar, canned meat, and buckwheat from the reserve.  Well guess what? There was no food in the reserve. It has either been looted (like the vanishing gold), or it was fed to the army.  Here is a nice translation from Russian by J. Hawk: Ukraine's Strategic Food Reserve...Runs Out Of Food. . The government’s “economy block” hastily summoned the director of the Ukrainian State Reserve Vladimir Zhukov. They demanded that he open the storehouses and fill the shelves with flour, sugar, canned meat, and buckwheat from its stores. In response the keeper of Motherland’s strategic stores revealed a terrible military secret to Yatsenyuk and Poroshenko: the storehouses are empty.

    In Midst of War, Ukraine Becomes Gateway for Jihad - Khalid, who uses a pseudonym, leads the Islamic State’s underground branch in Istanbul. He came from Syria to help control the flood of volunteers arriving in Turkey from all over the world, wanting to join the global jihad. Now, he wanted to put me in touch with Rizvan, a “brother” fighting with Muslims in Ukraine. The “brothers” are members of ISIS and other underground Islamic organizations, men who have abandoned their own countries and cities. Often using pseudonyms and fake identities, they are working and fighting in the Middle East, Africa and the Caucasus, slipping across borders without visas. Some are fighting to create a new Caliphate — heaven on earth. Others — like Chechens, Kurds and Dagestanis — say they are fighting for freedom, independence and self-determination. They are on every continent, and in almost every country, and now they are in Ukraine, too. In the West, most look at the war in Ukraine as simply a battle between Russian-backed separatists and the Ukrainian government. But the truth on the ground is now far more complex, particularly when it comes to the volunteer battalions fighting on the side of Ukraine. Ostensibly state-sanctioned, but not necessarily state-controlled, some have been supported by Ukrainian oligarchs, and others by private citizens. Less talked about, however, is the Dudayev battalion, named after the first president of Chechnya, Dzhokhar Dudayev, and founded by Isa Munayev, a Chechen commander who fought in two wars against Russia.

    The Data Shows the REAL Economy is Imploding…Is a Crash Next? - The global economy is literally imploding. Investors believe that China’s economy is chugging along, but the non-fraudulent data says otherwise. China’s GDP numbers are a total fiction. And Chinese Government officials even ADMIT it! Back in 2007, no less than current First Vice Premiere of China, Li Keqiang, admitted to the US ambassador to China that ALL Chinese data, outside of electricity consumption, railroad cargo, and bank lending is for “reference only.” As RBS Economics notes, China's rail volumes are collapsing at a rate not seen since the Asian Financial Crisis. The Chinese economy is literally collapsing faster NOW than it did in 2008. As far as Europe goes, Mario Draghi just admitted in the EU Parliament that the ECB has only one tool left at its disposal: QE. After that, there is nothing left in the tool box. And despite announcing QE a few months ago, Europe is lurching towards deflation. Greece’s banks are imploding while the Ukraine is moving rapidly into hyperinflation. The Euro has taken out critical support and is likely going BELOW parity with the US Dollar.

    The Current State of the TTIP - The US government and the European Commission were hoping to have the TTIP wrapped up and ratified by a year ago, but democratic pressures have forced a big slowdown, as the EC and officials from various member states have sought to get their propaganda in order. Thus the EC felt compelled to hold a bogus “public consultation” (the equivalent of a public comment period) on the most controversial element of the plan, Investor-State Dispute Settlement (ISDS), while government officials struggled to present a united front in promising that the TTIP would not lead directly to such outcomes as the privatization of Britain’s health system or the eradication of European truth-in-geographical-branding regulations, a common concern everywhere. It obviously will bring these and far worse outcomes, as some officials admitted before later backpedaling. Meanwhile even high-level pro-TTIP (and pro-CETA, Canada-Europe Trade Agreement, another pact which was supposed to be completed in 2014 but has stalled) officials are now telling the US they think ISDS is overkill. They give legalistic reasons for this change of heart, though the main reason must be that they think it’s political overkill which threatens ratification of the pact itself. That’s why the EC had to take time out for the “consultation” a year ago.

    Explaining Recovery Performance in Europe - Paul Krugman --I was very interested by the new paper by Claeys and Walsh on “plucking” as an explanation of differential performance in Europe; basically, they’re saying that fast growth has come in countries that previously had deep slumps. But how does that result interact with the result many of us have found, which is that differences in austerity seem to explain a lot? Here’s an example of what I find: I tried to see where their result fits in; but I used a slightly different sample. I included Greece; I’m not sure why they excluded it (they say that they’re dropping countries that didn’t have any recovery, but why?) I also used the same dates for everyone, 2007-9 for the slump and 2009-14 for the recovery. And since I wanted to use structural deficits to measure austerity, I could only include Latvia among the Baltics.  What I got was this: Latvia stands out, but in this sample it’s alone; the estimated coefficient on the size of the slump is large but hugely uncertain.What happens if you throw both variables in? With standard errors in parentheses, I get Growth in GDP 2009-14 = 7.91 – .26(.28)*Change in GDP 2007-9 – 1.41(.27)*  Change in structural balance as % of potential GDP. Plucking might be important, but it’s hard to tell given the lack of data. Austerity, on the other hand, comes in very clear.  Maybe the point is that there aren’t any deep mysteries that need explaining. You can point to individual countries and say that they did better than you might have expected, but any kind of non-cherry-picked analysis of the data really, really wants to tell you not just that austerity hurts growth but that it’s the major factor causing some European countries to do worse than others.

    EU gives France until 2017 to cut deficit; Italy, Belgium in clear (Reuters) - The European Commission gave France until 2017 to get its budget deficit below an EU-imposed limit, sparing Paris a fine and giving it a new two-year grace period after it missed a second deadline to puts its finances in order. true true Co-creator of the euro and the EU's second biggest economy, France has repeatedly failed to meet pledges to cut its deficit, arguing against a German push for austerity at a time of high unemployment and struggling under Socialist President Francois Hollande to reduce spending in the face of popular opposition. The decision by the Commission, which also decided against penalising Italy and Belgium for increasing public debts, had been expected after officials had hinted that imposing a fine on such a powerful member state was a step too far. But it raised some questions on the credibility of rules in a euro zone already buffeted by the Greek debt crisis.

    ECB’s Constancio Sees Stock of €4 Trillion Eligible for QE Purchases - Vitor Constancio, vice president of the European Central Bank, played down worries in financial markets that the ECB will not be able to find enough bonds to complete its “quantitative easing” as planned. Starting next month the ECB plans to buy €60 billion of debt securities a month until September 2016. Some investors worry that top-rated bonds are already in short supply—especially Germany’s, which make up the largest individual chunk of the program. German government debt, or bunds, will account for just over a quarter of the purchases, or around €12 billion each month. Mr. Constancio said the pool of available bonds for purchases is €4 trillion, a “deep” market with “a lot of investors.” “We don’t anticipate that there will be such a problem,” he said. The German treasury says it expects to issue this year €147 billion of eligible bonds—those with maturities of two to 30 years—while €132 billion of bonds will mature, meaning net new bund issuance of just €15 billion for the whole year. Overall, the ECB’s plans mean it has to buy €215 billion of German government bonds between this March and September 2016—26 times more than the amount the German government bond market is predicted to grow over the same period

    This European Nation's Poverty Rate Just Hit A Record High (Spoiler Alert: Not Greece) -- For the last few years - and most especially the last few months - all eyes have been focused on Greece. From record poverty rates to record suicide rates and levels of youth unemployment, post-election emboldened hopes for a phoenix-like rebirth of a nation from the flames of Eurogroup repression were seemingly dashed on Friday. However there is another nation, that begins with the letter 'G' and that is at the heart of the EU-Greece talks that is suffering seemingly silently. As Newsweek reports, poverty in Germany is at its highest since the reunification of the country in 1990, with 12.5 million residents now classified as 'poor'...

    Germany Sells Five-Year Debt at Negative Yield for First Time on Record - WSJ: Germany on Wednesday sold five-year government debt at a negative yield for the first time on record, reflecting plunging borrowing costs across the region in the run-up to the European Central Bank’s sovereign-bond-buying program. The German Finance Agency sold €3.281 billion ($3.72 billion) of bonds maturing in April 2020 at an average yield of minus 0.08%. At a similar deal in January, the yield was 0.05%. The negative yield means investors are effectively paying the German state for holding its debt. Even so, bond prices—which climb when yields drop—are expected to rise further once the the ECB starts its latest round of stimulus measures next month, meaning investors could potentially sell the bonds at a profit. “The negative yield is not scaring investors away,” . Given that eurozone interest rates are likely to remain low for some time, buying five-year German debt and selling shorter-term German bonds with yields that are even more negative might appeal to investors, said “We see no prospect of the ECB tightening in the near term,”

    What a Grexit Would Mean for Greece and for Europe - On Wednesday of this week, 30 top managers at a large German bank all received a text message and an email at the exact same time. A short time later, their mobile phones rang with an automated voice giving them all passwords and a number to call at exactly 8:30 a.m. to join a teleconference with the board of directors. The communication blast was the initial step of the bank's emergency "Grexit" plan, a strategy laid out in a document dozens of pages long detailing exactly how managers should react in the event that Greece leaves the euro zone. Each of the 30 bank managers were required to work through the emergency measures pertaining to his or her division. Information was to be transferred to the supervisory board and public officials were likewise to be kept informed as was the German Finance Ministry. The plan also called for large investors to be put at ease. Questions pertaining to potential bank losses from Greek bond holdings were to be addressed as were changes in monetary transactions with Greece once it was no longer part of the common currency zone. The response also extended to internal bank communication, with instructions to employees for dealing with the new situation posted in the financial institution's intranet. Customers and stake holders were also to be kept informed. At exactly 6 p.m., the crisis came to an end, as did the work day. Plan "Grexit" was just a dry run, nothing more. At least not yet. Such scenarios are being acted out across Europe these days as companies, banks and governments all prepare for the kind of worst case scenario that isn't even addressed in euro-zone statutes: the exit of one of the common currency area's member states.

    Syriza’s honeymoon over as Greece strikes debt deal with EU - With a deal, of sorts, to keep Greece in the eurozone, prime minister Alexis Tsipras marked his first month in office this weekend acknowledging that only now does the hard work begin. Facing a 48-hour deadline to produce a list of reforms that could make or break his insolvent country’s future, the anti-austerity leader admitted the honeymoon was over for a government that had sent ripples of hope through Europe. In a sombre address, hours after a dramatic meeting of euro group finance ministers in Brussels, Tsipras said that, while Athens under the stewardship of his radical left Syriza party had for the first time embarked on “real negotiations” with its creditors, a “long and difficult ” struggle lay ahead. “We have won the battle but not the war,” he said. “We showed that Europe can be an arena of negotiation and mutually acceptable compromise and not an arena for exhaustion, submission and blind punishment … but negotiations did not end yesterday.” Five years into Greece’s worst crisis in modern times, the relief was almost audible in the voice of its young prime minister. Weeks after assuming power, his leftist-led coalition has endured a baptism of fire amid acceptance by inexperienced officials that they are learning on the job. With bailout funds expiring on 28 February, keeping Greece afloat and in the single currency – while not being seen to ditch the anti-austerity platform on which Syriza was elected – has been a balancing act of almost existential proportions. The programme, extended for four months under the agreement, stopped Greece from being shown the euro exit door but has come at a heavy price. Speaking to reporters after its announcement, Greek finance minister Yanis Varoufakis described the deadlines the new government had been forced to meet as “inhuman”.

    A Deal That Preserves Greece’s Place in Eurozone, and Fiscal Restraints - Just a month ago, after being propelled to power by a wave of anger at Greece’s economic miseries, Alexis Tsipras declared his left-wing Syriza party’s election victory the start of a Europe-wide revolt against austerity. “Europe is going to change,” he said before setting off on a tour of European capitals to rally support for a more relaxed new direction.The “anti-austerity revolution” proclaimed by Syriza and its fans elsewhere, however, has now fizzled, its passions doused by the political reality that leaders in the rest of Europe do not want to join or, more important, finance the Greek-led revolt. Greece’s hoped-for new dawn for Europe ended on a rain-drenched Friday evening in the Justus Lipsius Building  where finance ministers from the 19 countries that use the euro — known as the Eurogroup — had gathered for their third emergency meeting in two weeks. A deal negotiated there lifted the threat of bankruptcy hanging over Greece and with it the immediate risk that it might have to leave the eurozone and the 28-member European Union, an exit that would have delivered a grave blow to Europe’s six-decade drive for integration.But an agreement to extend Greece’s bailout for four months also committed it to honor fiscal targets and other conditions it had vowed to scrap and left intact the supervising role of the so-called troika — a trio of creditor bodies that Syriza wanted banished, viewing it as the hated symbol of their country’s subordination to so-called neo-liberal economic dogma. Moreover, the finance ministers made clear that Greece will not get any more cash until it satisfies them it can keep a lid on spending, setting the stage for more tense negotiations in coming days and weeks. Syriza still claimed victory, but few outside the party — and some within it — saw anything other than an abrupt halt to its iconoclastic vision of a “new deal” in which voters, not markets and Brussels technocrats, decide how money flows and on what terms.

    Alexis Tsipras: 'We have won the battle, not the war' - - The Greek government has won a battle against its austerity programme after reaching a deadline-day extension to avert bankruptcy, according to the country's prime minister.  Speaking in a televised address, a defiant Alexis Tsipras said: "Yesterday we took a decisive step, leaving austerity, the bailouts and the troika."  "We won a battle, not the war. The difficulties, the real difficulties ...are ahead of us."  Greece secured a temporary four-month extension of its bail-out with eurozone finance ministers on Friday evening.   Yanis Varoufakis, Greece's finance minister said the agreement had "averted a sickness" in the Greek economy, by allowing a relaxation of tough fiscal targets that had previously been imposed on the economy.  "We are no longer following a script given to us by external agencies. Once you have a relationship of equals, the co-operation can be a lot more fruitful," said Mr Varoufakis. Greece now faces a race to come up with the list of reforms it will carry out in return for money from the "institutions" of the European Commission, European Central Bank and the International Monetary Fund. The Prime Minister met with his inner cabinet of 10 ministers on Saturday to discuss the proposals to be submitted before Monday's deadline. If the reforms are deemed sufficient by Greece's partners, the bail-out extension could be ratified by the German parliament next week. Pressure to negotiate a deal before the February 28 expiry date heightened as it was revealed that almost €1bn a day was being withdrawn from Greek banks. Mr Tsipras added the extension would finally put an end to the "asphyxiation" Greece has suffered since 2012.

    How Greece Got Outmaneuvered - Varoufakis has been saying his government will aim to produce a surplus of 1.5 per cent of G.D.P. Since tax revenues have collapsed over the past couple of months, this is still an ambitious target, and it seems to rule out any large-scale embrace of Keynesian stimulus policies. But any relaxation of the existing austerity policies would be welcome to Greeks—and, after the agreement was reached, that is what Greek officials were saying they’d achieved. “Greece today has turned a page,” one official told Reuters. “We have avoided recessionary measures.” That’s not just spin. Syriza did get something significant out of the agreement, but nothing like what it was hoping for when it took power, on January 25th. Then, there was talk of liberating not just Greece but the entire continent from the grip of austerity policies. After Friday’s deal was announced, some Greek journalists warned that Varoufakis and Tsipras would have a tough time selling the deal to the party’s radical elements, which have been out on the streets protesting the perfidy of Germany, Brussels, and the E.C.B. In retrospect, it is clear that Tsipras and Varoufakis overplayed their hand. Their early bluster riled up the Germans and alienated other players that they needed to win over, such as the E.C.B. and the European Commission. Since Varoufakis is an academic game theorist, this is a bit surprising, but perhaps not entirely so. Having been swept into office practically out of nowhere, Syriza’s leaders were understandably giddy, and understandably eager to meet the demands of the popular protest movement that was responsible for their rise.

    Greece Did OK -- Paul Krugman - Now that the dust has settled a bit, we can look calmly at the deal — if it really is a deal that survives through tomorrow, which some people doubt. And it’s increasingly clear that Greece came out in significantly better shape, at least for now.  The main action, always, involves the Greek primary surplus — how much more will they need to raise in revenue than they can spend on things other than interest? The question these past few days would be whether the Greeks would be forced into agreeing to aim for very high primary surpluses under the threat of being pushed into immediate crisis. And they weren’t. ... Right now, Greece has avoided a credit cutoff, and worse yet an ECB move to pull the plug on its banks, and it has done so while getting the 2015 primary surplus target effectively waived. The next step will come four months from now, when Greece makes its serious pitch for lower surpluses in future years. We don’t know how that will go. But nothing that just happened weakens the Greek position in that future round. ... So Greece has won relaxed conditions for this year, and breathing room in the run-up to the bigger fight ahead. Could be worse.

    Reading the Greek Deal Correctly - James K. Galbraith - On Friday as news of the Brussels deal came through, Germany claimed victory and it is no surprise that most of the working press bought the claim. They have high authorities to quote and to rely on. Thus from London "The Independent" reported:  several analysts agreed that the results of the talks amounted to a humiliating defeat for Greece.   No details followed, the analysts were unnamed, and their affiliations went unstated – although further down two were quoted and both work for banks. "  The New Yorker" is another matter. John Cassidy is an analytical reporter. Cassidy’s analysis appeared under the headline, “How Greece Got Outmaneuvered” and his lead paragraph contains this sentence:  Greece’s new left-wing Syriza government had been telling everyone for weeks that it wouldn’t agree to extend the bailout, and that it wanted a new loan agreement that freed its hands, which marks the deal as a capitulation by Syriza and a victory for Germany and the rest of the E.U. establishment.   In fact, there was never any chance for a loan agreement that would have wholly freed Greece’s hands. Loan agreements come with conditions. The choice had to be made by February 28, beyond which date ECB support for the Greek banks would end. No agreement would have meant capital controls, or else bank failures, debt default, and early exit from the Euro. SYRIZA was not elected to take Greece out of Europe. Hence, in order to meet electoral commitments, the relationship between Athens and Europe had to be “extended” in some way acceptable to both.  But extend what, exactly? There were two phrases at play, and neither was the vague “extend the bailout.” The phrase “extend the current programme” appeared in troika documents, implying acceptance of the existing terms and conditions. To the Greeks this was unacceptable, but the technically-more-correct “extend the loan agreement” was less problematic. The final document extends the “Master Financial Assistance Facility Agreement” which was better still. The MFFA is “underpinned by a set of commitments” but these are – technically – distinct. In short, the MFFA is extended but the commitments are to be reviewed.

    50 Shades of Greece -  When it comes to the ongoing Greek question, I see a lot of people eagerly jump to conclusions, after the ‘debt deal’, that I don’t think are justified; certainly not yet. The overall conviction in the press seems to be that Syriza has given in on just about all fronts, and Germany and Dijsselbloem are the big winners. But since that may well be the exact position Syriza wants ‘the other side’ to be in, where they think they have prevailed, one will have to try and think a few steps ahead before judging the situation. There’s far more grey area here than many pundits seem to assume, easily 50 shades of it. If Greece wouldn’t have given Germany the idea that it was winning, Athens would have already come very close to an exit from the eurozone. The problem with that is that it is not part of the mandate Syriza has been given by Greek voters. Who have spoken out for an end to austerity, but within the existing euro framework. Varoufakis et al. may long have concluded that such a set-up is simply not realistic, but they would still have to work up to a situation where, at some point, they can present this to the people. And that can only be done after they can convincingly show that Germany and Holland refuse to honor the democratically decided mandate Syriza brings to the table. They would have to make absolutely sure that the other side gets the blame for the failed negotiations. They have to do that anyway, even if a Grexit is not their preferred outcome. They need to be able to prove that they bent over backwards and Germany still wouldn’t play ball.

    How Goes the War? -- Oh, you didn’t notice that World War Three is underway, actually has been for more than year? Well, that’s because most of it has been taking place in the banking sector, which for most people is just an alternative universe of math. The catch, which many people either miss or don’t care about, is that the math doesn’t add up. For instance, the runaway choo-choo train of linked European sovereign bond obligations with its overloaded caboose of interest rate swaps and other janky derivatives of mass destruction. That train left the station in Athens a few weeks ago bound for Frankfurt. Ever since, the German government and its cohorts in the EU, the ECB, and the IMF have been issuing reassurances that the choo choo train will not blow up when it reaches its destination.  Few people grok that Greece is an entity with an economy not much bigger than North Carolina’s, yet it is burdened with roughly $350 billion of old debt that will never be paid back. The only thing at issue is how it will not be paid back, that is, what mode of pretense will be employed to disguise the inability to pay back this debt. The mode du jour has been the crude one of lending Greece more money to pay back the interest on the old debt. A seven-year-old ought to be able to understand where that leads. It’s kind of up to the Greeks this week to possibly opt out of that farcical deal. They have at least two other present options: return to being a sunwashed semi-medieval backwater of olive farmers, shepherds, and inn-keepers, or perhaps lease out some cozy corner of their vast Mediterranean coastline to the Russian navy for enough annual walking-around money to keep the lights on for the aforementioned farmers, shepherds, and inn-keepers. Of course, that would drive the US and its NATO quislings batshit crazy.

    Greek funny money: no thanks - Does money have value because the state says it’s money, or because the population trusts that it’s money? It’s a great, perennial question. It’s also really not one Greece wants to find the answer to right now. The question comes up reading yet another proposal for Greece to use a parallel currency so it can fight with its creditors without leaving the euro. So, coming fresh after Wolfgang Munchau’s appeal for Greek IOU issuance last week, Paul Mason has resuscitated “future tax coin”:Varoufakis outlined, in a detailed blog post 12 months ago, how a Bitcoin-like virtual currency could be used to get around the ECB’s refusal to boost demand through quantitative easing. Just like Bitcoin, it would be exchangeable one for one with euros. But it would be issued by the state – and if you were prepared to hold it for two years, you would earn a profit paid for by taxes. For this reason, Varoufakis called it “future-tax coin”… …the obvious practical conclusion is that a state with its own currency is always solvent. It can always create more money and pay people in that money. Therefore, it can always run a deficit – always use state spending to suppress unemployment. The only condition is that people must believe the state will exist in future. Which is very much the ‘state’ view of money. Anyway, see also Gavyn Davies on similar parallel currency ideas back in 2012, the last time Greece looked like it might be edging out of the euro. Now, there’s a reason Greece didn’t adopt a parallel currency at that time, and why previous experiments with the idea — Argentina’s patacones in 2001, and California’s state IOUs, sorry, “Revenue Anticipation Notes” in 2009 — have generally been consigned to the dustbin of financial history.It’s a very silly idea.

    Throw Your Grandma Under The Bus - When the German/Eurogroup decision came to throw either their own biggest banks, or the grandmas of a co-member nation of the currency union under the bus, they didn't even hesitate since they have control over the perfect vehicle for such tasks: the ECB (an allegedly neutral institution that in reality peddles political influence in a way that guarantees the poorer countries will always wind up footing the bill). For those of you who don’t want to wake up one day to find their own grandmas crushed under the same bus the Greek yiayia’s are under as we speak, it would be beneficial to ponder how perverse this all is, not just the isolated events but the entire underlying system that produces them. Banks are more important than people, certainly grandmas.

    Austerity and the Costs of Internal Devaluation - Paul Krugman - Were the costs of Greek adjustment unavoidable, regardless of the currency? Could they have been much less, even given the euro? This paper says no; Simon Wren-Lewis is aghast, and rightly so. How can alleged experts have learned so little from so much terrible experience? I’d like to focus in on one point in particular, which I’m not sure is completely clear in Simon’s argument. We’re all agreed that Greece needed to reduce its wages and other costs relative to those of the euro area core. This could have happened quickly, with no need for high unemployment, if Greece had had an independent currency to devalue — as happened in Iceland. Given membership in the euro area, however, Greece had to go through a period of relatively high unemployment depressing wage growth.  There was, however, a question of how fast this had to happen. Think of this schematic picture: We can think of Greece needing to move wages toward a sustainable path that is itself rising over time thanks to inflation in the rest of the euro area (and of course it’s crucial that this inflation be fast enough). Even given this need, however, there’s the question of how fast; here Plan A is a cold turkey, very high unemployment and deflation route, while Plan B is one in which unemployment need only be high enough to keep wages from rising. So Greece could have avoided the bulk of its nightmare if it had had its own currency; but it could have had a much less terrible nightmare even given the euro if austerity had been less extreme and adjustment slower.

    What Ordinary Greeks Think Of Friday's Deal: "We Went Through Two Months Of Agony To Realize We Are Still A Debt Colony" -- Some Greeks wondered what the government had achieved. "We went through two months of agony, emptied the banks, to realize we are still a debt colony," 54-year-old electrician Dimitris Kanakis told Reuters. "The paymasters call the shots."... Pensioner Paradisanos Rigas siad: "It looks to me that nothing has changed. Later on they'll throw us some bones and say everything is fine. Syriza will be saying we put up a fight, while the other side will be saying you did nothing. And I think that it will be the same, just more of the same."

    Greek Infighting Begins After Historic Syriza Member Slams Agreement, Apologizes For "Contributing To Illusion" Of Change -- As the divergence between Syriza's leadership perspective on debt talks - "success...won the battle" - and the Greek voters - "It looks to me that nothing has changed" - grows ever wider, and on the heels of apparent near mutiny last week, there is growing division in the ranks of the newly elected party. Syriza MEP Manolis Glezos penned a stunning rebuke of the party's apparent U-turn and asks his electorate for forgiveness... "Pity, and pity again... I apologize to the Greek people because I have contributed to this illusion... before it is too late, let us react!"

    Varoufakis ‘absolutely certain’ Greek reforms will meet approval -- Greece's cabinet convened in Athens late on Saturday, racing to submit economic reform plans to its international creditors by a Monday deadline. "The list will be submitted and I am absolutely certain it will be approved," Finance Minister Yanis Varoufakis said after the meeting. "We are drawing it up as we speak, it will be completed tomorrow."  Greece's leftist-led coalition has until Monday to submit proposed austerity and reform plans to the International Monetary Fund, the European Commission and the European Central Bank. These three institutions, commonly referred to as the troika until leaders agreed earlier in the week to refer to them simply as "the institutions," remain in control of overseeing the reform process. Similarly, if extended by the planned four months, Greece's loans "program" will no longer referred to as a "program" in official communication. Varoufakis also said he was "almost certain" that the other 18 eurozone finance ministers would be happy to greenlight the reforms via a telephone conference, negating the need for another Eurogroup meeting in Brussels. Friday's 11th-hour negotiations were the third such gathering within the space of a fortnight.

    Syriza MP Asks $330bn Question: "How Will 4-Month Extension Improve Our Negotiating Position?" -- While the tone may not be as vociferous as historic Syriza MEP Manolis Glezos' recent statements over the Greek 'new deal', the rhetoric of Costas Lapavitsas (newly-elected Syriza MP) blog post is clearly questioning the decision-making of his party's leadership. With regards "our commitment to the Greek people, we have deep concerns," he begins, detailing five major questions that must be answered, perhaps most importantly, "What exactly will change in the next four months of 'extension', so that the new negotiation with our partners to become of better places? What will prevent the deterioration of the political, economic and social situation of the country?"

    Greece says eurozone deal won time as cash bled from banks: Greece's left-wing government insisted on Saturday it had avoided being "strangled" by the eurozone, which agreed in principle to extend a financial rescue deal as nervous savers pulled huge sums from Greek banks. Athens said the deal struck late on Friday in Brussels should calm Greeks who had feared capital controls might be imposed as a prelude to leaving the euro. But some weary voters questioned what their new leaders had achieved in weeks of testy exchanges with euro zone hardliners led by EU paymaster Germany. After often ill-tempered negotiations, Greece secured late on Friday a four-month extension to euro zone funding, which will avert bankruptcy and a euro exit, provided it comes up with promises of economic reforms by Monday. "We won time," said government spokesman Gabriel Sakellaridis. "The Greek economy and the Greek government weren't strangled, as was perhaps the original political plan by centers abroad and within the country," he told Mega TV, without naming the euro zone hawks who forced the government into a climbdown at the Brussels talks. Prime Minister Alexis Tsipras has won wide support at home for what Greeks see as their leaders finally getting tough instead of going to Brussels cap in hand and taking orders from Berlin. But it was also under intense pressure at home. About 1 billion euros flooded out of Greek bank accounts on Friday, a senior banker told Reuters, due to savers' fears that the talks would fail and Athens might have to halt such withdrawals or prepare to reintroduce a national currency. This added to an estimated 20 billion euros ($23 billion) that Greeks have withdrawn since December, when it became clear that the radical SYRIZA party of Tsipras was likely to win power in last month's parliamentary elections.

    Greece rejigs reforms as clock ticks on loan deal - - Greece raced Sunday to finalise reform proposals that would keep its loan lifeline open under an EU debt deal that saw its anti-austerity ambitions curtailed. European finance ministers on Friday gave Athens until Monday to present proposals that would convince its creditors to grant a four-month extension of its debt bailout. A top government official on Sunday said Athens would submit proposals that will take the struggling Greek economy "out of sedation." "We are compiling a list of measures to make the Greek civil service more effective and to combat tax evasion," minister of state Nikos Pappas told Mega channel. The four-month extension is designed to enable Greece and its creditors to negotiate a new reform deal acceptable to both sides. Greece's hard-left Syriza government is walking a tightrope between its commitments to European creditors and its electoral pledges to end austerity in a country struggling to recover from severe economic crisis. The extent of the challenge became clear Sunday when one of Syriza's most respected members, 92-year-old wartime resistance hero Manolis Glezos, blasted the concessions made by the government. "Calling a spade by another name does not change the situation," Glezos, who is a Syriza member of the European Parliament, wrote in a blog entry.

    Greece draws up €7.3bn tax hit list aimed at oligarchs and criminals - report -- Greece has drawn up a €7.3bn tax hit list aimed at the country’s oligarchs and lucrative smuggling industry, a German newspaper said, as part of reform proposals due to its creditors. European finance ministers on Friday gave Athens just over three days to draw up a list acceptable to its international creditors in exchange for a four-month extension of its debt bailout. The German tabloid Bild reported that the Greek government hopes to garner €2.5bn in tax receipts from the fortunes of powerful Greek tycoons, citing sources close to the hard-left Syriza government. A similar amount would be drawn from back taxes owed to the state by individuals and businesses, Bild said. The report said an additional crackdown on illegal smuggling of petrol and cigarettes would yield another €2.3bn for the government coffers. Greece’s government is walking a tightrope between its commitments to European creditors and its electoral pledges to end austerity in a country struggling to recover from severe economic crisis.

    Bailout monitors to review Greek government’s reform list -- Although Friday’s deal to extend Athens’ EU bailout by another four months beyond this Saturday’s expiry date may have staved off a Greek bank run and sovereign bankruptcy, many of the most important issues affecting the country’s finances have yet to be agreed. That process begins on Monday, when bailout monitors review a list of economic reforms from the new Greek government intended to take the place of the “austerity” measures currently in the rescue programme. Some important things were agreed on Friday but most of them fell in line with demands made by a German-led group of creditor countries. What Greece won was what Yanis Varoufakis, Greek finance minister, termed “constructive ambiguity” on how tough the next phase of the programme would be. Here is a look at the big issues facing Athens, in order of those that were firmly agreed down to those still undecided. “Troika” and “memorandum” These two code words were highly symbolic politically for the new government, with Alexis Tsipras, prime minister, pronouncing both “dead”. The hated troika refers to the trio of bailout monitors — European Commission, European Central Bank and International Monetary Fund — while the equally detested memorandum is the existing bailout agreement signed by Athens in 2012. Although neither word appears in Friday’s two-page agreement, the communiqué makes clear “the institutions”, as the troika is now known, are still in charge of reviewing economic reforms and deciding whether they have been properly implemented.

    Troika Not Happy with Initial Draft of Greek Reforms; Eurogroup Reported Still in the Mix (Updated) -- Yves Smith -- As most readers may know, Greece and the Eurogroup ministers agreed to a memorandum last week that would replace the bailout that expires on February 28 with a four-month deal that the memo stresses is in the same framework. The reactions to the memo have been a politico-economic Rorschach test, with readings strongly reflecting expectations of Syriza and the interpretations of the considerable, deliberate ambiguities in the text. But as much as the memo language was agreed by the ministers, it is not yet a done deal. The Greek government is required to submit a list of reforms to the Troika by the end of day Monday. If it is not approved, the Eurogroup will meet on Tuesday. Further, bear in mind that memo is technically not operative until it has been approved by all the Eurozone governments. In Finland and Germany, that means yet-to-be-obtained parliamentary approvals. We’ve stressed that we think they’ll both approve it, but there is a tail risk scenario that one of them will not ratify the pact (a reader describes the negative reaction in Finland, for instance).  Another critical assumption made by most reading the memo was that it could be taken at face value, that the difficult, and as Jamie Galbraith contends, disorganized Eurogroup was ceding control of the process to the professional bureaucrats of the Troika. We had argued that the Eurogroup would nevertheless be kept in the loop informally, since they will approve any disbursement of funds. If this story in El Pais is accurate, they are still in the loop as far as vetting the Monday proposal is concerned: Germany asked that the reform list was sent to all countries, not just the ECB, the IMF and the Commission on Monday. And Spain and Portugal asked for explanations: . “If there is any objection we will convene another Eurogroup,” said Spanish sources.If this is the case, this confirms my suspicion, and then some, that any ambiguities in the memo are likely to be resolved against, as opposed to in favor, of Greece. This is an important detail because it undermines the notion that the Greeks scored a win by circumventing the Eurogroup this week.

    Eurogroup to Review Greek Reform Proposals; Meeting Set for Tuesday (Updated) - Yves Smith As we indicated earlier today, the Eurogroup appears to still have its hand in the mix of determining whether the reform list submitted by Greece is adequate. A meeting is set to review the proposed Greek reforms tomorrow. The journalists who are in the mix are sending tweets that suggest that they are not yet clear on some key issues in the state of play. As of this posting, only some high level details of the reform list have leaked out. Plan for tomorrow… List to be submitted to EZ FinMins in the morning, Eurogroup will convene via teleconference in the afternoon— Jonathan Ferro (@FerroTV) February 23, 2015  BBC claims the reforms proposal is “late”… Greece to send reform plan to eurozone finance ministers on Tuesday morning, missing Monday deadline, officials say http://t.co/oyjorLdOTt — BBC Breaking News (@BBCBreaking) February 23, 2015 ….but Greece begs to differ:#Varoufakis tells live on #CNN that GR delivered reform letter today & it was Eurozone finance ministers who asked delay. #Greece #Eurogroup — Siegfried Muresan (@SMuresan) February 23, 2015 That is in keeping with Ambrose Evans-Pritchard’s puzzlement about the delay:Baffled by reports that Greek proposal will not be presented till Tuesday. Athens sent it to Declan Costello at EC mid-day Monday— A Evans-Pritchard (@AmbroseEP) February 23, 2015 However, as you’ll see later in this post, the Eurogroup did insist on reviewing and discussing the reform package on Tuesday, hence that reason for the meeting timing. But it is possible to square the circle, since Greece could be taking advantage of the Eurogroup schedule and is making some final tweaks.

    Eurozone Finance Ministers Approve Greek Bailout Extension - WSJ: The European Commission on Tuesday backed proposals made by the Greek government for reworking its bailout program, putting Athens one step closer to securing a four-month extension to its expiring bailout.  But the bloc’s governments will require more detail on the proposals before giving Greece more money and possibly before approving its extension request. Eurozone finance ministers will discuss the list of proposals, sent by Greece to its creditors on Monday night, on a conference call Tuesday afternoon.  “In the commission’s view, this list is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review, as called for by [eurozone finance ministers],” said commission spokesman Margaritis Schinas. “We are notably encouraged by the strong commitment to combat tax evasion and corruption.” However, Jeroen Dijsselbloem, the Dutch finance minister who leads meetings of the eurozone ministers, said the proposals represented “just a first step.” “This list is just an indication of the kind of reforms they would like to replace and also the ones they would like to continue,” Mr. Dijsselbloem said at the European Parliament on Tuesday. The commission is one of three institutions—along with the European Central Bank and International Monetary Fund—that have been overseeing Greece’s bailout and had been asked to assess the list before the eurozone ministers speak on their conference call at 13:00 GMT. Mr. Schinas said the fact that a conference call has been scheduled indicates the ECB and the IMF support the Greek proposals. The list, reviewed by The Wall Street Journal, includes pledges on privatizations, reforms to pension policy and government spending cuts, including reducing the number of ministries from 16 to 10. It also pledges to raise the minimum wage, a measure that has raised concerns among some of Greece’s creditors.

    Greek bank deposit outflows rose to 3 billion euros last week: JP Morgan - (Reuters) - Deposit outflows from Greece's banks rose last week to around 3 billion euros, according to JP Morgan estimates, ahead of Friday's last-minute aid extension agreement with the country's euro zone creditors. The 50 percent increase in the pace of outflows from the prior week's 2 billion euros meant Greek banks were on track to run out of collateral for new loans in eight weeks as opposed to 14 the week before, JP Morgan said. This is based on its calculation that of a maximum 108 billion euros of financing available from the European Central Bank and Greek central bank, Greek banks have already used up 85 billion euros, leaving them with 23 billion euros if needed. Hard data on Greek bank deposit flows come with a long time lag, meaning estimates are the most up-to-date guides. Outflows apparently accelerated during last week. They totaled more than 1 billion euros over Wednesday and Thursday, three senior banking sources told Reuters on Friday, and about 1 billion euros on Friday alone, another senior banker said. Greece is discussing a list of reforms including measures to tackle tax evasion and corruption with international partners to ensure it is accepted. Approval will secure the financial lifeline outlined on Friday.

    A Greek deal cannot fix the flaws in the euro - FT.com: Watching the Greek crisis unfold, I found myself torn between two equal and opposite thoughts. First, the euro cannot survive. Second, everything must be done to save the euro. The agreement reached between Greece and its eurozone creditors is therefore a good thing because it has put off the immediate threat of a political and economic crisis. But experience suggests that a debt deal with Greece may be only marginally more durable than a ceasefire in Ukraine. In both cases, there are underlying tensions and problems that cannot be solved by a cleverly drafted document. Ever since a single European currency was first mooted, I have believed that it would eventually collapse. That belief is based on three simple propositions. First, a currency union cannot ultimately survive unless it is backed by a political union. Second, there will be no political union in Europe because there is no common political identity to underpin it. And so, third — the euro will collapse. Plenty of people have attempted to convince me, over the years, that each of these three propositions is simple-minded and wrong. But events keep driving me back to the idea that the euro lacks the political and economic underpinning that it needs to survive. The Greek crisis is a case in point. The most passionate pro-Europeans are right that the only long-term alleviation of the problems of the weaker economies in the eurozone would be to set up a genuine transfer union, in which tax revenues automatically flow from rich areas, such as Germany, to poor areas, such as Greece. But that is never going to happen because the Germans and Greeks do not trust and like each other enough to merge their fates in a real political union. Northern Europeans will grudgingly extend conditional loans to the south. But they will not consent to the kind of automatic fiscal transfers that happen in a nation state because they suspect, correctly, that the political cultures of countries such as Greece and Italy are profoundly different from those of Sweden or Germany.

    Greece – Dead Man Walking - Mathew D. Rose -- Yves here. Greece has done at least as much damage by Varoufakis’ repeatedly and effectively making the case that austerity is not working. Admittedly, that cuts no ice among the true believers, who are legion in the debtor countries, as well as the leaders of the creditor countries who submitted to the Troika’s misrule. But anti-austerity pundits, who had long languished in the wilderness, are now getting more of a hearing. However, the move so far only seems to be toward austerity lite, as opposed to austerity repudiation. But the bigger issue that Rose raises is that last week’s ugly negotiations, in combination with the fiasco in Ukraine, is exposing Germany as a lousy hegemon, which he argues is producing a political crisis in Germany and fracture lines in Europe. I’m in no position to second guess his reading on Germany politics, but I doubt the immediate significance as far as the rest of Europe is concerned. I suspect that the political reaction across Europe to the German stance in the Eurogroup negotiations did more to crystalize long-standing doubts than embody shocking new information. Moreover, the US example shows that even terrible hegemons can continue to throw their weight around despite producing disastrous results. As we’ve pointed out repeatedly over the last few years, Germany’s leadership class and its citizens are wedded to contradictory goals: they want Germany to continue to run large trade surpluses, yet they are unwilling to continue financing their trade partners. So the solution seems to be to try to strip mine them until Germany has destroyed its export markets, either politically or economically. That does not sound like a very prudent national strategy.

    After Bailout Plan Approval, Greece Faces a Balancing Act - In revising the terms of the bailout program, the new Greek government pledged to take a disciplined approach to budgets, spending and tax collection, while remaining committed to relieving the “humanitarian crisis” caused by years of economic hardship and high unemployment. Many Greeks blame the austerity-budget requirement of the bailout program, agreed to by a previous government, for those privations.But in trying to achieve that delicate balance — to meet the demands of its European creditors in order to keep the loan money flowing, but without reneging on the anti-austerity campaign promises on which it was elected in January — the government of Prime Minister Alexis Tsipras may find a difficult road ahead. The finance ministers of the 19 euro-currency countries, who last Friday had agreed to consider an extension of Greece’s 240 billion euro, or $272 billion, loan program, on Tuesday afternoon quickly approved the subsequent plan.But though the eurozone ministers were leading the negotiations on behalf of their countries, the response from two of the other creditors — the European Central Bank and the International Monetary Fund — conveyed a certain skepticism of whether Greece could live up to the terms of the new agreement.Mario Draghi, the president of the European Central Bank, said on Tuesday that the Greek measures were a “valid starting point” and suggested that he might be open to changes in the conditions originally imposed by Greece’s creditors when the current bailout program was agreed to in 2012. But Mr. Draghi said that Athens needed to provide more details about what it had in mind, and that any existing loan conditions the Greeks did not like would have to be replaced “with measures of equal or better quality.”

    Revolt In Athens: Syriza Central Committee Member Says "Leadership Strategy Has Failed Miserably" -- "Let us begin with what should be indisputable: the Eurogroup agreement that the Greek government was dragged into on Friday amounts to a headlong retreat. The memorandum regime is to be extended, the loan agreement and the totality of debt recognized, “supervision,” another word for troika rule, is to be continued under another name, and there is now little chance Syriza’s program can be implemented.... Greece will be receiving the tranche it had initially refused, but on the condition of sticking to the commitments of its predecessors.... How is it possible that, only a few weeks after the historic result of January 25, we have this countermanding of the popular mandate for the overthrow of the memorandum?"

    Greek finance minister's letter to the Eurogroup  (Reuters) - Following is the text of Greek Finance Minister Yanis Varoufakis's letter to Eurogroup President Jeroen Dijsselbloem outlining Greece's proposed reforms. Dear President of the Eurogroup, In the Eurogroup of 20 February 2015 the Greek government was invited to present to the institutions, by Monday 23rd February 2015, a first comprehensive list of reform measures it is envisaging, to be further specified and agreed by the end of April 2015. In addition to codifying its reform agenda, in accordance with PM Tsipras’ programmatic statement to Greece’s Parliament, the Greek government also committed to working in close agreement with European partners and institutions, as well as with the International Monetary Fund, and take actions that strengthen fiscal sustainability, guarantee financial stability and promote economic recovery. The first comprehensive list of reform measures follows below, as envisaged by the Greek government. It is our intention to implement them while drawing upon available technical assistance and financing from the European Structural and Investment Funds.

    Troika raises fresh concerns over Greece's last-ditch debt deal - The International Monetary Fund and European Central Bank have warned that Greek government reforms are not enough to unlock the vital funding needed to keep the country afloat. In order to prevent a bankruptcy and default on March 1, eurozone finance ministers approved a six-page list of proposals from Athens as a “valid starting point” for negotiations to take place over the next five weeks. The “Troika” of the European Commission, ECB and IMF will now begin a review of Greece’s implementation of austerity measures, which is due to conclude in April. “The institutions provided us with their first view that they consider this list of measures to be sufficiently comprehensive to be a valid starting point for a successful conclusion of the review,” said a eurozone statement.Greece’s Syriza-led government appears to have conceded many of its Leftist election promises in order to daw up the 66-point plan billed by Yanis Varoufakis, the Greek finance minister, as “a first comprehensive list of reform measures”. But in a blow to the government, which faces a potential domestic backlash for bowing to eurozone conditions, both the IMF and the ECB reminded Athens they held a veto over providing further cash and could yet demand more concessions. Christine Lagarde, the director of the IMF, warned the Greek plan lacked “clear assurances that the government intends to undertake the reforms envisaged in the memorandum on economic and financial policies”. The Memorandum was signed by Athens in return for loans to prop up its banks and public finances. Writing to the Eurogroup, Ms Lagarde said the IMF would still require “clear commitments” on tough pensions, VAT, privatisation and labour reforms - measures Syriza pledged to scrap or oppose during elections that swept them into power last month.

    The IMF Slammed Greece’s Proposed Overhaul to its Bailout. Here’s Why it Matters - Even if Greece and some Europeans would like to break up with the International Monetary Fund, both still need the fund’s cash and its credibility. That’s why a new letter by IMF Managing Director Christine Lagarde to Eurogroup president Jeroen Dijsselbloem, slamming Greece’s new economic proposals as insufficient, will continue to shape negotiations between Greece and Europe over bailout financing. The letter also points to months of tough talks ahead. The IMF chief said the Athens proposals were “sufficiently comprehensive to be a valid starting point” for negotiations. “In quite a few areas, however, including perhaps the most important ones, the [Greek proposal] is not conveying clear assurances that the Government intends to undertake the reforms envisioned” in the existing bailout program, Ms. Lagarde said in a letter that was requested by the Eurogroup. In particular, she targeted pension and tax overhauls, privatization and opening up closed markets. Those measures are “critical for Greece’s ability to meet the basic objectives of its fund-supported program,” she said. That’s why the IMF won’t release the remaining money designated for the Greek program.

    ECB and IMF to Greece: No Escaping the Austerity Hairshirt -- Yves Smith   We warned readers who are still keen to take the Syriza “Hope is coming” slogan that the memo that Greece signed with the Eurogroup last week did not represent a victory or a lessening of austerity. As we pointed out: There is no way of putting a pretty face on this document. It represents a huge climbdown for Syriza. Despite loud promises otherwise, they’ve agreed to take bailout funds, and the top and the close of the memo confirm that the baillout framework is still operative (emphasis ours): The Eurogroup notes, in the framework of the existing arrangement, the request from the Greek authorities for an extension of the Master Financial Assistance Facility Agreement (MFFA), which is underpinned by a set of commitments. The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement, making best use of the given flexibility which will be considered jointly with the Greek authorities and the institutions… We remain committed to provide adequate support to Greece until it has regained full market access as long as it honours its commitments within the agreed framework. Translation: Despite all the softening language, the Eurogroup and the Troika (or as docg calls them, the Eumenides), see the bailout framework, with all of the required structural reforms, as still operative. And keep in mind that those structural reforms, which included items like reforming (in Troika-speak, cutting) pensions and continuing with the privatizations are on unless Greece can persuade the Troika that the government can find the money to replace what they lose by rolling existing measures back

    Ilargi: How Far Is It From Kiev To Athens? -   -- Riddle me this, Batman. I don’t think I get it, and I definitely don’t get why nobody is asking any questions. The IMF and EU make a lot of noise – through the Eurogroup – about all the conditions Greece has to address to get even a mild extension of support, while the same IMF and EU keep on handing out cash to Ukraine without as much as a whisper – at least publicly. The Kiev government, which has been ceaselessly and ruthlessly attacking its own people, is now portrayed as needing – monetary and military – western help in order to be able to ‘defend’ itself. From the people it’s been attacking, presumably. And hardly a soul in the west asks what that is all about. Why did Kiev kill 5000 of its own citizens? Because there are people in East Ukraine who had – and still have – the guts to say they don’t want to be ruled by a regime willing to murder them for saying they don’t want to be ruled by it. And just in case there’s any confusion left about this, yes, that is the regime we are actively supporting, in undoubtedly many more ways than are made public. All the doubts about the western narrative are swept aside with one move: blame Putin. Of the two countries, Greece, despite its humanitarian issues, is by far the luckiest one. Ukraine is quite a few steps further down the hill. One can be forgiven for contemplating that the west, aided by President Poroshenko and the Yats regime in Kiev, is dead set on obliterating the entire nation. There are again peace talks under way, with no – direct – Anglo-Saxon involvement, but as the Foreign Ministers of Russia, Ukraine, France and Germany meet, Britain announces it’s sending military personnel into Ukraine and Poroshenko buys weapons from UAE, which is the same as saying from America. Where does he get the money? Chocolate sales? Had a good Valentine’s campaign? What part of the fresh round of IMF/EU loans will go towards arms purchases? Can Brussels please supply a run-down ASAP? Don’t Europeans have a right to know where their money goes?

    Greek debt negotiations: A Eurozone tragedy -- or will sense prevail? - Finance ministers of the 19 Eurozone countries (the Eurogroup) are making life difficult for their Greek counterpart, Vanis Varoufakis. Despite being ranked first by the OECD in implementing reforms, Greece is last in economic growth. No matter, the Eurogroup argues Greece should continue with IMF measures it agreed to in 2012, and that have contributed to financial ruin. The Greek finance minister wants the suicidal policy course imposed on his country to end. Absurdly, Greece was expected to triple the amounts it is now paying its creditors. Last Friday, the Eurogroup agreed to continue to provide bridging finance to Greece for a four-year period, and loosened the debt repayment conditions. Ministers also accepted that Greece would write its own reform plan, but asked to approve it, which was not helpful. Uncertainty surrounding Eurogroup negotiations has contributed to massive deposit withdrawals imperiling the Greek banking system. Instead of working to ensure financial stability, the European Central Bank (ECB) has been doing the opposite, withdrawing borrowing power from Greece, then handing out liquidity after precipitating unease among Greek bank deposit holders. With the ECB about to start its own version of U.S.-style "quantitative easing" or printing money to buy its governments bonds -- a risky undertaking -- provoking a run on the Greek banks hardly seems smart.

    Greece Suffers Biggest Bank Run In History: January Deposits Plunge To 2005 Levels -- Moments ago the Bank of Greece presented its latest, January, deposit data. And it's a doozy: following a record €12.2 billion monthly outflow, greater in absolute and relative terms than anything experienced during any of the previous Greek crises and bailouts, the total amount of Greek corporate and household deposits has now tumbled to just €148 billion. This number is in line with some of the more pessimistic expectations, and brings the total cash holdings at Greek banks to the lowest level since August 2005.

    The Biggest Problem For Greece Isn't Debt: It's This - "Greeks consider taxes as theft," which, among other things, explains, as WSJ reports, at the end of 2014, Greeks owed their government about €76 billion in unpaid taxes accrued over decades; the government says only €9 billion of that can be recovered, with most of the rest lost to insolvency. Syriza is now making tax collection a top priority among the measures promises the new Troika, but as one government official warned, "the Greek economy would collapse if the government were to force these people to pay taxes." The bottom line is that "normally taxes are considered the price you have to pay for a just state, but this is not accepted by the Greek mentality," and perhaps with this latest round of deference to the EU overlords, it is clear why...

    Eurozone’s Future Remains at Risk, Mario Draghi Warns - — In a contentious appearance before the European Parliament on Wednesday, the president of the European Central Bank said that the future of the eurozone was at risk unless member countries gave up some independence and created more Pan-European government institutions.“We have not yet reached the stage of a genuine monetary union,” the central bank president, Mario Draghi, said in a speech to the European Parliament in Brussels. Failure of eurozone countries to harmonize their economies and create stronger institutions, he said, “puts at risk the long-term success of the monetary union when faced with an important shock.”Mr. Draghi has often urged eurozone governments to do more to improve their economic performance, for example by overhauling restrictive labor regulations. But it was unusual for him to suggest that the future of the eurozone could depend on whether countries heed his advice.  Although in his prepared remarks Mr. Draghi did not mention Greece, his speech came as turmoil in that country is again preoccupying policy makers and threatening to again create a crisis for the currency union.

    Greece to stop privatisations as Syriza faces backlash on deal - Telegraph: Greece's Left-wing Syriza government has vowed to block plans to privatise strategic assets and called for sweeping changes to past deals, risking a fresh clash with the eurozone's creditor powers just days after a tense deal in Brussels. "We will cancel the privatisation of the Piraeus Port," said George Stathakis, the economy minister. "It will remain permanently under state majority holding. There is no good reason to turn it into a private monopoly, as we made clear from the first day. "The deal for the sale of the Greek airports will have to be drastically revised. It all goes to one company. There is no way it will get through the Greek parliament." The new energy minister, Panagiotis Lafazanis, warned that Syriza will not sell the Greek state's 51pc holding of the electricity utility PPC, power grid ADMIE or state gas company DEPA. "There will be no energy privatisations," he said. It is already becoming clear that Syriza's leadership does not accept a strict, minimalist reading of the Eurogroup text, and is relying on quiet assurances from Brussels and Paris that it has friends in the EU.The defiant signals are making it harder for the German government to dampen criticism over the deal in the Bundestag before it votes on Friday. "Greece will not get a single penny until it complies with its obligations," said Germany's finance minister, Wolfgang Schauble. Both the International Monetary Fund and the European Central Bank say the deal is too loose to pin down Syriza, allowing it to unpick elements of the EU-IMF Troika Memorandum. Mr Stathakis gave strong hints that this is indeed Syriza's intention. "The Eurogroup meetings went very well," he said, with a conspiratorial smile.

    The Alternative in Greece - Yves Smith - As Robert Parenteau noted by e-mail: The question is whether enough Greek voters and citizens do (or eventually will) feel the same as a political theorist…at King’s College…in London. The level of discontent is usually indicated by the number of outraged people who mobilize in strikes and marches – “extraparliamentary democracy” is what political scientists used to call it during the flourishing of the Eurocommunist parties in the late ‘70s/early ‘80s – or by the frequency of no confidence votes, especially if accompanied by a declining margins of victory. It was never obvious to me how radicalized Syriza’s base was, or is, or can become. Without a radicalized base that can keep pressing from the left, you tend to get the Mitterand effect, usually in very short order, as capital flight picks up the pace when you begin implementing the program you supposedly got elected upon. Having said that, Ambrose Evans-Pritchard reports that the Greek parliament is having heated argument over the Troika’s pressure on Greece to stick with its privatization program: Greece’s Left-wing Syriza government has vowed to block plans to privatise strategic assets and called for sweeping changes to past deals, risking a fresh clash with the eurozone’s creditor powers just days after a tense deal in Brussels… The new energy minister, Panagiotis Lafazanis, warned that Syriza will not sell the Greek state’s 51pc holding of the electricity utility PPC, power grid ADMIE or state gas company DEPA. “There will be no energy privatisations,” he said.  However, it is important to watch carefully who is sending what signals. The European Commission appears to be most sympathetic to the Greek cause, but the ECB and the IMF, who are making the stern noises about sticking with the current program, have considerable sway over these decisions.

    Don’t mention the war! er the Troika -- “Don’t mention the war”! was a classic line from the episode – The Germans – in the comedy Fawlty Towers. I was reminded of the sketch (see it below) when I was reading the – Greek finance minister’s letter to the Eurogroup (February 24, 2015). Apparently, it is now a case of ‘Don’t mention the Troika’, ‘Don’t mention the Memorandum’ and never ever talk about the ‘Lenders’. The bullying threesome (European Commission, ECB and the IMF) are now known as “the institutions” and the “Memorandum” (the bailout package) is now to be called “The Agreement” and the “Lenders” have been recast as the “Partners”. Okay, and that is progress. The Reform package surely lets the Greeks choose which nasty policy they will implement but it is still nasty. Yes, it “buys them time”. The damage from massive unemployment and poverty eats into people every day. 4 months is a long time when you are on the street starving. And by the time this agreement is done – will the Germans be happy to unleash billions of euros via the European Investment Bank to allow the Greek government to continue running fiscal primary surpluses and keep pumping interest income on outstanding debt into ‘foreign’ coffers? Pigs might fly. Two days ago, Eurostat published the latest inflation data for Europe – Annual inflation down to -0.6% in the euro area – and reported that: Euro area annual inflation was -0.6% in January 2015, down from -0.2% in December. This was the lowest rate recorded since July 2009 … negative annual rates were observed in twenty-three Member States. The lowest annual rates were registered in Greece (-2.8%) …   Greece is deflating at a monthly rate (January 2015) of 1.2 per cent – that is a dramatic negative inflation rate.

    Germany′s politicians at odds over vote on Greece bailout extension -- The next phase of Greece getting its bailout extension plan formally approved scarcely involves Greece. Instead, several European parliaments now have to debate and vote on whether or not it can go ahead.  In exchange for the proposed extension, Greece has promised to introduce measures such as fighting corruption and reducing bureaucratic red tape, in a list of reforms outlined on Tuesday. Germany's Finance Minister Wolfgang Schäuble has already contacted the speaker of the lower house of parliament, requesting a vote be held this week to decide on the proposed extension. Usually known for his hardline stance, Schäuble is now working on convincing members of his own party to vote in favor of the plan. He will also attend a meeting with Bavarian conservatives from the Christian Social Union to pass along information from negotiations with Greece's Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis. If Germany's lower house of parliament, the Bundestag, does not approve the measure, the program will end on Saturday. It's worried that this could lead to Greece pulling out of the Eurozone, which could have serious ramifications for other Eurozone members. The budgetary spokesman for the CDU, Eckhardt Rehberg, said on Wednesday that he expected the package to pass with a "large majority" from his party and parliament in general. Asked whether his party would approve the move, the Social Democrats' Johannes Kars said "at the moment it looks that way." The grand coalition of Christian and Social Democrats holds a five-sixths majority in the Bundestag. Concerns persist, though But Schäuble told German public radio on Wednesday that "not a single euro will be paid" out until Greece meets the requirements of the previous program. He also said there was "a lot of doubt in Germany" about Greece's assurances that it would adhere to the new plan.

    In Greece, Bailout May Hinge on Pursuing Tycoons - — As he sifted recently through a sheaf of Greek bank accounts held by executives, politicians and other members of the Greek elite, Panagiotis Nikoloudis, the nation’s new anti-corruption czar, was struck by some troubling numbers.A man who was claiming unemployment benefits and declared zero income on his taxes had more than 300,000 euros, or $336,000, stashed away at his bank. Another, who told the tax authorities that his annual income was just €15,000, turned out to have €1.5 million in various bank accounts.Mr. Nikoloudis estimated that the men had bilked Greece’s Treasury of thousands of euros in tax revenue, even as other Greeks struggled under the government’s austerity budgets and embattled economy.“I have nothing against rich people,” said Mr. Nikoloudis, a financial crimes specialist, leaning into a table one recent afternoon in his office in western Athens. “I’m against dishonest rich people. And I’m here to get them.” For years, Greece has been trying to attack corruption and tax evasion, from the smallest taverna owner to the nation’s most powerful oligarchs. Now, Prime Minister Alexis Tsipras is vowing to take far more action than previous administrations in cracking down. He says his government, led by his leftist party, Syriza, will succeed because having never held power, it is not beholden to the entrenched interests that have long fought to maintain the status quo.

    Greece’s Pension System Isn’t That Generous After All -  Greece’s pension system has become a flash point in the new government’s talks with its international creditors. Prime Minister Alexis Tsipras has vowed to fight more cuts to the system, while Greece’s creditors say more cuts are probably necessary to ensure the government can pay its bills. Before dealing with that question, they’ll need some facts about Greece’s baroque pension system. At first glance, it might seem too generous. But dig a little deeper, and the picture becomes more complicated. First, how much does Greece spend as percentage of GDP on pensions? The data from Eurostat looks like this as of 2012, with Greece expenditure easily highest in the eurozone as a percentage of GDP:But part of that is due to the collapse in GDP suffered by Greece during the crisis. Suppose you look at pension expenditure as a percentage of potential GDP, the level of economic output were eurozone economies running at full capacity: Greece is still near the top, though it’s not so far from the eurozone average. Moreover, this is to some degree a result of the fact that 20% of Greeks are over age 65, one of the highest percentages in the eurozone. What if instead you attempt to adjust for that by looking at pension spending per person over 65 (see note below): Adjusting for the fact that Greece has a lot of older people, its pension spending is below the eurozone average. In fairness to Germany and other scolds of Greece, this only happened after major cuts imposed on the pension system by the European Commission, the International Monetary Fund and the European Central Bank — the troika representing its international creditors. But it’s also worth remembering that 15% of older Greeks were at risk of poverty in 2013, above the eurozone average of 13% and a figure that has almost certainly risen over the last year.

    Greek FinMin sees problems in repaying IMF and ECB: Greece admitted on Wednesday it will struggle to make debt repayments to the IMF and the European Central Bank this year as Germany’s finance minister voiced open doubts about Athens’s trustworthiness. A day after eurozone finance ministers agreed to a four-month extension of a financial rescue for the currency bloc’s most heavily indebted member, Finance Minister Yanis Varoufakis gave a frank assessment of Greece’s financial position. “We will not have liquidity problems for the public sector. But we will definitely have problems in making debt payments to the IMF now and to the ECB in July,” he told Alpha Radio. He put no figure on the funding gap. After interest payments this month of about 2 billion euros, Athens must repay an IMF loan of around 1.6 billion that matures in March and about 7.5 billion euros for maturing bonds held by the ECB in July and August. In another indicator of the strain on the Greek economy, two of the country’s four main lenders, Eurobank and Bank of Piraeus, will be dropped from the pan-European STOXX 600 benchmark index, potentially depriving them of vital investment at a rocky time. Despite a rebound since the bailout extension was agreed, shares in the two banks have fallen about 65 percent since last February, hurt by a wave of deposit withdrawals and worries over the solvency of the Greek state.

    Greece runs out of funding options despite euro zone reprieve - (Reuters) - Greece is running out of options to fund itself despite a four-month bailout extension, raising pressure on Athens to quickly implement reforms it has vocally opposed or default on debt repayments in a matter of weeks. Euro zone and IMF creditors gave Greece until the end of June to complete the bailout program and receive the remaining 7.2 billion euros but it will not be allowed any funds until it Shut out of debt markets and faced with a steep fall in tax revenues, Athens is expected to run out of cash by the middle or end of March. Its finance minister has warned that Greece will struggle to repay creditors starting with a 1.5 billion euro IMF loan repayment due in March. Athens has been looking for quick fixes to tide it through the coming weeks. It is expected to get a green light early next week for cheap aid and funding support from the European Bank for Reconstruction and Development that could add up to more than a billion euros, sources from the bank told Reuters. But this alone will not fill the gap.

    News Analysis: Time for Greek gov't to face reality -  (Xinhua) -- It is a usual phenomenon for Greek politicians, during the ongoing crisis, to land into reality after winning an election. Pre-election promises, populism and illusions are buried when unavoidable decisions have to be made at the international level. In that regard, the new Greek government's request for an extension of the current bailout program is not surprising. The real challenge of the Greek coalition government led by SYRIZA (Coalition of the Radical Left), however, is not to sign documents and submit reform lists to its creditors but to deliver. SYRIZA has now a unique opportunity. It can benefit from the existing flexibility of the bailout program and focus more on structural reforms than on austerity. Experience from the administration of previous Greek governments suggests that they had not been prepared to efficiently fight against tax-evasion and corruption. SYRIZA, which had not governed in the past, can possibly break the vicious circle. The mission of the Greek government is difficult. On the one hand, it is encountered with an immediate liquidity problem as a result of the continuous reduction of state revenues. On the other hand, it needs to overcome internal obstacles as well as persuade the country's creditors that it will practically keep its promises. A period of four months does not allow much optimism for immediate changes but can be indicative of the political will for future ones. Additionally, contradicting voices heard within SYRIZA create skepticism as to whether the international commitments of the party can find domestic consensus.

    V for Varoufakis | NEO MAGAZIN ROYALE mit Jan Böhmermann - ZDFneo - youtube - "Dear Greeks, the time has come: we surrender! Take all our money, you may also take Helene Fischer, but please, keep this financial Hercules off us. We could only just bear with Costa Cordalis so this is clearly way too much! "

    Deflation Threat Grows in Europe - Consumer prices across the European Union fell in January at the fastest rate since records began in 1997, increasing the risk that the 28-member bloc will slide into deflation. Separate data released at the end of last month showed that consumer prices in the eurozone, comprising 19 countries that use the euro as their currency, fell at the fastest pace since July 2009. Eurostat on Tuesday said consumer prices in the 28-nation bloc fell 0.5% in January from a year earlier, and confirmed data that showed prices in the eurozone were 0.6% lower. Twenty-three EU members experienced an annual decline in consumer prices in January, up from 16 in December and just four in November. The decline in prices in the 12 months to January was largely due to a sharp drop in energy costs. Europe is an importer of energy, and economists often compare a fall in prices of oil and natural gas to a tax cut, in that it leaves consumers with more money to spend on other goods and services, many of which are produced within the bloc.

    Unhappy Meal: €1 Billion in Tax Avoidance on the Menu at McDonald's - Tax structure allowed McDonald’s to divert revenue for years, costing European countries over €1 billion in lost taxes between 2009 and 2013. Today in Brussels, a coalition of European and American trade unions, joined by the anti-poverty campaign group War on Want, unveiled a report about McDonald’s deliberate avoidance of over €1 billion in corporate taxes in Europe over the five year period, 2009-2013. The report outlines in detail the tax avoidance strategy adopted by McDonald’s and its tax impact both throughout Europe and in major markets like France, Italy, Spain and the U.K. The practice essentially consisted of moving the European headquarters from the UK to Switzerland as well as using intra-group royalty payments and channeling them into a tiny Luxembourg based subsidiary with a Swiss branch. Between 2009 and 2013, the Luxembourg-based structure, which employs 13 people, registered a cumulative revenue of €3,7 billion, on which it reported a meager €16 million in tax.

    Iceland’s Supreme Court Upholds Jail Sentences of Four Banking Executives -- Edition of the Bill Black Report at The Real News discussing the good news that Iceland’s Supreme Court upheld the jail sentences that were handed down to four banking executives in that country. The video is below. If you would like the transcript, it is available here.

    BOE’s Carney: Return to Crisis in Eurozone Would be Serious For U.K. - Real Time Economics - WSJ: Bank of England Governor Mark Carney on Tuesday said a return to crisis conditions in the eurozone would be a “serious issue” for the U.K. economy, but added that the problems confronting the currency area appear to be less acute than in 2011 and 2012, and the ability of policy makers to respond greater.  Mr. Carney was answering questions from U.K. lawmakers as the European Commission indicated that proposals it had received from the Greek government on how to overhaul the country’s economy appears to be in line with the principles set out by eurozone finance ministers. He noted that Ireland, Portugal and other parts of the eurozone that suffered during the earlier crisis were now in “better shape,” while private investors were less exposed to losses should the Greek government be unable to repay its debts. But he said that were Greece be forced or decide to leave the eurozone in a “disorderly” manner, financial markets around the world would likely suffer “ramifications.” “There are risks there,” he said.

    BOE’s Forbes: Rate Rise May be Needed to Ensure Financial Stability - —The Bank of England may someday have to raise interest rates to safeguard financial stability if risks in the financial system continue to build, one of the U.K. central bank’s nine rate-setters said on Tuesday.Kristin Forbes, a former economic adviser to President George W. Bush who now sits on the BOE′s Monetary Policy Committee, said in a speech in London that financial instability is one potential risk from a prolonged period of ultralow interest rates, as low rates can encourage investors to take riskier bets in search of better returns. “If economic growth continues at or above trend, the financial system continues to heal, and the cost of borrowing in the U.K. remains near zero, these risks to the financial system could build,” Ms. Forbes said in an address to the Institute for Economic Affairs, a free-market think tank, according to a text of her remarks. Although the BOE has a suite of so-called “macroprudential” tools to manage financial-stability risks, such as tweaking bank capital requirements, it is possible that officials may have to raise rates to maintain stability if these instruments prove insufficient, Ms. Forbes said. Her remarks underscore central bankers’ concern that the low-interest rate policies they put in place to revive growth in their economies may have undesirable consequences for the financial system. They also highlight an ongoing debate over how best to respond. Former Federal Reserve Governor Jeremy Stein has said monetary policy has an advantage over regulation and macro prudential policy because it “gets in all the cracks” of the financial system. “At some point monetary policy may have a role to help fill in these cracks,” Ms. Forbes said Tuesday, although she stressed that at the current juncture, the BOE’s macro prudential tools seem sufficient.